News Column

Genus Hit By Sterling Strength, China Weakness, But Stays Positive

September 3, 2014

Steve McGrath

LONDON (Alliance News) - Animal genetics company Genus PLC Wednesday reported lower underlying profit in its last financial year, as the strength of sterling, a weak market in Asia, and investments it's making in expanding its pig business in China offset a strong performance in its dairy and beef cattle business and pigs business elsewhere.

The company, which provides products like semen and breeding animals that it claims have superior genetics to animals currently in production, reported a pretax profit of GBP38.2 million for the year to June 30, up from GBP33.4 million a year earlier, buoyed by a GBP7.5 million accounting valuation gain on biological assets.

However, its adjusted operating profit from continuing operations fell to GBP42.9 million, from GBP45.0 million, hit by the strength of sterling and lower profit in Asia, specifically in China where adjusted pretax profit fell 38% at constant currency rates due to investment costs and market conditions.

The adjusted figures exclude items including the valuation on biological assets, amortisation, and exceptional items. It also said its adjusted operating profit was up 2% at constant currency rates.

"In Asia, the reduction in Chinese porcine profit was principally caused by our planned investments in capacity combined with very adverse market conditions for pig producers in the first half of this calendar year, but there is evidence these conditions are improving," the company said in its statement.

Genus has been expanding in China, booking start-up costs at a time when the Chinese commodity market has weakened and Chinese pig prices have slumped. It has a joint venture with Besun, and owns its own porcine nucleus farm, Chun Hua, which became fully operational during the last financial year. It has more than doubled its capacity in the country, and signed up China's largest feed producer, New Hope, which also produces pork, for its pig products.

The company separately said it has signed a new strategic agreement with River Stone Farm (Shandong) Co Ltd, which will become Genus' first commercial multiplier in China. Under the terms of the multi-year deal, Genus's porcine genetics division will exclusively stock and sustain Riverstone's new pig production project in China, with a total anticipated herd size of 24,000 sows.

"As the largest market for pork globally, we continue to see long-term growth potential in China. We are seeking to build capacity in the country, whilst reducing the upfront investment and exposure to commodity risk, and this first commercial multiplication partnership represents an important milestone in this strategy," Genus Chief Executive Karim Bitar said.

Overall, Genus reported volume growth of 8% in its porcine business and 5% in dairy and beef during its last financial year. Adjusted pretax profit was up 4% in its overall pig business and and 6% in its dairy and beef business. The growth was 9% and 12%, respectively, at constant currency rates.

The company said it expects to perform in line with expectations in the current financial year, and it raised its total dividend for last year 10% to 17.7 pence after saying it will pay a final dividend of 12.2 pence.

"Dividend cover remains strong, with the dividend covered 2.6 times by adjusted earnings," it said. Cover was 3.0 times in the 2013 fiscal year.

Genus shares were up 1.3% at 1,150 pence early Wednesday, among the top gainers on the FTSE 250.

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Source: Alliance News

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