Dairy sector not immune to disruption

Students visit a LIC demo in Northland. The firm hopes to be agile to face impending challenges.

Kiwi dairy farmers have a global edge in terms of productivity and profitability, but the industry needs to remain ambitious about keeping its edge.

That was the message delivered by LIC board chairman Murray King at the farmer-owned co-operative's annual meeting in Invercargill.

LIC (Livestock Improvement Corporation Ltd) is the largest artificial breeding company in New Zealand, with around three out of four cows grazing on our dairy farms sired by an LIC bull. King said our dairy industry was vulnerable to the same disruption that other industries has experienced in recent years from new technology and innovation.

"There are also clear disruptive threats to the dairy industry and LIC from environmental challenges, to regulation, to alternative milk products. We have to constantly be improving and adapting the way we do business. Standing still is not an option. In this age of disruption and radical change if we don't continue to evolve we put at risk what you value most about your co-op and the industry."

The comments were part of King's presentation about how LIC is working to protect and grow the co-op, and the roadmap for adapting to disruption. This included the separation of LIC into two businesses which was completed in 2016, the transformation programme currently under way and defining the co-op's core purpose.

"LIC is in a process of change and transformation. This is about protecting the fundamentals of the co-operative while making sufficient profits to enable LIC to reinvest for the future. The cost efficiencies and business growth delivered through the transformation programme have been key contributors toward a better result in the 2016-2017 financial year.

"As a result of the transformation we are also expecting a significant improvement in earnings in future years."

The next step is share simplification, he said.

"In response to concerns raised by shareholders, we began a comprehensive review of LIC's share structure two years ago. This review found that the current two-share structure is not best for meeting the current and future needs of the co-operative and our farmers.

"We believe that simplifying LIC's share structure by moving to a single class of shares is an important step in better positioning LIC for the future and ensuring a resilient and adaptable co-op.

"The threat of disruption in the future means that we have to be able to respond in an agile way to changes and challenges that may lay ahead.

"Moving towards a simpler share structure will help in this process by addressing the growing disparity between LIC's two classes of shares and making it easier in future to access capital if needed.

"No final decisions have been made by the board. We are still considering options on how best to simplify LIC's share structure and listening to valued feedback. We expect to come back to shareholders with a more substantive update early in 2018."

Chief executive Wayne McNee also presented LIC's 2016-17 financial results.