June 14, 2012

NZ Farming Systems not expected to meet profit target

NZ Farming Systems Uruguay may be unable to break even on a pre-tax basis for 2012 after dry weather affected pasture growth and milk output.

Farming Systems is now forecasting a loss of US$3 million to US$5 million on earnings before interest and tax basis. The South American dairy farmer controlled by Singapore's Olam International will break even once it accounts for a fair value adjustment in the value of livestock, it said in a statement.

"Milk production continues to increase significantly on-year, although the very dry summer and autumn weather in Uruguay along with the later-than-expected completion of the new dairies, has resulted in milk production to date being below forecast," it said.

Farming Systems said in February it would break even at an EBIT level in the full year. It posted a net profit of US$367,000 in the first half, reflecting a fair-value adjustment on livestock of US$5.5 million and would have reported a loss of US$5.1 million without the adjustment.

Its farm development programme has continued to progress with the company opening eight new dairy farms in May. The remaining farms under development are expected to be opened over the next month.

Shares in NZS have shed about 19% this year and are currently trading at 54 cents.

Farming Systems was established in 2006 by executives and directors of PGG Wrightson to apply New Zealand's expertise in dairy farming to low-cost farmland in Uruguay. It struggled to raise funds in the global financial crisis and is now 86% owned by Olam, which came up short in its takeover offer.