NZ Farming Systems Uruguay $6.8m loss in line with forecast

By NZPA

Friday 22nd February 2008

NZ Farming Systems Uruguay (NZFSU), which listed in December, posted a first half net loss of $US6.8 million ($NZ8.6 million) due to a performance fee payable to parent PGG Wrightson.

The deficit, up from a $124,000 loss a year earlier, was within expectations, and the company said it was satisfied with operations close to break even during its development phase. Revenue totalled $US3.3m.

NZFSU will not pay a dividend.

NZFSU accrued $US9.2m towards a performance fee potentially payable at the end of the financial year to PGG Wrightson, which spun off the South American-focused farming business last year.

The company forecast a net profit of around $US1m for the full year, excluding the performance fee, as the company expanded and both revenue and costs increased.

"The outlook is one of increased milk production as more developed farmland and better conditioned stock come on stream," NZFSU said.

Since July, the company increased its land portfolio by over 4000 hectares to 30,980ha across Uruguay, for conversion to intensive New Zealand-style dairy farms. NZFSU also bought substantial numbers of livestock.

Some local costs increased as the peso strengthened against the US dollar, and international demand also helped push up the cost for dairy cows.

By the end of the first half at December 31, NZFSU had repaid bridging finance arranged to speed up land purchases, strengthened its balance sheet, and amassed $US90m to fund further growth and development.

Assets totalled $US297m. The company had six cowsheds, and planned to have 11 by March.

World dairy prices were likely to flatten or decline over the next year, although the outlook remained buoyant, the company said.

Average milk prices paid by Uruguay's major producer co-operative, Conaprole, increased during the period to US31c per litre from US23c.

The price was expected to rise a further US4c per litre over the next six months.

NZFSU shares, which were issued at $1.50, closed yesterday at $1.40, while PGG Wrightson shares rose a cent to $1.97.

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