Afimilk proposal questions addressed

A nationwide series of regional meetings for LIC shareholders has been completed, read more here.

Shareholders have had the opportunity to ask LIC Chief Executive Wayne McNee and Chair Murray King questions about LIC’s proposed strategic investment in Afimilk. LIC has captured the core themes of these questions with answers.

Voting on the proposal is now open and closes on 7 April, 2020. 

The special meeting will now be livestreamed so that shareholders can attend and participate online only. Shareholders can vote electronically, (at investment.lic.co.nz or on LIC’s website), by post or by appointing a proxy until 10.30 am on Sunday 5 April.

The details for the online meeting are:

No physical meeting will be held.

View more information on the strategic investment proposal. For voting help call 0800 666 031.

Download the Afimilk strategic investment questions.

Download a full transcript of the shareholder call here.

The proposed investment constitutes a major transaction for the purposes of the NZX Listing Rules and therefore the investment is conditional upon the approval of LIC shareholders.

LIC is required to seek shareholder approval under Listing Rule 5.1.1(b), as the value of the investment exceeds 50% of the Average Market Capitalisation of LIC. This means that more than 50% of LIC’s shareholders who vote must vote in favour of the proposed investment, amongst the other conditions, before the investment may proceed.

Consider the information provided within this document and vote on the proposed investment. LIC’s Board recommends voting IN FAVOUR of the investment.

  • Attend the Special Meeting - bring your Voting Form to the meeting, as the barcode is required to assist with your registration; or
  • Electronic voting – visit www.lic.co.nz or www.investment.lic.co.nz and follow the prompts. You will need your pin and password as shown on your Voting Form, or in an email sent from iro@electionz.com on Friday 28 February for single farm shareholders, and Saturday 29 February for multi farm shareholders. Electronic voting will close at 10.30 am on Sunday 5 April 2020; or
  • Postal voting - complete the “Postal Vote” section of the Voting Form and return it in the reply paid envelope provided to Electionz.com Limited, as per the details provided at the bottom of this section. Your form must be received before 10.30 am on Sunday 5 April 2020; or
  • Appoint a Director or Councillor of LIC, the Chairman of the meeting, or another person as your proxy - complete the “Proxy Appointment” section on the Voting Form, including how you wish them to vote (as a directed vote or as “Proxy’s Discretion”), and return in the reply paid envelope provided, to electionz.com Limited, 3/3 Pukaki Road, Yaldhurst, Christchurch 8042. Your form must be received before 10.30 am on Sunday 5 April 2020. Your appointed Director/ Councillor/Chairman/representative will receive voting papers upon registration at the meeting. A proxy need not be a shareholder of LIC.

There are business and investment risks associated with the transaction, including geopolitical, economic and company-specific risks. LIC’s return on the investment will depend on the commercial performance of Afimilk.

Page 21 of the Notice of Special Meeting provides further details about the potential risks the investment presents.

Shareholders should consider these potential risks, the likelihood of a risk event occurring, and the impact it may have on a shareholder’s investment in LIC.

No. Nothing is happening to your shares or your shareholding in LIC. If approved,the strategic investment will see LIC, through LIC Agritechnology Company Limited, acquire a shareholding in Afimilk. As such, all LIC shareholders will acquire an indirect interest in, and exposure to, Afimilk.

If the resolution is not approved by LIC shareholders, then the proposed investment will not proceed.

LIC and Afimilk agreed transaction documents on Wednesday 19 February 2020, subject to the satisfaction of certain conditions (including LIC shareholder approval). LIC has called its shareholder meeting at 10:30am, Tuesday 7 April 2020 and, if approved by LIC shareholders, it is anticipated that the transaction will be completed on 1 June 2020.

The Board considers this is a compelling strategic proposition for our business which will further strengthen our co-op. The investment will help grow our business by giving us an industry-leading edge in milk meters and cow wearable technology, while also strengthening our leadership in herd improvement services through access to New Zealand and international herd data.

It will allow LIC to access information to better drive genetic decisions: A key  part of the investment is the access that LIC will gain to animal health and animal performance information held by Afimilk. LIC will use its data and the information obtained through Afimilk’s products (such as in-line milk meters and animal monitoring systems), to help inform decisions to grow and strengthen the genetic business, reflecting changing approaches to farming domestically and internationally.

It is a sound financial investment: As a profitable business that is aligned with LIC’s strategy, LIC believes the dividends received from Afimilk will likely finance the interest component of the debt and part of the debt needed to fund this strategic investment, while providing additional returns over time to LIC shareholders.

Possible future opportunities for LIC’s business: LIC anticipates that being a 50% shareholder in Afimilk will give LIC a unique opportunity to work more closely with Afimilk and to grow both businesses.

LIC will continue to deliver value to farmers from the current business of farm management, genetics, automation and animal health.

This investment is aligned with our innovation-led growth strategy. The investment will help grow our automation business by giving us an industry-leading edge in milk meters and cow wearable technology, while also strengthening our leadership in herd improvement services through access to New Zealand and international herd data.

Access to data is crucial to LIC’s core business and is one of the key strategic drivers for this investment. Access to data will allow us to strengthen our leadership in herd improvement services and research and development. This is also a sound financial investment and creates possible future opportunities for LIC’s business.

In line with the strategic rationale for this transaction, LIC and Afimilk have agreed to an arrangement to share certain data. Appropriate security measures will be put in place and it is in the interests of both parties to ensure data security is of utmost importance. Data and digital security was reviewed as part of the due diligence process with no major concerns identified.

Afimilk collects global data from in-line milk sensors and cow wearable technologies. Access to this data will give LIC a greater understanding of the global dairy herd, allowing us to strengthen our leadership in herd improvement services and research and development. As New Zealand farmers use these technologies more, we will also be able to use New Zealand generated data.

Afimilk’s expertise in cow monitoring solutions, in-line milk meters and farm management software will enable us to improve the products our customers already use.

Access to data from dairy cows across the globe will enable LIC to breed a better, more efficient cow for LIC customers.

Dividends paid by LIC to its shareholders are not expected to be negatively impacted by the investment and over time should result in increased dividend returns.

We will continue to invest in automation products to improve the profitability andnproductivity of farming operations in a rapidly changing environment.

We will continue the ongoing integration of the Protrack operating systems with MINDA LIVE. MINDApro will be discontinued in 2022, so the migration to the new generation Protrack products will continue.

We will be working with Afimilk to integrate Afimilk products (milk sensors and animal monitoring systems) with MINDA and Protrack. We will also continue to work alongside other providers to integrate wearables as appropriate.

Are we better to buy the product off the shelf and integrate it?

While access to in-line milk meter technology and animal wearable technology is important, the strategic investment will allow us access to data to better drive genetic decisions, it’s a sound financial investment and it offers possible future opportunities. These are benefits we would not receive by buying product off the shelf.

With the increasing uptake of cow wearables and in-line milk meters in New Zealand, data being generated on New Zealand farms is increasingly being sent overseas, or left on farm. This puts New Zealand’s Animal Evaluation system under threat, and reduces LIC’s ability to deliver the best genetics possible to New Zealand farmers.

There is increasing interest in using data from wearables in health, feed intake and fertility measures for genetic evaluation in the USA and Europe. The AB companies are looking for traits that provide them a marketing point of difference. The Afimilk data could be useful in determining which measures are heritable in the overseas data and could be translated back into useful traits in NZ, or used to differentiate our sires internationally if they have better BVs for health, feed intake/efficiency and fertility novel traits in the countries we are interested in.

In 2016 LIC was split into two separate entities: a genetics/herd improvement co-operative, working with New Zealand’s dairy farmers, and an agri-technology company (LIC Agritechnology), bringing the agri-technology activities under a new corporate structure. The investment into Afimilk will be made under the LIC Agritechnology company. 

Discussions are underway to determine whether Afimilk will acquire the parts of LIC’s automation business (also within LIC Agritechnology) that are complementary to Afimilk’s business.

The investment will give LIC access to Afimilk cow wearables and milk meters data, both in New Zealand and overseas. We don’t currently have any of this information.

One of the main risks LIC is facing is the risk of standing still. With the increasing uptake of cow wearables and in-line milk meters in New Zealand, data being generated on New Zealand farms is increasingly being sent overseas, or left on farm. This puts New Zealand’s Animal Evaluation system under threat, and reduces LIC’s ability to deliver the best genetics possible to New Zealand farmers.

Ultimately, LIC needs reliable and regular on farm animal data in order to maintain and improve the genetics and breeding programmes.

LIC will acquire 3,636 shares in Afimilk, (representing 30.77%) from Fortissimo and 2,273 shares in Afimilk (representing 19.23%) from Kibbutz Afikim, giving LIC a total shareholding of 50% (5,909 shares in Afimilk).

The total price payable by LIC will be USD70 million (est NZD108.7 million), subject to typical purchase price adjustments relating to annual net cash/debt and working capital levels.

Multiple valuation methodologies were used in LIC’s assessment of value, including Discounted Cash Flow (DCF), and earnings multiples analysis.

For context, total assets of LIC Group at 30 November 2019 were NZD424.7 million, and net assets were NZD302.2 million.

LIC will fund the investment through new debt under its existing facilities, which will represent a significant increase in debt compared to the modest amount of debt held currently, decreasing the equity to assets ratio from 77% (at May 2019) to an estimate of 62% (at May 2020). Given both LIC and Afimilk have relatively low levels of debt and positive cash flows, LIC anticipates that the equity to assets ratio will continue to increase. LIC banks with Westpac and Rabobank, and has been well supported by our banking partners over time, with both prepared to fundthis transaction.

LIC anticipates that the dividends received from Afimilk will be sufficient to meet all interest costs, while also likely funding a portion of principal repayment, in the absence of any significant adverse economic events and material unforeseen expenditure requirements. LIC intends to repay principal on the facility over time out of dividends received from Afimilk (to the extent they exceed the interest costs) and LIC’s cashflows from its core business. Based on current LIC levels of cash flow, LIC expects debt could be paid down within approximately six years. If there are no dividends from Afimilk, or interest rates for the debt increase, this could take additional time.

Afimilk benefits from preferential tax rates for innovation entities in Israel, which are lower than the New Zealand corporate tax rate. Withholding tax on any dividends paid to LIC would be additional to the Israeli tax rate, with the total tax payments expected to be no more than the New Zealand corporate tax rate.

An agreed dividend pay-out ratio is part of the Shareholder Agreement. It is in the interests of both the Kibbutz and LIC to receive a stable dividend each year. The Kibbutz depend on it to continue Kibbutz operations.

We expect dividends to be paid out each year from the profits generated by Afimilk. It is currently profitable and is currently generating dividends to shareholders. Afimilk’s financial year end is December, with dividends expected to be paid in the months following Board approval of the Financial Statements.

LIC expects the ROI to be positive and sufficient to fund the cost of the debt taken out to pay for this investment within six years.

Although there are a number of risks to the proposed investment, as detailed in the Notice of Meeting, and which is usual for an investment of this nature, the expected return to LIC is in excess of its weighted average cost of capital.

LIC is a heavy investor in R&D for the dairy industry, at typically over 5% of revenue, well above the primary sector average of around 1%. Our R&D and technology teams are working at near capacity with current innovation and development programmes. We are doing a lot and don’t think we could go any faster with more money. LICA is loss-making and has been for some time – we areexploring opportunities for LICA to work more closely with Afimilk if this proposed investment goes ahead.

If the resolution is not approved by LIC shareholders, then the proposed investment will not proceed and LIC’s Board will continue to investigate other potential investment opportunities for LIC to deliver innovation-led growth.

However, this would mean that the opportunity to invest in Afimilk, a leader in its field, is lost. The Board considers this is a compelling strategic proposition for our business which will further strengthen our co-op. The investment will help grow our automation business by giving us an industry-leading edge in milk meters and cow wearable technology, while also strengthening our leadership in herd improvement services through access to international herd data.

LIC has built a strong platform for growth over the past four years with solid financial results. While we will take on some new debt to fund a portion of this investment, our shareholders will understand that what we’re doing is like funding the purchase of a neighbour’s well-run farm.

Afimilk is a leader in its field and has been on our radar for a number of years.

Afimilk is also a sound financial investment. Afimilk has been profitable over the years, has no debt, funds R&D from annual cash flows, and has a track record of both paying dividends and delivering new innovations to farmers.

LIC undertook a thorough and independently assessed due diligence process to determine if there is strategic merit in acquiring Afimilk and the value of Afimilk to LIC. The due diligence process was led by LIC’s senior management, reporting to a sub-committee of the Board.

The proposed investment aligns with our strategy which sets out how we could grow an innovation-led growth strategy, with an ongoing focus on the core NZ dairy industry. What we need to do to achieve that is invest, innovate, and achieve significant growth from new products and expand beyond New Zealand. In summary, data to enhance dairy genetics is our core business.

It is not the Shareholder Council’s role or responsibility to approve or endorse this investment, however their view has been sought and they agreed it is ultimately a decision for all LIC shareholders.

No. It is a decision for LIC shareholders, however he has been informed of the proposal.

LIC has considered a number of other opportunities, however none have provided such a compelling strategic proposition for our business which will further strengthen our co-op.

LIC has a strong track record having made a number of successful strategic investments in the past, including Figured, National Milk Records (NMR) and Beacon. For reference, in 2019, NMR’s turnover was GBP22 million (NZD46 million), with EBITDA of GBP2.4 million (NZD5.0 million). These investments to date have provided a positive return to LIC over a number of years. LIC has a number of strategic investments outside of New Zealand, being NMR (United Kingdom), Eurogene (Ireland), and Beacon Automation (Australia). The total value of current investments by LIC, as recognised in the 2018/19 Annual Accounts, is NZD17.5 million.

Afimilk is a leader in its field and has been on our radar for a number of years. Afimilk is also a sound financial investment. Afimilk has been profitable over the years, has no debt, funds R&D from annual cash flows, and has a track record of both paying dividends and delivering new innovations to farmers.

We operate in a globally competitive industry. Afimilk is a leader in its field and has been on our radar for a number of years. Afimilk is also a sound financial investment. Afimilk has been profitable over the years, has no debt, funds R&D from annual cash flows, and has a track record of both paying dividends and delivering new innovations to farmers.

Afimilk has a global presence across all its products and solutions, with particular success in regions of intensive dairy farming.

LIC is currently in the middle of a digital transformation journey, including increasing the functionality of MINDA LIVE. LIC believes the funding available for this journey is appropriate and an efficient use of shareholder funds.

LIC undertook a thorough and independently assessed due diligence process to determine if there is strategic merit in acquiring Afimilk and the value of Afimilk to LIC. The due diligence process was led by LIC’s senior management, reporting to a sub-committee of the Board.

Following the due diligence process the Board voted in favour of the deal and the directors are confident that this is a good investment for LIC. They therefore recommend shareholders also vote yes.

As a business we are always looking for opportunities to grow to provide our shareholders with better genetics and herd management services.

This investment will not change LIC’s ongoing commitment and investment into R&D, technology and improved products and services to New Zealand dairy farmers. Capital will still be available to fund appropriate investments and to support the future plans of the co-operative.

LIC undertook a thorough and independently assessed due diligence process to determine if there is strategic merit in acquiring Afimilk and the value of Afimilk to LIC. The due diligence process was carried out as follows.

  • The due diligence process was led by LIC’s senior management, reporting to a sub-committee of the Board.
  • A due diligence team was established using experts within LIC to cover the key focus areas relevant to the business.
  • External consultants were used where special expertise was required, including in-market specialists.
  • Due diligence was completed both on publicly available information and on legal, financial, tax, operational and other information provided by Afimilk.
  • The due diligence process included a visit to Afimilk’s office and facilities by some of the due diligence team.
  • The review covered all aspects of Afimilk, including an assessment of their future forecasts, and also contained a review of the Israeli culture, politics and geo political situation.

This transaction is understood to be smaller than the acquisition of SCR (Afimilk’s key competitor in Israel) by Allflex in 2015. In 2019, there were 67 deals worth USD592 million in Israel across the Agri-Food Tech space. A number of much larger transactions have occurred recently with Merck acquiring Antelliq in 2019, the parent of Allflex, for USD3.6 billion.

As LIC is only a 50% shareholder in Afimilk, it will remain a separate and independent company. LIC and Afimilk have agreed to negotiate in good faith to determine whether Afimilk will acquire the parts of LIC’s automation business that are complementary to Afimilk’s business, in anticipation of greater scale for R&D and greater synergies. These negotiations are still in progress and are unlikely to be concluded before voting for the proposed investment concludes.

Afimilk is an Israeli co-operative company, which develops, manufactures and markets advanced systems to manage dairy farms. Israel is a world-leader in agritechnology, with its government active in setting up and fundingagritechnology incubators to drive investment and support for the sector. 

Afimilk’s developments are utilised globally. Afimilk has a global reputation for its innovations and ability to commercialise new products for the dairy industry, including farm management software, collars and other cow monitoring devices, in-line milk meters and automation technology. Some of these products are already sold in New Zealand and the demand for them is growing.

Afimilk is currently owned by Kibbutz Afikim (69.23%) and Fortissimo (30.77%). Under the investment, LIC will acquire Fortissimo’s entire 30.77% interest and another 19.23% from Kibbutz Afikim, so that Kibbutz Afikim and LIC will each hold 50% of the shares in Afimilk, with Afimilk operating as a stand-alone business.

To provide dairy farmers with superior technology, to automate and manage dairy farms, enabling profitable milk production and improvement of animal welfare.

Afimilk is an agricultural cooperative in the legal sense in Israel. The Kibbutz is not legally a cooperative but they are an agricultural community and farm dairy, bananas and other crops in the northern part of Israel. They liked the similarities with LIC – the fact we are a cooperative is also one of the reasons they wanted to work with us.

Afimilk has a global presence with its products and solutions. It has particular success in regions of intensive dairy farming. Afimilk is broadly regarded as one of the industry leading producers of milk meters, behaviour sensors and farm management software, with particular strength in having strong distribution across Europe and North America. 

Although exact market share information is difficult to verify, LIC considers Afimilk to be in the top three global providers in each of the milk sensors, cow monitoring solutions and dairy management software markets. Its major competitors include SCR, Nedap, GEA and DeLaval.

Afimilk describes its business as consisting of three main segments, with a fourth (dairy robotics) under development:

  • Milk Sensors – Afimilk produces milk sensors, which provide International Committee for Animal Recording (ICAR) approved information about milk volume. They also provide free flow milk solids technology, to monitor and record the most essential aspects of herd production and individual cattle health. As there is currently no standard for milk meter data that is acceptable to NZAEL, Afimilk and LIC milk meters do not provide information for animal evaluation. These standards, and both Afimilk and LIC’s ability to meet them, are currently in development. As this work is ongoing, the exact timeline and number of meters per shed continues to be in development.

  • Cow Monitoring Solutions – Afimilk produces leg pedometers, tags, sensors and neck collars to monitor the health of the individual cow. These technologies provide animal identification, heat and lameness detection, calving alerts, rest, heath and group wellbeing, and other information for efficient farm operations and profitability. These products operate within the allowed Australia and New Zealand 915MHz - 928MHz radio frequency range.

  • Data and Information Systems – AfiFarm™ is Afimilk’s comprehensive, flexible and user-friendly software for the automation and management of high scale dairy farms in real time. AfiFarm™ software collects data about cows, stores and completes analysis to present detailed and actionable information from around the world.

  • Dairy Robotics – Afimilk has established a robotic development group, with the objective of improving efficiency on farm.

As Afimilk products were initially designed for barn style farming, as is common in Europe and the United States, initial offerings into NZ didn’t suit pastoral dairy farming. Afimilk has now developed a number of products to overcome these challenges and meet the needs of both barn and pastoral dairy farming.

Afimilk have a number of patent families, spread across a range of jurisdictions. Its portfolio is in three parts: milk sensors, animal sensors/management patents, and the new milking robotics patents. Afimilk has an established patent portfolio for its sensor patents and its trademarks are protected in a wide number of jurisdictions.

All Afimilk’s Intellectual Property was reviewed as part of the Due Diligence process. Once a patent has been published (before it has been granted), all details behind that patent are on the public record, and as such we have always been able to view Afimilk’s published patents. The time it takes for a patent to be published varies between jurisdictions.

Yes, milk sensors and cow monitoring solutions are already sold in New Zealand and demand and uptake are increasing. Afimilk currently has staff in New Zealand that will service its products nationwide.

There is a small but growing market for cow wearables in New Zealand. Currently 1% of Afimilk’s business is Australia and New Zealand. Afimilk however sees an opportunity in New Zealand, in particular, for its collars and wearable solutions.

Afimilk products were initially designed for barn style systems. In recent years, it has amended the design to be more applicable for pasture based systems, where cows walk much longer distances. Increasing sales of Afimilk products in New Zealand over the past 12 months shows there is an increasing demand from New Zealand farmers for Afimilk’s products. Due diligence on its product range identified that

Afimilk product management are focused on producing high quality products that add value on farm.

Should the investment proceed, we envisage installing Afimilk products on the LIC Innovation Farm in the coming year.

Following the transaction, LIC would be in a position to assist Afimilk to further tailor its products to the New Zealand market, allowing New Zealand farmers to get the most out of these products and grow Afimilk’s presence in New Zealand.

Yes, some LIC Automation products provide a similar service to Afimilk products.

This is one of the drivers of our ongoing good faith negotiations to determine whether Afimilk will acquire the parts of LIC’s automation business that are complementary to Afimilk’s business, in anticipation of greater scale for R&D and greater synergies.

LICA is currently developing a meter which we will try to get AE approval for. This is not market ready yet, but we will continue to develop this meter. Standards for AE meters in New Zealand haven’t been provided, therefore no one is able to meet them.

Headquartered in Israel, Afimilk is the global leader in developing, manufacturing, and marketing advanced systems for dairy farms and herd management. Afimilk’s systems are installed and in use on farms in 50 countries, including New Zealand.

Ensuring that LIC is able to meet the current and future needs of our shareholders and their businesses is at the heart of why we are recommending this investment.

That means the investment, over time, must deliver value for our shareholders and your farming businesses.

As NZ moves towards precision farming, cow wearables are a good example of the kinds of technology shaping the future of the dairy industry. Technology, and the data captured by that technology, will drive real precision farming – doing more with less.

Information provided from in-line milk meters in the future will be critical to animal evaluation and will help drive animal genetics. LIC will need to continue to have access to this data to maintain the development of New Zealand genetics. In particular, LIC believes there are likely to be opportunities in the future to work with Afimilk on in-line milk meter development, to increase LIC’s resilience to the threat of disruption to its access to pastoral dairy farming data posed as a result of the move away from traditional herd testing services.

Cow wearable devices are already integrated into new generation Protrack products. In the future, LIC and Afimilk may also look at opportunities to collaborate and this could include integration with MINDA. 

There is no exclusivity between LIC and Afimilk as part of this transaction. LIC has, and will continue to aim to integrate software to some extent with Afimilk and its competitors going forward.

Yes, Afimilk is profitable. Afimilk has been profitable over the years, has no debt, funds R&D from annual cash flows, and has a track record of both paying dividends and delivering new innovations to farmers.

It is a leader in its field and has been on LIC’s radar for a number of years. Unlike LIC, Afimilk is a private company which is not required to, and does not, make its financial information publicly available. However, to assist LIC shareholders in making their decision about the proposed transaction, we have presented some key financial information about Afimilk’s business below.

See key selected financial information from Afimilk’s audited financial statementsfor the financial year ended 31 December 2018 prepared in accordance with Israeli GAAP below.

  1. Revenue: US$53.4 million (NZ$83 million).
  2. Asset base: US$36.5 million (NZ$56.7 million) (including US$7 million (NZ$10.8 million) of intangibles).
  3. Gross costs attributed to R&D: US$9.6 million (NZ$14.8 million)
  4. Debt: nil.
  5. EBITDA: USD$12.1 million (NZ$18.8 million)
  6. In the financial year ending 31 December 2019 Afimilk has achieved:
  7. Revenue: US$57.4 million (NZ$89.1 million)
  8. EBITDA: US$14.2 million (NZ$22.1 million)

Over the past 10 years, Afimilk has achieved annual revenue growth of 8.4% when averaged and calculated on a compounding basis. Afimilk has also achieved a gross margin improvement of 6.4% over the last five years, and 11.2% over the last 10 years.

At the time of preparation of this Q&A, audited accounts for the 2019 financial year were not yet available.

Afimilk’s current shareholders are Kibbutz Afikim and Fortissimo.

Fortissimo is a private equity firm based in Israel, which invests primarily in technology and industrial companies. As a private equity firm, Fortissimo’s strategy has been to develop Afimilk with the intention of providing a return to its investors at an appropriate time.

Kibbutz Afikim is one of the largest kibbutzim in Israel. “Kibbutzim” is a type of collective economic grouping, not dissimilar to a co-operative. Afikim is looking for a long term strategic partner (rather than another equity partner) and recognises the importance of a partnership approach with LIC, requiring an equal shareholding, and so it has agreed to sell its interest in a further 19.23% of the Afimilk shares to LIC to achieve a 50/50 shareholding.

Yes, the deal has already been approved by Fortissimo. Afikim shareholder approval is still required.

There are no Afimilk operations in either the West Bank or on any disputed territory.

The part of the Jordan Valley that Afimilk is located in is within the heart of Israel, on edge of the Sea of Galilee; it is not in the West Bank or in disputed territory. Afimilk also doesn’t actually own any land or property – they lease their current office and storage facilities from Kibbutz Afikim, which is currently the largest shareholder in Afimilk.

In terms of corporate and social responsibility, Kibbutz Afikim is a collective economic grouping - not too dissimilar to a co-operative – and comprises a community living in a single locus with its health, schooling, working and socialising amenities designed in a single location with labour and capital pooled and resources shared. All profits are put back into developing their community.

Afimilk will continue to operate as a stand-alone business, with a strong independent management team, reporting to a board with equal board representation from LIC and Afikim. Further details of the post-investment governance of Afimilk are set out below.

Afimilk’s board decisions will be made by a majority vote (and so there will need to be alignment between the LIC appointed directors and the Afikim appointed directors for any board decisions). One of the directors will be appointed as the chair, with the opportunity to rotate between LIC and Afikim periodically. LIC has not yet identified the directors it wishes to appoint, but it is conscious of ensuring there is the right mix of expertise and representation.

One of the LIC appointed directors will also be a member of the LIC Board. In addition, we will also be looking for an independent local director, who can read and write Hebrew and understands the local culture. The LIC Board will determine who will be appointed as an LIC representative on the Afimilk board.

The equal representation on the board reflects the partnership approach that LIC and Afikim will bring to Afimilk. This means that LIC and Afikim will need to jointly agree on the strategic direction of Afimilk, and give LIC comfort that Afimilk’s activities will not deviate from the agreed strategic direction.

If the investment proceeds, LIC and Kibbutz Afikim have agreed to enter into a Shareholders’ Agreement to govern their relationship as shareholders in Afimilk. In addition to the governance matters outlined above, the Shareholders’ Agreement addresses matters such as approval of Afimilk’s budget and work plan, the dividend distribution policy for Afimilk, key matters that require shareholder approval (in addition to Afimilk’s board approval), deadlock resolution arrangements, and rules governing transfers of shares in Afimilk (including pre-emptive rights).

Afimilk’s head office and management team operate in Israel and that is not intended to change.

Afimilk’s management team will report to the Afimilk board, providing LIC’s appointed directors with oversight of the operations of Afimilk. It is intended that senior management team appointments will be made by agreement but Kibbutz Afikim will nominate the Chief Executive Officer and LIC will nominate the Chief Financial Officer.

This is a major investment for LIC and will require a fully resourced integration plan as well as ongoing governance of the investment by LIC. If LIC’s automation business is sold to Afimilk then it will be integrated into, and managed by, Afimilk, with LIC’s oversight occurring through its representatives on the Afimilk board.

Afimilk will continue to operate as a stand-alone entity, with a strong independent management team, reporting to a board with equal representation from LIC and Afikim. LIC will also appoint the CFO of Afimilk.

The equal representation on the board reflects the partnership approach that LIC and Afikim will bring to Afimilk. This means that LIC and Afikim will need to jointly agree on the strategic direction of Afimilk, and give LIC comfort that Afimilk’s activities will not deviate from the agreed strategic direction.

If/when the Afikim/LIC shareholding changes, the ongoing data provisions will be key to any transaction. LIC has a first offer right and a co-sale right should Afikim wish to sell its shares. Once five years have passed after LIC becomes a shareholder, in the event of a material deadlock (where parties can’t agree on fundamental issues), 100% of the company will be put up for sale, with LIC and Afikim having a last right of refusal.