Livestock Improvement Corp first-half profit drops 22% on cost of transforming business

Livestock Improvement Corp posted a 22 percent slide in first-half profit as the farmer-owned herd genetics cooperative ramped up spending to overhaul its business, which it says is vulnerable to the same disruption other industries face.

Net profit fell to $14.9 million, or 51 cents per share, in the six months ended Nov. 30, from $19 million, or 65.3 cents, a year earlier, the Hamilton-based company said in a statement. That included $20.7 million of transformation costs which chair Murray King said was already flowing to the bottom line. Stripping out that cost, earnings before interest, tax, depreciation, and amortisation rose 37 percent to $57.5 million with revenue up 17 percent to $153 million.

LIC embarked on a transformation programme after posting its first ever loss in the 2016 financial year as a slump in milk prices saw farmers scale back spending, and in turn, weighed on the value of the company's elite breeding herd.

"LIC is vulnerable to the same disruption that other industries have experienced in recent years from new technology and innovation, environmental challenges, regulation and alternative milk products," King said. "Standing still is not an option. We have to constantly be improving and adapting the way we do business."

The company's non-voting investment shares, which are listed on the NZAX, last traded at $2.25, and are down 12 percent over the past 12 months.

LIC wants to simplify its share structure, and King said the board has finished considering the options and will update the next steps in the coming weeks.

The company doesn't declare interim dividends because of the mismatch between artificial breeding revenue and costs.

LIC expects annual underlying earnings, which strips out bull valuation, to be in line with the $3 million reported in 2017, despite the $15 million impact of after-tax transformation costs. Once the transformation programme is completed, LIC expects underlying earnings will rise to a range of $18 million-to-$26 million in the 2019 financial year.

(BusinessDesk)