Livestock Improvement Corporation Limited (LIC)
Annual Report
For the year ended 31 May 2024
There's always room for improvement
2 Livestock Improvement Corporation Consolidated Annual Report 2023/24
Contents
Key metrics | 4 |
Directors' report | 5 |
Key results and position | 7 |
Our results for the year | 7 |
Our position at year end | 8 |
Our cash flows for the year | 9 |
Changes in our position for the year | 10 |
More details | 11 |
Accounting policies | 11 |
Business analysis | 12 |
Our core assets | 13 |
Our funding | 17 |
Risk and Other Assets | 18 |
Tax | 19 |
Other Expenses and Other Liabilities | 20 |
Transactions with Related Parties, Cash flow | |
reconciliation and Subsequent events | 21 |
Independent auditor's report | 22 |
Corporate Governance Report | 26 |
Key Metrics
71.7% | 3.3% | 41.6% | 6.2% | |||||||
Net Profit After | Total revenue | Underlying | Total assets | |||||||
Tax (NPAT) | Earnings* | |||||||||
$7.7m vs | $267.3m vs | $13.9m vs | $358.6m vs | |||||||
$27.4m last year | $276.5m last year | $23.7m last year | $382.3m last year | |||||||
Full year dividend
Final $8.3m -
5.84 cents per share and Special $18.5m - 13 cents per share vs $23.3m - 16.38 cents last year
Return on equity
2.8%
vs 9.2% last year
Earnings per share
NPAT 5 cents and Underlying Earnings* 10 cents
vs NPAT 19 cents and Underlying Earnings* 17 cents last year
R&D, IT & capital investment
$48.9m up 24.8% (excluding sale of National Milk Records plc shares) from $39.2m last year
*Non-GAAP financial information
4 Livestock Improvement Corporation Consolidated Annual Report 2023/24
Directors' Report 2023 -24
LIC ends the year with lower profit following challenging conditions
The LIC Board announces its financial result for the 2023-24 financial year, ending the year with no debt and a modest profit and dividend for shareholders while continuing to invest in innovations for shareholders.
The Board has declared a dividend of 5.84 cents per share, returning $8.3 million to owners of the co-operative. The dividend will be paid on 16 August 2024.
Summary of financials
- Total Revenue: $267.3 million, down 3.3% from $276.5 million last year.
- Net Profit After Tax (NPAT): $7.7 million, down 71.7% from $27.4 million last year.
- Underlying Earnings: $13.9 million, down 41.6% from $23.7 million last year.
- Dividend: $8.3 million - 5.84 cents per share, representing 60% of Underlying Earnings. This is in addition to the $18.5 million Special Dividend paid earlier this year of 13 cents per share.
- Total assets: $358.6 million, down 6.2% from $382.3 million last year.
- Strong balance sheet with no debt at year-end.
The Board notes that the 2023-24 financial year has produced some difficult conditions for the co-operative with a reduced milk price environment, a subsequent reduction in activity driving a lower bull valuation, ongoing cost inflation, tax changes, and a semen quality issue that resulted in over $2 million worth of credits paid to farmers ($1.4 million impact on NPAT and Underlying Earnings).
However, despite some very challenging conditions, the Board is pleased to present a positive result to our farmer shareholders, for the seventh successive year.
Farmer shareholders are the heart of our co-operative and it has been a particularly difficult year for them with a lower milk price environment alongside continuing high input and debt servicing costs. The impacts of the lower milk price were felt across New Zealand and are reflected in the 3.3% reduction in revenue.
LIC is committed to our farmer shareholders and we have continued to invest in research and development, quality improvements in our semen laboratories and technology innovation that will benefit their businesses and the sector's needs now and into the future.
Livestock Improvement Corporation Consolidated Annual Report 2023/24 5
Throughout the 2023-24 financial year the organisation has identified cost savings to offset reduced revenue and this has allowed the co-op to still post a profit and pay out a dividend to its shareholders, which is in addition to the $18.5m Special Dividend paid earlier this year of 13 cents per share.
Tax legislation enacted in March 2024 removed the ability to depreciate commercial buildings for tax purposes from the 2024-25 income tax year. The application of this tax change created a one-off,non-cash accounting adjustment to tax expense at year end of approximately $4 million, with a corresponding increase in LIC's deferred tax liability balance.
Research and development investments increased by 14.2% to $21.2 million, representing 7.9% of revenue. Investments include a methane research trial focused on investigating the potential to breed low methane-emitting cows in the future, as well as a heat tolerance research programme which involves breeding high genetic merit dairy cows with improved heat tolerance.
The proportion of fresh semen straws used for breeding replacement daughters on farm from the premium bull teams increased to 79.4% and target turnaround times were achieved across GeneMark®, Johne's Disease, and milk pregnancy testing. Johne's Disease testing saw a 10% increase, with 1.28 million samples tested during 2023-24.
LIC's herd management system MINDA® saw notable improvements during the period, integrating with milk processors such as Fonterra and Open Country as well as integrations with wearable providers and OSPRI. This enables seamless data-sharing and integration across multiple applications used on farm. MINDA® is now used by 90% of dairy farmers in New Zealand.
Outlook
The coming year still presents a difficult economic environment with ongoing cost pressures on farm, however LIC will continue to be firmly guided
by its primary focus of delivering on our three commitments to farmer shareholders - operational excellence, faster genetic improvement and software reliability and performance. The co-operative's performance against these commitments during the 2023-24 year will be reported on at its Annual Meeting in September.
The co-op expects underlying earnings for 2024-25 to be in the range of $16-22 million, assuming no significant events, including climate events, or milk price change takes place between now and then.
6 Livestock Improvement Corporation Consolidated Annual Report 2023/24
Key Results and Position
STATEMENT OF RESULTS FOR THE YEAR
For the year ended 31 May 2024
In thousands of New Zealand dollars | Note | 2024 | 2023 |
Revenue | 1 | 267,288 | 276,506 |
Purchased materials | (41,255) | (46,585) | |
People costs | (119,758) | (118,995) | |
Depreciation and amortisation | 3,4,5 | (24,047) | (23,116) |
Other expenses | 10 | (60,516) | (56,855) |
Net finance costs | 647 | 157 | |
Bull team revaluation | 2 | (8,768) | 4,524 |
Fair value change in Nil Paid Share receivable | 6 | 191 | 363 |
Profit/(loss) before tax expense | 13,782 | 35,999 | |||
Tax expense | 9 | (6,048) | (8,647) | ||
Profit/(loss) for the year | 7,734 | 27,352 | |||
Profit per Ordinary Share (excl. treasury stock) | $0.05 | $0.19 | |||
Hedge revaluations | 6 | (251) | 113 | ||
Foreign currency translation movements | 6 | 25 | (85) | ||
Investment revaluations | 6 | 8,805 | 1,711 | ||
Land and buildings revaluations | 3,6 | 3,715 | 2,246 | ||
Tax effect of buildings revaluations | 9 | (784) | (666) | ||
11,510 | 3,319 | ||||
Comprehensive income for the year | 19,244 | 30,671 | |||
Supplementary non-GAAP note to the results for the year: | |||||
Profit/(loss) for the year | 7,734 | 27,352 | |||
Plus/(less): Bull team revaluation | 8,768 | (4,524) | |||
Tax effect on Bull team revaluation | (2,455) | 1,267 | |||
Less: Fair value change in Nil Paid Share receivable | (191) | (363) | |||
Underlying earnings | 13,856 | 23,732 | |||
Underlying earnings per Ordinary Share (excl. treasury stock) | $0.10 | $0.17 |
Livestock Improvement Corporation Consolidated Annual Report 2023/24 7
Key results and position
STATEMENT OF POSITION FOR THE YEAR
As at 31 May 2024
In thousands of New Zealand dollars | Note | 2024 | 2023 |
Cash | 42,341 | 54,596 | |
Debtors | 8 | 34,952 | 37,628 |
Other assets | 8 | 26,557 | 35,892 |
Nil Paid Shares receivable | 6 | 972 | 4,327 |
Bull team | 2 | 88,872 | 97,640 |
Land, buildings and equipment - owned & leased | 3,5 | 118,997 | 113,547 |
Software, goodwill and other intangible assets | 4 | 45,917 | 38,661 |
Total assets | 358,608 | 382,291 | |
Creditors | 7 | 23,831 | 23,505 |
Borrowings | 7 | - | - |
Deferred tax | 9 | 30,645 | 27,732 |
Other liabilities | 11 | 29,221 | 33,560 |
Total liabilities | 83,697 | 84,797 | |
Net assets | 274,911 | 297,494 | |
Share capital | 6 | 76,737 | 76,737 |
Retained earnings | 6 | 150,567 | 170,742 |
Other reserves | 6 | 47,607 | 50,015 |
Total equity | 274,911 | 297,494 | |
Director | Director |
Date: 18 July 2024 | Date: 18 July 2024 |
8 Livestock Improvement Corporation Consolidated Annual Report 2023/24
Key results and position
STATEMENT OF CASH FLOWS FOR THE YEAR
For the year ended 31 May 2024
In thousands of New Zealand dollars | Note | 2024 | 2023 | ||
Customer receipts | 264,919 | 276,609 | |||
Supplier payments | (223,940) | (236,542) | |||
Net tax payments | (2,189) | (3,983) | |||
Other operating cash flows | 1,262 | 707 | |||
Net operating cash flows | 13 | 40,052 | 36,791 | ||
Software development | (16,097) | (9,611) | |||
Net sales/(purchases) of land, buildings and equipment | (11,570) | (10,966) | |||
Sale / (purchase) of investments | 8 | 19,030 | (4) | ||
Net investment cash flows | (8,637) | (20,581) | |||
Payment of principal portion of lease liabilities | (5,408) | (4,319) | |||
Drawdown/(repayment) of borrowings | - | - | |||
Nil Paid Share receipts | 165 | 334 | |||
Dividends paid | (38,446) | (21,881) | |||
Net financing cash flows | (43,689) | (25,866) | |||
Movement in cash for year | (12,274) | (9,656) | |||
Cash at beginning of the year | 54,596 | 64,135 | |||
Currency movement on cash holdings | 19 | 117 | |||
Cash at end of the year | 42,341 | 54,596 | |||
Livestock Improvement Corporation Consolidated Annual Report 2023/24 9
Key results and position
STATEMENT OF CHANGES IN POSITION FOR THE YEAR
For the year ended 31 May 2024
In thousands of New Zealand dollars | Note | Share capital | Retained earnings | Other reserves | Total equity | |
Balance at 1 June 2023 | 76,737 | 170,742 | 50,015 | 297,494 | ||
Profit/(loss) for the year | - | 7,734 | - | 7,734 | ||
Dividends paid | - | (41,827) | - | (41,827) | ||
Hedge revaluations | - | - | (251) | (251) | ||
Foreign currency translation movements | - | - | 25 | 25 | ||
Investment revaluations | - | - | 8,805 | 8,805 | ||
Land and buildings revaluations | 3,6 | - | - | 2,931 | 2,931 | |
Reclassification of investment revaluations on | 6 | - | 13,918 | (13,918) | - | |
divestment | ||||||
Balance at 31 May 2024 | 76,737 | 150,567 | 47,607 | 274,911 | ||
Balance at 1 June 2022 | 76,737 | 169,624 | 46,696 | 293,057 | ||
Profit/(loss) for the year | - | 27,352 | - | 27,352 | ||
Dividends paid | - | (26,234) | - | (26,234) | ||
Hedge revaluations | - | - | 113 | 113 | ||
Foreign currency translation movements | - | - | (85) | (85) | ||
Investment revaluations | - | - | 1,711 | 1,711 | ||
Land and buildings revaluations | 3,6 | - | - | 1,580 | 1,580 | |
Balance at 31 May 2023 | 76,737 | 170,742 | 50,015 | 297,494 | ||
10 Livestock Improvement Corporation Consolidated Annual Report 2023/24