LIC full year financial results 2018-19
Private Bag 3016
Hamilton 3240
New Zealand
0800 651 156
www.lic.co.nz
LIC is the trading name of Livestock Improvement Corporation Limited
Results for announcement to the market
24 July 2019
LIC result reflects performance, profitability turnaround
Performance Highlights
NPAT: $22.2 million, up 139% from $9.3 million last year
**
Underlying earnings
*
: $19.5 million, up 541% from $3.0 million last year**
Total revenue: $246.5 million, up 4% from $236.4 million last year.
Dividend: $15.6 million /10.98c fully imputed per share (80% of underlying earnings), up from $2.4 million/1.71c
last year.
*refer notes on page 3
Livestock Improvement Corporation (NZX: LIC) (LIC) announces its financial results for the year
ending 31 May 2019.
Reporting a significant increase in profitability, as well as new records in strength of balance sheet,
operating cash flow, and total revenue, the co-op will return $15.6 million in dividend to shareholders.
This fully imputed dividend equates to 10.98 cents per share and represents a yield of 12.2% based
on the current share price of 90 cents. This dividend is up from 1.71 cents last year and is the largest
dividend the co-op has paid since 2013.
Board chair Murray King said the result was in line with expectations and reflects a turnaround in the
co-operative’s performance and profitability.
“This result is further evidence LIC is in great financial shape. It means we are not only able to deliver
a solid dividend to shareholders, but the business can also continue its significant investment in R&D
and our digital transformation, and consider new options and opportunities to deliver innovation-led
growth.”
King described the turnaround as a success story after reporting a loss in 2016.
“Our focus has been on delivering what we said we would do to improve the company’s performance.
This is important at a time when dairy farmers need certainty and trusted partners to help them
navigate the rapidly changing domestic and global industry.
“LIC is the DNA of New Zealand’s dairy industry, providing farmers with superior genetics and agri-
tech solutions to continually improve the productivity and profitability of their farms. We have to make
sure that in the data-driven future of global dairy, LIC and our farmers are in a position to be the
disruptors, not the disrupted. That takes financial strength, high-performance and a clear focus on the
innovations needed to keep our farmers ahead of the game.
“The major strategic projects we have completed since 2016 to shape LIC into a modern, progressive
co-op have enabled this year’s strong results. Importantly, we believe these results are sustainable
and we are confident that we will continue to build on them in the coming years.”
Innovation-led growth
While 2017-18 was a year of transformation for the co-op, including capital restructure, and a strategy
refresh, 2018-19 was about embedding its new innovation-led growth strategy with an ongoing focus
on the core NZ dairy industry.
Page 2 of 3
LIC’s investment in R&D remained high in 2018-19 at $13.6M, which equates to 5.5% of revenue and
is well above the primary sector average of around 1%. The co-op also received additional funding
from MBIE and MPI to boost two key R&D projects aimed at driving improvements in the health and
wellbeing of the national herd and more sustainable milk production.
Protecting the national herd from Mycoplasma bovis (M. bovis)
More than $800,000 was invested in new measures to protect its customers from the M. bovis cattle
disease, including a world-leading daily testing regime for its bulls and significant changes to its herd
testing operations. The co-op absorbed these costs to avoid additional price increases in 2018-19.
LIC also purchased 64ha of farm land in the Waikato to increase its biosecurity quarantine facilities.
Other business highlights
Sales from core products including artificial breeding (AB) and herd testing were strong, with 5.68
million AB straws sold and 10.96 million milk samples processed. Demand for animal health testing
was also high, particularly Johne’s disease testing, and international business sales of genetics and
automation technology continued to grow, particularly in the United Kingdom and Ireland.
Genetics sales in New Zealand saw farmers seeking to add further value to their herd by extending
their AB period and with increased uptake of A2A2 genetics and genomic bull teams which provides
access to elite new genetics earlier. LIC’s ‘A2 bull team’, introduced in 2018 to meet the growing
demand of A2 milk, accounted for 10% of AB sales in its debut season, as more farmers look to breed
towards an A2A2 herd.
During the year LIC continued to improve its SPACE service and make it available to more farmers
around the country. The satellite pasture management service, which offers farmers a free trial period,
now has more than 1000 customers registered for the annual subscription.
Previous strategic investments - in farm financial management software provider, Figured (2014),
Australian heat detection aid manufacturer, Beacon (2015), and UK-based NMR (2017) - also made
good gains in 2018-19 and this is reflected in the result.
Outlook
LIC’s expects underlying earnings to increase to $21-25 million in 2019-20, assuming no significant
climate event or milk price drop takes place between now and then nor any major impacts from
biosecurity threats such as M. bovis.
Ends
For more information, visit www.ayearinreview.lic.co.nz
Please refer to notes about financial information over page.
Contact:
For any shareholder enquiries, phone 0800264632
For any media enquiries, contact Ashleigh Sattler 0276171942
Page 3 of 3
Notes to Financial Information
LIC’s annual results for 2018-19 include the annual non-cash revaluations of its major biological asset, the bull
team, and the outstanding Nil Paid Ordinary Shares receivable, which are both required to reflect “fair value”
under accounting standards. Figures have been audited.
Nil Paid Ordinary Shares
These were issued to shareholders as a result of the share simplification in 2018, which brought
together LIC’s two previous classes of shares into one Ordinary Share. For each co-operative share
held, one Fully Paid Ordinary Share and three Nil Paid Ordinary Shares were issued.
Nil Paid Ordinary Shares carry the same rights to dividends and voting as Ordinary Shares but cannot
be traded on the NZX until they are fully paid up. Over time, shareholders are obliged to pay-up each
Nil Paid Ordinary Share and once fully paid (up to $1) they become subject to market pricing.
The Nil Paid Ordinary Shares are repaid by way of retention of dividends paid on any of those shares,
and any repayments of the shares required to satisfy LIC’s Share Standard. LIC records an estimate
of the fair value of the outstanding Nil Paid Ordinary Shares receivable at balance date.
Bull team
The bull team valuation is based on a model designed independently of LIC that looks at future revenue
streams and costs associated with the current bulls owned, discounted back to current value.
Underlying Earnings*
This is considered useful to investors as it is the basis on which LIC makes its determination of dividends. These
numbers are non-GAAP financial information, which does not have a standardised meaning prescribed by
GAAP (Generally Accepted Accounting Principles) and therefore may not be comparable to similar financial
information presented by other entities.
Reconciliation of NPAT to Underlying Earnings
2019 2018
Profit/(loss) after tax for the year
22,170
9,265
Less Bull team revaluation
(1,920)
(8,634)
Less Fair value change in Nil Paid Share
receivable
(1,258)
-
Tax effect
538
2,418
Underlying earnings 19,530 3,049
One-off transformation costs**
These were incurred in 2018 ($20.7 million pre-tax), affecting NPAT and Underlying Earnings. The costs were
not incurred in 2019.
About LIC
LIC is an agri-tech and herd improvement co-operative which empowers livestock farmers through the delivery
of superior genetics and technology, to improve their productivity and prosperity. With origins dating back to
1909, LIC has a long history of providing world-leading innovations for the dairy industry. This commitment to
R&D and new product development continues today with LIC’s strategy to deliver innovation-led growth, with
an ongoing focus on the core NZ dairy industry.
Headquartered in Hamilton, New Zealand, LIC employs more than 700 permanent staff, swelling to 2000 during
the NZ peak dairy mating and herd testing season through spring. LIC also has offices in the United Kingdom,
Ireland and Australia.
As a farmer-owned co-operative, all LIC profit is returned to its farmer owners/shareholders in dividends, or
reinvested for new solutions, research and development.
More info: www.lic.co.nz; NZX.
---
Livestock Improvement Corporation
Consolidated financial statements
For the year ended 31 May 2019
In thousands of NZD
ContentsPage
Introduction1
Key results and position
Our results for the year2
Our position at year end2
Our cash flows for the year3
Changes in our position for the year3
More details
Business analysis4, 5
Our core assets5, 6
Our funding 7
Risk8
Tax and other balances9
Other expenses, Transactions with related parties, Directors and Management10
Cash flow reconciliation, Operating leases and Subsequent events10
Independent auditor's report11
Directors' report15
Governance report17
Introduction
LIC is domiciled in New Zealand, registered under the Companies Act 1993 and the Co‐operative Companies Act 1996, listed as
of balance date on the Alternative Board of the New Zealand Stock Exchange Limited ("NZAX") and as of 1 July 2019 listed on the
Main Board of the New Zealand Stock Exchange Limited ("NZX"). LIC is an FMC Reporting Entity for the purposes of the Financial
Reporting Act 2013 and the Financial Markets Conduct Act 2013.
These financial statements set out the performance, position and cash flows of Livestock Improvement Corporation Limited
("LIC" or the "Company") and its subsidiaries (the "Group") for the year ended 31 May 2019.
The functional currency of the Company and the presentation currency of the financial statements is NZD, with amounts
rounded to the nearest thousand.
The accounting policies have been applied consistently with prior periods. NZ IFRS 9 Financial Instruments and NZ IFRS 15
Revenue were adopted during in the current period, however the impact of these standards is immaterial. Accounting
standards relevant to the Group that have been issued but are not yet effective, and have not been early adopted, include:
‐ NZ IFRS 16 Leases: which is effective for periods beginning after January 2019. This standard is expected to increase both
assets and liabilities by $13m to $17m, with an immaterial impact on the profit/(loss) in any year.
The key estimations and judgements made in preparing these financial statements are the valuation of the Bull team, the
impairment testing of software and other intangible assets and the valuation of an Ordinary Share in relation to the July 2018
share structure simplification.
The financial statements have been prepared on a GST exclusive basis, with the exception of trade receivables and trade
payables, which are reported inclusive of GST.
These financial statements comply with NZ GAAP as appropriate for Tier 1, for‐profit entities, NZIFRS and IFRS.
1
Key results and position
Livestock Improvement Corporation
Consolidated financial statements
For the year ended 31 May 2019
In thousands of NZD
20192018
STATEMENT OF RESULTS FOR THE YEARNote
Revenue1246,541236,420
Purchased materials(36,447)(35,140)
People costs(100,749)(98,943)
Depreciation and amortisation3,4(26,804)(28,295)
Research and developmen
t(13,624)(13,246)
One‐off transformation costs‐(20,665)
Other expenses10(41,653)(33,816)
Net finance costs(336)(1,297)
Bull team revaluation21,9208,634
Fair value change in Nil Paid Share receivabl
e51,258‐
Profit/(loss) before tax expense30,10613,652
Tax expense7(7,936)(4,387)
Profit/(loss) for the year22,1709,265
Hedge revaluations5146216
Investment revaluation
s53,7073,138
Land and buildings revaluations3,55423,450
4,3956,804
Comprehensive income for the year26,56516,069
Profit per Ordinary Share (excl. treasury stock)0.1
6$ 0.07$
Supplementary non‐GAAP note to the results for the year:
Profit/(loss) for the year22,1709,265
Less Bull team revaluation(1,920)(8,634)
Less Fair value change in Nil Paid Share receivable(1,258)‐
Tax effect on Bull team revaluation5382,418
Underlying earnings19,5303,049
Underlying earnings per Ordinary Share (excl. treasury stock)0.14
$
0.02
$
STATEMENT OF POSITION AT YEAR END20192018
Cash4,5292,521
Debtors845,25445,090
Bull team2122,728120,808
Land, buildings and equipmen
t381,03472,030
Software, goodwill and other intangible assets473,78174,011
Nil Paid Shares receivable518,690‐
Other assets834,71927,265
Total assets380,735341,725
Creditors28,59024,253
Borrowings54,66119,636
Co‐operative Control Shares5‐6,262
Deferred ta
x740,83840,945
Other liabilities915,2098,528
Total liabilitie
s89,29899,624
Share capital578,43253,126
Retained earning
s5169,765150,141
Other reserves543,24038,834
Total equit
y291,437242,101
DirectorDirector
Date: 24 July 2019Date: 24 July 2019
2
Key results and position
Livestock Improvement Corporation
Consolidated financial statements
For the year ended 31 May 2019
In thousands of NZD
20192018
STATEMENT OF CASH FLOWS FOR THE YEARNote
Customer receipts247,470227,082
Supplier payment
s(190,454)(188,855)
Tax payments(2,143)(2,231)
Other operating cash flows2941,834
Net operating cash flows1255,16737,830
Software development(18,994)(21,214)
Net sales/(purchases) of land, buildings and equipment(16,177)8,958
Other investment cash flows(1,639)(6,162)
Net investment cash flows(36,810)(18,418)
Drawdown/(repayment) of bank debt(15,000)(12,500)
Issue of Co‐operative Control Shares1,130914
Repurchase of Co‐operative Control Shares‐(889)
Interest paid on Co‐operative Control Share
s‐(543)
Investment Share repurchases‐(5,338)
Nil Paid Share receipts60‐
Dividends paid(2,535)(2,043)
Net financing cash flows(16,345)(20,399)
Movement in cash for year2,012(987)
Cash at beginning of the year2,5213,458
Currency movement on cash holding
s(4)50
Cash at end of the year4,5292,521
STATEMENT OF CHANGES IN POSITION FOR THE YEA
R
Share capital
Retained
earnings
Other
reserves
Total
equity
Balance at 1 June 201853,126 150,141 38,834242,101
Profit/(loss) for the year‐ 22,06710322,170
Dividends paid‐ (2,443) (92)(2,535)
Hedge revaluations‐‐ 146146
Investment revaluations‐‐ 3,7073,707
Land and buildings revaluation
s‐‐ 542542
Co‐operative Control Shares converted to Ordinary Shares7,392‐‐7,392
Nil Paid Shares issued17,914‐‐17,914
Balance at 31 May 201978,432 169,765 43,240 291,437
Balance at 1 June 201758,464 141,285 33,664233,413
Profit/(loss) for the year‐ 9,1111549,265
Dividends paid‐ (1,900) (143)(2,043)
Hedge revaluations‐‐ 216216
Investment revaluation
s‐‐ 3,1383,138
Land and buildings revaluations‐‐ 3,4503,450
Transfer of asset revaluations on sale‐ 1,645 (1,645)‐
Investment Share repurchase
s(5,338)‐‐(5,338)
Balance at 31 May 201853,126 150,141 38,834 242,101
3
More details
Livestock Improvement Corporation
Consolidated financial statements
For the year ended 31 May 2019
In thousands of NZD
1.Business analysis
2019
NZ market
genetics Herd testing
Farm
software
Farm
automation Other EliminationsTotal
External revenue97,876 32,815 45,127 19,675 51,048‐246,541
Inter‐segment revenue‐‐‐ 2,354 820 (3,174)‐
Total revenue97,876 32,815 45,127 22,029 51,868 (3,174)246,541
Depreciation & amortisation(731) (3,138) (7,625) (3,816) (11,494)‐(26,804)
Segment profit before tax66,744 11,406 28,025 6,591 35,262‐148,028
Bull team revaluation1,920
One‐off transformation costs‐
Unallocated amounts(119,842)
Profit/(loss) before tax 30,106
2018
NZ market
genetics Herd testing
Farm
software
Farm
automation Other EliminationsTotal
External revenue92,943 31,369 43,924 20,177 48,007‐236,420
Inter‐segment revenue‐‐‐ 2,217 1,520 (3,737)‐
Total revenue92,943 31,369 43,924 22,394 49,527 (3,737)236,420
Depreciation & amortisation(1,033) (2,828) (7,060) (2,893) (14,481)‐(28,295)
Segment profit before tax62,360 12,005 26,822 8,937 28,922‐139,046
Bull team revaluation8,634
One‐off transformation costs(20,665)
Unallocated amounts(113,363)
Profit/(loss) before tax 13,652
2019
New
Zealand Australia Ireland
United
Kingdom Other
Total
Revenues223,855 8,001 4,117 5,209 5,359246,541
Non‐current assets295,197 6,085452 11,886152313,772
2018
Revenues219,268 6,942 2,888 3,382 3,940236,420
Non‐current assets265,574 6,595260 8,047154280,630
The Group operates in four key operating segments, and across four key geographies as set out below. Figures in the following tables
reflect information regularly reported to the Chief Executive on those key operating segments:
‐ NZ market genetics: provides bovine genetic breeding material and related services, predominately to dairy farmers
‐ Herd testing: herd testing and animal recording for pastoral farmers
‐ Farm software: data recording and farm management information services
‐ Farm automation: provides dairy automated equipment and technology
The Other segment includes international operations, diagnostics, animal health, research & development and support services.
Unallocated amounts include personnel costs, administrative and other fixed costs and net finance costs.
4
More details
Livestock Improvement Corporation
Consolidated financial statements
For the year ended 31 May 2019
In thousands of NZD
1.Business analysis (cont.)
The Group's significant subsidiaries are:
The Group is not dependent on any one major customer in any of its reportable segments.
2.Bull team
2019
2018
Opening balance120,808112,174
Bull team revaluation1,9208,634
Closing balance122,728120,808
Key drivers of the model:
Mean 3 year forward Fonterra Farmgate Milk Price* $6.67$6.00
WACC annualised post tax rat
e5.94% ‐ 6.68%6.42% ‐ 8.16%
Existing Sire Proving Scheme bull team size180180
Expected average bull useful lif
e4.94.7
*This is the average of market analyst consensus
3.Land, buildings and equipmen
t
Land Buildings Equipment TotalLand Buildings Equipment Total
Opening balance32,269 25,358 14,40372,03031,405 30,981 16,00478,390
Additions3,162 3,865 9,26516,292‐ 504 7,1677,671
Disposals(3) (113) (335)(451)(1,010) (6,106) (2,542)(9,658)
Depreciation‐ (1,724) (5,854)(7,578)‐ (1,746) (6,240)(7,986)
Revaluation(11) 768‐7571,874 1,743‐3,617
Foreign exchange impac
t‐‐ (16)(16)‐ (18)14(4)
Closing balance35,417 28,154 17,463 81,03432,269 25,358 14,403 72,030
Value if carried at cost12,843 19,364N/A9,684 18,807N/A
Estimated useful livesN/A 10‐40 years 3‐10 yearsN/A 10‐40 years 3‐10 years
‐ New Zealand: LIC Agritechnology Company Limited (100%), LIC Automation Limited (100%)
‐ Australia: Livestock Improvement Pty Ltd (100%), Beacon Automation Pty Ltd (75%)
‐ Ireland: LIC Ireland Limited (100%), Livestock Improvement Automation Limited (100%)
‐ United Kingdom: Livestock Improvement Corporation (UK) Ltd (100%), LIC Automation UK Limited (100%)
The bull team is the cornerstone asset of LIC's genetics business. The 968 total bulls (2018: 993 bulls) from which the bull team are
selected are carried at their fair value, which is based on LIC's modelling of future cash flows from the bulls (a "Level 3 valuation").
Changes in their fair value are reported in profit.
The fair value from the bulls is partly dependent on the future sales mix of LIC's genetics products, which is historically strongly
correlated to the Farmgate Milk Price paid by Fonterra Co‐operative Group. The valuation is therefore most sensitive to this input
and the WACC rate used to discount those future cash flows. The expected useful life of the existing bull team is also considered to
be a key driver of the model.
Land and buildings are carried at fair value, determined by an independent valuer at least every three years (most recently as at 30
April 2018). Revaluations are reflected in the revaluation reserve. Equipment includes plant, vehicles, furniture and fittings and IT
hardware, and is carried at depreciated cost. Buildings and equipment are depreciated on a straight‐line basis over their estimated
useful lives, and reviewed annually for any indications of impairment.
20192018
External revenues attributable to other segments include government grant income of $2.925 million (2018: $3.257 million).
5
More details
Livestock Improvement Corporation
Consolidated financial statements
For the year ended 31 May 2019
In thousands of NZD
4.Software and other intangibles
(i)Software and other intangible asset balances
Software &
IP
Goodwill Database Total
Software &
IP Goodwill Database Total
Opening balance56,998 6,513 10,50074,01156,286 6,320 10,50073,106
Additions19,204‐‐19,20421,146‐‐21,146
Disposals(82)‐‐(82)(129)‐‐(129)
Amortisation(19,226)‐‐(19,226)(20,309)‐‐(20,309)
Foreign exchange impact(84)(42)‐(126)4193‐197
Closing balance56,810 6,471 10,500 73,78156,998 6,513 10,500 74,011
(ii)Impairment testing of intangible assets
Allocation of Goodwill and the LIC Database to CGUs:
Farm
software
and herd
testing CGU
Farm
automation
CGU Other CGU Total
Farm
software
and herd
testing CGU
Farm
automation
CGU Other CGU Total
LIC database10,500‐‐10,50010,500‐‐10,500
Goodwill‐ 4,144 2,3276,471‐ 4,144 2,3696,513
10,500 4,144 2,327 16,97110,500 4,144 2,369 17,013
The LIC database and all goodwill recoverable amounts have been determined using value in use
.
A discounted cash flow model is used for impairment testing based on expected results and capital expenditure from the current year
forecast, Board approved budgets and a projection for further periods using terminal growth rate. A five year cash flow projection
period is used for the Database and Other CGU and a ten year cash flow projection is used for the Farm automation CGU. The
terminal growth rate used is 2.0% (2018: 2.0%) for the Database and Goodwill. The discount rate applied is reviewed and updated
annually for movements in published Treasury risk‐free rates and is 7.5% for the Database and 7.5‐9.0% for Goodwill (2018: 8.5% for
the Database and 8.5‐10.0% for Goodwill).
Software development expenditure is capitalised only where costs are directly attributable, and once the product or process is
commercially feasible, the benefits are probable, and the Group intends to sell or use the completed software.
The genetic data in the LIC database increases in value with each successive generation. Both goodwill and the LIC database have
indefinite useful lives. They are recognised at cost and are not amortised, are allocated to a cash generating unit ("CGU") and tested
for impairment annually.
20192018
At reporting date, software includes $17.290 million (2018: $12.883 million) of work in progress, which is not being amortised until it
is ready for use.
20192018
Software assets are amortised over their useful lives of up to seven years on a straight line basis, and reviewed annually for
indicators of impairment.
Intellectual property (IP) assets are amortised over their estimated useful lives, being up to 13 years.
6
More details
Livestock Improvement Corporation
Consolidated financial statements
For the year ended 31 May 2019
In thousands of NZD
5.Funding
(i)Ordinary Shares
(ii)Nil Paid Shares
(iii)Other reserves and equity
Hedge
revaluation
reserve
Investment
revaluation
reserve
Non‐
controlling
interests
Other
reserves
Balance at 1 June 2018(49) 4,76633,87923838,834
Profit/(loss) for the year‐‐‐103103
Dividends paid‐‐‐(92)(92)
Revaluations146 3,707542‐4,395
Transfer of asset revaluations on sale‐‐‐‐‐
Non‐controlling interest movemen
t‐‐ ‐‐‐
Balance at 31 May 201997 8,47334,421249 43,240
Balance at 1 June 2017(265) 1,62832,07422733,664
Profit/(loss) for the year‐‐‐154154
Dividends paid‐‐‐ (143)(143)
Revaluations216 3,1383,450‐6,804
Transfer of asset revaluations on sale‐‐(1,645)‐(1,645)
Non‐controlling interest movemen
t‐‐ ‐‐‐
Balance at 31 May 2018(49) 4,76633,879238 38,834
(iv)Bank debt
Bank loans are secured by a Negative Pledge granted to Westpac and Rabobank over certain New Zealand‐based subsidiaries. All
debt outstanding at 31 May 2019 is considered current.
In July 2018 LIC's share structure was simplified and its two classes of shares, Investment Shares and Co‐operative Control Shares,
were brought together into a single class of Ordinary Shares. All Ordinary Shares have voting rights and the right to receive
dividends based on the profits of the Company.
The Group's funding comes from Share capital, retained earnings, other reserves and borrowings.
Land & building
revaluation
reserve
At reporting date there were 142,344,836 Ordinary Shares on issue, excluding 5,337,584 shares held as treasury stock (2018:
28,194,194 Investment Shares and 6,262,489 Co‐operative Control Shares, excluding 1,334,396 Investment Shares held as
treasury stock).
Ordinary Shares includes both fully paid shares and shares on which full payment has not yet been made. These Nil Paid Shares
must be paid up over time by Shareholders via a combination of dividend payments forgone, voluntary payments and payments
made on exit as a Shareholder. At year‐end the outstanding amount on Nil Paid Shares has been recorded in the Statement of
Position as a receivable, valued using a discounted cash flow model. The model uses assumptions on expected future dividends,
voluntary and compulsory payments and applies a discount rate of 5.7%.
Prior to simplification both the Investment shares and Co‐operative Control Shares were split into four shares for every share
previously issued. The split was based on a price of $4.00 per Investment share, as further described in Note 9. An independent
appraisal report was obtained, which confirmed that the adopted Investment Share value of $4.00 per share was fair to all
shareholders. Parameters used by the independent appraiser include a normalised EBIT figure range of $26m to $28m, an EBIT
multiple of 7 to 8, and a discount of 30% to reflect restricted voting rights, marketability and liquidity. A copy of the independent
appraisal report is available on LIC's website. The resulting additional three shares following the split in Co‐operative Control
shares were issued unpaid (see part(ii)) and totalled 22,176,045 shares.
The conversion of the Co‐operative Control shares to Ordinary shares resulted in the extinguishment of the Co‐operative Control
Share liability of $7.392 million, with a corresponding increase in share capital.
7
More details
Livestock Improvement Corporation
Consolidated financial statements
For the year ended 31 May 2019
In thousands of NZD
6.Liquidity and interest rate risk
(i)Liquidity risk
6 months
to 1 year
1 year
plusTotal
6 months
to 1 year
1 year
plusTotal
Borrowings4,661‐‐4,66119,636‐‐19,636
Co‐operative Control Shares‐‐‐‐6,262‐‐6,262
Creditors28,590‐‐28,59024,253‐‐24,253
33,251‐‐ 33,251 50,151‐‐ 50,151
(ii)Interest rate risk
Interest rate risk is the risk that changes in interest rates will impact the Group's results or position. The weighted average interest
rate paid on borrowings in 2019 was 3.89% (2018: 3.60%). A 1% increase in interest rates would reduce profit after tax by
approximately $0.146 million (2018: $0.245 million).
Liquidity risk is the risk of having insufficient liquid assets to pay the Group's debts as they fall due. The Group manages the risk by
monitoring forecast cash flows and holding sufficient bank facilities to meet the Group's needs. The contractual maturity of the
Group's funding is shown below.
20192018
Demand to
6 months
Demand to
6 months
The Group has bank funding facilities in place until June 2020 and expects to be able to meet any obligations which fall due.
8
More details
Livestock Improvement Corporation
Consolidated financial statements
For the year ended 31 May 2019
In thousands of NZD
7.Tax
(i)Tax expense20192018
Profit/(loss) for the year22,1709,265
Tax expense7,9364,387
Profit/(loss) for the year before tax30,10613,652
Tax at 28% NZ company tax rate8,4303,823
Effect of overseas income21219
Non‐deductible expense
s(23)789
Adjustments from prior period
s(683)(244)
Tax expense7,9364,387
Current tax expense8,2582,750
Deferred tax expense(322)1,637
Imputation credits available18,79217,385
(ii)Deferred tax liability
As at 31
May 2019
Through
Profit/(loss)
Through
Other reserves
As at 31
May 2018
Through
Profit/(loss)
Through
Other reserves
As at 31
May 2017
Livestock revaluation33,966801‐33,1652,390‐30,775
Land & buildings revaluation5,300(885) 2155,970(838)1676,641
Other1,572(238)‐1,81085‐1,725
Total40,838(322) 21540,9451,63716739,141
8.Debtors and other assets
(i)Debtors
(ii)Other assets20192018
Inventories16,35612,739
Investments17,53813,780
Derivatives used for hedgin
g89‐
Other livestock736746
34,71927,265
9.Other liabilities20192018
Provisions for employee entitlement
s4,7404,483
Provision for sire proving rebate2,7392,772
Derivatives used for hedgin
g‐57
Provision for tax6,533840
Other1,197376
15,2098,528
Tax expense is recognised for items arising this year that are either taxable this year (current tax) or in other years (deferred tax). The
main items giving rise to deferred tax are revaluations of the Bull team and Land & Buildings.
Bad debts of $0.134 million have been expensed during the year (2018: $0.038 million), and 97% of trade receivables are not past due
(2018: 98%).
Inventories utilised and expensed during the period amounted to $23.062 million (2018: $21.022 million). Inventories written off in
2019 totalled $0.027 million (2018: $0.003 million).
Following the approval by Shareholders of the share simplification described in Note 5, a small number of Shareholders elected to
exercise their minority buy‐out rights arising from the proposal under the Companies Act 1993 ("Act"). On 19 April 2018 LIC bought
back 1,334,396 Investment Shares as a result of the Shareholders exercising their rights. LIC holds these shares as treasury stock.
Those Shareholders that exercised their minority buy‐out rights have objected to the price proposed by LIC, being $4.00 per share,
and the final purchase price to be paid by LIC for the affected shares will therefore be determined in an arbitration. The $4.00 price
was the relative value attributed to each Investment Share under the share simplification proposal accepted by Shareholders. Each
Investment Share was reclassified into four fully paid Ordinary Shares with a relative value of $1.00 per share. No provision has been
made for any additional payments in these financial statements as LIC believes the price paid was fair and reasonable and is
supported by independent valuations.
9
More details
Livestock Improvement Corporation
Consolidated financial statements
For the year ended 31 May 2019
In thousands of NZD
10.Other expenses
Other expenses includes the following amounts paid to the Group's auditors, KPMG:
2019
2018
Audit of the financial statement
s147136
Other assurance work66
Audit‐related service
s‐42
153184
11.Transactions with related parties, Directors and Management
20192018
Remuneration of key Management and Directors 3,7114,249
Sale of goods and services to key Management and Director
s597669
There are no loans or deposits with related entities outside of the consolidated group
.
12.Reconciliation of the Profit/(loss) for the year to Net operating cash flows
20192018
Profit/(loss) for the year22,1709,265
Adjusted for non‐cash items:
Depreciation and amortisation26,80428,295
Bull team revaluation(1,920)(8,634)
Working capital movements and other non‐cash item
s8,1138,904
Net operating cash flows55,16737,830
13.Operating leases
Non‐cancellable operating lease rentals are payable as follows
:
20192018
Less than one yea
r4,0333,468
Between one and five years11,0468,074
More than five years2,5072,989
17,58614,531
14.Subsequent events
The Group has had the following short term transactions with key Management and Directors during the year, noting sale of goods
and services were under normal trade terms:
The Group leases a number of facilities and vehicles under operating leases. The leases vary in length depending on location, fit out
and business need. During the year ended 31 May 2019 $2.150 million was recognised as operating lease expense (2018: $1.683
million).
Directors of the Company and their related entities hold 446,511 Ordinary Shares, representing 0.3% of shares on issue (2018:
17,970 Co‐operative Control Shares and 93,166 investment Shares; representing 0.3% and 0.3%).
After 31 May 2019 a dividend of 10.98 cents per Ordinary Share was proposed by the Directors in relation to the 2019 year, or
$15.6 million (2018: 1.71 cents per Ordinary Share, or $2.4 million).
10
11
Independent Auditor’s Report
To the shareholders of Livestock Improvement Corporation Limited
Report on the audit of the consolidated financial statements
Opinion
In our opinion, the accompanying consolidated
financial statements of Livestock Improvement
Corporation Limited (the ’company’) and its
subsidiaries (the 'group') o n pages 1 to 10:
i.present fairly in all material respects the Group’s
financial position as at 31 May 2019 and its
financial performance and cash flows for the
year ended on that date; and
ii.comply with New Zealand Equivalents to
International Financial Reporting Standards and
International Financial Reporting Standards.
We have audited the accompanying consolidated
financial statements which comprise:
— the consolidated statement of position as at 31
May 2019;
— the consolidated statements of results for the
year, changes in position for the year and cash
flows for the year then ended; and
— notes, including a summary of significant
accounting policies and other explanatory
information.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (New Zealand) (‘ ISAs (NZ)’) . We
believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
We are independent of the group in accordance with Professional and Ethical Standard 1 (Revised) Code of
Ethics for Assurance Practitioners issued by the New Zealand Auditing and Assurance Standards Board and the
International Ethics Standards Board for Accountants’ Code of Ethics for Professional Accountants (‘IESBA
Code’), and we have fulfilled our other ethical responsibilities in accordance with these requirements and the
IESBA Code.
Our responsibilities under ISAs (NZ) are further described in the auditor’s responsibilities for the audit of the
consolidated financial statements section of our report.
Our firm has also provided other assurance services to the group in connection with certification of the Group’s
grant funding. Subject to certain restrictions, partners and employees of our firm may also deal with the group
on normal terms within the ordinary course of trading activities of the business of the group. These matters have
not impaired our independence as auditor of the group. The firm has no other relationship with, or interest in, the
group.
Materiality
The scope of our audit was influenced by our application of materiality. Materiality helped us to determine the
nature, timing and extent of our audit procedures and to evaluate the effect of misstatements, both individually
and on the consolidated financial statements as a whole. The materiality for the consolidated financial
statements as a whole was set at $1.2 million.
12
Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit
of the consolidated financial statements in the current period. We summarise below those matters and our key
audit procedures to address those matters in order that the shareholders as a body may better understand the
process by which we arrived at our audit opinion. Our procedures were undertaken in the context of and solely
for the purpose of our statutory audit opinion on the consolidated financial statements as a whole and we do not
express discrete opinions on separate elements of the consolidated financial statements.
The key audit matter How the matter was addressed in our audit
Valuation of the bull team
Refer to Note 2 to the Financial Statements.
Determining the valuation of the bull team,
which is the core asset to both the domestic
and international genetics operations of the
Group, is a highly judgmental and complex area.
Management prepare a model that projects the
number of straws that the current team can
produce and will be sold over the life of the
bulls. The valuation model factors the cost of
rearing, animal and farm management costs,
and forecasts of processing costs to make
sales. The calculated surplus is discounted to
reflect the time value of money.
Our audit procedures included, among others, valuation
specialist review of the model and challenge of
management’s significant assumptions such as:
— Projected sales volumes and pricing;
— Discount rates applied; and
— Useful life of the bulls.
We compared sales and costs growth, and inflation rates
to historical data and published market forecast data
where available. We reviewed market and industry data to
assess management’s discount rate applied to the final
model. We assessed the life of the bulls against historical
data. We found the inputs to be comparable.
We also considered management’s forecasts in previous
years and found it to be sufficiently accurate based on
actual results achieved.
Carrying value of intangible assets
Refer to Note 4 to the Financial Statements.
The Group has two categories of intangible
assets with indefinite useful lives:
— Goodwill of $6.3m, arising primarily from
acquisitions made to facilitate growth and
diversification of the Group’s farm
automation products; and
— The LIC Animal Database of $10.5m
which is used by the Group to deliver its
Herd Testing and Farm Software
services.
The three significant cash generating units
(CGUs) holding these assets are tested annually
for impairment using discounted cashflow
models to determine the recoverable amount.
We challenged management on the reasonableness of
the assumptions included in the cashflow forecast
models, with particular attention paid to the following:
— Assessing management’s future sales and growth
assumptions compared to external market and
industry data and historical performance of each of
the CGUs. We used our own valuation specialists to
assist us with the consideration of discount rates;
— Comparing management’s previous forecasts to
actual results achieved in each CGU; and
— Performing sensitively analysis around the key
assumptions used in the model.
Our audit procedures also included determining whether
the allocation of goodwill to each CGU was appropriate.
Our testing supported management’s conclusion that
there is no impairment.
13
The key audit matter How the matter was addressed in our audit
The annual impairment tests performed by the
Group were significant to our audit due to the
magnitude of the intangible assets and because
the discounted cashflow models involve
judgment about the future performance of the
CGU’s, including considering future economic
and market conditions.
Share simplification
Refer to Note 5 to the Financial Statements.
LIC has simplified its share structure by
converting both Co-operative Control shares
and Investment shares into a single class of
ordinary shares.
A key judgement arising from the simplification
is the fair valuation of the Co-operative Control
shares and Investments shares, which impacts
on any gain/loss on conversion to ordinary
shares.
Our audit procedures included, among others, specialist
review of external valuations and challenge of the
significant assumptions such as:
— Normalised EBIT figure,
— EBIT multiple, and
— D iscount to reflect restricted voting rights,
marketability and liquidity.
We recalculated the normalised EBIT figure based on
review of historical results. We reviewed market and
industry data to assess the EBIT multiple applied in the
valuations. We assessed the discount against our
knowledge of the industry and the trading history of LIC.
Our testing supported management’s accounting
treatment.
Other information
The Directors, on behalf of the group, are responsible for the other information included in the entity’s Annual
Report. Other information includes the Directors Report and the Governance Report. Our opinion on the
consolidated financial statements does not cover any other information and we do not express any form of
assurance conclusion thereon.
In connection with our audit of the consolidated financial statements our responsibility is to read the other
information and, in doing so, consider whether the other information is materially inconsistent with the
consolidated financial statements or our knowledge obtained in the audit or otherwise appears materially
misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this
other information, we are required to report that fact. We have nothing to report in this regard.
Use of this independent auditor’s r eport
This independent auditor’s report is made solely to the shareholders as a body. Our audit work has been
undertaken so that we might state to the shareholders those matters we are required to state to them in the
independent auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept
or assume responsibility to anyone other than the shareholders as a body for our audit work, this independent
auditor’s report, or any of the opinions we have formed.
14
Responsibilities of the Directors for the consolidated financial
statements
The Directors, on behalf of the company, are responsible for:
— the preparation and fair presentation of the consolidated financial statements in accordance with generally
accepted accounting practice in New Zealand (being New Zealand Equivalents to International Financial
Reporting Standards) and International Financial Reporting Standards;
— implementing necessary internal control to enable the preparation of a consolidated set of financial
statements that is fairly presented and free from material misstatement, whether due to fraud or error; and
— assessing the ability to continue as a going concern. This includes disclosing, as applicable, matters related
to going concern and using the going concern basis of accounting unless they either intend to liquidate or to
cease operations, or have no realistic alternative but to do so.
Auditor’s responsibilities for the audit of the consolidated financial
statements
Our objective is:
— to obtain reasonable assurance about whether the consolidated financial statements as a whole are free
from material misstatement, whether due to fraud or error; and
— to issue an independent auditor’s rep ort that includes our opinion.
Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance
with ISAs NZ will always detect a material misstatement when it exists.
Misstatements can arise from fraud or error. They are considered material if, individually or in the aggregate,
they could reasonably be expected to influence the economic decisions of users taken on the basis of these
consolidated financial statements.
A further description of our responsibilities for the audit of these consolidated financial statements is located at
the External Reporting Board (XRB) website at:
http://www.xrb.govt.nz/standards-for-assurance-practitioners/auditors-responsibilities/audit-report-1/
This description forms part of our independent auditor’s report.
The engagement partner on the audit resulting in this independent auditor's report is Matthew Prichard
For and on behalf of
Auckland
24 July 2019
Directors' report
Directors' Report 2018‐19
LIC result reflects performance, profitability turnaround
Protecting the national herd from Mycoplasma bovis (M. bovis)
More than $800,000 was invested in new measures to protect its customers from the M. bovis cattle disease,
including a world‐leading daily testing regime for its bulls and significant changes to its herd testing operations. The co‐
op absorbed these costs to avoid additional price increases in 2018‐19. An additional 64ha of farm land was also
purchased in the Waikato to increase our biosecurity quarantine facilities.
Other business highlights
Sales from core products including artificial breeding (AB) and herd testing were strong, with 5.68 million AB straws
sold and 10.96 million milk samples processed. Demand for animal health testing was also high, particularly Johne’s
disease testing, and international business sales of genetics and automation technology continued to grow,
particularly in the United Kingdom and Ireland.
LIC is the DNA of New Zealand’s dairy industry, providing superior genetics and agri‐tech solutions to continually
improve the productivity and profitability of your farm.
We have to make sure that in the data‐driven future of global dairy, LIC and our farmers are in a position to be the
disruptors, not the disrupted. That takes financial strength, high‐performance and a clear focus on the innovations
needed to keep our farmers ahead of the game.
The major strategic projects we have completed since 2016 to shape LIC into a modern, progressive co‐op have
enabled this year’s strong result. Importantly, we believe the results are sustainable and we are confident that we will
continue to build on them in the coming years.
Innovation‐led growth
While 2017‐18 was a year of transformation, including capital restructure, and a strategy refresh, 2018‐19 was about
embedding LIC’s new innovation‐led growth strategy with an ongoing focus on the core NZ dairy industry.
LIC’s investment in R&D remained high at $13.6M, or 5.5% of revenue, which continues to be well above the primary
sector average of around 1%. We also received additional funding from MBIE and MPI to boost two key R&D projects
aimed at driving improvements in the health and wellbeing of the national herd and more sustainable milk
production.
The LIC Board is pleased to present the co‐op’s financial results for the year ending 31 May 2019. The result is in line
with expectations and reflects a turnaround in performance and profitability.
With a significant increase in profitability, as well as new records in strength of balance sheet, operating cash flow,
and total revenue, the result is further evidence LIC is in great financial shape.
It means we can not only deliver a solid dividend to shareholders – the largest since 2013 – but the business can also
continue its significant investment in R&D, digital transformation and consider new options and opportunities to
deliver innovation‐led growth.
This turnaround is a success story for LIC, after reporting a loss in 2016.
Our focus has been on delivering what we said we would do to improve the company’s performance. This is important
at a time when dairy farmers need certainty and trusted partners to help them navigate the rapidly changing
domestic and global industry.
15
Directors' report
Thank you for all your support over the last 12 months, and for backing us in recent years to make the necessary
changes to turn this business around.
We look forward to another positive and busy twelve months.
Genetics sales in New Zealand saw farmers seeking to add further value to their herd by extending their AB period
and with increased uptake of A2A2 genetics and genomic bull teams which provides access to elite new genetics
earlier. The ‘A2 bull team’, introduced in 2018 to meet the growing demand of A2 milk, accounted for 10% of AB sales
in its debut season, as more farmers look to breed towards an A2A2 herd.
During the year LIC also continued to improve its SPACE service and make it available to more farmers around the
country. The satellite pasture management service, which offers a free trial period, now has more than 1000
customers registered for the annual subscription.
Previous strategic investments ‐ in farm financial management software provider, Figured (2014), Australian heat
detection aid manufacturer, Beacon (2015), and UK‐based NMR (2017) ‐ also made good gains in 2018‐19 and this is
reflected in the result.
Outlook
We are confident these results are sustainable and will be built on in the coming years.
We expect underlying earnings to increase to $21‐25 million in 2019‐20, assuming no significant climate event or milk
price drop takes place between now and then nor any major impacts from biosecurity threats such as M. bovis.
16
Corporate Governance Report under NZX
Corporate Governance Information
Corporate Governance Statement
Co‐operative Principles
The Company is committed to the following co‐operative principles:
1
2
3
4
5 Shareholdersco‐operate with the Company and each other, includingthe sharingof information to promote their common
interests.
On LIC's website you will find the following corporate governance documents referred to in this section:
‐ Constitution
‐ Code of Conduct and Ethics
‐ LIC Board Charter
‐ Audit, Finance & Risk Committee Charter
‐ Remuneration and Appointment Committee Charter
‐ Disclosure Committee Charter
‐ External Audit Independence Policy
‐ Share Trading and Disclosure Policy
‐ Continuous Disclosure Policy
‐ Diversity and Inclusion Policy
‐ Dividend Policy
LIC is a New Zealand Co‐operative Company. It's shares are quoted on the New Zealand Stock Exchange (NZX). We are reporting
against the Principles and Recommendations of the NZX Corporate Governance Code 2019 (the NZX Code), although we note that
during the period that this report applies, LIC was listed on the NZX Alternative Market (NZAX). This statement is current to 31 May
2019, and has been approved by the Directors of LIC.
LIC is primarily involved in the development, production and marketing of artificial breeding, genetics, farm software, farm
automation and herd testing services in the New Zealand dairy industry, the control and maintenance of the LIC database and the
execution of research relating to dairy herd improvement.
The Company will remain a Co‐operative Company;
The Company is controlled by Users of the Company’s qualifying products and services;
Core products and services are made available to all Shareholders at fair commercial prices;
ProductsandserviceswhichbenefitShareholdersandwhichotherwisemightnotbemadeavailable,aredevelopedandmade
available to Shareholders, provided that the company receives a commercial return; and
17
Corporate Governance Report under NZX
(a)
(b)
(c)
whenDirectors,ShareholderCouncillors,RestrictedPersonsandotherEmployeesof theCompany maydealinthesharesof
the Company;
NZX Code Principle 1, Code of Ethical Behaviour: Directors should set high standards of ethical behaviour, model this behaviour
and hold management accountable for these standards being followed throughout the organisation.
Code of conduct and ethics
LIC's Code of Conduct and Ethics sets out the ethical and behaviour standards expected of Directors and employees of LIC. The Policy
is reviewed biennially (or as required) to keep it up to date with employee and stakeholder expectations. Directors and employees
are also expected to uphold LIC's values.
Whistleblowing
The Code of Conduct and Ethics and the Company's Employment Relations Policy, which are available to employees on LIC's intranet,
include guidance on specific action to be taken by a person who suspects a serious wrongdoing. A protected disclosure can be made
to the Company Secretary or a Director.
procedures to reduce the risk of insider trading; and
disclosure requirements.
The Policy records the Company's procedures for compliance with the Financial Markets Conduct Act 2013 and other relevant
legislation/regulation for the trading and disclosure of trading in the shares of the Company.
The Policy aims to protect Directors, Shareholder Councillors, Restricted Persons and Employees, as well as the Company and the
Company's Shareholders, against acts of insider trading that could disadvantage holders of the Company's shares.
An Elected Director must hold the minimum shareholding requirement and can hold additional shares in accordance with the
Company’s Constitution.
Avoiding conflicts of interest
The Code of Conduct and Ethics includes direction on disclosing and managing conflicts of interest. We update the Board at each
meeting on changes in interests and any potential conflicts. The Company Secretary holds a Directors' interests register and the
Board reviews the register at least annually. The register records relevant transactions and disclosures of interests. A copy of the
interests register is on page 29.
Trading in securities
The Company has a Share Trading and Disclosure Policy for Directors, Shareholder Councillors, Restricted Persons and other
Employees wanting to deal in the securities of the Company.
The Policy outlines:
18
Corporate Governance Report under NZX
Role of the Board
Board composition
Board responsibilities
AppointedDirectorAbbyFooteresignedwitheffectfrom17October2018. SophieHaslemwasselectedasanAppointedDirectoron
7 December 2018.
The Board is responsible for setting the strategy of LIC and monitoring delivery against that strategy. In July 2018 the Board launched
a new innovation‐led growth strategy to shareholders which advised shareholders that LIC would:
•Focus 60% of its activity on optimising the core – driving value from the current business
•Focus 30% of its activity on enhancing the core – growth through innovation
•Focus 10% of its activity on capturing value beyond the core – leveraging existing capabilities for profitable growth outside pastoral
dairy
Full details of the strategy are available on LIC’s website.
The Board is also responsible for approval of significant expenditures, policy determination, appointment of Directors, and
stewardship of the Co‐operative's assets. Management is responsible for implementing the strategic objectives, operating within the
risk appetite we have set as a Board, and for all other day‐to‐day running of the Company. We delegate the day‐to‐day leadership
and management of the Company to the Chief Executive (CE). The delegations are set out in the Board Charter and in a Delegated
Authority framework, which also sets out authority levels for types of commitments that the Company's management can make. A
copy of the Board Charter is available on LIC's website.
The Board and the Shareholders shall not, except with the written consent of the Minister of Primary Industries, or other relevant
Minister, exercise any of their rights, directions and powers under, or alter the Constitution so as to cause or permit the Company to
cease to be a Co‐operative supplying goods and services to Shareholders.
NZX Code Principle 2, Board composition and performance: To ensure an effective board, there should be a balance of
independence, skills, knowledge, experience and perspectives.
Legislation, the NZX Listing Rules and the Constitution establish the Board's responsibility and include provisions for how the Co‐
operative will operate. The structure of the Board and its governance arrangements are set out in the Company's Constitution, and in
the Board's written Charter setting out the Board and Management's roles and responsibilities. The Board is responsible for the
direction and control of LIC's activities. It is committed to the guiding values of the Company: integrity, respect and innovation to
improve products and service to its Shareholders.
The Board is comprised of seven Elected Directors and up to three Appointed Directors. Elected Directors are elected by
Shareholders within the region each Director represents (four regions in total) and hold office for a period of four years. The term
coincides with the Rotation Schedule. All recommendations and deliberations on the selection of Appointed Directors are
undertaken by the full Board. Appointed Directors hold office for up to three years. A retiring Director is eligible for re‐election or re‐
appointment as a Director of the Company. All Appointed Directors have entered into written agreements setting out the terms of
their engagement and it is intended that all future Elected Directors will also do so (but they have not done to date, given their
regional election).
In relation to the nomination and appointment of Directors, proper checks are undertaken. This includes the provision of key
information about candidates to Shareholders and/or the Board, such as relevant skills, experience and directorships; and any
material adverse information of which the entity has become aware.
Elected Directors are Murray King (Chair), Gray Baldwin, Murray Jagger, David Jensen, Dr Alison Watters, Ben Dickie and Matt Ross.
Appointed Directors are Candace Kinser, Tim Gibson and Sophie Haslem.
The Director elected by the Northland region (Murray Jagger) retired in 2019. Two nominations were received for the position on the
Board, resulting in Kenneth Hames being elected by the Shareholders for a four year term, effective 1 June 2019. In 2019, the Board
introduced an important change to the process for assessing candidates nominated to be an Elected Director. Each candidate can opt
to undertake an assessment by an external party, the results of which assists Shareholders in reaching a decision on the most suitable
candidate to be a Director. In 2019 both candidates opted to undertake the external assessment.
19
Corporate Governance Report under NZX
Meetings
Diversity and Inclusion Policy
Male Female Male Female
7373
8182
Director training
Board performance
Director Independence
Chair
LIC Board
LIC Senior Leadership
Directors each undertake appropriate education to remain current in how to best perform their duties as directors. Directors
maintain memberships of relevant bodies such as the Institute of Directors, and receive information individually and from
Management in relation to specific issues relevant to LIC, the markets in which it operates and the dairy industry.
Individual development plans are agreed for each Director following external assessments and a Board development and engagement
plan is actively used. The Board also engaged in the following opportunities for ongoing development (in addition to their individual
commitments to ongoing professional development):
•The Chair attended a international leadership course
•The Board have actively engaged with external businesses to develop in relation to topics such as digital and change transformation
•Budget is allocated for training for Directors annually
•An external consultancy assisted the Board in the process leading to the 2018 Strategy refresh
The Board uses an external party to assist with reviewing the performance of the Board and its committees. The last review took
place in 2018 with the external party reporting back its findings to the Board for discussion and implementation as required.
LIC's Chair is an independent Director. LIC's Board also endorses the separation of the roles of the Chair and Chief Executive (CE) and
a Director should not simultaneously hold both roles, and this is the case currently. However, to ensure appropriate management
where necessary, the Company Constitution sets out an exception to this whereby the Board may appoint a Director to assume the
post of CE concurrently on a temporary basis when the post of CE is vacant, for a period of not longer than six months. This can be
extended, only where the position of CE is still vacant for a further maximum period of six months. At the termination of that further
period, that Director shall resign from the Board.
The Board met seven times in 2018/19 with three additional strategy session days.
The Company fosters an inclusive working environment that promotes employment equity and workforce diversity at all levels,
including within the Senior Leadership Team and the Board. The Diversity and Inclusion Policy is available on LIC's website.
LIC is in the process of setting objectives in relation to the Diversity and Inclusion Policy. The year‐end gender composition of the
Board and the Senior Leadership Team were:
20192018
Directors are appointed in accordance with the Constitution, as outlined above. The Appointed Directors are not co‐operative
members, as they are appointed to bring external expertise to the Board. For the purposes of the Listing Rules the Board has
assessed all of the Directors to be independent with the exception of Gray Baldwin who may be perceived to not be independent due
to his role as a Director of Trinity Lands Limited, LIC's largest shareholder. While a number of the Directors are co‐operative members
and acquire goods and services from LIC, the Board does not consider them to have a relationship that could reasonably influence, or
be perceived to influence, their ability to bring an independent view to decisions in relation to LIC, to act in the best interest of LIC or
to represent the interests of LIC Shareholders generally.
20
Corporate Governance Report under NZX
Committees
Audit, Finance & Risk Committee
Remuneration and Appointment Committee
The Committee meets at least four times a year and met four times in 2018/19
.
Disclosure Committee
The Committee meets as and when required and met three times in 2018/19
.
Our Board committees review and consider in detail the policies and proposals developed by Management and make
recommendations to the Board. They do not take action or make decisions on behalf of the Board unless specifically mandated to do
so. A committee or an individual Director can engage independent legal counsel at LIC's expense with the prior approval of the
Chairman.
The Board will occasionally appoint a committee of Directors to consider or approve a specific proposal or action if the timing of
meetings or availability of Directors means the matter cannot be considered by the full Board. Their deliberations and decisions are
reported back to the Board no later than the next meeting.
Due to our Co‐operative Company status and Constitution based shareholding restrictions, it is not necessary to have takeover
protocols in place. Under LIC’s Constitution no person shall hold a relevant interest of more than 5% of the total number of ordinary
shares in the Company
A Sub‐Committee of the Board, the Audit, Finance & Risk Committee ensures the Company complies with its audit, financial and risk
management responsibilities. It operates under a written charter, which is available on the LIC website. Members are: Sophie
Haslem (Chair), Murray King, Gray Baldwin, David Jensen, Murray Jagger and Ben Dickie. The Audit, Finance & Risk Committee was
chaired by Appointed Director, Abby Foote until her resignation. Elected Director David Jensen was subsequently acting chair until
the appointment of Sophie Haslem, Appointed Director. A majority of the current members of the Committee are considered to be
independent. Employees only attend audit committee meetings at the invitation of the audit committee.
The Committee meets at least four times a year and met five times in 2018/19.
A Sub‐Committee of the Board, the Remuneration and Appointment Committee approves appointments and terms of remuneration
of the Chief Executive, oversees the people policies for LIC and also considers and assists the Board in its director appointment
process, and if appropriate recommends to the Board any wage and salary percentage adjustments for the Co‐operative's employees.
It operates under a written charter, which is available on the LIC website. Current members are: Tim Gibson (Chair), Murray King, Dr
Alison Watters, David Jensen and Matt Ross. All current members of the Committee are considered to be independent.
Management only attends remuneration committee meetings at the invitation of the remuneration committee.
A Sub‐Committee of the Board, the Disclosure Committee assists the Board and Company in ensuring that all material information is
identified, reported for review by the Committee, and if required, disclosed in a timely manner to the NZX. It operates under a
written charter, which is available on the LIC website. Current members are: Murray King (Chair) and Sophie Haslem. Disclosure
Committee meetings are attended by key Senior Managers, including the CE and/or Chief Financial Officer.
NZX Code Principle 3, Board committees: The board should use committees where this will enhance its effectiveness in key areas,
while still retaining board responsibility.
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Corporate Governance Report under NZX
Board and Committee Attendance
Number of
meetings
1
Attendance
Number of
days or
part days
Attendance
Number of
meetings
Attendance
Number of
meetings
Attendance
Number of
meetings
Attendance
Gray Baldwin773355
Ben Dickie76324
3
2
Abby Foote
3
43112222
Tim Gibson773344
Sophie Haslem
4
33223311
Murray Jagger 773355
David Jensen77335544
Murray King7733554433
Candace Kinser
7
7733
Matt Ross7733
3
6
3
Alison Watters 7733
1
5
44
1
2
3
4
5
6
7
Candace Kinser chaired four meetings of LIC's Technology Advisory Board
The number of meetings is the number that the Director is expected to attend either as a Board member or as a member of
the relevant Committee
Ben Dickie joined the Audit, Finance & Risk Committee in August 2018
Abby Foote retired from the Board of LIC on 17 October 2018
Sophie Haslem was appointed to the Board of LIC in December 2018
Alison Watters attended the Audit, Finance & Risk Committee as an observer
Matt Ross joined the Remuneration and Appointments Committee in August 2018
BoardBoard Strategy DaysDisclosure Committee
Audit, Finance & Risk
Committee
Remuneration &
Appointments
Committee
22
Corporate Governance Report under NZX
Financial reporting
Non‐financial reporting
Disclosure to the market
Information for investors
NZX Code Principle 4, Reporting and disclosure: The Board should demand integrity in financial and non‐financial reporting, and in
the timeliness and balance of corporate disclosures.
The Board is responsible overall for ensuring the integrity of the Company's reporting to Shareholders, including financial statements
that comply with generally accepted accounting practice.
The Board's Audit, Finance & Risk Committee oversees the quality, reliability and accuracy of the financial statements and related
documents. The committee's role is described fully in its Charter. In doing so, the committee makes enquiries of Management and
the external auditors, including requiring Management representations, so that the Directors can be satisfied as to the validity and
accuracy of all aspects of LIC's financial reporting.
LIC has not adopted a formal environmental, social and governance (ESG) reporting framework at this time. We are working towards
providing integrated reporting that is relevant to our stakeholders, including environmental, economic and social sustainability
factors and practices. LIC's year‐end market statement includes a description of LIC's performance against strategic objectives and
any key measurements.
LIC has been improving the lives of our dairy farmers for more than 100 years: innovation and co‐operation are at the heart of what
we do. We have made breakthroughs in genetics, reproduction and automation. As a result New Zealand herds have some of the
highest rates of genetic gain in the world and our farmers enjoy a high level of insight into herd management due to their voluntary
participation in herd improvement. We play an important role in assisting dairy farmers to adapt to changing environmental
requirements and ensure sustainability of the industry.
LIC supports the industry, rural communities and our farmers by sponsoring a variety of initiatives, events, programmes and
organisations. This provides opportunities within the dairy industry and promotes excellence within the sector (details included on
the LIC website under Sponsorship).
LIC's assessment of exposure to non‐financial risks, including economic, environmental and health and safety risks, is included in LIC's
risk assessment process described under Principle 6.
LIC has a written disclosure policy: the Continuous Disclosure Policy, found on our website. It sets out requirements for full and
timely disclosure to the market of material issues, so that all stakeholders have equal access to information. The Board's Disclosure
Committee reviews and approves material announcements. The Board also specifically consider with Management at each board
meeting whether there are any issues which might require disclosure to the market under the NZX continuous disclosure
requirements.
LIC's website includes the Company's presentations, reports, announcements and media releases, as well as the Charters and
guidelines referred to in this report. The Annual Report is available in electronic and hard copy formats. LIC's Annual Meeting will be
held on 2 October 2019 in New Plymouth. We welcome Shareholders' attendance and questions. The external auditors, KPMG, will
be at the meeting and will be available to answer questions about the audit and audit report. A Notice of Meeting will be sent to
Shareholders in August 2019.
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Corporate Governance Report under NZX
DIRECTORS AND REMUNERATION
Directors of the Company received the following remuneration for the twelve months ending 31 May 2019:
In thousands of New Zealand dollars
Fees
M King120
G Baldwin51
B Dickie51
A Foote27
T Gibson65
S Haslem27
M Jagger51
D Jensen51
C Kinser 63
M Ross51
A Watters51
608
In thousands of New Zealand dollars
Fees
E Ruiz13
13
Chief Executive Remuneration
The Chief Executive’s salary is made up of a combination of base salary and performance payments. His performance is assessed
based on a range of factors including Health and Safety, the company’s financial performance, organisational health, and delivery of
key projects.
NZX Code Principle 5, Remuneration: The remuneration of directors and executives should be transparent, fair and reasonable.
The total remuneration pool for LIC's Directors is set at the AnnualGeneral Meetingand a pool of $647,100 was approved at the
meeting held in October 2018.
Directors of subsidiaries of the Company received the following remuneration for the twelve months ending 31 May 2019:
Except as set out above, no other Directors of subsidiaries received any remuneration or other benefits in their role as a Director of
that subsidiary. The remuneration of employees that receive more than $100,000 as a result of employee remuneration (and other
benefits) is included in the Employees' Remuneration table on page 25. Under LIC's constitution, we have a Honoraria Committee,
comprised of four elected Shareholders, that is responsible for considering and recommending to Shareholders, the form and amount
of Director remuneration. LIC also has a Remuneration Policy for all employees, which is available to employees under LIC's intranet.
24
Corporate Governance Report under NZX
Employees’ Remuneration
Remuneration Range (Gross)
Current
Employee
Exited
Employees Total
100,000 – 109,99940 2 42
110,000 – 119,99934 3 37
120,000 – 129,99928 1 29
130,000 – 139,99913 2 15
140,000 – 149,9997 ‐ 7
150,000 – 159,9994 ‐ 4
160,000 – 169,9995 ‐ 5
170,000 – 179,99910 2 12
180,000 – 189,99910 ‐ 10
190,000 – 199,9993 1 4
200,000 – 209,9994 1 5
210,000 – 219,9994 ‐ 4
220,000 – 229,9992 ‐ 2
230,000 – 239,9991 1 2
260,000 – 269,9991 ‐ 1
280,000 – 289,9992 ‐ 2
300,000 – 309,9991 ‐ 1
340,000 – 349,9991 ‐ 1
360,000 – 369,9991 ‐ 1
510,000 – 519,9991 ‐ 1
850,000 – 859,9991 ‐ 1
173 13 186
LIC aimstohavearemunerationframeworkandpoliciestoattractandretaintalentedandmotivatedpeople. TheCompanywants
to:
‐ Be recognised as a great place to work
‐ Recognise and reward successes, while encouraging teamwork and a high performance culture
‐ Be fair and consistent
‐ Be true to our values of integrity, innovation, spirit of co‐operation, in tune and passion
We use market data to determine fair remuneration levels for al
l staff. Short term incentives apply to executive and certain
Management roles for achievement of specific objectives and in relation to achievement of project initiatives. During the period 1
June 2018 to 31 May 2019 the following numbers of employees (not being Directors) received total remuneration, including benefits,
of at least $100,000:
25
Corporate Governance Report under NZX
Financial risk
Health and safety risk
The risk detail below reflects key risk areas identified and currently focussed on by the Board.
The Company’s revenue may be reduced as farmers decrease expenditure as a consequence of reduced returns, availability of cash or
an increased cost of production. Volatility of New Zealand’s milk price will affect returns paid to farmers: as a net exporter of milk,
New Zealand’s milk price is, heavily influenced by reference to the price set by the Global Dairy Trade (GDT). Rural lenders approach
to their lending portfolio may result in a tightening in policy and in turn less cash on farm. As a result, farmers may look to reduce
both their capital spend as well as farm working expenses, including herd improvement. Increased compliance costs on farm may
result in an increase in production costs, with farmers seeking to reduce costs elsewhere.
The Board and Management continue to explore diversified growth opportunities, both in New Zealand and internationally, and ways
to improve efficiency within LIC and for dairy farmers through innovative products and solutions. There is also a continued focus on
genomic evaluation, appropriate selection principles and careful monitoring of the elite portion of the national herd to ensure LIC’s
breeding scheme continues to deliver superior dairy genetics to assist farmers in improving productivity.
Due to the diverse nature of our business, LIC has a wide variety of health and safety risks including: working with hazardous
substances, large animals and machinery and regular presence on customer farms. The Audit, Finance & Risk Committee is
responsible for reviewing, monitoring and making recommendations to the Board on LIC's health and safety risk management
generally. The committee ensures that the systems used to identify and manage health and safety risks are fit for purpose, are being
effectively implemented, regularly reviewed and improved.
This year the Board have increased their visibility and focus on health and safety with their commitment to health walkarounds.
Significant reduction in traffic infringements from previous years shows a shift in culture. A nationwide initiative also assessed
customer herringbone dairy sheds to ensure any inadequate facilities were rectified before artificial insemination service, and this will
be continued with rotary sheds assessments in 2020. A reduction in Artificial Breeding Technician injuries during the latest season
demonstrated the effectiveness of the initiative. Business units have health and safety representatives and there is a regular formal
governance forum chaired by LIC’s CE. Monthly report cards are published to keep all staff informed and to re‐iterate Company
health and safety targets. Actions are in place for improvements identified.
LIC uses a Total Reportable Incident Rate (TRIR) to measure health and safety performance against lag indicators: notifiable events,
lost time injuries, medical treatment claims and traffic infringements. The rate is based on the number of incidents per 100 full time
equivalent employee. The TRIR for 2019 was 6.6, a slight increase on 5.6 for 2018. However, in 2019 there were no events notifiable
to WorkSafe, compared to four notifiable events in 2018.
The focus for 2020 will also include continuing to improve protection for lone workers and further improvements to management of
hazardous substances.
NZX Code Principle 6, Risk Management: Directors should have a sound understanding of the material risks faced by the issuer and
how to manage them. The Board should regularly verify that the issuer has appropriate processes that identify and manage
potential and material risks.
LIC has a risk management framework in place to identify, oversee, manage and control risk. That framework includes a Risk
Management Policy (available on the LIC website) and associated processes. The risk management framework is reviewed every two
years and was last reviewed in February 2018. The top 20 risks as identified by the Board are reported to the Audit, Finance & Risk
Committee and reviewed on a regular basis, in addition to emerging risks. LIC believes compliance with this framework constitutes a
robust risk assessment process.
26
Corporate Governance Report under NZX
Operational risk
Technology risk
Environmental risk
Bio‐security / animal health risk
Disruptive technologies risk
The Company’s ability to provide sufficient quality semen during a season relies on a number of factors including the maintenance
and operation of key equipment, staff training and adherence to approved procedures and processes. An inability to meet demand
for the Company’s semen would result in significant reputational damage as well as a reduction in New Zealand revenue. Annually a
pre‐season risk review is conducted and any necessary remedial actions are initiated prior to the season start. Standard operating
procedures are well documented and regularly reviewed. Semen quality is monitored daily and non‐return rates are monitored
weekly during the peak of the season. Contingency stock of frozen semen is maintained at a separate location.
Increased reliance both by farmers and the Company on technology, IT systems and services increases vulnerability to system outages
and data loss as a result of cyber intrusions or system failures. Security strategy, measures, reviews and audits are performed both
within the Company and within its technology service providers. Business continuity and disaster recovery plans and procedures are
documented and regularly tested.
An exotic disease outbreak in New Zealand could severely limit the Company’s ability to provide biological products, including semen,
to dairy farmers in New Zealand and overseas, and to continue testing of milk and other biological samples. Health issues within the
Company’s bull team could equally reduce its ability to provide quality products and services to dairy farmers. Quarantine
procedures are in place in all LIC‐controlled locations. Animals are maintained at separate locations, effective segregation of bulls
occurs within a single location and bulls are regularly inspected. Business continuity plans are in place with regular reviews and
scenario testing and LIC has veterinary expertise within the Company.
LIC has invested more than $0.8m to manage the risk of the transmission of M. Bovis. Quarantine controls have been heightened on
LIC’s bull farm, and the purchase of an additional quarantine block further reduces the risk to LIC’s production bulls held on LIC's main
Newstead centre. Antibiotics were added to semen and daily testing was performed to provide customers with complete confidence
that every batch of semen dispatched was free of M. Bovis. LIC has also worked closely with the Ministry for Primary Industries to
plan for a possible M. Bovis event.
To some extent, environmental risks are covered in one or more of LIC's key risk areas. However, we recognise that this is a growing
area of risk, both for the Company, our customers and suppliers. In particular, changes to improve the Company and industry's
impact on climate change may impact on operational efficiency and costs.
LIC has signed the Climate Leaders Coalition. In joining the Coalition, we are committed to measuring and publicly reporting our
greenhouse gas emissions, setting a public emissions reduction target, and working with suppliers to reduce their emissions. As well
as improvements to our business practices, playing our part to reduce emissions also includes the wider benefits we can bring to the
industry by continuing to offer farmers the tools and genetics they need to breed more efficient cows and drive sustainability
improvements on‐farm. Our Resilient Dairy programme is a great example of this. In addition to this, the Board has agreed that LIC
will sign up to the Sustainable Business Council. This also involves making a commitment to reducing our greenhouse gas emissions
and building sustainability into our purchasing decisions.
Inability to commercialise new innovations and/or respond quickly to disruptive technologies causing reduced use by Shareholders of
existing products and services with resultant reduction in revenue. LIC has adopted world‐leading software and product developmen
t
methodologies to enable quicker commercialisation of new and improved products and services and the Board prioritises capital
spend to ensure developments align with farmer needs.
27
Corporate Governance Report under NZX
NZX Code Principle 8, Shareholder rights and relations: The Board should respect the rights of shareholders and foster constructive
relationships with shareholders that encourage them to engage with the issuer.
The LIC Board recognises that its shareholders are the Company’s owners, customers and key stakeholders and is responsible for
overseeing shareholder engagement. Shareholder engagement reflects LIC’s co‐operative ownership structure and values and aims to
be efficient, effective, fit for purpose and meet shareholder expectations with regard to increased transparency about LIC’s activities.
The LIC website is the key place for LIC's financial and operational information, and for its important corporate governance
documents. It is updated immediately when any announcement is made to the NZX.
LIC provides half‐year and annual reporting to the NZX to keep Shareholders informed, and discloses information to the NZX to meet
its continuous disclosure obligations as required. We communicate with Shareholders through our annual report, half‐year financial
statements and at Shareholder meetings, as well as through a range of media channels on topics which we believe will interest
Shareholders. We encourage all Shareholders to receive communications electronically, and provide hard copies of information as
and when required.
Shareholders have the right to vote on major decisions which may change the nature of the Company.
LIC does not have a separate internal audit function. The Risk & Assurance Manager performs, reviews and arranges for external
audit resource to perform internal audits as agreed with the Audit, Finance & Risk Committee. The Risk & Assurance Manager reports
to each Audit, Finance & Risk Committee meeting on audit or review issues and incidents, improvements and changes to internal
controls.
NZX Code Principle 7, Auditors: The Board should ensure the quality and independence of the external audit process.
LIC has an External Auditor Independence policy that requires the external auditor to be independent and to be seen as independent.
The Board is satisfied that there is no relationship between the auditor and LIC or any related person at this time, that could
compromise the auditor's independence. The Board also obtains confirmation of independence formally from the auditor.
To ensure full and frank discussion between the Audit, Finance & Risk Committee and the auditors, the auditor's senior
representatives meet separately with the Committee.
The External Auditor Independence policy sets out restrictions on non‐audit work that can be performed by the auditor and the Audit,
Finance & Risk Committee is required to approve all engagements with the auditor. The policy requires rotation of the key audit
partner every five years: we are fully compliant. LIC asks its external auditor to attend its annual shareholder meeting to answer
questions from shareholders in relation to the audit.
28
Corporate Governance Report under NZX
ENTRIES IN THE INTERESTS REGISTER
Directorships and Memberships
Gray Baldwin:
Ben Dickie:
Tim Gibson:
Sophie Haslem:
Murray Jagger:
David Jensen:
Murray King:
Candace Kinser:
Matt Ross:
Dr Alison Watters:
The Directors of the Company’s subsidiaries are set out below:
Livestock Improvement (NZ) Corporation Limited: David Hazlehurst, Murray King and Wayne McNee
LIC Deer Limited: Geoffrey Corbett and Wayne McNee
LIC Automation Limited: David Hazlehurst and Wayne McNee
LIC Johnes Company Limited: Wayne McNee and Richard Spelman
LIC Ventures No.3 Limited: Paul Littlefair and Wayne McNee
Livestock Improvement Pty Limited: Geoffrey Corbett and Michael Rose
Farmkeeper Pty Limited: Geoffrey Corbett and Michael Rose
Overland Corner Holdings Pty Limited: Geoffrey Corbett and Michael Rose
Beacon Automation Pty Limited: Geoffrey Corbett, David Hazlehurst and Jock Roberts
Livestock Improvement Corporation (UK) Limited: David Hazlehurst, Wayne McNee and Mark Ryder
LIC USA Limited: Wayne McNee
LIC Automation USA Limited: Geoffrey Corbett and Wayne McNee
LIC Ireland Limited: Wayne McNee and Mark Ryder
Livestock Improvement Automation Limited: Wayne McNee and Mark Ryder
LIC Automation UK Limited: Geoffrey Corbett and Wayne McNee
NZ Brasil Producao Animal Ltda: Simon O'Connor
LIC Agritechnology Company Limited: Murray King, Gray Baldwin, Ben Dickie, Tim Gibson, Sophie Haslem, Murray Jagger, David
Jensen, Candace Kinser, Matt Ross and Alison Watters
.
Director of Marsden Maritime Holdings Ltd, Northport Ltd and North Tugz Limited.
Director of Eastpack Ltd, El Dorado Orchard General Partnership Ltd, Expressway Orchards General Partnership Ltd, Napoli Orchard
General Partnership Ltd and a Shareholder of Figured Limited.
Director of Appleby Limited, Callura Dairies Management Limited, Dry Steam Irrigation Company Limited, Long Plantation
Investments Limited and Waimea Irrigators Limited. Director and Shareholder of New Zealand Dairy Dessert Company Limited and
Waimea Community Dam Limited .
Director of EROAD, EROAD LTI Trustee Limited, Regional Facilities Auckland Limited, Talent International, Ultrafast Fibre Limited,
Waikato Networks Limited and WEL Networks Limited. Investment Committee Member of Return on Science Investment Scheme at
the University of Auckland. Director and Shareholder of New Zealand Escargot Limited.
Director and Shareholder of Bortons Agri Ltd. Director of North Otago Irrigation Company Ltd and Waitaki Irrigators Collective
Limited.
Director of AsureQuality Limited. Shareholder (27.66%) of AgInvest Holdings Limited (AgInvest owns MyFarm Limited).
STATUTORY REQUIREMENTS
All Elected Directors of the Company are customers and Shareholders of Livestock Improvement Corporation Limited and purchase
products and services for their farming operations on an ongoing basis.
Director of Farmlands Co‐operative Society Ltd, Trinity Lands Ltd and Longview Trust Board.
Director of Taranaki Veterinary Centre Ltd. Councillor, Fonterra Shareholders' Council and Chair of the Fonterra Shareholder Council
Performance Committee.
Director of Miraka Ltd, Miraka Holdings Limited, Port Otago Ltd and subsidiaries, Skills International Ltd, Tuhana Consulting Ltd and
The Equanut Company Ltd.
Director of Centreport Ltd and subsidiaries, Kordia Group Ltd, Magritek Holdings Ltd and subsidiaries, Meteorological Service of New
Zealand Ltd, New Zealand Experience Limited and subsidiaries, Oyster Property Group Ltd and subsidiaries and Rangitira Ltd and
subsidiaries. Chair of The Akina Foundation.
29
Corporate Governance Report under NZX
ENTRIES IN THE INTEREST REGISTER
Murray Jagger 3
Matt Ross9
(a)Share Dealings by Directors
31 May 2019
Ordinary
Shares
Director
Gray Baldwin14,276
Ben Dickie9,984
Murray Jagger94,516
David Jensen18,420
Murray King116,704
Matt Ross93,076
Dr Alison Watters42,732
(b) Loans to Directors of the Parent and Subsidiarie
s
There have been no loans during the year.
(c) Directors Indemnity and Insurance
(d) Use of Company Information
‐
On 19 July 2018, LIC simplified its share structure by amalgamating its two classes of shares (Co‐operative Control and Investment
Shares) to create a single class of shares (Ordinary Shares). Ordinary Shares include fully paid shares which are quoted on the NZX
and Nil Paid Shares which must be paid up over time by Shareholders.
The Parent has issued a Deed of Indemnity and insured all its Directors and Senior Managers against liabilities to third parties
for any acts or omissions in their capacity as Directors of the Company and its Related Parties.
There were no notices from Directors of the Company requesting to use Company Information received in their capacity as
Directors, which would not otherwise have been available to them.
17,769
7,428
4,265
811
2,710
24,353
‐
21,967
4,356
‐
1,414
1,442
3,465
Director Potential Calf SalesPotential Value
As at 31 May 2019 the Directors other than the Appointed Directors (either in their own names and/or in the name(s) of their dairy
farming entities) as qualifying users of LIC’s products and services are holders of the following shares:
Investment
Shares
Participation in the Company’s Contract Mating Scheme could lead to the potential sale of bull calves in the 2019/2020 season.
Directors participating in the scheme include:
33,000$
99,000$
Co‐operative
Control Shares
31 May 2018
30
Corporate Governance Report under NZX
RESOLUTION OF DIRECTORS
DATED 24 JULY 2019 CONFIRMING THE CO‐OPERATIVE STATUS OF
LIVESTOCK IMPROVEMENT CORPORATION LIMITED
RESOLVED THAT:
The grounds for this opinion are:
Spread of Shareholders as at 31 May 2019
(including treasury stock)
Size of Number of
ShareholdingShareholders*% of Total
1 ‐ 999876
502,3040.34%
1,000 ‐ 1,9991,172
1,756,7861.19%
2,000 ‐ 2,999952
2,350,5041.59%
3,000 ‐ 3,999736
2,559,7611.73%
4,000 ‐ 4,999626
2,796,0331.89%
5,000 ‐ 5,999541
2,967,4562.01%
6,000 ‐ 6,999450
2,924,2821.98%
7,000 ‐ 7,999354
2,649,7441.79%
8,000 ‐ 8,999352
2,991,2292.03%
9,000 ‐ 9,999311
2,955,5682.00%
10,000 ‐ 14,9991,157
14,210,1679.62%
15,000 ‐ 19,999809
14,056,6449.52%
20,000 ‐ 24,999405
8,876,1846.01%
25,000 ‐ 29,999458
12,256,8008.30%
30,000 ‐ 34,999241
7,802,4765.28%
35,000 ‐ 39,999193
7,185,0804.87%
40,000 ‐ 49,999233
10,384,3087.03%
50,000 ‐ 99,999293
19,475,91813.19%
100,000 ‐ 199,99960
8,105,1375.49%
200,000 ‐ 299,99911
2,707,9441.83%
300,000 ‐ 499,9998
2,967,6132.01%
500,000 ‐ 999,9993
2,050,2301.39%
1,000,000 +5
13,150,2528.91%
10,246100.00%
Livestock Improvement Corporation Limited (Company) was registered as a Co‐operative Company under the provisions of the Co‐
operative Companies Act 1996 (Act) on 1 March 2002.
In the opinion of the Board of Directors, the Company has been a Co‐operative Company from that date to the end of the accounting
year ended 31 May 2019.
1)The principal activity of the Company involves supplying artificial breeding, herd testing, herd recording and other services to
transacting Shareholders (as that term is defined in section 4 of the Act). Accordingly, the principal activity of the Company is, and is
stated in the Constitution of the Company as being, a co‐operative activity (as the term is defined in section 3 of the Act); and
2)Not less than 60 percent of the voting rights attached to shares in the Company are held by transacting Shareholders.
Shares Held
147,682,420
*The number of shareholders above is based on the number of separate farms. The table below in relation to the twenty largest
shareholdings, amalgamates shareholders with multiple farms.
31
Corporate Governance Report under NZX
Twenty Largest Shareholdings as at 31 May 2019
(including treasury stock)
Shares
Held
% of Total
Shares
6,305,2844.27%
5,337,5843.61%
1,560,6921.06%
844,5980.57%
732,1760.49%
718,3720.49%
603,7720.41%
601,8600.41%
451,944
0.31%
433,2960.29%
409,3760.28%
367,5520.25%
364,3520.25%
319,697
0.22%
311,4720.21%
309,924
0.21%
273,252
0.18%
265,936
0.18%
262,416
0.18%
South Hilton Limited
254,424
0.17%
14.04%
Credit Rating Status
The Co‐operative currently does not have a credit rating.
Substantial Security Holders
Donations
Non‐Standard Listing
The acquiring of Ordinary Shares is restricted to New Zealand dairy farmers who purchase qualifying products and services from
Livestock Improvement Corporation Limited.
Robert Laurentius Johannes Bruin & Annemarie Bruin
Broad Acres Farms Limited
As at 31 May 2019, no persons have notified the Company that they are substantial product holders of the Company as referred to in
Section 274 of the Financial Markets Conduct Act 2013.
The Company made donations totalling $16,393 during the year ended 31 May 2019 (2018: $11,792).
Livestock Improvement Corporation Limited has been classified as a Non‐Standard NZX Issuer by the NZX, pursuant to NZX Listing
Rule 1.18, by reason of it being a Co‐operative Company having a Constitution which includes provisions having the following effect:
Laird Farm Limited
Bishop Farms Oxford Limited
Brookstead Limited
Crocodile Farms Limited
The Grass Market Company Limited
Magatarata Farms Limited
Graham Carr & Christopher John Stark ‐ Deebury Pastoral
Mark Francis Slee & Devon Mathieson Slee
Sim Brothers Limited
Farnley Tyas Limited
Kodie Farms Limited
Malrose Properties Limited
Trinity Lands Limited
Schmidt Farms Limited
Custodial Services Limited
Landcorp Farming Limited
Treasury stock held
32
Corporate Governance Report under NZX
As at 31 May 2019, waivers and approvals have been granted in respect of the following NZAX Listing Rules:
1
2
(a)
(b)
(c)
3
4
5
6
7
8
9
10
11
12
(a)
(b)
(c)
(d)
(e)
WAIVERS AND APPROVALS GRANTED BY NEW ZEALAND EXCHANGE LIMITED (“NZX”) IN THE PROCESS OF THE APPROVAL OF THE
CONSTITUTION OF LIVESTOCK IMPROVEMENT CORPORATION LIMITED
Clause 3.2.3 of the Constitution restricts the issue and transfer of Securities so that they are only held by Users or Employee
Scheme Holders (or by other persons in certain specified circumstances). Again, this aims to protect the fundamental nature
of a co‐operative company;
Clause 3.2.3A of the Constitution prohibits third party interests by prohibiting a Shareholder from holding Shares on behalf of
any person who is not a User (subject to exceptions in the case of Family Trusts and the Employee Share Purchase Scheme);
Clause 6.3(a) of the Constitution prohibits a person from holding a relevant interest in more than 5% of the total number of
Ordinary Shares in LIC on issue;
Rule 1.6.1 (previously Rule 1.1.2) in respect of the definition of “Renounceable” to refer to a right or offer that is transferrable
to any person who is entitled to hold the Securities to which the right or offer relates. This reflects the ownership restrictions
on Shares, as a result of the co‐operative nature of LIC.
Rules 3.2.3 and 3.2.6 to allow Appointed Directors to be appointed, to have their appointment ratified and to retire, as set out
in schedule 3 of LIC's Constitution
Rule 7.1.11 to allow LIC to release to the NZX details of the Nil Paid Shares that have been converted into Fully Paid Shares on
a monthly basis, in the form as required under Rule 7.11.1, on the first business day of each month, aggregating the number of
Nil Paid Shares that have been paid up (if any) in the preceding month.
Rule 7.3.11 to allow LIC to issue new shares to a Shareholder in order to ensure they meet the Share Standard. The waiver
treats the Share Standard as the "Minimum Holding" requirement for LIC for the purposes of the Listing Rules.
Rule 3.2.2 to allow for the following aspects of the Company’s corporate governance structure:
Directors to be nominated by Ordinary Shareholders, by region, pursuant to clause 22.4(b) and Schedule 3 of the Constitution;
Certain qualifications to be required of Directors as set out in Schedule 3 of the Constitution;
Clause 7.1 of the Constitution may require Users who have spent in excess of the Minimum Purchase Amount to compulsorily
dispose of their Ordinary Shares;
Rule 7.6.3 to allow clause 3.6.2 of the Constitution to permit financial assistance to be given to an Approved Holding Entity.
The Approved Holding Entity acquires Shares in LIC on behalf of Shareholders in administering a voluntary investment scheme
and/or dividend reinvestment plan approved by the Board.
Rule 7.6.9 to allow LIC to buy back shares from an exiting Shareholder as a "routine " buy back.
Rules 8.1.3 to allow Nil Paid Ordinary Shares to carry full voting rights. Without this waiver, the Nil Paid Shares could only carry
voting rights in proportion to which the Share is paid up.
Rule 8.2.1 is not applicable in the case of LIC, given its status as a Non‐Standard NZAX Issuer, and as such LIC is not required to
comply with the restrictions of that Rule, so that clause 18 of the Constitution (which provides for a more extensive lien on
Securities) is allowed.
Rule 11.1.5 allows an NZAX Issuer to include restrictions on the issue, acquisition or transfer of Equity Securities in its
Constitution, subject to the prior approval of NZX. Restrictions in the Constitution requiring approval from NZX are as follows:
Clause 3.2.2 of the Constitution restricts the issue of Voting Securities with the aim of ensuring that LIC remains a Co‐operative
company controlled by its Shareholders;
The nomination procedure for Directors as set out in Schedule 3 of the Constitution.
Rule 3.2.3 to permit the provisions of Schedule 3 of the Constitution to allow Elected Directors appointed on a casual basis b
y
LIC's Board to stand for re‐election on the first day of June next occurring, as set out in schedule 3 of LIC's Constitution.
Rule 3.2.6 to allow Elected Directors to retire by rotation on the first day of June each year, four years following their
appointment, as set out in clause 23 and Schedule 3 of LIC's Constitution.
33
Corporate Governance Report under NZX
(f)
(g)
(e)
As at 1 July 2019, waivers, rulings and approvals have been granted in respect of the following NZX Listing Rules:
1
2
3
(a)
(b)
4
(a)
(b)
5
6
7
8
9
(a)
(b)
(c)
(d)
(e)
(f)
(g)
Paragraph 6.1 of Schedule 1 of the Constitution reflects Rule 6.2.5; however it applies to notices of meetings of Shareholders
rather than of Quoted Security holders.
Clause 7.2 of the Constitution may require Users who no longer spend the Minimum Purchase Amount to compulsorily dispose
of their Ordinary Shares;
Clause 20.4 of the Constitution restricts voting rights in LIC so that no person can exercise, or control the exercise of, more
than 1% of the maximum number of votes exercisable at any meeting of LIC while the Dairy Industry Restructuring Act 2001 is
in force.
5.Rules 2.3.1 and 2.7.1 to allow Appointed Directors to be appointed, to have their appointment ratified and to retire, as set
out in schedule 3 of LIC's Constitution.
LIC may require Users who no longer spend the Minimum Purchase Amount to compulsorily dispose of their ordinary shares,
as set out in clause 7.2 of the Constitution; and
while the Dairy Industry Restructuring Act 2001 restricts voting rights in LIC, no person can exercise, or control the exercise of,
more than 1% of the maximum number of votes exercisable at any meeting of LIC, as outlined at clause 20.4 of the
Constitution.
Rule 3.13.1 to allow LIC to release to the NZX details of the Nil Paid Shares that have been converted into Fully Paid Shares on
a monthly basis, in the form as required under Rule 3.13.1, on the first business day of each month, aggregating the number of
Nil Paid Shares that have been paid up (if any) in the preceding month.
Rule 6.2.4 to allow Nil Paid Ordinary Shares to carry full voting rights. Without this waiver, the Nil Paid Shares could only carry
voting rights in proportion to which the Share is paid up.
Rule 6.6.1 to allow the lien provision in clause 18 in the Constitution to be read in place of this Rule.
NZXR grants LIC approvals under Listing Rule 8.1.6(b) to include the following restrictions in the Constitution:
LIC is restricted in relation to the voting securities that may be issued, as set out in clause 3.2.2 of the Constitution, thereby
maintaining its co‐operative structure;
ordinary shares in LIC may only be held by or transferred to certain persons, as set out in clause 3.2.3 of the Constitution;
ordinary shares in LIC shall not be held or acquired for the benefit of any person who is not a User, unless an exception is
provided, as set out in clause 3.2.3A of the Constitution;
no person shall hold a relevant interest in more than 5% of the total number of ordinary shares in LIC on issue, as set out in
clause 6.3(a) of the Constitution;
LIC may require Users who have spent in excess of the Minimum Purchase Amount to compulsorily acquire sufficient ordinary
shares to meet the Shareholding Requirement, as set out in clause 7.1 of the Constitution;
NZXR has granted a Ruling that treats the “Shareholding Requirement” as defined in LIC’s Constitution as the "Minimum
Holding" requirement for LIC for the purposes of the Listing Rules.
NZXR has granted LIC a Ruling to the extent that the definition of “Renounceable” refers to a Right or an offer of securities by
LIC that is transferrable to any person entitled to hold those securities under the Constitution. This reflects the ownership
restrictions on shares, as a result of the co‐operative nature of LIC.
Rules 2.3.1 and 2.3.2, to allow for the following aspects of the Company’s corporate governance structure:
Directors to be nominated by Ordinary Shareholders, by region, pursuant to clause 22.4(b) and Schedule 3 of the Constitution;
Certain qualifications to be required of Directors as set out in Schedule 3 of the Constitution;
Rule 2.7.1 to allow:
Elected Directors appointed on a casual basis by LIC's Board to stand for re‐election on the first day of June next occurring, as
set out in schedule 3 of LIC's Constitution;
Elected Directors to retire by rotation on the first day of June each year, four years following their appointment, as set out in
clause 23 and Schedule 3 of LIC's Constitution; and
34
Corporate Governance Report under NZX
A.
(a)
(b)
(c)
(d)
(e)
(f)
(g)
DISCLOSURE OF FINANCIAL ASSISTANCE AS REQUIRED UNDER THE COMPANIES ACT 199
3
Dividend Reinvestment Plan: LIC has provided financial assistance to those Shareholders who elect to participate in the
Dividend Reinvestment Plan ("Dividend Plan") by agreeing to pay to the Guardian Trust Company of New Zealand Limited
("Guardian Trust") as the Approved Holding Entity the services and administration fees and brokerage and commission costs
incurred for the purposes of the Dividend Plan. Craigs Investment Partners Limited ("Craigs") has been appointed as the Broker
to purchase the Ordinary Shares on the NZX market for the purposes of the Dividend Plan, and the moneys paid by LIC to
Guardian Trust as Approved Holding Entity will include the administration fee, brokerage and commission costs of Craigs.
LIC is required to make disclosures to all Shareholders in respect of this financial assistance. The exact amount of the net costs
depends upon the extent to which Shareholders participate in the Dividend Plan. However the total amount of net costs in the
next twelve months is estimated to be in the region of $25,000.
In relation to the financial assistance provided for the Dividend Plan, the LIC Board resolved on 15 May 2019 that LIC should
provide the financial assistance referred to above (“Dividend Plan Financial Assistance”), for the period of 12 months
commencing 10 working days after sending this disclosure to Shareholders, and that the giving of the Dividend Plan Financial
Assistance is in the best interest of LIC and is of benefit to Shareholders not receiving that financial assistance; and that the
terms and conditions under which the Dividend Plan Financial Assistance is given are fair and reasonable to LIC and to the
Shareholders not receiving that financial assistance. The grounds for the Board’s conclusions are:
The DividendPlan will enhance the liquidityin the market for the OrdinaryShares, providinga more liquidmarket for both
participating and non‐participating Shareholders wishing to sell those Shares;
TheDividendPlanenablesLICtoofferShareholdersamechanismtoreinvestdividendsinOrdinaryShareswithoutresultingin
unnecessary new capital being raised through the issue of new shares; and
TheamountoffinancialassistanceisminimalincomparisontothebenefitsarisingoutoftheDividendPlanforShareholders
and LIC.
The Dividend Plan Financial Assistance enables LIC to provide Shareholders with an efficient means of acquiring additional
Ordinary Shares in LIC without incurring transaction costs which they would otherwise incur;
The Dividend Plan Financial Assistanceis available to all eligible Shareholders,giving equal opportunity to participate in the
benefits of the Dividend Plan;
Shareholderswhodonotparticipatewillnotbedilutedorotherwisedisadvantagedasnonewsharesarebeingissuedunder
the Dividend Plan;
TheadditionalOrdinaryShareswillbepurchasedbyCraigInvestmentPartnersLimited("Craigs")attheNZXmarketpriceand
participating Shareholders will pay the average NZX market price paid by Craigs on market for those Shares;
35
Corporate Governance Report under NZX
B.
(a)
(b)
(c)
(d)
(e) The Employee Scheme will enhance the liquidity in the market for the Ordinary Shares, providing a more liquid market for
Shareholders wishing to sell those Shares;
TheamountoffinancialassistanceisminimalincomparisontothebenefitsarisingoutoftheEmployeeSchemeforShareholdersand
LIC.
TheEmployeeSchemewillbeavaluableadditiontothebenefitsavailabletotheemployeesofLICandwillassistinretaining
them as valuable staff;
TheEmployeeSchemeisamethodofaligningtheinterestsofemployeeswiththeinterestsofShareholdersandisaneffective
means of motivating future performance of the employees. This is expected to bring about an increase in the value of the
Ordinary Shares;
ShareholderswillnotbedilutedorotherwisedisadvantagedasnonewOrdinarySharesarebeingissuedundertheEmployee
Scheme;
The additional Ordinary Shares will be purchased through Craigs at the NZAX market price;
LIC Employee Share Scheme: LIC proposes to provide financial assistance to those employees who elect to participate in the
LIC Employee Share Scheme (“Employee Scheme”) which from the 1 April 2011 has been managed by Craig Investment
Partners Limited ("Craigs"), with Custodial Services Limited acting as custodian. LIC proposes to pay the Manager's and
Custodian's fees and expenses (including brokerage). The amount of the Manager’s fee will depend on how many employees
participate in the Employee Scheme and the level of their contribution. An estimate of the amount of the financial assistance
is $25,000.
The Board of LIC resolved on 24 July 2019 that LIC should provide the financial assistance referred to above (“Employee
Scheme Assistance”) for the period of 12 months commencing 10 working days after the date of sending this disclosure to
Shareholders, and that the giving of the Employee Scheme Assistance is in the best interests of LIC, and is of benefit to
Shareholders not receiving that financial assistance; and that the terms and conditions under which the Employee Scheme
Assistance is given are fair and reasonable, to LIC, and to the Shareholders not receiving that financial assistance. The grounds
for the Board’s conclusions are:
36
---
Results announcement
24 July 2019
Results for announcement to the market
Name of issuer Livestock Improvement Corporation Limited
Reporting Period 12 months to 31 May 2019
Previous Reporting Period 12 months to 31 May 2018
Currency NZD
Amount (000s) Percentage change
Revenue from continuing
operations
$246,541 +4.28%
Total Revenue $246,541 +4.28%
Net profit/(loss) from
continuing operations
$22,170 +139.29%
Total net profit/(loss) $22,170 +139.29%
Interim/Final Dividend
Amount per Quoted Equity
Security
$0.10976162 per share
Imputed amount per Quoted
Equity Security
$0.04268507 per share
Record Date 9 August 2019
Dividend Payment Date 23 August 2019
Current period Prior comparable period
Net tangible assets per
Quoted Equity Security
$1.80 $1.39
A brief explanation of any of
the figures above necessary
to enable the figures to be
understood
The Net Tangible Assets per Quoted Equity Security excludes LIC ordinary
shares held as treasury stock and unquoted LIC Nil Paid shares which have
the same voting and dividend rights as LIC’s quoted ordinary shares.
Any dividends paid on LIC Nil Paid Shares and on any ordinary shares
required to be held to satisfy LIC’s share standard will be applied to repay
outstanding commitments on LIC Nil Paid Shares.
Authority for this announcement
Name of person
authorised
to make this announcement
Gillian Brennan
Contact person for this
announcement
Gillian Brennan
Contact phone number +64 7 856 0838
Contact email address Gillian.Brennan@lic.co.nz
Date of release through MAP
24 July 2019
Audited financial statements accompany this announcement.
---
Distribution Notice
24 July 2019
Section 1: Issuer information
Name of issuer Livestock Improvement Corporation Limited
Financial product name/description Final Dividend
NZX ticker code LIC
ISIN (If unknown, check on NZX
website)
NZLICE0001S1
Type of distribution
(Please mark with an X in the
relevant box/es)
Full Year X Quarterly
Half Year Special
DRP applies X
Record date 9 August 2019
Ex-Date (one business day before the
Record Date)
8 August 2019
Payment date (and allotment date for
DRP)
23 August 2019
Total monies associated with the
distribution
$15,624,000.00
Source of distribution (for example,
retained earnings)
Profit
Currency NZD
Section 2: Distribution amounts per financial product
Gross distribution $0.15244669 per share
Total cash distribution $0.10976162 per share
Excluded amount (applicable to listed
PIEs)
N/A
Supplementary distribution amount N/A
Section 3: Imputation credits and Resident Withholding Tax
Is the distribution imputed Fully imputed
If fully or partially imputed, please
state imputation rate as % applied
100%
Imputation tax credits per financial
product
$0.04268507 per share
Resident Withholding Tax per
financial product
$0.00762233 per share
Section 4: Distribution re-investment plan (if applicable)
DRP % discount (if any)
N/A
Start date and end date for
determining market price for DRP
26/08/2019 Not known – dependent on
the time it takes to acquire
the shares on market.
Date strike price to be announced (if
not available at this time)
Not known at this stage. The price of the share will be
determined when all shares have been acquired. The
strike price under the DRP is the volume-weighted
average price per share paid on-market in acquiring
shares to fulfil demand under the DRP for the relevant
period. The period for acquisitions to fulfil demand under
the DRP is from the date noted above until the date that
is 20 Business Days before the next Record Date
(“Acquisition Period”).
Specify source of financial products to
be issued under DRP programme
(new issue or to be bought on market)
Shares to be purchased on market
DRP strike price per financial product
The strike price under the DRP is the volume-weighted
average price per share paid on-market in acquiring
shares to fulfil demand under the DRP within the
Acquisition Period.
Last date to submit a participation
notice for this distribution in
accordance with DRP participation
terms
12/08/2019
Section 5: Authority for this announcement
Name of person
authorised to make
this announcement
Gillian Brennan
Contact person for this
announcement
Gillian Brennan
Contact phone number +64 7 856 0838
Contact email address Gillian.Brennan@lic.co.nz
Date of release through MAP
24 July 2019
Data sourced from publicly available filings. Our datasets may not be complete. Automated analysis can produce errors. If you believe any data on this page is incorrect, please contact us at hello@nzxplorer.co.nz. For informational purposes only. Not investment advice.
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