First Farms Corporation

FIRST FARMS CORPORATION

“I’m afraid we have to make painful choices, gentlemen. We are more seriously affected by this glut than we had expected. While volumes usually pick up in the last quarter, we anticipate chicken prices to be depressed until the end of the year. With all our costs hitting the roof, it does not look like we can report a profit this year.”

The speaker is Ricardo Sarmiento, Vice President for Finance of First Farms Corporation(FFC). He was talking to Raul Ramirez, the company’s President and Chief Executive Officer, Alfredo Cruz, Head of Feeds Operations, and Enrico Marasigan, Head of Poultry Operations.

“Do you have good news for us Rico? Raul asked.

“unfortunately none Raul. I have to agree with Ric. We are producing more chicken than can be absorbed by the market. Already we downgraded a considerable volume of good hatching eggs to table eggs and sold these for less than 20% of cost. And since we are delaying the harvest of our chickens, our feed and supplement requirements have also increased.”

“Our feeds volume has gone down 40% because of this,” interjected Fred Cruz, “because of the increased requirements of our contract growers. We managed to realize an operating income of 75.5 million pesos from sales of 718 million pesos, though.”

Ric Sarmiento responded, “I’m afraid the performance of feeds was not enough to get us out of the red. Our financing costs are taking a heavy toll on the company. We may have to postpone the construction of the Laguna and Cebu plants.” Ric was referring to a plan, approved by FFC’s Board of Directors in 1995, to build chicken dressing plants in Laguna and Cebu.

“I don’t think we’re left with any choice in the matter,” Raul said finally. “But I’m afraid we have to do much more than that. Capex is not the only one that’s straining our cash flows. The increases in working capital requirements have been astronomical in the last three years. We’ve not been very successful in our processed foods line, for...