KEY POINTS:
As Fonterra reviews its capital structure, another significant dairy sector co-operative, LIC, has revealed it is also looking at changes to its share-ownership rules.
The move comes as LIC, a Hamilton-based farming services company with a national focus, expands into new sectors under an ambitious growth strategy.
Chief executive Mark Dewdney - a 40-year-old former Fonterra high-flyer - said opening up shares to other than dairy farmers and sharemilkers was one of the questions to be considered.
"We're saying to enable us to be successful in this [growth] strategy, we've put in place what do we have to do inside the organisation," said Dewdney, who also owns a Tatua-supplying dairy farm at Morrinsville.
LIC, a former Dairy Board subsidiary which had turnover of more than $110 million last year, would not go for growth simply for its own sake.
But "we think there are opportunities over the medium term to double the size of the business", said Dewdney.
The company already has a dual share structure:
* Non-tradeable co-op control shares must be held in proportion to the amount of business qualifying shareholders do with LIC, and have votes attached.
* Tradeable investment shares, which are listed on the NZAX.
Shareholders - who have to be supplying a registered dairy company - must hold between two and 30 investment shares for every co-op control share. Within this limit, they can buy off or sell to other farmers or sharemilkers, allowing them to unlock capital or opt out of some of their exposure to LIC.
Trading since listing in 2004 has, however, been lacklustre, a reflection of the restrictions on ownership. The shares have only been as high as $1.80 in the past year, compared to net tangible assets last week of $3.41 per share.
But Dewdney said traditional dairy-related markets were now "mature" and there were good opportunities here and overseas to apply LIC's skills to sectors such as beef, deer and possibly sheep.
As LIC pushed into these sectors "we're starting to come up against that question of who should be members of the co-op and how they should be members", Dewdney said.
One possibility was a new co-op, spun off from the dairy core.
On whether possible change would be aimed at having a wider base of shareholders from which to raise funds for expansion, Dewdney said: "These are the questions that are in front of us right now."
But he stressed LIC had a very strong balance sheet and could fund growth through debt "in the first instance". So expansion was not the key driver for a possible capital restructure. He hoped the restructuring could be accomplished over the next year.
Dewdney grew up in a dairy factory house in Morrinsville where his father, Neil, ran the Tatua co-op for 30 years. He described himself as an "absolute believer" in co-ops and felt farmer control of LIC remained "non-negotiable".
Co-ops helped ensure all parts of the dairy supply chain worked together, unlike overseas where private dairy companies sought to buy milk as cheaply as possible to maximise profit, he said. LIC's growth strategy was placing a particular emphasis on automation and technology offerings, diagnostic services and farm management products.
Dewdney was not expecting an easy ride ahead: "As we take the business into new areas, we absolutely find ourselves having to fight and compete more than we have in the past."
