FWD: Confarm ceases operations on lack of funds

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This article is from The Star Online (http://thestar.com.my)

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http://biz.thestar.com.my/news/story.asp?file=/2004/6/9/business/8172907 & sec=bus\

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Wednesday June 9, 2004

Confarm ceases operations on lack of funds

BY K.P. LEE

 

A DEADLY silence pervades what was once Consolidated Farms Bhd’s (Confarm)

busiest egg farm in Kalumpang, Ulu Selangor, which till a few months ago was

churning out nearly a million eggs a day.

 

Today, the 41ha site is devoid of the hustle and bustle of delivery trucks and

workers and, except for the presence of a couple of security guards, looks

almost as tranquil and deserted as the Chinese cemetery next door.

 

“Nothing moves because there is no business, nothing at all,” a company

official told StarBiz yesterday.

 

The company’s other farm in Kundang, near Rawang, which produced 300,000 eggs

daily in its heyday, had similarly shut down.

 

Retrenched workers speak of the production of eggs having been halted for weeks

now, and having to clear the carcases of battery hens, some unfed for a month,

that were dying by the thousands each day.

 

And it tells a tragic tale of the loss-making second board-listed firm whose

chairman and chief executive, Heng Keah Yong, only last December confidently

predicted better days ahead, with growth and profits expected this year.

 

Last month, Confarm joined the ranks of Bursa Malaysia’s PN4 category of

distressed companies after announcing a significantly higher audited net loss

for the fiscal year to Jan 31 of RM42mil, up on the unaudited RM15mil disclosed

earlier, which completely wiped out its share capital of RM21mil.

 

The company made net losses of RM6mil in fiscal 2003 and RM2mil in fiscal 2002.

 

At Jan 31, the current liabilities of Confarm exceeded current assets by

RM150mil, and it had a deficit in shareholders’ funds of RM9.3mil.

 

The company explained that this had been due to “the massive and accelerated

culling of layers since April 2004,” which its auditors KPMG insisted should be

reflected in a RM24mil write-off in the books.

 

Confarm said “the cumulative effect of the escalating increase in the cost of

feed ingredients such as corn and soyabean meal” aggravated the group’s

cash-flow difficulties.

 

Worse, the outbreak of avian influenza early this year caused suppliers to stop

credit facilities for purchases, it said.

 

“Being a biological system, layers are genetically selected to grow fast, but

they also deteriorate fast. With reduced quality feeding, egg production

declined. The company was forced to undertake massive and accelerated culling of

layers since April 2004 as production had become uneconomical. In addition,

debtors’ collection fell,” it added.

 

Blaming the situation on financiers, Confarm said its cash-flow problems were

“compounded by the unexpected refusal by a bank to re-direct the use of certain

credit facilities granted”.

 

But the auditors’ report reveals more. KPMG qualified Confarm’s financial

statements, questioning whether the group could remain a going concern, and gave

a “disclaimer opinion”.

 

It said Confarm had failed to meet repayments due for various bank borrowings

of RM11mil, and thus might have cross-defaulted on the entire borrowings of

RM121.37mil relating to certain facilities agreements as well as the redeemable

convertible unsecured loan stocks of RM5.3mil.

 

“Without the continuing financial support of shareholders, bankers and

creditors, and the achievement of future profitable operations by the group and

the company, there is a substantial doubt that the group and the company would

be able to operate as a going concern and therefore, as appropriate, realise its

assets and discharge its liabilities in the normal course of business,” it said.

 

In addition, KPMG raised concerns over various “contingent liabilities”,

including the potential transfer of a certain number of shares in subsidiary

Consolidated Liquid Eggs Sdn Bhd to Commerce Technology Ventures Sdn Bhd, an

external party.

 

“The auditors are unable to ascertain whether the contingent liabilities will

crystallise, and whether any further liabilities may arise, or legal claims may

be brought against, the group and the company,” it said.

 

As Confarm’s workers demonstrated outside the labour office in Rawang for their

severance pay yesterday, an attempt to contact Heng proved unsuccessful.

 

Mohd Sadik Ismail, the company’s human resources director, said the

retrenchment of the more than 100 workers was inevitable; there were no options

left.

 

“We do not have any other business now, and cannot make any money with the

artificially low price of eggs,” he said. “Perhaps we were also over-geared and

had expanded when the price of feed soared.”

 

All this provides little comfort to the employees, some of whom have served

Confarm for more than 20 years.

 

Nor for the shareholders, with Confarm shares closing at 15 sen yesterday,

having plummeted to an eighth of its value at the beginning of the year.

 

& nbsp;

 

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