LIC has today announced its financial result for the 2021-22 year, driven by increased farmer spend on premium genetics and herd improvement services to breed more efficient cows with a lighter environmental footprint.
Reporting a 15.3% increase in underlying earnings, the farmer-owned co-operative will return $26.2 million in dividend to shareholders. This equates to 18.43 cents per share with a 18.5% gross yield on the current share price. It will be paid on 19 August.
“The board is pleased to present this result for our farmers, particularly after a year hampered by Covid-19, inflationary pressures and supply challenges,” board chair Murray King says.
“I want to thank our farmer shareholders for their ongoing support, many of whom faced similar challenges as us. Delivering value for our farmers is at the centre of everything we do and it’s results like this that enable us to do just that – through our herd improvement products and services, a solid dividend, and, importantly, the right R&D investment to keep their herds profitable and sustainable into the future.”
Summary of financials
•Total Revenue from Continuing Operations: $263.2 million (up 5.7%)
•Net Profit After Tax (NPAT): $26.7 million (up 16.5%)
•Underlying Earnings: $25.7 million (up 15.3%)
•Strong balance sheet, no debt at year-end and total assets $385.6 million (up 1.2%)
•Dividend: $26.2 million, or 18.43 cents per share
•R&D investment: $18.2 million or 6.9% of revenue (up 6.2% from $17.1 million)
King said the result was driven by more farmers opting for the co-op’s premium bull teams to breed high genetic merit cows, which produce more milk, more efficiently – resulting in a lower environmental footprint per kilogram of milk solid produced.
“The dairy industry needs to keep evolving to meet the challenges posed by climate change. Consumers expect a more sustainable approach to farming and this result reaffirms our farmers are well dialled into this.
“The production efficiency of every cow in our national dairy herd has never been more important; farmers know that all cows aren’t created equal and they are investing in solutions to breed the best cows, faster.
“These breeding decisions will serve them well into the future to build a more profitable and sustainable dairy sector and meet climate goals.”
During the 2021-22 year, 71% of fresh semen straws used for breeding replacements were from LIC’s premium bull teams (2.1 million straws), up from 60% the year prior (1.8 million straws). These teams utilise younger bulls, selected using genomic DNA technology so they can be made available to farmers earlier and fast track the rate of genetic gain on-farm.
King said the co-op has invested heavily into genomics over the last 30 years and new research has confirmed farmers are reaping the rewards of this now.
“Long term users of LIC genetics have almost doubled the speed of improvement in their herds over the last decade. They are not only breeding genetically superior cows which are more emissions efficient, they’re also breeding them at a much faster rate and genomics is the key contributor to this.
“We don’t need to milk more cows; we just need to milk the best cows and we’re really pleased that our farmers are making solid progress in this space.”
In other business activity, orders for sexed semen almost doubled from the previous year, exceeding 200,000 straws for the first time. International exports also saw an increased demand for sexed semen, while overall straws numbers sent offshore remained steady on the year prior.
DNA verification tests increased (up 15%), as did LIC’s range of animal health tests (up 21%), with a notable increase in Johne’s disease testing with close to one million samples tested (up 28%). The number of animals recorded in MINDA, LIC’s herd management system, also remained steady, as did herd testing with a modest increase in total samples processed, however more farmers are using the co-op’s EZ Link devices to help simplify and speed up the herd testing process (up 4%).
During the year the co-op invested $18.2 million into R&D, up from $17.1 million the year prior, maintaining its position as one of the largest private investors in R&D at 6.9% of revenue.
A large proportion of this investment was directed to the co-op’s large-scale methane trial, with CRV and funding support from the New Zealand Agricultural Greenhouse Gas Research Centre, which is aimed at discovering a genetic link for methane production to ultimately enable farmers to breed cows that emit less methane.
King says the trial has been measuring feed intake and methane emissions from 300 young bulls and results from this phase are expected to be released later this year.
Other key events during the year included the completion of the sale of the automation business to MSD Animal Health, which then resulted in the co-op’s first special dividend payment to partially distribute the sale funds, and the appointment of a new chief executive David Chin who took over the reins in January.
Outlook
The co-op expects underlying earnings in 2022-23 to be in the range of $20-26 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.
King says a key focus for the year ahead remains on delivering to the three commitments in the co-op’s strategy – operational excellence, faster genetic improvement and software reliability and performance. The co-op’s performance against these commitments during the 2021-22 year will be reported on at its Annual Meeting in October.
