Livestock Improvement Corporation Limited (LIC.NZ) Earnings Call Transcript & Summary

So good morning, everybody, and welcome to LIC's Annual Meeting. I'm Murray King, Chairman of LIC. Thank you to shareholders for joining us virtually today and in attendance here at Novotel in Hamilton. We're off-site from our normal new steered site due to COVID-19 and the limitations around some of that. So we're bringing this meeting virtually. So before we start proceedings, there's a little bit of housekeeping I'll cover off. So if you've not already voted, voting is now open and will remain open until the close of this meeting. To vote, you'll need a PIN and pass provided by elections.com, and you can vote via the LIC website. There are 6 resolutions to be considered today. A poll will be held on each one. All shareholders can vote on all resolutions. 4 resolutions are ordinary resolutions and require 50% approval, and 2 resolutions are special resolutions and require 75% approval. Results will be announced soon after conclusion of the meeting. And if anyone has items of general business or questions they would like to ask, please send them via the chat function now or at any time during the meeting. These will be collated by the team and answered in general business section towards the end of the meeting. When asking a question, it would be really helpful if you could type in your name and your participant code, please. We may take a few minutes to collect those questions before the general business commences. In addition to the general business Q&A, we'll hold a brief Q&A before the meeting resolutions to answer any questions that might relate to those resolutions that shareholders are voting on at this meeting. So welcome again to the Annual Meeting to fellow shareholders via the live stream. Welcome to Shareholder Council, many of which are here in the room. Dean Brown of the Honoraria Committee, to LICs lawyers, auditors, bankers and advisers, and in addition in presence here, we have management of LIC along with the Board of Directors. On my left, I'd like to introduce Wayne McNee, Chief Executive, LIC. And the 9 LIC directors in attendance here today. So from Taranaki, we've got Ben Dickie, if you'd just like to come forward, Ben, and so the shareholders can see you on the screen. We've got Ken Hames from Northland.

Good morning.

Out of Manawatu, Dr. Alison Watters.

Good morning.

One of our independent directors, Candace Kinser.

Good morning.

Another independent director, Sophie Haslem.

Good morning.

And our third independent director, Tim Gibson.

Good morning.

From North Otago, Matt Ross.

Good morning, everyone.

And from the Bay of Plenty, David Jensen.

Kia ora.

And last but not least, Gray Baldwin, South Waikato.

Hello, everybody.

The notice of meeting has been circulated to all shareholders and is taken as read. The quorum required of 25 as stated in the constitution is present, so the meeting can continue. I have apologies from the shareholder council line up here, Mark Benz, John Dell, Mark Hooper, Christine MacBeth, Mark Shore and Dennis Barclay. And from KPMG, Matthew Prichard. I'll now call for any other apologies. If there are any apologies from the live chat, if you would enter them, please? I don't see any coming up here as yet.

[indiscernible] Edwin Brown [indiscernible].

Okay. Edwin Brown, please? The apologies? If there's no further apology, I move that they'd be accepted and call on Matt to second it, please.

I'm happy to second [indiscernible].

Thanks, Matt. I realize this is a busy time of the year and also a busy time of the day for farmers. So I do appreciate your attendance here at the virtual meeting. The agenda for today, I'll just quickly run through. First and foremost, we're starting off a little bit differently with a little bit of insight into MINDA. And before we get into the more formal part of the meeting, and then we're going to -- I'll cover off a financial overview. Some business highlights, I want to cover a little bit about the impact of COVID-19 and the outlook. Wayne will then cover the investment in research and development and finances in more detail. We'll have the report from the shareholder council. We'll jointly talk about the LIC governance and representation changes, the appointment of the market maker. We'll go to the Q&A on special resolutions, followed by the Honoraria report. We'll conduct the voting of the resolutions and then conclude with the general business. So one of the strengths of LIC as a cooperative has always been our ability to use data to drive improvements in genetic gain and farm productivity. It's effectively part of the reason we are a member of the co-op is ensuring our data for the benefit of generating better progeny. In today's farming environment, being able to access the information you need, wherever you need it on farm is critical to your farm's performance and profitability. That's why we've been working really hard to transform our technology, modernize our systems, get off legacy technology and move data to the cloud. When you're busy and relying on MINDA to give you that information you need to make decisions on your farm, it needs to work. MINDA and what we are doing to fix issues with MINDA has been a topic of many discussions with farmers in recent times. MINDA's performance and investment to continually improve the service for you is a priority for the Board and the management team. I'd like to introduce Andrea Black. Andrea is LIC's Chief Information Officer, and will be talking about MINDA, what we've achieved this year and the future. Now Andrea leads LIC's technology team, and is responsible for managing, improving and transforming our tech products, such as MINDA. Andrea has only been with us since the beginning of this year. And prior to her appointment as our CIO, she worked for Genesis Energy. And she's been working in technology for more than 20 years, with experience in banking, health, energy and local government sectors, and has an agricultural background hailing from North Taranaki drystock farm, and she spent 8 years working at PGG Wrightson. So with that, I'll hand over to you, Andrea, and give you the clicker.

Thanks, Murray, and good morning, everyone. So I just wanted to give you an update on MINDA and the improvements to both MINDA Live and the MINDA App that you've been seeing. So in May, we embarked on a 2-year MINDA improvement road map. That's been designed with the seasonal needs of farmers in mind to keep improving that MINDA experience for you. The first road map was published in June, advising you what features or improvements, the new functionality that we will be working on, and when it will be available to you, TBUs and MINDA LIVE or the MINDA app. So we're making sure that we're giving you the features and time that you need them on farm. And we're updating and publishing that road map, the improvement road map quarterly. And it's been refreshed quarterly, and it's always available on the LIC website. We're fully committed to this road map and continuing to improve the capability of MINDA. And since June, we've delivered 38 improvements to -- across both MINDA LIVE and MINDA app. Some of these are bigger things, like improving our net compliance, both LIVE and the app, implementing the holding pen and the app or adding the removed animal report to MINDA LIVE. And we've been working on a number of smaller improvements as well. And a lot of these are based on feedback from yourselves, from farmers, like improving how reports print, one that's been quite popular is actually ensuring that the expected carving report now fits within the yellow book. Improvements are regularly happening, both on live and the app, and we're letting you know by social media or by e-mail. Wayne sends an e-mail out monthly. And as things happen, we're releasing that on social media. As you see improvements in the app, it's a little bit easier. There's a little flag on the icon that tells you when something's changed. We are investigating for MINDA LIVE a better way to let you know from what the MINDA LIVE app with that MINDA LIVE website for anything that might be changing on MINDA LIVE. So the usage of MINDA LIVE has continued to grow year-on-year. We've currently got 9,300 hoods that are using MINDA LIVE. MINDA app has also had a really strong increase as well. 60% increase over the last 12 months. We currently have 12,000 users across 8,000 hoods that use MINDA app, which means that we've got multi users across the app on same farm, recording notes and comments as they happen on farm. That's exactly what it was envisaged for. We've also seen quite a decrease in MINDApro usage this year, and we expect that trend to continue. And due to the age of MINDApro, it is being phased out in May 2022. The technology that this platform has been built on is end of life. And from a traceability perspective, it's not compliant. And it's not compliant with the current regulations with the way that it's being designed with the off-line capability and can't be made compliant. Just going into that compliance, LIC's worked very closely with NAIT and OSPRI, and we've had significant investment in that to improve both MINDA LIVE and MINDA app, which are now both current with the -- sorry, both compliant with the current regulations for animal traceability, and it provides more certainty for farmers, registering animals and recording livestock movements. So the data that is held in NAIT will be current and accurate and it's supporting disease management and animal traceability in national biosecurity. MINDA save us wallets. Great that we are building more features into our MINDA all the time. It's important from a reliability and availability perspective that MINDA stays working for you. So we're working hard behind the scenes to maintain and improve the reliability of the MINDA platforms, and we've got teams dedicated to this. During the outage that occurred in late August, we had teams working around the clock to resolve it. The issue that slowed down the processing of events. And we've made some changes behind the scenes to ensure that what caused that issue won't happen again. We did extra monitoring, so we know as soon as possible the initial cause. And we've expanded our team resourcing to ensure that we have the right people to respond quickly if something does happen, and we can resolve that issue quickly. And if we talk a little bit around the future of MINDA. So right now, we're definitely focused around that MINDA improvement road map, listening to what farmers are telling us and the features that you want within MINDA LIVE and MINDA app. And -- but we've also got an eye to the future. So some of the things that you're telling us that we might like to see in the future is around the availability of MINDA LIVE and MINDA app, keeping that online. So when we do the AE runs, we want to keep MINDA LIVE and MINDA app available, and you'll see this in the future MINDA road map. With sensors and wearables becoming more prevalent, we're looking at how we can integrate with partners to capture data and make that available to you within MINDA. And that combines with existing hood information, we should be able to provide you more analytics and insights on your hood. We also want to try and automate and capture data where we can. So removing areas that you dislike or a manual and adding features or capability that make life easier for you and help you run your business. We don't know exactly what those are at the moment, but we've definitely got an eye on the future and how we can make that easier for you. So it's my update on MINDA. Thank you.

Thanks, Andrea. So I want to talk you through the highlights of the year, an overview of the full financial year, and I say, business highlights. So LIC's result has been driven by innovation-led growth strategy and our ongoing commitment to pushing the technological boundaries to deliver genetic gain and other products and services to our farmers. It is underpinned by ongoing benefits from our strategic initiatives to transform LIC into a modern progressive cooperative. As far as the financials are concerned, total revenue was $254 million, an increase of 3% from last year. Our underlying earnings were $22.7 million, which was also up, and up from $19.5 million last year. As we always talk about research and development, we are heavy spenders on R&D. That was $16 million, an increase of 17.5%, equating to 6.3% of our revenue, and Wayne will provide more detail on the R&D activity later in the meeting. The full year dividend, we had a strong year, and this enabled us to deliver a significant dividend to our shareholders at a time when every dollar counts on farm, and that has already been received by our shareholders. The $18.1 million equated to $0.1275 per share, which was 80% of underlying earnings, and up from the $15.6 million we paid last year. Our net profit after tax was $17.5 million, down from the $22.2 million last year, by $4.7 million. This is mainly due to the $7.2 million decrease in the value of our bull team. This is primarily because of the ongoing shift from daughter-proven bulls to genomic bulls. This change improves the rate of genetic gain within the dairy industry, but also has a negative impact on the value of the bull team. And the reason for that is that the genomic bulls are used for a shorter period of time than the daughter-proven bulls. Our expected future underlying earnings for the 2021 year are in a range of $16 million to $22 million. And as you know, the last couple of years, we have been reporting that regularly. This was a strong result that reflects the ongoing strength of our balance sheet, and we're proud to deliver this result to our shareholders. So business highlights or lowlights? Oops. Where are we? So the result was driven largely by the continued shift to precision farming with shareholders investing more in genetics and technology solutions that support them to provide more with less and drive future improvements in efficiency and sustainability. We've seen an increased demand for our premium products, including genomic bulls, sexed semen and genetics offerings in A2/A2 short gestation and wagyu. So I'll cover each of those in turn. So genomic semen. As technology evolves and our genomic data set grows, so too does the selection intensity and accuracy and the ultimate -- and ultimately allows farmers access to genetics faster. Use of genomic semen increased 65% from what was 23% to 38% of LIC semen sales, and that's largely through the full pack product, obviously. The use of genomics brings the generation interval down from the previous 5 years to as little as 2 years, thereby turbo boosting genetic improvement and ultimately, production efficiency of dairy cows on farm. I'm going to single out 1 particular bull this year, [ 111 037 ], San Ray Beamer, will be the fourth bull to hit the massive milestone of delivering 1 million straws. However, due to the increasing use of genomics, Beamer is likely to be one of the last bulls to reach this achievement. Sexed semen. This shows a 163% increase. Liquid semen delivers a 90% chance of producing our HIPAA calf. To meet the increasing demand from farmers for fresh, sexed semen around the country, LIC is investing in wider distribution of its fresh sexed semen product across New Zealand this spring. Long last liquid sexed semen is being made available to almost every dairy region, the widest area since it was launched, covering all 3 major dairy breeds. Where are we? A2. LIC has been providing farmers with A2 genotype testing for more than 17 years. Our first A2 bull was made commercially available to farmers for AI in 2002. This year, there was a 49% increase in A2/A2 inseminations with more than 650,000 inseminations. A2 testing increased by 42%. It's interesting to note that this is despite the fact that farmers, in most cases, don't get any premium for that A2 milk. The increased uptake of these products demonstrates the value on farm of LIC's ongoing investment to enhance our core genetics. This is good for our industry for the profitability, competitiveness and reputation in global markets. It shows our farmers are evolving with the times and demonstrating careful stewardship of their land, their cows and the resources they need to produce milk. I want to turn now to the impacts of COVID-19 and some of the other challenges of the season. The first was the drought, which affected many of our New Zealand farmers for much of the season. And the other was the disruption of COVID-19 in the last quarter, which made it tough, a tough season on farm. Our experience in biosecurity management through the M. Bovis ensured that we were well placed to implement measures to continue as an essential service under COVID-19 Levels 3 and 4. So that was significant. However, physical distancing requirements and measures to minimize on-farm visits meant LIC who test assists GeneMark services were suspended for several weeks. And I'd like to thank you all for your support through that difficult time. I want to also just briefly talk about Afimilk. So in February this year, we announced that we were seeking shareholder approval to complete a strategic investment to acquire a 50% stake in a leading global agri tech company, Afimilk. We consider this as a compelling strategic proposal for our business, which would have further strengthened your co-op. When we announced the proposal, no one could have foreseen the rapid and unprecedented impacts of COVID-19 that resulted in material impacts on this acquisition. As the Board has stated, we understand and respect our shareholders, their decision, particularly given these impacts and the wider domestic and global economic uncertainty. However, the strategic drivers behind this acquisition remain for LIC, and we we'll continue to assess other opportunities in the future to stay close to evolving technology and data capture. LIC is much fit in playing its role to support our shareholders as they navigate their farming businesses through the challenges of the 2021 season. LIC has some seasonal debt, a strong balance sheet with no term debt. And based on the impacts of COVID-19 on the forecast milk price, although pleasing to note, a small increase this morning, the credit tightening for farmers and increased compliance costs for the next season for New Zealand dairy farmers and LIC, the Board has kept its underlying earnings forecast for the next financial year which is still expected to be in the range of $16 million to $22 million. I want to hand back to Wayne.

Thank you very much, Murray. [Foreign Language] It's my pleasure to present at my seventh LIC Annual General Meeting. So I'm just going to run through, as Murray said, in a bit more detail into our R&D investment and capital spending through the year. As Murray mentioned, R&D investment increased 17.5% in '19, '20 to $16 million from $13.6 million the year before. That equates to 6.3% of revenue. Last year, $97.3 million was spent on R&D by the top 20 New Zealand agritech companies. That's from the TIN Agritech Insights Report. And LIC spends the highest percentage of revenue on R&D of any established primary sector company, with our R&D spend making up 20% of all Agritech R&D spend in New Zealand based on the TIN report. Increased investment in R&D will help secure our leadership in the fast-growing agritech sector. I'm just going to run through a little bit more detail of the spending last year that's on the slide, you can see there. Dairy site approving as livestock selection and bull acquisition and so approving. Development projects are enhancing and developing [ LICA ] products, including in line milk meter work on testing meters and also developing a framework for the use of in-line milk meters and animal evaluation. There's a small spend on R&D support and delivery. Hardware and systems as investment in things like satellite pass to product space and a range of other small products. Information to improve decision-making is enhancing and developing diagnostic products like Mastitis and Johne's Disease research. There's a lot of focus going into those areas at the moment. The international investment is developing what we call a tropical cow for dairy development markets. We're doing some work in Ethiopia in that regard. But we're developing what we call a slick animal, and we have animals on ground on research farms in New Zealand. Now there's potential for those in-dairy development markets, but also as the climate does appear to be warming in New Zealand, there might be some potential for those genetics in a New Zealand context in parts of New Zealand as well. Those animals seem to be particularly good at producing milk when they're under heat stress. The other genetics information is our investment in the MB and SFFF projects, enhancing genomic selection through identification of new variants and researching to develop a more sustainable dairy animal. Now that R&D investment enables us to give farmers a number of tolls for the future to help further improve genetic gain and to help address environmental challenges. For example, we're undertaking world-leading methane research that enables -- will ultimately breed more climate-friendly cows. The Resilient Dairy program, which aims to breed cows with improved health, well-being and environmental resilience; next-generation genomic selection, which builds further on the $78 million that LIC has already invested in genomics and genetic gain; and satellite pass to product space, further development of new improved version of that, which was launched last month. It's critical at New Zealand that New Zealand retains its leading dairy reputation at what is a really critical time in the world and that we continue to invest in new innovation and technology. That investment in R&D last year was really important and great to see the increase in the areas of focus, but it's also important we look externally beyond our LIC team. And that's why we recently launched a new agritech start-up investment fund called the Ag-Celerator Fund to identify and support individuals and entities that are seeking to develop innovations that will drive improvements in health and well-being of the national herd, aid in more sustainable milk production and ultimately disrupt our dairy industry in a positive way. I'm just going to talk briefly now about capital approvals. So LIC approved $23.8 million of capital last year. So just run through, you can see what some of these are from the slide. But things like the digital channel and -- which is the store and rebuilding the diagnostic system. So that's to enable the GeneMark product to scale up more. We've kind of reached capacity with GeneMark in terms of the systems we have at the moment. So we've put in a new platform this year called Illumina and been rebuilding the software so that we can bring in more customers and speed up turnaround time for GeneMark customers. We've also spent money on what sees there as IP trademarks, paid in software and server upgrades. So just to explain that a little bit more. That included building the digital mobile experience, the NAIT recommendation changes that we talked about earlier by Andrea, that was $600,000 in this year; rebuilding the EZ Link software, and farmers will be well aware, we were having some challenges with EZ Link product so we rebuilt the software; and productionizing the space product. If we have a look at some of the others, every year, we spend money on things for herd testing. You have to replace flasks and equipment every year, replace analyzers, put in new robots and the like. So you'll be aware that in River Lee Road and Christchurch, we've now got a fully robotic system for weighing and subsampling milk, which was really great this year when COVID came. We previously would have had about 80 staff standing side by side in those facilities. And this year, we were able to keep processing 2 million milk samples at a time when we would have otherwise been closed. Building improvements. The main one there is actually Chudleigh Farm. So we brought a separate farm for biosecurity purposes and also to do the methane research that enables us to bring the young bulls on to a farm, which is about 12 kilometers away from Newstead, and keep them where we test them for biosecurity risk. And that was a new investment we made through this year. And of course, minor projects, last, but certainly not least. Just going to talk through the revenue for the year briefly. We did have a record revenue again this last year of $254 million. That was an increase of about $7.4 million on the previous year. Now if you look back in the past, you could see that our revenue used to grow on the back of increasing cow numbers, about 100,000 extra cows each year for 23 consecutive years. But you can see that over the last few years, those cow numbers have actually reduced slightly. We're about 150,000 cows down from the peak in 2016. But revenue has continued to increase through that period. And that's driven largely by demand for premium products by improved genetic products, things like GeneMark, diagnostics products, space. So that's what's continued to increase revenue while we've been -- while we see sort of flattening off of cow numbers. Now the other one I'll mention briefly is international genetics revenue was down last year to $12.1 million from $12.8 million the previous year, but that was largely due to impacts from COVID, supply chain challenges, flights weren't flying, we couldn't export product through that period. So we should catch that up in the year that we're in now. And LIC remains the leading supplier of genetics for semen globally for grazing systems. So this is a really important slide for us. It tells the contribution or the part of the story of the contribution that LIC makes on farm for dairy farmers. And if I just touch on these, and clearly, genetic merit, and that's the continued improvement in genetic gain that we get year-on-year as a result of the ongoing improvement in the quality of genetics that we supply to dairy farmers. Some of the other things, reproductive performance is providing information to farmers about how to improve reproduction. And we have seen continued fertility improvements over time as well. Mastitis and somatic cell count testing in the health area, BBD. Culling and [ pool ] cows is part of the story around production. We also provide short gestation genetics, which helps improve production. And a new one this year is the impact of space on improving pasture utilization. So an estimate of an additional $15 million of value created from that. Okay. My last slide. It's 70 years since we began artificial breeding in New Zealand. And we've seen ongoing improvements, and not just in production, which is what this slide shows, but improvements in fertility as well, improvements in the health and well-being of cows. So we first began artificial breeding in the 1950s and 1950 actually, and when the average milk production was 188 kilos milk solids. And the other thing that was interesting in those days is that when you breed the next generation of cows, you had a 30% chance of them being worse than their predecessors. There's about a 30% chance of them being better, and a 30% change than being the same. So 1/3, 1/3 1/3. Now we get continued ongoing improvement. So it's a great thanks to the people that began artificial breeding in New Zealand and started off the scheme that we use now. And on that note, I will hand back to Murray.

Thanks, Wayne. So I'll call upon Mark Meyer to present the Shareholder's Council report, please. Welcome, Mark.

Thank you very much. [Foreign Language] Mr. Chairman, members of the Board, the Chief Executive, members of staff, shareholder and fellow shareholder councils, it's my pleasure to present to you, for my last time, the LIC Shareholder's Council report for 2020. What a year this has been. Who would have thought that we're presenting this AGM to you via a virtual meeting? Changes within the council over the last 12 months. Currently, the Shareholder's Council was made up of 21 regionally elected farmer representatives. From the top of the North Island to the Deep South. The Council members run varying farm systems, from large multi-herd owners, equity partnership operators, through the 50-50 share [ work ] operations. Over the last 12 months, we've been able to fill the vacancy in Ward 16. Christine MacBeth has been appointed to this position. We welcomed Christine to our meeting back in July, and Christine is representing the Nelson, top of the South Island ward. So welcome, Christine. After 9 years service to the shareholders in the Coastal Taranaki Ward, Bede Kissick retired from the Council in May. On behalf of the Council, I would like to acknowledge the work that Bede did for his shareholders. So thank you, Bede. After 21 years service to the LIC Shareholder's Council and shareholders from throughout the country, Gordon Glent retired. Gordon tells me that a service to LIC goes back a long time than the 21 years that he's done on the council. He was part of the Taranaki Regional Board. Is that right?

Yes.

Prior to the formation of the Shareholder's Council. Gordon, thank you for all of the work that you have done, the knowledge that you have passed on to many councilors over your long tenure. Your humor and your loyalty is incredible. Unfortunately, we still have a vacancy in Coastal Taranaki Ward of Ward 12. And fortunately, Gordon couldn't keep away, and he has offered to fill a vacancy that he created on Ward 13 for a further 12-month period. Appointed directors, Clause 21 of the LIC constitution requires that the Shareholder's Council consider any person that is nominated as an appointed director. And if so, approve such an appointment if the Shareholder's Council so decides. This year, the Shareholder's Council unanimously endorsed the reappointment of Mrs. Sophie Haslem for a further 3-year term. Afimilk, earlier this year, the Board came out to the shareholder base seeking support for the purchase of a 50% share in the Israel-based Afimilk Agricultural Cooperative. This cooperative specialized -- specializes, sorry, in automation, farm management and cow monitoring and operated in many countries throughout the world. There were many synergies that could be seen in the partnership between Afimilk and LIC. However, you, the shareholder base, voted against the proposal. There was considerable discussion at the time of the proposal about the pros and the cons of the proposal. Constitutionally, the Shareholder's Council did not have to make a decision as to whether we supported the proposal or not. It was the Board that decided to venture ahead with the proposal after a significant period of due diligence. After a council debrief, following the no vote, Council wondered if the shareholders of New Zealand Agricultural Cooperatives were apprehensive about offshore investments due to a poor track record of many of our cooperatives we've had over offshore investments. On top of the uncertainty, this was created with COVID-19. This was a lost opportunity for LIC shareholders to invest in a data-collecting company -- technology company that would have enhanced future genetic gain. COVID-19, as Murray has already alluded, but back on January 27, 2020, the world was mourning the tragic death of the Great American basketball player, Kobe Bryant. On the front page of the Los Angeles Times, alongside pictures of Kobe and his daughter, was a heading about how 6 people had died in New York from something called COVID-19. Fast forward to today, and everyone here knows all about COVID-19. This disruption to our lives and the economy from lockdowns and the tragedy of the lives that have been lost. LIC, in the eyes of the Shareholder's Council, must be congratulated for the way in which close to 600 staff from Newstead was sent home to work remotely, and many still do. The agri managers continued to liaise with farmers during the busy sales season. Yes, as acknowledged, there has been a small drop in revenue due to the impact of COVID-19. However, the cooperative has been able to supposedly weather the storm. We were fortunate to be allowed to trade under the essential service banner, and did so without claiming the wage subsidy. I want to reiterate our thanks from the Shareholder's Council and the shareholder base to our Chief Executive, Wayne, for his and his team's ability to continue to operate our cooperative in the most effective manner possible during this global pandemic. The financial performance of cooperative over the last 12 months. After the year-end results were announced, we had our annual conference call with our Chief Financial Officer, David Hazelhurst. The Council congratulated him and his senior leadership team and also the Board on the cooperative's solid performance over the last 12 months. It is a good result, considering the significant challenges that the country has had during the season. It was also pleasing to see that LIC was within -- sorry, the earlier announced profit range, which allowed for a good dividend. The payment of a good dividend to shareholders was welcomed by everyone at a time on farm, when money seem to be going out of our accounts faster than it comes in. This payment is another reflection of the solid performance that LIC has had over the last 12 months. The Council continues to share with the Board, the Chief Executive and the senior leadership team, shareholders' concerns about pricing. Some of the increased revenue is coming from shareholders purchasing higher valued price or perceived higher values, such as A2 semen forward pack, GeneMark. The Shareholders' Council was watching this space. A reduction in the bull team's headcount due to LIC's genomic investment has led to a $7.2 million reduction in the bull team value. We are watching this closely to make sure that the genomics is delivering the genetic gain it claims to offer. Over the last few years, I've been commenting on the declining spend by LIC on research and development. It is pleasing to see that this declining trend has been halted, and the spend has actually increased. As mentioned previously, this year, spend was up 17.5% to $16 million, which, as mentioned, was 6.3% of revenue, up from 5.5% of revenue. LIC did also receive $4.8 million from the government to help with research and development. Also of note, there's a collaboration between LIC and other industry bodies and pooling their resources to work together for the betterment of all New Zealand farmers. This has been well received, and we look forward to seeing the results in the future. At last year's AGM in Taranaki, I raised the issue of the performance of the LIC automation business unit. Many shareholders from throughout the country have expressed concern about the service and delivery of what was one of LIC's flagship products -- project. It is pleasing to see that the Board and senior management have undertaken a complete review of this business unit. Biosecurity. The Board must be congratulated for their foresight in protecting our most valuable resource, our bull team through the purchase of Chudleigh Farm just outside Hamilton. This provides a complete quarantine facility for the young bulls. Last year, mycoplasma virus was the big talk. It's still being eradicated from dairy herds here in New Zealand. And it's great to see LIC leading the way in protecting our most valuable assets. Many shareholders are not aware of these decisions and only hear that LIC has purchased another property. Understanding the reasoning and rationale behind the purchase and seeing the farm operating is a message that needs to be shared with all shareholders. In conclusion, I would like to thank the senior leadership team for delivering a great result for shareholders over the last 12 months. As I've said before, it is a great result. However, these great results need to be recurring year after year. The last 2 years' results have paved the way. Let's keep LIC moving forward in this positive way in an ever-changing environment. The Shareholder's Council want to thank all members of the LIC staff that have presented to us over the last 12 months, informing us of what is happening within their business units. The Board and Shareholder's Council have continued to work closer on matters of concern and importance for LIC. This interaction has enabled the Shareholder's Council members to gain a greater understanding of the role of a governor. Over the last 2.5 to 3 years, members of the Board and the Shareholder's Council have worked closely on the governance and representation review that you, as shareholders, are being asked to vote on. I won't dwell on this topic as the Chairman Murray and myself will be discussing this shortly. I do want to say it has been a very robust process with great feedback and discussion from all members of the Board and the Shareholder's Council. And finally, this is my last AGM as I have decided to retire. I want to thank everyone for their support over the last 5 years that I have been Chair. I want to say a massive thank you to the lady sitting in the far corner on my left, Melanie Tonkin, our Council Secretary, who has done a massive job to keep the Council running smoothly. Thank you, Melanie. I want to congratulate Nathan Keoghan -- where's Nathan -- who has been elected the new Chairperson of the Shareholder's Council. Nathan hails from the West Coast. So good luck on your new position, mate. I'm sure you'll do a sterling job. I am proud to stand here and say that the work of the Shareholder's Council and what we've achieved over the last number of years, and I do hope that our defining legacy is the development of the new shareholder reference group. Thank you very much.

Hey, Mark, just hang around. So on behalf of the Board, I want to say thank you for your 7 years of work with the Shareholder's Council, I think 5 as Chair. And your diligence and hard work has really been appreciated. So we wish you all the best. So this year, as well as the business as usual matters, we're seeking shareholder support to update and streamline LIC's governance and representation structure. This includes changes to the Board and the role of the Shareholder Council. We started looking at the structure of LIC's governance and representation back in 2015. When we started a comprehensive review after the share simplification, and in addition to that, we started again after the simplification in 2018, now is the right time to make these changes as the next part of LIC's transformation. We've had a working group of directors and shareholder councilors, including Mark, who have undertaken the review and recommended the changes we are now seeking support for. I'll now hand back over to Mark to discuss the proposal as far as the changes to the Shareholder Council.

Thank you, Murray. As I've mentioned, the Council currently has 21 members across 21 wards. While the Shareholder Council has contributed significantly to the success of LIC to date, its purpose, which was to oversee the national dairy herd database, is no longer relevant. So what we're proposing is, firstly, number one, to streamline the council from 21 members to a shareholder reference group of 12 members across 4 territories. Secondly, of these 12 members, 8 will be elected by shareholders and 4 will be appointed by the members of the group. This will allow us to ensure diversity and a broad range of skills within the group. And thirdly, we're proposing we give the group a clear purpose and agreed annual engagement plan with objectives and report this back to the Board. The purpose of these changes is to ensure the shareholder reference group is promoting shareholder issues that matter to the Board and management team, including product development; the service and delivery on farm; the usability of those products; and finally, product enhancement. The changes will also ensure that the group has planned and intentional engagement and is working to a plan with the Board.

All right. Thanks, Mark. So the changes that we're proposing to the Board, reducing the number of elected directors to 6, balancing the number of elected directors between the North and South Islands. Each will have 3 elected directors. All shareholders will get to vote for 3 farmer directors for their island. Directors will be elected by a broader mix of shareholders across an expanded geographic area. Elections will be simplified. All directors will be elected for approximately 3 years, and all elections will be held at the annual meeting. The approximately is because the annual meeting changes from year-to-year, but roughly around the same time. The Board is reducing from 10 directors to 9, with flexibility to appoint a further appointed director based on the needs for specialized expertise in the future. So I'd just like to thank David Jensen. So provided this resolution passes, David has offered to step aside, and that's the first step in the process to reduce the size of the Board. The Board wants to make sure that we have well planned and intentional engagement with the shareholders on issues that really matter. Our directors will be representative of a broader mix of shareholder views across an expanded geographic area. And all shareholders will get to vote for 3 farmer directors as opposed to currently 1 or 2, depending on the region. Finally, streamlining the processes will reduce the voting burden on shareholders, so voting will align with the annual meeting. We understand that delivery of products and services takes priority over shareholder issues for many of you. It's what you really focus on when you deal with LIC. One of the most important outcomes from the recommended changes is to strengthen shareholder input on operational performance, product development and service delivery. Mark?

Thanks, Murray. So LIC's current structure that we have now was put in place almost 20 years ago. And over that time, LIC has evolved. We want our legacy to be setting up the right structure for the future, giving shareholders influence over the issues and -- that matter the most.

We believe that the proposed changes to LIC's governance and representation structure will ensure your voice and your views are heard and acted upon as we grow and build our cooperative in the years to come. On behalf of the Board and the Shareholder Council, we recommend a yes vote. The decision is now over to the shareholders, and the vote will be finalized shortly after the conclusion of this annual meeting. If you've not already voted, well, voting is open. So you can conduct your vote. Thanks, Mark. Appointing a market maker. There's another special resolution for shareholders to vote on. This resolution is to amend the constitution to enable the Board to appoint a market maker, subject to Minister of Agriculture's approval of this change. We're proposing that we introduce the option to enable the appointment of 1 or more firms to act as a market maker. Due to the restrictions on who may hold LIC shares, its stock is more illiquid than other listed companies. The aim of the market maker is to create price stability and additional liquidity through consistent 2-way quotes and LIC shares on the NZDX. The role of the market maker is solely to provide additional liquidity to LIC shares for those farmers approved to buy and sell shares without the need to wait for another LIC shareholder to trade with. So I'll open up for question and answers with respect to those 2 constitutional resolutions. So I understand that you may have questions prior to voting on either of the governance and representation resolution or the market maker resolution. So we'll offer the opportunity for Q&A now.

So to ask a question, please type it in the chat function. And please include your name and participant code also. So I think there's a couple of questions here already. And the first one is from [ Jenny Morrison ]. So hello, Jenny, and you're asking that you understand the benefit of the market maker to the shareholders of this, but given the $20,000 to $30,000 annual cost to the company, what is the benefit to the company? Well, the benefit to the company is really the benefit to the shareholders. So the ability for those shareholders to conduct trades and not have to wait. This would apply to such things as exiting shareholders who sometimes have to wait for a month or 2 before there is a corresponding shareholder wanting to buy the shares. So it really is largely for the benefit of our shareholders. And ultimately, that's what we're here for. The second question comes from Ian Storey. Welcome, Ian. Ian has been on the Shareholder's Council in the past. And Ian is asking, what consultation process was conducted as part of the governance and representation review? So as I said, we started back in 2015. And at that time, we formed a working group with representatives from the Shareholder Council and the Board. And in addition, we had a couple of other shareholders of significance. In addition, we had an independent expert on cooperatives. The process ran through. And then more recently, as we said, we conducted another process more recently with representatives, the Shareholder Council and the Board. And we used the Shareholder Council and their networks to canvass the views of shareholders. Fair to say there was a range of views, but I've got to say the courage to make a decision to improve the Shareholder Council and change it to the Reference Group is for the right reasons. And as Mark's already said, the fact that the database no longer resides with LIC, which was the real key reason for the Shareholder Council to exist, that's been dissipated. And as we've said, we really want to improve intentional engagement with our shareholders on the things that matter to them the most, which, for most people, is around products and services. So hopefully, that helps answer your question, Ian. I don't see any more questions there at the moment, and we can open up for Q&A at the end of the session. So I'll call on Ian Brown to come forward, please, Ian, and present your Honoraria Committee report.

Great. Thank you, Mr. Chairman, and good morning. Ladies and gentlemen, I'm here in the capacity as the Chair of the Livestock Improvement Corporation Honoraria Committee, and it is my privilege to present the committee's recommendations this year to the -- for the LIC Board and the Shareholder's Council. My fellow committee members are Shirley Trumper, who has been recently elected. She is from Rotorua. Scott Montgomerie. He's been on the committee for a while from South Auckland. And Paul Todd, also been on the committee for some time from Nelson. The committee receives excellent administrative support from Melanie Tonkin, and I would like to thank Melanie for her contribution to the committee over the past year. The company would also like to express his thanks to David Gasquoine, who was the prior Chair who retired during the year, and thank you to David for his contribution to the committee and to LIC, the co-op. In accordance with Clause 24 of the LIC constitution, the role of the Honoraria Committee is to consider and to recommend the form and amount of remuneration of the directors and shareholder councilors to the shareholders. The committee met 3 times this year, once in person, the other meetings via Zoom or electronic, however you want to describe that. And in the personal meeting, we had one-on-one conversations with both the Board Chair, Murray King, and the Shareholder Council Chair, Mark Meyer. The committee also reviews data and analysis of New Zealand Director fees that are collected by strategic pay and the New Zealand Institute of Directors. Subsequent to these -- to the meetings held by the Honoraria Committee to determine this year's recommendations, LIC, their staff and their families have been impacted to varying degrees by the global pandemic caused by COVID-19. So following further consultation with both the Board and the Shareholder Council Chair, the Honoraria Committee thinks it is appropriate to recognize the existing and ongoing effects of COVID-19 on the company, its staff, its shareholders and the wider economy, and concluded that the increases in Honoraria that the committee was intending to recommend to shareholders this year should not proceed. Instead, the committee is recommending no changes to be made to remuneration this year. Specifically, the directors honoraria. The Honoraria Committee is of the view that it is imperative, LIC maintains high-caliber, capable directors on its Board. The committee acknowledges that last year saw an increase of 4.85% for directors and the remuneration of the chair maintained. Prior to this, the previous 2 years have seen the Honoraria for the Board increase slightly each year to maintain relevant remuneration parity with similar organizations. The Honoraria Committee is of the view that, where appropriate, smaller, annual incremental changes, the preferred method of addressing director remuneration. The LIC Board has a pool of $60,000 available for additional duties. This year, $45,000 of that pool was utilized. In summary, in normal circumstances, whatever that may be, the committee would have recommended an overall increase to the base honoraria of the directors and the Chair this year. But instead, the committee recommends retaining the total remuneration at $669,000 -- $669,600. The Shareholder Council honoraria. The role of the Shareholder's Council differs to that of the Board, and that it is a body whose role is representing the collective views and interests of the LIC shareholders. There are a few organizations which have representative bodies similar to the LIC Shareholder's Council. And as such, the Honoraria Committee has fewer examples for comparative purposes when it comes to councilors' honoraria. The committee acknowledges the increase in councilor workload over the past year due to ongoing projects and a particular focus on the governance and representation review. Given the Shareholder Council workload and the fact that councilors and the Deputy Chair have not seen an increase in their remuneration since 2013, acknowledging the Council Chair received small increases in 2017 and 2018, the Honoraria Committee would have recommended and increased the current level of the Shareholder Council remuneration. However, given the circumstances outlined earlier, the Honoraria Committee recommend retaining the existing remuneration of $134,000 and maintaining the daily allowance of $320. Thank you, Mr. Chairman. Thank you.

Thank you, Ian. So we'll now move to the resolutions for the meeting. So resolution 1 to reappoint KPMG as our external auditor. To consider and have thought fit to resolve by way of ordinary resolution to reappoint the chartered accounts partnership of KPMG as the auditor until the conclusion of the company's next annual meeting and that the directors be authorized to fix its remuneration. So I'll ask David Jensen to move that, please.

Yes. So just a quick note for shareholders. I've been a member of the Audit Committee now for the last 9 years. I can assure you that we have a very good service out of KPMG in terms of representing your interest. I think it's incumbent to recognize that our lead audit partner for the last 5 years, Matt Prichard, who has been diligently involved in doing the audit work for us, is at this week became Chair of KPMG in New Zealand. And I think there's probably a good illustration in terms of the intellectual horsepower that KPMG put into our business. This is a complex business to audit. Take it from me. And it requires considerable thought both by the care of many, but I think for your surety, by KPMG. So I think you can service that I'm happy to move.

Thank you, David. Can I call for a seconder please?

I'm happy to [indiscernible], Mr. Chairman.

Thank you, Bruce. I'll ask those participating to please mark their vote now, and we'll move to resolution 2, which is the Shareholder Council shareholder reference group -- group's budget, as shown on the screen. So resolution 2 is to approve the LIC stroke Shareholder Reference Group's budget to consider and have thought fit to resolve by way of ordinary resolution to approve the budget for LIC Shareholder Council, stroke Shareholder Reference Group for the 3 -- for the -- sorry, for the year ending 31st of May 2021, as outlined in the explanatory note in the notice of meeting. And I'll ask Mark Meyer to please speak to this resolution.

Thank you, Mr. Chairman. Yes, I'd like just to move that we accept that budget that was put forward on the screens before.

Thanks, Mark. And if we can have a seconder?

I'm going to second that, Mr. Chairman.

Thank you, Nathan. So those participating in the vote, if you'd please make your vote now. And we move to resolution 3. To ratify the reappointment of Sophie Haslem as our -- as an appointed director to consider, and if thought fit, to resolve by way of ordinary resolution to ratify the reappointment of Sophie Haslem as an appointed director for a term of approximately 3 years, expiring at the conclusion of the third annual meeting following this annual meeting. I just want to say that Sophie initially joined the Board in December 2018, and her appointment as an appointed director was ratified at last year's annual meeting because she was filling a short-term vacancy. Now Sophie brings over 20 years of commercial and broad experience working across large established corporates and early-stage growth companies and has over a decade of governance experience, including multiple Audit and Risk Chair roles. She does Chair our Audit and Risk Committee. She is the current Director of Rangitira Limited, Centreport. She's the Chair of Metrological Service. She's Director of Kordia, Oyster Property Group and the Akina Foundation. She's a charter member of the New Zealand Institute of Directors. And the Board would like to ratify her appointment for approximately 3 years and continue -- and continues to consider her to be an independent director for the purposes of the NZX listing rules. So Sophie, would you just care to come forward and maybe say a few words?

Thank you, Murray. Having not come from the dairy industry, it is fair to say that the last 2 years has been a steep learning curve for me in understanding LIC, but also getting to grips with the broader issues that face the dairy industry, and I have really, really enjoyed that process. Murray has talked about the experience that I have, and I think that is the value that I bring into the boardroom is that cross-industry perspective. If I think about some of the experiences just in the last few years, at MetService, we have the largest cybersecurity attack in the Southern Hemisphere over the last few months, certainly, an experience to go through as a director at CentrePort, we've had to rebuild the whole organization, post earthquake. So I bring a lot of different perspectives into the Board. When I was interviewed for this role, I believe it was Ben who looked me in the eye, quite with his steely eyes, his Superman look, and said to me, "Do you care?" And I said to him at the time, "I don't know yet." Because I don't know the industry, I don't know the company. I think the most important thing I can say to you now is, yes, I do care. So I would really look forward to being involved for another 3 years.

Thank you, Sophie. And I'm more than happy to move the resolution. Can I ask...

Yes. I second that.

Thank you, Candace. So those participating in the vote, if you'd please make your decision now as we move to resolution 4, to amend the areas relating to governance arrangements, to consider, and if thought fit, to resolve by way of ordinary resolution to approve the purposes of Clause 21.4 of the constitution, a reduction in the number of wards from 21 to 4 with effect from the 1st of January 2021. Item B, for the purposes of Clause 22.5 of the constitution, a reduction in the number of regions from 4 to 2. And Item C, the redesignation of the directors, Gray Baldwin, Ken Hames, Alison Watters and Ben Dickie as the elected directors of the North Island; and Murray King and Matt Ross as elected directors of the South Island, subject to the transitional arrangements described in the explanatory notes of -- to resolution 5, each in accordance with the revised ward description and revised region description, respectively, and subject to the passing of resolution 5. So I move that resolution.

Very pleased to second the resolution, Mr. Chairman.

Thank you, Ben. So those participating, if you would please make your vote. [Voting]

We now move to resolution 5, to amend LIC's constitution to reflect the proposed governance changes and general changes to consider, and if thought fit, to resolve by way of special resolution to approve: a, the appointment -- sorry, the amendment of the constitution to reflect the proposed governance changes and the general changes; and Item B, the proposed changes to existing elected directors and councilors terms of tenure made with a view to implementing the proposed governance changes and as set out in the transitional arrangement subject to the passing of resolution 4. So I move that resolution. I'll ask Ken to second, please.

Yes, I'd be pleased to second that, Chair.

Thank you, Ken. So those participating, could you please make your vote? [Voting]

We now move to resolution 6, to amend LIC's constitution to implement the market maker changes. To consider, and if thought fit, to resolve by way of special resolution to approve, subject to the approval by the Minister of Agriculture, the amendment to the constitution to reflect the market maker changes. I so move the resolution.

Chair, I second the resolution.

Thank you, Alison. So those participating in the vote, if you would please make your vote. [Voting]

We'll now just take a quick break to review any questions that may -- we may have received via the chat function. So if anyone has any questions they've not yet sent, if you could please do so by way of the chat function, and we will resume in a moment. Okay. So we'll resume our general business session now. And we've got another question from [ Jenny Morrison ]. So thank you, Jenny. There are 2 questions actually here. So the first one is directed to me, and I'll read it out. So given that once the market adjusted to the new share structure shares and have only traded at an average of around $0.80 a share for the last 12 months and given that the $1 value decided by the Board at the outset was a best guess estimate, why has the Board not adjusted the shareholder debt downwards? So essentially, this was a position that was taken by the Board, and effectively, as a listed share, it is decided by the market, and the market has determined that price.

No, the shareholders also voted on that.

That's right. So -- and the shareholders did vote to support that resolution at that value. So I hope that answers your question, Jenny. Now there's another -- sorry, there's just a little bit of background here first. I don't -- this is actually a question for LIC's auditors. So [ Dori Fisher's ] here. If you come for Dori, I'll read out the question. And if you could probably just come around to the microphone on the side. So LIC's financial accounts must reflect this uncalled capital as an asset somewhere in the accounts with the average value of the shares on the open market for the last year at around $0.80, even though the company is holding a debt of $1 a share. Is that the end of the question?

There's more here.

Oh, there. Sorry. So does this effectively give a slightly overinflated value of the company? Would this material from another company's perspective, when doing due diligence for mergers, JVs, et cetera, would this be material from another company's perspective when doing due diligence for M&A and JVs? I hope that makes sense to you, Dori?

So the dollar that was there, that was at the time of 3 -- 2, 3 years ago? That was the fair value at that point in. With -- as you alluded to before, the market capitalization changes over time. It's now $0.80. It does go up. But at the time of when it was $1, that was what the fair value was at that point in time of those years.

Okay.

Does that answer the question?

Well, maybe, Jenny, you can come back to us off-line, and we can actually give you a little bit more insight to that answer, more into your questions actually. Are there any further questions in general business? It doesn't look like it is. Nothing's come through online. So time has come to close the meeting. From myself, the other directors and shareholder councilors, we're all available to talk through anything that you may want to raise throughout the year. But thank you for all attending this virtual annual meeting and for your support over the last year to help us achieve the great result that we've shared today, and we wish you well for the season ahead. Thank you.