LIC is bringing in consultants to cut its costs and has cut eight jobs as the milk price downturn drags on. Chief executive Wayne McNee said it was too early to say whether there could be further job losses.
The artificial breeding and dairying information systems co-operative in February reported a 46 per cent slump in profit with revenue down 9 per cent in its half-year financial results, and signalled its year-end result would be break-even as farmers continued to keep a tight rein on spending.
“We are coming into another (low payout) year and it’s very difficult for farmers. We need to make sure we can still operate a business that can offer a really great service to farmers – their expectations are higher than ever before – but in a way that enables us to have some level of profitability so we can continue to fund our research and development and product development programmes,” McNee said.
“So we need to take a good look at the business to see ways we can reduce costs. We have taken more than $10 million out ourselves but we think there could be more and we think we need some help to do that.” McNee said the consultants had yet to be chosen. The goal was to have them starting work next month or May.
The board was no longer targeting 2025 as the year by which LIC aimed to be a $1 billion revenue company, he said.
“We still want to grow the company and we’re still developing new products, but it’s fair to say farmers’ ability to purchase new technology at the moment is restricted so it will slow us down.” LIC’s international business was performing well.
Some dairying markets had not been so affected by the milk price downturn as New Zealand. “A combination of good growth in markets like Ireland and some South American markets and the big move in the exchange rate means our international business is doing very well in genetics. We have just sold our first products in the UK and Ireland this year.”
A new MINDA cloud-based product would be launched at the National Fieldays in June. The LIC business was restructured after McNee’s appointment in 2013 and the 2025 growth strategy announced. But that was at a time of a $7-$8kg milksolids returns, McNee said. Now farmers were doing less artificial breeding and less herd testing which was affecting LIC’s revenue.
The company was also offering farmers’ extended payment terms on some services and products in the downturn which was affecting its cashflow, he said.
The growth strategy had involved several acquisitions and partnerships including Dairy Automation Limited, and the Beacon heat detection company and a major laboratory redevelopment in Hamilton.
LIC now had $24m debt on its balance sheet as at the end of February. This translated to a debt to equity ratio of 14 per cent which was low by most company standards “but we want to keep it that way”, McNee said. Before actioning its growth strategy, LIC, a seasonal business, had only carried seasonal debt.
The eight redundancies were in the reproduction solutions division which advised on how to get cows in calf. The division had been successful for several years but now many LIC field staff were also trained to give this advice, McNee said. The division would continue but in a smaller capacity.
By: Andrea Fox
Source: Stuff.Co.NZ