NZ Farming Systems loss widens on drought

Wednesday 26th August 2009

NZ Farming Systems Uruguay, which is developing dairy farms in South America based on intensive New Zealand farming techniques, posted a wider full-year loss widened as drought curbed output, prices weakened and fund-raising plans were delayed.

The operating loss widened to US$15.6 million in the 12 months ended June 30, from a loss of US$8.8 million a year earlier, the company said in a statement. Revenue doubled to US$15.8 million. Including fair value changes for farms and livestock, the net loss worsened to NZ$45.9 million.

“It was a very difficult year with falling dairy prices, an international credit crunch and a 30-year drought, hard on the heels of previously difficult climatic conditions,” chairman Keith Smith said.

“Uncertainty remains over milk prices although present expectations are for gradual improvement over the course of the coming year.”

Shares of Farming Systems were unchanged at 45 cents and have tumbled from as much as $1.61 last September. The shares are rated a ‘hold’ based on the average of four analyst estimates compiled by Reuters.

The company raised US$30 million through the sale of bonds in Uruguay last month, after having postponed capital raising plans in October citing the global credit squeeze and forcing Farming Systems to curtail its expansion.

It requires an additional US$50 million to US$60 million of funding to complete its development of existing farms and anticipates selling more bonds in the second half of the current year, as well as the sale or sale and leaseback of some farms.

“Securing funding was a huge step,” said John Cairns, an analyst at Forsyth Barr. He estimates the company needs to come up with some US$120 million of funds over the next few years to pay management fees to PGG Wrightson, complete the farm developments and cover cash operating deficits expected for the next two years of milk prices stay weak.

Earnings in the latest year were in line with guidance, he said.

Prices tumbled in the 2009 year. Farming Systems sells all of its production to dairy company Conaprole, with the price per litre tumbling to 20.5 cents at the end of the year from 40 cents at the start.

Businesswire.co.nz

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