CBA covenant risk and negative cash cloud Pure Foods Tasmania turnaround

Funding runway becomes the central issue

Pure Foods Tasmania Limited (ASX:PFT) has put a hard number on the challenge facing its turnaround: even if its recovery plan works, existing facilities are forecast to fall short from approximately February 2027. The Tasmanian food manufacturer’s FY26 annual report says additional funding will be required, but no new equity commitment was in place when the accounts were authorised.

The disclosure sits alongside a material uncertainty over going concern. PFT ended 30 June with a $109,273 negative cash position, net current liabilities of about $1.1 million and $3.8 million of total borrowings. Operating activities consumed $2.58 million during the year, compared with $1.29 million in FY25, while revenue slipped 2% to $5.05 million.

The warning follows the company’s FY26 funding gap warning, which detailed the same loss, cash pressure and Commonwealth Bank of Australia covenant breach. The annual report adds the formal forecast assumptions behind the risk: PFT is banking on roughly 38% FY27 sales growth, improved gross margins, R&D tax incentives of between $100,000 and $500,000 and continued access to its existing banking facilities.

Loss widened as tax assets and goodwill were written down

The statutory loss after tax was $8.64 million, versus $2.81 million a year earlier. Management said approximately $6.6 million of the result reflected non-cash accounting charges, including $4.8 million from derecognising deferred tax assets, $1.0 million of goodwill impairment and $0.8 million of depreciation and amortisation. A further $1.2 million was described as non-recurring expenditure tied to restructuring, recommissioning manufacturing capacity and product development.

Those charges did not represent equivalent cash payments in FY26, but they still leave a much thinner balance sheet. Net assets fell from $6.26 million to $1.28 million, accumulated losses reached $22.1 million and the gearing ratio rose to 390.5%, compared with 116.3% in FY25. PFT also issued 187.1 million shares during the year, taking ordinary shares on issue to 327.5 million and generating net proceeds of about $3.66 million.

CBA covenant breach adds a second financing pressure

PFT said it failed its normalised EBITDA covenant for the quarter ended 30 June, the first test under refinanced CBA facilities. A second consecutive breach in the September quarter would give CBA rights to issue 90 days’ notice seeking repayment of the facilities, although the bank had not indicated it intended to withdraw support and had not waived its rights.

The September test was due to be assessed in October. Management said July and August accounts indicated there was a risk the covenant would not be met. The company also disclosed that creditor ageing had deteriorated since balance date and that structured payment arrangements were being negotiated with several suppliers.

Turnaround plan depends on a sharp sales step-up

Management is forecasting a substantial improvement rather than a modest repair. Its plan includes wider retail ranging, greater distribution, integration of the Elato ice-cream and Brilliant Food Australia acquisitions, higher utilisation of the Mornington and Woodbridge facilities, and new contract manufacturing work. The recommissioned ice-cream stick line is intended to support branded, licensed and private-label production, but the report says contract manufacturing opportunities were not contracted at the reporting date.

The company’s September cash flow improvement, which showed customer receipts rising to $1.22 million and quarterly operating cash outflow falling to $311,000, provides a more encouraging early FY27 datapoint. It does not remove the annual report’s funding risk: the forecast still depends on sustained trading improvement, an uncertain R&D refund, further capital support and continued lender backing.

Leadership reset meets a tight balance sheet

Robert Knight, PFT’s largest shareholder, formally became managing director and chief executive on 1 July. The company also added finance, operations and sales leadership during FY26 and its opening months, while bringing sales management in-house after concluding that direct control of retailer relationships could improve performance.

That operational reset gives PFT several potential levers, but the next test is financial rather than strategic. The company must convert new ranging, acquired brands and manufacturing capacity into cash quickly enough to bridge the projected February shortfall, while avoiding a further covenant breach or a capital raising on terms that would materially increase the share count.