Green & Sons takes a break – NAB and trade creditors
face a loss

Prominent West Australian beef processor EG Green & Sons was believed to
have traded at a loss for the past four years before suspending operations “for
a period of two weeks” at the end of last week.

The decision came as a shock to the WA business community and left EG Green’s
principal financier, National Australia Bank, sitting on a debt understood to be
just under $25 million.

The two big stock agents, Elders and AWB Landmark, and other trade creditors
are also believed to be owed between $5 and $10 million. The stock agents are
believed to have triggered the suspension of trading, after becoming
increasingly worried about the company’s poor cash flow and their rising
exposure. The security available to NAB and each of the stock agents is
unclear.

A source close to EG Green said “the company has been stressed for quite some
time.” Its margins have been squeezed by increased buying prices and soft
selling prices, particularly in export markets which accounted for 70 per cent
of its sales. It has also been affected by the trend towards live sale of export
cattle, which made it harder to maintain throughput at its abattoir.

Industry sources said the family-owned company also had a bloated cost
structure. Financial accounts lodged with ASIC show the company last made a
profit in the year to June 2001, when it reported a profit of $3.4 million on
sales of $132 million. That was followed by a loss of $1.2 million (on sales of
$141 million) in 2001/02. It incurred an even bigger loss of $3.0 million (on
sales of $140million) in 2002/03.

The company’s performance since then is unclear, as its accounts have not
been lodged with ASIC.

The company has achieved a big increase in annual turnover to $203 million,
according to data compiled by WA Business News, but industry sources speculate
the company would have incurred further losses in the past two years.

EG Green, founded in 1919, grew to dominate beef processing in WA. Its
current problems follow a major restructuring in 2003, when the Green family
stepped back to non-executive board roles. The family brought in a new managing
director in Mark Hughes, who was formerly chief financial officer of listed
mineral sands company Iluka Resources, but he left last week.

Another recent departure was EG Green’s chairman, Bill Ryan. Ironically,
Ryan’s day job is managing director of rural consultancy Kondinin Group, which
temporarily went into receivership in 2003 after its farmer members were
adversely affected by drought. EG Green is now being run by long-serving chief
executive Gary Minton.

In a statement, the directors said the suspension of operations would “allow
a complete operational and financial overview of the Group’s businesses … In
making this decision, the directors are aware that it may be interpreted as a
cessation of business by the group. This is clearly not the intention of the
group. It intends to use this time to implement a strategic review of all
aspects of the business.”

The West Australian reported that the company’s “compounding
liquidity shortfall over ther last few months had gone undetected because of new
systems which did not provide timely and accurate reporting of its
position.”