KEY POINTS:
South American dairy farm operator NZ Farming Systems Uruguay expects to raise capital in the next few months as it looks to buy more land.
The company, set up by listed rural services company PGG Wrightson, yesterday announced better than expected earnings, despite challenging conditions.
Net profit after
tax for the year ended June 30 was US$1.6 million ($2.29 million) excluding performance fee deductions - just ahead of an April market guidance of US$1.5 million.
And the company is bullish on dairy prices remaining at record levels as supply is stifled by high feed costs.
"Whilst eventually we anticipate some easing of dairy prices from current levels, the outlook through the medium to long term remains buoyant, with industry researchers predicting that prices will remain materially higher than recent history," said chairman Keith Smith.
The company expected to raise more capital with "the economics of further land acquisition remaining compelling".
Total capital expenditure last year was US$84 million. This was spent purchasing an additional 10,000ha of farmland - taking its total landholdings to 36,300ha - and regrassing and redeveloping 22,000ha. By year's end it had 11 milking sheds in operation, and livestock numbers had more than doubled to 50,000.
The milking herd is expected to increase rapidly from nearly 6000 at the end of June to 14,000 by June next year, with 12,000ha in active production.
It received an average of nearly US40c per litre for milk from Uruguay's major processor, Conaprole, but input costs such as fertiliser more than doubled during the year. Peso appreciation also increased local costs in US dollar terms.
NZ Farming Systems said an unusually cold, wet winter and then drought from January to May made the year challenging. But good rain and a mild winter from early June have allowed pastures and feed levels to recover.
The company's share price, meanwhile, has grown from an initial public offering of $1 per share in December 2006.
It listed last December at $1.50 per share, and closed yesterday at $1.80.
Total annual shareholder return since December 2006 has been 43 per cent per annum, generating a performance fee payable to PGG Wrightson of US$13.6 million.
PGG holds 11 per cent of NZ Farming Systems stock, plus the company's fund and farm manager contracts.
UBS analyst Stuart Graham said the company was still at an early stage. Its prospects hinged on future milk prices, but had the advantage of having lower land costs than if it were dairying in New Zealand.
"If you're bullish on milk as I am, then you must be bullish on this proposition."
* Independent director David Cushing has stepped down from NZ Farming Systems' board, citing increased private business commitments. He has been a director and member of its audit committee for the past two years.
NZFSU
Results for year ended June 30:
* Net profit after tax of US$1.6 million.
* Revenue from milk and cattle sales of US$8 million.
* Other income, primarily from improvements in livestock value, of US$18 million.