Egg producer Farm Pride breaches loan covenants

Egg producer Farm Pride has admitted to the ASX that it has breached its loan agreements, as the company wrestles with heavy debt and falling profits.

But the company, whose net profit plunged from $3.2 million to $1.2 million in 2008-09, says the breach will have no effect on its operations.

“The company is in discussions with its bankers and in the process of finalising details relating to a new business finance agreement on existing terms and conditions,” Farm Pride said.

“Given the tenor of recent discussions there is no reason to believe a new agreement will not be finalised over the next few weeks.”

“The company is operating on a ‘business as usual’ basis while a new agreement is finalised.”

This is the second loan breach in the last year at Farm Pride. The company’s had $23.7 million worth of borrowing according to its June 30, 2009 accounts, up from $15.5 million in the previous corresponding period.

But issues with financing appeared to be resolved back in October 2009, when the company told the ASX that it had renegotiated its short-term finance facilities and its “business finance facility”.

In his address to shareholders at November’s annual general meeting, Farm Pride managing director Zelko Lendich said conditions “remain challenging and more uncertain” entering the 2010 financial year.

The company has been trying to increase its production of free range eggs to meet consumer demand, but oversupply of eggs (partly driven by increased backyard egg production), the strong Australian dollar and volatile feed prices are significant hurdles for the company.

The thinly-traded stock remains stuck at 20c a share, giving Farm Pride a market capitalisation of $11 million.