May 14, 2014
 

New Zealand's Livestock Investment Corporation targets US$860 million revenue

Livestock Improvement Corp (LIC), the farmer-owned cooperative supplying three quarters of the New Zealand dairy industry with bull semen, aims to reach NZ$1 billion (US$860 million) in revenue by 2025.

To achieve its target, the cooperative is restructuring its manpower and mulling changing its capital structure.

Directors and farmer shareholders have given chief executive, Wayne McNee, the go-ahead to cut executive numbers from 11 to 8. The post of chief operating officer is abolished, together with 57 other roles, and four new management positions are created, together with 77 other new roles. Several current executives may settle for non-executive roles or resignation. LIC's new management team will be in place by June 1.

The company, which was listed on the NZX's alternative market (NZAX) in 2004, has engaged external consultants to advise on its capital restructuring options, but farmers will remain in full ownership and control, regardless of the outcome, said McNee.

"The only thing that is an absolute is that we will continue to be a co-operative, but as we grow the business and deliver on the targets that we have set ourselves, we will need capital to fund growth," McNee assured.

LIC's revenue was US$172.3 million in the May 2013 financial year. McNee said the company recorded annual growth of 10% on average.

However, in order to hit the one billion mark by 2025, annual growth of around 15% would be required, he said.

While the company can borrow to fund part of that growth, it will ultimately need to consider other options, he added.

LIC's consultants are expected to advise the LIC board of its options in August. Presently, only dairy farmers can own LIC shares.

LIC was set up under the Dairy Industry Restructuring Act 2001, which also enabled the formation of Fonterra by permitting the merger of Kiwi Co-operative Dairies, the New Zealand Co-operative Dairy Co and the Dairy Board.

As LIC owns and holds the dairy industry's database, any changes to its constitution requires ministerial approval. LIC is in the process of transferring ownership of the database to DairyNZ, an organisation representing New Zealand's dairy farmers. "In our view, those constraints of the minister having to approve changes to the constitution are now no longer valid," McNee said.

The co-op is also planning for joint ventures with fertiliser co-ops Ballance and Ravensdown, and milk processors Fonterra, Westland and Synlait to integrate information systems for farmers.

"Given that farmers - apart from Synlait - own all those businesses, we are trying to make sure we are not all doing the same thing but working collaboratively," McNee said.

LIC is also planning to invest more on research and development as part of its growth strategy.

"We have been a growing and successful business but we haven't been agile enough in developing new products and have under-invested in the business. We are making up now by investing in backroom hardware and development of new products."

LIC spent US$18.1 million on research and development last year. McNee said the company will spend more for 2014.

He expects growth to come from new product streams, particularly in animal health, information technology and LIC's farm automation businesses.

"We will do that by developing our own products and working with others... We are (also) looking at acquiring businesses that fit with LIC," he said.

In February, LIC acquired Waikato-based milking metering business, Dairy Automation. To help meet the revenue target, the company is looking at expansion abroad, which currently accounts for just 6% of revenue.

The Protrack herd management system, for example, draws worldwide inquiries, said McNee.

"There is a lot of interest from milking machine companies here and overseas on how Protrack could be integrated with their systems. This has a lot of potential; if we get it right, we will fill a big chunk of that revenue target."

LIC is looking at introducing integrated packages of information systems, automation and genetics into the UK, Ireland, China and Brazil - all key markets.

A South America business strategy is also high on the agenda. "We sell semen to Chile, Uruguay, Argentina and Colombia but we don't sell an integrated package into any of those markets. We are looking at whether we can sell integrated packages similar to those in New Zealand."

Bull semen is responsible for about 44% of LIC's revenue but its share of earnings is dropping as LIC's other businesses grow at a faster pace. LIC's herd testing makes up 14% of revenue. System Minder, a herd management system used by about 90% of the country's dairy farmers, makes up 10% and ear tags about 8%.

The company currently sells bull semen to the UK, Ireland, Australia, the US, South America and South Africa. There have been a few small orders to China, a market which McNee sees as having huge potential.