Debt to force Goodman Fielder to ditch Fresh Dairy?

After Goodman Fielder’s half year result washed a fifth of the company’s share value down the drain, speculation abounds that the company is operating outside its banking covenants and is looking to offload key assets.

Goodman Fielder was forced to release a statement to NZX repudiating a story in today’s Australian Financial Review, claiming the company is operating outside its banking covenants.

According to the company’s interim report, its debt to debt-plus-equity ratio sits at 31%.

Managing director Peter Margin believes his company is in good stead to weather the coming economic storm, and has refinanced $770 million of debt in the last year.

"Any suggestion that we are under pressure on our covenants is just plain wrong. Our strategic review is well advanced and we are not anticipating any significant write-downs as a result of this process,” he says.

The company announced a strategic review of its entire operations over 2009 at its interim results announcement last week, which has given further credence to claims the company is lining up its oils and dairy divisions for sale.

"When we reach a conclusion at the end of the strategic review, we will announce it to the market,” Mr Margin says.

The company revised its profit guidance southwards to $A170-180 million for the year, 10-14% below 2008's figures (excluding the Fresh Dairy writedown).

Goodman Fielder purchased New Zealand’s Fresh Dairy in 2005 for $A830 million, and it accounts for around 17% of the company’s total revenue.

Home to brands such as Tararua, Meadow fresh and Puhoi Valley, Fresh Dairy has been undergoing an extensive period of renovation following a year that saw a decline in earnings, and a $A170 million dollar write-down leaving it with an estimated value of around $A520 million.

Italian dairy company Parlamat has been suggested after losing its bid for Australia’s Dairy Farmers to Japanese beverage maker Kirin last year, which is also considered to be a prospective buyer.

The poor results of its $A200 million commercial oils business, which struggled across the first half has also been suggested as a possible sale asset.

Goodman Fielder was trading at $1.40 on heavy volumes at the time of print. Goodman Fielder lost 32c after last weeks announcement.

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