Dairy industry not immune to disruption

New Zealand dairy farmers have a global edge in terms of productivity and profitability, but the industry needs to remain ambitious about keeping that edge against the best in the world.

That was the message delivered by LIC Board chair Murray King at the farmer-owned co-operative’s annual meeting in Invercargill.

It was the first time the farmer owned co-operative has held it’s meeting in Southland, attended by local farmers, LIC directors, shareholder councillors and staff from the area and Waikato head office. LIC (Livestock Improvement Corporation Limited) is the largest artificial breeding company in New Zealand, with around three out of four cows grazing on New Zealand dairy farms sired by an LIC bull.

King said New Zealand’s dairy industry is vulnerable to the same disruption that other industries have 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 underway 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 at the meeting, which were disclosed to the market in July 2017, with the co-op returning to a modest level of profitability.

Meeting resolutions

Timothy (Tim) Gibson was appointed an independent director to the LIC Board and chair of Remuneration and Appointments Committee. He replaces retiring director Phil Lough who has been a director of LIC for 15 years.

King said Gibson has significant experience in both large and small organisations, including many years as an executive in the NZ Dairy Board, a chief executive at NZTE, a professional company director and also consulting internationally.

“Tim’s knowledge of the industry and personnel management skills means he is aligned to the direction and aspiration of the LIC business, and also brings many specific capabilities to the Board which will help LIC deliver on its strategy,” he said.

Abigail (Abby) Foote was re-appointed for a further three-year term as independent director and chair of Audit, Finance and Risk Committee.

“Abby has made a valuable contribution to the LIC Board since her appointment in 2014. Abby brings a wealth of experience and insight, and I am pleased that we will continue to benefit from that,” King said.

King also acknowledged the contribution from retiring director Phil Lough.

“Phil has been of tremendous benefit to LIC and our shareholders; his wisdom and council has been truly valued by his fellow directors and management. With significant professional experience ranging from food technology right through to chief executive and chairman’s roles in some of New Zealand’s most important businesses, his knowledge and foresight have made him a highly respected member of the board.”

Other resolutions passed at the meeting included:

  • approval of LIC directors’ remuneration,
  • approval of Shareholder Council chair’s remuneration;
  • re-appointment of external auditor KPMG; and
  • approval of LIC’s Shareholder Council budget.

Source: LIC NZ

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