interim results investor presentation half year ended 31 … · •strong growth in philippines and...

INTERIM RESULTS

Investor Presentation

Half year ended 31 December 2018

Disclaimer

This presentation has been prepared by Genus (“Genus” or “the Company”) and has not been independently

verified. Genus is solely responsible for the contents of this document and has taken all reasonable care to

ensure that the facts stated herein are true and accurate in all material respects and that there are no material

facts the omission of which would make misleading any statement in this document whether of fact or opinion.

While the information contained in this presentation has been provided in good faith, neither the Company, nor

any of their advisers, representatives, officers, agents or employees makes any representation, warranty or

undertaking, express or implied, in respect of this presentation and no responsibility or liability is accepted by

any of them as to the accuracy, completeness or reasonableness of the information provided. The issue of this

presentation to the recipient does not create any obligation on the part of the issuer to provide the recipient

access to any additional information or to update this presentation or any additional information or to correct

any inaccuracies in this presentation or any additional information which may become apparent. The recipient

should conduct its own investigation into the Company and of any other information contained in the

presentation.

This presentation is for information purposes only and does not constitute, and shall not be interpreted as,

either an offer for sale, prospectus, invitation to subscribe for shares or debentures in the Company, or as the

basis of a contract.

This presentation has been prepared on the basis that it will only be made available to investment professionals

and is thereby exempt from the provisions of s21 of the Financial Services and Markets Act 2000.

2

Overview

Bob Lawson

Chairman

3

Strong strategic progress and solid performance

> Results in line with expectations

− Operating profit excluding gene editing up 3% in constant currency

− Adjusted profit before tax up 1% (2% in constant currency)

> Continued strategic progress

− Strong Sexcel® growth

− PRRSv resistance programme progressing

> Interim dividend increased 10% to 8.9p per share

4

Financial results

Stephen Wilson

Finance Director

5

Results

% Change

2018 2017 Actual Currency

Constant Currency£m £m

Revenue 238.8 238.6 - -

Adjusted operating profit inc JV excgene editing

34.2 33.6 2% 3%

Adjusted operating profit inc JV 31.1 31.5 (1)% -

Net finance costs (1.9) (2.5) 24% 24%

Adjusted profit before tax 29.2 29.0 1% 2%

Adjusted earnings per share1 (pence) 35.8 40.9 (12)% (11)%

Dividend per share (pence) 8.9 8.1 10%


6(1) Prior year includes a £3.7m deferred tax credit following the US tax reforms

6%4% 4%

8%

1%0%

2%

4%

6%

8%

10%

FY15 FY16 FY17 FY18 FY19 1H vsFY18 1H

PorcineVolume growth (%)

5% excluding China

Volume growth


7FY15-FY18 are financial years (e.g. FY15 is the period July 2014 – June 2015)FY19 1H vs FY18 1H are the periods July – December 2018 compared to July – December 2017

6%

(6)%

1%

5%7%

(6)%

(4)%

(2)%

0%

2%

4%

6%

8%

FY15 FY16 FY17 FY18 FY19 1H vsFY18 1H

Dairy & BeefVolume growth (%)

Adjusted operating profit – by business unit

% Change

2018£m

2017£m

Actual Currency

Constant Currency

Genus PIC 48.6 47.7 2% 1%

Genus ABS 12.7 11.6 9% 10%

Operating units 61.3 59.3 3% 3%

Research and Development (24.9) (22.1) (13)% (10)%

Central costs (5.3) (5.7) 7% 7%

Adjusted operating profit inc JV 31.1 31.5 (1)% -

Adjusted operating profit exc gene editing 34.2 33.6 2% 3%


8Note: Business Unit results include joint venture profits, less non-controlling interests

> Profit growth of 1% despite outbreak of ASF across China (up 7% exc China)

− 1% volume growth (5% excluding China) with strong growth in Latin America and Spain

− Royalty revenue up 11% with all regions growing

> Europe profit up 19%, with royalty revenue up 13%

− Good progress with Møllevang strategic collaboration

> Latin America volumes up 9%, profit up 23% and royalty revenue up 21%

> North America volumes up 3%, profit 4% lower

− Impact of FY18 health challenges will recede in H2

> Profit in Asia 40% lower from a c. £3m impact of ASF in China on breeding stock sales

− Strong performance in the Philippines and other Asian markets

Genus PIC

% Change

2018£m

2017£m

Actual Currency

Constant Currency

Revenue 125.6 126.4 (1)% (2)%

Adjusted operating profit exc JV 45.9 44.1 4% 2%

Adjusted operating profit inc JV 48.6 47.7 2% 1%

Adjusted operating margin exc JV 36.5% 34.9% 1.6pts 1.4pts


9

Note: All % changes are in constant currency unless otherwise stated

% Change

2018£m

2017£m

Actual Currency

Constant Currency

Revenue 107.8 105.6 2% 4%

Adjusted operating profit 12.8 11.7 9% 10%

Adjusted operating profit less NCI1 12.7 11.6 9% 10%

Adjusted operating margin 11.9% 11.1% 0.8pts 0.7pts

Genus ABS

> ABS volumes up 7%, revenue up 4% and profit up 10%

− Strong sexed volume growth of 26% reflecting the successful performance of Sexcel

− Beef volumes up 24% with increased use of differentiated beef genetics in dairy herds

> North America profit up 19% and volumes up 8%

− Sexed volumes up 39%, beef volumes up 111% and strong embryo performance

− Investments in key account management driving success

> Europe profit up 4% led by strong performances in Italy and Russia

> Latin America volumes up 10%

− Profit lower due to phasing of embryo services in prior year

> Asia profit up 8% with double digit growth in Australia and India

− IntelliGen® production commences at the Mehsana cooperative in Gujarat


10

(1) NCI = Non-controlling Interest Note: All % changes are in constant currency unless otherwise stated

% Change

2018£m

2017£m

Actual Currency

Constant Currency

Porcine product development 8.5 8.4 1% (1)%

Bovine product development 9.4 7.8 21% 17%

Gene editing 3.1 2.1 48% 43%

Other research and development 3.9 3.8 3% -

Research and Development less NCI1 24.9 22.1 13% 10%

> Porcine product development 1% lower

− Increased genetic testing and Møllevang integration costs offset by farm operational efficiencies

> Bovine product development up 17%

− Continued development of IntelliGen platform and amortisation of past capitalised development costs

− Investment in industry leading dairy bull portfolio and proprietary NuEra® beef bulls

> Gene editing investment increased 43% as planned, primarily on the PRRSv resistance project

− Substantial expansion of the numbers of elite gene edited pigs and regulatory engagement

> Other research and development stable

− Continued activities including bioinformatics, genome science and external discovery collaborations

Genus R&D


11

(1) NCI = Non-controlling Interest Note: All % changes are in constant currency unless otherwise stated

2018 2017 Variance£m £m £m

Adjusted operating profit exc JV 28.7 28.3 0.4

Net IAS 41 valuation movement (9.3) (3.6) (5.7)Amortisation of acquired intangible assets (4.7) (5.0) 0.3Share-based payments (2.4) (3.0) 0.6Exceptional items- Pension GMP equalisation (15.5) - (15.5)- Litigation/other (3.1) (2.4) (0.7)

Operating (loss)/profit (6.3) 14.3 (20.6)

Share of post-tax profit of JVs 1.4 2.5 (1.1)Net finance costs (1.9) (2.5) 0.6

(Loss)/profit before tax (6.8) 14.3 (21.1)

Taxation1 (0.3) 28.3 (28.6)

(Loss)/profit after tax (7.1) 42.6 (49.7)


12(1) Prior year includes a £32m non-cash deferred tax credit, principally relating to biological assets, following US tax reforms

Statutory income statement

2018 2017 Variance£m £m £m

Adjusted operating profit exc JV 28.7 28.3 0.4

Depreciation and amortisation 8.1 7.2 0.9Adjusted EBITDA 36.8 35.5 1.3

Working capital (11.7) (4.8) (6.9)Biological assets (0.6) (0.4) (0.2)Pension deficit repair, exceptionals and other (9.0) (8.3) (0.7)Cash generated by operations 15.5 22.0 (6.5)Cash conversion % 54% 78% (24pts)

Interest and tax paid (7.0) (7.7) 0.7Capital expenditure (15.0) (7.1) (7.9)Other 1.2 0.3 0.9Free cash flow (5.3) 7.5 (12.8)

Acquisitions and investments (23.1) (1.6) (21.5)Net share proceeds 66.5 - 66.5Dividends (11.0) (9.9) (1.1)Net cash flow 27.1 (4.0) 31.1

Net Debt 85.3 113.4 (28.1)


13

Cash flow

Strong financial position

2018 2017£m £m

Owners’ equity 486.1 419.1

Net Debt 85.3 113.4

Key Financial ratios1:

- Gearing 18% 27%- Net debt to EBITDA 1.1x 1.4x- Interest cover 32x 27x- Dividend cover 2.6x 3.3x

> 5% equity placement in December 2018 raising £66.5m net

> Interim dividend up 10%

> £126m headroom on bank facilities

− £224m of facilities extend to 2021

− £179m of facilities extend to 2022


14(1) Calculated on a 12 month rolling basis where applicable

Business update

Karim Bitar

Chief Executive

15

Strong strategic progress

16

> Porcine

− Strong growth in Europe and Latin America offsets ASF impact in China

− PRRSv resistance programme progressing well

> Bovine

− Leading position in genetics through proprietary programmes

− Accelerating demand for Sexcel and differentiated beef genetics

− Expanding IntelliGen presence to meet growing global demand

17

Robust royalty revenue growth bodes well for the future

Porcine

North America EMEA

Latin America Asia

Geographical split indicative of internal segmentation of territories; Russia now part of EMEA (previously Asia)

• Growing maternal line market share

• Expanding supply chain post FY18 health challenges

• China upfront sales impacted by ASF

• Strong growth in Philippines and Vietnam

• 20%+ vol growth in key Spanish market

• Hermitage adding to growth in share and profits

• Møllevang genetics enabling key account wins

• Key account growth in Mexico and Chile

• Growing distribution of terminal sire genetics

11% growth in royalty revenue

0.2% 3% 2%

FY17 FY18 FY19 H1

3%

15%21%

FY17 FY18 FY19 H1

20%30%

13%

FY17 FY18 FY19 H1

45%35%

71%

FY17 FY18 FY19 H1

African Swine Fever widespread across China

18Sources: Rabobank report (30 Jan); Reuters; Swineweb; Genus analysis

ASF spread

> ASF first reported in Aug 2018, has spread nationally

> 100+ reported cases (farms of all sizes)

> Impact known to be significantly higher

Response to spread

> Officially 1m pigs culled

> Transport restrictions implemented causing wide regional price spread

> Dec 2018 restrictions officially relaxed in some regions though transport still challenging

ASF outbreaks, transport restrictions

ASF outbreaks, transport restrictions partially removed

Transport restrictions now removed

Porcine

Likely impact of ASF in China on porcine industry

19Sources: Rabobank; Reuters; Swineweb; China MoA, Boyar, Genus analysis

Current FY20 FY21-FY23

ASF widespread,substantial impact

DISEASE

CHINA SUPPLY

PRICES

CHINA BREEDING

STOCK

Disease spreaddifficult to control

Managing disease continues to be very challenging

National sow herddown c.10% vs. FY18

Production falls10-20+%

Growth intechnified production

Regionally diverse Prices surgePrices remain high

& gradually stabilise

Transport restrictionslimit stockings

Price increaseincentivises restocking

High quality breeding stock in high demand

INTERNATIONAL TRADE Limited changes

Increased demand for imported pork

Continued demand for imported pork

Porcine

0

5

10

15

20

25

30

35

0%

20%

40%

60%

80%

100%

FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19F FY20F FY21F

Owned JV

Multiplication Multiplication - ASF impacted

Total sows pre ASF Sows net of ASF

20

Strengthening our supply chain in China Porcine

PIC contracted multiplication

PIC Farms

Target multiplication locations

Strategic growth of our supply chain1Expanding our footprint and strategic contracted multiplication partnerships

% o

f el

ite

sow

s b

y p

rod

uct

ion

Total su

pp

ly chain

in th

ou

sand

s of G

GP

/GP

2

(1) ASF impact shown for FY19F-FY21F based on known current disruption continuing(2) GGP/GP refers to great grandparent and grandparent maternal line females or boar mothers

21

PRRSv resistance programme on track Porcine

(1) First batches created in 2017 (2) United States Food & Drug Administration Note: Timeline represents calendar years

First births fromfounder pig breedings

~100 Homozygous edited pure line animals off test

~100 Homozygous Camborough™ parentsows farrowed

Live animal diseasechallenge of Genus edit

Additional animal diseasechallenge of Genus edit

Cell line disease testing of Genus edit

Animal Amplification & Evaluation

Disease Testing

Regulatory Submissions

First US FDA submission

US FDA package complete

2019 2020 2021 2022+2018

~1000 terminal pigs evaluated

Gateway #1 Gateway #2

Batches of editedfounder pigs created1

US and European patents granted

Current

•Successful matings and births of 700+ second generation pigs

•Expanding to second dedicated large scale nucleus farm

•Continuing constructive engagement with FDA2

•Three additional patents granted – total five

0

5

10

15

20

25

30

35

40

45

50

ABS Competitor 1 Competitor 2 Competitor 3 Competitor 4

Proven bulls Active genomic bulls Pipeline bulls

22

Proven and genomic analysis based on Top 100 Holsteins (using data from Dec 2018 from CDCB); Ownership of pipeline bulls based on Genus analysis using data through 19 Feb 2019 and includes non-active genomic bulls (young bulls that are not yet producing semen, but have been genetically assessed). Data varies from month to month; NM$ refers to Net Merit Dollar rankings.

Leading position in elite dairy genetics

# of Top 100 NM$ bulls

% of new US Holstein bulls produced by De Novo breeding programme

Bovine

0% 20%55%

FY14 FY16 FY19F

23

Strong demand for our leading sexed genetics continues to drive ABS’s performance

North America EMEA

Latin America Asia

• Growing Sexcel andbeef x dairy genetics

• Winning share with key accounts

• Second IntelliGen facility live in Gujarat

• Construction of third IntelliGen facility in UP

• Growing Sexcel andbeef x dairy genetics

• Direct entry into Spain

• Growing presence with larger dairies in Russia and Turkey

• Growing availability of Sexcel for tropical dairy segment

• Strong demand for NuEra beef genetics

+39% +17%

+16% +29%

FY19 H1 sexed geneticsvolume growth +26%

Bovine

Growing demand for Sexcel and NuEra differentiated beef genetics

24Data represents proportion of total genetic units sold to dairy farmers in the US; excludes beef x beef units

ABS genetics sales volumes to US dairy farmers

Conventional dairy genetics

Beef genetics

Sexed dairy genetics

Bovine

11% 14% 18% 21%~30%5%

4%

9%

18%

~25%

84% 81%74%

61%

~45%

FY16 FY17 FY18 FY19 H1 FY23F

Successfully deploying our sexing technology globally

25(1) Facility under construction

Third party

Third party

Third party1

Bovine

Strong strategic progress

26

> Porcine

− Strong growth in Europe and Latin America offsets ASF impact in China

− PRRSv resistance programme progressing well

> Bovine

− Leading position in genetics through proprietary programmes

− Robust demand for Sexcel and differentiated beef genetics

− Expanding IntelliGen presence to meet growing global demand

> Expect to perform in line with our expectations in constant currency


Appendices

27

28

Proportion of total volumes under royalty Porcine

North America EMEA

Latin America Asia

Volumes based on market pig equivalents; geographical split indicative of internal segmentation of territories; Russia now part of Europe (previously Asia)

96% 96% 97% 97% 97%

FY15 FY16 FY17 FY18 FY19 H1

65%73% 77% 77% 81%


61% 63% 64%68% 70%


38%33%

44%37%

68%


Market dynamics

SOURCE: Genus analysis using constant currency

29

Pensions

30

> Guaranteed Minimum Pension (GMP) equalisation

− Industry-wide defined benefit scheme issue

− Lloyds Bank case (October 2018) requires schemes to equalise GMPs

− Past service cost charge to Income Statement under IAS19

> Genus legacy scheme effects

Dalgety Pension Fund (DPF)• GMP equalisation cost of £11.0m to be

fully met by the DPF

− No cash cost to Genus

• Scheme is in surplus and has additional £20.9m reserve to cover risks such as GMP

• Credit in Statement of Comprehensive Income offsets GMP charge

Milk Pension Fund (MPF)• GMP equalisation cost of £4.7m

− No cash cost to Genus within recovery plan period

• Scheme is in surplus under IAS19

• Credit in Statement of Comprehensive Income offsets GMP charge

− Genus accounts for liability of recovery plan payments due (IFRIC 14)

• New valuation recently agreed as at 31/3/18

− ~1 year shorter recovery plan (now to 30/9/21)

− Expect 30/6/19 liability to reduce by ~£9m from 31/12/18 level

> Genus’ geographic profile can lead to translational currency impacts

> We monitor key rates against GBP

> Latest spot rates would indicate a headwind of £0.5-1.0m for FY19 compared with average FY18 rates

FY18 FY19 1H Spot @ Profit

Average Average 26 Feb 19 Sensitivity£m1

US Dollar 1.35 1.28 1.32 1.7

Mexican Peso 25.4 25.2 25.4 1.2

Brazilian Real 4.48 4.99 4.98 1.0

Euro 1.13 1.12 1.17 0.9

Chinese Yuan 8.80 9.02 8.86 0.8

Philippines Peso 69.7 68.4 68.9 0.4

Russian Rouble 80.4 85.4 87.3 0.3

Exchange rate sensitivity

31

(1) 12 month operating profit impact given a +/- 10% movement in exchange rate, based on FY18 results

interim results investor presentation half year ended 31 … · •strong growth in philippines and...

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