Challenging year erodes LIC's profits

The credit and goodwill packages, together with a reduced milk price environment, a subsequent reduction in activity driving a lower bull valuation, ongoing cost inflation and tax changes caused LIC's net profit after tax (NPAT) to plunge 71% to $7.7 million for year ending May 31, 2024.

Total revenue for the year was down 3.3% from previous year to $276m. Total assets also dropped 6.2% to $359m.

LIC chairman Corrigan Sowman says the 2023-24 financial year has produced some difficult conditions for the co-operative.

But despite challenging conditions, the board presented a positive result to farmer shareholders, for the seventh successive year, Sowman says.

“Our 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, which is reflected in the 3.3% reduction in revenue,” he says.

“LIC is committed to its 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.

“Throughout the 2023/24 financial year we have identified cost savings to offset reduced revenue, and this has allowed the co-operative to still post a profit and pay out a dividend to our shareholders, which is in addition to the $18.5m special dividend paid earlier this year of 13 cents per share.”

The semen quality issue impacted 1127 herds. Some batches of semen that were inseminated on farms on 17-19 October and 23-25 October may have been contaminated by bacterial infection. Cows did get in calf from the inseminations on the affected days, but a noticeably lower number than LIC would expect.

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 of approximately $4 million to increase tax expense at year-end, with a corresponding increase in LIC’s deferred tax liability balance.

Research and development investment 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 methaneemitting 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 LIC 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 1.18 million animals 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.

Sowman says, although the coming year still presents a difficult economic environment with ongoing cost pressures on farm, LIC will continue to be firmly guided by its primary focus of delivering on its 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-operative 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.

LIC shareholders received total dividend of $8.3 million, at 5.84c/ share, representing 60% of underlying earnings.

This is in addition to the $18.5m special dividend paid earlier this year of 13c/share.