Shares in animal genetics company Genus (GNS) slumped 10% to £52.92 on Thursday after the company sounded a cautious 2022 outlook following a crash in Chinese pig prices.
The company said: ‘Recent volatility in the Chinese porcine market is expected to continue for some months, creating a short-term headwind in FY22, primarily for PIC China.
‘As a result of this headwind, and despite an expected strong performance in the other areas of the business, we expect Genus's growth to be lower than our medium-term goal in the current year before increasing again in FY23.’
The company’s medium-term goal is to grow operating profit by 10% a year.
The Chinese pig market, which represents half of global pig production, had seen a boom in business and prices over the last two years as the pig herds were rebuilt following the devastation wrought by African swine fever.
Chief executive Stephen Wilson told Shares that a fall in pig prices was inevitable at some point, but the timing was impossible to predict. Prices in the last five months have fallen from around 40 RMB per kilogramme to 15 RMB. Prior to the African swine fever outbreak, prices traded in a range between 13 RMB and 18 RMB.
RMB is the official Chinese currency renminbi. A fall in prices makes pig production less viable, which weighs on near term demand for Genus’ genetic products.
STRONG YEAR
The cautious outlook took the shine off full year results to 30 June where revenues grew 10% in constant currencies to £574 million and adjusted pre-tax profit was up 38% to £84.8 million.
Cash conversion was strong with net cash from operations representing 113% of operating profit. The dividend was increased by 10% and is covered 3.2 times by adjusted earnings.
In addition, Genus made good progress on its strategic goals winning key global accounts and taking market share in both the pig and beef businesses.
The company expects the Chinese market to return to normality by 2023 and sees the current market volatility as a strategic opportunity as farmers seek efficiencies.
