The high margin nature of the business is reflected in the earnings before interest and tax (EBIT), which at $42.2m yields a margin of 32%. Based on 2010 and 2011 income streams and resulting profit, LIC has typically reported an underlying profit margin after tax of between 10.5% and 13.5%.
The 2011/12 financial year recorded a $23m profit after tax with an increase in revenue of 7% to $177m. That was largely a result of a $4m compensation payout on genomics made to farmers.
LIC typically records around two-thirds of its revenue stream in the first six-months, making a gross revenue figure of $200m on the cards for the full year.
Based on typical after tax margins for the operation it could potentially top a profit of $23m.
The first six months of the year typically see the bulk of its main income earner, genetics sales, completed but while the results incorporate the artificial breeding revenues they do not reflect a similar proportion of costs. No significant one-off costs are anticipated by management in the second half of the trading year.
The company is reporting an increase across all of its sectors in the first six months of the new reporting period. This includes a lift of 7.6% in herd testing, 11% in dairy genetics and a notable 32% increase in DNA parentage testing. Farm software systems have lifted by 17%, farm automation by 3% and animal health services by 21%.
The increase in DNA parentage testing reflects farmers wanting to know the true identity of each and every cow, with DNA providing that certainty, and income incurred over the calving period. Animal health services increases reflect the growing demand by farmers for BVD testing as greater understanding of the disease’s impact develops.
The six-monthly balance sheet update reveals the genetics company has shouldered $7m of short term borrowings it did not have in the corresponding period last year while the only longer term liabilities held are $29m for deferred tax liability.
However, the liabilities still see the company with a low ratio of debt:debt + equity of only 25%.
LIC chair Murray King said the result came despite the drop in the payout on the previous year and reflected a willingness by farmers to continue investing in new technology and genetics.