New Zealand Farming Systems Uruguay has issued a profit downgrade on the back of lower-than-expected first-quarter milk production and higher than budgeted feed costs.
The company yesterday warned its budgeted $NZ6.6 million earnings before interest and tax (Ebit) loss, was expected to blow out to $NZ21 million Ebit, and could worsen if dry conditions continued.
In addition, NZFSU has provided for a one-off $NZ4.6 million charge for terminating its management agreement with PGG Wrightsons.
In a statement to the New Zealand Stock Exchange, NZFSU chief executive Alastair de Raadt said milk production in the first quarter was 10% below budget and with current per cow production also below budget, the situation was unlikely to recover.
A tough winter has increased feed costs and delays in settling the sale of Don Pepe farm has tied up funding, stalling the application of capital fertiliser.
"Consequently, pasture has been replaced by bought-in feed so as to maintain cow condition and milk production.
"This situation is expected to continue for the remainder of the financial year."
New majority shareholder Olam International was completing a full business plan review which should be finished by late January.
NZFSU will fund itself from proceeds from the sale of Don Pepe farm, which was completed last week, and short-term funding provided by Olam.
This will cover the cost of fertiliser, electricity and irrigation and also settle the outstanding debt to PGG Wrightson.
Craigs Investment Partners broker Chris Timms said with Olam International owning 78% of NZFSU, it had a well-funded majority shareholder.
