The bottom line loss for the year ending May 31 was $4 million. It was made up of an underlying after-tax loss of about $300,000 and a $3.7m after-tax write-down on the value of the company’s elite breeding bull team.
LIC had earlier indicated the trading result would be about break-even.
Because there was a trading loss, neither the co-operative nor investment shareholders would receive a dividend. The decision was difficult, given shareholder expectations, King said.
“If we’d paid a dividend we would have to have increased borrowings and it’s not prudent to that in this environment.”
Balance date borrowings were already significantly higher than a year earlier, though LIC retained a strong balance sheet.
The dairy sector downturn had pushed farmers into survival mode and was now expected to last longer than earlier predicted, adding to onfarm cash constraints, he said.
LIC would continue with its capital expenditure and research and development spend as it believed its genetics services were more important than ever in the tough times prevailing. Cost-savings were a priority in other parts of the business.
Total sales were $211m, down from $232m.
The latest loss compared with an after tax profit of $13.66m the previous year, from which $6.6m was paid in dividends.
Sales for the core artificial breeding services were steady in the latest year but there was a downturn in discretionary spend on herd testing and “big ticket” automation items, King said.
However, herd testing sales were now starting to rise again as farmers realised they could not go a second season without them.
“If we’d paid a dividend we would have to have increased borrowings and it’s not prudent to that in this environment.”
Murray King
LIC
“They need to know which are their superior livestock and also the ones not earning their keep.”
Herd testing was also important because cow performance was how the LIC breeding bulls were measured.
LIC ended the year with total assets of $323m, an increase of $21m on the previous year, and an equity ratio of 65%, down from 72.5%. Bank debt was $41m, up from $10.3m. The investment shares last traded at $2.60 on the NZAX; the latest net tangible asset backing was $4.44 a share.
Operating cashflows for the year were positive but reflected the lower sales as well as an increase in deferred payment terms put in place to help farmers with their own cashflows. The operating figure for LIC was $14.4m compared to $34.8m a year earlier.
As well as the reduced trading environment, the earning reports also included higher depreciation numbers resulting from the large spend on technology development in previous years.
The elite bull team of 1002 animals was valued at $87.5m at balance date, compared to the $92.6m value of the 1029 bulls previously. The valuations were based on a formula set up independently of LIC and were directly linked to the performance of the NZ dairy industry.
Despite the lower valuation, the bull team was really strong on quality, King said.
At a segment level (as shown in the accompanying graph) three divisions had lower sales and operating profits, with the Farm Software business managing a steady result on marginally higher sales.
That indicated the strength of the MINDA service through which farmers recorded the “births, deaths0 and marriages” in their dairy herds as well as other recordings. LIC has just brought in the updated MINDA LIVE programme.
Directors were still going through the shareholder presentation responses to the plan for a separate technology company containing the group’s non-core assets.
Strong shareholder support would be required if the directors were to recommend outside capital in a new company and decisions on that were not likely till about this time next year, King said.
