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NZ Farming Systems misses guidance with bigger FY loss, signals rights issue

Monday 27th August 2012

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NZ Farming Systems Uruguay, the South American dairy farmer controlled by Singapore's Olam International, missed its guidance of two months ago with a bigger annual loss and signalled plans to raise US$135 million to repay a debt to its controlling shareholder.

The net loss of US$7.6 million, or 3 US cents per share, narrowed from a loss of US$8.7 million, or 4 cents, a year earlier, the Montevideo, Uruguay-based company said in a statement. Pretax earnings before fair value adjustments and herd improvements were a loss of US$5.9 million, smaller than the loss of US$19.3 million in 2011, but bigger than the forecast range of between US$3 million and US$5 million given in June. Farming Systems had previously been looking for a breakeven result.

"The very difficult climatic conditions including a severe hot and dry period extending from late October through until Autumn, followed by a second dry period in April and May resulted in milk production being much lower than assumed," the company said in a statement. "The major focus going forward for management is to improve the quantum and consistency of milk production."

Singapore's Olam, which also holds a stake in Open Country Dairy, took an 86 percent holding in Farming Systems last year when its bid for full control was blocked by a group of activist shareholders. Farming Systems was set up in 2006 by PGG Wrightson in an attempt to buy cheap land in Uruguay suitable for dairy conversion and export New Zealand's intensive farming techniques into South America.

The closely-held shares last traded at 57 cents last week, having shed 12 percent this year. The stock is rated an average 'hold' based on two analyst recommendations compiled by Reuters, with a median target price of 54 cents.

Farming Systems has appointed a committee of independent directors to consider its capital requirements, with a US$110 million loan from Olam due for repayment by the end of the year. The committee expects to report to the wider board in October.

The company is considering a pro rata rights issue to raise as much as US$135 million, at about 69 New Zealand cents per share, which would be supported by Olam.

"Funding is also required to meet the remainder of the capital works programme and to replenish the current funding lines used to meet operating cash requirements," the company said.

Sales climbed 47 percent to US$63.1 million as Farming Systems boosted milk production to 152 million litres from 105 million litres a year earlier, and milk prices rose to 1 US cent to 39.1 US cents per litre.

Dairy livestock numbers increased to 71,995 as at June 30 from 58,502 a year earlier.

"The past year has been one of significant development involving bringing on stream an additional 15 dairy units," the company said. "With all of these additional units now producing milo, we look forward to continuing improvement in operating performance in 2013."

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