Operating losses treble as problems hit NZFSU

NZ Farming Systems Uruguay's operations. Photo / supplied

Expected operating losses at NZ Farming Systems Uruguay have more than trebled after higher than budgeted feed costs, difficult weather and fertiliser delays.

NZX-listed NZ Farming Systems, which was set up to develop dairy farms in Uruguay, said it expected to fall short of a budgeted US$5 million earnings before interest and tax (ebit) loss, with the full-year result likely to be an ebit loss of about US$16 million.

"If present dry conditions continue there may be some further downside risk to the forecast," the company said.

"In addition to this, [NZ Farming Systems] has provided for the one-off $4.6 million cost of terminating the management agreement with PGG Wrightson previously announced."

Milk production volumes in the first quarter were about 10 per cent below budgeted levels and were likely to continue to remain so with production per cow ahead of last year but by less than budgeted.

"Feed costs have been higher than budget due to a difficult winter, and delays in getting capital fertiliser on to farms due to lack of funding pending the sale of Don Pepe farm, which suffered a number of delays. Consequently pasture has been replaced by bought-in feed so as to maintain cow condition and milk production. This situation is expected to continue for the remainder of the financial year."

Full year volume was projected to be about 85-90 million litres.

Capital fertiliser application was under way on lead farms and irrigated land, with significant applications planned across all land for autumn 2011.

Singapore-listed Olam International in August raised its stake in NZ Farming Systems to 78 per cent after a successful takeover bid.

Olam would ensure farming decisions were not hampered by a lack of cash, was undertaking a full business plan review with the board and would draw up a pathway to strong growth and sustained profitability, NZ Farming Systems said.

Chairman John Parker said he was confident about the business and pleased to have Olam on board.

"It's a disappointment that we can't turn it around quicker than we have," Parker said. "If we'd had those sort of issues without Olam we'd have major problems."

Shares in NZ Farming Systems closed up 2c yesterday at 63c.