Singapore owned NZ Farming Systems in Uruguay slumps to large loss

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Singapore owned New Zealand Farming Systems Uruguay has recorded a $US17.7 million ($21.3 million) group loss for the year to June 2013 while its parent suffered investment write downs of subsidiary companies.

The loss compares with a $7.6 million loss for the previous NZ Farming Systems Uruguay slumps to big loss under Singapore ownership and the company notes it now heavily indebted to its ultimate shareholder, Olam International, to the tune of $US140 million.

At parent company level the loss was $US37.9 million after writing down the value of its investments in subsidiary companies by $US32.25 million.

The blowout comes six months after Olam took full control of NZFSU by mopping up the remaining 15% of the former NZX ­listed company it did not already own at 75c  a share.

The company delisted from the New Zealand stock exchange in December 2012 costing it mum and dad shareholders millions of dollars in losses.

It also follows comments a year ago by US­ based short seller Muddy Waters LLC, which
questioned Olam’s accounting treatment.

Muddy Waters, which has picked the demise of other companies before, said Olam was  “aggressive” in its reporting of biological assets and was “destined to fail.”

The hedge fund was betting against Olam’s stock at the time.

Muddy Waters partner Carson Block also highlighted Olam’s acquisition of Farming  Systems, noting the company’s infamous “fudge this” comment in notes to the accounts  back in 2009.

At the time NZFSU explained that the words were “merely a prompt” for the author to reconfirm rounding differences.

Olam, which also owns a stake in independent dairy processor Open Country Dairy, fiercely defended itself in the wake of Carson Block’s claims.

According to Farming System’s accounts updated at the Companies Office yesterday, Olam has confirmed it will provide financial support to assist the group in meeting its liabilities when they fall due for a period of 12 months after balance date.

Farming Systems has obtained a shareholder loan from Olam $US140 million

For the development of existing farms, working capital and repayment of debt.

The group did report an improvement in revenue for the 2013 year, reporting $US74.9 million compared to $US63.06 million in 2012 but its operating expenses and finance costs saw the loss widen.

The balance sheet shows current liabilities of $US73.5 million, including loans and borrowings due within one year of $US33.5 million, and long­term liabilities of $US147.14 million.

Group assets totaled $US374.5 million as at June 2013 while parent company assets shrank from US 253.6 million to US 153.7 million.

Farming Systems was set up in 2006 by PGG Wrightson in an attempt to buy cheap land in Uruguay suitable for dairy conversion and export  using New Zealand’s Intensive farming techniques in South America. Sadly although the idea was a good one the execution of it was marred by corruption, incompetence and self interest.

The company now owns 28,275 ha of land in various stages of development, with an average historic cost of US 6628 per ha. This is the problem began by them buying land of from their own directors ( Murray Flett ) at inflated prices.

Olam took an 86% holding in Farming Systems in 2011 when its bid for full control was blocked by a group of activist shareholders before mopping up the remainder in 2012.

On Friday Olam International reported a 12.5% decrease in second quarter net profit due to lower sales volume and an increase in expenses.

Net profit for the three months ended December 31 fell to $S134.9 million from $S154.1 million a year earlier. Not a good look

Olam’s backstop is the Singapore Government who has deep pockets so the rules might change but it should continue to exist despite what the Hedge Funds say.

The rumour in Uruguay is that Olam is now trying to sell and lease back some farms to lower their debt problems. Not a good investment story all round.

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