Investment Statement and Short-form Prospectus

NZ Farming Systems Uruguay Limited Investment Statement and Short-form Prospectus non-renounceable rights issue of up to 84,799,117 ordinary shares to qualifying shareholders 16 November 2007 Lead Manager THIS IS AN IMPORTANT DOCUMENT AND YOU SHOULD READ IT CAREFULLY TO HELP YOU DECIDE WHETHER TO TAKE UP YOUR ENTITLEMENT TO ORDINARY SHARES IN NZ FARMING SYSTEMS URUGUAY LIMITED. This document does not constitute investment advice. You should seek your own investment, financial, taxation or other professional advice regarding the Offer. Contents IMPORTANT INFORMATION DESCRIPTION OF OFFER THE BUSINESS OPPORTUNITY AND PROGRESS TO DATE INvESTMENT STATEMENT INFORMATION STATUTORY INFORMATION STATUTORY INDEx – SHORT-FORM PROSPECTUS GLOSSARY INSTRUCTIONS AND TERMS AND CONDITIONS OF ENTITLEMENT AND ACCEPTANCE FORM DIRECTORY 1 3 6 12 18 20 21 22 24 Important Information the information in this section is required under the Securities act. investment decisions are very important. they often have long-term consequences. read all documents carefully. ask questions. Seek advice before committing yourself. Choosing an Investment Adviser you have the right to request from any investment adviser a written disclosure statement stating his or her experience and qualifications to give advice. that document will tell you: • • • 12 12 13 13 13 14 16 16 16 whether the adviser gives advice only about particular types of investment; and Choosing an investment When deciding whether to invest, consider carefully the answers to the following questions that can be found on the pages below: What sort of investment is this? Who is involved in providing it for me? How much do i pay? What are the charges? What returns will i get? What are my risks? Can the investment be altered? How do i cash in my investment? Who do i contact with enquiries about my investment? is there anyone to whom i can complain if i have problems with the investment? What other information can i obtain about this investment? in addition to the information in this Offer document, important information can be found in the current registered prospectus for the investment. you are entitled to a copy of that prospectus on request.1 17 17 whether the advice is limited to the investments offered by one or more particular financial organisation; and whether the advisor will receive a commission or other benefit from advising you. you are strongly encouraged to request that statement. an investment adviser commits an offence if he or she does not provide you with a written disclosure statement within five working days of your request. you must make the request at the time the advice is given or within one month of receiving the advice. in addition: • • if an investment adviser has any conviction for dishonesty or has been adjudged bankrupt, he or she must tell you this in writing; and if an investment adviser receives any money or assets on your behalf, he or she must tell you in writing the methods employed for this purpose. tell the adviser what the purpose of your investment is. this is important because different investments are suitable for different purposes. 1 this is the wording required by Schedule 3d to the Securities regulations which contemplates a separate investment statement and prospectus. this Offer document combines a short-form prospectus and an investment statement and accordingly the prospectus available on request is contained in this Offer document. answers to important Questions are set out on page 12. N Z FarMiN g S yS t e MS UrUg Uay L i M i t ed 1 Offer Summary this Offer document is for a non-renounceable rights issue of up to 84,799,117 ordinary shares (Shares) in NZ Farming Systems Uruguay Limited (NZ Farming Systems Uruguay or the Company) to those persons who are registered as holding existing Shares at 5 pm on 20 November 2007, in the ratio of 1 new Share for every 2 existing Shares held (the Offer). Issuer NZ Farming Systems Uruguay Limited Lead Manager aBN aMrO Craigs Limited Registration this Offer document is a combined investment Statement and Short-form Prospectus for the purposes of, and in accordance with, the Securities act and the Securities regulations. this Offer document is dated and has been prepared as at 16 November 2007. this Offer document, together with copies of the most recent audited financial statements of NZ Farming Systems Uruguay, and a letter from NZX under regulation 23 of the Securities regulations, which are required by section 41 of the Securities act and regulation 4 of the Securities regulations (relating to a Short-form Prospectus) to be so attached, has been registered with the registrar of Companies in relation to the new Shares offered. the purpose of this Offer document is to provide certain key information that is likely to assist you to decide whether or not to acquire new Shares in NZ Farming Systems Uruguay under the Offer. Copies of this Offer document may be obtained, free of charge, from the offices of NZ Farming Systems Uruguay, 57 Waterloo road, Hornby, Christchurch. Further contact details are provided in the directory on page 24. Issue price NZX Listing the issue price is $1.50 per new Share. the price is payable in full on application. application has been made to NZX for permission to list the Shares and all the requirements of NZX relating thereto that can be complied with on or before the date of this Offer document have been duly complied with. However, NZX accepts no responsibility for any statement in this Offer document. NZX has authorised NZX Firms to act on this Offer. Applications Key Dates2 record date for calculation of entitlements under the Offer (5 pm) Offer document and entitlement and acceptance Form mailed to Shareholders Closing date for Receipt of Acceptance with payment (5 pm) Second instalment on partly-paid Shares due (5 pm) expected listing date allotment of new and existing Shares Mailing of FaSter statements not later than 20 November 21 November 14 December 14 december 18 december 18 december 24 december the entitlement and acceptance Form is enclosed with this Offer document. For definitions of capitalised words and phrases used in this Offer document please refer to the glossary on page 21. this Offer document does not constitute an offer in any place in which, or to any person to whom, it would not be lawful to make such an offer. No representation in connection with the offer of Shares is made other than in this Offer document. No person (including any director, agent or employee of NZ Farming Systems Uruguay, or any member of the Pgg Wrightson group) guarantees the return of capital invested, or the performance of the Shares. 2 Please note that these dates may be varied at the Company’s discretion, subject to the approval of NZX in accordance with the NZSX Listing rules. 2 N Z FarM i N g S yS teM S U rUgUay LiMited description of the Offer this Offer document is a combined investment Statement and Short-form Prospectus in respect of a non-renounceable rights issue by NZ Farming Systems Uruguay. this section outlines the main terms of the Offer. Shareholders’ attention is also drawn to the ‘Answers to Important Questions’ on pages 12 to 17. NZx Listing application has been made to NZX for permission to list the Company’s 169,598,235 Shares currently on issue and any additional Shares issued by the Company under this Offer and Private Placement. all Shares will be fully paid at the time of listing, with the call on unpaid capital issued under the Company’s iPO due on 14 december 2007. The Offer this Offer document relates to a non-renounceable rights issue by NZ Farming Systems Uruguay to existing Shareholders of up to 84,799,117 new Shares. Under the Offer, NZ Farming Systems Uruguay is offering new Shares to those persons who are registered as holding existing Shares at 5 pm on the record date (20 November 2007) in the ratio of 1 new Share for every 2 existing Shares held. Holdings of existing Shares registered on NZ Farming Systems Uruguay’s share register after the record date will not qualify for the Offer. the entitlement of each holder of existing Shares under the Offer is stated in the entitlement and acceptance Form accompanying this Offer document. Fractional entitlements have been ignored. the maximum number of new Shares being offered is 84,799,117. there is no minimum amount required to be raised under this Offer for the purposes of section 37(2a) of the Securities act 1978. if the Company’s application for quotation of the Shares and listing of the Company on the NZSX is accepted, Shareholders will be bound by the minimum holding requirements set out in the NZSX Listing rules. every issued and paid-up Share in the Company is entitled to one vote and the right to an equal share in dividends authorised by the Board, and any distribution of the surplus assets of the Company. all the requirements of the NZSX Listing rules that can be complied with by the Company on or before the date of this Offer document have been duly complied with. the Board has also adopted an NZSX Listing rule compliant Constitution and corporate governance policies. However, NZX accepts no responsibility for any statement in this Offer document. NZX has authorised NZX Firms to act in this issue. it is intended that the Shares will be listed on the NZSX Market on 18 december 2007. Company Ownership Offer pricing the issue price is $1.50 per new Share. the price is payable in full on application. the issue price has been determined on the basis of a discounted cash flow analysis of the Company’s forecast revenues, discounted for country risk, and allowing for a concurrent Private Placement (detailed below). at 31 October 2007 the Company had 162,034,177 million partly paid and 7,564,058 fully paid Shares on issue. the call on unpaid capital is due on 14 december 2007, upon payment of which all Shares will be fully paid. In December 2006 the Company issued 105 million partly paid Shares in the iPO, at an issue price of $1.00 per Share partly paid to $0.50 per Share. Contemporaneously with the iPO and on the same terms, the Company issued a further 17,934,177 Shares to Pgg Wrightson investments Limited in part consideration for the three foundation farms it acquired from it. Pgg Wrightson investments Limited has stated that it intends to hold these Shares as a long-term investment and has entered into an agreement with the Company undertaking to retain them until at least 6 November 2009. except in the case of a takeover, under the agreement Pgg Wrightson investments Limited is only permitted to sell or dispose of part or all of the Shares with the approval of the non-interested directors of NZ Farming Systems Uruguay. In April 2007 the Company issued a further 39 million Shares through an institutional placement of partly paid Shares at an issue price of $1.02 per Share, partly paid to $0.52 per Share. Background to the Offer Under an offer document dated 3 November 2006, NZ Farming Systems Uruguay made an initial offer of 75 million Shares, with provision for oversubscriptions for a further 75 million Shares (iPO). the issue price was payable in two parts, with half paid on subscription and the other half to be payable on 14 december 2007. the offer closed fully-subscribed, with 30 million over-subscriptions taken up. at the time of its iPO the Company disclosed that it intended to seek to obtain a listing on the NZSX Market as soon as possible after 14 december 2007. N Z FarMiN g S yS t e MS UrUg Uay L i M i t ed 3 In June 2007 the Company issued 7,564,058 fully paid Shares at an issue price of $1.00 in part consideration for the purchase of the Santa Isabel farm and farm assets. Also in June 2007 100,000 Shares were issued to Pgg Wrightson at an issue price of $1.02, partly paid to $0.52 per Share for the provision of an executive incentive. No. Shares % Allotment of Shares NZ Farming Systems Uruguay intends to allot new Shares applied for on the exercise of entitlements on a continuous basis following the opening of the Offer. Such allotments will be made at such intervals as the Board considers appropriate, having regard to the number of entitlements taken up. FaSter statements will be mailed to Shareholders within 5 Business days of allotment. New Shares not allotted on the continuous basis referred to in the previous sentences are scheduled to be allotted on tuesday 18 december 2007. FaSter statements in respect of new Shares allotted on that date will be issued and mailed as soon as practicable after allotment and in any event not later than 24 december 2007. interests of directors of NZ Farming Systems Uruguay Pgg Wrightson investments Limited Other Shareholders (approx 805) 21,066,738 17,934,177 130,597,320 12.4 10.6 77.0 Private Placement NZ Farming Systems Uruguay intends to make a Private Placement of new Shares to institutional and wholesale investors concurrently with this Offer. the Private Placement will close on 14 december 2007 (the same date as the Offer closes). Shares allotted pursuant to the Private Placement are not eligible to participate in this Offer. the Shares under the Private Placement are also to be issued at an issue price of $1.50. the Board wishes to raise a minimum of $50 million through the Private Placement and this Offer. the new Shares will be quoted on completion of allotment procedures (as described above). Quotation of the new and existing Shares on the NZSX is scheduled to occur on tuesday 18 december 2007. Dividends and voting the new Shares will, on issue, rank equally in all respects, including as to dividends and voting, with the existing Shares. Subject to available profits and normal prudential requirements, it is expected that the first dividend will be paid in respect of the financial year ending 30 June 2009. Use of proceeds the proceeds of the Offer, after deduction of expenses, will be applied to the purchase and improvement of farmland in Uruguay, and development of intensive dairying, beef and other farming operations on that land applying New Zealand style farming systems. the expenses of the Offer are estimated at $75,000 (incl gSt). Overseas Shareholders the Offer constituted by this Offer document is made to Shareholders with a registered address in New Zealand only. NZ Farming Systems Uruguay is of the view that it is unreasonable to make the Offer to Shareholders outside of New Zealand having regard to the low number of overseas Shareholders, and the costs of complying with overseas legal requirements. Fees No lead management fee or brokerage is payable by NZ Farming Systems Uruguay on the allotment of the new Shares pursuant to this Offer. Issue of Shares to PGG Wrightson Funds Management Limited Pgg Wrightson Funds Management Limited (Manager) has been appointed to provide asset management and investor relations services to NZ Farming Systems Uruguay under a management contract entered into on 3 November 2006. the Manager is an associated person of NZ Farming Systems Uruguay as it is a wholly-owned subsidiary of a substantial security holder of NZ Farming Systems Uruguay, Pgg Wrightson Limited. Under the agreement the Manager is entitled to receive a Management Fee and a Performance Fee (subject to meeting specified criteria) for its services. the term of the agreement is five years. On completion of this term a notice period of three years is required to be given by either party to terminate the agreement. there are rights of termination for material breach and insolvency during the term. the earliest the agreement can be terminated, other than for breach or insolvency, is eight years. How to apply applications must be made on the entitlement and acceptance Form accompanying this Offer document, completed in accordance with the instructions on page 22. applications must be received by Computershare investor Services Limited at the address on the entitlement and acceptance Form no later than 5 pm, Friday 14 December 2007. 4 N Z FarM i N g S yS teM S U rUgUay LiMited the Manager will be paid a Management Fee of 1.5% per annum on the gross asset value of the Company (excluding any cash deposits held as security for borrowings by the Company) until 30 June 2008, thereafter reducing to 1.0% per annum. the gross asset value of the Company will be calculated by the Manager in accordance with generally accepted accounting standards (based on the market value of the farm assets which are subject to a revaluation each year). in addition, the Manager will be paid a Performance Fee calculated as 20% of the amount by which the investor return exceeds 10%. in the event that the investor return significantly exceeds 10% and the Compounded target is also significantly exceeded, a substantial Performance Fee payment to the Manager will result. this could result in the Company recording a significant accounting loss, particularly in the early stages of development when earnings are low. in order to ensure that Performance Fees are not enhanced by Share volatility, Performance Fees are only payable to the extent that the Compounded target is exceeded. the Management Fee and Performance Fee may be paid by the issue of Shares in NZ Farming Systems Uruguay. at the Company’s annual Meeting held on 31 October 2007, the following resolution was passed by Shareholders: “to consider and, if thought fit, approve by ordinary resolution the issue of ordinary shares to the Manager by way of payment of the management fee and performance fee under the Management agreement entered into between the Company and the Manager on 3 November 2006, on the following terms: 1 2 the date of issue will be on or about 30 June 2008. the number of ordinary shares to be issued will be determined in accordance with the following formulae: 2.1 the management fee payable will be 1.5% per annum of the gross asset value of the Company until 30 June 2008, thereafter reducing to 1.0% per annum. the gross asset value of the Company will be calculated by the Manager in accordance with generally accepted accounting standards and will be based on the market value of the farm assets which are subject to a revaluation each year. the fee formula provides for a monthly payment. this will be adjusted to take account of the annual issue of shares. 4 3 2.2 the performance fee payable will be calculated at 30 June 2008 and will, in summary, be an amount equal to 20% of the amount by which ordinary share price growth plus gross distributions exceeds 10% per annum on a rolling basis. an adjustment will be made to ensure that total performance fees paid to the Manager over time are not enhanced by ordinary share price volatility. Share price growth will be calculated as the percentage change in a 12 month period in the volume weighted average market price of the ordinary shares for the quarter to 30 June. the issue price will be determined by the directors of the Company at the time of issue in accordance with the provisions of the Companies act and the Company’s Constitution and, as such, must be fair and reasonable to the Company and to all existing Shareholders. the ordinary shares will rank equally with other fully paid ordinary shares of the Company.” as the quantitative aspects of these fees will not be known until 2008, the precise number of Shares to be issued and the issue price cannot be determined at this time. NZSX Listing rule 7.3.2(b) prescribes that the Shareholder approval given at the annual Meeting to this issue of Shares only stands for a period of 12 months. NZ Farming Systems Uruguay, therefore, once listed, intends to seek a waiver from NZX in respect of these timing requirements. if granted, this waiver will mean that Shareholder approval is not required to be obtained every year that Shares are issued in payment of these fees. the first payment of the Performance Fee will be made in July 2008 in respect of the period from allotment to 30 June 2008 and thereafter annually in July in respect of the previous financial year. None of NZ Farming Systems Uruguay, the Lead Manager, nor any of their related parties, directors, officers, employees, consultants, agents, partners or advisors accepts any liability or responsibility to determine whether a person is able to participate in the Offer. N Z FarMiN g S yS t e MS UrUg Uay L i M i t ed 5 the Business Opportunity and Progress to date NZ Farming Systems Uruguay was established to capitalise on the opportunity to acquire farms in Uruguay where New Zealand farming systems would, when adapted to local conditions, produce results comparable to those achieved in New Zealand. despite Uruguay being only two thirds the size of New Zealand, Uruguay’s farmed area is 11% greater due to the very high level of utilisable land, most of which is in unimproved native pasture. the temperate climate of Uruguay, with its mild winters and hot summers, is closest to Northland in New Zealand and is suitable for intensive pasture production systems. rainfall averages around 1,200mm per annum and is reasonably well distributed throughout the year. 3 in the Company’s experience, native pasture in Uruguay is highly responsive to New Zealand style intensive pasture management through the application of a 6 point New Zealand farming system described further below. 1. Pasture Species: New improved pasture species are sown using direct drilling, initially using annual ryegrass as the base for the first one or two years and then perennial ryegrass or tall fescue once weeds are under control. a summer crop such as sorghum augments feed in the summer pinch period and helps with weed control. 2. Capital Fertiliser: Phosphate is applied to raise available phosphate to at least 20 ppm, typically applying 300-400 kg per hectare of super phosphate (available Phosphate of native grassland is around 4ppm). this promotes grass growth, increases drought resistance, brings forward spring growth and extends the growing season. 3. Subdivision: Paddocks are subdivided to control pasture growth, particularly in the spring, and to increase utilisation of what is grown. 4. Water reticulation: Water troughs are installed to ensure that cattle have access to drinking water at all times. 5. Stocking rate: additional high genetic worth cattle are introduced to utilise the additional feed produced. 6. Maintenance Fertiliser: Once new pasture is established, production is maintained through annual phosphate and urea dressings. traditionally managed Uruguayan farms with native grasses produce less than 4,500 kg dM/ha per annum.4 Based on trials conducted by Pgg Wrightson, pasture dry matter production on Uruguayan farms utilising New Zealand style management systems without irrigation is expected to average around 14,500 kg dM/ha per annum, a level of pasture production that compares favourably with established dairying areas in New Zealand. With irrigation, Uruguayan pasture production is expected to exceed 20,000 kg dM/ha per annum. Monthly pasture production estimates (Kg DM/ha) Pasture Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Total Native Improved 540 966 491 963 414 1,563 334 1,645 252 897 167 797 125 725 128 825 293 376 626 1,923 752 4,498 1,459 1,832 1,072 14,667 Source: NZ Farming Systems Uruguay estimates 3 4 information on Uruguay is sourced to Nimmo-Bell & Company Limited and www.meteorologia.com.uy. information on Uruguay is sourced to Nimmo-Bell & Company Limited. 6 N Z FarM i N g S yS teM S U rUgUay LiMited Economics of dairying in Uruguay NZ Farming Systems Uruguay is able to acquire and develop a traditional Uruguayan farm into a New Zealand style dairy farm for around US$5,500/ha (excluding livestock) which is less than 30% of the cost of buying an established dairy farm in New Zealand. it also expects to be able to generate a similar level of operating profit from converted Uruguayan dairy farms and provide a return on capital that is more than 4 times higher than the New Zealand average, as illustrated in the table below. Comparison of dairy farm profitability at current costs and prices New Zealand Uruguay Since december 2006, the price that the Company receives for the milk it supplies to Conaprole has risen by 66% to the equivalent of $5.88/ kg milksolids. this has significantly increased the profitability of the Company’s business model. as a consequence of the Company’s strategic decision to accelerate its land acquisition programme, the Company had acquired a total of 30,980ha by 31 October 2007. Farm properties have been acquired in three regional hubs: • in the western region, around young, 3,749ha. this comprised the Company’s foundation investments of El Caburé, Valle de Soba and Menafra, plus two additional purchases, a 118ha block immediately adjoining Menafra and a 944ha farm, Los Naranjos. Kg milk solids / cow Cows/ha Kg milk solids/ha Milk price $/kg milk solids Farm working expenses/ha economic farm surplus/ha total farm assets/ha5 eFS / total farm assets 5 360 2.9 1,050 $6.40 $2,670 $3,070 $35,400 8.7% 343 2.75 943 $5.88 $1,250 $3,735 $8,500 43.9% • in the central region, around Florida, the Company purchased 7 properties with a total area of 8,982ha; Los Naranjales and an adjoining block (2,117ha + 271ha), San Pedro (1,002ha), Las Piedritas (830ha), La Gandara (576ha), Doña Celia (2,086ha) and La Leticia (2,100ha). • in the rocha district, in eastern Uruguay, the Company purchased 8 properties with a total area of 18,249ha; El Monasterio (3,111ha), Santa Isabel (also known as Tobay) (4,003ha), Las Novillas (4,569ha), Don Pepe (2,373ha), Roncato (1,276ha), El Higuerón (1,067ha), Cerco de Piedra (1,159ha) and Cuatro Cerros (691ha). excludes livestock Source: NZ Farming Systems Uruguay estimates based on the Company’s New Zealand style dairy farm operations when fully developed and a NZ/US exchange rate of 0.75. New Zealand milk price is Fonterra Co-operative group’s current forecast for the 07/08 season. development plans have been prepared for all of the Company’s farms and a wide range of development activities is under way which includes dam construction, roading, fencing, water reticulation and troughs, and the construction of dairy sheds. Farms have been acquired at an average price of US$2,340/ha which is close to the price budgeted at the time of the iPO (and includes the higher price paid for the Company’s foundation purchases and other farms which were partly developed), despite the fact that, as expected, the general level of farm prices has increased significantly in the past year. the three initial farms acquired from Pgg Wrightson investments Limited have been formally revalued at US$4,400/ha compared with an initial purchase valuation of US$3,460/ha. allowing for development expenditure in the intervening period, the value of these farms has increased by close to 20%. the valuations of the farms were carried out by romualdo rodriguez of Firm romualdo rodriguez Negocios rurales of Montevideo, Uruguay on 30 October 2006 and 5 august 2007. the valuations are performed annually in accordance with guidance issued by the international Valuation Standards Committee in order to assess the fair value of the farms. Fair value is based on active market prices, adjusted, if necessary, for any differences in the nature, location or condition of the specific property. to fund the accelerated rate of farm purchase, the Company arranged a US$37 million bridging loan facility. this bridging loan is due to be repaid in december 2007 after uncalled equity capital has been paid. Development Plans and Progress to Date at the time of its iPO last year, the Company’s short-term plans were to complete the development of three foundation farms it purchased from Pgg Wrightson investments, which have a total area of 2,686ha, and purchase and begin developing a further 4,000ha. Beyond this, over time, the Company planned to purchase and develop additional farms to a total farm area of around 24,000ha. Subsequent to a $39 million institutional placement in april 2007, the Company reviewed its strategy to give priority to acquiring as much suitable farm land at prevailing prices in three strategic locations as it could. there were three key factors that caused the Company to revise its strategy, namely: • • • the dramatic upturn in milk prices and the positive global outlook for dairy commodity products, an expectation that Uruguayan land prices would increase significantly, and the additional equity capital that the Company had at its disposal ($144 million compared with the iPO budget of $82 million). N Z FarMiN g S yS t e MS UrUg Uay L i M i t ed 7 going forward, the Company’s main focus is on the accelerated development of its existing holdings into dairy farms. the Company’s business model provides for farming units of around 1,000ha in size with separate areas for milking cows (60%), dairy replacements (30%) and beef (10%). However, in order to accelerate the development of its dairy farms, areas that will ultimately be used for beef farming will initially be used to raise additional dairy replacements. the Company intends to develop a total of 50 dairy units over the next three years. each dairy unit will typically involve one cowshed and around 400ha of land for grazing dairy cows. Seven new milking sheds will be commissioned in the current financial year in addition to the 3 already in production, a further 20 cowsheds will be commissioned in the next financial year and the remaining 20 cowsheds will be commissioned the year after that (Fy2010). From the time of acquisition it is expected to take four and a half years for land being converted to dairying to reach full production. Physical development of each dairy unit is expected to take 12 to 18 months to complete depending on the time of acquisition. ideally, initial pasture renovation work is completed during one autumn and dairy conversion work (construction of fences, tracks, water reticulation and cowshed) is completed prior to calving/milking the following autumn. Once physical development is complete it is expected to take a further three years for a newly established dairy unit to reach full production, with milk production increasing in line with the increasing quantities of pasture that are produced as soil fertility increases and new high producing pasture species become established. in year two of the dairy unit development programme, per hectare milk production from developing dairy farms is expected to be around 80% of a mature dairy unit, increasing to 90% in year three and 100% in year four. as development progresses and pastures mature, the proportion of each farming unit devoted to milking cows also increases from 30% to 60%. this typically occurs in year three of the development programme. at the end of the current financial year the Company expects to commence development of the final 9,500ha of recently acquired land. it will have a further 16,800ha in the first year of development, 3,000ha in the second year of development and 2,700ha in the third. 8 N Z FarM i N g S yS teM S U rUgUay LiMited Illustrative financial performance For illustrative purposes the following table shows the financial performance that could be achieved on a typical 1,000ha unit by applying New Zealand style farm management practices. Illustrative Five Year Summary for 1000 hectare farm property Initial 6 month acquisition period Year 1 Year 2 Year 3 Year 4 Hectares farmed dairy Heifer unit Steer unit Calf unit – – – – – average number of cows milked Milk productivity Litres milk produced – $US – 600 400 – 1,000 – 300 350 210 140 1,000 660 80% 600 160 100 140 1,000 1,320 90% 7,500,000 $US 600 160 100 140 1,000 1,320 100% 8,300,000 $US – – $US 3,300,000 $US Operating receipts Cash received from milk sales Cash received from livestock sales (less purchases) Cash received from operations Operating payments Net cash from operations Capital Expenditure Land purchase Livestock Plant and machinery development costs Total capital expenditure Net cash flow prior to interest and taxation Closing Balance Sheet Assets Livestock Land, improvements and plant & machinery Total Assets Closing livestock numbers Head count Head count Head count Head count Head count – – – – – – 750,000 750,000 470,000 280,000 700,000 440,000 1,140,000 700,000 440,000 1,700,000 400,000 2,100,000 850,000 1,250,000 2,100,000 400,000 2,500,000 850,000 1,650,000 2,200,000 770,000 80,000 910,000 3,960,000 (3,960,000) – – 170,000 650,000 820,000 (540,000) – – 170,000 650,000 820,000 (380,000) – – – – – 1,250,000 – – – – – 1,650,000 770,000 3,190,000 3,960,000 860,000 3,950,000 4,810,000 1,040,000 4,650,000 5,690,000 1,040,000 4,520,000 5,560,000 1,040,000 4,390,000 5,430,000 Milking cows Heifers Steers Calves 2,100 1,400 825 1,225 735 825 1,650 560 350 1,650 1,650 560 350 1,650 1,650 560 350 1,650 N Z FarMiN g S yS t e MS UrUg Uay L i M i t ed 9 Key management and farming assumptions underpinning the indicative farm financial information are as follows. a) the initial acquisition period following the farm acquisition is typically around six months in duration. during this time, the property is largely out of production while the development of the farm takes place. Such development includes pasture renewal, irrigation, sub-division, fencing, roading and water reticulation. While it is expected that stock will be grazed during this period, no revenues are projected to be generated during the initial period. b) the typical farm illustrated above assumes the following capital costs: in the initial acquisition period: during the early stages of development the farm will run a combination of heifers and steers, the mix of which changes as the property matures. the assumed change in mix is illustrated in the table. d) the initial stocking of the unit is assumed to provide the basis of the dairy herd once both the livestock have matured and pastures have been developed. it is assumed, in keeping with New Zealand farm management practices, that herd replacement will come from future progeny and that after suitable growth and fattening, steers and surplus heifers, together with older or non-performing dairy cows, will be sold in the normal course of events. e) in keeping with New Zealand experience on intensive dairy units on similar quality land it is assumed that once fully developed each 1,000 hectare unit will be approximately 60% in dairy, with the 600 hectares running approximately 1,650 cows. Farms in Uruguay typically milk throughout the year. it is assumed that on average 2.75 cows are carried per hectare under dairy production, with an average of 2.2 cows milked per hectare throughout the year. in keeping with land becoming available for dairy production as set out under (c) above, in the first year of dairy production (year 2) 660 cows are assumed to be milked, with assumed maximum production of 1,320 cows occurring in year 3. it is noted that the Lincoln University dairy farm at Lincoln, New Zealand is currently carrying over 4 cows per hectare and produces in excess of 1,700kg of milk solids per hectare. the farming practices used at Lincoln are proposed for Uruguay. f) daily milk production per cow is assumed to average 17.3 litres at full production, which equates to 943 kg of milk solids per hectare. this compares to production of similar quality land and well managed properties in New Zealand of around 1,000 kg of milk solids per hectare. Milk sales are assumed to realise US$0.26 per litre, which, at an average milk solids content of 6.8%, equates to NZ$5.10 per kg of milk solids (at NZd/USd 0.75) . Currently, returns being paid by Conaprole, the dominant producer co-operative in Uruguay, are US$0.30 per litre (equivalent to NZ$5.88). Cashflows are based on 60 day payment terms for milk supplied to Conaprole and other receivables, 30 days for expenditure other than labour which is paid for immediately it is due. g) Operating costs are assumed to include labour costs, pasture management and summer feed, animal health, breeding, electricity, insurance, repairs and maintenance and general administration costs. these have been based on the Company’s operational experience in Uruguay. h) Livestock valuation: For the purposes of the model it has been assumed that livestock values remain constant throughout the period presented. i) Currency and inflation: the model has been prepared in current dollars, and does not take into account inflation as it is assumed that cost increases will be more than offset by any inflationary impact on outputs. the reporting currency is US$. • • • Bare land acquisition costs – US$2,200 per hectare; Livestock purchases – initial stocking of unit comprises 2,100 heifer calves (cost US$235 per heifer) and 1,400 steers (cost US$200 per steer); and development costs – Commencement of the pasture development, electricity, roading, fencing, housing and initial purchase of general farm machinery. in year 1 (the year immediately following the acquisition period) and year 2: • • Plant and machinery – Completion of general farm machinery purchases; and development costs – dairy conversion and development activities including building of a milking shed (or sheds) and installation of irrigation systems, and completion of electricity, roading and housing development. the land acquisition costs have been based on the prices paid by the Company for undeveloped land in Uruguay. development costs have been determined by the Company based on its operational experience in Uruguay. For logistical reasons, the commissioning of milking sheds occurs in spring and autumn. Where a new milking shed is not commissioned until the autumn, only a portion of a full year’s milk production is possible. to adjust for this, budgeted average year 2 production across the dairy units is approximately 50% of a fully developed mature dairy unit. c) in developing the 1,000 hectare model the Company has taken into account its partial irrigation strategy and the relatively young herd age, and has conservatively assumed that it will take three years to reach near optimum production levels. as pastures become established and develop through regrassing, application of fertiliser, rotational grazing and irrigation, the land use changes from cattle raising to intensive dairy production. at the completion of the development phase the property will have 60% of the available land under dairy production (50% of which is irrigated). 10 N Z FarM i N g S yS teM S U rUgUay LiMited A Review of NZ Farming System Uruguay’s FY2007 Most of the Company’s current land holdings were acquired in late Fy2007. accordingly, the only farms that contributed significantly to Fy2007 financial performance were the three original farms acquired from Pgg Wrightson investments Limited in december 2006, and the performance of these farms was negatively impacted by the Company’s mid-season change in strategy. this change caused an increase in feed demand which occurred when the Company took advantage of an opportunity to acquire additional dairy heifers at favourable prices in anticipation of the need for these animals as further development occurs. the resulting feed shortage was exacerbated by unusually wet autumn and winter conditions and related lower grass growth, and this in turn caused both a reduction in milk production and an increase in expenditure on bought-in feed. No cowsheds were planned to be completed during the year. the only operating dairy unit in Fy2007 was on El Caburé, which was the only farm of the initial three purchased with an existing dairy unit. the effects of lower milk production and higher feed costs were largely offset by the increase in value of the extra dairy heifers that were purchased and a rising milk solids payout. However, the overall financial performance of the Company in Fy2007 was significantly reduced by the debt servicing costs incurred on bridging finance and higher management fees incurred as a result of the additional capital raised compared to budget. NZ Farming Systems Uruguay plans to spend between US$20 million and US$25 million on farm development in the balance of Fy2008, and a further US$60 million – $65 million in the following two financial years (with approximately 70% of that expenditure in Fy2009). this will complete the required capital spend on the planned land holdings. the timing of development work means that the contribution to Fy2008 financial performance from the 5 new dairy units that begin operation in the autumn of 2008 will be minimal. the Company expects to produce about 1.5 million kg milk solids in Fy2008. it also expects to build dairy cow numbers from 1,500 to around 9,000 during the course of the year. Land Purchases From 1 July 2007 telensy S.a. has been the land and farm company purchasing entity. telensy S.a. is a Uruguayan shelf company. its shareholders are three NZ Farming Systems Uruguay directors, Keith Smith, Craig Norgate and david Cushing. the Board of telensy S.a. is comprised of executives from Pgg Wrightson Limited, Barry Brook, Carlos Miguel de Leon, Michael Sang, and Paul tocker. NZ Farming Systems Uruguay has a declaration of trust and Pledge deed with telensy S.a and its shareholders, under which: • • the shareholders of telensy S.a. hold the shares in telensy S.a on trust for NZ Farming Systems Uruguay. telensy S.a from time to time acquires land and/or shares in farmowning companies on the direction of and on trust for NZ Farming Systems Uruguay. Outlook for NZ Farming Systems Uruguay for FY2008 and beyond While the Company has focused on accelerating the land acquisition programme, it has made good progress on developing its initial farm purchases. development on the three initial farms purchased from Pgg Wrightson investments Limited is now largely complete. two new cowsheds were commissioned on Menafra in august and September 2007 and a second cowshed will be commissioned on El Caburé in March 2008. in the current financial year to June 2008 (Fy2008), the Company plans to regrass more than 15,000ha of land and build 7 new cowsheds. a further 20 cowsheds will be built in Fy2009 and the remaining 20 will be built in Fy2010. N Z FarMiN g S yS t e MS UrUg Uay L i M i t ed 11 investment Statement information this section of the Offer document contains an investment Statement for the purposes of the Securities regulations. the purpose of the investment Statement is to provide certain key information that is likely to assist a prudent but non-expert person to decide whether or not to acquire new Shares in the Company under this Offer. answers to important questions What sort of Investment is this? this Offer document relates to a non-renounceable rights issue of new Shares by NZ Farming Systems Uruguay Limited to existing Shareholders. NZ Farming Systems Uruguay is offering up to a maximum of 84,799,117 new Shares at an issue price of $1.50 per new Share. the Shares being offered are fully-paid ordinary shares in NZ Farming Systems Uruguay. each new Share confers on the holder the right to: the right to new Shares is non-renounceable, which means that you may not sell or transfer your entitlement to new Shares. the Board determined to make the Offer non-renounceable to enable only existing Shareholders to participate in the Share issue at the same price as the Private Placement. there is no minimum amount required to be raised under this Offer for the purposes of section 37(2a) of the Securities act 1978. Other terms of the Offer the above is a simplified and general description of some of the rights and obligations of NZ Farming Systems Uruguay’s Shareholders. all terms of the Offer and Shares, except those rights and obligations implied by law, are set out in other parts of this Offer document and the Company’s Constitution, which is available for public inspection at the Company’s registered office at 57 Waterloo road, Hornby, Christchurch and on the Companies Office website at www.companies.govt.nz. • attend and vote at a meeting of the Company including the right to cast one vote per Share on a poll or any resolution including but not limited to a resolution to: • • • • • • • • • appoint or remove a director or auditor; adopt or alter the Company’s Constitution; approve a major transaction; approve the amalgamation of the Company under section 221 of the Companies act; and put the Company in liquidation. Who is involved in providing it for me? The Issuer NZ Farming Systems Uruguay Limited is the issuer of the Shares. the Company’s registered address is 57 Waterloo road, Hornby, Christchurch. the Company was incorporated under the Companies act on 26 September 2006. its registered number is 1866126. Copies of incorporation documents, the Constitution and any material contracts attached to a registered prospectus of the Company can be viewed, (if available) on the Companies Office website at www.companies.govt.nz. Where documentation is not available on the Companies Office website a request for the documents can be made by contacting the Companies Office contact centre on 0508 266 726. a prescribed fee may be charged for requested documents. these documents may also be viewed at the registered office of the Company during normal business hours. an equal share with other Shares in dividends authorised by the Board in respect of the Shares; an equal share with other Shares in the distribution of surplus assets in any liquidation of the Company; be sent certain Company information (including financial information); and enjoy the other rights as a Shareholder conferred by the Companies act and the Company’s Constitution. the Offer is open to all persons who are registered as holding existing Shares at 5 pm on the record date (20 November 2007). each existing Shareholder may subscribe for 1 new Share for every 2 existing Shares held. Holdings of existing Shares registered on NZ Farming Systems Uruguay’s share register after 5 pm on the record date will not qualify for the Offer. the entitlement of each holder of existing Shares under the Offer is stated in the entitlement and acceptance Form. Fractional entitlements have been ignored. Shareholders are not required to subscribe for all of the entitlements stated on their entitlement and acceptance Form, they may subscribe for a proportion of their entitlement. The Directors of NZ Farming Systems Uruguay the directors of NZ Farming Systems Uruguay are: Keith raymond Smith, Michael Craig Norgate, Samuel richard Maling, Murray James Flett, John Suffield Parker and Bevan david Cushing. 12 N Z FarM i N g S yS teM S U rUgUay LiMited Activities of Issuer NZ Farming Systems Uruguay’s core business is the acquisition of farms and farmland in Uruguay, and their conversion to intensive, New Zealand style pasture-based intensive farming. as at 31 October 2007 the company’s portfolio comprised 30,980 hectares of land suitable for conversion to intensive dairying in three regional hubs across Uruguay. NZ Farming Systems Uruguay intends to increase its land holdings to around 32,000ha in the short-term on the basis of its current resources and, during the course of the next 5 years, develop its farms into New Zealand style dairy and beef units by which time it should become a significant contributor to the Uruguayan dairy industry. the scale of its operations will increase depending on the amount of equity capital raised under this Offer. the Company has been carrying on these activities since late 2006. What are the charges? there are no charges other than the issue price of $1.50 for each new Share subscribed for. investors are not required to pay any charges to the issuer, or any other party, in relation to the Offer. all costs and expenses associated with the Offer, including legal fees, establishment fees, registry fees and printing and postage costs will be met by NZ Farming Systems Uruguay. the costs and expenses of the Offer are estimated to be approximately $75,000 (incl gSt). there is no lead management fee payable to the Lead Manager on this Offer, nor any brokerage. For any subsequent sale or purchase of Shares on the NZSX (once listed), a Shareholder will be liable to pay normal brokerage fees (if any). How much do I pay? the issue price is $1.50 per new Share subscribed for. the price is payable in full on application. applications cannot be withdrawn or revoked by the applicant. applications to subscribe for new Shares must be made on the entitlement and acceptance Form accompanying this Offer document, in accordance with the application instructions contained on page 22. applications may be lodged with the Lead Manager, any NZX Firm or with the registrar in time to enable them to be mailed or delivered to reach the registrar, Computershare investor Services no later than 5 pm on Friday 14 december 2007. Cheques must be made payable to ‘NZ Farming Systems Uruguay Limited Non-renounceable rights Offer’ and be available for immediate banking. Cheques must be crossed ‘Not transferable’. Computershare investor Services’ address is Level 2, 159 Hurstmere road, takapuna, Private Bag 92119, auckland. the Company reserves the right to refuse to accept any application for new Shares at its discretion. Funds received in respect of applications which are declined in whole or in part will be refunded without interest as soon as practicable, and in any case no later than ten Business days after the Closing date. the Company reserves the right to withdraw the Offer at any time, in which case all application funds will be refunded without interest. interest earned on application funds will be retained by the Company. Any application made for entitlements, where the Shareholder has not paid the second instalment on their partly paid Shares before the due date (5 pm on 14 December), will be declined. In this situation, the Company may, in its absolute discretion, withhold the subscription amount paid for the entitlements and use it to offset that Shareholder’s liability to pay the second instalment. What returns will I get? New Shares issued as a result of this Offer will rank equally, including as to dividends and voting, with the existing Shares already on issue at the time of issue of the new Shares. as the offer is non-renounceable the entitlements to take up Shares are not tradeable. this means Shareholders who opt not to take up some or all of their entitlement will lose the value of the entitlements not taken up. Shareholders will receive returns through any dividends paid by the Company on the Shares, and any increase in the value of their Shares when they are sold. the principal factors that will determine returns to Shareholders in the Company are: • • • the financial condition of the Company; the Company’s ability to pay dividends; and the price that Shareholders may realise on the sale of their Shares. Whether, and to what extent, dividends are paid or the price of Shares increases or falls will depend on a number of factors, including those discussed under the heading ‘What are my risks?’. the factors described in that section could reduce or eliminate the dividends or other returns or benefits intended to be derived from holding the Shares. the Company is legally liable to pay any dividends it declares. the dates and frequency of dividend payments by the Company are unknown. No amount quantifiable as at the date of this Offer document and enforceable by Shareholders has been promised. dividends will be subject to the Uruguayan and New Zealand tax regimes. Shareholders should consult their own taxation or other financial advisers concerning the taxation implications of investing in Shares and whether, depending on their own circumstances, any increase in value on their sale of Shares may be taxable. N Z FarMiN g S yS t e MS UrUg Uay L i M i t ed 13 in the event of liquidation of NZ Farming Systems Uruguay, Shareholders will be entitled to participate in the surplus assets of NZ Farming Systems Uruguay (if any). Shareholders may also benefit from any increase in the market price of the Shares. the market price of the Shares could also decrease in value as a result of matters that may or may not be within the Company’s control. Performance of the Company or the current or future value of the Shares is not guaranteed by the Company or any other person (including without limitation any director, employee or agent of the Company or the Manager), and no amount of return has been promised. the Shares could go down in value as a result of matters that may or may not be within the Company’s control. the Uruguayan economy, and those of its larger neighbours, could be characterised currently as ‘free market democracies’, with a trend towards further trade liberalisation through MerCOSUr, the Southern Cone Common Market, which includes argentina, Brazil, Venezuela and Paraguay. While democracy and market-oriented policies have been in place for some years in Uruguay, there is a risk that either could be eroded in a way that adversely impacts the Company’s investments. it is worth noting that Uruguay ranks well in indices such as Corruption Perception, published by transparency international at www.transparency.org. at 25th out of 179 countries in its latest, 2007 survey, Uruguay is ahead of countries such as Malaysia, South Korea and italy. the country also scores well in the 2007 index of economic Freedom published by www.heritage.org, ranking 33rd out of 157 countries, ahead of countries such as France, South Korea and South africa. Uruguay does not have a history of expropriation of private property rights and the risk of such expropriation is considered low. What are my risks? all forms of investment involve an element of risk. the principal risk for Shareholders in the Company is that they may be unable to recoup all or part of their original investment. this could occur for a number of reasons including: Economic risks Until recent years Uruguay was highly dependent on exporting to its larger neighbours, Brazil and argentina, and for tourist receipts from them. Over recent years the US has grown in importance as a trading partner and the country’s economic risks have become more diversified. as with all small countries, however, Uruguay is vulnerable to the global economic climate and the performance of the economies with which it enjoys close relations. • a deterioration in the Company’s financial condition through circumstances that may or may not be within its control, or the Company becomes insolvent and is placed into receivership or liquidation; • • broader conditions in the New Zealand and world sharemarkets that can result in Shareholders being unable to sell their Shares for fair value at a time of their choosing; a thinly traded or no market for the Shares, or the market becomes illiquid. Exchange rate the Company’s operations will be conducted largely in United States dollars (US dollars). Milk is nominally priced in pesos but the price is generally adjusted to reflect changes in the US dollar/peso exchange rate. appreciation in the value of the New Zealand dollar against the US dollar would reduce the value of the Company’s Uruguayan farm assets and US dollar cashflows in NZ dollar terms and could affect the Share price adversely. the Company does not intend to hedge this exposure. in addition, you could receive no dividends, if no dividend is declared and paid. the factors and risks which could affect the operational and financial performance of the Company, and the return on the Shares, are: Political and economic Country risk Uruguay is a small country that is vulnerable to the economies of its larger neighbours, argentina and Brazil. the country was unstable politically through the first half of the 20th century culminating in a military coup in 1973. democracy was restored through the period 1983-1990 and since 2004 Uruguay has been governed democratically by a coalition of left-wing parties. Business and Farming Farming is an activity which is subject to a wide range of risks relating to nature and the climate, many of which apply in Uruguay in a similar way to farming in New Zealand. Whilst subject to the normal farming risks such as climate, disease and pest, international commodity prices, the success or otherwise of this venture is particularly predicated on the following: • • • • the robustness of the Company’s business model; the international price of milk products; the ability to achieve targeted productivity increases; and the ability to secure appropriately qualified and experienced farm managers in Uruguay. 14 N Z FarM i N g S yS teM S U rUgUay LiMited Robustness of the Company’s Business Model the overall performance of the business is dependent on the robustness of the Company’s business model. the business model makes certain assumptions around the acquisition and development costs of properties and livestock in Uruguay. Whilst these are based on the Company’s experience in its first year of operations, and on current market conditions and prices in Uruguay, should these change adversely in a way not currently anticipated, this could reduce the overall profitability of the venture and in turn, returns to Shareholders. assumptions around stocking levels, milk production and returns are based upon a combination of New Zealand experience in such situations, and expectations in Uruguay following trials, extensive discussion with advisers and the experience of its first year of operations. While the Board believes such assumptions to be conservative, should any of these key assumptions prove to be unfounded, once again additional costs and/or revenue reductions could be experienced which would adversely impact on Shareholder returns. if there were an outbreak of FMd in future, returns to Shareholders could be affected. Uruguay has never experienced a case of bovine spongiform encephalopathy (BSe) and is classified as low risk for BSe by the World Organisation for animal Health. Scale of operations the scale of the Company’s operations is likely to significantly increase Conaprole’s output in the medium term. Consequently, new plants will be required in coming years to process the additional expected supply. it is also likely to have a material effect on the volume of Uruguay’s dairy exports. these factors could affect the price of the Company’s outputs and its profitability. the Company intends to work closely with Conaprole to mitigate any potentially negative impacts from its operations and to secure mutual benefits. in addition, Conaprole has recently announced the development of two new plants to help address potential processing constraints. the Company’s scale and growth may also have an effect on land and other input prices. The ability to attract suitably qualified farm managers the Company’s plans involve purchasing and developing farms, which is not a risk-free activity. Managers who the Company believes to be experienced in implementing large scale dairy conversions based on New Zealand intensive pasture management systems have been and will be recruited. this experience will be combined with local farming knowledge and expertise to achieve development that is on time, to budget and of the desired quality. there are, nevertheless, risks such as difficulty in attracting a sufficient number of suitably qualified and experienced managers for the properties. Should such difficulties be encountered this would delay progress by the Company against its plans. Financial the financial prospects and forecasts included in this Offer document are based on the directors’ best judgment and experience in Uruguay, however, economic conditions can change, output prices fall, input prices rise and circumstances change in a manner and to an extent that have not been foreseen to materially undermine prospective financial information. Other risks Taxation International trade in common with other farming operations in many countries, the outputs from the Company’s activities will be sold into markets in which the Company is a price-taker. Volumes sold and the prices received are subject to non-market influences from government policies and various bilateral, multilateral and international agreements. Changes in these can have both negative and positive effects on the Company’s operations and profitability. Changes to the rate of company tax and other changes to taxation in New Zealand and in Uruguay could affect returns to Shareholders. the taxation assumptions used in this Offer document are based on existing New Zealand and Uruguayan tax legislation. Liquidity risk application has been made to NZX for permission to list the Shares. When Foot and mouth disease (FMD) and Bovine spongiform encephalopathy (BSE) Historically, FMd has been endemic in South america. Uruguay was declared free of FMd in 1995, however, experienced an outbreak in april 2001 near the border with argentina. Since august 2001 the country has enjoyed ‘FMd-free with vaccination’ status and all cattle are vaccinated against FMd. Uruguay prohibits the import of live animals and genetic material from countries affected by FMd. the Shares are listed, their price will fluctuate with the supply and demand for them and with a number of factors relating to the New Zealand and world economies and sharemarkets. Many of these factors are outside the Company’s control and may be unrelated to its performance. N Z FarMiN g S yS t e MS UrUg Uay L i M i t ed 15 Forward Looking Statements Certain statements in this Offer document constitute forward-looking statements. Such forward-looking statements involve assumptions about known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company, or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. given these uncertainties, Shareholders are cautioned not to place undue reliance on such forward-looking statements in this Offer document. in addition, under no circumstances does the inclusion of such forward-looking statements in this Offer document constitute a representation or warranty by the Company or any other person with respect to the achievement of the results or matters set out in such statements or that the underlying assumption used will in fact be the case. the rights conferred on the holders of Shares are set out on page 12 of this Offer document. the rights of holders of Shares are subject to the provisions of the Companies act, the Company’s Constitution, the takeovers Code and, once the Shares are listed on the NZSX Market, the NZSX Listing rules. the Constitution may only be altered by a special resolution of its Shareholders, subject to the rights of interest groups under the Companies act, or in certain circumstances by court order. the Company may not take any action that affects the rights attaching to Shares, unless that action has been approved by special resolution of all Shareholders who would be affected by that action. Under certain circumstances, a Shareholder whose rights would be affected by a special resolution may require the Company to purchase its Shares. How do I cash in my investment? application has been made to NZX for permission to list the Shares and all the requirements of NZX relating thereto that can be complied with on or before the date of this Offer document have been duly complied with. However, NZX accepts no responsibility for any statement in this Offer document. NZX has authorised NZX Firms to act in this issue. Once listed, the Shares are tradable on the NZSX subject only to compliance with the Constitution and applicable laws. in the opinion of NZ Farming Systems Uruguay there will be an established market for such sales on the NZSX. alternatively Shareholders can sell their Shares by private treaty. No charges are payable to the Company in respect of any sale of Shares although brokerage may be payable by you to your broker. Consequences of insolvency Shareholders would not be liable to pay any money to any person as a result of the insolvency of the Company. all creditors of the Company would rank ahead of claims by Shareholders if the Company were liquidated. after all such creditors had been paid, the remaining assets, if any, would be available for distribution among holders of Shares who would rank equally among themselves. Shareholders should consider these risks and other details of the Offer prior to applying for new Shares. Shareholders are encouraged to read the entire Offer document and to obtain advice from their financial adviser if they have any questions. Who do I contact with enquiries about my investment? enquiries about the Shares should be directed to: NZ Farming Systems Uruguay Limited c/– Pgg Wrightson Funds Management Limited 57 Waterloo road Hornby Christchurch. attention: Peter Baynes Phone: (03) 372 0800 Fax: (03) 349 6176 Can the investment be altered? the full terms of the Offer and the terms and conditions on which Shareholders may apply for Shares are set out in this Offer document. the Company may withdraw the Offer without notice but may only alter the terms of the Offer after amending the Offer document and filing details of the amendment with the registrar of Companies for New Zealand. Offer terms cannot be altered without Shareholders’ consent once applications have been accepted by the Company. 16 N Z FarM i N g S yS teM S U rUgUay LiMited Is there anyone to whom I can complain if I have problems with the investment? Complaints about the Shares can be made to: NZ Farming Systems Limited c/– Pgg Wrightson Funds Management Limited 57 Waterloo road Hornby Christchurch. attention: Peter Baynes Phone: (03) 372 0800 Fax: (03) 349 6176 On request information Shareholders are also entitled to copies, (free of charge), of NZ Farming Systems Uruguay’s most recent financial statements, investment statement, registered prospectus (including any material contracts lodged with the prospectus) and documents registered for the purpose of extending the period during which allotment may be made under a registered prospectus. Copies are available by telephoning, writing to or calling at the Company’s registered office, during normal business hours. Shareholders may also request (on payment of a reasonable fee) copies of the Constitution and any other information that may be requested under the Securities regulations. there is no ombudsman to whom complaints about the Shares can be made. What other information can I obtain about this investment? all of the details on the terms of this Offer and additional information are contained in this Offer document and in NZ Farming Systems Uruguay’s financial statements. a copy of this Offer document is available for public inspection from the Companies Office website at www.companies.govt.nz. Where a document is not available through that website, Shareholders should call the Companies Office contact centre on 0508 266 726. a copy of NZ Farming Systems Uruguay’s audited consolidated financial statements for the year ended 30 June 2007 sent to existing Shareholders, prepared in accordance with the requirements of the Financial reporting act 1993, has been registered with this Offer document. these financial statements can be obtained from NZ Farming Systems Uruguay’s registered office indicated in the directory for no fee or from the Companies Office website at www.companies.govt.nz. Where a document is not available through that website, Shareholders should call the Companies Office contact centre on 0508 266 726. Shareholders will be sent an annual report which will include audited financial statements, and a copy of unaudited financial statements at each half year. Once the Shares are listed on the NZX, the Company will become subject to the requirements of the NZSX Listing rules and its communications with Shareholders will be governed by them. additional information about the Company is provided on its website at www.nzfsu.co.nz. N Z FarMiN g S yS t e MS UrUg Uay L i M i t ed 17 Statutory information the following sets out information required pursuant to the applicable provisions of regulation 4(2) of the First Schedule of the Securities regulations, as they apply to offers of equity securities to persons who already hold equity securities in the issuer. 1. Main terms of the Offer Issuer the issuer of the Shares is NZ Farming Systems Uruguay Limited which has its registered office at 57 Waterloo road, Hornby, Christchurch. 2. Prospects and forecasts the trading prospects of NZ Farming Systems Uruguay, together with material information relevant to those prospects, are discussed on page 6 under the heading ‘the Business Opportunity and Progress to date’. the Company has purchased 30,980 ha of farms and farmland in 3 Description of securities offered this Offer document relates to a non-renounceable rights issue by NZ Farming Systems Uruguay Limited to existing Shareholders of up to 84,799,117 new Shares. Under the Offer, NZ Farming Systems Uruguay is offering new Shares to those persons who are registered as holding existing Shares at 5 pm on the record date (20 November 2007) in the ratio of 1 new Share for every 2 existing Shares held. Holdings of existing Shares registered on NZ Farming Systems Uruguay’s share register after the record date will not qualify for the Offer. a fuller description of the Shares being offered is set out in the description of the Offer. regional hubs in Uruguay, and conversion of them to New Zealand style pasture-based intensive dairy farming is under way. it is expected that the conversion programme on these holdings will be completed within 5 years. growth in demand for dairy products internationally over the medium and longer term is expected to provide a strong backdrop for the Company’s growth and profitability. the Company intends to apply the funds raised in the Private Placement on 14 december 2007 and the funds raised under this Offer to acquire more farmland in Uruguay and to convert that land to intensive dairying and beef production applying the Company’s business model. the Company expects to achieve economies of scale in administration and operations from this expansion. any special trade factors or risks are discussed under What are my risks? on pages 14 to 16. NZX Listing application has been made to NZX for permission to list the Shares and all the requirements of NZX relating thereto that can be complied with on or before the date of this Offer document have been duly complied with. if that application is accepted by NZX, the Shares will be quoted on completion of allotment procedures (anticipated to occur on 18 december 2007). However, NZX accepts no responsibility for any statement in this Offer document. NZX has authorised NZX Firms to act on this Offer. the Board has adopted an NZSX Listing rules compliant Constitution and corporate governance policies. Further financial information was included in the Company’s iPO offer document dated 3 November 2006, a copy of which can be requested from the Company or downloaded from the investor information section of the Company’s website at www.nzfsu.co.nz. 3. Financial Statements a copy of NZ Farming Systems Uruguay’s audited consolidated financial statements for the year ended 30 June 2007 sent to NZ Farming Systems Uruguay’s Shareholders, prepared in accordance with the requirements of the Financial reporting act 1993, are being distributed with this Offer document. these financial statements can be obtained from NZ Farming Systems Uruguay’s registered office indicated in the directory for no fee or from the Companies Office website at www.companies.govt.nz. Where a document is not available through that website, Shareholders should call the Companies Office contact centre on 0508 266 726. Price the new Shares are being offered at an issue price of $1.50 per new Share. the price is payable in full on application. 4. Preliminary and issue expenses Preliminary and issue expenses of the Company’s iPO in 2006 were US$2.2 million. Preliminary and issue expenses of the Offer, to be met by NZ Farming Systems Uruguay, are estimated by the directors to be $75,000 (incl gSt). there is no lead management fee payable to the Lead Manager on this Offer, nor any brokerage. 18 N Z FarM i N g S yS teM S U rUgUay LiMited 5. Other terms of offer and securities NZX Waiver NZ Farming Systems Uruguay has obtained a waiver, to the extent necessary, from NZX Listing rule 7.10.2 regarding the requirement for the closing date and time for applications to have been received under the Offer to be no earlier than the 18th Business day (which will instead occur on the 17th Business day) after the mailing of the letters of entitlement. the waiver application was made in advance of the Company entering into a listing agreement with NZX, and, accordingly, the waiver will come into effect on the date of entry into a listing agreement. Material transactions with directors NZ Farming Systems Uruguay has allotted 7,564,058 (in aggregate) fully-paid $1.00 Shares to the trustees of the Susan Flett trust (of which Murray Flett is a trustee), BaCH NZ Limited and Hakataramea Land Co Limited as part consideration for the US$10,400,000 acquisition of shares by the Company in Uruguayan nominee companies tobay S.a. and dunkit S.a. on 27 June 2007. Of the 7,564,058 allotted, 4,686,738 were allotted to the trustees of the Susan Flett trust. Director participation in the Offer the directors of NZ Farming Systems Uruguay have, as at the date of this Offer document, expressed the following intention to take up their entitlements: Directors’ and related parties’ shareholdings and interests B d Cushing M J Flett (1) – associated person interest – Beneficially owned – associated person interest S r Maling (1) M C Norgate (1)(2) K r Smith (1) J S Parker – Beneficially owned – associated person interest – associated person interest – Beneficially owned 1,000,000 7,131,183 555,555 80,000 10,500,000 1,500,000 300,000 B d Cushing M J Flett S r Maling M C Norgate K r Smith J S Parker – associated person interest – Beneficially owned – Beneficially owned – associated person interest – associated person interest – Beneficially owned 250,000 2,500,000 40,000 0 10,000 75,000 Pgg Wrightson investments Limited has indicated that it intends to take up (1) M J Flett, S r Maling, M C Norgate and K r Smith are associated persons of Pgg Wrightson Limited which holds 100,000 Shares and Pgg Wrightson investments Limited which holds 17,934,177 Shares. the 100,000 Shares held by Pgg Wrightson were issued in June 2007 at an issue price of $1.02, partly paid to $0.52 per Share, for the provision of an executive incentive. NZ Farming Systems Uruguay issued the 17,934,177 partly-paid $1.00 Shares to Pgg Wrightson investments Limited on 3 November 2007 as part consideration for shares in gabefox S.a. and gimley S.a. (2) rural Portfolio investments Limited subscribed for 10,000,000 Shares under the iPO. MCN Holdings Limited subscribed for 500,000 under the iPO. Craig Norgate also has a beneficial interest in both of these companies. these interests are associated with the shareholdings of Pgg Wrightson investments Limited and Pgg Wrightson Limited under the takeovers Code. By virtue of a shareholder agreement between rural Portfolio investments Limited and Pyne gould Corporation (a substantial security holder of Pgg Wrightson), Sam Maling is an associated person of rural Portfolio investments Limited (and its related parties) and Craig Norgate is an associated person of Pyne gould Corporation (and its related parties). its full entitlement of 8,967,088 Shares. No Guarantee No person (including any director, agent or employee of NZ Farming Systems Uruguay), or any member of the Pgg Wrightson group, guarantees the return of capital invested, or the performance of the Shares. all terms of the Offer, and of the Shares being offered, are set out in this Offer document except those implied by law, or set out in a document registered with the registrar of Companies, which is available for public inspection and is referred to in this Offer document. N Z FarMiN g S yS t e MS UrUg Uay L i M i t ed 19 6. Expert Consents the following persons have consented to information contained in this Offer document which is attributed to them and have not at the date of this Offer document withdrawn their consent: – Mr romualdo rodriguez of Firm romualdo rodriguez Negocias rurales in respect of the valuations of the farms. – Nimmo-Bell & Company Limited in respect of the information relating to farming contained in the Offer document, and certain statistical information. – Lincoln University in respect of the reference contained in this Offer document to the productivity of farming practices being researched by Lincoln University. None of the above persons is intended to be a director, officer or employee of the Company. each may from time to time in the future provide professional services to the Company. Statutory index As required by the Securities Regulations First Schedule* Page 1. 9. Main terms of offer Prospects and forecasts 18 18 18 19 19(1). Preliminary and issue expenses 21. * Other terms of offer and securities the Company is exempted from complying with a number of the requirements of the First Schedule by virtue of regulation 4 of the Securities regulations. 7. Directors’ statement the directors, after due enquiry by them in relation to the period between 30 June 2007 and the date of registration of this Offer document state that, in their opinion, after due enquiry by them: (a) no circumstances have arisen that would materially adversely affect the trading or profitability of NZ Farming Systems Uruguay or the value of its assets; and (b) no circumstances have arisen that would materially adversely affect the ability of NZ Farming Systems Uruguay to pay its liabilities due within the next 12 months. this Offer document is dated 16 November 2007. a copy of this Offer document has been signed by or on behalf of each of the directors of NZ Farming Systems Uruguay. Signed by the Company (by its directors or by their duly authorised agent): Keith raymond Smith Michael Craig Norgate Samuel richard Maling Murray James Flett John Suffield Parker Bevan david Cushing 20 N Z FarM i N g S yS teM S U rUgUay LiMited glossary Average June Quarter Market Price in respect of a Share means for any time that the Shares are listed on NZSX the volume weighted average price quoted on NZSX for the months of april, May and June in any year. Board means the board of directors of the Company. BSE means bovine spongiform encephalopathy. Business Day means the period of 9 am to 5 pm on any day of the week when banks in Wellington are generally open for business. Closing Date means 14 december 2007 or such other date as the Board determines. Companies Act means Companies act 1993. NZSX means the main board equity security market operated by NZX. Company means NZ Farming Systems Uruguay Limited. NZSX Listing Rules means the listing rules of the NZSX. Compounded Target means a compounded investor return from the inception of the Company, of 10% per annum. Conaprole means the Uruguayan milk processing company Co-operativa Nacional de Productores de Leche. Constitution means the constitution of the Company. Offer means the non-renounceable rights issue of 84,799,117 new Directors means the directors of the Company. DM/ha means dry matter per hectare. Entitlement and Acceptance Form means the entitlement and acceptance Form issued with this Offer document for the non-renounceable offer of ordinary Shares in NZ Farming Systems Uruguay Limited. FMD means Foot and Mouth disease. ha means hectares. Investor Return means the return for the previous financial year of the Company comprising: the total gross amount of distributions authorised by the Board and paid by the Company to investors in respect of Shares in the Company on issue, expressed, in respect of each Share, as a percentage of the Share price at the beginning of the financial year; and the percentage change from one twelve month period to the next in the average June Quarter Market Price of a Share (provided that an appropriate adjustment determined by the Manager in consultation with the Company will be made in the event of any Share splits, issues, or other Share reorganisations which alter the market price of a Share), provided that the first investor return shall be calculated for the period from inception to 30 June 2008 (for this period a pro rata adjustment will be made for the number of months during that period which exceed the twelve month period). Securities Act means the Securities act 1978. Securities Regulations means the Securities regulations 1983. in this document, a reference to $, unless otherwise stated means to New Zealand dollars. Share means an ordinary share in NZ Farming Systems Uruguay. Shares to those persons who are registered as holding existing Shares on the record date on the terms set out in this Offer document. Offer Document means this combined investment Statement and Short-form Prospectus dated 16 November 2007. Private Placement means the offer of new Shares at the issue price of $1.50 per Share to be made to institutional and wholesale investors concurrently with allotment under this Offer, with the placement to occur on 14 december 2007. Record Date means the record date for calculation of entitlements under the Offer, being 5 pm on 20 November 2007. Registrar means Computershare investor Services Limited. Shareholder means a shareholder in NZ Farming Systems Uruguay. NZX means New Zealand exchange Limited. NZX Firm means a Market Participant, accredited and approved by NZX for the purpose of providing client advice and facilitating trades in the markets provided by NZX. IPO means the initial offer of 75 million Shares in NZ Farming Systems Uruguay with oversubscriptions of up to 75 million Shares, made by the Company and contained in an offer document dated 3 November 2006. Lead Manager means aBN aMrO Craigs Limited. Manager means Pgg Wrightson Funds Management Limited. Market Participant means a participant in the markets provided by NZX who has been accredited and approved by NZX as a NZX Firm. MERCOSUR means the Southern Common Market. Members are Brazil, argentina, Uruguay, Venezuela and Paraguay. associate Membership is held by Bolivia, Chile, Colombia, ecuador and Peru. N Z FarMiN g S yS t e MS UrUg Uay L i M i t ed 21 instructions and terms and Conditions of entitlement and acceptance Form accompanying this Offer document is an entitlement and acceptance Form showing the new Shares to which you are entitled. Shareholders may take the following action: (1) accept your entitlement in relation to the Offer in full or in part; (2) do nothing, in which case your entitlement to take up Shares will lapse at 5pm on the Closing date. Payment Payment of the full amount of the Shares (being $1.50 per Share), must accompany the entitlement and acceptance Form. Payment must be in New Zealand dollars for immediate value. Post dated cheques will not be accepted. Cheques must be drawn on a registered New Zealand Bank. Cheques must be made out in favour of ‘NZ Farming Systems Uruguay Limited Non-renounceable rights Offer’ and crossed ‘Not transferable’. When to Apply by you must return your completed entitlement and acceptance Form (together with payment in full for the number of Shares you decide to take up, based on your entitlement) to Computershare investor Services Limited by no later than 5 pm on Friday, 14 december. Treatment of Application the submission of an entitlement and acceptance Form with your cheque for the application money will constitute your irrevocable offer to purchase or subscribe for Shares. if your entitlement and acceptance Form is not completed correctly, or if the accompanying payment is the wrong amount, it may still be treated as valid. the decision of the Company as to whether to treat your entitlement and acceptance Form as valid, and how to construe, amend or complete it, shall be final. the decision on the number of Shares to be allocated or transferred to you shall also be final. you will not, however be treated as having offered to purchase a greater value of Shares, than that for which payment has been made. How to Apply applications may only be made on the entitlement and acceptance Form accompanying this Offer document. if you wish to apply for Shares under the Offer you must complete the entitlement and acceptance Form in accordance with the instructions on the Form. Signing and Dating read the Offer document and entitlement and acceptance Form carefully and sign and date the entitlement and acceptance Form. it must be signed by the applicant(s) personally, or under company seal, if it has one, or by two directors of the company, or one director if there is only one director, or in either case by an attorney. if your entitlement and acceptance Form is signed by an attorney, the power of attorney document is not required to be lodged but the attorney must complete the certificate on the reverse of the entitlement and acceptance Form. Joint applicants must all sign the entitlement and acceptance Form. Shareholders applying under the Offer whose applications are not accepted, or are accepted in respect of a lesser value of Shares than the amount for which they applied will receive a refund of all, or part, of their application monies without interest. If you have not paid the second instalment on your partly paid Shares before the due date (5 pm on Friday 14 December 2007), any application you make for entitlements will be declined. In this situation, the Company may, in its absolute discretion, withhold the subscription amount paid for the entitlements and use it to offset your liability to pay the second instalment. 22 N Z FarM i N g S yS teM S U rUgUay LiMited Closing dates entitlement and acceptance Forms under the Offer must be received by the registrar, Computershare investor Services Limited, no later than 5pm on Friday 14 december 2007. the Company may amend this date at its discretion, subject to any necessary approvals of NZX. applications may be lodged with the Lead Manager, or any NZX Firm so long as they are lodged in sufficient time to enable them to be mailed or delivered to reach the registrar no later than 5 pm on Friday 14 december 2007. Delivery applications cannot be revoked or withdrawn. entitlement and acceptance Forms must be mailed or delivered, with payment, to: the directors NZ Farming Systems Uruguay Limited C/– Computershare investor Services Limited Level 2, 159 Hurstmere road takapuna Private Bag 92119 aUCKLaNd applications which are received by the registrar after the Closing date, may or may not be accepted, at the discretion of the Company. N Z FarMiN g S yS t e MS UrUg Uay L i M i t ed 23 directory The Company NZ Farming Systems Uruguay Limited 57 Waterloo road Hornby Christchurch Phone: (03) 372 0800 Fax: (03) 344 5195 Web: www.nzfsu.co.nz Registrar Computershare investor Services Limited Level 2 159 Hurstmere road takapuna Private Bag 92119 auckland 1142 Phone: (09) 488 8777 Fax: (09) 488 8787 The Board of Directors Keith raymond Smith auckland Michael Craig Norgate auckland Murray James Flett invercargill Samuel richard Maling Christchurch John Suffield Parker Otaki Bevan david Cushing Christchurch the directors can be contacted at the Company’s registered address. Auditors PricewaterhouseCoopers 12th floor PricewaterhouseCoopers Centre 119 armagh Street P.O. Box 13244 Christchurch Phone: (03) 374 3000 Fax: (03) 374 3001 Solicitors dLa Phillips Fox tower Building 50-64 Customhouse Quay Wellington. Phone: (04) 472 6289 Fax: (04) 472 7429 Lead Manager aBN aMrO Craigs Limited aBN aMrO Craigs House 158 Cameron road P.O. Box 13155 tauranga Phone: (07) 577 6049 Fax: (07) 571 8625 Companies Office registrar of Companies Companies Office Level 18 aSB Centre 135 albert Street auckland Freephone: 0508 266 726 Web: www.companies.govt.nz 24 N Z FarM i N g S yS teM S U rUgUay LiMited