LIC’s Annual General Meeting October 2014 Murray King - Chairman 2013/14 Key Events & Highlights • LIC had a good year despite the drought in Northland and Waikato – Excellent milk price • • • • New strategy with more ambition DIGAD – core database transfer Governance capability review Ongoing Investment – – – – New and improved products and services Full farm system software development Investment in capability Major IT infrastructure program LIC Financial Result Revenue NZD 'Ms Year End Result 220 212 199 200 177 180 160 151 140 166 132 137 120 109 112 100 80 60 05/06 06/07 07/08 08/09 09/10 10/11 11/12 12/13 13/14 Annual Dividend 2014 • Reduced dividend $11.17 million (60% of underlying earnings) • Follows record $16.75m last year and $11.9 million in 2012 (at 80% of underlying earnings) • 8.65 cents per Cooperative Control Share • 35.90 cents per Investment Share Dividends 18,000,000 40% Dividend Yield Total Dividends Paid 16,000,000 35% 34.32% 14,000,000 30% 12,000,000 10,000,000 20% 8,000,000 17.60% 15% 6,000,000 13.20% 11.17% 10% 11.10% 4,000,000 6.24% 2,000,000 5% 0% 2008/09 2009/10 2010/11 2011/12 2012/13 2013/14 Dividend Yield % Dividends Paid $'s 25% 30/06/14 $7.70 LIC Investment Share Returns since 2007 LIC Investment Share Returns since 2007 $350 $300 NZD Millions $250 Cumulative Investment Dividend $200 $150 LIC Market Capitalisation $100 $50 $2006/07 2007/08 2008/09 2009/10 LIC Financial Year 2010/11 2011/12 2012/13 2013/14 Co-operative Strength • 10,236 Co-operative Shareholders (10,113) • 6.3M Co-operative Control Shares (5.4M) • 29.5M Investment Shares • 1.1M Investment shares traded (value $8.5M) $6.00 Cash Farm Working Expenses ($/kgMS, Owner-Operators) $5.00 Interest & Rent Net feed made, purchased, cropped, stock grazing, run-off lease $4.00 Other Wages $3.00 Fertiliser $2.00 Breeding & herd improvement 2000/01 FWE inflation adjusted by annual CPI $1.00 Source: DairyNZ Economic Survey 2012/13 $0.00 00/01 01/02 02/03 03/04 04/05 05/06 06/07 07/08 08/09 09/10 10/11 11/12 12/13 LIC Contribution to Value On Farm Value On Farm Genetic Merit Health Reproduction Production 2014/15 2015/16 2016/17+ $312m $317m $1.7m $2.2m $35m $39.5m $40m $43m $322m $45.5m Strategy delivery • Growth in value of service and solutions on farm – putting the farmer at the centre of LIC • Improved service delivery • Full farm software development and acquisition – broadening our software offering to our farmers • Dairy Automation Ltd (DAL) acquisition – the future of herd testing for some farmers • Animal health, nutrition, and environment offerings for dairy farmers • Other species (deer and goats, possibly sheep and beef?) • International version of MINDA, Protrack and DAL • Acquisitions and/or mergers on strategy Technology Strategic Plan 3 Enable New Capabilities for Business Growth 4 Standardised & Simplified Supply Chain Processes Current and Scalable Technology Platforms 5 Benefits  Value Year 3 Year 2 Progress 1 Mitigate LIC’s Business Risks Year 1 2 Programmes and projects NPD 3 x Key Value Drivers for LIC 1. Product Development 2. Business Transformation 3. Technology Transformation Repay LIC’s Technical Debt Technology Strategic Plan • DB2 database reconditioning • Digital strategy (delivery of on-line solutions for farmers) • Tags ordering system • Sales order management • Decommissioning old technology • Herd testing future state design • New technology platforms – Apps, MINDA on the Web DIGAD (Dairy Industry Good Animal Database) • Phase one almost complete – costs to LIC alone slightly over $800,000 • Core database transfer to occur by end of 2014 • Second of four phases underway • Have Cabinet sign off and Ministerial consent to database transfer and amended constitution Governance review / changes • Independent review of Board capability and processes • Governance review to be initiated with a working group set up • Two new Directors losing Comment Closing Comment Appreciation Wayne McNee – Chief Executive Overview of the 2013/14 Year • New strategy • Financial results • Operational performance • The future….. Dairy cow performance Putting the farmer at the centre of LIC Financial Overview Revenue $211.5M (up from $199M) EBIT $25.3M (down from $27.3M) Underlying Net Earnings $18.6M (down from $20.9M) Strong Balance Sheet 75% Equity (down from 76%) Strong Cashflow $37.0M (up from $25.8M) What We Earn 2014 $M 211.5 -17.0 24.7 0.6 18.6 0.8 18.0 Revenue Depreciation/Amortisation EBIT pre Impairment Impairment Underlying Earnings Livestock Revaluations NPAT 2013 $M 199.5 -13.7 27.6 -0.3 20.9 3.8 23.7 Growth $M 12 -3.3 -2.9 0.9 -2.3 -3.0 -5.7 Revenue $M % 6% 24% -11% -300% -11% -79% -24% EBIT - $/M 250 30 200 25 150 20 15 100 10 50 5 2009 Genetics 2010 2011 2012 Farm Software 2013 Herd Testing 2014 Other 0 2009 2010 2011 2012 2013 2014 What We Invested In $43 million capital approved 13/14 LIC 2013/2014 Investment in Research and Product Development Development Projects (Incl. capitalised expenditure) Dairy Sire Proving Biotechnology Research R&D Commercialisation & Delivery Analytics Research Reproduction Research Farm Systems Research Animal Diagnostics Research Around $24m invested annually in product development and R&D; more than 11% of revenue Deer Sire Proving R&D Support New Product Launches • Protrack 2G – Drafter 2G, Vector 2G • New and improved NAIT functionality in MINDA • Calving app, Look-up app, Pasture Covers, Mating app • MINDA Labs, MINDA Repro (in calf reports) • EZ Heat In-Race • Short gestation marker (limited supply for 2014) • Short gestation dairy (now fresh) • Fresh Sexed Semen – Friesian (Genes on Legs) – 85,448 and KiwiCrossTM – 17,312 Research & Product Development Focus • Genomic selection – Improving the reliability of the animals genomically selected – Identification of positive (AGPAT6) and deleterious (Fertility1) variants • Pregnancy diagnosis from herd test samples – Have undertaken pilot testing on 43 herds – Further technical work to be undertaken over this season • Inline milk meters – Developing cow production ranking system for herds with daily milk data • MINDA Genetics views – New reports displaying genetic aspects of the herd – In MINDA Labs being tested by farmers Operational Performance Genetics • Predicted growth of 210k inseminations • Howies Checkpoint – top KiwiCrossTM bull with 632k insems since 2012 • New top HF – Morris TF Lamont S1F – now the highest BW bull of all teams • 8% increase in Alpha nominated vs last year • Premier Sires Forward Pack • Oestrus detection (heat patches): 30% increase over this time last year (1.5m units sold) Sales • Record sales in all products, except tags • Market increase in Herd Testing as a result of a direct campaign • Strong focus on reproduction discussions 2-3% lift in 6 week in calf rate • Critical mass building of 1000 plus GeneMark whole herd customers, building a high awareness and customer demand • Increased uptake of SGL products, providing an alternative to inductions on farm Customer Service • Diagnostics product and service demand increase, with an improvement in turn around time of results (from 6 weeks to 4 weeks) • Customer Experience Centre – finalists in Asia Pacific Contact Centre Awards • In a season where HT activity increased by 13%, improvements were also made in customer satisfaction and turnaround times • Major focus on training, coaching and on farm performance management of AB Technicians - to improve skill level on farm • Record numbers of AB straws produced and delivered International • Another challenging year in LIC's international markets • Brazil joint venture established • China distribution plan in place and growth initiatives being identified • Heifer mating programmes for export heifers progressing well and delivering good returns • Development of prototype international automation/information product offering due for completion Q1 2015 Business cases • 12 strategic business cases to support strategy, including: – – – – – – – Dairy Automation Ltd acquisition China, Brazil, UK, Ireland Full farm software Hardware on farm Dairy goat herd improvement offering International hardware (and software) Animal health diagnostics Dairy Automation Limited (DAL) • The future of herd testing (for some) • Protein, fat, volume, lactose, SCC all in the shed • Integration with MINDA and Protrack (being further developed) • In shed herd ranking • Automatic calibration • Developing integration with other shed providers for NZ and international Senior Leadership Team - GM NZ Markets David Willis - Chief Financial Officer Linda Cooper - GM Operations & Service Andrew Fear - GM Information & Automation Rob Ford - GM Biological Systems Geoff Corbett - GM Emerging Markets & Innovation Simon O'Connor - Chief Scientist Richard Spelman Jenny Morrison – Chairperson Shareholder Council David Gasquoine – Honoraria Committee The Honoraria Committee’s recommendation to shareholders regarding Director and Shareholder Councillor Remuneration is that the level of honoraria approved by shareholders at the 2013 Annual Meeting be maintained as outlined below Director Remuneration Chair LIC Shareholder Council $115,000 Chair $25,000 Each of the seven other Directors $47,500 Deputy Chair (NB: Appointed 2013) $9,000 Chair Remuneration Committee $60,500 Each of the 19 other Councillors $5,000 Chair Audit, Finance & Risk Committee $67,500 Total for LIC Board (as a whole) $575,500 Total for LIC Shareholder Council (as a whole) $129,000 Resolutions Resolution 1 Reappointment of External Auditor KPMG To consider, and if thought fit, to resolve by way of ordinary resolution to reappoint the chartered accountancy partnership KPMG, as the Auditor until the conclusion of the Company’s next Annual Meeting, and that the Directors be authorised to fix its remuneration Resolution 2 Approval of the LIC Shareholder Council’s Budget To consider, and if thought fit, to resolve by way of ordinary resolution to approve the LIC Shareholder Council’s budget for the year ending 31 May 2015 2013 - 2014 Expenditure Honoraria Training Costs Meeting Related Expenses Administration Total 2014 - 2015 Budget Actual Budget $115,240 $4,485 $68,970 $3,960 $192,655 $121,286 $7,352 $41,105 $4,176 $172,919 $133,620 $15,100 $61,655 $5,040 $215,415 Resolution 3 Ratify the appointment of Mrs Abigail Foote as an Appointed Director To consider, and if thought fit, resolve by way of ordinary resolution to ratify the appointment of Mrs Abigail Foote as an Appointed Director Appointment of Abigail (Abby) Foote Director and Chair of the Audit and Risk Committees of: • Z Energy Limited • BNZ Life Insurance Limited • New Zealand Local Government Funding Agency Director of Transpower New Zealand Limited Resolution 3 Ratify the appointment of Mrs Abigail Foote as an Appointed Director To consider, and if thought fit, resolve by way of ordinary resolution to ratify the appointment of Mrs Abigail Foote as an Appointed Director