Genus plc

Good morning, everyone. Thank you very much for joining us here at Buchanan. My name is Juergen Koki, and I am Genus' CEO. In this presentation, Alison Hendrickson, our CFO, and I will take you through Genus' interim results. In summary, I would say that we have achieved strong financial results as well as significant strategic progress. I'd like to take this opportunity to thank all of Genus' employees for their contributions in achieving these results. Let me start with an overview and our key financial headlines. Here are my three strategic priorities, which are unchanged. Our first priority is continued growth in porcine, with more stable growth coming from China. I am pleased to report that PIC, excluding China, achieved a 13% increase in operating profit in H1. In China, we signed up another seven new royalty customers, and we now have royalty contracts in place with three of the top five producers in the largest porcine market in the world. Our second priority is the successful commercialization of PRP, which is the biggest opportunity from our R&D program. I'm happy to report that we've made substantial progress. The FDA has accepted our environmental assessment, and the FDA has also conducted site inspections of our PRP facilities. In the meantime, we have responded to the FDA's site inspection feedback, and we continue to expect approval for PRP in calendar year 2025. Beyond the FDA, our engagement with other international regulators continues to be encouraging. Our third priority is driving greater value from bovine. As a reminder, we initiated a comprehensive value acceleration program 18 months ago to return our ABS business to growth and also improve margins, return on capital, and cash generation. There has been very good progress, and VAP is on track to deliver 21 million run rate benefit by the end of this fiscal year. One area I'd particularly like to highlight is the substantial improvement in bovine cash flow from better inventory management benefit from VAP. Alison will take you through this in her section. During the first half, we also acquired the minority interest in ABS's De Novo joint venture. This acquisition demonstrates our commitment to a strong genetic lineup in bovine. And we are already seeing the benefits of full ownership. Turning then to our headline financial performance in the first half of FY25. Adjusted operating profit grew 19% in actual currency to 45.2 million. And adjusted profit before tax grew 21% in actual currency to 35.4 million. We're delighted with this profit performance and we are maintaining an interim dividend of 10.3 pence per share. Looking then at our markets and I will pick out a few highlights for each of the species. PIC performed very well across the Americas with producers also operating with positive margins. European producers also made money although there were a number of disease challenges throughout Europe. Against this backdrop, PIC Europe performed well, though flat against a tough year period comparator. Profits in Asia also increased, driven predominantly by higher byproduct revenues. Chinese pork producers were profitable throughout the period, but the pig price has gradually softened in recent months. We believe the H2 outlook across the regions is stable, albeit there are normal disease and other risks. Moving to bovine. The high-level overview is that ABS performed well in North America and in Europe, while Brazil beef and China dairy continued to be challenging. In North America, dairy and beef producers were profitable in the period, and ABS achieved strong sexed growth. VAP initiatives also helped drive a strong performance. It was a similar story in Europe, with strong ABS profit growth as a result of VAP initiatives. Demand for beef genetics in LATAM continues to be weak. ABS LATAM performance was stable in constant currency, but significantly impacted by FX translation. In Asia, China dairy continues to be extremely challenged. Data suggests a 9% contraction in Chinese dairy production in the fourth quarter of 2024. ABS China performance was therefore below prior year. In India, we achieved very strong conventional and sex volume growth, although unit prices in India are relatively low. In terms of H2 outlook, we believe the market environments in Europe and North America will be reasonably stable, while Brazil beef and Chinese dairy will continue to be challenging. With that, let me now turn over to Alison to take you through our first half financial performance.

Thank you Jorgen and good morning everyone. I'm now going to take you through the financial performance for the half but before I do that I did want to highlight a few takeaways. Firstly, PIC is stronger than ever. abs has turned the corner they're delivering vap but there's more to do and operating cash flow is very strong the high investment period is behind us and we've now passed the peak of exceptional cash outflows so we're well on our way to delivering strong free cash flows that cover our dividends But, you know, there have been no free passes. We've focused on what we can control. And I want to thank everyone at Genus for their passion and dedication in delivering these results. So let's get into it. And we'll start with volume. If you recall last year things were pretty tough in several porcine markets in fact it was the worst we'd seen for over a decade but what PIC have proven over many cycles is they emerge stronger after downturns and that's because there's further consolidation of the winners and they're the large producers and they're PIC's customers and that's what's happened. As you can see on the chart on the left, PIC's volume was up 9% and up 10% excluding China. And this growth was broad-based with every region achieving volume growth. And as you can see, the growth of PIC's volumes excluding China was the highest it's been for over five years. ABS volumes have stabilised after a very challenging period in FY24 when volumes declined and it was good to see sexed volume growth return to 13%. However, whilst total volume growth was 5%, I want to flag that a significant proportion of dairy volume growth came from India and that's where units typically sell at lower price points. So excluding India, aggregate volume growth for ABS was flat compared with the prior year. But this is still an improvement on the prior year trend. Moving to our trading performance. Group adjusted operating profit increased 31% in constant currency and 19% in actual currency to 45.2 million pounds. And our adjusted operating profit excluding China was 41.2 million. And as shown on the chart to the right, this is a record first half performance. And there was steady improvement from PIC China. Our total operating profit margin increased 200 basis points to 13.4%. And that really is because both our businesses are performing. Both contributed to that progress. ABS delivered profit improvements from VAP. PIC delivered strong growth. And R&D savings flowed through from the strategic review we did a year ago. net financing costs increased to 9.8 million as a result of higher interest rates and average borrowings over the period and adjusted pbt therefore grew 38 percent in constant currency and sterling has not been our friend strengthening primarily against the latam currencies and therefore having an adverse impact of 4.8 million on translation but nevertheless pbt grew by 21 in actual currency to 35.4 million so now let's have a look at the divisions in a bit more detail and i'll start with pic PICs adjusted operating profit increased 16% in constant currency on revenue that was 8% higher. An adjusted operating margin increased 140 basis points to 28.1% and that's through operating leverage. The chart on the right of the slide shows you the detail of the key drivers. And you can see TIC achieved good growth ex-China with constant currency operating profit increasing by 4.6 million or 6% year-on-year. And PIC, China profits themselves, increased by $1.5 million. And this was primarily because of by-product revenues, which were higher, reflecting higher China pig prices in the period. Lower fee costs were the main driver of product development costs being a bit lower. And PRP costs were also lower in the first half, but this was due to phasing. And we expect them to be higher in the second half. The last point to flag is that FX was a very significant headwind for PIC in the period, with a £4 million impact on translation of sterling strengthening really against the Mexican peso and Brazilian real. And this slide presents our normal walk around the world for PIC. And as you can see, their performance was broad-based. North America continues to deliver very resilient growth with constant currency profit growing 6% on royalty revenue growth of 5%. Europe's first half was down 3% in constant currency. But to remind you, that follows profit growth of 26% last year. And Latin America was the standout region with operating profit growth of 13% in constant currency, supported by very strong 11% increase in royalty revenue. And that was across the countries in the region. In Asia, profits were up 28%, albeit from a low base. And within this PIC, China increased their profits 59%. And Asia, excluding China, grew 3%. And that was because of growth in Vietnam and Korea. So PIC as a whole achieved royalty revenue of growth of 5% and it was 6% if we exclude China. And the reason is that whilst we are enjoying good success with winning new royalty customers in China, the associated royalty revenue streams take time, take two to four years to ramp up to a steady state. Moving to ABS, which had a significantly better performance. Revenue increased 3% in constant currency on a volume increase of 5%. And adjusted operating profit grew 38% in constant currency and by 18% in actual currency to $8.6 million. with the margin improving 100 basis points to 5.6%. And as I previously said, sex volume growth was good, 13%. Conventional dairy volume growth was also strong at 7%. However, some of the sex growth was in India at prices materially lower than the rest of the world. And beef volumes were 4% lower in the half as demand for beef genetics in Brazil continues to be weak. Thus there was margin contribution growth, but this was offset by wage inflation. So as you can see in the chart on the right of the slide, that was the key driver of profit growth in the period. The annualisation of VAP Phase 1 initiatives achieved 3.8 million of benefit in the first half, and that VAP Phase 2 initiatives achieved a further 2.5 million, leading to a total benefit in the period of 6.3 million pounds. And we now expect VAP Phase 2 to deliver 6.5 of in-year benefit for the full year of 2025. ABS China profits were down 1.6 year on year as China dairy continues to be very challenged. And we expect it to continue to be challenging with the recent restriction placed on importing bovine semen from the U.S. Higher supply chain costs of 1.3 were predominantly caused by inventory provisions, and this relates to inventory that was produced towards the end of 2023 before ABS reduced its production. And as a result, these provisions represent a cleanup of older inventory and are unlikely to repeat. And ABS was also impacted by FX in the half with a 1.4 million pound impact, again, predominantly due to Sterling strengthening against Brazilian Real and Mexican PESA. And this slide shows the regional performance in ABS. The standout performers were North America and EMEA. In North America, volume grew 7%, with very strong sex growth of 22%. And VAP initiatives were also impactful, resulting in profit growth of 25%. and in Europe volume growth was generally unchanged for prior year but the positive impact of VAP initiatives drove a substantial 34% increase in profits. In Latin America, beef volumes decreased 5%, as Brazil beef continues to be challenged, and sex volumes grew 17%, but that is from a comparatively low base. So as a result, profits were unchanged in constant currency, but down 20% in actual currency. In Asia, volume growth was 14%, whilst profits decreased 22%, and the reason for this profit decline is China dairy. So let's now move on to research and product development. And I just remind you that research constitutes other gene editing and key R&D investments in reproductive biology, genome science and bioinformatics. Our research spend decreased 30% to £7.9 million. This represented 2.3% of revenue in the first half. Going forwards, we'd expect spend to remain below 3% of revenue. The annualised impact of actions taken last year is a total of £5 million. As previously mentioned, there is some phasing of PRP costs into the second half. Bovine product development costs meanwhile were broadly unchanged on the prior year although as Jorgen mentioned we made a substantial investment to buy out the de novo genetic herd. And across our research and product development we are continuing to spend more than 10% of revenue on these innovative activities and this remains a key focus for the group. Now moving to our statutory income statement. Those of you who know us know that we consistently measure and report adjusted results as we think these give a better view of the group's underlying performance. Our statutory results are affected by certain non-cash items, in particular IS41, which is the valuation of our biological assets. And the movement in this valuation in the half was a 16 million decrease compared with a 2.6 million increase in the prior year. And this is predominantly due to a decrease in bovine. Exceptional expenses in the first half were 6 million that included 3.7 million of VAP restructuring costs and 1.5 million in relation to aborted corporate transactions that were largely in FY24. And exceptional expenses in the second half are expected to be lower than in the first half, although we are expecting further restructuring costs as ABS continues to execute VAP. Our adjusted tax rate was 26%, which was slightly higher year on year due to an increased profit mix from higher tax jurisdictions. But we continue to expect an adjusted tax rate between 26% and 28% for the full year. Now with that, let me now turn to our cash flow performance. I'm very pleased to say we've returned to a position of generating positive free cash flow in the first half of the year. And looking at the chart on the left, you can see that the big improvement in free cash flow was a result of almost $20 million year-on-year improvement in working capital. a $7 million reduction in cash outflows for biological assets and $6.5 million lower spend on capital expenditure. Now the improvement in group working capital is primarily driven by better bovine inventory and debtor management. Supply chain management has been one of the key focus areas under VAP and it's pleasing to see the positive impact flowing through. The year-on-year reduction in biological asset outflows was a function of a sizeable outflow last year, as PIC restocked its Aurora nucleus farm in Canada after completing a refurbishment. And lower capital expenditure was expected, although there was some phasing from the first half to the second half. But we're expecting for the full year capex of $17 to $19 million, and that's well below our spend in FY24. As we previously guided, our exceptional cash outflows peaked in this half we've just finished at 15.2 million and that included exceptional expenses that were recognised in the second half of FY24. In the second half of this year, we expect exceptional outflows to be around half of the level of the exceptional cash outflows we've had in the first half. so also as we look into fy 26 we expect exceptionals to be much lower for the year noting that we have one settlement payment left in relation to the historical st litigation of four million pounds and we expect further restructuring costs to arise in relation to vap So the chart on the right shows our progress in relation to free cash flow generation and cash conversion over the last five years. And I want to remind you that our peak investment period is behind us, having upgraded and expanded the facilities for both PIC and ABS. And we also completed last year the rollout of genus one, our global ERP system. There's now been three consecutive years of improvement in operating cash flow and cash conversion. In fact, both were records for the half. And we're very focused on delivering positive free cash flow going forwards. And I'd expect free cash flow in the second half to be similar to the first half. Bovine working capital has reached a steady level and therefore cash conversion will be lower than in the first half, but exceptional outflows should also be lower. So let me lastly now talk about our balance sheet, which remains solid. Net debt rose, as expected, to $261 million at December. As shown on the chart, we generated free cash flow of $10.3 million and paid $14.3 million of dividends in the period, returning to a position where we're covering our dividend with free cash flow as a high priority. There were two other broadly offsetting impacts in the period, a 10.6 million increase in deferred consideration relating to the acquisition of the de novo minority interests and a 9.2 million reduction in lease liabilities primarily relating to PIC's Lodi-Anne Farm being sold into a joint venture. The de novo deferred consideration is payable in four equal instalments over four years, ending in July, 2029. And our net debt to EBITDA at the period end was two times, which is within our targeted range of one to two times. And we expect a similar leverage level in June. Our facilities mature in August, 2026, and we have over a hundred million pounds of headroom at the end of the period. And lastly, I'll just remind you there have been a lot of moving parts I've talked about, but we have got a technical guidance slide which outlines the expected impacts of our FY25 accounts for various line items, including the exceptional items. So with that, let me now turn the presentation back to Jorgen, who will give you more detail around our strategic progress and outlook.

Thank you. Thank you, Alison. I'll now discuss our strategy and outlook in more detail. Let me review each of the three strategic priorities. Firstly, I'd like to take a deeper look at PIC's royalty revenues. We continue to grow our royalty revenue in every region, excluding Asia. Our four-year CAGR is 5% in North America, 12% in Latin America, and 6% in Europe. As PIC continues to demonstrate, it can grow with both existing and new royalty customers. In Asia, our four-year royalty revenue CAGR is minus 1%, which highlights why we increased our commercial focus on royalties in China 18 months ago. I will discuss China in more detail on the next page. But first, the high adoption of the royalty model, led by 97% penetration in North America, underpins the stable growth of PIC. The chart on the right helps demonstrate this stability. It shows U.S. pork producer profitability over time. There is no doubt that U.S. pork producer profitability is cyclical. And yet, PIC North America has consistently grown royalty revenue throughout these volatile cycles. Let's now move to PIC China. Our goal is of course to grow the business, but also to improve the stability of earnings. The first chart shows the pig price to corn ratio in China. This is a proxy for pork producer profitability. When this ratio is above 6, Chinese pork producers on average are making a positive margin. As you can see, Chinese pork producers were generally making money during the period, which provided a stable market backdrop for PIC China. Moving to the chart in the middle, you can see that it was the increase in non-royalty revenue that was the primary driver of our profit improvement in the half. As Alison explained, the increase in non-royalty revenues was predominantly a result of higher byproduct revenues. The logical question is, why were our royalty revenues unchanged despite us signing new royalty customers? The reason, moving to the chart on the right, is that, as we have flagged before, royalty revenues from new customers can take up to four years to reach financial steady state. revenues and gross margin in the first two years are typically fairly limited. As a result, our commercial success from winning 20 new royalty customers over the last 18 months hasn't turned into significant sales yet. We expect China royalty growth to start becoming more prominent in FY26. In this context, I'd like to highlight that we now have royalty agreements with three of the top five Chinese producers in place, although initial volumes within their systems are modest. Moving to our purse-resistant pig. We made significant progress with the US FDA during the period and post-period end. We submitted our validation report and durability plan, and our environmental environmental assessment the ea has now been except accepted by the fda the fda has also conducted site inspections of two of our facilities and we have already responded to the fda site inspection feedback we expect the remaining steps to approval to be firstly fda acceptance of our validation report and durability plan and other minor technical submissions Secondly, after FDA acceptance of our final submissions, we will submit a new animal drug application. And thirdly, the FDA will conduct a final review of our new animal drug application which typically takes around 60 days to complete. I am pleased with the progress and thankful to our team for getting us to this point. We continue to expect FDA approval for PRP in calendar year 2025. Looking beyond the FDA to other jurisdictions, we remain encouraged by the progress we're making in Canada and in Japan. In Mexico, we've had good discussions with the new administration about the regulatory pathway for gene-edited animal protein and increased our collaboration with domestic producers who are keen to access PRP. Lastly, in China, when we last spoke in September, we had PRPs en route to a specially designed research farm that has been built by our Chinese partner BCA. I'm pleased to say that our animals arrived safely, and we now have pregnant sows, so generational testing will begin soon. So good progress all around, although I would remind you that the timing of regulatory decisions remains uncertain as this is the first mainstream gene-edited protein to seek approval. Moving now to bovine and our value acceleration program. We initiated this program 18 months ago with clear objectives. To accelerate growth and improve ABS's margins, returns on capital and cash generation. by embedding commercial excellence and deploying our resources more effectively. We can now see the benefits of our actions and we remain committed to building a better and more profitable and growing bovine business. Let's move on to the details of WEP Phase 1 and Phase 2. Phase 1 initiatives were completed in FY24 As you know, we made significant changes to the ABS organization by unifying the dairy, beef and intelligent business units under the leadership of a new leader that joined us from the outside, Jim Lowe, who took up his position in April of 2024. Alongside this, we also started implementing stronger pricing governance and value capture in phase one. phase 1 delivered 7.3 million of benefit in FY24 and in the first half of FY25 we achieved a further 3.8 million of benefits taking the total realized benefit under phase 1 to 11 million pounds moving to phase 2 we outlined our new focus areas of selective globalization and product allocation and mix management last September at the same time We are continuously improving the processes that were implemented in phase one, sales and operation planning, inventory management being a case in point. We have made considerable progress in these areas. With regards to selective globalization, we have further optimized our organizational structure to create global product management and supply chain teams. Through these teams, we have identified and actioned improvements to our commercial strategy and product focus. Product allocation and mix management refers to how we produce, price and allocate our genetics. We are already seeing the benefits of our optimization work. In aggregate, these Phase 2 initiatives achieved a 2.5 million benefit in the first half. We now expect to deliver 6.5 million of benefit versus 5 million previously indicated. And we are confident that we can reach our Phase 2 goal of 10 million run rate by the end of this year. Across Phase 1 and Phase 2, we're therefore expecting to achieve 21 million of annualized benefit, which is a significant achievement. That said, we believe we can go further and we are now scoping the focus areas for a phase 3 of WEP. It is too early to give much detail at this stage, but we will be focused on strategies to accelerate profitable growth and embed commercial excellence. In closing, let me now turn to Genus' outlook. We have achieved a strong first half financial performance with broad-based improvement across the business. We have also made good strategic progress on multiple fronts, not least with PRP, where the FDA has conducted its site visits as planned. Looking then to the second half, we're seeing continued positive momentum. Underlying market conditions for our producer customers are stable, albeit there is the usual caution. We expect both PIC and ABS to grow profits year on year in the second half. Currency has been a significant headwind for us in the first half and we expect this to continue in the second half given current exchange rates. We continue to expect an 8 to 9 million FX headwind for the full year if rates remain where they are today. you will be aware that we raised our FY25 PBT expectations just over a month ago on 15th of January. We are reiterating that view today, which will result in significant FY25 PBT growth in actual currency. This is in line with the current market expectations. That concludes our presentation of Genus' FY25 first half results. Before I conclude, I wanted to take a moment to thank Alison for her leadership and contributions as CFO of Genus over the last five years. It has been a true privilege to partner with Alison and I look forward to working with her over the next five years and hopefully five months. that reflects my desire my desire unfortunately it's only five months and hope to sign off on a high note thank you very much all for your time and interest and we now look forward to addressing your questions Charles please Charles from pale hunt I'm