Animal genetics company Genus (GNS) released full year preliminary numbers for the year ended 30 June, delivering revenue growth of 3% to £488.5m and adjusted operating profits up 5% to £61m, in line with management’s expectations. The shares traded up 0.4% to £27.53.
In his last annual report before handing over the reins to finance director Stephen Wilson, chief executive Karim Bitar said ‘2019 was another year of good strategic and financial progress for Genus, enabling the group to report record adjusted profit before tax for the period. Genus PIC achieved strong growth in Latin America and Europe, partly offset as expected by challenging conditions in China caused by the spread of African swine fever (ASF)’.
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The core business is looking at animals’ DNA to find markers that are linked to desirable characteristics. The company selects the best animals and breeds them to produce even better offspring and sells genetically superior animals to its global customers in the form of semen or embryos.
Genus ABS is the leading global cattle insemination business and 2019 saw a strong performance with revenues up 7% to £222.6m and operating profits up 15% to £29.9m, with all regions contributing.
The US was the stand-out performer seeing 40% volume growth as more customers chose the company’s high fertility product Sexcel, which farmers use for producing female calves. It is a unique product which guarantees at least a 90% success-rate.
The company’s pig genetics business was impacted by the outbreak of African swine fever (ASF), keeping revenues flat in constant currencies at £253.7m, while adjusted operating profits including joint-ventures rose 4% to £29.9m. This masked volatility across different regions where operating profits were down 27% in Asia, but up 23% in Latin America and 30% in Europe.
SILVER LINING
Analysts are predicting that ASF will result in a 40% to 50% reduction in the pig herd in China, equivalent to 15m tonnes of lost pork, bigger than the entire global pork trade in 2018.
This dramatic cull will reshape the Chinese pork industry for decades and see up to 80% of smaller producers failing to repopulate their herds, which in turn will drive the industry towards larger scale and more vertically integrated production.
This will provide a significant growth opportunity for Genus in the coming years.
Genus continues to spend significant amounts in research and development, up 13% as it builds its gene editing capabilities and IntelliGen platform, which licenses technology to third parties.
This increases its competitive advantage as smaller firms struggle to keep-up with the required spending in innovation.
Around a fifth of revenues (£100m+) are generated from royalty payments from third parties signing multi-year contracts.
Adjusted earnings per share decreased by 4% to 73.2p as a result of a higher tax rate and an increase in the share count following the placement of 3.1m of additional shares in December 2018, which raised £66.5m for Genus.
The company intends to maintain a progressive dividend policy after consulting with its biggest shareholders and plans to pay a final dividend of 19.8p, resulting in 27.7p for the full year, an increase of 7%.
