KEY POINTS:
Shareholders will learn more about NZ Farming Systems' Uruguay's plans at tomorrow's annual meeting after capital raising and expansion in South America was postponed.
The NZX-listed company has not started any capital raising but had said it intended to do so to buy more land in Uruguay and
possibly Brazil.
Chairman Keith Smith said: "Current market conditions, including turmoil in world financial markets and the [company's] share price, do not support an expansionary capital raising. We have therefore decided to postpone capital raising until conditions are more favourable."
The company said it had no net debt, could secure debt funding to cover its needs and did not need to raise capital to complete the dairy conversion and development of 36,300ha of land already owned. Land and livestock were valued at US$206 million ($330 million) at June 30.
Deferring further expansion did not affect the future of the business.
"We do not need capital, we've got a model there that's got 36,000ha and if the markets stay the way they are well there's nothing wrong, we'll carry on developing this 36,000ha and have a very good company," Smith said.
"When we did our first [initial public offering in December 2006] we thought we'd only go to 9000ha, we're 36,000ha [now]. So it's just a matter of scaling the model if the opportunities are there." Forsyth Barr analyst John Cairns said delaying plans to raise capital was sensible.
"It's only the prudent thing to do at the moment but we still think that the conversion process they're undertaking over there makes a lot of sense and that it is value enhancing.
"You've got some headwinds obviously with the capital markets and also sentiment-wise with the fallback in commodity prices."
The ANZ Commodity Price Index for dairy products increased for 15 consecutive months from 127.6 in August 2006 to hit 291.9 last November but has since fallen back about 25 per cent, with historical trends suggesting it could drop another 25 per cent.
"Even with the lower prices prevailing, we think it still makes a lot of economic sense to undertake the conversion process," Cairns said.
Shareholders will hear more about the company's plans at the annual meeting in Auckland tomorrow.
Shares closed up 6c yesterday at $1.15, compared with listing at $1.50 and a high of $1.96.
NZ Farming Systems said in September that the previous three months had seen ideal climatic conditions, with milk production per cow in July and August more than 10 per cent ahead of expectation. Milking cow numbers grew to 8300 with 15 milking sheds operating by the end of August.
The milking herd was expected to be just more than 14,000 animals by November with 30 sheds operating by June next year.
