The co-op is continuing its work with NZAEL (subsidiary of DairyNZ) to include genomics in future animal evaluations to support the national breeding objective.
In other core business activity, herd testing was up 7.3% and animal health testing up 23.9% primarily for Johnes disease and milk pregnancy testing. International exports were also up 23% by value after some initial challenges getting product to market due to COVID-19.
The co-op invested $17.1 million in R&D, up 15.4% from the previous year (or up 11.5% including automation*), reaffirming its position as one of the biggest investors for the primary sector. LIC also spent $3.0 million to improve its MINDA LIVE herd management system, with 66 new features added based on farmer feedback.
King said the co-op also refined its business strategy earlier in the year to put value for farmer shareholders at its heart.
“We’ve listened to our shareholders. They want us to focus on doing what we’re good at and play to our strengths in pastoral dairy genetics and herd improvement. Our strategy is focussed on ensuring our farmers optimise value from their livestock and this result means we are strongly positioned to deliver on that.”
During the year, the co-op negotiated divestment of its automation* business to MSD Animal Health, a division of Merck & Co., Inc., Kenilworth, N.J., USA (NYSE:MRK) for NZ$38.1 million (NZX, 8.6.2021). The sale was completed on 11 June 2021 and net assets of $23.8 million have been recorded as held for sale on the balance sheet. The Board is considering options for the use of these funds.
King says recruitment of a new chief executive is a priority for the Board over the coming months, following Wayne McNee’s decision to step down at the end of November 2021 (NZX, 14.6.2021).
The co-op will also be firmly guided by its primary focus of delivering value for farmer shareholders and three commitments in its refined strategy, he said, with operational excellence, faster genetic improvement and software reliability and performance.
LIC expects Underlying Earnings* in 2021-22 to be in the range of $19-25 million, assuming no significant climate event or milk price change takes place between now and then, nor any major impacts from M. bovis or COVID-19.
*Notes to Financial Information
These annual results include the annual non-cash revaluations of its major biological asset, the bull team, and the outstanding Nil Paid Ordinary Shares receivable, which are both required to reflect “fair value” under accounting standards. Figures have been audited.
Divestment of LIC Automation – discontinued operations
Accounting standards require profits from the Automation business results for both 2019-20 and 2020-21 to be separately disclosed as Discontinued Operations. This has resulted in restatement of all results for 2019-20 to exclude Automation (including revenue and R&D), therefore some 2019-20 figures used in this statement for comparison to 2020-21 will differ from the 2019-20 Annual Results disclosure.
This is the company’s NPAT (excluding bull valuation, nil paid share valuation movements and any gain from the automation business divestment) and is considered useful to investors as it is the basis on which LIC has historically reported and on which LIC makes its determination of dividends. Non-GAAP financial information does not have a standardised meaning prescribed by GAAP and therefore may not be comparable to similar financial information presented by other entities. There was a one-off tax benefit in 2019-20 from the reinstatement of tax depreciation on commercial buildings as part of the Government’s COVID-19 response package. LIC has not utilised the Government COVID-19 wage subsidy in either the current or prior period.
Nil Paid Ordinary Shares
These were issued to shareholders as a result of the share simplification in 2018, which brought together LIC’s two previous classes of shares into one Ordinary Share. For each co-operative share held, one Fully Paid Ordinary Share and three Nil Paid Ordinary Shares were issued. Nil Paid Ordinary Shares carry the same rights to dividends and voting as Ordinary Shares but cannot be traded on the NZX until they are fully paid up. Over time, shareholders are obliged to pay-up each Nil Paid Ordinary Share and once fully paid (up to $1) they become subject to market pricing. The Nil Paid Ordinary Shares are repaid by way of retention of dividends paid on any of those shares, and any repayments of the shares required to satisfy LIC’s Share Standard. LIC records an estimate of the fair value of the outstanding Nil Paid Ordinary Shares receivable at balance date.
The bull team valuation is based on a model designed independently of LIC that looks at future revenue streams and costs associated with the current bulls owned, discounted back to current value. The recent downward trend of the bull team value is a result of the increasing number of genomic bulls on the team, which deliver more value on-farm but have a negative impact on the calculation model as they are used for a shorter period.