NZ Farming Systems Uruguay to cut ties with NZ, posts biggest loss since Olam took control

Monday 19th September 2016

NZ Farming Systems Uruguay, set up by New Zealand investors in 2006, is to cut ties with the country after delivering its biggest-ever loss to owner Olam International of Singapore.

Olam has retained a New Zealand registration for the South American subsidiary since buying out minority shareholders and delisting it from the NZX in late 2012, with its registered office care of law firm Buddle Findlay in Auckland. But the latest annual report of Farming Systems says the group "has the intention to deregister the parent company from the NZ Companies Office and migrate to Uruguay."

Farming Systems appears to have been hard hit by the downturn in global prices of dairy products, with its net loss widening to US$74.5 million in the year ended June 30, from US$69.5 million a year earlier. Sales fell 34 percent to US$48.9 million.

The latest annual loss includes a US$8.1 million charge against the fair value of livestock, down from a charge of US$22.7 million a year earlier. All up, the value of livestock almost halved to US$42.3 million, including a US$29.9 million loss on the book value of livestock sold.

The accounts show further red ink with a US$10.5 million cut to the value of farm land, buildings, and improvements, to US$119.5 million from US$130.3 million. In 2015 it took an impairment of US$3.5 million against a Conaprole productivity fund it is required to invest in as a condition of selling milk to the cooperative. Farming Systems sells the bulk of its output through Conaprole, Uruguay’s national milk cooperative, which accounts for about 65 percent of that nation's processing volumes.

Farming Systems was established in 2006 by executives and directors of PGG Wrightson including Craig Norgate (now deceased) to apply New Zealand’s expertise in dairy farming to low-cost farmland in Uruguay. Its expansion plans were disrupted when the global economic crisis hampered its ability to debt-fund the business, while drought in Uruguay cut milk production. Olam appeared on the register just in time and provided support including a US$110 million credit line but it took more than one attempt to buyout the company.

Olam moved to 100 percent ownership of Farming Systems in late 2012, having taken control the previous year.

The latest accounts show the Singaporean parent is still propping up the Uruguayan business, with US$206.9 million of interest-free loans, up from US$126.5 million a year earlier. At the same time, short-term bank loans in Uruguay fell to about US$55 million from US$124 million, resulting in total loans and borrowing rising to US$272.6 million from US$250.9 million.

Farming Systems maintained shares on issue at about 290 million but their value tumbled to US$67 million from US$224 million as the company absorbed accumulated losses of US$156 million.

Farming Systems didn't give details of its planned departure from New Zealand. Its 2016 accounts show it had unrecognised deferred tax assets of about $14.4 million in New Zealand and deferred tax assets in Uruguay of US$172 million. Notes to the accounts say these assets haven't be recognised "as it is not considered probable that there will be sufficient future taxable profit against which the losses can be utilised." Uruguayan tax losses can't be rolled over indefinitely and expire after five years.

BusinessDesk.co.nz

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