Earnings Call: H1 2021

Jan 27, 2021

Quarterly report

Okay. We've reached 12:30. I think we're good to go. It looks like participants have been admitted. So thank you for attending this call this afternoon. The purpose of which is to discuss the half year results for LIC that we announced yesterday and to answer any questions that you may have. On the call today, there's myself as Chair of LIC and Wayne McNee, our Chief Executive. The call is being recorded and will be available on the LIC website tomorrow. We'll have a Q and A session at the end of this call. So to ask a question, you'll need to use the chat function at the bottom of your screen. So you're able to submit questions at any time during the call. However, we'll only answer these at the end during the Q and A session. If you haven't already done so, could I please ask that you mute your microphones just to avoid any background noise? So we've delivered a strong half year result and increased our full year underlying earnings forecast range from $16,000,000 to $22,000,000 tightened that range to and increased it to $93,000,000 This shows continued strength in the Cooperative and its financial performance. As far as the financial highlights are concerned, total revenue was $169,700,000 up 3.8% from $163,400,000 in the same period last year. Net profit after tax was up 10.4 percent to $33,400,000 and this is primarily due to the strong growth in the sales of LIC's premium artificial breeding options and animal health and diagnostics team as farmers invest to optimize the value of the dairy herds. We recorded $60,000,000 of earnings before interest, tax, depreciation and amortization. This was up 2.7%. And then EBIT, that is earnings before interest and tax of $46,400,000 which is up 7.6%. As mentioned earlier, we've also reported a change in underlying earnings range. This is now forecast to be $19,000,000 to $23,000,000 for the year and up from $16,000,000 to $22,000,000 With respect to research and development, the Cooperative is balancing profit with focused R and D and technology investment for the long term. We're investing in areas where LHC has unique capability to maximize the value our customers generate from their livestock and products, providing technology and services to make farmers' lives easier. We continue to invest in key areas such as genetics and R and D through to updating and enhancing MINDA as it's critical to farmers and their businesses. The highlight of the result was farmers' growing confidence in LIC's genomic selection with around 1 point 4,000,000 inseminations from genomic size this year, up from just under 400,000 in 2017. Wayne will cover more on R and D and genomics shortly. With respect to COVID-nineteen, the result was pleasing considering the disruption of the 2nd COVID lockdown. Whilst this didn't impact very much on our customers, it did have significant impact with operations, particularly around the North Island the North of the North Island. So I'd like to thank LIC management and staff for their support over this time. Their dedication, resilience and effort is very much appreciated. Our people have had to overcome significant challenges to ensure business continuity and uninterrupted services to our customers. With respect to governance and representation, you will no doubt be aware that following the annual meeting in October, we announced that shareholders had voted to update and streamline the governance of the Cooperative, including changes to the Board and replacing the shareholder council with a smaller, more focused shareholder reference group. We look forward to updating shareholders on the work of this group throughout the year. I'll now hand over to Wayne, who will update on the work LIC is doing in genomic space and other R and D initiatives we're also working on. Over to you, Wayne. Thanks, Murray. As Murray said, this is a solid result, and we are proud to deliver it to our pharma shareholders. I'm going to focus, first of all, on genomics. The result reflects the value on pharma of LIC's ongoing investment to enhance our core genetics business through world leading pastoral dairy pastoral genomics to drive genetic gain in dairy herds and a wider uptake of LSC's dairy beef genetics as well. LRC is now a world leader in pastoral genomics dairy genomics science. Genomic science and genome sequencing technology has generated increased productivity and improved health traits for dairy cows and better returns for dairy farmers. And as Murray said, this has been shown by the increased uptake that farmers have grown in their confidence in the product over the past few years. The cooperative has invested $78,000,000 into genomic science over the past 3 decades to speed up valuable genetic gain in dairy herds, and we're continuing that investment with a number of programs. I'll touch on one of those later. Genomic selection is now a key part of our breeding scheme in conjunction with the more traditional methods of sai proving. This helps enable our customers to produce the most sustainable and efficient animals and the highest value product. And we as we look to the season ahead, the focus will be continuing to deliver more for farmers through this cutting edge genomic research. Let me now talk through a little bit of a bit more around R and D and the portfolio of work we're doing. The first of those is our resilient dairy program, which is a partnership with MPI and DairyNZ with co funding from each of the other parties, but led by LIC. Now that is focusing particularly around genomics for health traits and welfare, but also a lot of work around milk, what's called Milkomics, looking for other things we can find in milk. Next is Hoofprint. This is our new index, a new tool which gives farmers accurate insights into bulls that have the potential to breed progeny with a lighter environmental footprint, cows that produce less methane and less nitrogen per kilo of milk solids. And it was great to see the DairyNZ publication yesterday of their research showing that New Zealand dairy farmers have the lowest environmental footprint in the world per kilo of milk solids. Another research program we are working on with which is government funded is a methane research program. This is a collaboration between LRC and CRV. And this is seeking to confirm a link between methane that cows produce and their genetics. And if we're able to do that, we'll be able to breed those traits and using genomics. Our accelerator fund, which we learned launched this year, this is an opportunity for us to partner with startups in the dairy industry in particular and invest in those, but also partner with them to help develop their products and bring them to market. We made our first two investments during this last 6 months with more to come. And last but not least, Minder. We've committed to continually improving Minder Live and the Minder app. And over the past 6 months, we've invested $1,850,000 delivering improvements to Minder Live and the Minder app and another $1,400,000 planned to be spent in the 2nd 6 months of this year. We've made 58 improvements, which we are suggested by LIC shareholders, including reporting enhancements, the ability to add important notes against your animals, giving notifications from the app related to health treatments and providing a list of animals scanned with a wand. There were many others that were provided. We've also continued to invest a substantial amount of money to support your traceability and biosecurity compliance. We've been working closely with Knight and Osprey to improve the connection between Minder and the Knight product. And that investment will be continuing as Knight continues to invest as well. Lastly, I just wanted to say we've also added a team of people. So we have 20 fourseven monitoring of miners' performance now, and we are able to identify any reduction in performance and quickly move to improve that. And we are apart from animal evaluation runs, we're now aiming for and achieving a 99% uptime for Minder. That is a significant improvement on what we had previously, and we're going to be continuing to improve that performance over time, looking to try and reduce the amount of time that the system is down for AE runs. And on that, Murray, I'll hand back to you. Yes. Thanks, Wayne. So some interesting new innovations coming through there, which is good to see. And the other thing I just really keen to reiterate, this is a half year result, and it reflects the busiest time of our season. So most of the revenue has already come in. So it's not always a true reflection of the full year, as you'll appreciate. So we'll start the Q and A session now. So to ask a question, you'll need to either use the chat function at the bottom of your screen or you could go off mute and ask the question directly. So I don't have any questions through the chat function at this stage. If you do come on, if you unmute and state your name, it would be really useful and your question. Just noting we've got Dave Hazelhurst here, too, our CFO, if there are any particular gnarly financial questions. Thanks, Wayne. Yes, hi, everyone. It would seem no one has any burning questions. I would remind shareholders, of course, though, that directors and shareholder reference group representatives are always available to answer any questions or to pass them back through to management if they need to. I'd also like to say that we do hope to do a little bit more shareholder engagement and more active shareholder engagement as we stated at the annual meeting last year with respect to keeping shareholders up to date with what's happening. And I think if you see just from what Wayne's outlined, there's a number of new initiatives which are coming through all the time in association with refinements to the work that we already do in a number of areas. Just with that, Murray, we will be doing a roadshow, directors and management and shareholder reference group representatives in the first half of the year. We haven't finalized the dates for that yet, but that will be updating on the work we're doing with Minder, what we're doing with R and D, the governance changes and some other matters, which we'll be bringing forward to you then. And to just add that, that's going to be in multiple locations around the country more than we've done last time, I think about 18 stops. So getting to some of the more far flung parts of the country, which don't always get served as well. Well, I don't see any questions coming through. So what I suggest is that if you do have a question, pass them through to me or to Wayne and his team or through to directors of the shareholder reference group, and we can take them from there. So with that, I'll conclude and just suggest that and thank you that we continue to prioritize a sharper, deeper focus on investment in the areas where LIC is uniquely placed to drive value, to innovate and deliver positive impacts for our customers and our shareholders. So thank you again for your continued support, and we look forward to presenting the full year result later in the year. So thank you, and good day.