Genus plc Reports Preliminary Results for the Year Ended 30 June 2022

Continued Strategic Progress in Challenging Markets

Webcast Available at 7:01AM BST, 2.01 EDT

LONDON--(BUSINESS WIRE)--Genus (LSE:GNS), a leading global animal genetics company, today announces its preliminary results for the year ended 30 June 2022. The full report has been made available on the investors section of the Genus plc website. The Company will discuss its corporate, operational and financial highlights in a pre-recorded webcast at 7:01 AM BST, 2.01 EDT.

Commenting on the performance and outlook, Stephen Wilson (Chief Executive) said:

“The Group performed robustly, although challenging market conditions in China porcine impacted the performance of PIC. We also made good strategic progress and completed significant capital investments including Atlas, PIC’s new elite genetics farm in Canada to support growth. Our strategic collaboration with Olymel, which we announced during the year, is progressing well, further strengthening PIC’s North America business.

“Bovine producers faced more challenging conditions in the second half of the year, as a result of significantly increased input costs and the Ukraine war. However, ABS continued to grow volumes and expand margins, driven by the success of Sexcel (including expansion of sales through our third party IntelliGen business), as well as strong growth in sales of our proprietary NuEra beef genetics across all regions.

“PIC delivered strong growth in operating profits excluding PIC China, underpinned by market share gains with key customers in North America, Latin America, and Europe, despite challenging political and macro-economic events. However, as expected, the porcine market and COVID-19 lockdowns in China adversely affected PIC China’s trading during the second half of the year. The live pig price in China remained below the cost of production and has only showed signs of recovery since June.

“Over the summer, China’s live pig prices have risen above 21 RMB/kg, improving confidence that the country’s porcine industry is on the path to recovery and profitability. Industry expectations are that prices will continue to exceed 20 RMB/kg for the remainder of 2022, although there could still be some further volatility. Investments we have made to increase elite porcine supply chain capacity position Genus well to support Chinese producers' needs and benefit from the market recovery over time.

“The Board remains confident in the Group's strategy and the many opportunities for Genus. Medium-term growth expectations remain unchanged.”

Outlook

As noted above, macro-economic conditions remain particularly challenging for our customers in many parts of the world, however, since the start of the 2023 fiscal year, China’s live pig prices have risen above 21 RMB/kg, improving confidence that the country’s porcine industry is on the path to recovery. There is still uncertainty as to how sustained this will be and the implications for demand for porcine genetics. Our investments in China position us well to benefit from an upturn. More broadly our clear strategy, strong product portfolio and depth of skill in our sales, services and R&D teams give us confidence that we will continue to make strategic and financial progress in fiscal year 2023 and beyond. The Group remains well positioned to benefit from improving market conditions when these occur and therefore our medium-term growth expectations remain unchanged.

Results presentation today

A pre-recorded analysts and bankers briefing to discuss the preliminary results for the year ended 30 June 2022 will be held via a video webcast facility and will be accessible via the following link from 7:01am today:

https://webcasting.buchanan.uk.com/broadcast/62c6c042d161177b45786de1

This will be followed by a live Q&A session to be held by invitation via Zoom at 10:30am. Please contact Verity Parker at Buchanan for details; verityp@buchanan.uk.com

Results Highlights

Robust performance across the business, despite challenging macro-economic events; Group results adversely impacted by PIC China

• Group revenue up 2% in constant currency (3% in actual currency), adjusted profit before tax (‘PBT’) down 18% in constant currency (16% in actual currency)
• Excluding PIC China, Group adjusted PBT up 25% in constant currency (28% in actual currency) and revenue up 7% in constant currency (9% in actual currency)
• R&D investment increased by 6%² as planned
• Statutory PBT reduced by 13% to £48.4m, reflecting lower adjusted profit, lower net IAS 41 biological asset movement and share-based payments

Challenging market conditions for PIC China as previously indicated, strong PIC performance elsewhere

• China pig prices averaged 14.6 RMB/kg through the year, down 50% on the prior year. Since June 2022, these have now recovered to over 21 RMB/kg, which exceeds the cost of production for most producers
• Overall PIC volumes were stable, with revenue down 5%² but royalty revenue up 1%². Adjusted operating profit declined by 13%²
• Excluding China, PIC’s volumes up 8%, revenue up 4%², royalty revenue up 8%² and adjusted operating profit up 11%²
• Strong customer wins drove North America growth; solid performances in Latin America and Europe despite challenging market conditions for customers

Good performance in ABS, with adjusted operating profit growth of 9%² and volume growth of 3%, despite more challenging market for producers

• Continued success for Sexcel^® (supporting sexed volume growth of 18%) and NuEra^® beef (with volumes up 21% and total beef volumes up 9%)
• Strong growth in third party sales of IntelliGen sexed semen production in North America and Europe
• High growth in Asia, particularly China and continued growth in Latin America
• Overall, ABS’s adjusted operating profit up 9%²

Lower cash generation and earnings than prior year, dividends maintained

• Free cash outflow of £13.5m, reflecting lower profit from PIC China, continued investment in the business as well as expected working capital outflows. Solid cash conversion of 82%¹
• Net debt increased to £185.0m, with year-end net debt to EBITDA ratio of 1.7x¹, within 1.0x-2.0x targeted range
• On 26 August 2022 Genus extended its multi-currency revolving credit facility to 2025 and increased the facility by £40m (to £190m) and USD $25m (to $150m) under an accordion option
• Adjusted earnings per share 18% lower, final dividend in line with prior year, with 2.6x¹ adjusted earnings cover

Continued strategic progress and investment for growth

• Further genetic progress in pork, dairy and beef, contributing to a reduction in use of energy, water and land in animal protein production. Good progress on reduction of Genus’s carbon emissions, with the primary intensity ratio⁴ reduced by 25% since FY19
• Acquisition in Canada of Olymel LP’s internal elite porcine genetics programme, AlphaGene, for CAD$25m (£14.5m) in February 2022 progressing well, generating royalties in the second half
• Significant capital investments to support growth including expansion of the ABS Leeds facility in Wisconsin, completion of the PIC Atlas facility in Canada in June 2022 and further roll out of the GenusOne enterprise system, now live in over 60% of Genus’s business
• Investments in digitalisation to deliver differentiation for ABS’s Gene Advance genetic offering and ecommerce capabilities

Building R&D capabilities and opportunity pipeline

• PRRSv resistant pig programme on track, with final FDA submissions expected to be made by December 2023
• R&D pipeline strengthened from investments, with an increase in the number of projects in the discovery and proof of concept phases

Financial Review

In the year ended 30 June 2022, the Group achieved revenue growth of 3% in actual currency (2% in constant currency). However, adjusted operating profit including joint ventures fell by 13% (15% in constant currency), due to some significant market challenges. These included rising inflation (driven particularly by increasing energy prices), the impact of the war in Ukraine and, most notably, turbulence in China’s porcine industry following the sharp decline in pig prices in 2021. The resultant decline in operating profit in China had a significant impact on the Group’s results. Excluding PIC China, however, adjusted operating profit including joint ventures increased by 28% (25% in constant currency).

On a statutory basis, profit before tax was £48.4m (2021: £55.8m). The difference between statutory and adjusted profit before tax principally reflected the reduction in the non-cash fair value of IAS 41 biological assets and lower share-based payment charge. Basic earnings per share on a statutory basis were 62.5 pence (2021: 72.6 pence).

The Group continued its significant R&D investment strategy, up 7% (6% in constant currency). Excluding gene editing costs, adjusted operating profit including joint ventures fell by 12% (14% in constant currency) and adjusted profit before tax was down 16% (18% in constant currency).

The effect of exchange rate movements on the translation of overseas profits was to increase the Group’s adjusted profit before tax for the year by £1.8m, compared with 2021, primarily due to the weakness of Sterling.

About Genus

Genus advances animal breeding and genetic improvement by applying biotechnology and sells added value products for livestock farming and food producers. Its technology is applicable across livestock species and is currently commercialised by Genus in the dairy, beef and pork food production sectors.

Genus's worldwide sales are made in over 75 countries under the trademarks 'ABS' (dairy and beef cattle) and 'PIC' (pigs) and comprise semen, embryos and breeding animals with superior genetics to those animals currently in farms. Genus's customers' animals produce offspring with greater production efficiency and quality, and our customers use them to supply the global dairy and meat supply chains.

Genus’s competitive edge comes from the ownership and control of proprietary lines of breeding animals, the biotechnology used to improve them and its global supply chain, technical service and sales and distribution network.

Headquartered in Basingstoke, United Kingdom, Genus companies operate in over 24 countries on six continents, with research laboratories located in Madison, Wisconsin, USA.

Forward-looking Statements

This Announcement may contain, and the Company may make verbal statements containing “forward-looking statements” with respect to certain of the Company’s plans and its current goals and expectations relating to its future financial condition, performance, strategic initiatives, objectives and results. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this Announcement. Forward-looking statements sometimes use words such as “aim”, “anticipate”, “target”, “expect”, “estimate”, “intend”, “plan”, “goal”, “believe”, “seek”, “may”, “could”, “outlook”, “will” or other words of similar meaning. By their nature, all forward-looking statements involve risk and uncertainty because they relate to future events and circumstances which are beyond the control of the Company, including amongst other things, diverse factors such as domestic and global economic business conditions, market-related risks such as fluctuations in commodity prices, interest rates and exchange rates, the policies and actions of governmental and regulatory authorities, the effect of sanctions on the ability to trade, the effect of competition, inflation, deflation, the timing effect and other uncertainties of future acquisitions or combinations within relevant industries, the effect of the spread of African Swine Fever and other animal diseases, the continued development and improvement of our IntelliGen^® technology, the development and registration of our innovative new products, such as our gene edited porcine reproductive and respiratory syndrome virus resistant pigs, the continued growth in emerging markets, the effect of tax and other legislation and other regulations in the jurisdictions in which the Company and its respective affiliates operate, the effect of volatility in the equity, capital and credit markets on the Company’s profitability and ability to access capital and credit, a decline in the Company’s credit ratings; the effect of operational risks; and the loss of key personnel. As a result, the actual future financial condition, performance and results of the Company may differ materially from the plans, goals and expectations set forth in any forward-looking statements. Except as required by applicable law or regulation, the Company expressly disclaims any obligation or undertaking to publish any updates or revisions to any forward-looking statements contained in this Announcement to reflect any changes in the Company’s expectations with regard thereto or any changes in events, conditions or circumstances on which any such statement is based.

No statement in this Announcement is intended to be a profit forecast, and no statement in this Announcement should be interpreted to mean that earnings per share of the Company for the current or future financial years would necessarily match or exceed the historical published earnings per share of the Company. Information contained in this Announcement should not be relied upon as a guide to the Company’s future performance.

This announcement is available on the Genus website www.genusplc.com

GROUP INCOME STATEMENT
For the year ended 30 June 2022

Adjusted results are the Alternative Performance Measures (‘APMs’) used by the Board to monitor underlying performance at a Group and operating segment level, which are applied consistently throughout.

GROUP STATEMENT OF COMPREHENSIVE INCOME
For the year ended 30 June 2022

GROUP STATEMENT OF CHANGES IN EQUITY
For the year ended 30 June 2022

GROUP BALANCE SHEET
As at 30 June 2022

GROUP STATEMENT OF CASH FLOWS
For the year ended 30 June 2022

Enquiries:
Genus plc (Stephen Wilson, Chief Executive Officer / Alison Henriksen, Chief Financial Officer)
+44 1256 345970

Buchanan (Charles Ryland / Chris Lane / Verity Parker)
+44 207 4665000