Genus plc

Welcome everybody to the Genus FY26 results. It's bright and early. Thank you very much for joining us in person and also to those of you that are connecting via the conference call. It's a pleasure to see you this morning. My name is Jurgen Koke and I am the Genus CEO. This has been an excellent first half for the group and I want to start by thanking all of my colleagues for their hard work and dedication in making this possible. We've delivered strong profits alongside substantial strategic progress. We're executing well against our priorities in both PIC and in APS while taking important steps to strengthen our long-term growth platform. I now want to point you to the customary disclaimer. before I'll start summarizing the key highlights from H1 and before our chief financial officer Andy Russell takes you through the numbers in more detail. Starting then with the highlights, the first half was strong across the group. We delivered record first half profit driven by PIC growth and further benefits from the value acceleration program or VAP program. in ABS making sure we turn our profits into cash is of course critical and I'm delighted that free cash flow generation remained very solid compared to last year's record inflow we achieved further regulatory progress on PRP the purse resistant pig including a major step towards North American commercialization with the Canadian approval in January And last but not least, we formed the Porcine Joint Venture in China, positioning the business for long time growth in the largest porcine market in the world. We'll of course touch on all these points in more detail as we go through the presentation. Before we dive further into the detail, this slide is a brief reminder of what Genus does. Our vision is pioneering animal genetic improvement to sustainably nourish the world. We have performed well against our three strategic priorities. The first is growing porcine, including accelerating PIC's growth in China. The second is successfully commercializing PRP and generating attractive returns from our R&D activities. And the third priority is driving greater value from bovine. Progress against each of these priorities contributed meaningfully to our financial and strategic progress in H1. We'll discuss the impact in more detail. Before I hand over to Andy, I did want to pause and reflect on the significant transaction that we completed in January. As many of you will know, the formation of our porcine joint venture is a significant strategic step. It creates the right platform to capture the substantial growth opportunity in the largest porcine market in the world. I'd like to remind you that half of the world's pigs are in China. Our partner, Beijing Capital Agribusiness, or BCA, is partially owned by a very large state-owned agribusiness with commercial interest across the wider food and beverage sectors. We've worked very well with BCA for over five years now and we believe the partnership of the two companies will create significant value for our shareholders. We're very excited to partner with BCA as we execute against the tremendous opportunity in China for the PIC business. Let me now turn the presentation over to Andy, who will take you through the financials.

Thanks, Jorgen, and good morning, everyone. My name is Andy Russell, and I'm Genius' CFO. Before we dive into the numbers, I wanted to flag that we've slightly changed the presentation to reduce complexity and really hone in on the key drivers of performance. Rest assured that the key data that was previously reported can be found in the appendix and in the interim announcement. Having completed almost seven months with the company now, I'd like to share a few observations. When I stood up here in September, I said I was excited by genus is strong IP and significant growth opportunities. As I've seen more of the company, my conviction in these initial observations is only grown. I continue to be impressed by my colleagues passion for the business and dedication to our customers. We have a tremendous platform for growth, and I'm extremely excited to help drive the execution of these opportunities. Let me now take you through our strong financial performance in the first half. On this slide we're showing our headline group financials. We've delivered strong first half profit on unchanged revenue with PBT up 57% to 55.7 million and EPS up 53% to 60.8 pence per share. I should flag that these figures include the benefit of a 5.6 million milestone receipt from our Chinese partner BCA. Excluding this milestone, we still would have delivered record profits with PBT at 42% and EPS up 37%. Moving to our balance sheet and returns metrics, leverage reduced to 1.4 times from 1.5 times at the end of June 2025. We have a strong balance sheet already and in fiscal Q4 we also expect to receive approximately £100 million of joint venture formation proceeds from BCA. Our 12-month rolling return on capital improved significantly from 14.7% at the end of June 2025 to 15.8% and this is a key focus area for us. lastly on free cash flow generation we generated an 8.2 million inflow in the first half which is a strong performance compared to last year's record level I'd remind you that first half free cash flow tends to be seasonally lower than the second half conversion of 60 looks a bit lower than you might expect however this was predominantly driven by the timing of the receipt of the bca milestone and dividends from agro series our jv partner in brazil the cash for both has now been received and i'm confident we'll beat our 70 conversion target at the full year Our first half performance was underpinned by strong operational delivery across both PIC and ABS. In PIC royalty revenue growth is a good indicator of performance. We delivered 6% actual currency growth to 93 million in the first half, comprising very strong performance in Asia, driven by over 50% royalty revenue growth in China. Notably, every region grew royalty revenue in constant currency. On the back of the solid royalty growth and including the BCA milestone payment of 5.6 million, PIC adjusted operating profit increased 30% to 72 million at a margin of 34.5%. Excluding the milestone payment, operating profit grew 19% with a margin of 33%. In ABS, VAP initiatives were the key drivers of profit growth. Sex volumes grew 1% in the period with conventional volumes declining 2%. VAP initiatives drove a profit increase of 27% and 180 basis point improvement in margin to 7.1%. Moving then to group operating profit, you can see that we generated excellent first half profits with strong growth in the core and PIC China. on the right hand side you can see the building blocks of the year-on-year increase with significant contributions across the board it's a record first-half performance even excluding the milestone payment from BCA group operating profit margin also increased to nineteen point two percent or seventeen point five percent excluding the milestone diving into PIC this slide shows a more detailed breakdown of performance as mentioned every pic trading region achieved royalty revenue growth in the half with the region within the regions brazil and china were the biggest contributors to a 10 million increase in profits the bcaa milestone receipt was of course a big year-on-year driver as well as a reminder we recognize this milestone upon regulatory approval for the formation of our joint venture This is the final milestone payment that we expect to receive from BCA. As planned, PRP costs continue to increase as we ramp up our market acceptance activity. For the full year, we expect an increase in underlying PRP related expenditure of about £3 million. Excluding the BCA milestone, PIC margins expanded to 33%. Moving then to ABS, VAT benefits were again the primary driver of profit growth. We realised 4.7 million of benefits in the first half, comprising 2 million of annualised Phase 2 benefits and 2.7 million of in-year Phase 3 benefit. Regional trading remained solid, included an expected decrease in Asia profitability, following china's decision to close its borders to u.s bovine genetics as expected abs's first half result was impacted by an increase in bovine product development costs of 2.1 million this increase in product development costs is due to higher depreciation on prior period investments and the impact of acquiring the minority interest in de novo For the full year, we expect bovine product development costs to increase by approximately 4 million. As we think about other factors for the full year, we now expect an in-year benefit from VAP phase 3 initiatives of approximately 7 million, as we've been able to progress slightly faster. We still expect the annualised benefit to be approximately 9 million pounds. ABS's margin increased 180 basis points to 7.1% and we continue to target a double digit margin in the medium term. R&D is core to our business and excluding the BCA milestone we spent almost 35 million pounds in the first half. Approximately 80% was spent on product development and 20% on research projects. Our spend was marginally lower as a percentage of revenue in the first half, but we expect a slightly higher level of spend in the second half. We'll continue to invest in product development to drive genetic progress and research that can drive game-changing innovation. Moving to our statutory income statement. As a reminder 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 non-cash items, in particular IAS 41, which can give a misleading picture of the group's underlying performance. Looking at the key line items, the movement in the IAS 41 valuation for the half was a 6.4 million decrease compared with the prior year valuation, primarily driven by porcine. Exceptional expenses were slightly higher year on year at 6.7 million and comprised two main elements, 4.6 million in relation to VAP, and 1.9 million in relation to the pic china jv formation based on what we can see today we expect lower exceptional costs in the second half in summary statutory operating profit and pbt were significantly ahead of the prior year Moving to free cash flow. We generated 8.2 million in the first half which compared to a very strong 10.3 million last year. The milestone of 5.6 million had a distorting impact because it was recognised in first half EBITDA but we received the cash post period end. We had higher bonus payment outflows in the first half compared to a low level last year. These bonus payments are driven by prior full year outcomes and FY25 was of course a lot stronger than FY24. The significant working capital negative movement on the chart is worth reflecting on. I'd remind you that this is the year-on-year change. Last year we had a significant working capital improvement due to a decrease in bovine inventories and receivables. We're pleased to have held onto those gains but the year-on-year impact is of course a negative. There's also a positive impact of lower cash exceptionals in the half. Overall, we're pleased with the first half cash generation and I'd remind you that second half cash generation is typically seasonally stronger. With what we can see today, we're expecting a step up in H2 free cash generation such that we expect FY26 free cash flow to be above FY25's record level. Following on from free cash flow, our balance sheet continues to strengthen with leverage reducing from 1.5 times to 1.4 times. Gross debt increased marginally to $233 million at 31 December 25 with higher EBITDA driving the leverage reduction. Following formation of our porcine JV in China, we expect to receive approximately 100 million in fiscal Q4 of FY26. 12-month rolling ROIC improved materially to 15.8% in the first half, albeit this includes the BCA milestone. As a result of our strong financial progress, the board is proposing an interim dividend of 11.2 pence per share compared to last year's 10.3 pence per share. Back in September, I outlined our high level capital allocation framework. We believe we're moving into a new cash flow paradigm. FY25 was a record year for free cash flow and we believe FY26 will be even stronger. We're also of course expecting receipt of over 100 million in fiscal Q4. I therefore wanted to provide some additional granularity on how we assess and prioritize capital deployment. Before we deploy any capital, we must secure our balance sheet. A strong balance sheet de-risks the group and gives us strategic optionality. I know Genus has previously targeted a range, a leverage range of one to two times net debt to EBITDA. And I think this remains the right through the cycle range for us to operate within. That being said, I want to be clear that we won't be rigidly bound by this range. In the short term on receipt of the BCA proceeds we will delever our balance sheet below the bottom end of the range as we appraise opportunities. After maintaining the strength of our balance sheet our first capital allocation priority is investing in organic growth. To give you a near term example, PRP is a transformative opportunity that we will absolutely continue to ramp up our investment in. After funding the best organic growth opportunities, we clearly want to continue rewarding our shareholders through our progressive dividend policy. We've also simplified the mechanics of our dividend policy to make it easier to model. Going forward, we intend to pay a full year dividend of between 30 to 40% of our adjusted earnings per share. We will continue to split the full year dividend into an interim and final and the interim of 11.2 pence per share is 35% of the previous full year dividend in line with our updated policy. Continuing down the capital allocation waterfall, we get to inorganic growth opportunities. You can expect us to continue applying strict financial and strategic criteria to any potential M&A transactions. We'll be very focused on returns, earnings accretion, cash flow generation and strategic fit. Genus is a good track record of value enhancing bolt-on deals and we are amenable to doing more. Moving then to the bottom of the slide, we will assess surplus capital returns to shareholders. We've given this significant thought and recognise it's an important element to shareholder value creation. We've established a defined process for evaluating surplus capital return options and we will be judicious in deploying capital in line with this approach. I hope that gives you some additional colour on how we think about capital deployment, and I expect we will return to this topic in the future. Before I turn the presentation back over to Jorgen, I wanted to share analysis we put together to help you with your modelling. Going forward, PIC China will be deconsolidated from our group accounts. Whilst PIC China continues to grow, this is a significant change to our reporting. We've also received one-off milestones from our Chinese partner BCA, which also makes comparison a little difficult. On this slide, we've shown you a pro forma P&L for FY25 H1 and FY26 H1. We've also included the same pro forma analysis for the whole of FY25 in the appendix. We think looking at the group this way probably gives the best like-for-like comparator for our future performance. The box on the right also flags a couple of the key elements that aren't in this analysis that are likely to impact the second half. Within PIC, we're expecting higher PRP market acceptance and product development costs. PIC China also had a particularly strong first half and we just want to be cautious about this level of growth continuing in the second half. Turning to ABS, we're expecting further VAP3 benefits to be partially offset by an increase in costs half over half. And lastly at the group level we expect lower net finance costs due to lower average net debt over the period. I'd finally also remind you that in our appendix we have a technical guidance slide which outlines expected impacts in our FY26 accounts for various line items that again should help you with your modelling. With that, let me now turn the presentation back over to Jorgen to take you through our strategic progress and outlook for the rest of the year.

Thank you, Andy. Let me now take you through the excellent strategic progress we've made in H1. As a reminder, our three strategic priorities remain clear and unchanged. let's discuss first PIC's royalty revenue PIC royalty revenue is a critical driver of our financial performance the royalty revenues are very high margin recurring in nature and extremely sticky the royalty model aligns our success with our customers success decouples our earnings from the underlying pork price volatility and supports the fostering of long-term genetic partnerships. You can see on the left-hand side of the page that PIC continued to grow royalty revenue in every region of the world in H1. As Andy mentioned, total PIC royalty revenue grew by 6%. Our four-year compound annual growth rate was also very healthy. Looking at the four regions, Asia is of course the standout at 34% over the four year period. Our commercial pivot two years ago to sell predominantly under the royalty model in China is a major driver of our growth. We generated around 93 million pounds of royalty revenue in H1 and continuing to drive royalty growth is a significant area of focus for us as we move forward. Moving to PIC China, which of course is part of PIC Asia, we achieved a very strong improvement in operating profit in H1. The chart on the left demonstrates that this was predominantly driven by a more than 50% increase in royalty revenue in China. Again, this is in line with the change we made in China to our commercial approach, which is now focused on selling under the royalty model. I'm also really pleased that the strong financial performance was achieved despite a weak market backdrop, as pork prices in China have been low. This highlights the value our genetics can bring to our customers in China, just as they do elsewhere in the world. The right-hand side of the chart is a reminder that post-period end, we formed our strategic porcine JV in China with base PCA. We are very excited by the platform this create as we seek to execute against the tremendous opportunity for growth in China. Moving then to our second priority, we continue to make steady progress on PRP regulatory approvals globally. January marked another major milestone towards North American commercialization, with Canada approving the use of the PRP gene edit. As a reminder, to commercialize in North America, we still believe we also need the Mexican and Japanese approvals. We're encouraged about the engagement with both of the regulatory bodies in those countries. Before turning to our outlook, let me touch on the Value Acceleration Program, or VAP, in ABS. As a reminder, we initiated VAP in FY24. to accelerate abs's growth and structurally improve margins return on invested capital and cash generation in fy26 we're executing phase 3 initiatives which have been focused on reshaping our go-to-market strategy and embedding commercial excellence across our global teams we've also launched a broad operational excellence initiative led by our new head of supply chain for ABS. Achievement in the first half was good, with £2.7 million of annualised operating profit benefit delivered from phase 3. We now expect to achieve an in-year benefit of approximately £7 million, which is ahead of our previous expectations of about £6 million. We still expect the total annualized benefit from phase three to be approximately nine million pounds as we continue our journey towards achieving a double digit margin in the medium term. Let me now turn to our outlook for the second half of the year. As we discussed earlier, our royalty model significantly insulates our financial performance. from underlying market conditions, specifically in PIC of course. As such, our momentum from H1 continues into H2, despite challenges in some of the markets. Looking at the market environment for our customers, we'd probably characterize the first half as being mixed, with the Americas stronger than the rest of the world. As we look to the second half of the year, The global porcine outlook appears relatively stable, albeit there are continuing disease challenges in some regions, such as the outbreak of ASF in Spain. Pork prices in China also remain relatively weak. In bovine, we're seeing global milk prices weaken, and the China border is still closed to US bovine genetics. Overall, therefore, we see a generally stable market environment in the second half of the year. This comes with the usual caveats that these markets are dynamic and the situation could change quickly. Turning then to our outlook for the second half of the year. I start by saying that we're delighted with our first half performance, record profits solid free cash flow generation and significant strategic progress. We're very pleased to have formed our porcine JV in China. As mentioned, we expect to receive the proceeds of approximately 100 million pounds in fiscal Q4, and we have outlined our capital allocation framework for assessing capital deployment. As we look to the second half, we continue to see good momentum across the business. As such, we're confident that we can deliver significant growth in FY26 adjusted PBT, in line with market expectations that were raised in January. With that, let me thank you for your attention and we're now happy to take your questions. Charles, please.

thanks um just a couple of questions can we just start on pic in china and in brazil obviously very strong performances from both of them uh it doesn't feel as though the market's helping you in china so can you just run through how sustainable the performance is there and what your opportunity is with customers have you won any new customers in the period or is it just penetration of existing customers and then can you just talk through the brazilian market and what's happening there

Well, thanks Charles. We have put significant effort on China over the last two years, supported our team. We've built a formidable organization there, which is supported by our global team. And we, as I mentioned, we changed our approach in China two years ago by focusing on the royalty model, which previously we did not. and the reason for the change is that the market in China has changed profoundly post ASF which as you know the outbreak that happened in 2020 post that ASF outbreak we've seen a professionalization of the industry in China we've seen concentration happen with the big players becoming bigger and then has led to an increased level of sophistication among our customers and it is just a requirement for pork producers to have a high level of sophistication a high level of you know ability to interpret data to take advantage of elite genetics and so we've seen that Chinese market become much more conducive to using advanced genetics and we've taken advantage of that so specifically to your question we have won you know a very significant number of customers over the last two years about 25 new customers and we want additional new customers in FY25. And as to your question of what was driving it, it's both. It's the customers that we want in the last two years as well as also some that we want just more recently. So we're pleased and we believe that we're in the very early innings of the growth in China. As you know, our market share in China is very low. We are already probably the largest player in China with a market share of below 5, probably in the 4-ish range. And so we see tremendous opportunity to continue to drive growth over the next years. As for Brazil, do you want to comment a bit on Brazil, Andy?

yeah sure so Brazil we clearly we have our joint venture partner agro series there they they cover Brazil and Argentina royalty revenue contract penetration is slightly lower than North America But we saw good growth across the board, both up front breeding stock sales and within royalty revenues. And a lot of that is driven by the underlying market. So there's a strong market there with strong pricing. And we see that continuing. albeit that penetration of royalty revenue is just slightly lower than North America. So there is a bit more of those upfront breeding stock sales. But it's largely driven by a strong underlying market.

And if I could just follow up on ABS, the beef market's obviously been very challenging over the last couple of years. Beef prices now very high around the world. Are your customers starting to feel more optimistic that they can expand production and invest in genetics?

Well, I would say that beef prices have been very, very high. As you know, the beef herd in the U.S. is down very significantly, driven by weather events. A couple of years, the drought in the western parts of the United States that has pushed up prices. And so that's a good thing for dairy farmers, right? If you think about beef on dairy, it's quite attractive. And so beef is selling their calves into the beef industry is a major sort of value creation opportunity for the dairy farmers. And so that bodes well for us with our beef on dairy products in ABS.

thanks for taking my question so two questions if i can um first of all just on staying on abs for a little bit um obviously we've had some really good kind of margin growth from the back program over the last few years but it feels like we're kind of coming towards the end of that program and we're now into perhaps more of a phase of continuous development and i'm kind of wondering what are the levers you've got left to pull to get that business towards the double digit margin and you know when we say double digit do we mean low double digit can it get to teams i'm just trying to get a sense of where that might go and then the second question is actually just around the prp investment so i was wondering if you could just give us a little bit more detail on the investment you're making in prp around market acceptance how you're gearing up for the launches in colombia and the dominican republic

Okay, let me start with ABS. Yes, the VAP has been a major driver and has resulted in improved margins in ABS. It also positions the business for growth because you have to be lean and fit to grow. And we're making this into a much better business. we've made a lot of changes in terms of people in terms of organizational structure in terms of culture in terms of incentive schemes and so forth but you're right a major transformation program you know we'll have a beginning and an end probably right and we're certainly looking beyond that and there's two major initiatives and value drivers that were embedding in ABS as we speak one is around commercial excellence which is a broad sort of theme around strengthening our go-to-market activities and i'll give you a few examples of what we are doing we are standing up inside sales desks for example that have a lower cost to serve for let's say smaller and more transactional customers so that the field sales force can focus more on the largest and most attractive opportunities we have expanded our sales agents and authorized representatives network and in some cases we have reduced our own field sales force because we felt that was a more appropriate and more efficient way to go to market in certain geographies we are also investing in certain capabilities for example we are hiring hunters that are incentivized to hunt in certain sales territories so very much more rewarded on the basis of growth we have invested in a pricing manager with very clear pricing methodology and pricing guardrails And we have been doing a lot of work on pricing over the last, really, two and a half years. But we're embedding and institutionalizing that in our business. And you need to anchor that with processes and also with people and capabilities. We have brought in a sales compensation manager, for example, an expert in that regard. How do we incentivize our people for driving results that align with our objectives? So those are just a few examples, but there's many, many more. And so we're really standing up that capability. That's only commercial excellence. The other lever that we're pulling, Seb, is around operational excellence, which is a broad theme that's used across manufacturing businesses widely. and so we have hired a new supply chain leader for abs he's been with us now for about a year he's a world-class expert in lean and six sigma which is about eliminating waste from from the business and driving efficiencies we're taking all of our people in operations through the toyota training philosophy and we're setting the appropriate targets for the people in the business continuous improvement targets to actually deliver savings to give you a few examples what we're working on we're moving the abs intelligent labs so 24 7 they operate five days a week so that drives more throughput through your labs so thereby you lower the cost We're implementing further automation. And so there's lots of opportunities that we're pursuing in that area. Clearly, we haven't made the decision on VAP and the future. We're very focused on delivering the result in H2, but we're not sitting still and we're clearly thinking beyond VAP. yeah yeah maybe on PIC maybe on the target set you know we think that double-digit operating profit margin is an appropriate target let's get there first and once we hit that target will you know we will always be ambitious and will also set more targets but let's get to the double digits first

you want to talk about your PRP investment yes so you'll have seen on page 14 in the first half of this year we spent almost 5 million as a 1 million increase on the same period last year in the second half that growth will expand and that will spend an extra 2 million compared to the second half last year so full year about 3 million up which is about 13 million in the year of spend on PRP there's quite a diverse range of spend within within that bucket clearly we have a lot of animals and that we continue to maintain so there's cost of running the farms but then there's also the the other costs around marketing focus groups and a lot of work we're doing around the broader market acceptance piece. So there's a broad range of spend which we continue to invest in and increase that investment as we go through and we expect a further increase in the spend next year into FY27.

Just on the what are you doing in Colombia the Dominican Republic and when you think you might be launching in those markets?

Yeah You know, I think we're carefully considering The launch, you know in those products, sorry in those in those countries, but we haven't done that as yet So we'll keep we'll definitely keep the market apprised as we move closer to commercialization in those in those geographies but clearly we see them as opportunities to experiment, gain valuable experience with the introduction of the technology and rest assured that there is a strong desire and appetite to utilize the technology in those countries.

Hi, thanks. Sean Conroy from Shaw Capital. I'll just sort of follow on from Seb's question really around that investment into the PRP programme. I mean, is that going to be more a consumer level or is that more a producer level that you're trying to drive that acceptance ahead of the launch? And has your confidence changed in any way in terms of the level of adoption you think that you can get to with PRP? versus the the numbers that you steer us to at the capital market stay and then just on abs as a follow-up question do you see any risk that you know the margin improvement story at abs is going to become a distraction from the growth opportunity that you have in porcine okay um sean thank you um you know in terms of our investment in prp prp of course is a transformative new technology

You know CRISPR-Cas9 gene editing was awarded the Nobel Prize for chemistry. The technology is used in pharmaceuticals. For example, there's a successful drug that is used for treating sickle cell anemia. There is also a lot of work on on crops. I think about 500 different crops where the technology would be used As a reminder GE is different from GMO. I mean we do not use any foreign DNA. It's essentially disabling the receptor for the disease It's been very rigorously reviewed by regulator most recently in Canada and prior to that in the USA and where we submitted all of the safety and efficacy data, really reviewed over multiple years. and if you think about a new technology like this right there's first the scientific and technical risk that you need to hurdle that you need to overcome then you get the regulatory risk or making good progress and then you have to market acceptance we obviously have invested in all three but there's sort of a sequence right in the beginning use you do a lot of studies on the animals and there's of course the regulatory work where we had to hire people work with consultants pull dossiers together and The market acceptance work has been going on for a long time. We have hired public relations experts, people that speak at conferences. We speak at conferences, I would say, you know, probably multiple times a month. We have a website that is ThePurseResistantPig.com, which in essence is consumer facing. I would highly recommend everybody to go to that website. It's very informative. You can read studies, consumer studies. You can read about what experts in this field say about the technology. So, yeah, I mean, the market acceptance is an area where we're very engaged at this point. We welcome a debate with all of the stakeholders. To your question, the ultimate decision makers will be our customers' customers. I think it will be the brand owners and the retailers will have a key influence on that. As to your question on ABS, is it a distraction? I would say no. ABS and PIC are run as different businesses. and the abs people are not involved with with pic and vice versa so they have very very clear agendas on how they can create value and what their focal areas are so we're not worried about that

First question is on the third pillar of your capital allocation policy, inorganic opportunities. Can you give us a sense of what the current pipeline looks like, what the sort of priorities may be in that area, and any guidance around returns metrics that you're looking at there?

Yeah, maybe I'll talk a little bit about M&A and then hand it over to Andy. Look, I think what is so great about Genus is that we have fantastic organic growth opportunities to create shareholder value. And as such, M&A is not a must-do for us. The priority is really to deliver against the purse-resistant pig, to improve the economics of ABS. to take advantage of the opportunity that we have in China and to continue to grow our business. And that is reflected in my strategic priorities that I defined for the business when I joined two and a half years ago. However, of course we do want to be opportunistic when attractive opportunities present themselves. right we know the industry and the industry knows us and you know so that's where we think how we think about it so it's not a must do the pipeline is probably I would say not very robust at this point as you may know there isn't you know a huge number of potential targets and we're comfortable with that however things can always can always shift and then we have very clear criteria and to give you some examples we'd love to of course do bolt-on in pic where we have a great track record you know with and it probably would be smaller businesses that would help us grow but again i mean i don't have any visibility to any of that happening in the near term uh in bovine the bar would be higher and I would like to see clear synergies for example cost synergies that would help us to get to our objective if you think about other species it would have to be a foundational asset with really good leading position and a really good growth trajectory

yeah i guess just to add to that um we've we've had a pretty good track record of doing m&a in the past albeit some of them have been opportunistic um i think we'd continue to apply some of the criteria that we've always looked at so yeah clearly we look at return on invested capital i've talked about roic being a key metric for me so we'll look at ROIC compared to our WAC in the medium term post acquisition as you'd expect we'd look at IRR and net present value that's that sort of thing but then in terms of you know a bit like what Jürgen said it has to be accretive to growth has to be accretive operating profit margin levels and then of course that translates to EPS growth right so I think we've we've got some clear financial criteria combined with strategic fit which will continue to apply but like you even said in terms of pipeline and strategic priorities not quite up there if I may just one on China JV obviously become the minority partner but

Can you give us a sense of what changes, what doesn't change, what confidence you've got that the strategy is going to be maintained, that you've set in train, that sort of thing, please? Yeah.

Yeah. Well, clearly our PIC business in China is a successful business, as it is, and we look forward to execute against that roadmap. so there is not a huge amount of changes that need to happen in the near term clearly we feel that the partner is extremely helpful and probably will be instrumental in unlocking the PRP opportunity in China and that is a significant consideration in doing this deal as we look at the governance of the PICC China business I do want to say a few things about that. We will have two out of five board seats. We have the right to appoint the CEO, and the CEO is the current or the former PIC general manager for China. The CEO will have broad management rights, and we believe that the interests will be very much aligned with BCA. to remind you BCA has multiple shareholders forty percent is held in essence by the Chinese government but sixty percent is held by private investors institutional as well as private individuals and our interests are aligned with those in terms of growing the business generating cash driving profitability just one quick follow-up on PRP in China approval process Yes, we have purse resistant pigs in China and they've been there now probably for about 18 months and they're reproducing and China is the only country in the world where we need to replicate all of the testing that we have done in the US for the rest of the world. We need to replicate that in China. They require us to expose the pigs to China-born viruses. That process is underway, that's progressing well, the animals are in a biosecure facility on the top of a mountain and nobody can go in or out of the facility and actually the workers live in the facility they cannot go out they can only go out I think every two months or so to go back to their family so as to avoid any contamination the data that we generate all of the safety efficacy data will be used to generate a dossier just as we have generated for the US and Canada Brazil Argentina and so forth And the testing will be done by the end of this calendar year, and then we can proceed to the next stage, which is submission of the dossier.

Thank you.

I saw the percentage of volume under royalty dropped a bit in Asia in the first half in spite of a very strong royalty of revenue growth in China just wonder if you could walk me through that dynamic please and secondly you're thinking on the preferred means of capital return perhaps in the short term you know in whether you would return part of the hundred million from BCA perhaps one final one you mentioned very exciting the game-changing innovation could you give me any more color on that please refer to anything in particular yeah sure so the the proportion of royalty revenue in Asia

um that the i'll start with the royalty revenue so you've seen royalty revenue in asia is predominantly driven by china and the royalty revenues in china did see a quite a significant step up from sort of six million in the first half last year to nine million so we've got strong revenue royalty revenue growth within china the the non-revenue growth is lower margin but it did step up in terms of upfront breeding stock sales and some and a little bit of byproduct but in terms of impact on profit that's been close to immaterial in that we still saw a profit growth highly correlated to the royalty revenue growth So there's a bit of noise and lumpiness in that non-royalty revenues within Asia which can fluctuate half to half. So I'm not overly concerned with that. In terms of your second question around capital allocation and potential shareholder return, So first of all, we haven't got the proceeds yet. So we've still got a few months before we get those proceeds. And then clearly we're assessing what else is on the landscape. I talked about priority number one being around organic growth opportunities, which we'll continue to look at. and of course we've got dividend return. We've talked about M&A, so then you get down to number four on the priority on the framework. And that's something we'll assess at the right time and we'll probably come back to it.

Yeah, again, as for your question on innovation, I think you used the term exciting innovation. I like that. Yeah, you're right. I mean, we spent a significant amount of money on ensuring that our products are leading edge. It's about 10% of revenue. 80% goes in product development, about 20% in more game-changing breakthrough R&D. um you know i think your question is more about the breakthrough rnd uh the focus has been on disease resistant animals and prp is a case in point that obviously is quite a long journey and we have previously talked about you know other potential diseases that were interested in and we named ASF but we have to be very careful because there is of course we're still in the discovery phase so that means that we do not have a proof of concept it also means that we don't have intellectual property so it's too early to talk about a path towards commercialization as you as you know these things could take to could take a while in addition an area of focus in R&D is sexing as a broad topic and our intelligent technology is the case in point there again I can't really discuss anything further for commercial and confidentiality reasons but rest assured that we back R&D bets where we have conviction and that that continues to be a very important lever for us as we move forward.

thanks adam thompson from bernberg just a follow-up on prp in china so you talked about the regulatory process there but i'm just wondering if you have any um kind of in terms of market acceptance your activity that you've been undertaking over there just any steer on that i think a lot of the surveys you've done in terms of the consumers view have been us focused so just anything around any color you can give that on what's happening in china in that sense would be great you've also talked sorry just another one on regulatory approvals further progress in mexico and japan i don't know whether you can give any other color around that um and then just the third one on uh saw one on costs in pic you talked about um lower input costs of production in h1 so just wondering if you could give a bit of detail on that and the outlook for h2 on that thank you okay so i think there's three questions you want to take the last one maybe yeah and then we go to the other two yeah

i'll do that first yeah yeah so um in pic in the second half there's a there's actually quite a few moving parts which you need to think about if you're looking at h1 vh2 so the half and half clearly there's the china deconsolidation which will reduce then we've talked about prp costs stepping up so again that's a reducing factor and then the third one is around product development costs and on product development clearly we have a lot of animals going through and there's input costs and there's outputs as the animals flow through so far we've benefited from lower input costs and then stronger pricing as we exit. We don't think that will continue over the long term so we're being cautious around what we expect in the second half and that translates to an increase in overall product development costs because we have a lot of animals going through that part of the P&L.

help yep yeah your first question was around PRP market acceptance specifically in China right you know I would say that the arguments for the use of PRP are similar to elsewhere in the world right and those arguments are you know it addresses the most devastating disease among among pigs and and you know the benefits are you know much improved animal welfare which i think is an important argument another argument is it lowers the use of antibiotics another argument is it lowers greenhouse gas emissions and we've done the life cycle analysis that shows that it lowers ghgs by about eight percent and last but not least it drives very significant economic benefits to our customers Now, as for market acceptance in China, of course, in China, relationship and support from the government is absolutely critical. It's probably important in every country, but I would say more so in China than in many other countries. And of course, that is one of the reasons why we have aligned ourselves with a state-backed entity. and so that's where the benefits will kick in. Our partner is leading the charge in that regard and they are for example very active in hosting conferences and engaging with government officials where some of our research scientists make appearances and give talks and so that work around regulatory, both regulatory as well as market acceptance is very much underway in China. Then I think the other question that you had was in relation to Mexico and Japan. So we are, as I mentioned, we're encouraged about the interaction with both regulators. We've been, you know, in very, very active dialogue with both of them for years now. similar to the U.S. and Canada, right? The process has taken years, literally. And, you know, if we think about Mexico, we're dealing with an organization called SENACICA, which is more or less the equivalent of the FDA. We're also dealing with SADER, which is the Ministry of Agriculture. We believe that they're very receptive based on all the information that we have provided. uh... what is somewhat different in mexico is that there isn't a very clearly defined pathway towards getting a technology like this approved uh... what is very helpful we believe is that we get very strong support from mexican pork producers so they're active in you know making their position known to the government mexico definitely has a first problem so there is i would say uh... strong desire to adopt the technology in Mexico. I would say Japan is maybe a process that is somewhat more similar to what we have seen in Canada and the U.S., but certainly not exactly the same. Certainly it appears to be moving a little bit more deliberately, a little bit more slowly. but Japan does have a record of supporting modern biotechnology they have approved other gene edited products so we remain optimistic optimistic about both countries really I think we're getting to the end yeah

Okay, we have no further questions on the webcast or the conference call at the moment, Juergen, so maybe back to you for any closing remarks.

Well, I would like to thank everybody for your interest and for your questions. Once again, we're very pleased about the progress. My gratitude goes out to all of the Genus colleagues, and thank you for appearing here this morning, and I wish you a very good day.