Livestock Improvement posts drop in annual profit

Thursday 23rd July 2015

Livestock Improvement Corp, a farmer cooperative that sells bull semen and manages a dairy genetics database, posted its third straight drop in annual profit as lower milk prices weighed on demand for its services and it spent more on technology and infrastructure to be able to deliver new products to farmers.

The Hamilton-based cooperative said net profit dropped to $13.7 million in the year through May, from $18 million in 2014, $23.7 million in 2013, and $24.4 million in 2012. In the latest year, total revenue rose 10 percent to $232 million, while revenue from ordinary activities rose 10 percent to $228.4 million, it said.

Livestock Improvement aims to lift annual revenue to $1 billion by 2025 through growing its existing business, launching new products, acquisitions and growth offshore of its Minda herd records service, Protrack farm automation solutions and its Dairy Automation milk testing sensors. The cooperative had earlier warned that increased spending, combined with this season's much reduced milk payout, meant annual profit would decline.

The latest result "is in line with forecasts made in 2014, as part of the expected impact of the lower milk payout and the co-op's long-term capital investment programme," chairman Murray King said in a letter to farmer shareholders.

The cooperative increased its research and development spending by 13 percent to $16.9 million in the past year, which equates to 7.4 percent of revenue, up from 7.2 percent of revenue the year earlier. It invested in research to improve the accuracy of genomic predictions, a new Johne's disease breeding value estimate and investigations into new technology to measure pasture covers, potential new animal health diagnostics tests and automated body condition scoring.

It spent $48 million on capital investment in the year, with $28 million for technology upgrades and new product developments. That included a new $5 million herd testing centre in Hamilton, renovation and refurbishment of offices to meet growth demands, semen laboratory upgrades and a new semen collection barn.

Over the past year, the cooperative has entered a research and development partnership with Dutch agricultural company Lely Group, whose local unit designs sensors for animal health and production, and entered into a deal with 'cow intelligence company' SCR Dairy to distribute its technology into new regions including Belarus, Israel, Russia and Turkey. In December, LIC acquired a majority stake and exclusive supply to its Brazilian genetics distributor, NZ Brasil Genetics Producao Animal. Strategic growth decisions yet to be made include whether to enter the Chinese market.

Since its May 31 balance date, the cooperative has entered into a new $125 million syndicated banking facility. It has previously said it is likely to require $140 million in equity capital over the next 10 years to meet its growth goals. It had cash and equivalents of $2.5 million at May 31, down from $15.5 million a year earlier.

Shares of LIC, which are only available for trading by its 10,500 dairy farmer shareholders, were last quoted on the NZX at $4.50 and have declined 26 percent so far this year.

It will pay $6.6 million in dividends, down from $11.2 million the previous year, with both payouts representing 60 percent of underlying earnings which exclude changes in valuations of its biological assets.

The value of the cooperative's 1,029 elite breeding bulls increased to $92.7 million at May 31, from $88.9 million for 860 bulls a year earlier, it said.

BusinessDesk.co.nz

Comments from our readers

No comments yet