Tuesday, 19 February 2019


HALFYR: LIC: LIC half year results

24 Jan 2018 16:58NZX
Market statement
24 January 2018

LIC business transformation, sales upturn drives improved trading half-year

Performance Highlights H1 FY17-18:
o $153 million total revenue, 16.6% up on the same period last year.
o $57.5 million earnings before interest, tax, depreciation and amortisation
(EBITDA) excluding one-off transformation costs[1], up 36.6% on the same
period last year. Reported EBITDA of $36.8 million was 12.6% down on the same
period last year.
o $43.2 million earnings before interest and tax (EBIT) excluding one-off
transformation costs[1], up 52.3% on last year. Reported EBIT of $22.5
million, 20.6% down on same period last year due to one-off transformation
o $15.1 million net profit after tax (NPAT), 21.9% down on the same period
last year due to one-off transformation costs.

*Notes about the financial information are set out at the end of this market
statement, including information about the non-GAAP financial information.

Livestock Improvement Corporation (NZX: LIC) announces its half-year
financial results for the six months to 30 November 2017.

Board chair Murray King said the half-year result reflects the co-op''s work
to transform its business, to deliver cost efficiencies and deliver more
value to its farmers.

Total revenue was up on the same period as last year; the EBIT and NPAT was
also up substantially, excluding the one-off implementation costs from the
transformation programme. Reported EBIT and NPAT were down as a result of
one-off transformation costs.

Cash flows from operations were positive $5.4 million, compared to negative
$0.4 million last year. This is reflective of the increased sales and the
seasonal nature of LIC''s business, particularly artificial breeding (AB).

LIC continues to operate a strong balance sheet with total assets including
cash, software, land and buildings and bull teams of $371 million.

Half year results incorporate the majority of AB revenues but not a similar
proportion of total costs, and are therefore not indicative of the second
half, nor the full year, result. No dividend is therefore declared at half

Success of transformation programme
"The milk price is always a factor in farmer spend and this has partly driven
an upturn in sales as farmers continue to invest in herd improvement services
and solutions which deliver long term value and build a more sustainable
farming business.

"At the same time, we are also seeing the success of our transformation
programme flowing through to the bottom line.
"The cost efficiencies and business growth delivered through the programme
were key contributors toward a better year-end result in 2016-17, and now
this half-year result.

"In its first year, the programme has delivered a combination of significant
recurring benefits and one-off cash benefits.

"We expect this will continue to deliver significant improvement in earnings
in future years," he said.

An example of improved efficiencies and recurring benefits is from the work
the co-op has done to better manage the travel undertaken by their team of
840+ AB technicians each spring.

"As a result of this work, over the last two spring AB seasons, the team
saved up to one million kilometres in travel distance. This means less time
on the road and more time on farm with customers and their herds. It saves
time, fuel and on-road costs for the business, while also reducing driving
time therefore improving safety," King said.

"We also introduced a new herd testing cancellation policy, to help us
operate a more efficient service, and I am pleased to report that this
contributed to a reduction in cancellations or changes at short notice by up
to 50%."

Examples of business growth driven by the transformation include the Wagyu
beef programme, which provides farmers with an alternative to bobby calves
and an additional income source, and the recently launched SPACE(TM) service
which delivers pasture management data from satellites.

As part of the programme, LIC also sold its Otago-based Deer Improvement
subsidiary business to concentrate on its dairy business and its herd testing
and diagnostics laboratory facilities in Riverlea, Hamilton which included a
leaseback arrangement to allow continued operation of LIC services at the

Becoming more agile and responsive
LIC embarked on the transformation after recording its first ever loss in
2015-16, aimed at protecting the fundamentals of the co-operative while
making sufficient profits to enable LIC to reinvest for the future, and be
more responsive to and prepared for disruptive threats.

"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.

"Standing still is not an option. We have to constantly be improving and
adapting the way we do business.

"The transformation programme is one of two key initiatives underway to
ensure LIC can meet future challenges and deliver on its strategic goals.

Share simplification
"The next step is to simplify LIC''s share structure to address concerns
around the growing disparity between LIC''s two share classes.

"The Board has almost completed its consideration of the options and will
provide an update on next steps for shareholders in the coming weeks."

Underlying Earnings (NPAT excluding bull valuation)[2] at year-end are
forecast to be in line with the 2016-17 result of $3 million despite LIC
incurring and accounting for approximately $15m of one-off transformation
costs on an after tax-basis within Underlying Earnings.

The increased revenue position was driven by the success of the
transformation programme, but this has also translated in reported EBIT being
lower as it includes the one-off implementation costs of the programme. These
costs will not be incurred in second half or years ahead, so a stronger
reported EBITDA and reported EBIT is expected next financial year.

With ongoing and recurring benefits from the transformation programme and no
further one-off costs to be incurred, LIC expects Underlying Earnings[2] for
the 2018-19 year to be in the range of $18-$26 million, assuming no
significant climate event or milk price drop takes place between now and

Media contact: Ashleigh Sattler, asattler@lic.co.nz, 027 617 1942
For any shareholder enquiries please phone 0800 264 632

Notes to Financial Information
Non-GAAP financial information does not have a standardised meaning
prescribed by GAAP and therefore may not be comparable to similar financial
information presented by other entities.  As this is a half-year update, the
numbers relating to November 2017 have not been audited.

[1] One-off transformation costs pre-tax of $20.7 million were incurred in
the period. EBITDA and EBIT numbers, excluding one-off transformation costs,
are presented as they are considered useful to investors to provide an
indication of the change in business performance.  The numbers presented are
non-GAAP financial information.

[2] Underlying Earnings is the company''s NPAT excluding bull valuation but,
for the avoidance of doubt, including one-off transformation costs.
Underlying Earnings is considered useful to investors as it is the basis on
which LIC has historically reported and it is the basis on which LIC makes
its determination of dividends.

These numbers should be all read in conjunction with the interim financial

About LIC
LIC is a farmer-owned co-operative that provides a range of services and
solutions to improve the productivity and prosperity of farmers. This
includes dairy genetics, information technology, herd testing, DNA parentage
verification and farm advisory services through FarmWise. Subsidiary business
LIC Automation also provides integrated automation systems and unique milk
testing sensors that present real-time data while a cow is being milked. With
origins dating back to 1909, LIC has a long history of world-leading
innovations for the dairy industry.
Today the New Zealand-based co-operative employs more than 700 permanent
staff, swelling to 2000 during the peak dairy mating season. LIC also has
offices in the United Kingdom, Ireland and Australia. All LIC profit is
returned to its farmer owners/shareholders in dividends, or reinvested for
new solutions, research and development. www.lic.co.nz
End CA:00313386 For:LIC    Type:HALFYR     Time:2018-01-24 16:58:41
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Livestock Improvement Corporation Ltd
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