NZ Farming Systems improves half year earnings

NZ Farming Systems Uruguay's operation.

New Zealand Farming Systems Uruguay (NZFSU) reported better half year earnings than expected, due to improved milk production and prices.

The company is now forecasting a stronger full year result despite posting a loss of US$6.77m ($8.9m) for the six months to December 31, 2010.

Revenue increased by 72 per cent to US$18.9m up from US$10.9m in the corresponding period in 2009.

Milk prices continued to strengthen, reaching US34c per litre at the farmgate in December with further increases since.

Milk production for the half year was 55.1m litres, an increase of 31 per cent compared to the 42.1m litres in December 2009.

NZFSU also reported advances in farm development including electricity infrastructure improvement and irrigation investments, funded by its majority shareholder Olam International.

Olam's loan, up to US$50m, provides funding for capital spending, working capital, and to re-pay outstanding balances owed to PGG Wrightson for performance and management fees and buyout of a management agreement.

However, NZFSU planned to raise capital within the next six to 12 months to fund its updated business plan and repay the Olam loan.

The company said it would require capital raising of US$100-110 million and expect it to generate positive earnings before interest and taxes in 2011/2012.

Chairman Vivek Verma said the half year results reflected strengthening international dairy markets and the success of the company's feeding strategy.

Results exceeded expectations amid difficult climate conditions including an initial wet winter and dry spring/early summer, which limited grass growth.

The earnings before interest and taxation forecast for the full financial year is a loss of US$11-12 million, not including the management agreement termination payment.

- NZPA