NZ Farming Systems Uruguay Limited Prospectus and Investment Statement FOR AN OFFER OF 75 MILLION ORDINARY SHARES AT AN ISSUE PRICE OF $1.00 PER SHARE WITH PROVISION FOR OVERSUBSCRIPTIONS OF UP TO 75 MILLION ORDINARY SHARES
ABN AMRO Craigs Limited Lead Manager Contents
Important Information 1 Investment Highlights 2 Offer Summary 7 Letter from the Chairman 8 Description of the Offer 11 Governance and Management 14 Comparison of Farming in New Zealand and Uruguay 19 Background to the Investment Opportunity 30 The Investment Opportunity 33 Financial Information 35 Valuation 49 Investment Statement Information 57 Statutory Information 66 Statutory Index 73 Glossary 74 Instructions and Terms and Conditions of Application Form 76 Application Forms 77 Directory Inside back cover Important Information
The information in this section is required under the Choosing an Investment Adviser Securities Act 1978. You have the right to request from any investment adviser a Investment decisions are very important. They often have written disclosure statement stating his or her experience and long-term consequences. Read all documents carefully. qualifications to give advice. That document will tell you: Ask questions. Seek advice before committing yourself. • whether the adviser gives advice only about particular types of investment; Choosing an investment • whether the advice is limited to the investments offered by When deciding whether to invest, consider carefully the one or more particular financial organisation; and answers to the following questions that can be found on the • whether the advisor will receive a commission or other pages below: benefit from advising you. What sort of investment is this?...... 58 You are strongly encouraged to request that statement. An
Who is involved in providing it for me?...... 59 investment adviser commits an offence if he or she does not provide you with a written disclosure statement within five How much do I pay?...... 59 working days of your request. You must make the request at What are the charges?...... 59 the time the advice is given or within one month of receiving What returns will I get?...... 60 the advice. What are my risks?...... 60 In addition: Can the investment be altered?...... 63 • if an investment adviser has any conviction for dishonesty How do I cash in my investment?...... 64 or has been adjudged bankrupt, he or she must tell you this Who do I contact with enquiries about in writing; and my investment?...... 65 • if an investment adviser receives any money or assets on Is there anyone to whom I can complain your behalf, he or she must tell you in writing the methods if I have problems with my investment?...... 65 employed for this purpose. What other information can I obtain Tell the adviser what the purpose of your investment is. This about this investment?...... 65 is important because different investments are suitable for different purposes. 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
1 This is the wording required by Schedule 3D to the Securities Regulations 1983 (NZ) which contemplates a separate investment statement and prospectus. This Offer Document combines a 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 pages 58–65.
NZ Farming Systems Uruguay Limited Investment Highlights
NZ Farming Systems Uruguay is seeking to raise up to $150 million • in this Offer in order to acquire and develop Uruguayan farmland by applying intensive pasture based farm management systems developed in New Zealand.
The Offer is for 75 million partly paid shares in NZ Farming Systems Uruguay • with provision for oversubscriptions of a further 75 million shares. Unpaid capital will be called before the end of the calendar year 2007, at which time the Directors will use their best endeavours to list the Company on the main board of the New Zealand Exchange, the NZSX.
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AVi^ijYZ(*§H JGJ The Company is promoted by PGG Wrightson which • will hold a material stake in the Company, and manage 8dbeVgVi^kZh^oZVcYaVi^ijYZWZilZZc Jgj\jVnVcYCZlOZVaVcY its farming business. An allocation of 5 million Shares has been reserved for the Directors of NZ Farming Systems Uruguay and PGG Wrightson who have indicated that they intend to participate in the Offer. Information in the Investment Highlights section is summarised from other sections of this Offer Document. Sources can be found in these other sections. NZ Farming Systems Uruguay Limited The net proceeds of the Offer will be used to complete development of farms acquired • from PGG Wrightson and purchase and develop additional farms. PGG Wrightson (through related companies) will manage the farms and it will have a cornerstone stake in NZ Farming Systems Uruguay through shares that will be issued to PGG Wrightson Investments in consideration for shares in the companies which own the three farms PGG Wrightson Investments purchased for development in 2005. Neither PGG Wrightson, any member of the PGG Wrightson Group, the Directors, nor any other person guarantees the return of capital invested or the performance of the Shares. Despite Uruguay being only two thirds the size of New Zealand, Uruguay’s • farmed area is 11% greater due to the very high proportion of utilisable land. Uruguay has 11.7 million hectares of grazing land, most of which is unimproved native pasture. This land has historically been the main forage base and offers significant potential for development.1 1 See page 20 for more information and sourcing. NZ Farming Systems Uruguay Limited NZ Farming Systems Uruguay has been established as the • first of several farm development companies that PGG Wrightson plans to promote and manage, for the benefit of New Zealand farmers and investors. The Board believes that the large size of farms in Uruguay, • absentee landownership and easily realisable profits from cattle grazing have provided little incentive for farmers to increase productivity. The experience of PGG Wrightson has shown that farmland in • Uruguay is highly responsive to New Zealand style pasture species and intensive pasture management. PGG Wrightson has managed to raise dry matter production by more than 300%, from less than 4,500kg/ha to 14,500kg/ha without irrigation. For PGG Wrightson, the impact of improving pastures at a beef • finishing farm leased by it has been significant. Before it engaged on a programme of pasture improvement, annual liveweight gains were of the order of 100kg per hectare. Following completion of a pasture development programme, liveweight gains of 900kg per annum per hectare are being achieved. New Zealanders do not own any defensible intellectual property • rights over their farm management systems. While they may have the expertise to apply them better than most others, information on New Zealand farming systems is freely available and New Zealand cannot hope to sustain a monopoly over that expertise. That knowledge is already being applied in Uruguay and other South American countries. New Zealand farmers have the choice of investing to capture the opportunity themselves or of allowing others to capture the gains. NZ Farming Systems Uruguay Limited 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, which averages around 1,200mm per annum, is reasonably well distributed throughout the year but with significantly more rain in the spring and summer in the west. See page 21 for more information and sourcing. The last few years have seen the first investments by New Zealand • farmers in the Southern Cone countries of South America (Chile, Argentina, Uruguay and Brazil). NZ Farming Systems Uruguay believes that these early investments are likely to be followed by significantly increased interest similar to that seen in New Zealand just over a decade ago when dairy farmers expanded from the Waikato and Taranaki to Southland and Canterbury, and indeed from New Zealand to Australia over that same period. PGG Wrightson has an unmatched combination of knowledge, • experience and demonstrated capability in Uruguay, and the infrastructure to be able to put in place the comprehensive package of skills and resources necessary to farm successfully in Uruguay. Based on the experience of PGG Wrightson in Uruguay over the • last 7 years, NZ Farming Systems Uruguay believes that there is the potential to more than triple the production of milk solids per hectare from Uruguayan dairy farms using New Zealand farm management systems and achieve an attractive rate of return for its shareholders over the medium term. The Board considers that the Uruguayan macroeconomic • environment and off farm infrastructure supports an investment in Uruguayan farms. Uruguay has a stable democracy employing sound economic policies, modern and efficient farm service companies, a well trained and hardworking labour force and technically advanced milk and meat processing facilities. The Uruguayan government is highly supportive of foreign investment in the productive sector and has a high regard for the property rights of foreigners. This Offer Document is for an offer of 75 million ordinary shares (Shares) in NZ Farming Systems Uruguay Limited (NZ Farming Systems Uruguay or the Company) at an issue price of $1.00 per Share (Offer) with provision for oversubscriptions of a further 75 million shares. The maximum size of the Offer is 150 million Shares and oversubscriptions will be accepted up to that amount. Offer Summary Issuer NZ Farming Systems Uruguay Limited. Lead Manager ABN AMRO Craigs Limited. Registration This Offer Document is dated 3 November 2006 and has been registered with the Registrar of Companies together with copies of the documents required by section 41 of the Securities Act 1978 at that date (being the management agreement referred to at page 16 and the farm purchase contract referred to at page 33, and the consents of Sr Romualdo Rodríguez of Firm Romualdo Rodríguez Negocias Rurales of Montevideo, Uruguay and of Nimmo-Bell & Company Limited, Agricultural Business Associates and of the auditor). Issue price The issue price is $1.00 per Share. 50 cents per Share is payable on application, the other 50 cents per Share will be called by the Company for payment on 14 December 2007. There are consequences for investors not meeting the call which are detailed on page 12. NZX Listing The Directors will use their best endeavours to list the Shares on NZSX as soon as possible after the call on 14 December 2007. No representation is made that such listing will occur. NZX accepts no responsibility for any statement in this Offer Document. If such listing does not occur for any reason, there will continue to be no established market for the trading of Shares and investors will only be able to trade Shares privately, limiting their ability to sell Shares. For Shareholders who need to sell their Shares in the period prior to any listing on NZSX the Company will maintain a register and endeavour to match them with potential buyers. Key Dates2 Offer opens Monday 6 November 2006 Offer closes Tuesday 12 December 2006 Allotment of Shares Friday 15 December 2006 Application Form Application Forms and instructions follow page 76. For definitions of capitalised words and phrases used in this Offer Document please refer to the Glossary on page 74. 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. NZ Farming Systems Uruguay Limited Dear Farming Investor It is my pleasure, on behalf of the Board, to introduce to you NZ Farming Systems Uruguay Limited. The Company has been established to enable New Zealand farmers and investors to invest in farming in a country where PGG Wrightson’s experience provides a high level of confidence that the application of New Zealand farm and pasture management principles will translate into strong gains in farm productivity and profitability. Letter from the Chairman Those of you who keep in touch with the international farming But productivity gains in New Zealand farming have become scene will be well aware of the increasing competitiveness harder to secure. Competition for suitable land is strong, of farming in the Southern Cone countries of South America; with increased pressure on water supplies and environmental Chile, Uruguay, Brazil and Argentina. This is a region which issues becoming increasingly complex. Many dairy farmers is developing quickly and where international investment seeking suitable land have moved from the traditional areas interest is high. PGG Wrightson has a strong business in the in the North Island to Canterbury and Southland, where much region, in Uruguay in particular, and is familiar with the pace of the potential has now been realised. Other farmers have of development there. moved into Australia where, typically, land prices are lower The last few years have seen the first investments by New but security of water supply is more problematical. For many Zealand farmers in these Southern Cone countries. In the farmers, Australia has set the outward boundary to international Board’s opinion, these early investments are likely to become investment for them, with cultural and legal differences and the a ‘wave’ similar to that we saw in this country from the difficulties of managing farms over great distances ruling out Waikato and Taranaki to Southland and Canterbury just over farm ownership further afield. a decade ago, or indeed from New Zealand to Australia over that same period. ‘Why Uruguay?’ you might ask.3 NZ Farming Systems Uruguay has been formed by PGG Like New Zealand, Uruguay is a small country with a temperate Wrightson to provide an opportunity for farmers and farming climate that is reliant on its primary sector. Unlike other investors to participate in this expansion, without many of the parts of South America, Uruguay has no mountains at all; its risks inherent in individual farm development in a non-English extensive undulating farmland is largely under native pasture. speaking country halfway around the world. The large size of farms and easily realisable profits from New Zealand farmers have always had a strong orientation cattle grazing for absentee landowners have provided little to look outwards to the wider world. An awareness of incentive to increase productivity. Agricultural exports are changes in international markets and adjusting to them have important to the economy, though, and Uruguay’s democratic been important in establishing New Zealand’s position as government has indicated that it wishes to encourage foreign a leading primary producer. Advanced pasture and animal investment and output and productivity growth. From an management systems and the application of sophisticated investor’s perspective, Uruguay is now a reasonably low risk but practical and effective technology have ensured that this country with a high respect for private property rights and one market awareness has been translated through increased where New Zealanders are viewed favourably. It has strong productivity into farmer returns. rural infrastructure and, importantly, suitable land is currently available at prices that are a fraction of those in New Zealand. NZ Farming Systems Uruguay Limited PGG Wrightson has needed to address the various issues sustain a monopoly over that expertise. That knowledge is involved in working in Uruguay, where it owns 86% of already being applied in Uruguay and other South American the country’s largest seed distributor, Wrightson Pas S.A. countries. New Zealand farmers have the choice of investing In that process it has recognised a major opportunity to capture the opportunity themselves or of allowing others to for New Zealand farmers and farming investors who are capture the gains. The Company also believes that, over time, interested in international investment. our playing an active role in Uruguay’s development will help In 2001, Wrightson Limited leased a small beef finishing farm develop markets for innovative New Zealand based companies in Uruguay to demonstrate the productivity improvement working in related areas. that could be achieved with new grasses and suitably modified NZ Farming Systems Uruguay is a unique investment New Zealand pasture management. That experiment was highly opportunity. The Board considers that PGG Wrightson has successful, with liveweight gains increasing from 100kg per an unmatched combination of knowledge, experience and annum per hectare to 900kg. demonstrated capability, and the infrastructure to be able to Encouraged by this, the company proceeded to deepen its put in place the comprehensive package of skills and resources experience, gaining an understanding of the Uruguayan necessary to create a profitable farming business in Uruguay. social and legal environment, and building a capable local I would invite farmers and others who are interested in farming management team. We now have the necessary expertise, investment to take this opportunity to invest with us. resources and structures to invite farmers and farming investors Yours sincerely to participate with us in this significant opportunity. ‘Why would we invest in our competitors?’ is a question you might also ask. Through Wrightson Pas S.A., PGG Wrightson has an established operation in Uruguay and what it considers to be a good Keith Smith understanding of the country and economy. NZ Farming Chairman Systems Uruguay is aware of the emerging presence NZ Farming Systems Uruguay Limited of international investors and believes that Uruguay’s transformation from being a low productivity producer is only a matter of time. New Zealanders do not own any defensible intellectual property rights over their farm management 3 Information on Uruguay taken from: systems. While they may have the expertise to apply them • www.cia.gov/cia/publications; better than most others, information on New Zealand farming • www.state.gov/r/pa/ei/bgn; systems is freely available and New Zealand cannot hope to • www.pwcglboal.com/extweb/challenges.nst; • www.heritage.org; • www.transparency.org; and • internal PGG Wrightson information. NZ Farming Systems Uruguay Limited About Uruguay – a small, agricultural country Uruguay is a small country, two-thirds Roman Catholic, although the majority Uruguay’s economy is dependent upon the size of New Zealand, situated on do not actively practice a religion. agriculture. Agricultural production the northern bank of the River Plate Literacy, at 97%, is very high and life directly accounts for only 12% of on the south-eastern coast of South expectancy is long. Their Government is GDP, but together with an industrial America. Its northern neighbour is Brazil, democratically elected and the country sector (18% of GDP) which is based while to the west, across the river, it has a long history of respect for private on the transformation of agricultural borders Argentina. property rights. products, makes up more than half Its 3.2 million population, which is Like New Zealanders, the majority of the country’s exports. Leading growing at 0.6% pa, is very largely of of Uruguayans live in urban areas. economic sectors include meat European descent. Uruguayans are Montevideo is the only large city, with a processing, agribusiness, wood, wool, Spanish speaking and most are nominally population of 1.4 million. leather production and apparel, textiles, and chemicals. All information in the About Uruguay sections is sourced from the U.S. Department of State, Bureau of Western Hemisphere Affairs March 2006 at www.state.gov/r/pa/ei/bgn/209/.htm 10 NZ Farming Systems Uruguay Limited This Offer Document is a combined Investment Statement and Prospectus in respect of an offer of 75 million ordinary Shares in NZ Farming Systems Uruguay with provision for oversubscriptions of up to a further 75 million ordinary Shares. This section outlines the main terms of the Offer. Investors’ attention is also drawn to the ‘Answers to Important Questions’ on pages 58 to 65. Description of the Offer The Offer Contemporaneous purchase of The shares issued to PGG Wrightson NZ Farming Systems Uruguay Limited farms from PGG Wrightson for Investments will amount to 10.7% of is offering for subscription 75 million Shares and cash the total shares on issue if the Offer ordinary Shares at an issue price of As its foundation investment, the proceeds amount to $150 million; 26.4% $1.00 per Share. The issue price will be Company will acquire from PGG if the Offer proceeds amount to the payable in two parts; half to be payable Wrightson Investments three farms minimum subscription of $50 million. with the Application and the other half known as Valle de Soba, Tambo El Rural Portfolio Investments Limited also payable on 14 December 2007. Cabure and Menafra. The three farms intends to apply for 10 million Shares. The minimum amount which in the and associated farm assets are held That interest will be associated with opinion of the Directors must be raised by PGG Wrightson Investments in the shareholding of PGG Wrightson from the Offer is $50 million. two Uruguayan nominee companies Investments under the Takeovers Code. – Gabefox S.A. and Gimley S.A. The The maximum combined interest (if the Company will acquire all of the shares in Offer proceeds amount to the minimum Use of proceeds these nominee companies. The purchase subscription of $50 million) is 41.1%. Assuming the Offer is fully subscribed, price of US$11,926,228, which has No person (including any Director the total proceeds of the Offer (including been agreed based on an independent of the Company, Rural Portfolio the second half of subscriptions valuation, will be paid for in equal parts Investments Limited, PGG Wrightson payable on 14 December 2007) will by an issue of partly paid ordinary shares Investments, or any other member of be $75 million plus the value of any and cash. The partly paid shares will the PGG Wrightson Group) guarantees oversubscriptions accepted. be issued on the same terms as those the return of capital invested, or the The proceeds of the Offer, after offered to all other shareholders under performance of the Shares. deduction of expenses, will be applied the Offer. to the purchase and improvement of PGG Wrightson Investments intends to Offer pricing farmland in Uruguay, and development use the cash it receives in part payment The issue price is $1.00 per Share. All of intensive dairying and beef farming for the sale of the farms to NZ Farming Shares allotted under the Offer will be on that land applying New Zealand style Systems Uruguay to retire debt it issued at the issue price, paid up to 50 farming systems. incurred when it purchased the farms in cents. The expenses of the Offer (including 2005. PGG Wrightson Investments will brokerage) are estimated at $2.4 million also invest further in the Company when Initial instalment assuming the Offer is subscribed to it makes the instalment payment due on The initial instalment of the issue price 100 million Shares, including the shares its partly paid shares in December 2007. is 50 cents per Share and is payable on issued to PGG Wrightson Investments PGG Wrightson Investments will application for Shares in the Offer by Limited (PGG Wrightson Investments) undertake not to sell these shares for investors. Cheques will be banked on in part consideration for farms (see at least 3 years from the date of this 15 December 2006. below), and will be paid by NZ Farming Offer Document and intends to hold its Systems Uruguay. This includes the lead shares as a long-term investment. More management fee payable by NZ Farming information about the farm purchase Systems Uruguay to the Lead Manager. contract is contained on page 33. NZ Farming Systems Uruguay Limited 11 Second instalment Until Shares are fully paid any Shares From this brokerage the Lead Manager The second and final instalment of the transferred must be transferred on the will pay brokerage to PGG Wrightson, issue price is 50 cents per Share and is basis that the transferee acknowledges NZX Firms and financial intermediaries payable on 14 December 2007. Investors its obligation to pay the second at the same rate in respect of Shares will be reminded prior to this time of instalment of the Share price due on allocated to them and duly allotted their obligation to pay this amount. 14 December 2007. pursuant to applications bearing their stamp. Investor default on second Offer structure instalment The 75 million Shares in the Offer Priority Allocations If an investor does not pay the second have been allocated either on a Firm A Priority Allocation is a best endeavours instalment due on 14 December 2007, Allocation basis to institutional investors allocation in which there is no the Board will give the investor notice in New Zealand and Australia, or as a obligation on PGG Wrightson, the Lead demanding payment and the following Priority Allocation to PGG Wrightson, Manager, other NZX Firms and financial consequences apply: the Lead Manager and other NZX Firms intermediaries who accept Priority and financial intermediaries, for firm Allocations, to subscribe for any shortfall the investor will be liable to pay a • allocation to their clients. Shares that they are unable to allocate default rate of interest on the amount firm to their clients. There is therefore that remains unpaid, at the Reserve The Company will accept no certainty that Shares in the Offer Bank of New Zealand’s Official Cash oversubscriptions of up to 75 million allocated on a Priority Allocation basis Rate (OCR) + 5% and calculated Shares. The maximum number of will be subscribed for. from 14 December 2007 until the day Shares to be issued pursuant to this payment is received by the Company; Offer, including oversubscriptions, is Applications pursuant to Priority 150 million. Allocations will not be subject to scaling if the investor fails to make payment • by NZ Farming Systems Uruguay. by 31 December 2007, the Board may Members of the public who wish to resolve that the Shares in relation to apply for Shares can do so through an which the second payment has not NZX Firm or other financial intermediary How to apply been made, will be forfeited; holding a Priority Allocation, or, Applications must be made on the with respect to oversubscriptions, Application Form, completed in • NZ Farming Systems Uruguay may by completing the Application Form accordance with the instructions on then sell the forfeited Shares; included in this Offer Document in page 76. • the proceeds of the sale of any or all accordance with the instructions on Applications must be received by of those Shares will be applied against page 76 and returning the completed Computershare Investor Services Limited the payment of the second instalment Application Form to the Registrar or the at the address on the Application that was due plus any interest from Lead Manager in time to be received by Form no later than 5.00pm Tuesday 14 December 2007 up to the date the Registry by 5.00pm on the Closing 12 December 2006. of sale; Date of 12 December 2006. If the Offer is oversubscribed, • the balance of any proceeds of such applications (other than those under a sale, if any, will be repaid to the Brokerage fees Priority Applications) may be subject to investor but if the proceeds of such NZ Farming Systems Uruguay will pay scaling by the Company. a sale are insufficient to meet the brokerage to the Lead Manager on the second instalment plus interest the allotment of Shares pursuant to this investor will remain fully liable to Minimum subscription Offer. For Shares allotted pursuant to NZ Farming Systems Uruguay for An investor must subscribe for a Firm and Priority Allocations, the rate the shortfall; minimum of 20,000 Shares. of brokerage is 3% of the gross value • the investor will not be entitled of initial subscription proceeds (ie Applications must be accompanied to any authorised distributions the number of Shares allotted times by the initial instalment of 50 cents in respect of those Shares and all 50 cents per Share). For Shares allotted per Share. rights attaching to the Shares will be pursuant to oversubscriptions, the rate suspended (including voting rights) of brokerage is 2% of the gross value of Allotment of shares until the second instalment payment initial subscription proceeds. Allotment of Shares under the Offer will is received by the Company. be undertaken on 15 December 2006. 12 NZ Farming Systems Uruguay Limited Overseas investors None of NZ Farming Systems Uruguay, Shares on issue pre and post The Offer is being made to members the Lead Manager, nor any of their the Offer of the public in New Zealand. The Offer related parties, directors, officers, On the incorporation of NZ Farming may also be made to certain corporate employees, consultants, agents, partners Systems Uruguay, 100 ordinary shares and institutional investors in New or advisors accepts any liability or were allotted to PGG Wrightson Limited. Zealand and other jurisdictions where it responsibility to determine whether a No further shares have been allotted is lawful to do so. person is able to participate in the Offer. prior to the date of this Offer Document. No person may offer, invite, sell or deliver On successful completion of this Offer any Shares or distribute any document Disclosure of Promoters the total number of shares on issue will (including this Offer Document) to PGG Wrightson and its directors, comprise the 75 million Shares (plus any person outside New Zealand except Keith Raymond Smith, Michael oversubscriptions, if any) issued under except in accordance with all the legal Craig Norgate, Samuel Richard Maling this Offer plus the 17,934,177 partly requirements of the relevant jurisdiction. and Murray James Flett, who are also paid shares issued to PGG Wrightson The Offer Document may not be sent Directors of NZ Farming Systems Investments for the purchase of the into or distributed in the United States Uruguay, are promoters of the Offer. nominee companies holding the three of America. The directors of PGG Wrightson are: farms known as Valle de Soba, Tambo El Cabure and Menafra, and associated Unless otherwise agreed with NZ Arthur William Baylis, Sir Selwyn John farm assets. Farming Systems Uruguay, any person Cushing, Richard Frank Elworthy, Murray or entity subscribing for Shares in the James Flett, Brian James Jolliffe, Samuel Offer will, by virtue of such application, Richard Maling, John Baird McConnon, be deemed to represent that they Michael Craig Norgate, Keith Raymond are not in a jurisdiction that does not Smith and William David Thomas. permit the making of the Offer or an invitation of the kind contained in this Offer Document and is not for the account or benefit of a person within such jurisdiction. About Uruguay – early days and colonisation by Spain The only inhabitants of Uruguay before European colonisation of the area were the Charrua Indians, a small tribe driven south by the Guarani Indians of Paraguay. The Spanish discovered the territory of present-day Uruguay in 1516, but the Indians’ fierce resistance to conquest, combined with the absence of gold and silver, limited settlement in the region during the 16th and 17th centuries. The Spanish introduced cattle, which became a source of wealth in the region. Spanish colonisation increased as Spain sought to limit Portugal’s expansion of Brazil’s frontiers. Montevideo was founded by the Spanish in the early 18th century as a military stronghold; its natural harbour soon developed into a commercial centre competing with Argentina’s capital, Buenos Aires. Uruguay’s early 19th century history was shaped by ongoing conflicts between the British, Spanish, Portuguese, and colonial forces for dominance in the Argentina-Brazil-Uruguay region. In 1811, Jose Gervasio Artigas, who became Uruguay´s national hero, launched a successful revolt against Spain. In 1821, the Provincia Oriental del Rio de la Plata, present-day Uruguay, was annexed to Brazil by Portugal. The Provincia declared independence from Brazil on August 25, 1825 (after numerous revolts in 1821, 1823, and 1825) but decided to adhere to a regional federation with Argentina. Source: See page 10 NZ Farming Systems Uruguay Limited 13 Governance and Management The Board of NZ Farming Systems Uruguay is highly experienced and knowledgeable in farming and farming investment, and in business more generally. Keith Smith, B. Com, FCA (Chairman) Keith Smith is a director of PGG Wrightson Limited and was previously Chairman of Wrightson Limited. Keith is a chartered accountant and until December 2005 was a partner in the national accounting practice BDO Spicers, specialising in Directorships. He is Chairman of Tourism Holdings Limited, Skellerup Holdings Limited and The Warehouse Group Limited. He is also a director of Macquarie Goodman (NZ) Limited and a number of private companies, including Chairman of Lowe Corporation Limited a major New Zealand Meat Co Products company. He is a past President of The New Zealand Institute of Chartered Accountants. Keith is Chairman of PGG Wrightson’s Audit Committee. Craig Norgate, BBS, CA, FNZIM Craig Norgate is a director of PGG Wrightson Limited and Managing Director of Rural Portfolio Investments Limited, which owns 30% of the shares in PGG Wrightson. Prior to his involvement in Rural Portfolio Investments, Craig had 15 years experience as a leader in the New Zealand dairy industry, including two years as the inaugural CEO of Fonterra Co-operative Group and, prior to that, a number of years as CEO of Kiwi Co-operative Dairies Limited. Craig is a director of Westgate Port Taranaki Limited, Dexcel Limited, Aotearoa Fisheries Limited, Sealord Group Limited, and a member of the Government’s Growth and Innovation Advisory Board, the Foundation for Research, Science and Technology, and the Advisory Board for the Auckland Regional Council’s Economic Development Unit. Murray Flett, B. Com Ag Murray Flett is a Southland-based dairy farmer. He is a director of PGG Wrightson Limited. Murray has spent nine years as a director in the dairy industry, including a three-year term as a Director of Fonterra Co-operative Group, and is currently a director of several private companies in the food, printing, importing and agricultural sectors in New Zealand and Australia. Murray has gained some understanding of farming in Uruguay since first visiting there nearly three years ago. He is a director/shareholder of a 4,000 hectare farm in Uruguay, which is currently being developed. Sam Maling, LLB Sam Maling is a director of PGG Wrightson Limited, Chairman of Pyne Gould Corporation Limited and MARAC Finance Limited, and a director of Perpetual Trust Limited. He was appointed to the Board of Pyne Gould Guinness Limited prior to its merger with Reid Farmers. Sam practises as a barrister in Christchurch and has over 30 years professional experience in law. He has served as a vice-president of the New Zealand Law Society and chairman of the Broadcasting Standards Authority. Sam is an Accredited Fellow of the Institute of Directors in New Zealand (Inc). 14 NZ Farming Systems Uruguay Limited John Parker, B Agr Sc., AMP, Harvard John Parker is an independent director of the Company. He was formerly Deputy CEO of the NZ Dairy Board and amongst other responsibilities was Chairman of the Dairy Board’s Latin American subsidiaries and a director of the Livestock Improvement Corporation. He started with the Dairy Board as a Consulting Officer (farm advisor) and has owned dairy farms. John has held a number of directorships and is currently Chairman of Port of Tauranga, Toll Owens Limited and is a director of several private companies. David Cushing, B.Com ACA David Cushing is also an independent director of the Company. Christchurch based, David is currently a director of New Zealand Rural Property Trust Management Limited which manages the 30 farms owned by New Zealand Rural Property Trust. He is executive director of REL Trust Management Limited which manages the recently formed REL Pacific Equity Trust. David is also a director of Rural Equities Limited, Tourism Holdings Limited, Wakefield Health Limited, Red Steel Limited and H & G Limited. He was formerly an investment banker with the Bank of New Zealand and a director of Williams & Kettle Limited. Corporate governance Board membership The Board of NZ Farming Systems Uruguay has adopted The Constitution of the Company prescribes that the minimum Corporate Governance policies, a summary of which is number of Directors that may be appointed is three and the contained below. The Board will regularly review the corporate maximum number is seven. governance policies to ensure NZ Farming Systems Uruguay’s At each annual meeting one third of the Directors must retire. responsibilities and obligations are met. The Directors who retire are eligible for re-election. The Board currently comprises six members; Keith Raymond Role of the board Smith, Michael Craig Norgate, Murray James Flett, Samuel The Board is elected by the Shareholders and is responsible for Richard Maling, John Suffield Parker and Bevan David Cushing. the control of the business of the Company. It is accountable to its Shareholders for the performance of the Company, and Delegation compliance by the Company with laws and standards. The Board delegates responsibility for the day to day The Board is responsible for setting the direction of the management of the Company to PGG Wrightson Funds Company by developing a mission statement and corporate Management Limited. objectives, and then developing and endorsing strategy to achieve the objectives, ensure procedures are in place to Audit Committee provide effective internal financial control, and establishing The Board has established an Audit Committee which policy in key areas. is constituted to monitor the financial and regulatory The Board sets objectives and performance targets and reports produced by the Company, the external audit of the monitors management’s performance. Company’s affairs, and review and monitor the Company’s internal controls and systems, and compliance with the governance, legal and regulatory requirements of the Company. The members of the Committee are John Suffield Parker, Bevan David Cushing, Keith Raymond Smith and Samuel Richard Maling. NZ Farming Systems Uruguay Limited 15 Indemnity and Insurance PGG Wrightson Funds Management Limited In accordance with the Company’s Constitution and to the This wholly-owned subsidiary of PGG Wrightson Investments extent permitted by law, the Company indemnifies and insures has been newly established to provide asset management and its Directors against liability to other parties (excluding a claim investor relations services to NZ Farming Systems Uruguay by the Company itself) that may arise from their position as and for similar initiatives to be considered in other countries in Directors. The indemnification requires that the Director acted the future. honestly and in good faith with a view to the best interests of The Company has entered into a management contract with the Company and that the Director had reasonable grounds for PGG Wrightson Funds Management Limited (Manager) dated believing that their conduct was lawful. The Company maintains 3 November 2006. insurance for its Directors, however the insurance does not The agreement provides for the delegation of all management, cover a number of types of liabilities including liabilities arising administration and investor relations of the Company to from any criminal or bad faith activities. the Manager, in accordance with instructions policies and procedures agreed with the Board. About the Manager The services that will be provided by the Manager include; Initially, the Company will not employ staff directly; it will be • Managing the strategic development of the Company’s managed through contracts established with PGG Wrightson assets; and subsidiary companies which will ensure a high level of Advising the Board on investment opportunities and expertise and support. All contracts will be at commercially- • proposals for investment; determined prices. The structure chart shows the relationships between the parties involved. • Negotiating the acquisition and sale of assets; • Providing advice on securities structuring and compliance assurance for the Company, including development of constituting documentation if required; CO;Vgb^c\HnhiZbh • Providing all investor relations functions for the Company, Jgj\jVnA^b^iZY including reporting, communications and meetings; >cXdgedgViZY^cCZlOZVaVcY • Using its best endeavours to ensure that the supporting infrastructure exists for: – development of farms on the scale envisaged; E<<Lg^\]ihdc;jcYh – the development of management infrastructure to BVcV\ZbZciA^b^iZY support the Company’s growth; 7ii[jCWdW][c[dj – provision of farm inputs, including labour, of the necessary quality and quantity; and – processing and marketing of outputs; E<<Lg^\]ihdcJgj\jVnA^b^iZY Supervising the farm manager; >cXdgedgViZY^cJgj\jVn • KVaaZYZHdWV CZl;Vgb CZl;Vgb • Building relationships with government, agencies, IVbWd:a8VWjgZ 6Xfj^h^i^dch 6Xfj^h^i^dch BZcV[gV agribusiness and local communities in Uruguay that lead to the Company being acknowledged as a positive contributor >cejih to the economy, the agriculture sector and the community in Uruguay; and Lg^\]ihdcEVh Di]Zghjeea^Zgh • Provision of all day to day administration and ensuring the Company maintains best practice governance standards and &%%dlcZYhjWh^Y^Vg^Zhd[ &%%dlcZYhjWh^Y^Vg^Zhd[ E<<Lg^\]ihdc>ckZhibZcihA^b^iZY CO;Vgb^c\HnhiZbhJgj\jVnA^b^iZY internal risk management. 16 NZ Farming Systems Uruguay Limited The term of the agreement is five years. On completion of this The Manager does not guarantee the performance of the term a notice period of three years is required to be given by Company or any assets of the Company. either party to terminate the agreement. There are rights of The Chief Executive of the Manager termination for material breach and insolvency during the term. will be Peter Baynes. The Directors of The earliest the agreement can be terminated, other than for the Manager will be Barry Alexander breach or insolvency, is eight years. Brook, the Chief Executive Officer of The Manager will be paid a Management Fee of 1.5% per PGG Wrightson, Michael Earl Sang, Chief annum on the gross asset value of the Company until 30 June Financial Officer of PGG Wrightson and 2008, thereafter reducing to 1.0% per annum. The gross asset Peter Edward Baynes. value of the Company will be calculated by the Manager in Peter is a professional economist who, accordance with generally accepted accounting standards early in his career, was Chief Economist of the National Bank. (based on the market value of the farm assets which are Over the 19 years since, he has enjoyed a successful career at subject to a revaluation each year). CEO level in the New Zealand financial sector, most recently as In addition, the Manager will be paid a Performance Fee Chief Executive of Perpetual Trust. calculated as 20% of the amount by which Share price growth plus gross distributions exceeds 10% per annum PGG Wrightson Uruguay Limited compounded. An adjustment will be made to ensure that Management of the business in Uruguay will be undertaken total Performance Fees paid to the Manager over time are by a newly established, wholly-owned Uruguayan subsidiary not enhanced by Share price volatility. Share price growth is of PGG Wrightson Investments called PGG Wrightson Uruguay calculated as the percentage change in a 12 month period in Limited (PGG Wrightson Uruguay). the volume weighted average market price of the Shares for the The Manager will enter into an agreement with PGG Wrightson quarter to 30 June. If the Shares do not list on NZSX by 30 June Uruguay (Farm Manager) delegating its obligation to provide 2008, the average market price of the Shares will be determined farm management services. on the basis of the annual change in gross asset value of the Pursuant to the agreement the Farm Manager is entitled Company. The first payment of the Performance Fee will be to recover the cost of on-farm services, including a normal made in July 2008 in respect of the period from allotment to commercial fee commensurate with New Zealand practice 30 June 2008 and thereafter annually in July in respect of the payable by the individual farm owning subsidiary companies previous financial year. as appropriate. The Manager is responsible for its internal costs and expenses The Chief Executive of PGG Wrightson incurred in connection with providing the services. The Uruguay is Carlos Miguel de León. The Company (or its farm owning subsidiary companies) will be Directors of the Manager will also be responsible for costs and expenses payable to third parties, directors of PGG Wrightson Uruguay, which include printing and distribution of communications with together with Carlos Miguel de León. shareholders, Directors’ fees and expenses, audit and legal fees, the costs of certain farm management services, and listing and Carlos is a well-respected businessman share registry fees. and farmer. He has been PGG Wrightson’s senior South American executive since The Company has agreed to indemnify the Manager against 1999. Carlos has been largely responsible for the development all losses, costs and expenses suffered or incurred by the of PGG Wrightson’s successful seed operations from a zero base Manager in relation to the Manager performing the Services, to market leader. except those resulting from negligence, fraud or breach of the agreement by the Manager. The company will employ farm managers experienced in New Zealand farming systems. NZ Farming Systems Uruguay Limited 17 About Uruguay – an independent nation The regional federation defeated Brazil after a three-year war. The 1828 Treaty of Montevideo, fostered by the United Kingdom, gave birth to Uruguay as an independent state. The nation’s first constitution was adopted in 1830. The remainder of the 19th century, under a series of elected and appointed presidents, saw interventions by neighbouring states, political and economic fluctuations, and large inflows of immigrants, mostly from Europe. Jose Batlley Ordoñez, president from 1903 to 1907 and again from 1911 to 1915, set the pattern for Uruguay’s modern political development. He established widespread political, social, and economic reforms such as a welfare program, government participation in many facets of the economy, and a plural executive. Some of these reforms were continued by his successors. Source: See page 10 18 NZ Farming Systems Uruguay Limited Comparison of Farming in New Zealand and Uruguay Uruguay has extensive areas of farm land suitable for conversion to New Zealand style dairying and farms are of a good scale. “Fly just about anywhere over rural Uruguay and the impression is of gently undulating Waikato/Southland type farm land as far as you can see in any direction.” – NZ Farming Systems Uruguay Director and Southland dairy farmer, Murray Flett. NZ Farming Systems Uruguay Limited 19 Comparison of Farming in New Zealand and Uruguay Land for development in Uruguay is abundant and Once a major supplier of beef to world markets, the Uruguayan very competitively priced4 livestock industry has until recently stagnated for 30 years. The Uruguay has a total area of 17.6 million hectares with 15.3 large size of farms, absentee landowners and ready profits from million hectares (87%) devoted to cattle, sheep and cropping cattle grazing on native pastures have provided little incentive compared with 13.8 million hectares in New Zealand. Despite to increase productivity. Land suitable for development has the total land area being only two thirds the size of New been selling at less than $3,000 per hectare, although there is Zealand, Uruguay’s farmed area is 11% greater due to the very some upward pressure on prices arising from investment by high level of utilisable land and lower area in forest. Most of the neighbouring Argentinian investors for crops such as soya beans grazing land is unimproved native pasture, amounting to 11.7 and major forestry and pulp mill developments, mostly close to million hectares. This has historically been the main forage base the border in the west. and offers a huge potential for development. The landscape is There are over 12 million cattle and 11 million sheep mostly flat to gently rolling, rising to a highest point of 513 in Uruguay, compared with 9.7 million and 39.5 million metres. This contrasts with New Zealand’s landscape which is respectively in New Zealand. While cattle numbers in Uruguay predominantly mountainous with some large coastal plains. have been rising gradually the national sheep flock has been Rainfall distribution Mean monthly rainfall (mm) and relative humidity (RH) (1961–1990) West, central and east regions 140 120 100 80 60 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec mm West mm Central mm East RH West RH Central RH East Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Total mm West 92 116 125 91 78 66 69 76 80 113 108 87 1099 mm Central 121 124 125 102 104 98 113 90 97 111 108 97 1287 mm East 99 107 90 72 89 99 107 111 106 98 83 62 1122 RH West 70 73 74 77 79 81 79 78 75 74 72 69 75 RH Central 65 70 73 77 80 82 82 78 76 73 70 65 74 RH East 75 77 80 83 85 85 85 83 83 82 78 76 81 Source: National Meteorological Office, Uruguay – www.meteorologia.com.uy – Informacion Climatologia Note: West – Colonia Weather Station, Central – Paso de Los Toros Weather Station, East – Rocha Weather Station 4 Information on land, agricultural land use and development in Uruguay compiled by Nimmo-Bell & Company Limited 20 NZ Farming Systems Uruguay Limited trending down rapidly from around 25 million in 1990 in response to the reduced demand for wool. The last census in 2000 showed that the country has approximately 32,000 livestock farms (somewhat fewer than New Zealand’s 47,000). Of these farms the 9% that are over 1,250 hectares carry 51% of the stock. Uruguay’s climate is not dissimilar to New Zealand’s The temperate climate of Uruguay, with its mild winters and hot summers, is closest in temperature to Northland in New Zealand and is suitable for intensive pasture production systems. Rainfall, which averages around 1,200 mm per annum is reasonably well distributed throughout the year with significantly more rain in the spring and summer compared with autumn and winter in the west. Temperatures in the summer, while at the high end of the suitable range in the north and central regions of Uruguay, are significantly lower in the west and east. Temperatures by region Mean maximum and minimum monthly temperatures (1961–1990) West, central and east regions 35 30 25 C 20 Degrees 15 10 5 0 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Max West Max Central Max East Min East Min Central Min West Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Total Max West 27.3 27.2 25.4 21.7 18.3 14.9 14.6 16 18 20.9 23.8 26.7 21.2 Max Central 30.9 29.4 27.2 23.3 19.8 16.4 16.2 17.7 19.8 22.8 25.8 29.1 23.2 Max East 27.9 27.3 25.5 22.4 19.4 15.9 15.8 16.6 17.8 20.5 23.2 26.2 21.5 Min West 19.2 18.8 17.2 14.3 11.4 8.7 8.1 8.9 10.3 12.8 15 17.6 13.5 Min Central 18.8 18.4 16.5 12.7 9.9 7 7.2 7.8 9.3 12.1 14.5 17.2 12.6 Min East 16.1 16 14.5 11.3 8.4 6.7 6.4 6.5 7.7 9.9 11.8 14.4 10.8 Source: National Meteorological Office, Uruguay – www.meteorologia.com.uy – Informacion Climatologia. NZ Farming Systems Uruguay Limited 21 About Uruguay – politics of the last 40 years Economic, political, and social difficulties led to constitutional amendments, and the adoption of a new constitution in 1967. In 1973, amid increasing economic and political turmoil, the armed forces closed the Congress and established a civilian-military regime, characterised by repression and widespread human rights abuses. A new constitution drafted by the military was rejected in a November 1980 plebiscite. Following the plebiscite, the armed forces announced a plan for return to civilian rule. National elections were held in 1984. Colorado Party leader Julio Maria Sanguinetti won the presidency and served from 1985 to 1990. The first Sanguinetti administration implemented economic reforms and consolidated democracy following the country’s years under military rule. Sanguinetti’s economic reforms, focusing on the attraction of foreign trade and capital, achieved some success and stabilised the economy. The National Party’s Luis Alberto Lacalle won the 1989 presidential election and served from 1990 to 1995. Lacalle executed major structural economic reforms and pursued further liberalisation of the trade regime. Uruguay became a founding member of MERCOSUR in 1991 (the Southern Cone Common Market, which includes Argentina, Brazil, Venezuela and Paraguay). Despite economic growth during Lacalle’s term, adjustment and privatisation efforts provoked political opposition, and some reforms were overturned by referendum. In the 1994 elections, former President Sanguinetti won a new term, which ran from 1995 until March 2000. As no single party had a majority in the General Assembly, the National Party joined with Sanguinetti’s Colorado Party in a coalition government. The Sanguinetti government continued Uruguay’s economic reforms and integration into MERCOSUR. Other important reforms were aimed at improving the electoral system, social security, education, and public safety. The economy grew steadily for most of Sanguinetti’s term, until low commodity prices and economic difficulties in its main export markets caused a recession in 1999, which continued into 2003. The 1999 national elections were held under a new electoral system established by constitutional amendment. Primaries in April decided single presidential candidates for each party, and national elections on October 31 determined representation in the legislature. As no presidential candidate received a majority in the October election, a runoff was held in November. In the runoff, Colorado Party candidate Jorge Batlle, aided by the support of the National Party, defeated Frente Amplio candidate Tabaré Vázquez. The legislative coalition of the Colorado and National parties that held during most of Batlle´s administration ended in November 2002, when the Blancos withdrew their ministers from the cabinet. Throughout most of his administration, President Batlle had to handle Uruguay´s largest economic crisis in recent history, which impacted on poverty and led to increased emigration. Aside from successfully addressing the crisis, Batlle increased international trade, attracted foreign investment and tried to resolve issues related to Uruguayans who disappeared during the military government. On June 27, 2004 the parties held primary elections to select their candidates for the national elections to be held on October 31. The Frente Amplio had already determined that Vázquez would be its candidate, the Colorados settled on former Interior Minister Guillermo Stirling, and the Blanco Party chose Jorge Larranaga, a former state governor and senator. Vázquez won the national election in the first round with a majority of the popular vote (50.7%) and was sworn in as President on March 1, 2005. Source: See page 10 22 NZ Farming Systems Uruguay Limited Dry Matter Production in Uruguay can be boosted to New Zealand levels Under New Zealand pasture management systems grass Pasture productivity – Native vs Improved growth in Uruguay is similar to 3000 that in New Zealand. 2500 Based on trials conducted by PGG Wrightson, dry matter production 2000 from improved pasture species under 1500 New Zealand style management is Kg DM/ha expected to average around 14,500 kg 1000 DM/ha compared with production of 500 less than 4,500 kg DM/ha from native grasses. This level of pasture production 0 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec compares favourably with established Improved Native dairying areas in New Zealand. With irrigation, production is expected to exceed 20,000 kg DM/ha. Estimates of Kg DM per Ha per month Pasture Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Total Native 540 491 414 334 252 167 125 128 293 376 626 752 4498 Improved 966 963 1563 1645 897 797 725 825 1459 1832 1923 1072 14667 Source: NZ Farming Systems Uruguay estimates Dairy profitability Distribution of herds Dairy farming is grass based in Uruguay with supplementary feed provided at the Cows/farm dairy shed to cover variations in pasture production. Little or no reticulated water is (incl. dry) % farms No. of farms provided in the paddocks and the cows obtain their water from natural sources and at 0–9 13.8 324 the dairy shed, unlike New Zealand which is intensively watered through reticulation 10–24 25.9 609 to troughs throughout the farm. 25–49 24.4 573 The distribution of herds supplying Conaprole (Cooperativa Nacional de Productores de Leche), the dominant producer co-operative, is given below. Milk supplied to 50–99 17.8 418 Conaprole is collected chilled from 2,350 farms and transported in insulated tankers. 100–199 10.5 247 Prices paid to producers for milk are based on protein, fat and quality and are 200–499 6.5 153 determined in advance by the co-operative. Occasionally, a final payment has been 500–999 0.9 21 made after a profitable season based on the milk supplied and equity the producer has in the co-operative. Prices paid over the last ten years are given below. The fall in 1000 and over 0.2 5 price in US$ terms in 2002 was due to an outbreak of Foot and Mouth Disease (FMD) Total 100.0 2,350 and the financial crisis which are discussed on pages 62 and 32. In 2004 producers Source: Nimmo-Bell & Company Limited benefited from the massive devaluation when the peso was floated. Prior to this the domestic market was more important than exports and the price of milk was kept artificially low compared to international market prices. The profitability of dairy farming in Uruguay using New Zealand technology is likely to be significantly higher than it is in New Zealand. Uruguayan milk prices are similar to those paid in New Zealand, farm development and operating costs are lower in Uruguay and the productivity of Uruguayan farms under New Zealand management systems should be no different. NZ Farming Systems Uruguay Limited 23 Productivity levels on Uruguayan farms utilising New Zealand management systems Prices paid to producers for milk are expected to be Year Average price % change Average price % change similar to those achieved (US c/l) (Peso/litre) in New Zealand. 1996 19.2 1.54 Per cow milk solids 1997 19.1 –0.5 1.81 17.5 production on better 1998 16.4 –14.1 1.71 –5.5 Uruguayan farms is 1999 14.5 –11.6 1.64 –4.1 already similar to New 2000 14.9 2.8 1.80 9.8 Zealand’s. NZ Farming 2001 15.3 2.7 2.09 16.1 Systems Uruguay 2002 11.2 –26.8 2.07 –1.0 expects that as stocking 2003 11.8 5.4 3.19 54.1 rates are increased 2004 14.4 22.0 4.27 33.9 as a consequence of 2005 16.8 16.7 4.50 5.4 better pasture species Source: Nimmo-Bell & Company Limited and management, and increased fertility and Dairy farms are individually licensed by the Uruguayan Ministry of Agriculture and water reticulation, per Fisheries (MGAP) for the control of critical hygiene factors (water supply, employee hectare milk solids medical certificates, condition of buildings and installations) plus annual control for brucellosis, TB and mastitis. production in Uruguay will The environmental government agency, DINAMA, runs programmes in conjunction with be at least as good as that the industry that have been developed over the last nine years achieving good levels achieved in New Zealand. of success. The government provides finance to assist farmers in the adoption of good environmental practices. Management of dairy effluents is a cultural issue rather than one dictated by law at this time and farmers have been working hard to improve the reuse of effluents and water. About Uruguay – Government Uruguay’s 1967 constitution institutionalises a strong presidency, subject to legislative and judicial checks. The president’s term is five years. Thirteen cabinet ministers, appointed by the president, head executive departments. The constitution provides for a bicameral General Assembly responsible for enacting laws and regulating the administration of justice. The General Assembly consists of a 30‑member Senate, presided over by the vice president of the republic, and a 99‑member Chamber of Deputies. The highest court is the Supreme Court; below it are appellate and lower courts and justices of the peace. In addition, there are electoral and administrative courts, an accounts court, and a military judicial system. The armed forces are constitutionally subordinate to the president through the minister of defence. By offering early retirement incentives, the government has trimmed the armed forces to about 14,500 for the army, 6,000 for the navy, and 3,000 for the air force. As of February 2003, Uruguay had 1,754 soldiers deployed in 11 UN peacekeeping missions. The largest groups were in the Congo, where 1,549 Uruguayan troops controlled one sector of the country, and the Sinai, where 60 troops were stationed. Source: See page 10 24 NZ Farming Systems Uruguay Limited Farm Performance The following table shows a comparison of key performance data on dairy farming in New Zealand and Uruguay. Uruguay** This season, the New Zealand Existing Targeted farmer owned dairy 2004/05* co‑operative, Conaprole, Kg milk solids/cow 339 327 364 expects to pay its Cows/ha 2.7 0.8 2.6 suppliers the equivalent Kg milk solids/ha 895 275 943 of NZ$4.00 per kg of Milk price $4.44 $4.00 $4.00 milk solids supplied. Total Farm Expenses $2,441 $886 $1,418 Conaprole’s projected Economic Farm Surplus/ha $950 $308 $2,384 payout of US$0.18/litre for Total Farm assets/ha $36,084 $5,144 $10,749 the current season equates Economic Farm Surplus/Total to NZ$4.00 per kilogram Farm Assets (per ha) 2.6% 6.0% 22.2% milk solids. Payment is * Source: 2004-2005 Economic Survey of NZ Dairy Farmers, Dexcel 2006. This is available to the public made in full within 45 days and can be purchased from Dexcel, PO Box 3221, Hamilton ** PGG Wrightson estimates at current costs and prices of the end of the month in which milk is supplied. Milk processing The Uruguayan milk industry supplies 1,490 million litres per year of which around 1,100 million litres are processed industrially, compared with 14,600 million litres in New Zealand (2004). Trends in milk processed by the industry are shown in the table below. Over the nine year period from 1996 total supply has increased at an Farmer owned dairy annual average compound rate of 2.3%. Supply from Conaprole, which is more export orientated than the rest of the industry, has grown at a faster rate than the industry as a co‑operative, Conaprole, whole at around 4% per annum. The decrease in supply in 2000 was due to a drought in is Uruguay’s largest the summer of 1999-2000, while the decrease in 2002 was due to movement controls company and it wants associated with the FMD outbreak.5 to get bigger. The value of milk product exports has Milk processed by the industry been growing rapidly at a compound rate While six other dairy Year Litres (million) % change of 5% from 1998 to 2005 rising from companies compete US$184 million to US$264 million. In 1996 1050 for milk supply from addition there has been a major shift in 1997 1100 4.8 Uruguayan dairy farmers, destination away from Brazil and Argentina 1998 1109 0.8 70 year old Conaprole which jointly made up 73% of exports 1999 1134 2.2 in 1998 to only 12% in 2005. The major processes about 60% of 2000 1020 –10.1 market in 2005 was Mexico at 29%, which all Uruguay’s milk through has grown from 5% in 1998. 2001 1100 7.9 seven modern plants. While Conaprole processes 60% of all milk 2002 1038 –3.6 Conaprole is actively produced in Uruguay and is the largest 2003 1084 4.4 seeking to increase the of five milk processors based in Uruguay 2004 1202 10.9 milk volumes it processes by a significant margin, there are also 2005 1289 7.3 and significant farmer two Argentinian milk processors who buy milk from Uruguay. This choice of milk Source: Nimmo-Bell & Company Limited investment in shares is not processor ensures that a competitive a prerequisite to supply. environment exists for the sale of milk. 5 Source: Nimmo-Bell & Company Limited NZ Farming Systems Uruguay Limited 25 About Uruguay – foreign relations Uruguay traditionally has had strong political and cultural links with its neighbours and Europe. With globalisation and regional economic problems, its links to North America have strengthened. Uruguay is a strong advocate of constitutional democracy, political pluralism, and individual liberties. Its international relations historically have been guided by the principles of non- intervention, multilateralism, respect for national sovereignty, and reliance on the rule of law to settle disputes. Uruguay’s international relations also reflect its drive to seek export markets and foreign investment. It is a founding member of MERCOSUR. Uruguay is a member of the Rio Group, an association of Latin American states that deals with multilateral security issues (under the Inter-American Treaty of Reciprocal Assistance). Uruguay’s location between Argentina and Brazil makes close relations with these two larger neighbours and MERCOSUR associate members Chile and Bolivia particularly important. Usually considered a neutral country and blessed with a professional diplomatic corps, Uruguay is often called on to preside over international bodies. Uruguay is a member of the Latin American Integration Association (ALADI), a trade association based in Montevideo that includes 10 South American countries plus Mexico and Cuba. Over recent years, relations with the U.S. have become increasingly important. In 2002, Uruguay and the U.S. created a Joint Commission on Trade and Investment (JCTI) to exchange ideas on a variety of economic topics. In March 2003, the JCTI identified six areas of concentration until the eventual signing of the Free Trade Area of the Americas (FTAA) in 2005: customs issues, intellectual property protection, investment, labour, environment, and trade in goods. In 2005, Uruguay and the U.S. signed a Bilateral Investment Treaty and ratified an Open Skies Agreement. Uruguay cooperates with the U.S. on law enforcement matters such as regional efforts to fight drug trafficking. Milk product export markets 1998 (by USD value) Milk product export markets 2005 (by USD value) Mexico USA Brazil Venezuela 5% Venezuela 9% 67% 12% 10% USA 4% Others Others 40% 6% Argentina 6% Mexico 29% Argentina Brazil 2% 10% Source: Information collated by Nimmo-Bell & Company Limited based on industry information. While Uruguay’s exports are focused on the Americas, New Zealand’s major markets are now in North and South East Asia (40%), with 16% to North America and 11% to South and Central America, primarily Mexico and Venezuela.6 Conaprole is the country’s largest private company, largest milk processor with a 60% market share, and leading exporter. It was established in 1936 by the merger of several existing co-operatives and now has annual sales, both domestic and export, of over US$300 million. The company processes 900 million litres annually, employs 1,450 people and produces over 300 products. By comparison, Fonterra Co-operative Group has around a 97% market share in New Zealand, has annual sales of around US$8.5 billion, processes over 14 billion litres of milk and has 17,400 employees.7 6 Source: Nimmo-Bell & Company Limited 7 Source: Nimmo-Bell & Company Limited 26 NZ Farming Systems Uruguay Limited Conaprole Milk Product Exports by country (%) 1998 1999 2000 2001 2002 2003 2004 2005 Brazil 70 77 65 41 40 46 18 16 Mexico 5 7 9 24 28 18 29 21 EU 1 5 4 11 5 9 11 10 Argentina 6 1 2 8 4 7 3 3 Venezuela 1 2 0 2 1 1 5 11 Chile 1 0 4 7 2 9 10 8 Others 16 8 16 7 20 11 24 31 US$ million 117 84 103 79 91 84 107 220.2 Source: Nimmo-Bell & Company Limited There are considerable differences The principal factories are ISO 2005 Breakdown of Exports from New Zealand in exports by value 9001/2000 certified. Hazard Analysis and by value reflecting the higher proportion of Critical Control Point (HACCP) system Uruguay New Zealand production consumed in the domestic is being implemented in all processes. Product % % market in Uruguay. Export certification is carried out by Milk powder 40 46 MGAP using ISO 9025 certified National Like the New Zealand industry Conaprole Cheese 33 19 operates modern sophisticated Technical Laboratory. Traceability Butter 10 16 factories using high end quality control and “recall” has been established in UHT 8 – procedures. Milk is analysed with the operating procedures. latest generation equipment (FOSS) New plants will be required in Other 9 19 from individual producer sample testing coming years to process the additional Source: Nimmo-Bell & Company Limited for composition, bacteria count, somatic expected supply. cells and the presence of antibiotics. Beef 8 Until the late 1970s the beef slaughter and processing industry in Uruguay was under government control. In 1978 the government opened the market to private companies and from then private slaughter houses were allowed to operate and domestic quotas were reduced. Capital was attracted to the industry and new, more advanced, small and medium sized facilities were built. By 1980, the government had quit the industry and more private firms had entered to compete in both the export and domestic markets. Uruguay was declared FMD free in 1995. This opened up new markets that had until then been closed to non-cooked meats. However, in April 2001 Uruguay suspended exports when new cases of FMD were discovered near the border with Argentina. Export markets began to reopen when no new cases were discovered after August 2001 and Uruguay was granted “FMD-free with vaccination” status by the World Organisation for Animal Health shortly after. In November 2001 it resumed exports to the EU and in June 2003 to the United States. Uruguay prohibits the import of live animals and/or genetic material from countries affected by FMD or other exotic diseases. The country is also classified as low risk for bovine spongiform encephalopathy (BSE) by the World Organisation for Animal Health. 8 Source of statistics in text: Nimmo-Bell & Company Limited NZ Farming Systems Uruguay Limited 27 The MGAP regulates the industry and has operated at around 60% to 70% of are now moving towards new meat is responsible for assuring food safety, capacity, only a little higher than New grading systems to provide carcass quality control, animal welfare (all Zealand’s average of around 58%, which measurements linked to value based cattle are now vaccinated for FMD has limited the entrance of new players. marketing programs. There is also free of charge) and environmental Since 2002, the increase in demand the start of a shift to more intensive control, issuing permits to slaughter driven by the devaluation of the peso production systems moving away from houses. The MGAP has issued approval and ready access to the NAFTA area has extensive grazing and low inputs to certificates and export permits to 37 attracted new investment in chillers, improved pastures producing prime slaughter houses. Of these, the USDA coolers and other infrastructure. Labour animals in 18 months as opposed to has awarded permits to the USA to 19 productivity has also increased as excess three years under the old system. This facilities and the EU permits for 24 (New labour has been removed. is in response to market demands for Zealand has 34 beef and 39 sheep plants Exports are concentrated in the top six younger animals. licensed). These facilities use state-of- slaughter houses which accounted for Beef production increased following the-art technology and highly skilled more than half of the total exports in achievement of FMD free status in 1995, labour to fulfil the demanding sanitary 2005. Traditionally, slaughtered animals which allowed access to new markets regulations of these two major markets have been priced on a live weight basis, for meat and live animals. The expansion based on HACCP principles. Commercial but in the last few years the trend was facilitated by a significant decline transparency is supervised and assured has been towards carcass pricing and in sheep numbers. Cattle slaughter by the National Meat Institute (INAC). in 2004 almost 70% of animals were averaged 1.5 million head during the From around the mid-1990s the industry priced in this way. A number of firms 1990s, falling to 1.37 million in 2001. Beef exports by destination 2001 2002 2003 2004 2005 tons USD tons USD tons USD tons USD tons USD (cwe) (thd) (cwe) (thd) (cwe) (thd) (cwe) (thd) (cwe) (thd) NAFTA 67,185 79,097 13,826 12,686 155,305 176,014 313,124 448,597 368,905 540,274 USA 22,560 30,652 10,239 9,272 93,238 112,602 265,976 372,729 344,160 497,882 Canada 40,639 42,930 3,555 3,373 62,048 63,381 46,841 75,290 24,549 42,102 Mexico 3,985 5,516 32 41 19 31 307 578 196 290 EU 37,695 58,033 55,642 85,065 33,919 67,463 35,098 91,544 47,001 124,809 Mercosur 27,842 36,103 50,165 45,511 35,889 39,089 18,638 28,309 18,796 31,524 Brazil 15,306 21,647 26,071 22,338 10,224 13,297 8,416 14,307 10,434 18,995 Chile 3,479 4,072 19,005 19,533 17,304 20,047 7,250 11,603 5,683 9,843 Argentina 9,056 10,384 5,089 3,641 8,371 5,744 2,972 2,399 2,680 2,686 Israel 31,050 39,215 40,947 45,607 30,587 33,404 13,750 20,839 10,970 18,689 Russian Fed. 18,637 11,669 11,004 6,282 Canary Islands 7,437 10,960 3,699 8,501 2,788 8,909 3,137 9,812 Algeria 37,751 33,323 25,521 23,333 2,566 3,393 Others 12,401 13,536 52,368 35,937 22,827 17,643 17,643 17,643 29,409 39,453 Total 176,173 225,984 258,136 269,089 317,545 375,737 403,696 623,502 478,218 764,561 Source: Information collated by Nimmo-Bell & Company Limited based on industry information. 28 NZ Farming Systems Uruguay Limited Since then, slaughter numbers have Prior to its achieving FMD free status, tariff of 4.4 cents per kilogram while increased rapidly reaching a record the MERCOSUR countries (the Southern above the quota there is an ad valorem 2.39 million head in 2005, a similar Common Market comprising Brazil, tariff of 26.4%. level to New Zealand. Argentina, Paraguay, Venezuela and Beef exports to the European Union Meat exports play an important role Uruguay), the European Union and amounted to approximately 25,500 in Uruguay’s economy. In 2005, meat Israel were the primary destinations for tonnes in 2005. Of this 6,300 tonnes exports accounted for 27% of the total Uruguayan beef. Since then the United comes under the Hilton quota which value of exports, with beef accounting States has become by far the most is subject to a 20% ad valorem tariff, for 21%, somewhat higher than New important export market for beef taking while quantities above the quota pay Zealand’s 16% and 6% respectively. around 76% on a carcass weight basis a significantly higher rate. Given the During the 10 years to 2005 total meat and 65% by value. The next most tariff structure, exports to the EU export value has increased by 194%. important markets are the United comprised mostly high-value cuts such The FMD outbreak in 2001 reduced Kingdom (8%), Canada (6%), and as tenderloin, striploin, rumps and ribeye. beef exports to $226 million from Germany (4%). Exports to the United $479 million in the previous year. Since States are regulated by a World Trade 2001, beef exports have trended up Organisation negotiated tariff rate quota to a record high of US$765 million in (distributed to Uruguayan companies 2005 (478,000 tonnes carcass weight by the Uruguayan government) which is equivalent) of which about 15% was currently set at 20,000 tonnes each year chilled and 80% frozen. for chilled and frozen beef. Exports within the quota are subject to a nominal fixed Bovine meat export markets 2001 (by USD value) Bovine meat export markets 2005 (by USD value) Canary Other Israel Canary Other Islands 5% 2% Islands 5% 1% Mercosur 1% Israel 4% 17% EU Mercosur 16% 16% NAFTA 35% EU NAFTA 26% 72% Source: Information collated by Nimmo-Bell & Company Limited based on industry information. NZ Farming Systems Uruguay Limited 29 Background to the Investment Opportunity NZ Farming Systems Uruguay has been established to enable New Zealand farmers and investors to invest in dairy and beef farming in Uruguay, a country where, in PGG Wrightson’s experience, the application of New Zealand farm and pasture management expertise can translate into strong gains in farm productivity and profitability. Wrightson Pas S.A. – genesis of the opportunity In 1999 Wrightson Limited acquired 51% of a local Uruguayan Company, Semillas Pas, which had been successfully operating in the Uruguayan seeds sector for seven years. Semillas Pas was run by a group of progressive farmers who were trying to develop new grassing technology for their own farms. They found that the new pastures produced impressive results even with low rates of fertiliser application. The company (which changed its name to Wrightson Pas S.A.), has had strong growth both in turnover and returns since 2002. During the last three years its sales turnover has increased by 58%, 60% and 30% respectively reaching US$12 million in the year to June 2006. In PGG Wrightson’s opinion it is the leader in the seeds business in Uruguay and according to management estimates it has a 52% market share. Wrightson Pas S.A. has based its marketing and production strategy on strategic alliances with local producers. It is a company that is focused on adding value to farm productivity and returns, rather than being just an input supplier. With a promising outlook and expansion into the other Cone countries of South America in mind, in 2005 PGG Wrightson acquired additional shares and now owns 86% of Wrightson Pas S.A. 30 NZ Farming Systems Uruguay Limited Carlos de León, Chief Executive of PGG Wrightson Uruguay “By utilising improved pasture species, fertiliser and controlled grazing, the experience of PGG Wrightson has shown that annual NZ Farming Systems dry matter production of less than 4,500kg/ha from native Uruguay perceives Uruguay pastures can be more than trebled, to around 14,500kg/ha in an average season. to be a relatively low risk With more animals per hectare and better feed for those animals, the consequence is country to invest in. that productivity has increased from around 100kg (liveweight gain) per annum per Uruguay is a western style hectare in native pasture to an average of 900 kg.” democratic country that Statement by PGG Wrightson PGG Wrightson has found to be similar to New Zealand but less developed, with Applying New Zealand farming systems – proof of concept well educated, friendly In 2001 Wrightson Pas S.A. leased a small beef finishing farm to demonstrate the and hard working people productivity improvement that could be achieved with new grasses and good New and a government that is Zealand pasture management. The demonstration farm was deliberately located in an area considered to have relatively poor productivity some 120 kilometres committed to attracting northwest of Montevideo, just west of Ismael Cortinas. and protecting foreign Without irrigation, significant productivity gains have been achieved on the investment in order to speed demonstration farm using a six point plan as follows: up development. 1. Capital Fertiliser: Phosphate (P) is applied to raise available phosphate to at least 20 ppm (parts per million), typically applying 300–400 kg per hectare of super phosphate (available P of native grassland is around 4 ppm). This promotes grass growth, increases drought resistance, brings forward spring Individual farmers trying growth and extends the growing season. to farm in Uruguay are 2. Subdivision: Paddocks are subdivided to control pasture growth, particularly likely to struggle. in the spring, and to increase utilisation of what is grown. Utilisation of spring growth is essential otherwise the new pasture runs out and productivity is lost. NZ Farming Systems 3. Water Reticulation: Water is reticulated to all paddocks to ensure that cattle Uruguay believes that have access to good water at all times. Experience in Uruguay shows that if difficulties imposed by water is not readily available and cattle have to walk a long way, production is distance, language, culture, lost and competition between animals increases dramatically. and lack of local knowledge 4. Pasture Species: New improved pasture species are sown using direct drilling. mean that a large scale will As a weed control measure, pastures are initially undersown with annual ryegrass before being sown with either perennial ryegrass or tall fescue once be required to successfully weeds are under control. A summer crop such as sorghum augments feed in develop and operate farms the summer pinch period and helps with weed control. in Uruguay. The Company 5. Stocking Rate: Cattle numbers are increased to utilise the additional feed. also believes that this 6. Maintenance Fertiliser: Once new pasture is established fertility is maintained favours a corporate rather through annual phosphate and urea dressings. than a go it alone approach to the development of New With irrigation it is expected that dry matter production can be raised to exceed 20,000kg/ha (primarily by increasing Zealand style dairy farming summer production) which will yield further significant in Uruguay. increases in liveweight gains. NZ Farming Systems Uruguay Limited 31 About Uruguay – recovery from crisis New Zealand style dairy farms can be established In some respects, Uruguay is reminiscent of New Zealand emerging from its in Uruguay for about 25% economic and financial crisis of 20 years ago. Then, New Zealand was dependent on a single export market and, when that had to change, came close to defaulting of the per hectare cost of on an unsustainable level of foreign debt. Similarly, until recent years Uruguay was buying an established dairy highly dependent on exports to its larger neighbours, Brazil and Argentina, and paid a farm in New Zealand. heavy price for that dependence when their economies ran into trouble. Devaluation in Brazil in 1999 made Uruguayan goods less competitive; an outbreak of foot and High quality Uruguayan farm mouth disease in 2001 curtailed beef exports to North America, and in late 2001, land can be purchased for an economic crisis in Argentina dramatically reduced exports and tourist receipts around NZ$3,000 per hectare (the white sands of Punta del Este are a popular holiday destination for Argentinians). and converted to a New A financial crisis developed in mid-2002 when Argentine withdrawals from Uruguayan Zealand style intensive dairy banks started a bank run that was overcome by major borrowing from international farm for around NZ$5,000 financial institutions. This, in turn, led to serious debt sustainability problems. Multi- party consensus was achieved to address the issues through a package of measures per hectare. endorsed and supported by the IMF which included floating the peso. A surge in inflation (25.9% in 2002) and a sharp devaluation of the currency created short-term pain but confidence was restored. Uruguay’s economy resumed growth in 2003, with a 2.5% rise in GDP. GDP grew about 12% in 2004 and around 6% in 2005. Inflation has dropped back to around the 6% level. NZ Farming Systems Uruguay’s rapid recovery over the past couple of years has been fuelled by increased Uruguay has first mover exports, especially to North America. The U.S. became Uruguay’s largest export advantage. market in 2004, thanks in large part to meat exports, and the country is now far less dependent on the vicissitudes of its large South American neighbours. The manner While still cheap by New in which the 2002 crisis was addressed effectively through democratic processes, Zealand standards, the price together with Uruguay’s positive investment climate, strong legal system, open of Uruguayan farm land financial markets and equal treatment of national and overseas investors inspire has increased significantly confidence for the future. during the last year as a Source: See page 10 result of competition from other foreign investors buying land for other uses, most notably forestry and soya beans. These price increases favour an early entry by investors looking to benefit from the introduction of New Zealand style dairy farming to Uruguay. Only NZ Farming Systems Uruguay is currently in a position to offer New Zealand farmers and investors a passive opportunity to participate in such a development. 32 NZ Farming Systems Uruguay Limited The Investment Opportunity The net proceeds of the Offer will be applied in part to Investments, as vendor, and the Company, as purchaser. The further development of the three farms being purchased from valuation assesses the value of the farm owning subsidiary PGG Wrightson Investments and in part to purchasing and companies, Gabefox S.A. and Gimley S.A., at US$9,303,028 developing unimproved prime agricultural land in Uruguay for and an additional US$2,414,400 for livestock to be acquired, development into high class beef and dairying operations. and a further US$208,800 for plant and machinery used for all The three farms being purchased from PGG Wrightson three farms. The valuation for the farms is allocated as follows: Investments are known as Valle de Soba, Tambo El Cabure Valle de Soba, US$2,186,348; Tambo El Cabure, US$4,413,749; and Menafra and will be acquired for a total purchase price and Menafra, US$2,702,931. A conditional purchase contract of US$11,926,228. The three farms and associated farm has been entered into between PGG Wrightson Investments assets are held by PGG Wrightson Investments in two and NZ Farming Systems Uruguay to buy the farm owning Uruguayan nominee companies – Gabefox S.A. and Gimley subsidiary companies (which own the farms, and farm assets S.A. The Company will acquire all the shares in these nominee including livestock) at this agreed valuation. companies. The farms, including livestock and machinery, were Consideration for the purchase will be by an issue of partly paid acquired by PGG Wrightson Investments for US$7.6 million. ordinary shares and cash, in equal parts. The partly paid shares This figure is not directly comparable with the current valuation will be issued at the same price and on the same terms as owing to expenditure on farm development and the increased those issued in this Offer. stocking rate that accompanied it. The increase reflects in part PGG Wrightson Investments intends to use the cash it receives an increase in capital value resulting from the development in part payment for the sale of the farms to NZ Farming that has been undertaken during the period of PGG Wrightson’s Systems Uruguay, to retire debt it incurred when it purchased ownership. the farms in 2005. PGG Wrightson Investments will also PGG Wrightson Investments purchased these farms in 2005 invest further in the Company when it makes the instalment to further demonstrate the value of the New Zealand pasture payment due on its partly paid shares in December 2007. based intensive system on a larger scale. Allied with this PGG Wrightson Investments will undertake not to sell shares was the need to learn about the intricacies of developing issued in consideration for the farms it sells to NZ Farming Uruguayan farms. A key part of gaining this broader experience Systems Uruguay for at least three years from the date of this has been the development of a team of Uruguayan managers Offer Document and intends to hold its shares as a long-term and advisors that provides valuable local experience in farm investment. Settlement for the sale of farm owning subsidiary purchase, development and operations including dealing with companies (which own the farms, and farm assets including government, regulatory, banking, legal and tax issues. These livestock) from PGG Wrightson Investments to NZ Farming units are now at the mid-point of their development and have Systems Uruguay will be on 15 December 2006, the date shown a dramatic uplift in performance. Shares will be allotted under this Offer. The three farms have been valued independently on The farm purchase contract is conditional on a minimum 30 October 2006 by a leading Uruguayan agribusiness amount of $50 million being raised under the Offer. Further company, Firm Rodríguez Romualdo Negocias Rurales. The information about the farm purchase contract is contained valuation which is set out on pages 49 to 56, was prepared on page 70. on a current market value basis, assuming a willing buyer The ownership of the three freehold farms to be acquired and willing seller, on joint instruction from PGG Wrightson from PGG Wrightson Investments will continue to be through NZ Farming Systems Uruguay Limited 33 the nominee companies, Gabefox S.A. and Gimley S.A., which Future development currently own the farms and farm assets. NZ Farming Systems The initial development programme for these farms plans Uruguay will acquire the shares in those nominee companies. for 60% of each unit in dairy production with 20% each in The farms are located in the Rio Negro region, just north of the heifer rearing and steer beef production. Around half the provincial town of Young near the Argentinian border. This land dairy area is to be irrigated most probably utilising water is some of the best in Uruguay and is keenly sought after by harvesting techniques rather than bores. Quotations have Argentinian investors for soya bean cropping. The farms are in been secured for centre pivot irrigation at an average cost of close proximity with a total area of 2,686 hectares. US$1,250 per hectare. A brief summary of development by PGG Wrightson of the Once initial development has been completed a decision three farms is as follows: will be made as to whether the area in dairy on each unit will Valle de Soba, (624 hectares). This property is currently grazing be expanded. dairy heifers. Approximately half the farm area was under- Prospective stocking rates are a maximum of 2.6 cows per sown during March 2006 and a further 15% was over-sown hectare. The heifer and steer units will be stocked at around at the same time. An initial base dressing of 150–200kg super 3.5 head per hectare and calves will be stocked at around seven phosphate was also applied and a further 100kg/ha of fertiliser head per hectare. (Nitrogen:Phosphorus:Potassium N:P:K 20:40:0) was applied Internal subdivision aims to provide an average paddock size of with the grass seed. Paddocks on this property have also been around 12 hectares and consists of two wire electric fences at a extensively subdivided and drinking troughs provided. cost of less than US$1.00 per metre erected. Each paddock is to Tambo El Cabure, (1,161 hectares). This property is currently have permanent water via a reticulated trough system. milking 1,100 cows through a modern 48 bail rotary cowshed. An indication of the infrastructure available for development PGG Wrightson started milking on this farm in January 2006 is given by the fact that on the three farms, 1,500 hectares of and an average of 959 cows were milked until the end of May land were sown in new pasture species over a 10-day period with average per cow production of 14.1 litres per day (0.96 Kg in February 2006. High capacity machinery used for cropping Milk solids). This production was achieved without irrigation or can be contracted at the ideal time for sowing pasture at very water troughs in paddocks. competitive prices as it is not being used at this time of the Approximately 70% of the farm area was under-sown with year. Labour cost is significantly lower than in New Zealand and a mixture of ryegrass, lotus, white clover and fescue over the all other inputs, such as plastic water pipes and tanalised posts period late February to May 2006. The balance of the farm was are available. over-sown at the same time and a fertiliser programme similar to that used on Valle de Soba was applied. Purchase and development of additional farms Stock numbers will continue to be increased as paddocks are In addition to the three farms being acquired from PGG subdivided, water is reticulated and a centre pivot irrigation Wrightson Investments, the Company plans to source and system is installed. Water for irrigation is plentiful and a storage purchase additional farms and undeveloped farmland using dam is to be built. money raised in the Offer and develop these farms by applying Menafra, (901 hectares). This property is currently grazing the six point programme discussed on page 31. Farms that steers and dairy heifers and is being developed for dairying. are acquired will generally be divided into units of between New pastures have been and are being under-sown, and 600 and 1,000 hectares and will be developed over a period of capital fertiliser has been applied. Plans are also in place for the several years into high class beef and dairying operations. construction of two new cowsheds, and dams and centre pivot irrigation systems. Consistent with these plans, paddocks are being subdivided and drinking water reticulated. Under New Zealand management systems, dairy farm operating costs in Uruguay are expected to be about 40% lower than they are in New Zealand. It has been PGG Wrightson’s experience that compared with New Zealand, most farm input costs are significantly cheaper in Uruguay, most notably the big ticket items of labour and feed. 34 NZ Farming Systems Uruguay Limited Financial Information Financial returns are expected to increase over time as the In addition, the Company is exempted from the requirement to Company purchases farms, completes its development set out the net tangible asset backing per Share offered in this programmes and reinvests retained earnings into further farm Offer Document, calculated on the basis that the farm owning purchases and development. subsidiary companies had been acquired, and all Shares offered Subject to available profits and normal prudential had been allotted by the Company. requirements, the Company’s dividend policy will reflect The Exemption Notice requires that the following statements a desire to pay a minimum dividend to shareholders that appear in this Offer Document in respect of the purchase of equates to an after tax yield to investors of 6% on the initial the Farms. investment. It is expected that the first dividend will be paid in The directors of PGG Wrightson Investments have respect of the financial year ending 30 June 2009. warranted that no external valuations were sought prior to The Company does not intend to undertake long-term the purchase of the Farms by PGG Wrightson Investments, borrowing in its first year, however, it is likely to use vendor that the decision to purchase the Farms was based on financing and short-term bridging finance to provide flexibility internal business case analysis, and that no other financial in its operations. It may also borrow to finance the purchase information was available to them regarding the historical of suitable farms in anticipation of receipt of the second performance of the Farms when they were purchased by instalment of Offer proceeds. PGG Wrightson Investments. The risks to which returns are subject are discussed in What are The material information available to PGG Wrightson my risks? on page 60. Investments in preparing the internal business case referred to above was general background information Securities Act exemption on farm land in Uruguay, including soil index and type, condition of land, location, water access and topography. Under the Securities Act (NZ Farming Systems Uruguay Coupled with this PGG Wrightson understood that an Limited) Exemption Notice 2006 (Exemption Notice) the offer had been made for the farms by another prospective Company has been exempted from compliance with certain purchaser at US$2,000 per hectare. provisions of the Securities Act 1978 and the Securities Regulations 1983. These relate to the acquisition by the The Directors are also required under the Exemption Company, from PGG Wrightson Investments of Gabefox S.A. Notice to confirm that the five year historical information and Gimley S.A., which own the three farm properties and referred to above cannot be provided in the Offer Document related farm assets at Valle de Soba, Tambo El Cabure and because the Company has no financial information Menafra (Farms). relating to the Farms prior to their acquisition in 2005, and has only internal management financial information Specifically, the Company is exempted from the requirement to relating to the Farms and the farm owning subsidiary include in this Offer Document historical financial information companies subsequent to their acquisition. The effect of for the five years to the date of this Offer Document in respect this is that the Company is instead including prospective of the businesses carried out by Gabefox S.A. and Gimley S.A. financial information contained in this section of the Offer Document, and the valuation referred to on pages 49 to 56. NZ Farming Systems Uruguay Limited 35 Further, the Directors are required by the Exemption Notice The prospective financial information has been presented in to state why they believe that it is reasonable, in their opinion order to assist potential investors in making their decision as to present the prospective pro-forma statement of financial to whether to invest in the Company. The prospective financial position as at 15 December 2006 on the basis of an assumption information has been prepared using assumptions which, in the that 100 million Shares will be allotted. The Directors confirm opinion of the Directors, have a reasonable and supportable that it is reasonable in their opinion that a mid-point between basis. Actual results may vary from the prospective financial the minimum subscription amount of $50 million, and the information due to the non-occurrence of anticipated events maximum offer amount of 150 million Shares, was required or alternatively events occurring that were not anticipated and to be used by the Company in the prospective financial any variations may be material. Investors must consider the information contained in this Offer Document. Based on assumptions described below in order to fully understand the confidential market research, the Directors believed the Offer prospective financial information. would be modestly oversubscribed and set this at a 10% over The prospective financial information contained within this subscription level – of 82 million Shares. Taking into account Offer Document is not intended to be updated subsequent to shares to be issued in part consideration for the farm purchase, the registration of this Offer Document. this amounts to 100 million Shares on a rounded basis. As a condition to the Exemption Notice, the Company is General assumptions required to include prospective financial information in Economic environment accordance with FRS-42: Prospective Financial Information in relation to: There will be no material change in the general economic environments of New Zealand or Uruguay. • Prospective pro-forma statement of financial position at 15 December 2006. Legislative and regulatory environment • Prospective statements of financial position at 30 June 2007, and 30 June 2008. There will be no material change in the legislative or regulatory environments in which the Group operates. • Prospective statements of financial performance for the seven month period ending 30 June 2007, and the year ending 30 June 2008. Industry conditions • Prospective statements of cash flows for the seven month There will be no material changes to competitive activity, period ending 30 June 2007, and the year ending 30 June industry structure, general industry conditions or the employee 2008. and independent contractor environments in the markets in This prospective financial information is presented for the NZ which the Group operates. Farming Systems Uruguay Group (the Group), comprising the Company and all its operating subsidiaries in Uruguay. The Competitive environment Group’s business is to acquire and develop Uruguayan farmland There will be no material change to the competitive markets applying intensive pasture based farm management systems in which the Group operates, nor any change in competitor developed and refined in New Zealand. activity. No new entrants will materially change the During the periods presented in the prospective financial competitive environment. information the Group is expected to complete the development of the three farm units to be purchased (by the Taxation purchase of farm owning subsidiary companies) from PGG There will be no change to the New Zealand corporate tax Wrightson Investments, and is projected to acquire a further rate of 33%. The Uruguayan corporate tax rate is assumed to 10 farm units for development and conversion into dairy units reduce to 25% as a result of the proposal currently before the over the prospective period. Uruguayan Parliament. The prospective financial information has been the subject of due diligence by the Directors. Although due care and attention has been taken in preparing the prospective financial information, the Directors cannot provide assurance that the prospective financial information will be achieved. 36 NZ Farming Systems Uruguay Limited Overriding Key Assumptions 2. Surplus funds: In the first few periods whilst properties are acquired and developed, the Group will have surplus Structural and business model funds. The surplus funds are assumed to be placed on 1. Funding: The Company raises from the markets deposit with financial institutions which have Standard approximately $82 million, which at the assumed & Poors’ ratings that are investment grade. For the exchange rate of US$0.66 to the $1 is the equivalent of purposes of these projections it has been assumed US$54 million under this Offer. PGG Wrightson Investments that these surplus funds will return an interest rate of sells its three properties in Uruguay for US$12 million, and 5% per annum of funds on deposit. in return receives approximately 18 million partly paid 3. Dividend policy: It is not assumed that any dividend will shares to 50 cents, and US$6 million cash. be paid in the period covered by the prospective financial It is assumed that a total of 100 million $1.00 Shares are information, with the first dividend assumed for the issued on 15 December 2006. This represents approximately financial year ending 30 June 2009. 10% oversubscriptions on the Offer of $75 million, 4. Management fees and Overhead operating costs: and allows for the issue of shares to PGG Wrightson Management fees payable to PGG Wrightson have been Investments in part consideration for the purchase of the set at the rate of 1.5% of total assets of the Group in three farms. 50% of the subscription monies are due to be accordance with the management agreement to be entered paid on 12 December 2006, with the balance payable on into between PGG Wrightson Funds Management and the 14 December 2007. Company. Other ongoing operating costs outlined on page A US$/NZ$ exchange rate of US$0.66 cents to $1, being 16 associated with the management of the Company have the Forward Foreign Exchange Buy NZ$/Sell US$ wholesale been assumed at $1.97 million (US$1.3 million) per annum. rate at 18 October 2006 for 15 December 2006, has been 5. Farm ownership: The properties in Uruguay will be assumed for the purposes of translating the funds raised purchased by companies incorporated in Uruguay, which under this issue. will be 100% owned by the Company. It is assumed that In accordance with New Zealand International Financial the property acquisitions in the early years will be funded Reporting Standards (NZ IFRS) the final instalment entirely from the funds raised in this Offer. The Uruguayan payment due on 14 December 2007 in relation to the entities will be fully funded through equity from the Shares issued has been discounted by an assumed cost of Company in New Zealand. debt at 6.4% based upon the one year US$ LIBOR (London 6. Business model: It is assumed that three properties will be Inter-Bank Offer Rate) ask rate at 18 October 2006, plus a purchased from PGG Wrightson Investments (through farm margin of 1% for the purposes of financial reporting. This owning subsidiaries owned by PGG Wrightson Investments) results in interest income being recorded by the Company on 15 December 2006. Thereafter farming units will be of US$2 million. purchased, which are assumed to average 1,000 hectares On 15 December 2006 the Company will have issued each. The table following models the performance the capital of $98 million, paid up to $50 million. A further Group anticipates from a typical 1,000 ha farm based $50 million will be called up on 14 December 2007. At on the experience of PGG Wrightson, applying current that time, after allowing for the impact of the instalment management and farming philosophies and practices. arrangements, the Company will have, before issue Figures are in United States (US) Dollars. expenses, issued capital of 100 million shares, each fully paid up to $1.00, representing paid up capital of $98 million, or a US$ equivalent of US$64 million, based on the above exchange rates. Based upon advice received from parties associated with this issue, and where applicable, contractual agreements with the Lead Manager and other parties associated with this issue, issue costs of $2.4 million have been provided in the prospective financial information presented in this Offer Document. Such costs have been based upon the Company raising $82 million under this Offer. NZ Farming Systems Uruguay Limited 37 Five Year Summary for 1000 hectare farm property Year 1 Year 2 Year 3 Year 4 Year 5 Hectares farmed Dairy – – 300 600 600 Heifer unit – 600 350 160 160 Steer unit – 400 210 100 100 Calf unit – – 140 140 140 – 1,000 1,000 1,000 1,000 Average number of cows milked – – 660 1,320 1,320 Litres milk produced – – 3,300,000 7,500,000 8,300,000 $US $US $US $US $US Operating receipts Cash received from milk sales – – 500,000 1,200,000 1,500,000 Cash received from livestock sales (less purchases) – 750,000 440,000 400,000 400,000 Cash received from operations – 750,000 940,000 1,600,000 1,900,000 Operating payments – 400,000 600,000 700,000 700,000 Net cash from operations – 350,000 340,000 900,000 1,200,000 Capital Expenditure Land purchase and associated costs 2,170,000 – – – – Livestock 770,000 – – – – Plant and machinery 80,000 340,000 – – – Development Costs 800,000 1,300,000 – – – Total capital expenditure 3,820,000 1,640,000 – – – Net cash flow prior to interest and taxation (3,820,000) (1,290,000) 340,000 900,000 1,200,000 Closing Balance Sheet Assets Livestock 770,000 860,000 1,040,000 1,040,000 1,040,000 Land, improvements and plant & Machinery 3,050,000 4,590,000 4,470,000 4,340,000 4,220,000 Total Assets 3,820,000 4,590,000 5,510,000 5,380,000 5,260,000 Closing livestock numbers Head count Head count Head count Head count Head count Milking Cows 825 1,650 1,650 1,650 Heifers 2,100 1,225 560 560 560 Steers 1,400 735 350 350 350 Calves 825 1,650 1,650 1,650 38 NZ Farming Systems Uruguay Limited Key management and farming assumptions underpinning the information the Directors have taken into account the illustration above are set out below and have been determined partial irrigation strategy and the relatively young herd by PGG Wrightson in conjunction with New Zealand based farm age, and have consequently conservatively assumed that consultants (Agricultural Business Associates and Nimmo‑Bell & it will take three years to reach near optimum production Company Limited). levels. As pastures become established and develop through a) Based upon New Zealand experience with dairy conversions regrassing, application of fertiliser, rotational grazing and the establishment of intensive farming systems in the and irrigation the land use changes from cattle raising year of acquisition the property is largely out of production to intensive dairy production. At the completion of the whilst the development of the farm takes place. Such development phase the property will have 60% of the development includes pasture renewal, irrigation, sub- available land under dairy production (50% of which is division, fencing, roading and water reticulation. While it irrigated). During the early stages of development the farm is expected that stock will be grazed during this period, no will run a combination of heifers and steers, which changes revenues are projected to be generated during that year. as the property matures. The assumed change in mix is illustrated below: b) The typical farm illustrated assumes the following capital costs: Number of Hectares per Unit – 1,000 In the year of acquisition: Year 1 Year 2 Year 3 Year 4 Year 5 • Land acquisition costs – US$2,000 per hectare, plus Land (hectares) associated costs; % of hectares per Business Unit • Livestock purchases – Initial stocking of unit comprises 2,100 heifer calves (cost US$235 per heifer) and 1,400 Dairy Unit 0% 30% 60% 60% 60% steers (cost US$200 per steer); and Heifer Unit 60% 35% 16% 16% 16% • Development costs – Commencement of the development Heifer/Steers of milking shed, irrigation, pasture development, electricity Calf Unit 14% 14% 14% 14% roading and fencing. Steer Unit 40% 21% 10% 10% 10% In the year immediately following acquisition: Total 100% 100% 100% 100% 100% • Plant and machinery – General farm machinery purchase; and d) The initial stocking of the unit is assumed to provide the • Development costs – Completion of the above dairy basis of the dairy herd once both the livestock have matured, conversion and development activities and the building of and pastures have been developed. It is assumed, in keeping a milking shed. with New Zealand farm management practices that herd The land acquisition costs have been based upon the replacement will come from future progeny and that after average current market values in Uruguay for undeveloped suitable growth and fattening that steers and surplus heifers, land in the regions that the Company intends to undertake together with older or non performing dairy cows will be sold operations. The assumed cost of US$2,200 per hectare has in the normal course of events. been reviewed and confirmed as reasonable by Sr Romualdo e) In keeping with New Zealand experience on intensive dairy Rodríguez of Firm Romualdo Rodríguez Negocias Rurales. units on similar quality land it is assumed that once fully Livestock purchase values have been based upon current developed each 1,000 hectare unit will be approximately market values for such stock in Uruguay as advised by 60% in dairy, with the 600 hectares running approximately PGG Wrightson. Development costs have been determined 1,650 cows. Farms in Uruguay typically milk throughout the by PGG Wrightson in conjunction with New Zealand year. It is assumed that on average 2.2 cows will be milked based farm consultants Agricultural Business Associates per hectare (with a maximum of 2.6) under dairy production and Nimmo-Bell & Company Limited drawing together throughout the year. In keeping with land becoming available local knowledge of costs and prices in Uruguay and for dairy production as set out under (c) above, in the first New Zealand expertise in dairy conversions and intensive year of dairy production 660 cows are assumed to be milked, farming systems. with assumed maximum production of 1,320 cows occurring c) Where properties are 100% irrigated and fully regrassed in the following year. PGG Wrightson notes that the Lincoln on conversion (based upon New Zealand experience University dairy farm at Lincoln University New Zealand is in Canterbury for example in dairy and intensive use currently carrying 4 cows per hectare and is producing in conversions), near potential productivity can be reached excess of 1,770kg of milk solids per hectare, adopting the within 18 months. In developing the prospective financial farming practices proposed for Uruguay. NZ Farming Systems Uruguay Limited 39 f) Daily milk production per cow is assumed to average breeding, electricity, insurance, repairs and maintenance and 17.3 litres at full production, which equates to 943kg of general administration costs. These have been based upon milk solids per hectare. This compares to production on PGG Wrightson’s experience in New Zealand and Uruguay. similar quality land and well managed properties in New 7. Livestock valuation: For the purposes of the prospective Zealand of around 1,000kg of milk solids per hectare. financial information in this Offer Document it has been Milk sales are assumed to realise US$0.18 per litre, which assumed that livestock values remain constant throughout is in line with current returns being paid by Conaprole, the the period presented. dominant producer co-operative in Uruguay. At an average 8. Currency and inflation: The model has been prepared in milk solids content of 6.8%, this equates to $4.00 per current dollars, and does not take into account inflation as kilogram of milk solids. it is assumed that cost increases will be more than offset g) Operating costs are assumed to include labour costs, by any inflationary impact on outputs. It has been assumed pasture management and summer feed, animal health, that the reporting currency is US$. Prospective Financial Information The assumptions underpinning the prospective financial information are predicated on the key structural and business model assumptions set out in this section. The specific assumptions use those as the basis of the Company’s prospective financial information as set out following the various statements. The prospective pro‑forma statement of financial position as at 15 December 2006 set out below for the Company is a prospective pro-forma statement of financial position and is not the actual statement of financial position of the Company. Prospective Statement of Financial Position As at … 15 December 30 June 30 June 2006 2007 2008 US$’000 US$’000 US$’000 Current Assets Cash and bank 19,085 338 5,268 Receivables 394 1,261 798 Unpaid share capital 31,000 31,000 – 50,479 32,599 6,066 Non Current Assets Livestock 2,414 6,687 11,609 Property, plant and equipment 9,586 23,876 48,312 12,000 30,563 59,921 Current Liabilities Payables 63 146 455 Tax payable – 198 1,028 63 344 1,483 Non Current Liabilities – – – Net Assets 62,416 62,818 64,504 Shareholders Equity Share Capital 62,416 62,416 62,416 Retained earnings – 402 2,088 62,416 62,818 64,504 40 NZ Farming Systems Uruguay Limited Prospective Statements of Movements in Equity For the period ended … Seven months Year ended ended 15 December 30 June 30 June 2006 2007 2008 US$’000 US$’000 US$’000 Total recognised revenues and expenses for the period – 402 1,686 Share capital issued 64,000 64,000 – Less Issue costs 1,584 1,584 – Less Dividends paid – – – Movements in equity for the period 62,416 62,818 1,686 Equity at beginning of the period – – 62,818 Equity at end of the period 62,416 62,818 64,504 Prospective Statements of Financial Performance For the period ended … Seven months Year ended ended 15 December 30 June 30 June 2006 2007 2008 US$’000 US$’000 US$’000 Revenue – 3,024 12,306 Cost of Sales – (1,235) (4,984) Gross Profit – 1,789 7,322 Farm working expenses – (1,061) (3,400) Management and administration expenses – (867) (1,300) Fund Management fee – (329) (737) Earnings before interest, tax and deprecation – (468) 1,885 Finance income / (expense) – 220 282 Interest income on deferred capital receipts – 1,000 1,000 Depreciation and amortisation – (152) (651) Net profit before taxation – 600 2,516 Taxation – 198 830 Net profit after tax for the period – 402 1,686 NZ Farming Systems Uruguay Limited 41 Prospective Statements of Cash Flows For the period ended … Seven months Year ended ended 15 December 30 June 30 June 2006 2007 2008 US$’000 US$’000 US$’000 Net cash flows from operating activities – (1,541) 1,659 Cash flows from investing activities: Purchases of property, plant and equipment 4,793 18,029 25,088 Livestock purchases 1,207 5,508 4,641 Net working capital acquired on purchase of subsidiaries 331 – – Net cash outflow to investing activities 6,331 23,537 29,729 Cash flows from financing activities: Share capital raised 27,000 27,000 33,000 Less: Issue costs 1,584 1,584 – Net cash inflow from financing activities 25,416 25,416 33,000 Net (decrease)/increase in cash held 19,085 338 4,930 Add cash at start of the year – – 338 Ending Cash/(Net Overdraft) carried forward 19,085 338 5,268 Significant assumptions to the Prospective Prospective Statement of Financial Position at 30 June Financial Statements 2007, and Prospective Statement of Financial Performance and Prospective Cash Flows for the 7 months ending Prospective Pro-forma Statement of Financial Position at 30 June 2007 15 December 2006 and Prospective Cash Flows It is assumed that: It is assumed that the Offer is oversubscribed, and that together 1. The equivalent of four additional conversion properties with PGG Wrightson’s injection of properties, $100 million, or will be acquired, for cash, based around the standard 1,000 the equivalent of US$66 million is raised: hectare model unit. It is assumed that they will be purchased • $82 million (US$54 million) is generated from the market, and settle in December 2006. It is further assumed that 50% of which is paid on 15 December 2006. these properties will not generate any income or incur any • Three farms are acquired in Uruguay from PGG Wrightson operating expenditure in this period. They will however, incur Investments (through farm owning subsidiary companies) development costs as set out under the model unit. for US$12 million, payable 50% in share subscription and 2. The three farm properties currently owned by PGG Wrightson 50% in cash. Investments, while partially developed are yet to be irrigated. • The prospective working capital within the farming On the Tambo El Cabure property milking commenced in companies to be acquired from PGG Wrightson Investments January 2006. The Valle de Soba and Menafra properties is in addition to the farming properties being acquired above. have been resown in early 2006 and are in the final stages of This is assumed to be purchased for cash on settlement. pasture development. These are expected to commence dairy production in the coming year. The cash flows in the period reflect: a. the receipt of US$27 million from investors; b. the payments made to purchase and part develop the four farms to be acquired in this period; and c. ongoing operating costs and revenues associated with the three farms currently owned by PGG Wrightson Investments. 42 NZ Farming Systems Uruguay Limited Prospective Statement of Financial Position at 30 June Notes to the prospective financial statements 2008, and Prospective Statement of Financial Performance Significant Accounting Policies and Prospective Cash Flows for the 12 months ending 30 June 2008 Statement of Compliance with FRS 42: Prospective It is assumed that: Financial Statements 1. The equivalent of six additional conversion properties will The prospective financial information included in this be acquired in December 2007 following receipt of the final Offer Document comply with FRS 42: Prospective Financial subscription instalment, for cash, based around the standard Statements. Set out below is a statement of accounting policies 1,000 hectare model unit. These properties will not generate the Company intends adopting for its historical financial any income or incur any operating expenditure in this statements. To the extent that they are applicable to the period. They will however, incur development costs as set prospective financial information, these accounting policies out under the model unit. have been applied in its preparation. 2. The farm properties currently owned by PGG Wrightson Reporting Entity Investments are now irrigated and are all in the early stages The consolidated financial statements for the Group are for of dairy production. the economic entity comprising NZ Farming Systems Uruguay 3. The four conversion properties acquired in the period to Limited and its subsidiaries. 30 June 2007 will, on average all be in the year one phase of the model farming unit. They will continue to incur Statutory Base development costs as set out under the model unit. These NZ Farming Systems Uruguay Limited is a company registered farms will generate income from livestock sales, and incur under the Companies Act 1993 and is an issuer for the purposes operating costs. of the Securities Act 1978. The financial statements and group The cash flows in the period reflect: financial statements of NZ Farming Systems Uruguay Limited a. the final receipt of US$33 million from investors; will be prepared in accordance with the Financial Reporting Act b. the payments made to purchase and part develop the 1993 and the Companies Act 1993. six farms to be acquired in this period, and complete the conversion on the four properties acquired the previous Functional and Presentation Currency year; and Items included in the financial statements of the Group c. ongoing operating costs and revenues associated with are measured using the currency of the primary economic the three farms currently owned by PGG Wrightson environment in which the entity operates (the ‘functional Investments, and the four conversion properties acquired currency’). The consolidated financial statements are the previous year. presented in US dollars, which is the Group’s functional and presentation currency. Statement of Compliance with New Zealand Equivalent to International Financial Reporting Financial reports will comply with New Zealand Accounting Standards, which include New Zealand equivalents to NZ IFRS. Compliance with NZ IFRS ensures that the financial report, comprising the financial statements and the notes thereto, complies with NZ IFRS. The Group is a profit-oriented entity. Specific Accounting Policies The financial statements are prepared in accordance with New Zealand generally accepted accounting practices. The accounting policies that materially affect the measurement of financial performance, financial position and cash flows are set out below: NZ Farming Systems Uruguay Limited 43 a. Basis of Preparation d. Revenue The consolidated financial statements of the Group have Sales revenue been prepared in accordance with NZ IFRS. The consolidated Sales revenue principally comprises the sales value of milk and financial statements have been prepared under the historical livestock sold in the normal course of the farm’s business. cost convention except that farming properties are carried at fair value. Investment income Investment income is recognised when earned. Dividends are b. Consolidation recognised when received, or accrued when approved and Subsidiaries are all entities over which the Group has the declared for distribution prior to balance date. power to govern the financial and operating policies generally accompanying a shareholding of more than one half of the e. Income tax and deferred tax voting rights. The existence and effect of potential voting rights The income tax expense recognised for the year is based on the that are currently exercisable or convertible are considered accounting surplus, adjusted for permanent differences between when assessing whether the Group controls another entity. accounting and tax rules. Subsidiaries are fully consolidated from the date on which Deferred income tax is provided in full, using the liability control is transferred to the Group. They are de-consolidated method, on temporary differences arising between the tax from the date that control ceases. bases of assets and liabilities and their carrying amounts in The purchase method of accounting is used to account for the financial statements as per NZ IAS 12:Income Taxes. The the acquisition of subsidiaries by the Group. The cost of an deferred income tax is not accounted for if it arises from initial acquisition is measured as the fair value of the assets given, recognition of an asset or liability in a transaction, other than equity instruments issued and liabilities incurred or assumed a business combination, that at the time of the transaction at the date of exchange, plus costs directly attributable to affects neither accounting nor taxable profit or loss. the acquisition. Identifiable assets acquired and liabilities and Deferred income tax is determined using tax rates (and laws) contingent liabilities assumed in a business combination are that have been enacted or substantially enacted by the balance measured initially at their fair values at the acquisition date, sheet date and are expect to apply when the related deferred irrespective of the extent of any minority interest. The excess of income tax asset is realised or deferred income tax liability is the cost of acquisition over the fair value of the Group’s share settled. of the identifiable net assets acquired is goodwill. If the cost of Deferred income tax assets are recognised to the extent that acquisition is less than the fair value of the net assets of the it is probable that future taxable profit will be available against subsidiary acquired, the difference is recognised directly in the which the temporary differences can be utilised. Deferred income statement. income tax is provided on temporary differences arising on Inter-company transactions, balances and unrealised gains investments in subsidiaries, joint ventures and associates, on transactions between group companies are eliminated. except where the timing of the reversal of the temporary Unrealised losses are also eliminated unless the transaction difference is controlled by the Group and it is probable that the provides evidence of an impairment of the asset transferred. temporary difference will not reverse in the foreseeable future. Accounting policies of subsidiaries have been changed where f. Goods and Services Tax/Value Added Tax necessary to ensure consistency with the policies adopted by The income statements and statements of cash flows have the Group. been prepared so that all components are stated exclusive c. Segment Reporting of Goods and Services Tax/Value Added Tax (GST/VAT). A business segment is a group of assets and operations engaged All items in the balance sheets are stated net of GST/VAT, in providing products of services that are subject to risks with the exception of receivables and payables, which include and returns that are different from those of other business GST/VAT invoiced. segments. A geographical segment is engaged in providing g. Equity products or services within a particular economic environment Ordinary shares are classified as equity. Incremental costs that are subject to risks and returns that are different from directly attributable to the issue of new shares are shown in those of segments operating in other economic environments. equity as a deduction, net of tax, from the proceeds. 44 NZ Farming Systems Uruguay Limited h. Plant and Equipment l. Trade Receivables All plant and equipment is stated at historical cost less Trade receivables are recognised initially at fair value and depreciation. Historical cost includes expenditure that is directly subsequently measured at amortised cost using the effective attributable to the acquisition of the items. interest method, less provision for impairment. A provision for Subsequent costs are included in the asset’s carrying amount impairment of trade receivables is established when there is or recognised as a separate asset, as appropriate, only when objective evidence that the Group will not be able to collect it is probable that future economic benefits associated with all amounts due according to the original terms of receivables. the item will flow to the Group and the cost of the item can The amount of the provision is the difference between the be measured reliably. All other repairs and maintenance are asset’s carrying amount and the present value of estimated charged to the income statement during the financial period future cash flows, discounted at the effective interest rate. in which they are incurred. The provision is recognised in the income statement. Depreciation, based on a component approach, is calculated m. Cash and Cash Equivalents using the straight-line method to allocate the cost over the Cash and cash equivalents include cash in hand, deposits held assets’ estimated useful lives, at an average of 5% per annum. at call with banks, other short-term highly liquid investments The asset’s residual values and useful lives are reviewed, and with original maturities of three months or less, and bank adjusted if appropriate, at least at each financial year-end. overdrafts. An asset’s carrying amount is written down immediately to its n. Borrowings recoverable amount if its carrying amount is greater than its Borrowings are recognised initially at fair value, net of estimated recoverable amount. transaction costs. Borrowings are subsequently stated at Gains and losses on disposals are determined by comparing amortised cost, any difference between the proceeds (net of proceeds with carrying amount. These are included in the transaction costs) and the redemption value is recognised in the income statement. income statement over the period of the borrowings using the i. Impairment of Assets effective interest method. Assets including goodwill that have an indefinite useful life Borrowings are classified as current liabilities unless the Group are not subject to amortisation and are tested annually has an unconditional right to defer settlement of the liability for impairment. Assets that are subject to amortisation or for at least 12 months after the balance sheet date. depreciation are reviewed for impairment whenever events or Costs incurred in the arrangement of borrowing are charged changes in circumstances indicate that the carrying amount in the period when incurred to the income statements for may not be recoverable. An impairment loss is recognised for investment assets and capitalised for development assets. the amount by which the asset’s carrying amount exceeds its o. Provisions recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For the Provisions for legal claims are recognised when the Group has purposes of assessing impairment, assets are grouped at the a present legal or constructive obligation as a result of past lowest levels for which there are separately identifiable cash events; it is more likely than not that an outflow of resources flows (cash-generating units). will be required to settle the obligation and the amount has been reliably estimated. j. Agriculture p. Dividend Distribution Agricultural activity is defined as the management by the Group of the biological transformation of biological Dividend distribution to the Company’s shareholders is assets for sale into agricultural produce or into additional recognised as a liability in the Group’s financial statements in biological assets. the period in which the dividends are approved. k. Livestock and milk q. Financial Instruments Livestock are measured at their fair value less estimated point- The Company’s activities expose it to a variety of financial risks: of-sale costs. The fair value of livestock is determined based market risk including currency risk, fair value interest rate risk on market prices of livestock of similar age, breed and genetic and price risk, credit risk, liquidity risk and cash flow interest merit. Milk is initially measured at its fair value less estimated rate risk. The Company’s overall risk management programme point-of-sale costs at the time of milking. The fair value of milk focuses on the unpredictability of financial markets and seeks is determined based on market prices in the local area. to minimise potential adverse effects on the Company’s financial performance. NZ Farming Systems Uruguay Limited 45 Market Risk s. Statement of Cash Flows • Foreign Exchange Risk – The Group operates in Uruguay, Definitions of the terms used in the statement of cash flows: with its activities predominantly conducted in US Dollars. “Cash” includes coins and notes, demand deposits and other Milk is nominally priced in pesos but the price is generally highly liquid investments readily convertible into cash and adjusted to reflect changes in the USD/peso exchange includes at call borrowings such as bank overdrafts used by rate. Whilst New Zealand investors are subject to foreign the company as part of its day-to-day cash management. exchange risk on their investment, the Company and Group “Investing Activities” are those activities relating to the as a consequence of US Dollars being its functional currency acquisition and disposal of investment property and any is not exposed to any significant foreign exchange risk. other non-current assets. Price Risk – The Group is exposed to price risks during • “Financing Activities” are those activities relating to changes the normal course of operations. The Group is exposed to in the equity and debt capital structure of the Company and commodity price risks. those activities relating to the cost of servicing the Company’s Credit Risk equity capital. • The Group will be exposed to credit risk through its “Operating Activities” include all transactions and other events dependence upon Conaprole, Uruguay’s producer co- that are not investing or financing activities. operative for milk. Apart from that it has no significant t. Critical Accounting Estimates and Assumptions concentrations of credit risk. Estimates and judgements are continually evaluated and are Liquidity Risk based on historical experience and other factors, including • Prudent liquidity risk management implies maintaining expectations of future events that are believed to be reasonable sufficient cash and marketable securities and the availability under the circumstances. of funding through an adequate amount of committed The Group makes estimates and assumptions concerning the credit facilities. The Group aims to maintain flexibility in future. The resulting accounting estimates will seldom equal funding by keeping committed credit lines available. the related actual results. However, at balance date the Group Cash Flow and Fair Value Interest Rate Risk has no significant estimates and assumptions that have a significant risk of causing a material adjustment to the carrying • During the initial phases of its business the group is likely amounts of assets and liabilities within the next financial year. to have significant interest bearing deposits through which it will be exposed to interest rate risk in the normal course u. Changes in Accounting Policies of business. The Company was incorporated on 26 September 2006 and • The Group’s interest rate risk initially will arise through has adopted NZ IFRS for the purposes of its first reporting date. its exposure to funds on deposit. In future periods it is There have been no material changes in accounting policies probable that interest rate risk will also arise though during the period and the Company has not applied or adopted borrowings as the Group gears its operations. Any such early any other NZ international reporting standards. borrowings raised at variable rates expose the Group to cash flow interest rate risk. • The Group takes on exposure to the effects of fluctuations in the prevailing levels of market interest rates on its financial position and cash flows. Interest costs may increase as a result of such changes. They may reduce or create losses in the event that unexpected movements arise. r. Recoverable Amount of Assets At each reporting date, the Group assesses whether there is any indication that an asset may be impaired. Where an indicator of the impairment exists, the Group makes a formal estimate of recoverable amount. Where the carrying amount of an asset exceeds its recoverable amount the asset is considered impaired and is written down to its recoverable amount. 46 NZ Farming Systems Uruguay Limited PricewaterhouseCoopers The Directors 119 Armagh Street NZ Farming Systems Uruguay Limited PO Box 13244 57 Waterloo Road Christchurch, New Zealand Christchurch www.pwc.com/nz Telephone +64 3 374 3000 3 November 2006 Facsimile +64 9 374 3001 Auditors’ report for inclusion in the Offer Document Dear Directors As auditors of NZ Farming Systems Uruguay Limited (“the Company”) we have prepared this report pursuant to clause 42 of the First Schedule of the Securities Regulations 1983 and consistent with the alternative form of report to that required by the Securities Regulations 1983 (“Securities Regulations”) required by the Securities Act (NZ Farming Systems Uruguay Limited) Exemption Notice 2006 (“the Exemption Notice”) for inclusion in an Offer Document to be dated on or about 3 November 2006. Directors’ responsibilities The Company’s Directors are responsible for the preparation and presentation of the prospective pro-forma statement of financial position of the Company and its subsidiaries (“the Group”) as at 15 December 2006 and the prospective financial information of the Group for the period ending 30 June 2007 and the year ending 30 June 2008, including the assumptions on which they are based. Auditors’ responsibilities We are responsible for reporting, in accordance with clause 42(2) of the First Schedule of the Securities Regulations and subject to the Exemption Notice, on the prospective pro-forma statement of financial position at 15 December 2006 and on the prospective financial information of the Group for the period ending 30 June 2007 and the year ending 30 June 2008 which have been prepared and presented by the Directors. We have no relationship with or interests in the Group other than in our capacity as auditors. Basis of opinion on the prospective pro-forma financial position and the prospective financial information To meet our reporting responsibilities we have examined the prospective pro-forma statement of financial position as at 15 December 2006 and the prospective financial information for the period ending 30 June 2007 and the year ending 30 June 2008 to confirm that, so far as the accounting policies and calculations are concerned, the prospective financial information has been properly compiled on the footing of the assumptions made or adopted by the Directors as set out on pages 36 to 40, and on pages 42 and 43 of this Offer Document and are presented on a basis consistent with the accounting policies expected to be adopted by the Group. Unqualified opinion on the prospective pro-forma financial position In our opinion, the prospective pro-forma statement of financial position as at 15 December 2006 set out on page 40: (i) subject to the requirements of the Exemption Notice, complies with FRS 42: Prospective Financial Statements, and complies with the disclosures required by this Exemption Notice; (ii) has been derived from the relevant valuations in respect of each of the properties to be acquired; and (iii) so far as the accounting policies and calculations are concerned, has been properly compiled in accordance with the assumptions made or adopted by the Company set out at pages 36 to 40, and on page 42 of this Offer Document and is presented on a basis consistent with the accounting policies set out on pages 43 to 46 which were used in the preparation of the prospective pro-forma statement of financial position. Unqualified opinion on the prospective financial information In our opinion, the prospective financial information for the period ending 30 June 2007 and the year ending 30 June 2008 set out on pages 40 to 42, so far as the accounting policies and calculations are concerned, has been properly compiled in accordance with the assumptions made or adopted by the Directors of the Company set out on pages 36 to 40, and on pages 42 and 43 of this Offer Document and is presented on a basis consistent with the accounting policies to be adopted by the Company, those accounting policies being materially the same as the accounting policies set out on pages 43 to 46 that were used in the preparation of the prospective pro-forma statement of financial position dated 15 December 2006. Actual results are likely to be different from the prospective pro-forma statement of financial position as at 15 December 2006 and the prospective financial information since anticipated events frequently do not occur as expected and the variation could be material. Accordingly, we express no opinion as to whether the prospective pro-forma statement of financial position as at 15 December 2006 or the prospective financial information will be achieved. Yours faithfully PricewaterhouseCoopers Chartered Accountants Christchurch NZ Farming Systems Uruguay Limited 47 Taxation Taxation of Dividends Paid to Investors The following comments are intended to provide an New Zealand resident investors will be taxed on dividends indication of the taxation implications relevant for this (including imputation credits) received from NZ Farming investment as at the date of this Offer Document. Systems Uruguay with a credit available against New Zealand None of the Company, the promoters, the Lead Manager tax for the imputation credits attached. To the extent that nor any other party accepts responsibility for the taxation dividends paid to New Zealand residents by NZ Farming consequences of an investment in the Company. Investors Systems Uruguay are not fully imputed, resident withholding are advised to consider their own tax position and where tax will be deducted unless the investor holds a valid appropriate seek professional advice. certificate of exemption. Dividends paid to non residents of New Zealand will be Taxation In Uruguay subject to non resident withholding tax at either 30% or 15% Under current legislation the farm owning subsidiary depending on whether the investor is resident in a country companies will be taxed on their income in Uruguay at 30%. which New Zealand has a double tax agreement with, or However, there is currently a proposal before the Uruguayan whether the dividend is fully imputed. Parliament to reduce this tax to 25% with effect from 2007. Uruguay taxes various capital gains but any sale in shares of Holding and Disposing of Shares by Investors a farm owning subsidiary company by NZ Farming Systems The tax treatment for New Zealand tax resident shareholders Uruguay is unlikely to be subject to tax in Uruguay. of any gain they may make on the disposal or part-disposal Dividends paid by the farm owning subsidiary companies of their shareholding in NZ Farming Systems Uruguay follows to NZ Farming Systems Uruguay are currently subject to a standard tax treatment of share disposals in New Zealand 30% withholding tax in Uruguay. However there is currently and depends largely on the investor’s own intentions at the a proposal before the Uruguayan Parliament to lower that time of purchase of the shares and their own tax profile. rate to 7% with effect from 2007. Investors are recommended to take their own advice on such matters. Taxation of NZ Farming Systems Uruguay Investors will not be subject to New Zealand’s Foreign The farm owning subsidiary companies will be subject to Investment Fund rules in respect of their investment in NZ New Zealand’s controlled foreign company (CFC) regime. Farming Systems Uruguay; the Company will be a New NZ Farming Systems Uruguay will therefore be taxed in Zealand tax resident. New Zealand on the income derived by the farm owning subsidiary companies, but with a credit for the tax payable Repurchase of Shares held by Investors in Uruguay. Any repurchase of shares by NZ Farming Systems Dividends received by NZ Farming Systems Uruguay from the Uruguay will be subject to the New Zealand dividend farm owning subsidiary companies will be subject to foreign rules. A repurchase of shares can be excluded from being a dividend withholding payment but with a credit for tax paid dividend provided: in Uruguay or tax paid by NZ Farming Systems Uruguay • Certain brightline tests are met; under the CFC regime. • The payment is not made in lieu of dividend; and Imputation credits will only be generated and available • The payment is made out of available subscribed capital. to attach to dividends paid to investors to the extent of These terms have specific definitions for tax purposes. the New Zealand tax liability remaining after a credit for Uruguayan tax paid. 48 NZ Farming Systems Uruguay Limited Valuation The following is a report prepared by Mr Romualdo Rodríguez of Firm Romualdo Rodríguez Negocios Rurales of Montevideo, Uruguay. Mr Rodríguez has been a registered valuer since 1981. Some of the wording in the report reflects the fact that the author’s first language is Spanish. Mr Rodríguez’ valuation was in response to a letter signed jointly by AW Baylis, Chairman of PGG Wrightson and KR Smith, Chairman of NZ Farming Systems Uruguay. In it they requested Mr Rodríguez to prepare a valuation of the companies that own the three farms at Tambo El Cabure, Valle de Soba and Menafra. The valuation was required to be at a ‘price that is fair and reasonable to both parties’. A copy of the letter is available on request from NZ Farming Systems Uruguay at the address on page 65. NZ Farming Systems Uruguay Limited 49 1. Valuer’s name and address 3. Purpose of report Romualdo Rodríguez On the date of October 4th, 2006 I received a letter from Mr. Cuareim 1978 • Montevideo, Uruguay Bill Baylis, Chairman of PGG Wrightson and Mr. Keith Smith, Chairman of New Zealand Farming Systems Uruguay. The Tel. (00598) 2 924-0461/0475/8131 purpose of the letter was to ask for a formal valuation of the Fax (00598) 2 924-8130 land and assets of two companies combined, Gabefox S.A. eMail: [email protected] and Gimley S.A., whose owner is PGG Wrightson Investments The company Romualdo Rodríguez Limited started its activities Limited, since these companies will be sold by PGG Wrightson in 1954 as a stock and station company in charge of cattle Investments Limited to NZ Farming Systems Uruguay. saleyards in the city of Florida. The company was founded by Gabefox S.A. and Gimley S.A. own three farms: El Cabure my father and I started working with him when I was 18 years (1,161.5 hectares), Valle de Soba (624.67 hectares) and Menafra old. Since July 1981, I became a registered valuator. (900.97 hectares). The assets considered in this valuation are The company has large expertise in valuating machinery. the fixed assets of the companies, which have been considered We regularly run machinery auctions therefore we have a clear in this report under the price of the land, plus their livestock idea of current market prices. and machinery. The company grew during the years in Uruguay reaching I am aware that the buyer and the seller are related parties and 16 branches in the country. Today the company’s business that there are directors in common to both boards. I understand operations are rural real state operations, cattle auctions, farm that I have been commissioned as an independent party to administrations, transactions with cattle into slaughter houses, prepare a valuation on behalf of both buyer and seller which wool, and beef exports. The company is represented by Mr. establishes an overall price that is fair and reasonable to both Romualdo Rodríguez, Director, together with both his son and parties. I also acknowledge that NZ Farming Systems Uruguay daughter, Juan Jose Rodríguez and Karma Rodríguez. I have Limited is considering raising funds through a public offer in been involved in all rural transaction activities all my life and New Zealand and that the assets valued in this valuation will managed to have a very high reputation all throughout the be the initial investments of the new company. country. Today the company is one of the leading businesses My company is providing this report for the purposes of in this area. its inclusion in an Offer Document for use by prospective subscribers for Shares. 2. Statement by registered valuer I declare that the present valuation is made by me, Romualdo 4. Description of real property Rodríguez, as an independent registered valuer and no personal In the whole area of Uruguay, 173,620km2 of land, near the interest or other’s influence has been made upon me or my west centre of the country, there are two low hill branches that opinion in its completion. surround and define, with the Uruguay river, an agricultural and cattle breeding specific zone located in the Department of Rio Negro, one of the most important areas related to these kind of activities in the country, and well known for its history – more than 150 years – of English family settlement and work on agricultural and cattle tasks. In Uruguay, the best results in cattle breeding, agricultural work, milk production and grassland related activities are obtained from the “Departamento de Rio Negro”, currently. Young city is the centre of the related commercial activities. The three farm properties that will be valued here are located at less than 20km from Young and are linked to it by roads which are in very good condition and maintenance. Zone approximate coordinates: 32°38’ South, 57°32’ West. Cuareim 1978 • Montevideo, Uruguay Tel. (00598) 2 9240461 • Fax (00598) 2 9248130 eMail: [email protected] 50 NZ Farming Systems Uruguay Limited EL CABURÉ N 4.1. Tambo El Caburé Mechanized and intelligent – sensor Located at 7km from Young, of 1161.5 controlled – paddock, which accesses hectares, divided into 26 paddocks, the milking parlour. Manoeuvring that are currently being redistributed platform made of concrete, with 2 with electrical fences. a 1,200m surface. Dairy farm poured waters control system, with Main house: living and dining underground pipe system controlled by room, office, six bedrooms, kitchen, inspection chambers. Paddock washing pantry, four bathrooms. The house is system. Electric energy (380 volts) surrounded by a wooded park, has a supplied by the state network. Two pool and tennis court. Near the main diesel generators of up to 100kW. house are: the playroom, barbecue 2 and five vehicle spaced garage. Milking shed and offices of 660m Electric energy supply and phone line. with metallic ceilings, aluminium doors and windows. Milk deposit with five Foreman house: living and dining primary freezing tanks (which hold up room, kitchen, two dormitories to 4,400 litres each), a secondary tank and bathroom. (which holds up to 6,200 litres) and a Staff facilities: A house for the person cooler plaque exchanging system. in charge of the dairy farm, with: three Complete air conditioned offices, with bedrooms, living and dining room, six work stations, manager’s office, kitchen and two bathrooms. Kitchen computer room, conference room, and common room for six, dormitories bathroom and kitchen. Veterinary and bathrooms. Small working shed. equipment and product deposit, Well with water pump and high tank. staff bathrooms. Working facilities: Facilities for cattle “Westfalia” milking machine, and sheep. Animal scale appears in well MK48 rotary system, SIDE-BY- conserved condition. Complete sheep SIDE, allowing 48 animals per turn. facilities, bath pool and paddocks STIMOPULS-M pumps each, automatic in good condition. Conventional nipple removers, with kick-off fall seven thread border wired fences in detection and acoustic signal, classic good condition installed according milking sets with silicone nipple to the law. Internal fences in perfect appliances, individual milk and condition, most of them electric. connectivity (Metatrón) measurers, Natural water resources, brooks and automatic cleaning program creeks. Watering troughs in every (SINETHERM). Three exit AUTOSELECT plot, five watermills (with tanks door. Electronic identification system and watermills). Artificial sheltering for each cow in its milking post, Eucalyptus forests. including DP5 software, allowing up to 2 Dairy Farm facilities: 200m shed 5,000 animal registrations. 1,200 neck annexed to the dairy farm, 50,000 rescounter identifiers. litre water tank, 4 water wells, and Up to 90% of these lands are sown 12 reserve tanks. 1,100m2 concrete with forage crops made of tall fescue, silo. 200m long feed‑lots, in double white and red clover, rye grass, chicory. rows. 2 metallic silos which hold up to 20,000kg, that serve the stainless We have inspected the plans and steel automatic feeders for the milking specifications relating to construction parlour. 3,500m2 paddocks which of a proposed water dam. border the milking parlour. Cuareim 1978 • Montevideo, Uruguay Tel. (00598) 2 9240461 • Fax (00598) 2 9248130 eMail: [email protected] NZ Farming Systems Uruguay Limited 51 VALLE DE SOBA Cda, Grande 4.2. Valle de Soba Water resources: Water pump, tank and two higher tanks. Electric energy and telephone N Located at 7km from Young, Access lines: UTE (State Network). Cattle and by Route N° 25, of 624,67 hectares, sheep facilities are in good condition with divided into 45 paddocks. complete pens, scale, hard wood. Also Main house made of concrete material, farmyard and veterinary facilities. with three bedrooms, living and dining The border wire fences are in very room with fireplace and kitchen. good condition, while internal semi Foreman house with a living room, permanent are electric. kitchen, three bedrooms, toilet. Staff Artificial water resources with two house room with a living room, watermills, tanks and a high tank. kitchen, three bedrooms, toilet. Shed of Artificial Forest with Eucalyptus. ROUTE 25 concrete warehouse, and zinc roof. AZAHARES DE MENAFRA N Water resources with water pump, Up to 20% of these lands are sown with tank and higher tank. Electric energy forage crops made of tall fescue, white supply and telephone lines: UTE (State and red clover, rye grass, chicory. Network) In respect of a proposed irrigation project Cattle and sheep facilities are in good we have inspected permits, maps and plans. condition. Complete pens, scale, hard wood. Farmyard, dip and veterinary 5. Covenants, etc, of real property facilities. 26 Paddocks with many There are no covenants, conditions, farmyards. The border wire fences are restrictions, easements or other interests in very good condition, while internal in respect of the property. semi permanent are electric. The use of the land on each of the Natural water resources from “Canada three properties is in accordance with Grande” Creek and many brooks. all national and regional regulations. Artificial water supplies with three Current or past activities done in any of watermills and tanks. the three properties are registered and Artificial Forest: Eucalyptus, various. in compliance with the country laws and Up to 65% of these lands are sown according to the long or short term plans with forage crops made of tall fescue, of its political government. white and red clover, rye grass, chicory. 6. Present use of real property 4.3. Azahares de Menafra 6.1. El Caburé Accessed by Route N° 25, 55km, nearby Young, 25km, of 900.97 This property serves the purpose of milk hectares, divided into 18 paddocks. production. Every cattle breed, agricultural These are currently being redistributed task, builds, internal roads, or any other with electrical fences. An underground tasks, are intended to be for the most and pipe net has been installed to provide best dairy milk product. water to the water troughs. Workers facilities and Dairy operations The main house has four bedrooms, are carried in compliance with all the living and dining room with fireplace, safety regulations. kitchen, larder and woodland. The staff The land serves perfectly for the purpose house has living room, kitchen, five of carrying dairy activities. The Dairy bedrooms, toilet, and near a concrete operation started 28 years ago and the shed with zinc roof. new rotary eight years ago. Cuareim 1978 • Montevideo, Uruguay Tel. (00598) 2 9240461 • Fax (00598) 2 9248130 eMail: [email protected] 52 NZ Farming Systems Uruguay Limited 6.2. Valle de Soba water supply, and improved pastures, have needed no special This farm in the past was used for cropping mainly for carrying authorizations or any other statutory requirements. feed for the dairy El Caburé. It also carried the dry cows. Today However, the planning of the future dam needs specific it has been transformed into raising heifers with an aim of permits that have been already obtained by the company building the replacement for the dairies and creating an export at all Governmental levels (Ministerio de Transporte y business with the rest. Obras Públicas). The land has been developed with the usage of improved In Valle de Soba the business carried on is the same that it was pastures, fertilizer and water supply systems. before, raising heifers, with improved pastures, electric fences and a water system supply to each paddock. These activities do 6.3. Azahares de Menafra not need additional permits. Los Azahares de Menafra was used for the same purposes Azahares de Menafra, a steer fattening unit, uses a management as Valle de Soba with part of the land being used for grain system which is similar to Valle de Soba’s. As seen above a production mainly maize and sorghum. This production was dam’s permit was required and already obtained. carried later to El Cabure where the silage was made and stored. The rest of the farm was used mainly on native pastures 8. Registered valuer’s opinion as to capital value for raising cattle, mainly the heifers and a few steers. Today of real property the property has been transformed into a Steer fattening using New Zealand intensive grassing systems with improved 8.1. Lands pastures, fertilizer and water supply systems. Farm “El Cabure”, with a total area of 1161 hectares According to the Management Team the project that will be 5129 meters with a Productivity Index of 192. carried forward in this farm in the future is transforming it into Value per hectare US$3,800. two dairies under irrigation with central pivots. These future Farm “Valle de Soba”, with a total area of 624 hectares plans as already mentioned have not been considered when 6710 meters with a Productivity Index of 148. forming the valuation. Value per hectare US$3,500. Farm “Los Azahares de Menafra”, with a total area of 900 7. Compliance with regional or district plan hectares 9771 meters with a Productivity Index of 159. Other than as set out in relation to permits for dams, there are Value per hectare US$3,000. no regional or district plan rules, existing use rights, resource Total amounts of the valuation are detailed as follows: consents or other statutory requirements which govern or restrict use of the property by the Company. The Company’s Valuation of the Farms US$9,303,028.82 (American dollars use of the property is therefore unaffected by such rules, rights, nine million three hundred and three thousands twenty eight consents or requirements. with eighty-two cents). The use of the land on each of the three properties is carried 8.2. Livestock according to all national and regional regulations. Current or past activities done in any of the three properties are in Class Qty. Value Total compliance with the country’s laws. El Caburé The intended use of the properties is similar to the model that Milking Cows 1,242 530 658,260 has been running in the three farms for more than twenty Milking Cows – Spring 72 580 41,760 years. Tambo El Caburé is considered to be a first class dairy farm for the standards of the country. All buildings and working Old Cows 39 360 14,040 facilities comply with the regional or district plans. Calves 558 190 106,020 This was fully checked with the attorney when the farm was Steers 1 250 250 bought by Gabefox S.A. from the previous owner. Part. El Caburé 1,912 1,910 820,330 In the few months that the farm has been run by Gabefox S.A. the improvements and maintenance, internal roads, fencing, Cuareim 1978 • Montevideo, Uruguay Tel. (00598) 2 9240461 • Fax (00598) 2 9248130 eMail: [email protected] NZ Farming Systems Uruguay Limited 53 Valle de Soba Pregnant Cows – Fall 126 480 60,480 Mixer/Scale GEHL 9m3 5.,000 Heifers – Fall 354 500 177,000 Forage wagon 9 rn3 3,000 Heifers 1-2 years 1139 320 364,480 Gasoil tank 1000 ltrs 700 Heifer Calves 361 250 90,250 Gasoil tank 3000 ltrs 1,500 Steer Calves 187 170 31,790 Trailer 8000 kg 2,000 Old Cows 16 360 5,760 2 Trailers 4000 kg 3,000 Steers 1 200 200 3 Small Trailers 3,000 Bulls 3 700 2,100 Roller 500 Part.Valle de Soba 2,187 2,980 732,060 Land plain 800 Rotative cutter 2,500 Azahares de Menafra Baler handler 200 Milking Cows 4 530 2,120 Round baler CLAAS 8,000 Heifers 527 400 210,800 Off-set Disc BALDAN 26 discs 2,500 Steers 440 370 162,800 Scraper 2 m3, SUPER TATU 2,000 Steers 681 340 231,540 Loader 0.6 m3 800 Steers 475 250 118,750 Loader 600 Steer Calves 491 220 108,020 Offset Disc BALDAN 18 discs 1,800 Old Cows 33 360 11,880 Rotative cutter BALDAN 1,200 Bulls 2 700 1,400 2 Cultivators 18 points 600 Part. Azahares de Menafra 2,653 3,170 847,310 Cultivator 300 Horses 49 300 14,700 Rotative cutter double helix HARTWICH 1,500 TOTAL 6,801 8,360 2,414,400 Wheel Rake MAINERO 1,800 Valuation of the livestock in the three farms Air compressor 1,000 US$2,414,400.00 (American dollars two million four hundred and fourteen thousands four hundred). Sprayer 1,500 Driller SEMEATO 21,000 8.3. Machinery Driller BALDAN 3,000 Tractors Chopper KVERNELAND 1.5 m. wide 1,000 Valmet 68. 45 hp. 5,000 Other minor tools 3,000 Valmet 68, Cabin. 45 hp. 6,000 Pick-Up Toyota Hilux 13,000 Massey Ferguson 290. Cab. 66 hp. 8,000 Lorry Truck Hyundai 13,000 Valmet 785. Cab. 4x4 72 hp 15,000 2 Gator John Deere, trailer, Land plain. 6 wheels 8,000 Valmet 980. Cab. 4x4 100 hp. 20,000 Moto Yazuki enduro 125 cc3 1,200 Valmet 985. Cab. 4x4 100 hp. 18,000 Valuation of the machinery in the three farms US$208,800 Valmet 1280. Cab. 4x4 126 hp. 22,000 (American dollars two hundreds and eight thousands eight Others hundred). Mower John Deere 3,000 TOTAL AMOUNT OF THIS VALUATION: US$11,926,228.82 Mower Murria 2,000 (American Dollars eleven million nine hundred and twenty six thousands two hundred and twenty eight with Grain elevator screw. 800 eighty-two cents). Cuareim 1978 • Montevideo, Uruguay Tel. (00598) 2 9240461 • Fax (00598) 2 9248130 eMail: [email protected] 54 NZ Farming Systems Uruguay Limited 9. Government Valuation Other than as set out in this valuation, we do not consider that there See paragraph 11 below. are any special features or characteristics of the land valued, including but not limited to, potential erosion, subsidence or the likely presence of hazardous contaminants, or other matters held or disclosed by a 10. Basis of valuation statutory authority, which are relevant to this valuation. This valuation was prepared on a current market value basis, given a willing buyer and a willing seller. For the 10.1. Lands valuation of these properties we considered the project For its geographic location, distance from the country’s capital city, as it is today, this specifically means that in the dairy El agriculture development centres, ports, establishment nearby services Cabure we considered the existing functioning model which are related to its activities. without including any of the future developments that Easy access through asphalt routes. are planned to be done in the farm. There is a big project • on irrigation which includes the construction of a water • Soils’ quality, undoubtedly higher than the national average soil. dam and the instalment of future pivots. Although those • Vast farming surface in the area, of such a high productive plans were disclosed to us and the water permits, plans of potential. the constructions of the dams, all the survey of the whole • Wide range of productive options in varied agricultural, livestock property are things that will add value if the future projects and agro-industrial aspects. are carried on. The same happened with the Azahares de • Improvements made in various aspects: The firm 10km internal Menafra farm for which there is an irrigation project with pathway that beholds smaller inner tracks. all the permits, maps and plans, with all the authorizations Excellent soil maintenance and rational management. of the regulatory authorities. These projects will add value • in the near future to these farms operations, but as they are • High proportion of sown pastures and their conditions. not being done yet we considered the valuation of the land • Good wire fence conditions, maintenance, rational division criteria without adding any value from these prospects. and cattle management facilities. There are no official registers of transactions made in the • Electric energy supply services. region, but some farms have been sold recently close to the • Communication, telephone and internet services. location of the properties under valuation. Such sales values Quantity, quality and utility of the real estate buildings. are in accordance with the prices that we have given to the • three farms in our valuation. There are more farms for sale • The unique characteristics of the milk exploitation infrastructure. in the neighbourhood with similar or higher prices than the ones we have valued. Agricultural and cattle breed production levels Another consideration made was the location of the VERY HIGH properties which being so near to the bridge that HIGH GOOD communicates the country with Argentina has always had FAIR POOR an added value due to the easy access from buyers from that country. Argentinians are buying farms in the region since similar lands in Argentina have a value three times higher than here. In Valle de Soba all kind of agricultural developments can be made and it is a farm adapted for many type of land usage. We consider that any of the three farms are easier to sell than the average of the country. Given our experience, the current market values obtained in recent sales and the availability of other farms to sell that we have compared we believe that the price given on the valuation of each farm represents a fair and reasonable price. Ministerio de Ganaderia Agricultura y Pesca – 2003 Cuareim 1978 • Montevideo, Uruguay Tel. (00598) 2 9240461 • Fax (00598) 2 9248130 eMail: [email protected] NZ Farming Systems Uruguay Limited 55 10.2. Cattle The Steers Unit is holding 1,600 steers which are gaining • Homogeneity and high quality which the livestock shows. 800 grams per day, with an annual gain of US$ 460,000. • Productivity achieved by cattle in its different purposes. In addition, the business has heifers and steer calves. Therefore the total probable income of the property would be Livestock’s aging structure. • US$2,200,000. 10.3. Machinery We would expect this business to have annual expenses • Type of the existent machinery. of US$650,000 and an annual investment in pastures of US$350,000. • Good conditions and maintenance. Therefore, the annual income of the property can reasonably High quality of the machinery’s brands. • be US$1,000,000. This amount does not include the strategic • Relation between the machinery types and the productive development plans that management told us will be purposes of the establishments. implemented such as irrigation and new dairy units. 11. Official valuation of the property 13. Confirmation that there are no other facts In Uruguay all real estate properties are subject to an annual related to the valuation district tax on property that is paid to the local district I would like to confirm that the valuation was done following government. This rate is based on the government valuation of the criteria mentioned above and in agreement with traditional the land which is revaluated on an annual basis. As of December business modality and standards usually applied by registered 2005, the rateable value of the land was US$1,165,000 and for valuers in Uruguay. There are no other matters that we would the whole year 2006 the rate paid was US$8,800. consider to be material. 12. Amount of income that can be expected 14. Consent to the report’s distribution The property (all three farms) has already been partially I have consented, at the date of this report (and have not as developed, with pastures improvement, water supply and small at that date withdrawn that consent), to this report being paddocks. This allows it to achieve higher productivity. Based distributed to prospective subscribers for Shares offered in NZ on these prevailing conditions of the property and the current Farming Systems Uruguay Limited, and there is no copyright or running business, we can reasonably expect this property registered material that I could claim now or in the future. to have annual operating income net of operating expenses (income) of US$1, 000,000. The business is currently running three different business units: a Dairy Unit, a Heifers Unit, and a Steers Unit. The Dairy Unit has 1,450 dairy cows which can allow for monthly sales of milk of US$100,000, and therefore annual milk Mr. Romualdo Rodríguez sales of US$1,200,000. Montevideo, 30 October 2006 The Heifer Unit is currently raising heifers to be assigned to the dairy unit or sold in the open market. Heifers are received as heifer calves from the dairy unit and raised to sell pregnant. This allows for the business to earn US$250 per year per heifer. The Unit currently has 2,000 heifers, which on an annual basis could allow for an income of US$500,000. Cuareim 1978 • Montevideo, Uruguay Tel. (00598) 2 9240461 • Fax (00598) 2 9248130 eMail: [email protected] 56 NZ Farming Systems Uruguay Limited Investment Statement Information This Offer Document contains in this section an investment statement for the purposes of the Securities Regulations 1983. 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 Shares in the Company under this Offer. NZ Farming Systems Uruguay Limited 57 Answers to Important Questions What sort of Investment is this? Until the Shares are fully paid up (when the second instalment The Offer is for 75 million ordinary Shares in NZ Farming of 50 cents per Share is paid on 14 December 2007), each Systems Uruguay. Share gives the holder the right to: Each Share, when it is fully paid, gives the holder the right to: • attend and vote at a meeting of the Company including the right to cast one vote per Share on a poll or any resolution; • attend and vote at a meeting of the Company including the right to cast one vote per Share on a poll or any resolution • a share in dividends authorised by the Board in respect of including but not limited to a resolution to; each partly paid ordinary Share; appoint or remove a director or auditor; • a share in the distribution of surplus assets in any liquidation of the Company; adopt or alter the Company’s constitution; be sent certain Company information (including financial approve a major transaction; • information); and approve the amalgamation of the Company under section subject to the above limitations, enjoy the other rights as a 221 of the Companies Act 1993; and • shareholder conferred by the Companies Act 1993 and the put the Company in liquidation. Company’s constitution. • an equal share with other ordinary Shares in dividends Following the issue of Shares under the Offer, the Company will authorised by the Board in respect of the ordinary Shares; have a minimum of 50 million (and a maximum of 150 million) • an equal share with other ordinary Shares in the distribution partly paid shares on issue under the Offer, and 17,934,177 of surplus assets in any liquidation of the Company; partly paid shares on issue to PGG Wrightson Investments • be sent certain Company information (including financial Limited for the part purchase of the Farms. information); and Listing • enjoy the other rights as a Shareholder conferred by the Companies Act 1993 and the Company’s constitution. The Directors will use their best endeavours to list the Shares on the NZSX as soon as possible after 14 December 2007, however no representation is made that such a listing will occur. The Board has adopted an NZSX Listing Rules compliant constitution and corporate governance policies. NZX accepts no responsibility for any statement in this Offer Document. 58 NZ Farming Systems Uruguay Limited Other terms of the Offer How much do I pay? The above is a simplified and general description of some of The issue price is $1.00 per Share. The Minimum Subscription is the rights and obligations of NZ Farming Systems Uruguay’s 20,000 Shares, with additional amounts in multiples of 1,000 shareholders. All terms of the Offer and Shares, except those Shares. Half of the issue price must be paid on application and rights and obligations implied by law, are set out in other parts the other half on 14 December 2007. There are consequences of this Offer Document and the Company’s constitution, which of not paying the second instalment of the subscription which is available for public inspection at the Company’s registered are described in detail on page 12. Applications cannot be office at 57 Waterloo Road, Hornby, Christchurch and on the withdrawn or revoked by the applicant. Companies Office website at www.companies.govt.nz. The minimum amount which must, in the opinion of the Directors be raised by the Offer, is $50 million. Who is involved in providing it for me? The Company reserves the right to refuse to accept any The Issuer Application for Shares at its discretion. It also reserves the right to terminate the Offer at any time prior to the Company NZ Farming Systems Uruguay is the issuer of the Shares. allotting Shares under the Offer. The Company’s registered address is 57 Waterloo Road, Hornby, Christchurch. Applications to subscribe for Shares must be made on the Application Form following page 76 of this Offer Document, The Company was incorporated under the Companies in accordance with the application instructions contained on Act 1993 on 26 September 2006. Its registered number is page 76. Applications may be lodged with the Lead Manager, 1866126. Copies of incorporation documents, the Constitution any NZX Firm or with the Registrar in time to enable them to and the material contracts can be viewed, (if available) on be mailed or delivered to reach the Company’s share registrar, the Companies Office website at www.companies.govt.nz. Computershare Investor Services no later than 5pm on Tuesday Where documentation is not available on the Companies 12 December 2006. Cheques must be made payable to ‘NZ Office website a request for the documents can be made Farming Systems Uruguay Share Offer’ and be available for by contacting the Companies Office contact centre on immediate banking. 0508 266 726. A prescribed fee may be charged for requested documents. These documents may also be viewed at the Funds received in respect of applications which are declined registered office of the Company during normal business hours. in whole or in part will be refunded without interest as soon as practicable, and in any case no later than ten business days The Directors of NZ Farming Systems Uruguay after the Closing Date. The Company reserves the right to withdraw the Offer at any time, in which case all application The Directors of NZ Farming Systems Uruguay are; Keith funds will be refunded without interest. Interest earned on Raymond Smith, Michael Craig Norgate, Samuel Richard application funds will be retained by the Company. Maling, Murray James Flett, John Suffield Parker and Bevan David Cushing. What are the charges? The Promoters In return for the performance of its duties, PGG Wrightson PGG Wrightson and its directors, except Keith Raymond Smith, Funds Management, as Manager, is entitled to a Management Michael Craig Norgate, Samuel Richard Maling and Murray Fee and a Performance Fee. PGG Wrightson Uruguay, as James Flett, who are also Directors of NZ Farming Systems farm manager, is also entitled to be paid for certain on-farm Uruguay, are promoters of the Offer. services to the Company. Further details of the management The Directors of PGG Wrightson are; agreements are set out on page 16. Arthur William Baylis, Sir Selwyn John Cushing, Richard Frank An investor is only required to pay the issue price of $1.00 Elworthy, Murray James Flett, Brian James Jolliffe, Samuel for each Share, 50 cents payable on application and 50 cents Richard Maling, John Baird McConnon, Michael Craig Norgate, payable on 14 December 2007. Keith Raymond Smith and William David Thomas. Investors are not required to pay any charges to the Offeror, The address of the Promoters is set out in the Directory. Promoters, or any other party, in relation to the Offer. NZ Farming Systems Uruguay has not yet commenced business. The intended activities of the Company (to acquire and develop farms and farmland in Uruguay) are described in detail in the section of this Offer Document entitled ‘The Investment Opportunity’ on pages 33 to 34. NZ Farming Systems Uruguay Limited 59 All costs and expenses associated with the Offer, including the Performance of the Company or the current or future value of Lead Manager’s fee, legal fees, establishment fees, the costs the Shares is not guaranteed by the Company or any person of farm management, registry fees and printing and postage and no amount of return has been promised. The Shares could costs will be met by the Company from the proceeds of the go down in value as a result of matters that may or may not be Offer. The costs and expenses of the Offer are estimated to be within the Company’s control. approximately $2.4 million. For Shares allotted pursuant to firm and priority allocations, the What are my risks? rate of brokerage is 3% of the gross value of initial subscription All forms of investment involve an element of risk. The principal proceeds (ie the number of shares allotted times 50 cents risk for investors in the Company is that they may be unable to per Share). For Shares allotted pursuant to oversubscriptions, recoup all or part of their original investment. This could occur the rate of brokerage is 2% of the gross value of initial for a number of reasons including: subscription proceeds. • a deterioration in the Company’s financial condition through For any subsequent sale, an investor will be liable to pay normal circumstances that may or may not be within its control, brokerage fees (if any). or the Company becomes insolvent and is placed into receivership or liquidation; What returns will I get? • broader conditions in the New Zealand and world The principal factors that will determine returns to investors in sharemarkets that can result in Shareholders being unable to the Company are: sell their Shares for fair value at a time of their choosing; • the financial condition of the Company; • a thinly traded or no market for the Shares, or the market • the Company’s ability to pay dividends; and becomes illiquid. • the price that investors may realise on the sale of Shares. The factors and risks which could affect the operational and financial performance of the Company, and the return on the Shareholders will receive returns through any dividends paid by Shares, are: the Company and any increase in the value of its Shares when they sell them. Subject to available profits and normal prudential requirements, Political and economic dividend policy will reflect a desire to pay shareholders a Country risk minimum dividend that equates to an after tax yield to Uruguay is a small country that is vulnerable to the investors of 6% on the initial investment. Whether, and to economies of its larger neighbours, Argentina and Brazil. what extent, dividends are paid or the price of Shares increases The country was unstable politically through the first half or falls will depend on a number of factors, including those of the 20th century culminating in a military coup in 1973. discussed under the heading ‘What are my risks?’. The factors Democracy was restored through the period 1983–1990 and, described in that section could reduce or eliminate the since 2004, Uruguay has been governed democratically by a dividends or other returns or benefits intended to be derived coalition of left-wing parties. from holding the Shares. The Uruguayan economy, and those of its larger neighbours, The Company is legally liable to pay any dividends it could be characterised currently as ‘free market democracies’, declares. The dates and frequency of dividend payments by with a trend towards further trade liberalisation through the Company are unknown. No amount quantifiable as at the MERCOSUR, the Southern Cone Common Market, which date of this Offer Document and enforceable by investors has includes Argentina, Brazil, Venezuela and Paraguay. While been promised. democracy and market-oriented policies have been in Dividends will be subject to the Uruguayan and New Zealand place for some years in Uruguay, there is a risk that either tax regimes. A summary of the current effect of taxation on could be eroded in a way that adversely impacts the returns is detailed on page 48. Investors should consult their Company’s investments. 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. 60 NZ Farming Systems Uruguay Limited It is worth noting that Uruguay ranks well in indices such as Success of the Offer Corruption Perception (published by Transparency International The rate at which properties are capable of being acquired at www.transparency.org ). At 32nd out of 158 countries depends upon the success of this Offer. Should the Offer surveyed, Uruguay is level with Taiwan and ahead of countries only raise the minimum subscription level, significantly fewer such as Malaysia, South Korea and Italy. The country also properties will be capable of being acquired, and consequently, scores well in the 2006 Index of Economic Freedom published given the relatively fixed nature of certain costs, will result in by www.heritage.org. Uruguay does not have a history of a lower return to investors. Conversely, should more funds be expropriation of private property rights and the risk of such raised than is assumed in the prospective financial information, expropriation is considered low. subject to the availability of further experienced and qualified property managers and suitable properties, the returns Economic risks projected may be exceeded. Until recent years Uruguay was highly dependent on exporting to its larger neighbours, Brazil and Argentina, and for tourist Robustness of the Company’s Business Model receipts from them. Over recent years the US has grown in The overall performance of the business is dependent upon two importance as a trading partner and the country’s economic key drivers: risks have become more diversified. As with all small countries, • the robustness of the Company’s business model, and however, Uruguay is vulnerable to the global economic climate and the performance of the economies with which it enjoys • the number of farm units acquired. close relations. The business model makes certain assumptions around the acquisition and development costs of properties and livestock in Exchange rate Uruguay. Whilst these are based upon current market conditions The Company’s operations will be conducted largely in United and prices in Uruguay, should these change from that currently States dollars (US Dollars). Milk is nominally priced in pesos experienced, this is likely to reduce the overall profitability but the price is generally adjusted to reflect changes in the of the venture and in turn, returns to investors. Assumptions US Dollar/peso exchange rate. Appreciation in the value of the around stocking levels, milk production and returns are based New Zealand dollar against the US Dollar would reduce the upon a combination of New Zealand experience in such value of the Company’s Uruguayan farm assets and US Dollar situations, and expectations in Uruguay following limited trials cashflows in NZ Dollar terms and could affect the share price and extensive discussion with advisers. While the Board believes adversely. The Company does not intend to hedge this exposure. such assumptions to be conservative, should any of these key assumptions prove to be unfounded, once again additional costs and/or revenue reductions are likely to be experienced which Business and Farming would adversely impact on investor returns. Farming is an activity which is subject to a wide range of risks relating to nature and the climate, many of which apply in Identification of suitable property and ability to attract Uruguay in a similar way to farming in New Zealand. Whilst suitably qualified farm managers subject to the normal farming risks such as climate, disease and The Group’s plans involve purchasing and developing farms, pest, international commodity prices, the success or otherwise which is not a risk-free activity. Managers will be recruited who of this venture is particularly predicated on the following key the Company believes to be experienced in implementing large assumptions: scale dairy conversions based on New Zealand intensive pasture • the success of the Offer; management systems. This experience will be combined with • the robustness of the Company’s business model; local farming knowledge and expertise to achieve development • the ability to achieve targeted productivity increases; that is on time, to budget and of the desired quality. There are, nevertheless, risks such as the possibility of rising land the ability to source suitable property; and • values and difficulties in acquiring suitable land, together with • the ability to secure appropriately qualified and experienced difficulties in attracting suitably qualified and experienced farm managers in Uruguay. managers for the properties. Should such difficulties be encountered this would delay progress by the Group against its plans. NZ Farming Systems Uruguay Limited 61 International trade Other risks In common with other farming operations in many countries, Taxation the outputs from the Company’s activities will be sold into Changes to the rate of company tax and other changes to markets in which the Group is a price-taker. Volumes sold and taxation in New Zealand and in Uruguay could affect returns the prices received are subject to non-market influences from to investors. The taxation assumptions used in this Offer government policies and various bilateral, multilateral and Document are based on existing New Zealand tax legislation international agreements. Changes in these can have both and the currently proposed changes to the Uruguay tax negative and positive effects on the Company’s operations and legislation. profitability. Liquidity risk Foot and mouth disease (FMD) and bovine spongiform encephalopathy (BSE) The Directors will use their best endeavours to list the Shares on the NZSX as soon as possible after 14 December 2007, Historically, FMD has been endemic in South America. Uruguay however no representation is made that such a listing will was declared free of FMD in 1995 however experienced occur. The Board has adopted an NZSX Listing Rules compliant an outbreak in April 2001 near the border with Argentina. constitution and corporate governance policies. NZX accepts Since August 2001 the country has enjoyed ‘FMD-free with no responsibility for any statement in this Offer Document. vaccination’ status and all cattle are vaccinated against FMD. Until the Shares are listed there will be no established market Uruguay prohibits the import of live animals and genetic for investors to sell their Shares and liquidate their investment. material from countries affected by FMD. If, and when the Shares are listed, their price will fluctuate If there were an outbreak of FMD in future, returns to investors with the supply and demand for them and with a number of could be affected. factors relating to the New Zealand and world economies and Uruguay has never experienced a case of BSE and is classified as sharemarkets. Many of these factors are outside the Company’s low risk for BSE by the World Organisation for Animal Health. control and may be unrelated to its performance. If such listing does not occur for any reason, there will continue to be no Scale of operations established market for the trading of Shares and investors will The scale of the Company’s operations is likely to increase only be able to trade shares privately, limiting their ability to Conaprole’s output by around 10% over a two year timeframe sell Shares. and more in the medium term. It is also likely to have a material effect on the volume of Uruguay’s dairy exports. Transfer of Shares prior to full payment These factors may affect the price of the Company’s outputs If an investor sells or transfers a Share, prior to paying the and its profitability. The Company intends to work closely with second instalment on 14 December 2007, the investor will Conaprole to mitigate any potentially negative impacts from its remain liable for that second instalment of 50 cents per operations. Share if the actual holder of the Share does not pay it, and The Company’s scale and growth may also have an effect on the Company may seek payment from the investor for the land and other input prices. outstanding amount until the Shares are fully paid. Financial Forfeiture of Shares The prospective financial information is based on the Directors’ If the investor does not pay the second instalment, the best judgment and experience in Uruguay, however economic Company may forfeit and sell the forfeited Shares. The conditions can change, output prices fall, input prices rise and proceeds of the sale may be insufficient to meet the second circumstances change in a manner and to an extent which instalment plus default interest and the investor will remain we have not foreseen to materially undermine prospective liable for the shortfall. financial information. No trading history The Company has not traded and there is no meaningful historical financial information upon which investors can base their decision to invest. 62 NZ Farming Systems Uruguay Limited Forward Looking Statements Can the investment be altered? Certain statements in this Offer Document constitute The full terms of the Offer and the terms and conditions forward‑looking statements. Such forward-looking statements on which investors may apply for Shares are set out in this involve assumptions about known and unknown risks, Offer Document. The Company may withdraw the Offer uncertainties and other factors which may cause the actual without notice but may only alter the terms after amending results, performance or achievements of the Company, or the Prospectus and filing details of the amendment with the industry results, to be materially different from any future Registrar of Companies for New Zealand. Offer terms cannot be results, performance or achievements expressed or implied by altered without investors’ consent once applications have been such forward-looking statements. accepted by the Company. Given these uncertainties, investors are cautioned not to place The rights conferred on the holders of Shares are set out undue reliance on such forward-looking statements in this on page 58 of this Offer Document. The rights of holders of Offer Document. In addition, under no circumstances does Shares are subject to the provisions of the Companies Act the inclusion of such forward-looking statements in this Offer 1993, the Company’s Constitution, the Takeovers Code and, if Document constitute a representation or warranty by the the Shares are listed on the NZX, the NZSX Listing Rules. The Company or any other person with respect to the achievement Constitution may only be altered by a special resolution of its of the results or matters set out in such statements or that the Shareholders, subject to the rights of interest groups under underlying assumption used will in fact be the case. the Companies Act, or in certain circumstances by court order. The Company may not take any action that affects the rights Consequences of insolvency attaching to Shares, unless that action has been approved by Investors in Shares will not be liable to pay any money to special resolution of all shareholders who would be affected by any person as a result of the insolvency of the Company or that action. Under certain circumstances, a shareholder whose otherwise, other than their obligation to pay both instalments rights would be affected by a special resolution may require the of the issue price and any interest payable if an investor Company to purchase its Shares. defaults on payment of the second instalment. Takeovers Code If the Company is placed into receivership or liquidation prior to the second instalment being paid, the investor will remain liable The Company will be subject to the Takeovers Code 2000 and for the second instalment, and the receiver or liquidator may Takeovers Act 1993. seek payment of the outstanding amount. Takeover provisions All creditors of the Company will rank ahead of holders of Shares if the Company is liquidated. After all such creditors The Takeovers Code, amongst other matters, prohibits any have been paid, the remaining assets, if any, will be available person (together with their Associates as defined in the Code) for distribution amongst investors and the other holders of from becoming the holder or controller of more than 20% of Ordinary Shares who will rank equally among themselves. the voting rights in the Company other than in compliance with the requirements of the Code. There are exemptions, and Prospective investors should consider these risks and other investors should note the information regarding the initial details of the Offer prior to applying for Shares. Investors are shareholding of PGG Wrightson Investments, and Rural Portfolio encouraged to read the entire Offer Document and to obtain Investments Limited, set out on page 67. advice from their financial adviser if they have any questions. Investors are advised to seek legal advice in relation to any act, omission or circumstance which may result in them breaching the Takeovers Code. NZ Farming Systems Uruguay Limited 63 Compulsory acquisition Early termination Shares can be compulsorily acquired by another party in certain The Company may, if an investor does not pay the second circumstances. instalment by 31 December 2007, resolve that investors will If a person or two or more persons acting jointly or in concert forfeit the Shares which remain unpaid. The Company may become a dominant owner of the Company (that is, become then sell those forfeited Shares and apply the proceeds against the holders or controllers of 90% or more of the voting rights in the payment of the second instalment plus any interest from the Company by any method and at any time) that dominant 14 December 2007 until the date of sale. Any balance of owner must immediately send a written notice of that fact to proceeds will be returned to the investor. If the proceeds are the Company, the Takeovers Panel and NZX. insufficient to meet the second instalment plus interest, the investor remains fully liable to the Company. Until the second The dominant owner will then have the right to acquire all the instalment is received by the Company, the investor is not outstanding securities in the Company and similarly each other entitled to receive any distributions attaching to the Shares. security holder in the Company will have the right to sell their outstanding securities in the Company to the dominant owner, in each case in accordance with Part 7 of the Takeovers Code. How do I cash in my investment? A notice to this effect (an acquisition notice), must be sent by Shareholders are free to sell their Shares subject to compliance the dominant owner not later than 30 days after becoming the with the Company’s constitution. Until the Company lists dominant owner. Shares on the NZX the Shares will only be able to be sold The consideration for any such acquisition or sale will be: privately and in the Company’s opinion there will be no (a) where a person becomes the dominant owner by reason established market for the sale of Shares. If such listing of acceptances under an offer where acceptances were does not occur for any reason there will continue to be no received for more than 50% of the securities that were the established market for the Shares and the Shares will only subject of the offer, the same as the consideration payable be able to be traded privately and this will limit an investor’s under that offer; or ability to sell their Shares. Until Shares are fully paid any Shares must be sold on the basis that the transferee acknowledges its (b) in all other cases, a cash sum certified as fair and reasonable obligation to pay the second instalment of the Share price due by an independent advisor, provided however that if within on 14 December 2007. 14 days after the dominant owner sends the acquisition notice, the dominant owner receives written objections to On the basis that the Shares are listed on the NZSX, they the specified consideration from security holders who hold will be tradeable subject to compliance with the Company’s the lesser of: constitution, the Takeovers Code, applicable securities laws and regulations, the Overseas Investment Regulations and the 2% or more of a class of equity securities; or • continuation of an active trading market. In the Company’s • 10% or more of the outstanding securities of a class, opinion there will then be an established market for the Shares. the consideration payable will be a cash sum certified as fair No charges are payable to the Company in respect of any sale and reasonable by an independent person appointed by the of Shares although brokerage may be payable to your broker. Takeovers Panel. Subject to the above, and the ability of the Company to cancel The fair and reasonable value of an equity security must be Shares if the second instalment is not paid on 14 December calculated by first assessing the value of all equity securities in 2007, there is no right of the Company, a holder of Shares, or the class of equity securities of which the equity security forms any other person to terminate, cancel or surrender the Shares. part and then allocating that value pro-rata among all the securities of that class. 64 NZ Farming Systems Uruguay Limited Who do I contact with enquiries about my What other information can I obtain about this investment? investment? Enquiries about the shares should be directed to: This document is a combined Investment Statement and NZ Farming Systems Uruguay Limited Prospectus. Other information about the Shares is contained c/– PGG Wrightson Funds Management Limited in this Offer Document under the sections entitled ‘Statutory 57 Waterloo Road Information’, and in NZ Farming Systems Uruguay’s prospective Hornby financial information on pages 66 and 35. Material contracts Christchurch. relating to this Offer, including those between the Company and PGG Wrightson Funds Management, and the Company and Attention: Peter Baynes PGG Wrightson Limited can be inspected at the offices of the Phone: (03) 372 0800 Company at 57 Waterloo Road, Hornby, Christchurch. They are Fax: (03) 349 6176 also on a public register with the Companies Office which can be accessed at www.companies.govt.nz. Where documentation Is there anyone to whom I can complain if I have is not available on the Companies Office website, a request problems with the investment? for the documents can be made by contacting the Companies Complaints about the Shares can be made to: Office Contact Centre on 0508 266 726. A prescribed fee may NZ Farming Systems Limited be charged for requested documents. c/– PGG Wrightson Funds Management Limited Shareholders will be sent an annual report which will include 57 Waterloo Road audited financial statements, and a copy of unaudited financial Hornby statements at each half year. Christchurch. If the Shares are listed on the NZX, the Company will become Attention: Peter Baynes subject to the requirements of the NZSX Listing Rules and its Phone: (03) 372 0800 communications with shareholders will be governed by them. Fax: (03) 349 6176 There is no ombudsman to whom complaints about the Shares On request information can be made. Investors are also entitled to copies, (free of charge), of NZ Farming Systems Uruguay’s most recent financial statements, Investment Statement, registered Prospectus, material contracts 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. Investors 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 1983. NZ Farming Systems Uruguay Limited 65 Statutory Information This Offer Document contains in this section the statutory Minimum offer amount information required in a registered prospectus for equity The minimum offer amount that, in the opinion of the securities for the purposes of the First Schedule of the Directors, must be raised by the issue of Shares under this Securities Regulations 1983. Offer is $50 million. 1. Main terms of the Offer Price or other consideration The Shares are being offered at an issue price of $1.00 Issuer per Share which is payable in two instalments. The first The issuer of the Shares is NZ Farming Systems Uruguay instalment of 50 cents is payable on application and the Limited which has its registered office at 57 Waterloo Road, second instalment of 50 cents is payable on 14 December Hornby, Christchurch. 2007. Description of securities offered 2. Name and address of offeror The securities being offered are 75 million (partly paid) ordinary Shares in NZ Farming Systems Uruguay Limited at a The Shares have not previously been allotted. NZ Farming price of $1.00 per Share with provision for oversubscriptions of Systems Uruguay Limited is the offeror and the disclosure up to 75 million additional Shares. A fuller description of the requirements of clause 2 of the First Schedule to the Shares being offered is set out in the Description of the Offer. Regulations do not apply. NZX Listing 3. Details of incorporation of company The Directors will use their best endeavours to list the Shares Date and number on the NZSX as soon as possible after 14 December 2007. No representation is made that such a listing will occur and if NZ Farming Systems Uruguay was incorporated in New such listing does not occur for any reason there will continue Zealand under the Companies Act on 26 September 2006 to be no established market for the trading of Shares and and its registered number is 1866126. investors will only be able to trade Shares privately, limiting Place file kept their ability to sell Shares. The Board has adopted an NZSX The public file relating to the Company can be accessed on Listing Rules compliant constitution and corporate governance the Companies Office website at www.companies.govt.nz. policies. NZX accepts no responsibility for any statement in this Where relevant documents are not available on the website Offer Document. they can be requested from the Companies Office on 0508 266 726 (charges are payable). These documents may Maximum number also be viewed at the Company’s registered office during The maximum number of Shares being offered is 150 million. normal business hours. 66 NZ Farming Systems Uruguay Limited 4. Principal subsidiaries 5A Restrictions on directors’ powers NZ Farming Systems Uruguay does not have any subsidiaries There are no specific modifications, exceptions or limitations at the date of this Offer Document. Further information about on the powers of the Company’s Board imposed under the the two Uruguayan companies the Company has agreed to Companies Act 1993 or the Constitution other than as set purchase can be found on page 33. out below. The Companies Act contains a number of provisions which 5. Directorate and advisors could have the effect, in certain circumstances, of imposing modifications, exceptions or limitations on the powers of Details the Company’s Board (including the requirement that ‘major The names, technical or professional qualifications and transactions’, as defined in that legislation, be approved by a addresses of each director of NZ Farming Systems Uruguay are special resolution of shareholders). These provisions apply to set out on page 14. The address at which each director can be any company registered under the Companies Act. contacted is 57 Waterloo Road, Hornby, Christchurch. The NZSX Listing Rules contain a number of provisions No bankruptcy which could have the effect, in certain circumstances, of No director of NZ Farming Systems Uruguay has been imposing modifications, exceptions or limitations on the adjudged bankrupt during the five years preceding the date powers of the Board. These provisions apply to any issuer listed of this Offer Document. on NZX and will apply to the Company if and when it lists the Shares on NZX. Advisors The names of NZ Farming Systems Uruguay’s auditor, registrar, 6. Substantial equity security holders of the issuer solicitors and Lead Manager who have been involved in preparing this Offer Document are set out in the Directory. Names and shares held Experts This is a new offer and at the date of the offer there are no holders of shares other than the incorporation shares. The farms purchased by NZ Farming Systems Uruguay from The Company plans to issue 17,934,177 partly paid PGG Wrightson Investments were valued by Sr Romualdo ordinary shares to PGG Wrightson Investments Limited on Rodríguez of Firm Romualdo Rodríguez Negocios Rurales (an 15 December 2006 as 50% of the consideration for the agribusiness firm) of Cuareim 1978, Montevideo, Uruguay. The purchase of nominee companies which own the three farms information relating to farming has been provided by agri- discussed on pages 33 to 34. business and food consultants Nimmo-Bell & Company Limited of 12 Johnston Street, Wellington. Other financial information The shares issued to PGG Wrightson Investments will amount has been provided by Agricultural Business Associates whose to 10.7% of the total Shares on issue if the Offer proceeds address is PO Box 14-107, Hamilton. All three have given their amount to $150 million, 26.4% if the Offer proceeds amount consent to be named in this Offer Document, and consents are to the minimum subscription amount of $50 million. attached to this Offer Document. Rural Portfolio Investments Limited also intends to apply for 10 million Shares. That interest will be associated with the shareholding of PGG Wrightson Investments under the New Zealand Takeovers Code. The maximum combined interest (if the Offer proceeds amount to the minimum subscription amount of $50 million) is 41.1%. As at the date of the Offer PGG Wrightson holds 100 ordinary shares in the Company (incorporation shares). No shareholder liability None of the shareholders named above, NZ Farming Systems Uruguay, ABN AMRO Craigs, PGG Wrightson, Rural Portfolio Investments, the promoters or any of their respective subsidiaries undertakes any liability in respect of the performance of the Shares issued under this Offer Document, nor are the Shares guaranteed by them or any other party. NZ Farming Systems Uruguay Limited 67 7. Description of activities of the issuing group The proceeds of the second instalment payable in December NZ Farming Systems Uruguay has not yet commenced 2007 are intended to be utilised to source, acquire and develop business. Its intended activities are set out on pages 33 and further farm assets. 34 of this Offer Document. Notwithstanding the Board’s plans referred to above, the proceeds of the Offer may be applied towards any undertaking 8. Summary of financial statements in which the Company may lawfully engage. The Exemption Notice exempts the Company from compliance Financial statements in summary form in respect of with clause 10(1)(c) of the Regulations. the Company are not required as the Company has not yet commenced business. Apart from costs incurred in Minimum amount required to be raised incorporation and those relating to this Offer Document, For the purposes of section 37(2) of the Securities Act, the NZ Farming Systems Uruguay has not acquired any assets or minimum amount that, in the opinion of the Directors, must incurred any debts. Therefore no historical financial statements be raised by the issue of shares under this Offer Document to have been prepared. provide for the matters specified in clause 10(4) of the First Schedule to the Regulations is $50 million. 9. Prospects and forecasts The trading prospects of NZ Farming Systems Uruguay, 11. Acquisition of business or subsidiary together with material information relevant to those NZ Farming Systems Uruguay is a newly incorporated prospects, are discussed in pages 33 to 34. Any special trade company which has no subsidiaries. It has agreed to acquire factors or risks are discussed under ‘What are my risks?’ on two Uruguayan nominee companies – Gabefox S.A. and pages 60 to 63. Gimley S.A. from PGG Wrightson Investments under a farm purchase contract dated 3 November 2006. The Uruguayan 10. Provisions relating to initial flotations nominee companies own the farms and farm assets described on page 33. It also intends to acquire or incorporate farm Directors’ plans owning subsidiary companies in Uruguay as detailed on page The Directors’ plans are set out on pages 11 to 13. 34 through which it will hold its farm investments in Uruguay. The Company intends to acquire and develop farms and Under the Exemption Notice, the Company is exempted from farmland in Uruguay. including in this Offer Document certain historical financial Use of proceeds information about the initial farms and farm assets to be The proceeds of the Offer, after deduction of expenses, will acquired, through farm owning subsidiary companies, from be applied to the purchase and improvement of farmland in PGG Wrightson Investments. For more information about the Uruguay, and development of dairying and beef farming on Exemption Notice, see page 71. that land applying New Zealand style farming systems. As its foundation investment, the Company will acquire the 12. Securities paid up otherwise than in cash three part-developed farms discussed on pages 33 to 34 The existing 100 shares held by PGG Wrightson in through the acquisition of nominee companies, Gabefox S.A. NZ Farming Systems Uruguay were issued for no consideration and Gimley S.A. from PGG Wrightson Investments. The purchase upon incorporation. NZ Farming Systems Uruguay has not price of US$11,926,228, which was determined at an agreed allotted any other securities. It will allot 17,934,177 shares valuation, will be paid for in equal parts by an issue of partly to PGG Wrightson Investments as consideration for shares paid ordinary shares and cash. The partly paid shares will be in Gabefox S.A. and Gimley S.A., the farm owning subsidiary issued on the same terms as those to all other shareholders. companies which own the three farms and farm assets PGG Wrightson Investments intends to use the cash it receives described on page 13. in part payment for the sale of the farms to NZ Farming Systems Uruguay, to retire debt it incurred when it purchased 13. Options to subscribe for securities of farms in 2005. PGG Wrightson Investments will also invest issuing group further in the Company when it makes the instalment payment No options have been granted and it is not proposed to due on its partly paid shares in December 2007. grant any options to subscribe for any shares in NZ Farming PGG Wrightson Investments will undertake not to sell these shares Systems Uruguay. for at least three years from the date of this Offer Document and intends to hold its shares as a long-term investment. 68 NZ Farming Systems Uruguay Limited 14. Appointment and retirement of Directors Material transactions with directors Existing No transactions have occurred between NZ Farming Systems Uruguay and its directors or any other person described in The Company’s initial Directors have been appointed in clause 15(4) of the First Schedule of the Regulations. accordance with section 153 of the Companies Act. Retirement Age 16. Promoters’ interests The Company’s constitution does not contain any provisions PGG Wrightson and its directors, except Keith Raymond Smith, concerning the retirement age of the Company’s Directors. Michael Craig Norgate, Samuel Richard Maling and Murray Right to appoint additional Directors James Flett, who are also Directors of NZ Farming Systems No person has any right to appoint any Director other than Uruguay, are promoters of the Offer. the holders of ordinary shares of the Company by ordinary The Directors of PGG Wrightson are: resolution or the Directors acting as a board of the Company to Arthur William Baylis, Sir Selwyn John Cushing, Richard Frank fill a vacancy on the Board. Elworthy, Murray James Flett, Brian James Jolliffe, Samuel Richard Maling, John Baird McConnon, Michael Craig Norgate, 15. Directors’ interests Keith Raymond Smith and William David Thomas. None of the Directors of NZ Farming Systems Uruguay is The Company has not entered into any material transactions entitled to any remuneration from the Company other than by with its promoters (and its subsidiaries) other than in respect way of Director’s fees (which, in aggregate, will amount to a of the contract to acquire the farms owned by PGG Wrightson maximum of $400,000 per annum for non-executive directors) Investments, set out on page 33 and the Management and reasonable travel, accommodation and other expenses Agreement with PGG Wrightson Funds Management Limited, incurred in the course of performing duties or exercising and the Farm Management Agreement with PGG Wrightson powers as directors. In addition, Directors may from time to Uruguay Limited, set out on page 16. The original cost to PGG time, subject to appropriate disclosures in accordance with the Wrightson Investments of the three farms was US$7.6 million. procedures of the Companies Act, provide consulting services to The Company has agreed to pay US$11,926,288 for them. NZ Farming Systems Uruguay on normal arm’s-length terms. These figures are not directly comparable – see page 33. The following information is given concerning PGG Wrightson Directors’ and related parties’ intended shareholdings Limited. PGG Wrightson’s wholly owned subsidiary PGG An allocation of 5 million shares has been reserved for the Wrightson Investments is the vendor of the farm owning Directors of NZ Farming Systems Uruguay and PGG Wrightson subsidiary companies which own the three farms and farm who have indicated that they intend to participate in the Offer. assets, which the Company intends to buy under the farm Rural Portfolio Investments Limited in which Murray Flett purchase contract referred to on page 33. and Craig Norgate have the interests set out on page 69 The Company and PGG Wrightson have common directors, also intends to apply for 10 million Shares. That interest whose interests are noted below. will be associated with the shareholding of PGG Wrightson a) Sam Maling is an associated person of PGG Wrightson Investments under the Takeovers Code. The maximum combined substantial security holder Pyne Gould Corporation Limited interest (if the Offer proceeds amount to the minimum which holds 62,444,007 shares in PGG Wrightson. By subscription amount of $50 million) is 41.1%. virtue of a shareholder agreement between Rural Portfolio The shares issued to PGG Wrightson Investments will amount Investments Limited and Pyne Gould Corporation, he is also to 10.7% of the total shares on issue if the Offer proceeds an associated person of Rural Portfolio Investments Limited. amount to $150 million, 26.4% if the Offer proceeds amount b) Murray Flett and Craig Norgate are associated persons of to the minimum subscription amount of $50 million. PGG Wrightson substantial security holder Rural Portfolio No person (including any Director, agent or employee of Investments Limited which holds 84,410,595 shares in NZ Farming Systems Uruguay), or any member of the PGG PGG Wrightson. By virtue of a shareholder agreement Wrightson Group guarantees the return of capital invested, or between Rural Portfolio Investments Limited and Pyne the performance of the Shares. Gould Corporation, they are also associated persons of Pyne Gould Corporation. Craig Norgate has a beneficial interest in shares held by Rural Portfolio Investments Limited. NZ Farming Systems Uruguay Limited 69 c) Craig Norgate is a non beneficial trustee for the PGG 19. Preliminary and issue expenses Wrightson employee share purchase scheme holding Preliminary and issue expenses of the Offer (including 655,758 shares in PGG Wrightson. brokerage and firm fees) to be met by NZ Farming Systems d) Keith Smith, Murray Flett and Sam Maling have also Uruguay are estimated by the Directors to be $2.4 million, beneficial share holdings in PGG Wrightson. assuming the Offer is 10% oversubscribed. NZ Farming Systems Uruguay will pay brokerage to the Lead 17. Material contracts Manager on the allotment of Shares pursuant to this Offer. The Company has entered into the following material contracts: For Shares allotted pursuant to firm and priority allocations, the rate of brokerage is 3% of the gross value of initial 1. Farm purchase contract subscription proceeds (ie the number of Shares allotted On 3 November 2006 the Company agreed to purchase the times 50 cents per Share). For Shares allotted pursuant to Uruguayan nominee companies, Gabefox S.A. and Gimley oversubscriptions, the rate of brokerage is 2% of the gross S.A., described on page 33 from PGG Wrightson Investments value of initial subscription proceeds. Limited for US$11,926,228, in exchange for the issue of From this brokerage the Lead Manager will pay brokerage to 17,934,177 partly paid shares in the Company, and cash. PGG Wrightson, NZX Firms and financial intermediaries at The purchase contract is conditional upon the minimum the same rate in respect of Shares allocated to them and duly subscription amount of $50 million being raised under allotted pursuant to applications bearing their stamp. the Offer. PGG Wrightson Investments has agreed to indemnify 20. Restrictions on issuing group the Company for all contingent obligations and liabilities There are no restrictions which limit the Company’s ability to (including taxation obligations and liabilities) of the distribute profits or borrow. nominee companies up to the date of settlement (15 December 2006). 21. Other terms of offer and securities 2. Management Contract with PGG Wrightson Funds All terms of the Offer, and of the Shares being offered, are set Management Limited dated 3 November 2006. Details out in this Offer Document except those implied by law, or set of the management agreement are set out on page 16. out in a document registered with the Registrar of Companies, which is available for public inspection and is referred to in this In addition, PGG Wrightson Funds Management Limited Offer Document. will enter into a Farm Management Contract with PGG Wrightson Uruguay Limited. Details of the farm management agreement are set out on page 16. 22 – 38. Financial statements There are no historical financial statements for NZ Farming 18. Pending proceedings Systems Uruguay as the company has not yet commenced business. For more information on the Exemption Notice, There are no legal proceedings or arbitrations that are pending which exempts the Company from including certain historical or current at the date of registration of this Offer Document financial information about the initial farms and farm assets to that could have an adverse effect on the Company. be acquired through farm owning subsidiary companies from PGG Wrightson Investments, see page 35. 39. Places of inspection of documents The Company’s constitution and material contracts may be viewed on the Companies Office website at www.companies. govt.nz or during business hours at the registered office of NZ Farming Systems Uruguay set out in the Directory. 70 NZ Farming Systems Uruguay Limited 40. Other material matters The Exemption Notice also exempts the Company and every person acting on its behalf from compliance with Regulation Exemption Notice 23 of the Regulations (relating to statements to listing on Under the Securities Act (NZ Farming Systems Uruguay the NZSX) subject to the condition that NZX has approved Limited) Exemption Notice 2006 (Exemption Notice) statements referring to the intended listing of Shares on the the Company and every person acting on its behalf has NZSX, and that this Offer Document states that if such listing been exempted from compliance with certain provisions does not occur for any reason there will continue to be no of the Securities Act 1978 and regulations under that Act established market for the Shares and that the Shares will (Regulations). In particular, the Company, and every person only be able to be traded privately, and that this will limit an acting on behalf of the Company is exempted from compliance investor’s ability to sell their Shares. with clauses 10(1)(c), 11(3)(f) and 11(3)(g) of the First Other than the matters set our elsewhere in this Offer Schedule to the Regulations: Document and subject to the following there are no other • Clause 10(1)(c) of the First Schedule to the Regulations material matters relating to the Offer of Shares. would otherwise require that this Offer Document contains a prospective statement of cash flows of the Company and Expert consents its subsidiaries which the Directors expect to occur in the The following persons have consented to information year commencing on the date of this Offer Document. contained in this Offer Document which is attributed to them • Clause 11(3)(f) of the First Schedule to the Regulations and have not at the date of this Offer Document withdrawn would otherwise require this Offer Document to contain their consent: financial information in respect of the five accounting • Sr Romualdo Rodríguez of Firm Romualdo Rodríguez periods proceeding the date of this Offer Document on Negocias Rurales in respect of the valuations of the farms. the initial farms and farm assets to be acquired through • Nimmo-Bell & Company Limited in respect of the farm owning subsidiary companies from PGG Wrightson information relating to farming contained in the Offer Investments, as detailed on page 38. Document, and certain statistical information. Clause 11(3)(g) of the First Schedule to the Regulations • • Agricultural Business Associates in respect of financial would otherwise require that this Offer Document contains information. the net tangible asset backing per share of the shares None of the above persons is intended to be a director, officer offered on the basis that those assets have been acquired or employee of the Company. Each may from time to time in and all shares allotted. the future provide professional services to the Company. The exemptions referred to above have been granted on the basis of conditions to the effect that this Offer Document contains: 41. Directors’ statement (a) The price or other consideration that was paid or provided NZ Farming Systems Uruguay has not commenced business by PGG Wrightson Investments for the three farms. or produced any financial statements so the requirements of clause 41 of the First Schedule to the Regulations are (b) The price or other consideration to be paid or provided by inapplicable. the Company for each of the three farms. (c) The valuation report in respect of each of the three farms 42. Auditor’s report containing information specified in the Exemption Notice is contained on pages 49 to 56 of this Offer Document. There are no historical financial statements for NZ Farming Systems Uruguay as the Company has not commenced (d) The prospective financial information contained at pages 40 business. The auditor’s report on the prospective financial to 46 of this Offer Document. information is contained on page 47. (e) A copy of an auditor’s report in respect of prospective financial information. (f) The statements of the Directors of the Company, and of PGG Wrightson respectively, set out on pages 35 and 36. NZ Farming Systems Uruguay Limited 71 This Offer Document is dated 3 November 2006. A copy of this Offer Document has been signed by or on behalf of each of the Directors of NZ Farming Systems Uruguay, the Promoters and each director of the Promoters (other than those directors who are also 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 Signed by the Promoters (by its directors or by their duly authorised agent): PGG Wrightson Limited Arthur William Baylis Sir Selwyn John Cushing Richard Frank Elworthy Brian James Jolliffe John Baird McConnon William David Thomas 72 NZ Farming Systems Uruguay Limited Statutory Index Page 1. Main terms of offer 7, 11, 57–65, 66 2. Name and address of offeror 66 3. Details of incorporation of issuer 66 4. Principal subsidiaries of issuer 67 5. Directorate and advisers 67, back cover 5A. Restrictions on directors’ powers 67 6. Substantial equity security holders of issuer 67 7. Description of activities of issuing group 33, 68 8. Summary of financial statements 68 9. Prospects and forecasts 33–34, 68 10. Provisions relating to initial flotations 68 11. Acquisition of business or subsidiary 68 12. Securities paid up otherwise than in cash 68 13. Options to subscribe for securities of issuing group 68 14. Appointment and retirement of directors 69 15. Directors’ interests 69 16. Promoters’ interests 69, 70 17. Material contracts 70 18. Pending proceedings 70 19. Preliminary and issue expenses 70 20. Restrictions on issuing group 70 21. Other terms of offer and securities 70 22–38 Requirements in respect of Financial Statements 70 39. Places of inspection of documents 70 40. Other material matters 71 41. Directors’ statement 71 42. Auditor’s report 47, 71 NZ Farming Systems Uruguay Limited 73 Glossary Application Form means the application form issued with this Firm Allocation means a binding commitment pursuant to Offer Document for the offer of ordinary shares in NZ Farming which the entity accepting a Firm Allocation of Shares in the Systems Uruguay Limited. Offer is bound to submit valid Applications which in aggregate equals the amount of the Firm Allocation. The entity is required Board means the board of Directors of the Company. to submit a valid Application for any shortfall as principal. BSE means bovine spongiform encephalopathy FMD means foot and mouth disease. Business Day means the period of 9 am to 5 pm on any day FOSS means the international company in the business of of the week when banks in Wellington are generally open for quality control for agricultural, food, pharmaceutical and business. chemical products. Closing Date means 12 December 2006 or such other date as HACCP means the Hazard Analysis and Critical Control Point the Board determines. system of identifying, evaluating and controlling food safety standards. Code means the Takeovers Code under the Takeovers Code Approval Order 2000. INAC means the National Meat Institute of Uruguay. Companies Act means Companies Act 1993. Lead Manager means ABN AMRO Craigs Limited. Company means NZ Farming Systems Uruguay Limited. Manager means PGG Wrightson Funds Management Limited. Conaprole means the Uruguayan milk processing company Market Participant means a participant in the markets Co‑operativa Nacional de Productores de Leche. provided by NZX who has been accredited and approved by NZX as a NZX Firm. Constitution means the constitution of the Company. MERCOSUR means the Southern Common Market. Members are Brazil, Argentina, Uruguay, Venezuela and Paraguay. DINAMA means the Environmental Management agency Associate Membership is held by Bolivia, Chile, Colombia, of Uruguay. Ecuador and Peru. Directors means the directors of the Company. MGAP means the Uruguayan Ministry of Agriculture and Fisheries. DM/ha means dry matter per hectare. Minimum Subscription means 20,000 Shares. Exemption Notice means the Securities Act (NZ Farming Systems Uruguay Limited) Exemption Notice 2006. NAFTA means the North American Free Trade Agreement. Farm Manager means PGG Wrightson Uruguay Limited. NZSX means the main board equity security market operated by NZX. Farms means the farms at Valle de Soba, Tambo El Cabure and Menafra described on page 34. NZSX Listing Rules means the listing rules of the NZSX. NZX means New Zealand Exchange Limited. 74 NZ Farming Systems Uruguay 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. Offer means the offer of Shares under this Offer Document. Offer Document means this combined Investment Statement and Prospectus dated 3 November 2006. PGG Wrightson means PGG Wrightson Limited. PGG Wrightson Group means PGG Wrightson and any of its subsidiaries. PGG Wrightson Investments means PGG Wrightson Investments Limited. PGG Wrightson Uruguay means PGG Wrightson Uruguay Limited. Priority Allocation means a best endeavours allocation in which there is no binding obligation to subscribe for any shortfall Shares. Registrar means Computershare Investor Services Limited. Shares means the ordinary shares in the Company offered under this Offer Document. Securities Act means the Securities Act 1978. Securities Regulations means the Securities Regulations 1983. thd means thousands. In this document, a reference to $, unless otherwise stated means to New Zealand dollars. NZ Farming Systems Uruguay Limited 75 Instructions and Terms and Conditions of Application Form When to Apply by Insert the dollar value of Shares applied to construe, amend or complete it, shall If you have received an allocation for. Note that applications must be for be final. The decision on the number of of Shares from the Lead Manager or a minimum of 20,000 Shares (an initial Shares to be allocated or transferred any other NZX Firm, you must return payment of $10,000) and thereafter in to you shall also be final. You will not, your completed Application Form multiples of 1,000 Shares ($500). however be treated as having offered to (together with payment in full for the purchase a greater value of Shares, than number of Shares allocated to you) to Signing and Dating that for which payment has been made. that NZX Firm or the Lead Manager Read the Offer Document and Investors applying under the Offer whose so that they may be delivered to the Application Form carefully and sign applications are not accepted, or are Registry, Computershare Investor Services and date the Application Form. It accepted in respect of a lesser value by no later than 5pm on Tuesday must be signed by the applicant(s) of Shares than the amount for which 12 December 2006. personally, or under company seal, if they applied will receive a refund of If you do not have an allocation you it has one, or by two directors of the all, or part, of their application monies can apply for Shares by completing an company, or one director if there is without interest. Application Form and returning it directly only one director, or in either case by to the Share Registry, Computershare an attorney. If your application form Closing dates Investor Services. is signed by an attorney, the power of Application Forms under the Offer attorney document is not required to be must be received by the Registrar, How to Apply lodged but the attorney must complete Computershare Investor Services, no the certificate on the reverse of the Applications may only be made on later than 5pm on Tuesday 12 December application form. Joint applicants must the Application Form attached to this 2006. The Company may amend this all sign the Application Form. Offer Document. If you wish to apply date at its discretion. for Shares under the Offer you must complete the Application Form in Payment Delivery accordance with the instructions on Payment of the first instalment of the Applications cannot be revoked or the Form. Shares (being 50 cents per Share), must withdrawn. accompany the Application Form. Application Forms may be mailed or Insert Details Payment must be in New Zealand dollars delivered, with payment, to one of the Insert full name(s), address and for immediate value. Post dated cheques following: will not be accepted. Cheques must be telephone numbers. Applications must NZ Farming Systems Uruguay Limited; or be in the name(s) of natural persons, drawn on a registered New Zealand Bank. The office of the Lead Manager; or companies or other legal entities. At Cheques must be made out in favour The office of an NZX Firm. least one full given name and surname of ‘NZ Farming Systems Uruguay Share is required for each natural person. Offer’ and crossed ‘Not Transferable’. Application Forms which are not lodged Applications in the name of a minor, directly with the Share Registry must be fund, estate, trust, business, firm or Treatment of Application lodged with the relevant person in time to enable them to be forwarded to the partnership, club or other unincorporated The submission of an Application Form Share Registry before the Closing Date. body cannot be accepted. In those with your cheque for the application cases, applications must be made in the money will constitute your irrevocable Applications which are received by the individual name(s) of the person(s) who offer to purchase or subscribe for Share Registry after the Closing Date, is (are) the legal guardian(s) trustee(s), Shares. If your Application Form is may or may not be accepted, at the proprietor(s), partner(s) or office not completed correctly, or if the discretion of the Company. bearer(s) (as applicable). accompanying payment is the wrong Insert IRD number in the space provided amount, it may still be treated as valid. on the form. The decision of the Company and the Lead Manager as to whether to treat your Application Form as valid, and how 76 NZ Farming Systems Uruguay Limited Market Participant’s Stamp Application Form To: The Directors of NZ Farming Systems Uruguay Limited C/o Computershare Investor Services Limited Advisor’s Code Level 2, 159 Hurstmere Road Takapuna Private Bag 92119, Auckland This Application Form is issued with the combined Prospectus and Investment Statement dated 3 November 2006 (“Offer Document”) for the offer of ordinary shares in NZ Farming Systems Uruguay Limited (“Shares”) and constitutes an offer to acquire Shares at $1.00 per Share partly paid to 50 cents per Share. Your completed Application Form, together with payment of the application money payable in respect of the total number of Shares applied for, should be mailed or delivered to the Lead Manager or any Market Participant, so as to be received by Computershare Investor Services before 5.00 pm (NZ time) on Tuesday 12 December 2006. Primary Participants should stamp Application Form with “Firm Allocation” where appropriate. This Application Form must not be circulated or distributed unless accompanied by the Offer Document. Please refer to the reverse of this Application Form for additional instructions regarding its completion and lodgement. Investor Details (Block Letters Please) Please enter name(s) in full, including all first names: Title: First Name(s): Surname: IRD No: Title: First Name(s): Surname: IRD No: Title: First Name(s): Surname: IRD No: Corporate Name: IRD No: Postal Address: Suburb: City: Post code: Telephone Number Home: Business Phone: Email Address: Number of Shares Applied for and Amount Payable Number of Shares applied for at the Issue Amount payable, being the number of Shares applied for multiplied by the first Price of NZ$1.00 per Share: instalment of NZ$0.50 per Share: $ .00 Applications must be for a minimum Cheques for the amount payable must be attached to this Application Form and made payable to ‘NZ Farming Systems of 20,000 Shares and thereafter in Uruguay Limited Share Offer’. Cheques must be crossed ‘Not Transferable’ and for immediate payment. Payment must be multiples of 1,000. made in New Zealand dollars with a cheque drawn on a registered New Zealand bank. Common Shareholder Number (CSN) If you have a CSN please enter it here: Dividend Payments Bank account details MUST be completed as dividend cheques will not be issued. Please complete only one option. Direct credit to my bank account as held by Computershare; OR Direct credit to my bank account below; OR Bank Branch Account Number Suffix Account Account Name:(s) Number Direct credit to my cash management account Name of NZX Firm where Cash Management Account held Cash Management Client Account Number Agreement of Terms I/We hereby apply for the number of ordinary Shares shown above at the purchase price of $1.00 per Share, partly paid to 50 cents per Share, and agree to accept such Shares (or such lesser number as may be allotted) on and subject to the terms and conditions set out in this Offer Document dated 3 November 2006 and this Application Form. I have read and understand the terms of the Offer Document including the consequences of my failure to pay the second instalment of 50 cents per Share due on 14 December 2007. I/We declare that all the details and statements made by me/us in this Application Form are complete and accurate. Signature: Date: Signature: Date: Signature: Date: If this Application is signed under Power of Attorney, the Attorney must complete the certificate on the reverse of the Application Form. This Application Form must not be issued, circulated or distributed unless accompanied by the Offer Document. Certificate of Non-Revocation of Power of Attorney I, of (Name of Attorney) (Address and Occupation of Attorney) HEREBY CERTIFY THAT: 1. By a Power of Attorney dated the day of of (Name and Occupation of person for whom Attorney is signing) (Address of person for whom Attorney is signing) (“the Donor”) appointed me his/her/its Attorney on the terms and conditions set out in the Power of Attorney; 2. I have executed the application for Shares printed on the face of this form as Attorney pursuant to the powers conferred on me by that Power of Attorney. 3. At the date of this certificate I have not received any notice or information of the revocation of that Power of Attorney, whether by the death or dissolution of the Donor or otherwise. Signed at this day of 2006 Signature of Attorney Certificate of Non-Revocation of Agency Complete this section if you are acting as agent for someone. I, (Name of Agent) Of (Address and Occupation of Agent) HEREBY CERTIFY: 1. THAT, by an Agreement dated the day of (‘Donor’) appointed me his/her/its Agent on the terms and conditions set out in the Agreement. 2. THAT I have executed the Application for Shares printed on this Application Form under the Appointment and pursuant to the powers thereby conferred on me. 3. THAT at the date of this certificate I have not received any notice or information of the revocation of that Appointment by the death (or winding up) of the Donor or otherwise. Signed at this day of 2006 Signature of Agent Additional Application Terms This application constitutes an irrevocable offer by the applicant to acquire the Shares specified in the Application Form, or such lesser number of Shares as NZ Farming Systems Uruguay Limited and the Lead Manager may determine, on the terms and conditions set out in the Offer Document and this Application Form. If the aggregate number of Shares applied for exceeds the number offered then applicants may be allotted fewer Shares than the number for which they applied. The number of Shares allotted to an applicant will be determined by NZ Farming Systems Uruguay Limited in conjunction with the Lead Manager. No reasons will be given regarding the level of allotments. NZ Farming Systems Uruguay Limited reserves the right to decline any application in whole or in part, without giving any reason. Money received in respect of applications which are declined in whole or in part will be refunded in whole or in part (as the case may be) within five business days after Closing Date. Interest will not be paid on any application money refunded to applicants. Statements will be dispatched as soon as is practicable after allotment, but in any event not later than five Business Days after allotment. If this Application Form is not completed correctly, or if the accompanying payment is for the wrong amount, it may still be treated as valid. NZ Farming Systems Uruguay Limited’s decision as to whether to treat an application as valid, and how to construe, amend or complete it, shall be final. NZ Farming Systems Uruguay Limited’s decision on the number of Shares to be allotted to an applicant shall also be final. Applicants will not, however, be treated as having offered to purchase a greater number of Shares than the number for which payment is made. Application money will be banked upon receipt into an account. Interest earned on that account will be paid to NZ Farming Systems Uruguay Limited. If application money is paid by a cheque which does not clear, that application may be rejected or an allotment made to the applicant may be cancelled. Expressions defined in the Offer Document have the same meanings in this Application Form. This Application Form is governed by New Zealand law. Personal information provided by you will be held by NZ Farming Systems Uruguay or the Registrar, at the addresses shown in the Directory of the Offer Document or at such other place as is notified upon request. This information will be used for the purpose of managing your investment. Under the Privacy Act 1993, you have the right to access and correct any personal information held about you. By signing (or authorising your attorney to sign) this Application Form you acknowledge that this Application Form was distributed to you with a copy of the Offer Document. Market Participant’s Stamp Application Form To: The Directors of NZ Farming Systems Uruguay Limited C/o Computershare Investor Services Limited Advisor’s Code Level 2, 159 Hurstmere Road Takapuna Private Bag 92119, Auckland This Application Form is issued with the combined Prospectus and Investment Statement dated 3 November 2006 (“Offer Document”) for the offer of ordinary shares in NZ Farming Systems Uruguay Limited (“Shares”) and constitutes an offer to acquire Shares at $1.00 per Share partly paid to 50 cents per Share. Your completed Application Form, together with payment of the application money payable in respect of the total number of Shares applied for, should be mailed or delivered to the Lead Manager or any Market Participant, so as to be received by Computershare Investor Services before 5.00 pm (NZ time) on Tuesday 12 December 2006. Primary Participants should stamp Application Form with “Firm Allocation” where appropriate. This Application Form must not be circulated or distributed unless accompanied by the Offer Document. Please refer to the reverse of this Application Form for additional instructions regarding its completion and lodgement. Investor Details (Block Letters Please) Please enter name(s) in full, including all first names: Title: First Name(s): Surname: IRD No: Title: First Name(s): Surname: IRD No: Title: First Name(s): Surname: IRD No: Corporate Name: IRD No: Postal Address: Suburb: City: Post code: Telephone Number Home: Business Phone: Email Address: Number of Shares Applied for and Amount Payable Number of Shares applied for at the Issue Amount payable, being the number of Shares applied for multiplied by the first Price of NZ$1.00 per Share: instalment of NZ$0.50 per Share: $ .00 Applications must be for a minimum Cheques for the amount payable must be attached to this Application Form and made payable to ‘NZ Farming Systems of 20,000 Shares and thereafter in Uruguay Limited Share Offer’. Cheques must be crossed ‘Not Transferable’ and for immediate payment. Payment must be multiples of 1,000. made in New Zealand dollars with a cheque drawn on a registered New Zealand bank. Common Shareholder Number (CSN) If you have a CSN please enter it here: Dividend Payments Bank account details MUST be completed as dividend cheques will not be issued. Please complete only one option. Direct credit to my bank account as held by Computershare; OR Direct credit to my bank account below; OR Bank Branch Account Number Suffix Account Account Name:(s) Number Direct credit to my cash management account Name of NZX Firm where Cash Management Account held Cash Management Client Account Number Agreement of Terms I/We hereby apply for the number of ordinary Shares shown above at the purchase price of $1.00 per Share, partly paid to 50 cents per Share, and agree to accept such Shares (or such lesser number as may be allotted) on and subject to the terms and conditions set out in this Offer Document dated 3 November 2006 and this Application Form. I have read and understand the terms of the Offer Document including the consequences of my failure to pay the second instalment of 50 cents per Share due on 14 December 2007. I/We declare that all the details and statements made by me/us in this Application Form are complete and accurate. Signature: Date: Signature: Date: Signature: Date: If this Application is signed under Power of Attorney, the Attorney must complete the certificate on the reverse of the Application Form. This Application Form must not be issued, circulated or distributed unless accompanied by the Offer Document. Certificate of Non-Revocation of Power of Attorney I, of (Name of Attorney) (Address and Occupation of Attorney) HEREBY CERTIFY THAT: 1. By a Power of Attorney dated the day of of (Name and Occupation of person for whom Attorney is signing) (Address of person for whom Attorney is signing) (“the Donor”) appointed me his/her/its Attorney on the terms and conditions set out in the Power of Attorney; 2. I have executed the application for Shares printed on the face of this form as Attorney pursuant to the powers conferred on me by that Power of Attorney. 3. At the date of this certificate I have not received any notice or information of the revocation of that Power of Attorney, whether by the death or dissolution of the Donor or otherwise. Signed at this day of 2006 Signature of Attorney Certificate of Non-Revocation of Agency Complete this section if you are acting as agent for someone. I, (Name of Agent) Of (Address and Occupation of Agent) HEREBY CERTIFY: 1. THAT, by an Agreement dated the day of (‘Donor’) appointed me his/her/its Agent on the terms and conditions set out in the Agreement. 2. THAT I have executed the Application for Shares printed on this Application Form under the Appointment and pursuant to the powers thereby conferred on me. 3. THAT at the date of this certificate I have not received any notice or information of the revocation of that Appointment by the death (or winding up) of the Donor or otherwise. Signed at this day of 2006 Signature of Agent Additional Application Terms This application constitutes an irrevocable offer by the applicant to acquire the Shares specified in the Application Form, or such lesser number of Shares as NZ Farming Systems Uruguay Limited and the Lead Manager may determine, on the terms and conditions set out in the Offer Document and this Application Form. If the aggregate number of Shares applied for exceeds the number offered then applicants may be allotted fewer Shares than the number for which they applied. The number of Shares allotted to an applicant will be determined by NZ Farming Systems Uruguay Limited in conjunction with the Lead Manager. No reasons will be given regarding the level of allotments. NZ Farming Systems Uruguay Limited reserves the right to decline any application in whole or in part, without giving any reason. Money received in respect of applications which are declined in whole or in part will be refunded in whole or in part (as the case may be) within five business days after Closing Date. Interest will not be paid on any application money refunded to applicants. Statements will be dispatched as soon as is practicable after allotment, but in any event not later than five Business Days after allotment. If this Application Form is not completed correctly, or if the accompanying payment is for the wrong amount, it may still be treated as valid. NZ Farming Systems Uruguay Limited’s decision as to whether to treat an application as valid, and how to construe, amend or complete it, shall be final. NZ Farming Systems Uruguay Limited’s decision on the number of Shares to be allotted to an applicant shall also be final. Applicants will not, however, be treated as having offered to purchase a greater number of Shares than the number for which payment is made. Application money will be banked upon receipt into an account. Interest earned on that account will be paid to NZ Farming Systems Uruguay Limited. If application money is paid by a cheque which does not clear, that application may be rejected or an allotment made to the applicant may be cancelled. Expressions defined in the Offer Document have the same meanings in this Application Form. This Application Form is governed by New Zealand law. Personal information provided by you will be held by NZ Farming Systems Uruguay or the Registrar, at the addresses shown in the Directory of the Offer Document or at such other place as is notified upon request. This information will be used for the purpose of managing your investment. Under the Privacy Act 1993, you have the right to access and correct any personal information held about you. By signing (or authorising your attorney to sign) this Application Form you acknowledge that this Application Form was distributed to you with a copy of the Offer Document. Directory The Company The Promoters Auditors NZ Farming Systems Uruguay Limited PGG Wrightson Limited PricewaterhouseCoopers 57 Waterloo Road 57 Waterloo Road 12th Floor Hornby Hornby PricewaterhouseCoopers Centre Christchurch Christchurch 119 Armagh Street P.O. Box 13244 Phone: (03) 372 0800 Phone: (03) 372 0800 Christchurch Fax: (03) 344 5195 Fax: (03) 344 5195 Phone: (03) 374 3000 Fax: (03) 374 3001 The Board of Directors Lead Manager Keith Raymond Smith ABN AMRO Craigs Limited Auckland ABN AMRO Craigs House Solicitors 158 Cameron Road Phillips Fox Michael Craig Norgate P.O. Box 13155 Tower Building Auckland Tauranga 50-64 Customhouse Quay Wellington Murray James Flett Phone: (07) 577 6049 Invercargill Fax: (07) 571 8625 Phone: (04) 472 6289 Fax: (04) 472 7429 Samuel Richard Maling Registrar Christchurch Computershare Investor Services Limited John Suffield Parker Level 2 Otaki 159 Hurstmere Road Takapuna Bevan David Cushing Private Bag 92119 Christchurch Auckland The Directors can be contacted at the Phone: (09) 488 8777 Company’s registered address. Fax: (09) 488 8787 www.nzfsu.co.nz