Genus H2 2025 Earnings Call Transcript

Quartr
Provided by Quartr
September 4, 2025

Key Takeaways

  • Positive Sentiment: Genius secured an accelerated joint venture with BCA for PIC China, unlocking a $7.5 million milestone and a $160 million upfront payment to expedite PRP approval in China.
  • Positive Sentiment: The US FDA approved the PRP gene edit in April, marking a critical regulatory milestone and supporting ongoing submissions in Mexico, Canada, Japan, and China.
  • Positive Sentiment: FY 25 adjusted operating profit rose 30% in constant currency, free cash flow hit a record £41 million, and net debt leverage improved to 1.5× EBITDA.
  • Positive Sentiment: The ABS Value Acceleration Program delivered £21 million of annualized benefits in phases one and two, and phase three has commenced targeting an additional £9 million in FY 26.
  • Negative Sentiment: ABS China’s performance faces headwinds from a US bovine genetics import ban and continued weak dairy market conditions, which may pressure H1 FY 26 results.
AI Generated. May Contain Errors.
Earnings Conference Call
Genus H2 2025
00:00 / 00:00

There are 9 speakers on the call.

Speaker 8

... Thank you for joining us this morning. My name is Jorgen Kokke, and I'm the Genus CEO. First, I am delighted to introduce Andy Russell, our new CFO, who has succeeded Alison Henriksen on the first of August. I'm also very pleased to report that we've made a significant announcement this morning related to the acceleration of our porcine joint venture formation in China. Andy and I will take you through Genus' results for the year, which will be followed by a presentation on our China JV. In summary, we have achieved strong financial results and made significant strategic progress. I'd like to take the opportunity to thank all Genus employees for their contributions in achieving these results. After the disclaimer, let me start with an overview of our strategic performance, as well as our key financial headlines. Our three strategic priorities remain unchanged.

Speaker 8

Our first priority is continued growth in porcine. I am pleased to report that PIC, excluding China, achieved an 11% increase in operating profit for the full year. As for PIC China, I'm delighted to announce this morning that we're accelerating our joint venture formation with BCA. Under the terms of the agreement, Genus will receive an accelerated $7.5 million milestone payment, and upon completion of the transaction, a gross cash payment of $160 million, with BCA taking a 51% stake in PIC China. This provides the best possible route to obtaining PRP approval in China. I'll take you through more detail on this later in the presentation. Our second priority is the successful commercialization of PRP, which is the biggest opportunity from our R&D program. In April, we achieved a critical milestone as the U.S. FDA approved our PRP gene edit.

Speaker 8

This important accomplishment is testament to the hard work and dedication of numerous Genus teams over many years. We are continuing to seek approvals from other regulators around the world, and we are encouraged by the progress that we're making. Our third priority is driving greater value from bovine. As a reminder, we initiated a comprehensive value acceleration program in FY twenty-four, which will return the ABS business to growth while improving margins, return on capital, and cash generation. I'm pleased to say that VAP actions are bearing fruit, with Phases One and Two delivering over GBP 21 million of annualized benefit. We are now implementing Phase Three, which targets an additional GBP 9 million of annualized benefit. ABS is a strong business, and we remain focused on accelerating profitable growth. Turning then to our headline financial performance in the year.

Speaker 8

You can see the strong numbers on the slide, and note that this was achieved despite a significant GBP 8.5 million FX headwind. This was driven by strong growth in PIC and VAP actions benefiting ABS. Let me then look at our markets, and let me pick out a few highlights on each of the species. In the Americas, pork producers operated at positive margins throughout the year. European pork producers also made healthy margins, but our European business was negatively impacted by ongoing health challenges in customer herds. In China, the market environment for pork producers was relatively stable throughout the year. Outside of China, the Asian industry continued to face disease challenges. Looking ahead, the outlook for the first half of FY 2026 is stable, albeit there are the normal risks around disease.

Speaker 8

Moving to bovine, in North America and Europe, dairy and beef producers were profitable in the period. In LATAM, demand for beef genetics in Brazil continued to be weak, despite signs that the beef cycle is stabilizing. In Asia, the environment for Chinese dairy producers continued to be very challenging. In addition, in February, the Chinese government restricted bovine genetic imports from the US due to bluetongue virus being found in several US herds. This actually led to a stronger H2 performance from ABS China as customers looked to secure their supply of ABS' elite genetics. However, this is only a short-term boost to sales in China, as there is currently no ability to replenish in-country inventories.

Speaker 8

In terms of the H1 outlook for FY 2026, we believe the market environment in Europe and Americas is reasonably stable, whereas China dairy continues to be weak, with restrictions on US bovine genetics posing an additional challenge for ABS China. Overall, therefore, aside from ABS China, market conditions appear relatively stable across both of our businesses for the first half, and Andy and I will discuss the full year outlook for Genus later on. Let me now update you on our sustainability progress. At Genus, our vision is pioneering animal genetic improvement to sustainably nourish the world. We know we have a significant positive impact on industry sustainability. Our genetics and services enable farmers to raise healthier animals that produce more high-quality protein per unit of input.

Speaker 8

In FY twenty-five, through the use of our genetics and services, protein producers were able to avoid over eight million tons of CO2 equivalent emissions. These so-called Scope 4 reductions, that are underpinned by rigorous life cycle assessments, show the powerful impact Genus' advanced genetics has on improving industry sustainability. Let me now hand over to Andy Russell to take you through our FY twenty-five financial performance. On behalf of the entire board, we're delighted we've been able to secure an executive of Andy's caliber. Andy joined us on the first of August, and before Genus, spent nearly 12 years at Smith & Nephew in operational and strategic finance roles. Prior to that, Andy spent 17 years with KPMG. I'm looking forward to working closely with Andy as we continue to advance our strategic agenda. With that, let me turn it over to Andy.

Speaker 8

There you go, Andy.

Speaker 4

Thank you. Thank you for the introduction, Jorgen, and good morning, everyone. I'm very excited to be joining Genus at this stage in its journey. Before joining, it became clear to me that the group has very strong IP and significant growth opportunities. In the last few weeks, I've been impressed by the people I've met and their passion for the business and our customers. I'm looking forward to working with Jorgen and the team to deliver these initiatives and drive profitable growth for the group. I'm pleased to say I've inherited a strong set of FY twenty-five results. My four key takeaways are, first, PIC continued to demonstrate the strength of its business, with good growth ex-China, and continued progress winning new royalty customers in China. Second, ABS has delivered VAP one and two, driving significant profit growth.

Speaker 4

VAP three has commenced, which we expect to drive significant benefits in FY 2026. Third, we generated record free cash flow that covers our dividend and expect strong free cash flow in FY 2026. And finally, we have a strong balance sheet with debt leverage now down to 1.5 times EBITDA. With that, let's now dive into the detail. Let's start with volume growth. I'm pleased to report that PIC volume was strong, with total volume up 10%, or 9% excluding China. Ex-China volume growth was broad-based, with the Americas being particularly strong. Moving to ABS, it's pleasing to see more stable volume after a challenging FY 2024. On an underlying basis, we continue to see the mix shift to sexed continuing, with sexed volume up 11% for the year.

Speaker 4

There's one point to note, however, when looking at the chart, over the course of the year, a significant proportion of ABS's dairy volume growth came from India, where units typically sell at a lower price point. Excluding India, volume growth in the year was about 1%. Looking to FY 2026, this creates a tough volume comparator, albeit the profit impact of this is less material. Moving to our trading performance, group adjusted operating profit increased 30% in constant currency and 19% in actual currency to GBP 93.1 million. Adjusted operating profit, excluding PIC China, was GBP 84.7 million. PIC China adjusted operating profit also improved significantly to GBP 8.4 million for the year, driven primarily by stronger byproduct revenue. PIC adjusted operating profit grew 16% in constant currency and 8% in actual currency.

Speaker 4

It's important to note that PIC's adjusted operating profit included a net GBP 3.7 million milestone receipt following the U.S. FDA's approval of the PRP gene edit. ABS adjusted operating profit increased 53% in constant currency and 39% in actual currency, driven primarily by benefits from the VAP initiatives. The increase in central costs is largely driven by variable costs associated with underlying pre-group profit growth, including performance-related employee rewards. Group operating profit margin increased 210 basis points, from 11.7% to 13.8%, reflecting better leverage achieved in both businesses and the planned optimization of R&D investments following the strategic review in FY 2024. Net financing costs increased slightly to GBP 18.8 million as a result of higher interest rates and average borrowings over the year.

Speaker 4

Overall, the group achieved adjusted PBT growth of 38% in constant currency. As you know, sterling strengthened, particularly against LATAM currencies, resulting in a significant GBP 8.5 million FX translation headwind during the year. As a result, adjusted PBT grew by 24% in actual currency to GBP 74.3 million pounds. Let's now look at the divisions in detail, starting with PIC. PIC's adjusted operating profit increased 16% in constant currency on revenue that was 8% higher. As mentioned, adjusted operating profit includes the GBP 3.7 million milestone receipt. The chart on the right shows the building blocks of PIC's profit growth. I'll cover the performance of our trading regions on the next slide, but you can see that PRP costs came in 2.5 million lower year-on-year, but remember that this includes the GBP 3.7 million milestone receipt.

Speaker 4

On an underlying basis, PRP costs were up £1.2 million for the year. The last point to flag is that FX was a significant headwind for PIC during the year, with a £7.9 million translation impact due to sterling strength, particularly relative to the Mexican peso and the Brazilian real. This next slide presents our normal regional view of PIC performance. PIC North America continues to deliver very resilient growth, with constant currency profit growing 3%. Royalty revenue accounts for a large proportion of this region, with growth of 2%. Latin America performed well, with operating profit growth of 14% in constant currency, supported by a very strong 11% increase in royalty revenue. That was broad-based across the countries within the region. PIC Europe had a tougher year, with full year profit down 4% in constant currency.

Speaker 4

We made good progress in Spain and Germany, but this was more than offset by lower sales in Russia due to challenging market conditions. In Asia, profits were 70% higher, albeit from a lower base. Within this, PIC China profits increased 5.2 million, driven predominantly by higher by-product revenues, as well as modest royalty revenue growth. It's pleasing to report that Asia, ex-China, also grew profits 29%, with good growth in Vietnam, the Philippines, and South Korea. Moving to ABS, we're clearly seeing the benefits of our value acceleration program coming through. In constant currency, revenue increased 2%, but adjusted operating profit increased 53% to GBP 19.5 million. As a result, ABS's margin improved 190 basis points to 6.3%.

Speaker 4

As you can see from the chart on the right, VAP was the key driver of profit growth. In FY 2025, the annualization of VAP Phase One initiatives achieved GBP 3.8 million of benefit. This brings the total benefit from VAP Phase One to GBP 11 million. VAP Phase Two achieved a further GBP 8 million of in-year benefit. We continue to expect these initiatives to deliver an annualized benefit of GBP 10 million. We've also pulled out ABS China, where profits were up GBP 0.7 million year-on-year. I'll discuss ABS China a bit more detail on the next slide. The increase in performance-related pay reflects both the significant progress made under VAP and the fact that there was minimal payout last year. ABS was also impacted by a GBP 2 million FX translation headwind over the course of the year. The next slide shows our regional performance in ABS.

Speaker 4

As you can see, we saw strong profit growth of 26% in North America and 21% in EMEA, and these are the regions that have been key markets for the VAP initiatives. In North America, volume grew 8%, with very strong sex growth of 25%. In Europe, volume growth of 2% was more stable, with sex volume growing 11%. In contrast, ABS performance in Latin America was fairly weak, with profits down 6% in constant currency and down 20% in actual currency. The key volume factor remains a relatively weak market for beef genetics in Brazil, which led to ABS LatAm's beef volume decreasing 6% year-on-year. The regional dairy market was stronger, and there was a notable 7% increase in sex volume, albeit off a relatively low base.

Speaker 4

ABS Asia profits were down 4% year-on-year, an improvement from H1's 22% decline. The improvement was primarily driven by China's decision to halt bovine genetic imports from the US in February after the bluetongue virus was found in a number of US herds. Paradoxically, this resulted in a strengthening of ABS China's sales in the second half, as customers looked to secure their supply of ABS's elite genetics. This was a short-term boost to sales, however, and ABS China faces a challenging FY 2026, with the import ban still in place and a continuing tough underlying market for dairy producers. ABS Asia volume growth was primarily driven by good progress in India, albeit at lower, relatively lower price points.

Speaker 4

In aggregate, ABS volume growth of 5% comprised sexed volume growth of 11%, a beef volume decline of 3%, and dairy conventional volume growth of 6%. Let's now move to research and product development, where I'm excited by what I've learned about the innovative work and capabilities of our scientific teams. We've made one change on this slide, and that's to show you the combined research and product development spend as a percentage of group revenues, and you can see that in FY 2025, this was 11%, which demonstrates our significant financial commitment to R&D initiatives to continue our profit growth over the long term. Moving to research specifically, our spend decreased 24% to GBP 16.5 million as a result of the actions taken from the R&D strategic review that was initiated in February 2024.

Speaker 4

Our more focused research spend represented 2.5% of group revenue, and going forward, we expect this spend to be relatively stable and to remain below 3%. Moving to porcine product development, the reduction in PRP costs is driven by the milestone receipt. Excluding this, PRP costs increased by GBP 1.2 million for the year. Bovine product development costs, meanwhile, were broadly unchanged on the prior year, although we did make a substantial investment during the year through the buyout of the De Novo Genetics herd. The acquisition is progressing well, and we've already seen stronger KPIs in our genetic program. We're expecting higher bovine product development in FY 2026 due to higher bull depreciation. Moving to our statutory income statement. So we consistently measure and report adjusted results, as we think these give a better view of the group's underlying performance.

Speaker 4

Our statutory results can be significantly affected by non-cash items, in particular IAS 41, which can give a misleading picture of the group's underlying performance. Picking out the key line items, the movement in the IAS 41 valuation for the year was a GBP 13.3 million decrease compared with the prior year valuation, primarily driven by bovine assets. Exceptional expenses were significantly lower year-on-year at GBP 11.4 million, as expected, and comprised two main elements: approximately GBP 9 million in relation to VAP restructuring costs and GBP 2 million in relation to other corporate transactions. Based on what we can see today, we expect similar exceptional costs in FY 2026, with the principal component being one-time restructuring costs in relation to VAP phase three. Reported operating profit was GBP 42.4 million, a significant improvement on last year's GBP 6.4 million.

Speaker 4

Net finance costs were similar to last year, resulting in statutory profit before tax of GBP 28.5 million, a GBP 23 million improvement year-on-year. Our adjusted tax rate was 27.5%, consistent with our expected range, and our statutory tax rate was 36.7%. With that, let me now turn to our cash flow performance. FY 2025 was a strong year for free cash generation, and we both covered our dividend and reduced debt. Looking first at the chart on the left, you can see that improved working capital was the biggest driver of our increase in free cash flow. Improved working capital has been a key focus area within our ABS VAP program. Sizable outflow last year. Lower capital expenditure was expected and a function of the group moving into a period of stable CapEx spend.

Speaker 4

We expect FY 2026 CapEx to be slightly higher and in the region of about GBP 21-23 million. We had a significant exceptional cash outflow in FY 2025, as expected. The total exceptional cash outflow of GBP 24.2 million included approximately GBP 8 million in relation to the ST settlement agreed in FY 2024, GBP 9 million in relation to VAP restructuring costs, and GBP 7 million in relation to potential corporate transactions in FY 2024 that are no longer active. Looking forward, we expect exceptional cash outflows to be much lower in FY 2026. We have one final GBP 4 million pound payment in relation to the ST litigation settlement and expect further restructuring costs in relation to VAP. The chart on the right shows our progress in relation to cash flow generation and cash flow conversion over the last five years.

Speaker 4

You can see that FY 2025 was a standout year in terms of operating cash flow, free cash flow, and cash flow conversion. Looking to FY 2026, I expect that cash conversion will remain strong, but I just remind you that first-half cash flow is normally lower than the second half, and we expect this to be the case this year. Moving to our balance sheet, I'm pleased to report that we've reduced our net debt and leverage. Net debt decreased to GBP 228 million from GBP 249 million at June 2024. As shown on the chart, our free cash flow of GBP 41 million covered GBP 21 million of dividend payments in the year, as well as GBP 4 million of equity investments.

Speaker 4

There were broadly two offsetting impacts in the year: a GBP 10.6 million increase in deferred consideration relating to the acquisition of the De Novo minority interests, and an GBP 8.3 million reduction in lease liabilities, primarily related to PIC's Ludian farm being sold into a joint venture. As a reminder, the De Novo deferred consideration is payable in four equal installments over four years, ending July 2029. We also had a GBP 7.3 million favorable reduction in debt on the translation of our U.S.-based debt. As a result, our net debt to EBITDA at the end of the year, calculated per our financing facility, was 1.5 times, compared to two times last year. The 0.5 turn improvement was predominantly driven by higher EBITDA and strong cash flow, as well as improved lease liability terms in our new RCF.

Speaker 4

Our targeted leverage range remains one to two times, and we expect to continue deleveraging in FY 2026. We completed a refinance in June, and our new facility is for approximately the same size, with maturity extending out to June 2029. We had head room of GBP 119 million at year-end, and our covenant remains at three times. Our return on adjusted invested capital increased to 14.7% in FY 2025, and we are focused on improving this further in FY 2026. I'd also remind you that in our appendix, we have a technical guidance slide, which outlines expected impacts in our FY 2026 accounts for various line items that should help you with your modeling. Let me now take a moment to remind you of Genus' capital allocation framework, which will be a key focus area for me going forward.

Speaker 4

As you know, our balance sheet is in a strong position, and our leverage has now been reduced to one point five times EBITDA, which is the midpoint of our targeted range. We therefore wanted to share our discipline framework for capital allocation, which we divide into four categories: supporting organic growth opportunities, such as investments in facilities, innovation, and commercial capabilities, continuing to strengthen our balance sheet, value creating inorganic growth opportunities, which must meet strict financial and strategic hurdles, and additional shareholder returns over and above our current dividend. With that, let me now turn the presentation back to Jorgen, who will give you a more detail around our strategic progress, the porcine JV in China, and our outlook for FY 2026.

Speaker 8

Thank you, Andy. I'll now discuss our strategic progress during the year in more detail. Let me review each of the three strategic priorities that I defined two years ago. Firstly, I'd like to take a deeper look at PIC's royalty revenues. The chart on the left shows PIC's four-year royalty revenue CAGR by region. You can see robust royalty revenue growth with a CAGR of 5% in North America, 11% in Latin America, and 6% in Europe. PIC continues to demonstrate it can grow with both existing and new royalty customers. In Asia, our four-year royalty revenue CAGR is -4%, which highlights why we increased our commercial focus on royalties in China eighteen months ago. I'm pleased to say that in FY 2025, royalty revenue growth in Asia was 12%.

Speaker 8

Adoption of PIC's royalty model is high and continues to be led by 97% penetration in North America. This underpins the stable growth of PIC. The chart on the right helps demonstrate this stability. It shows US pork producer profitability over time. There's no doubt that US pork producer profitability is cyclical, and yet, PIC North America has demonstrably grown royalty revenues throughout these cycles. Let's now move to PIC China. Our goal is, of course, to grow the business, but also to improve its stability. The first chart shows the pig price to corn ratio in China. This is a proxy for corn, for pork producer profitability. When this ratio is above six, Chinese pork producers are making a positive margin, which was the case during the year.

Speaker 8

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. As Andy explained, the increase in non-royalty revenues was predominantly a result of higher by-product revenues. That being said, there was a 6% increase in royalty revenue in China as well, and we continue to expect strong royalty revenue growth going forward.... The chart on the right is the same one we've shown before and illustrates that royalty revenues from new customers can take up to four years to reach financial steady state, with revenues and gross margin in the first two years typically being fairly limited. The point of this chart is to highlight that PIC China's commercial success, winning 25 new royalty customers over the last two years, hasn't turned into significant royalty revenue or margin yet, but it will.

Speaker 8

Moving now to PRP. I am delighted to say we made significant regulatory progress in the year, with the U.S. FDA granting approval for our gene edit in April. This clearly represents a very important milestone for Genus. In order to commercialize PRP in the U.S., we believe we need approvals in major U.S. pork export markets, namely Mexico, Canada, and Japan. We continue to advance with the regulatory authorities in these jurisdictions, as well as with other international regulators, including China. In addition to FDA approval, we also secured favorable determinations from the Dominican Republic and Argentina. These determinations further expand our PRP regulatory footprint, and we will continue to pursue further approvals in FY 2026. Moving now to bovine and our value acceleration program.

Speaker 8

We initiated this program two years ago with clear objectives: to accelerate growth and improve ABS's margins, returns, 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 bovine business. Let's then move on to the achievements of VAP Phase One and Phase Two, and our areas of focus for VAP Phase Three. To recap, Phase One initiatives were completed in FY 2024. We unified dairy, beef, and intelligent under one leader and started implementing stronger pricing, governance, and value capture, achieving annualized benefit of GBP 11 million. In Phase Two, we've created global product management, global marketing, and global supply chain teams. The work on supply chain has already achieved significant working capital gains, and we see further potential for improvement.

Speaker 8

Across Phase One and Phase Two together, we've achieved GBP 21 million of benefit, which is a significant achievement. We've now commenced Phase Three of VAP. We're focusing on reshaping ABS's go-to-market and enhancing commercial excellence. Fundamentally, we're concentrating on bringing the right product to the right market, providing value, creating service to our customers, and delivering the product to our customers in the most efficient manner. We're already in the process of implementing material changes in our biggest markets, and we expect the profit benefit of these changes to be substantial. We're targeting GBP 9 million of benefit from Phase Three, of which GBP 6 million is expected to be achieved in FY 2026. I'd now like to take a moment to commend our ABS teams on the progress we're making through VAP.

Speaker 8

We can see the benefits come through, and it is increasingly clear that we are positioning ABS for accelerated growth. Let me now remind you of the background to our partnership with BCA, Beijing Capital Agribusiness. Back in two thousand and nineteen, Genus and BCA announced a strategic porcine collaboration to jointly research, develop, and secure regulatory approval for PRP in China. As a reminder, PRRS remains one of the biggest disease issues for Chinese producers. As a leading Chinese state-backed agribusiness with wide-ranging interest in animal genetics, we chose BCA as our partner to commercialize PRP. Upon regulatory approval of PRP in China, a joint venture would be formed, whereby BCA would acquire 51% of PIC China. On this slide, we've laid out the key financial terms of the updated agreements and the original agreements.

Speaker 8

The first box shows the upfront consideration payable to us on formation of the joint venture. Under the original agreements, this gross consideration was subject to a cap and collar of $120-$160 million. Under the new agreements, we will receive gross proceeds of $160 million, i.e., the top end of the range. After withholding tax, transaction cost, and potential working capital and net debt adjustments, we expect to receive net proceeds of around $140 million. We expect to receive this upfront consideration in the second half of FY 2026. The second box shows milestone payments from BCA to Genus. Under the original agreements, these totaled $20 million. Since the signing of the original agreements, we have already received $12 million.

Speaker 8

Under the new agreements, the trigger points for the remaining $7.5 million have been brought forward, thereby accelerating our value crystallization. The third and fourth boxes show the IP royalties and dividends that we expect to receive from the JV on an ongoing basis. Under the new agreements, both future earning streams are consistent with the prior agreements. We believe the new agreements are very positive for Genus, both strategically as well as financially. From a commercial point of view, this should accelerate our ability to capture the long-term growth opportunity for PIC in China. Forming the joint venture also cements both parties' commitment to achieving PRP approval and commercialization in China. The terms we've agreed accelerate value crystallization for Genus shareholders while retaining our future economic rights.

Speaker 8

The transaction is expected to complete in 2026, subject to regulatory approvals for a Chinese state-backed entity, and our current expectation is that the deal proceeds will be used for balance sheet de-leveraging and potential additional shareholder returns, in line with the capital allocation framework that Andy talked about earlier. Before I conclude, let me briefly remind you of our PRP progress in China and the scale of the porcine opportunity. China is the largest porcine market in the world, with approximately 37 million sows. That's around six times larger than the US, which is currently PIC's largest individual business. In relation to PRP, we continue to make good progress with the Chinese regulatory authorities. We have PRRS-resistant pigs in China, and we have successfully bred a new generation of PRP animals. Testing is underway in preparation for regulatory assessment.

Speaker 8

Again, we believe accelerating the joint venture formation will strengthen our position with regards to obtaining Chinese regulatory approval for PRP. Lastly, let me now turn to Genus' outlook. FY 2025 was a very good year, with strong financial performance and excellent strategic progress on multiple fronts, including the PRP FDA approval, the accelerated PIC China joint venture, and the ABS value acceleration program. We generated record free cash flow, and our balance sheet is deleveraged. Looking to FY 2026, market conditions appear relatively stable. We, of course, continue to monitor potential geopolitical and disease challenges around the world. FX rates are currently trending relatively neutral vis-à-vis FY 2025. We expect significant growth in FY 2026 adjusted profit before tax in constant currency. This compounds on the strong growth achieved in FY 2025 and is in line with market expectations.

Speaker 8

That concludes our presentation of Genus' FY 2025 results. Thank you very much for your time and interest, and we now look forward to addressing your questions. Charles, please.

Operator

Charles Hall from Peel Hunt. First of all, many congratulations on signing the BCA deal. A few questions on it. What unlocked the transaction this time around, compared to when you've been previously talking? Also, why are they particularly keen to accelerate it rather than waiting until they get approval? And can you just give a bit more background on where BCA is in terms of their agribusiness operations and their ambitions for the JV?

Speaker 8

Yeah. Well, thank you very much, Charles. So maybe I'll start with your last question first. BCA is 40% owned by Beijing Capital Agribusiness, which is a very large conglomerate active across the entire food supply chain. It is one of the largest state-owned entities active in the China food supply chain. And they're active across plants, tomatoes, oils, beverages, dairy products, so very large and very reputable group. As you know, we've been in discussion with them for a while. They approached us originally about two years ago with a suggestion and a proposal to accelerate the formation of the joint venture. The reason is actually very simple.

Speaker 8

The reason is that they believe, and we believe, that it is a better pathway towards PRP approval to make that submission as a majority Chinese-owned entity. As you can imagine, you know, genetics, and overall, if you take a step back, the entire food supply chain is extremely strategic for China, being a country with a very high population and relatively limited in terms of the arable land. And so that's the key driver, and we fully agree with that approach.

Operator

... And their longer-term ambitions, do you see any change in the trajectory, I'd say, with moving on more onto the royalty model? Or is it more of a business as usual, and the approval process is the key driver?

Speaker 8

Yeah, I think that, you know, the collaboration and the partnership, between BCA and PIC Genus is very strong. Both parties very well understand what each other's strength are, and so BCA is looking to leverage PIC, and also including PIC management, to continue to execute against the strategy that we have in place, and that strategy is about growing with the large producers in China, via the royalty model. And we doubled down, and we actually refreshed our commercial approach, as I mentioned before, eighteen months ago.

Speaker 8

Prior to that, our focus was not on the royalty model, but given the changes that we saw in the Chinese market, with the large producers becoming larger and more professional, we felt the time was right to focus on the royalty model, and that has paid off, with 25 new customers won, and we'll continue on that track, and BCA is fully on board with that.

Operator

That's great. Thanks.

Speaker 8

Seb, yeah.

Speaker 3

Hi, Seb Jantet with Panmure Gordon. So a couple of questions, if I may. First of all, just... Obviously, you, you've been approved in the US for a while now. So you're now in a situation where you can start having conversations with customers, and I'm just wondering how those have progressed and whether there have been any changes to the proposed model for commercializing in the US. I'll start off with that one, and ask some other ones afterwards.

Speaker 8

Yeah. Yeah. So thank you, Seb. First of all, we're delighted with achieving the very significant milestone of obtaining the U.S. FDA approval. It highlights the safety as well as the efficacy of this technology. It was a very rigorous review that took many years and thousands of pages in terms of the dossier, lots of questions, and very constructive and positive dialogue with the FDA, who are extremely professional. We obtained that approval on the twenty-ninth of April. We are very encouraged by the dialogue that has ensued following that approval. We're very active, speaking at conferences, engaging with customers, and other players throughout the pork chain as well as the food chain.

Speaker 8

However, as it relates to commercialization and detail, agreements, and so forth, first things first, and the first things are that we need to obtain the, approval in the U.S. export markets for pork, and as you very well know, Seb, those are Mexico, Canada, and Japan. And so that is our immediate focus, to obtain approval in those markets, because the U.S. does export a lot of pork, and so that those export markets need to be secured. Mexico, of course, is the largest market for U.S. pork. As I commented, we're encouraged by the progress in those markets, but to be a little bit more specific, we have completed our submissions in Canada and in Japan.

Speaker 8

That means that we have submitted our dossiers. We've gone through Q&A with the regulator. We followed up on all questions that they have asked, and so we have to wait until the regulator decides. I'm not gonna make a prediction as to when we're gonna scale those hurdles, because at the end of the day, we don't control that. The regulator can, at any point in time, come up with new questions, right? Or they can, at any point in time, stop the clock, but you know, given our track record, given the quality of our R&D teams and our product development teams, and all the work that we've done, we feel good about it.

Speaker 8

Now, as it relates to Mexico, as we have discussed previously, Mexico does not have a regulatory framework that is clearly established. However, we are in constructive dialogue with the Mexican authorities. We find strong support from the Mexican pork producers. As in many other countries, PRRS is a major problem in Mexico, and it's not getting any less in terms of being a problem. So, we're optimistic about Mexico as well.

Speaker 3

Okay, thanks. And then just turning to ABS, I mean, obviously, it's been an incredible turnaround there, and, you know, I think if I kind of run rate your VAP 3, you're getting pretty close to 10% kind of margins in that business. So I'm guessing that the question is: Is there more to go after that, or have you then got kind of ABS to a position where you think you're at the kind of the margins you can get from it?

Speaker 8

You know, we are encouraged by the progress. We are very focused at this point on executing against VAP Phase 3. We have very clear plans. We have very clear targets. We have people that are accountable for delivering against these targets, and we're very methodical in terms of how we go about that. We've really sort of built that transformation muscle in ABS, and the ABS team is responding to that very positively. You know, once you begin with change, people... It's just a natural reaction, people need to get used to that. But once you get in the mode of changing and improving and delivering results, you know, that... that gives energy, and that's what we're seeing now at ABS.

Speaker 8

You know, I don't think the work will be done, right, after this year. The work will never be done, but we believe there's more work to be done post 2026. Whether that will be in the form of VAP, who knows? Ultimately, we have to get to a business that continues to improve its commercial excellence, but also its operational excellence, driving cost out of the business, doing more with less, leveraging technology, and really sort of strengthening that commercial muscle to win in the marketplace. At the end of the day, ABS has to grow. But we're encouraged about the progress so far. We've made significant progress, reduced significant cost, while keeping the top line up. Andy, any further reflections from you?

Speaker 4

Yeah, I think, you know, FY 2025 was the first step on that journey to margin improvement, and the VAP program gives us visibility. I think in the past, we've stated that we're targeting a margin of a double-digit margin in the medium term, and I think that continues to be the case. And like Jorgen said, I think there's huge opportunity for the ABS business, both from the VAP programs and beyond. You know, that tone of continuous improvement, which is clearly there under the new leadership.

Speaker 6

Brilliant. Thanks.

Speaker 8

Damian?

Speaker 7

Sorry. Sorry. Yeah, Christian Lanning with Stifel. Maybe just on BCA and the JV, in terms of interpreting that or some, maybe some, thoughts around that. Does it signal potentially greater confidence around from BCA on the sort of timelines and chances of success of that submission? I think in your Capital Markets Day, you had 2026 sort of penciled in the timeline for potential approval in China. Just any thoughts around timing there, and you know, you've talked about one generation now, I think, Brad, is it maybe a potentially multiple generations that you did in the US, anything?

Speaker 8

Yeah, I think, Christian, I think you're right. It does signal confidence on the part of BCA, and ultimately, on the part of the Chinese government in this technology in PIC, but also equally in PRP. So, you know, I think what they're seeing is that this is a phenomenal technology that has the ability to improve animal welfare, that has the immense benefit of lowering antibiotic use. And that is hugely beneficial in terms of economics, and that is very important to China to feed their population, especially if you consider in today's geopolitical environment, right? If they have to import less soybeans, that's clearly a very good thing.

Speaker 8

So, yeah, I do think that this represents confidence in the technology and a desire to advance it. Now, China is obviously a very large country. An approval needs to be navigated through their approval system. We do need multiple generations of pigs. China is the only country in the world so far where we have to replicate all the testing in country, so clearly that is time-consuming. But that process is underway. As I mentioned, we have PRPs in country in a biosecure facility. And BCA, you know, employ very capable people, including very reputable professors, to lead the charge, to study, and to engage with the government.

Speaker 8

They host conferences, for example, where many government officials are in attendance, and so they are a great conduit to, you know, to the appropriate officials within MARA, the Ministry of Agriculture, as well as in other parts of the Chinese government, but Christian, as it relates to specific timing, we'll have to see. You know, FY 2026 sounds, or 2026 sounds early, it's probably gonna be longer than that, but it's difficult to predict. A few years, I would say.

Speaker 7

Thank you. That's helpful. And then maybe on VAP three in bovine, and maybe some more specific examples of the sort of things you're looking to as it relates to... You know, you talk about reasonably significant changes in the commercial strategy. Any particular concrete examples you can give around sort of what that really means?

Speaker 8

Yeah. Maybe first of all, I may be not as specific as I would like to be, because I know our competitors are listening to these calls, and what I say in this meeting gets shared with, you know, our competitors tomorrow, and they take it out of context. So, but I would say that, yeah, there's lots of examples. We've really looked at our customer profitability, and so as I've mentioned, you know, during prior meetings, we provide a product, but we also provide a service, and that service is very labor-intensive. You have people that visit farms and breed animals or do heat detection, and so we are constantly evaluating whether we get an appropriate return.

Speaker 8

Sometimes you make a relatively good margin on the product, but it's insufficient to cover the cost of the service. As you can imagine, to have skilled people visit farms is very expensive because they spend a lot of time in cars. The scheduling of their routes is very, very critical. We've been able to make very significant improvements in that area, and we continue to do that, which, for example, means that the customer always gets a choice. At the end of the day, the customer is the most important stakeholder that we have, in my mind. Without the customer, we don't have a business. And so we take that extremely serious, but we also need to make a living.

Speaker 8

And so, if the profitability is insufficient, then there we offer the customer you can pay a higher price, or you can buy more volume from us or different products. Or if you're unwilling or unable to do that, well, we have to look at that service. And so, that's one example. I mean, there's other examples. We have... You know, it turned out that we supply liquid nitrogen to many customers, but even to a lot of customers that don't buy genetics. And so that raises the question, is it should it be our strategy to be in the liquid nitrogen business if these customers don't buy genetics? So again, that leads then to sort of a fork in the road with decisions to be made. So, yeah, lots of examples.

Speaker 1

Great. Thank you.

Speaker 8

Sorry, Damien.

Speaker 6

That's all right.

Speaker 2

Thank you very much. Damien McNeela from Deutsche Numis. Two from me, please. Firstly, just on ABS China, I appreciate that the underlying market conditions aren't particularly great, but is there an opportunity to supply that market from other regions other than the U.S., given the ban? That's the first question.

Speaker 8

Yeah.

Speaker 2

And then the second question is, I think you've hinted at, assuming that you'd get the cash from the BCA deal, that there will be an intention to give some cash back to shareholders, but I note that the dividend is held stable. So I was just wondering, what are the board's thoughts on the nature of any potential capital returns, please?

Speaker 8

Yeah. I'll let Andy take the second question, then I'll come back to ABS China. But I will... Yeah. So Andy, you want to answer the dividend question?

Speaker 4

Yeah, sure. So, I talked through the capital allocation framework earlier on, and that is an area of focus for me over the next few months. And, I've only just got my feet under the desk right? So I do wanna focus on that, as well as focus on the dividend policy as well, which I referenced. And, we've got a lot of time, fortunately, until those proceeds do land, when we talk about the completion and then proceeds coming shortly after that. So we will be looking at opportunities, as Jorgen mentioned, in terms of balance sheet de-leveraging, shareholder return.

Speaker 4

We're still open to other opportunities, and of course, the dividend policy, then I think, is the right time to be starting to think about that, particularly in the context of where we've been and where we are now. So, you know, previously, we had challenges in our free cash flow. We're now in a very different place, strong free cash flow in FY twenty-five. Expect that to continue into FY twenty-six, plus the receipt of funds from the China JV deal. So it feels like it's the right time to address that now, and particularly for me, coming in fresh, it feels the right time.

Speaker 8

Yeah. So, Damien, you know, as Andy mentioned, right, we have time also before the money from the China JV comes in. That will be next year. So we'll clearly carefully consider what are the most attractive ways to deploy the capital. As it relates to ABS in China, yes, the market is closed for now for the U.S., and the U.S. was the main source of genetics for China, for ABS, but also for our competitors. And we are looking at other markets. Unfortunately, Europe is also closed due to disease. So we're looking at all options, including, for example, Australia. But, you know, it's safe to say that in the near term, it will have a material impact on that business, and it's a headwind going into FY 2026.

Speaker 8

That is obviously baked into the outlook that we have shared. Sean. Sean Conroy, Shore Capital. Just on BCA, obviously, with them taking the majority stake in PIC China, I'm just wondering if you could contextualize thoughts around how that might improve domestic perceptions of PIC in China, and whether or not you believe that that could help support an adoption of your porcine genetics without PRP actually even coming across the line. Yeah. I would say that the main rationale for the transaction is to establish a pathway to PRP approval. Gene editing is a very strategic technology. Genetics, not just animal genetics, but genetics across plants, is very strategic for China. And we believe that in order to get approval, our chances are better being a majority Chinese company.

Speaker 8

That being said, there may be other potential benefits, and, you know, potentially, we could get better access to, let's say, state-owned entities that are active in the porcine sector. Jens. Yeah.

Speaker 1

I'm Jens Lenk from Investec. A couple small ones from me. First of all, I was just wondering if you could comment at all on the-

Speaker 1

... lively labeling debate around gene-edited pork, in the US in particular, I guess, and whether that could potentially be a headwind for the commercial rollout.

Speaker 4

Yeah.

Speaker 1

and secondly, just coming back to ABS China, what options might be on the table here? I mean, BCA, as you mentioned, operate dairy farms across China. I believe they have some private equity backed JVs as well in dairy farming. I mean, would BCA be interested potentially in or would you be interested in pursuing that sort of option?

Speaker 4

Yeah.

Speaker 1

Then, finally, if you could just remind me, please, what's in the public domain regarding the royalty rates from the China JV on PRPs?

Speaker 8

Sorry, could you repeat that last question, please?

Speaker 1

The royalty rates-

Speaker 8

The royalty rates?

Speaker 1

on the China JV.

Speaker 8

Yes. Okay. There's sort of three questions there, right, Jens? So, the first one is around labeling of gene-edited products, right? So, maybe before I answer that, I would say that we talk about favorable determinations, and we talk about approvals, right? The distinction is that the determination means that the regulator, in essence, determines that the technology is equivalent to conventional product, conventional pigs in this regard, and therefore doesn't require any further labeling or doesn't face any further restrictions. And so it is treated as normal pork, which is the case in a number of Latin American countries. So clearly, there is no labeling requirement there. As it relates to the U.S., the authority that's in charge of labeling is the USDA, and there is no labeling requirements for meat.

Speaker 8

So that is the information that we've shared previously, and that continues to be the case. Now, could a customer or a retailer decide to voluntarily label? Yes, they could, but there's no legal requirement as far as we understand. I think that was the first question. The second question was, Jens, about

Speaker 4

ABS China or BCA.

Speaker 8

Yeah, BCA. Yes, yes. Well, you're absolutely right. BCA is active in the dairy sector. I showed actually their brand, Sunlong, which they use across many different products. It's a well-known consumer brand in China. If you drive around Beijing, you see it everywhere on billboards. So they are active in the dairy sector. They are a top ten dairy producer in China, and we talk to them, and we explore, you know, potential avenues for collaboration, but that has not yet resulted in anything meaningful, but that doesn't mean that it couldn't happen. But definitely a very good contact to have for us. And then, my memory,

Speaker 4

Royalty rates.

Speaker 8

Royalty rates, yes. Yes. So, you wanna take that one?

Speaker 4

No, I'll take it.

Speaker 8

Okay, I'll take that one. So royalty rates, yes, we have negotiated royalties that, you know, as a percentage of revenues on the PRP in China, and those continue to be in place. Those were part of the original two thousand and nineteen agreement of the agreements. And so you have to think about low double-digit royalty revenues on PRP sales in China. So what that means is that our economic interest actually is larger than the 49% in the joint venture, because if you think about 10% off the top line, could be quite meaningful. Now, again, to Christian's earlier question, couple years to get the approval, and then, of course, there would be a ramp-up that, you know, would also start low and then ramp up. So thank you. Edward?

Speaker 5

Thank you. I'm Edward Sham from Singer Capital Markets. Just a question on the JV structure. So BCA will have the 50%, 51% majority interest. Do you have any sort of concerns on your potential to influence the strategic and commercial direction of the business going forward once the JV is formed?

Speaker 8

Yeah, as you can imagine, Edward, that's been a question that we've debated quite a bit with our board, with our leadership team, the PIC leadership, and we believe that we have agreed to a deal that gives us very substantial influence. There will be a board overseeing PIC China with five members. We will have two members on that board. We will have the right to appoint a CEO of PIC China, and we've already agreed that the first CEO will be the current general manager of PIC China, but we will also have the right to appoint the future CEOs.

Speaker 8

Again, I mean, our interests are aligned, and BCA understands that PIC is the best in the world in running an animal genetics business. And so, they are looking to leverage PIC's capabilities, expertise, and leadership, and are looking to continue a very close collaboration with PIC. We feel we're well-positioned to continue to have a very positive influence to execute against the agenda for China.

Speaker 5

That's really helpful, thank you. And then just one more question on the free cash flow. So you had a positive benefit from working capital this year, from ABS inventory management. Just wondering whether you've got more benefits coming this year as well in FY twenty-six?

Speaker 4

You wanna take that? Yeah, sure. It's a good question. So you're right, free cash flow this year benefited from an improvement in working capital, and a lot of that did come from the ABS business. We did see improvement across receivables as well. There is a degree of one-time benefit from that working capital movement, so it's been a step change, and I do see in FY 2026 us going back to a bit more business as usual working capital flows, particularly around inventory. That said, I do see further opportunities to improve as we go. But I would say it's not to that same quantum that we've seen that step change in FY 2025.

Speaker 4

But I do see opportunity across, you know, further inventory management, continuing on receivables, and also on payables.

Speaker 5

Thank you.

Speaker 4

Yeah.

Speaker 8

Is there any questions on the phone or on the webcast, perhaps?

Speaker 6

We have two questions online. First is, can you discuss the extent of success on specific initiatives within ABS on increased value capture per straw, facilitated by the new ERP system, progress so far, and how far to go?

Speaker 8

Yeah. Yeah, we did invest in a new ERP system, right, a number of years ago, a project called Genus One. That has certainly helped us significantly in terms of making data accessible, also in central locations, in our headquarters, and, that's been key to unlocking the VAP potential, because we work with an external consultant to look at all the, the opportunities and customer profitability, product profitability. So clearly, that's been an enabler, that's helped us over the last two years. You know, the question, I think, is a similar question that Christian asked, so specific examples, right? You know, I, I'll give another specific example, and that is, product allocation.

Speaker 8

We have many different bulls, and some of these bulls are in very high demand because their genetics are so superior. So it turned out that we allocated genetics basically on the basis of consensus, so everybody would get something of a bull, so every kind of region and country. We said, "Look, time out, we're gonna take a different look at that, and we wanna allocate to you know the most profitable, but also the most strategic customers and regions." So that's also a lever for improving our profitability.

Speaker 6

We have one final question: Has there been a cost for the PRP herd to core genetic trait scoring relative to the non-PRP elite herd? And if so, how far behind is the PRP herd, and how long will it take to catch up?

Speaker 8

Yeah. I would say that the PRP herd is very, very, very good. PRP herd is almost as good as the conventional herd, so it's really phenomenal genetics in the PRP herd.

Speaker 6

There are no more questions online.

Speaker 8

If there's no more questions, I'd like to thank you very much for your interest today here in Genus. Thank you for coming here to the Peel Hunt auditorium. We'll now close the session and wish you a very good day. Thank you.

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