First Farms Corporation
I. Point of View
This group takes the point of view of Mr. Ricardo Sarmiento, Vice President for Finance of First Farms Corporation (FFC for brevity). Mr. Sarmiento will present to the Board the financial performance and financial position of the company from 1993 to 1995. In the process, he will also make recommendations as to the feasibility of the proposed expansion.
II. Case Context
In 1995, FFC raised P1.1 billion from its initial public offering. P500 million of the proceeds was used as working capital (livestock inventories and raw materials), P476 million went to expansion of operations and acquisition of properties while P69 million was used to pay part of the corporation’s long term debt.
In the face of tight competition, consolidated sales for the year still amounted to P5.7 billion which is 44% higher than the previous year. P3.508 billion or 62% of revenue was from chicken sales hence, taking over leadership in the business from Marigold Foods Inc. Moreover, FFC has outpaced the industry growth on chicken sales volume which is largely attributed to the company’s increased contract growing base. Net income was also up 89% amounting to P280 million despite the increasing costs of production.
During the year, FFC launched a new line of extruded aquaculture feeds. It also entered the fast food business thru California Chicken and Gulliver’s Chicken restaurants.
Management is proposing for construction of three dressing plants and four new feed mills for the following year (1996) as they believed that sales and profits were held back in 1995 partly by constraints in production capacity. It is expected to be financed by short term notes if approved.
It must be noted, that the Industry is bracing for the entry of imported frozen chicken in 1998, when trade barriers in the Philippines are lowered.
III. Problem Definition
Why is there a deficit amounting to P719 million in operating cash flow in 1995? Why does Return on Equity gone down? Given the
This group takes the point of view of Mr. Ricardo Sarmiento, Vice President for Finance of First Farms Corporation (FFC for brevity). Mr. Sarmiento will present to the Board the financial performance and financial position of the company from 1993 to 1995. In the process, he will also make recommendations as to the feasibility of the proposed expansion.
II. Case Context
In 1995, FFC raised P1.1 billion from its initial public offering. P500 million of the proceeds was used as working capital (livestock inventories and raw materials), P476 million went to expansion of operations and acquisition of properties while P69 million was used to pay part of the corporation’s long term debt.
In the face of tight competition, consolidated sales for the year still amounted to P5.7 billion which is 44% higher than the previous year. P3.508 billion or 62% of revenue was from chicken sales hence, taking over leadership in the business from Marigold Foods Inc. Moreover, FFC has outpaced the industry growth on chicken sales volume which is largely attributed to the company’s increased contract growing base. Net income was also up 89% amounting to P280 million despite the increasing costs of production.
During the year, FFC launched a new line of extruded aquaculture feeds. It also entered the fast food business thru California Chicken and Gulliver’s Chicken restaurants.
Management is proposing for construction of three dressing plants and four new feed mills for the following year (1996) as they believed that sales and profits were held back in 1995 partly by constraints in production capacity. It is expected to be financed by short term notes if approved.
It must be noted, that the Industry is bracing for the entry of imported frozen chicken in 1998, when trade barriers in the Philippines are lowered.
III. Problem Definition
Why is there a deficit amounting to P719 million in operating cash flow in 1995? Why does Return on Equity gone down? Given the