Chairman Murray King believed some dairy farmers had cut down on services the previous year to cut costs in a tough farming environment but might have decided in hindsight they shouldn’t have.
“I think that showed up in their culling decisions, challenging milk quality and then having some free-loading cows and so they’ve come back to herd-testing this season.”
LIC ‘s total revenues were lower for the six months ended November 30 but profits improved as the co-operative kept a very tight hold on costs.
Revenues were $130.3 million, down from $142.7m a year earlier, but after-tax profit rose to $19.29m from $15.89m.
King was pleased with the improvement, saying farmer spending had still been constrained during spring – the peak for the core genetic services – as the “glimmer of hope” the industry now had, had not kicked in at that time.
“The outlook’s been more positive these last three months though farmers are still being careful with their capital.”
The first-half was the main earning period for the group, whereas the second half carried the same cost overheads but not the genetic services revenues. However, it expected to make a modest profit for the full year to May 31, after a loss previously.
Following usual practice, King wouldn’t put a number on the expected profit level.
The NZ genetics business provided well over half the group’s revenues and profits.
For the six months, revenues dropped to $70.5m from $76.9m at the same time last year, with the pre-tax segment profit slipping to $44m from $47.7m.
LIC had about 75% of the industry AI business and increased market share in an overall lower dairy cow population, he said.
Herd-testing revenues rose to $9.7m from $9.1m, with profits at $3.7m from $3.03m.
The newer businesses, farm automation and farm software, both improved with increased margins.
Software revenues were just over 1.5% higher at $19.79m but the pre-tax earnings rose 10% to $15m. Automation improved further with sales up 6% to $12.7m and earnings up nearly 50% to $15m.
King said the margins were “not bad” for those services but there were also some timing issues that helped the results.
Group operating cashflow improved sharply though there was still a net outflow of $443,000 compared to $17.47m previously. That reflected stronger cash collections despite lower sales levels and reduced operating costs.
The directors had scrutinised every part of the business to minimise operating costs and looked for better ways of doing business.
LIC ended the half-year with total assets of $355.47m, including $231m in equity, an equity ratio of 65%. Borrowings of $51.5m made up 14.5% of total assets. That reflected a strong balance sheet with some of the borrowing used to fund capital expenditure, he said.
The co-operative expected to report back to dairy farmer shareholders fairly soon on plans for the capital structure so it better reflected both classes of shareholders. About a third of shareholders held only the co-op shares and did not have an interest in the NZAX-listed investor shares. Those shares could be owned only by the co-op shareholders.
