NZS chairman Keith Smith is also chairman of management company PGG Wrightson. Photo / Greg Bowker

NZS chairman Keith Smith is also chairman of management company PGG Wrightson. Photo / Greg Bowker

The NZ Farming Systems Uruguay (NZS) annual meeting, which was held on Thursday, was a sombre occasion.

It was depressing because it was clear that a number of investors have lost a lot of money, including farmers who believe they were encouraged to borrow against their New Zealand property to invest in the Uruguayan company.

It was also clear that the company's poor performance is primarily due to the board because they were far too optimistic and didn't anticipate the risks associated with investing in a foreign country.

The dismal performance of NZS is particularly frustrating for shareholders because they have had all the downside while the management company, which is owned by PGG Wrightson, has done particularly well.

These related party agreements, conflicts of interest and poor board governance issues continue to be the bane of the sharemarket with shareholders in the PGG Wrightson, Pyne Gould Corp and NZ Farming Systems Uruguay group of companies suffering particularly badly.

In the past 12 months these three companies have destroyed a huge amount of shareholder wealth as their combined sharemarket value has plunged by $880 million or 68 per cent, from $1140 million to $360 million.

Over the same period the benchmark NZX-50 Gross Index is up 9.9 per cent.

Even though the Uruguayan company's performance has been dismal, shareholders re-elected two existing directors with over 96 per cent of the votes each while only 4.3 per cent of votes were cast in favour of a credible outside candidate, with farming experience, who was not supported by the board.

When are New Zealand shareholders going to wake up and vote against directors whose main credentials are that they are members of the cosy old boys' network?

NZS issued its first prospectus in November 2006, which coincided with the visit of nearly 60 potential investors to Uruguay.

The prospectus and the Uruguayan visit presentations were extremely optimistic and the company managed to sell 115.6 million new shares at $1 each.

Chairman Keith Smith wrote in the prospectus: "NZ Farming Systems is a unique investment opportunity. The board considers that PGG Wrightson has an unmatched combination of knowledge, experience and demonstrated capability, and the infrastructure to be able to put in place the comprehensive package of skills and resources necessary to create a profitable farming business in Uruguay".

NZS bought three PGG Wrightson owned Uruguayan farms for US$11.9 million and gave the New Zealand company an extremely lucrative management contract.