Livestock Improvement flags proposal to split into two, allow outside investors

Monday 16th May 2016

Livestock Improvement Corp, the farmer-owned cooperative that focuses on dairy herd genetics, farm software and automation, has proposed splitting into two businesses and allowing outside shareholders to invest for the first time.

LIC, as the business is known, will embark on a nationwide roadshow starting on June 7 to discuss proposed changes to its capital structure. The split would create a genetics/farm management cooperative, working with New Zealand's dairy farmers, and a new agri-technology company that would put LIC's existing agri-tech activities into a new corporate structure and "invest in new and innovative products, servicing customers in New Zealand and offshore."

The roadshow will also discuss "the potential for non-cooperative shareholders to invest in a portion of the agri-technology company," chairman Murray King said in a statement. "This would be subject to a shareholder vote in 2017 should the LIC board decide to proceed with this aspect of the proposal."

King said LIC has been talking to shareholders for some time about the need to review the capital structure,

"Our thinking has progressed to a point where we can now provide an update on plans to unlock opportunities and value in the business, and seek shareholder feedback on the proposed changes," he said.

LIC posted a 46 percent drop in first-half profit in February, reflecting the lower dairy payout and reduced spending by farmers, and the cooperative said it was focussing on reducing operating costs while maintaining services to its farmers.

Its shares, which can only currently be traded among cooperative members, have tumbled 61 percent in the past 12 months and recently traded at $2.11, valuing the compay at $62.3 million.

The NZAX-listed company had already warned about its performance last October and chairman Murray King is now more downbeat about the full-year results, saying he expects them to be closer to a break even position, after signalling in October that it would still exceed last year's figures.

Net profit in the first half fell to $15.9 million and revenue was $145 million, down 9 percent.

King said the result was a reflection of this season's lower forecast milk price creating challenging financial situations for many dairy farmers.

"We continue to actively manage and minimise costs, without impacting our service to farmers," King said. "It's times like this when service becomes even more important, so we are hugely focused on that. We have made significant reductions in our operating costs over the last six months and these will be sustained through the rest of the year".

Cash flows from operations were a negative $17 million, reflecting extended terms given to farmers, a turnaround from the $6 million positive cash flow in the same period a year earlier.

LIC dates back to 1909 and employs more than 800 people, with offices worldwide. All profits are reinvested in research and development or paid out to farmers/shareholders in dividends. Shares are currently priced at $3.80 and have fallen by a third when compared to a year ago.

BusinessDesk.co.nz

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