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Edited Transcript of GNS.L earnings conference call or presentation 5-Sep-19 7:30am GMT

Preliminary 2019 Genus PLC Earnings Presentation

London Sep 17, 2019 (Thomson StreetEvents) -- Edited Transcript of Genus PLC earnings conference call or presentation Thursday, September 5, 2019 at 7:30:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Karim Bitar

Genus plc - Former CEO & Executive Director

* Robert Arthur Lawson

Genus plc - Non-Executive Chairman

* Stephen Wilson

Genus plc - CEO & Director

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Conference Call Participants

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* Anand Dhananjay Date

HSBC, Research Division - UK MidCap Equity Analyst

* Charles Hall

Peel Hunt LLP, Research Division - Head of Research

* James Francis Thomas Mainwaring

Stifel, Nicolaus & Company, Incorporated, Research Division - Associate

* Kenneth Charles Rumph

Jefferies LLC, Research Division - Equity Analyst

* Robert Chantry

Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst

* Sally Anne Taylor

Numis Securities Limited, Research Division - Director & Healthcare Analyst

* Sophie Maye Jourdier

Liberum Capital Limited, Research Division - Analyst

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Presentation

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Robert Arthur Lawson, Genus plc - Non-Executive Chairman [1]

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Well, good morning, everybody, and a very warm welcome to our results presentation. Just getting through the safe harbor. There is a silent bullet on that slide, which is since we were last here, Karim has decided to move on to greener pastures and further pastures, and that created the issue of succession. So when Karim decided to move on, we immediately initiated a global search using one of the very leading headhunters. We searched the U.S., Italy, France, Holland and indeed the U.K. I interviewed quite a few people and countless CVs. The result of all of that is that there was one absolute standout candidate that should take this business forward, and that was Stephen. And I'm absolutely delighted that he was elected to take on the role of the CEO of Genus when Karim leaves us in September. So I think the transition will be smooth. The announcement of it has been welcomed by shareholders. It's had tremendous reception within the company, and I believe the message is he will take this business forward along the paths and the strategies that you've understood and supported, and it's a great answer to the Karim succession. So we are absolutely delighted.

Looking at the results for this year. The overall performance is in line with expectations, but that's despite the impact that ASF has had in China. And when you come to Karim's presentation, you'll understand the extent that that disease is having not only on today but potentially for the future of the pork industry. It's that fundamental.

In terms of our strategic progress, ABS has just enjoyed its second year -- second successive year of growth. And that's being driven by Sexcel, which is now demonstrated in the market as a superior sexed product. And that, of course, is supported by the genetics coming out of De Novo now that are being delivered to market. So it's got this two-pronged advantage going into market.

This major strategic collaboration with BCA, it is very important to us for the future and will transform our position in the Chinese market. The first phase of that collaboration will be to take our market-leading genetics, our elite product, into the BCA network and deliver it to market. That will happen in the medium term. In the long-term, in conjunction with BCA, we would have the approved first product that we can then take to market in China. And that's a longer-term initiative, but you can imagine the impact that that will have on the Chinese market.

And finally, the Møllevang collaboration. Those genetics now are beginning to be delivered not only into the European market but also the U.S. market, and they're having a significant effect recognized by our customers.

And finally, during the second half, we have consulted with shareholders on our dividend policy. We couldn't really continue with that formulaic approach indefinitely. So we wish to transition from a formulaic to a progressive approach to dividend, and Stephen will be telling you all about the mechanics of how that's going to work during his presentation. So overall, dividend increased 7% to 27.7 p.

And on that note, I'll hand over to Stephen.

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Stephen Wilson, Genus plc - CEO & Director [2]

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Well, thank you very much, Bob, and thank you for the kind words. It really is an honor and a privilege and a pleasure to be given the opportunity to be Chief Executive at Genus, which is a real global leader in its field of animal genetics. I'd say that under Karim's leadership over the last 8 years, the company has made tremendous progress, and it's been great to be part of that journey. But my aim, frankly, is to continue to deliver on the significant growth opportunities, which I think the company has in front of it.

Before we get to that, though, I have one final thing to do as Group Finance Director, which is to take you through the detail of our financial performance last year. So let's get into that.

So I think our overall results here, our financial performance was good, particularly in the light of the challenges we faced in China from African swine fever. Excluding the investment in gene editing, then we achieved growth in our adjusted operating profit in constant currency of 6%. And adjusted profit before tax was 5% higher despite absorbing a GBP 5 million adverse impact from ASF in China. PIC performance was strong outside China, and ABS had another year of double-digit growth, as you've heard from Bob.

Looking at adjusted earnings per share. Those were 3% lower in constant currency, and as you recall, that was largely due to the fact that we had a onetime deferred tax credit in the last year due to the U.S. tax reforms. The tax rate this year on adjusted profits was 24.3%, and that's within our guidance range of 24% to 25%, which we think is a good basis going forward.

And then currency had a pretty modest impact during the course of this year, with the strength of the U.S. dollar largely offsetting weaknesses in some of the Latin American currencies. Now I think we'd all agree that it will be a brave person that would predict the course of currencies during the year to come. What I can tell you is that based on last Friday's rates, then currencies would be a modest help during the course of the next year in the order of GBP 1 million to GBP 2 million. And as usual, we provide in the appendix some further analysis to help you understand the FX dynamics. So during the rest of the presentation, I'll discuss pretty much the constant currency figures.

So we usually start with volume as we review business performance. In porcine, the overall volumes were stable. But if we look within China, our volumes were down by about half due to the situation with ASF. That was offset in the rest of the world. And so volumes excluding China grew by 5%, and we had there particularly strong performances in Latin America, growth also in North America and a number of other markets. We focus a lot on the strategically important royalty volumes. Those grew by 7% around the world. And in the course of FY '19, 82% of our volumes in the year were under royalty contracts.

In dairy and beef, we achieved growth of 6% with strong performances in North America and Latin America. I think the real standout in terms of volume was that our sales of sexed semen grew 42%, which was ahead of expectations, and the increased use of beef genetics in dairy herds that was linked to that also resulted in our beef volumes growing by 22%. Embryo volumes were stable against a strong compare from the prior year. So that's the picture on volumes.

Looking at divisional operating performance. PIC achieved growth of 4% despite the GBP 5 million hit in China. ABS, continuing to grow in double digits. And we continue to invest in R&D, and the growth there was primarily driven by spending in our IntelliGen platform, gene editing. These were areas that, I think, we signaled before will be ongoing investment areas. And this chart also highlights our measure of adjusted operating profit excluding gene editing which grew 6%. If you factored out the impact of ASF on our results, then we would have been ahead of our medium-term growth objective, which is to grow this measure of adjusted operating profit excluding gene editing in double digits. So the PIC growth of 4% enabled PIC, for the first time, to achieve adjusted operating profit in excess of GBP 100 million.

We had 7% growth in royalty revenue, and that contributed to also helping to drive the margin up again to 36.7%. And if we took out the effect of China, then the PIC business would have grown by 10% in the rest of the world. That performance was driven in part by very strong growth in Europe, which was up 30%. The core organic growth in key account wins we've been experiencing in Europe have been further enabled by the Hermitage acquisition, and more recently, by the collaboration we started at the beginning of FY '19 with Møllevang. And both of those are delivering the anticipated benefits. We're encouraged by the wins that we're seeing, and they're going to continue to drive the European business to grow further in future years.

Latin America also performed very strongly with double-digit profit growth across all the key regions. And royalty there was up 14%, breeding stock revenue was up 36%. And those again are going to continue to support momentum into the next year.

In North America, we saw some improved momentum in the second half, evidenced by growth in volumes and royalties. And in addition, we launched in the half the new Møllevang-influenced PIC800 sire line, and that's already having an impact in the market. And we think that will further increase momentum in the North America market in 2020 and beyond.

And finally, in Asia, outside of China, we performed well in markets like the Philippines and Japan. In China, as we've already noted, results were significantly impacted by the transport restrictions and disease impacts that occurred with African swine fever. And Karim will talk a little bit more about this, but we do expect to see improved performance in China this year with a fuller return to growth as we go into 2021.

So ABS had another strong year with 7% growth in revenue and 15% growth in operating profit, benefiting from that exceptional performance from Sexcel as more customers choose superior sexed genetics. North America was the strongest performance. There operating profit was up 40% on volume growth of 9%. The volume growth in sexed genetics in North America was 48%, and beef was up 60%. So just outstanding performances there. I think what we can see is that the investments we've made over the last 2 years in building our key account capability in that North American market are now starting to really show through in the results.

In Europe, we had 7% profit growth on stable volumes, and that was driven by good performances in Italy, Spain and Russia. In Latin America, we were up 10%, led by the sexed genetics growth of 30%. And beef volumes also were good in Latin America, supported by our NuEra Genetics there. And in Asia, steady performance across most key markets. We were able to fulfill several large Sexcel orders out of our facilities, laboratories in India. And IntelliGen production there started at the Mehsana cooperative, and we're right now in the process of commissioning a further laboratory in Uttar Pradesh, which will come onstream in the second half of this calendar year.

In R&D, we grew R&D spending in double digits as we planned. Porcine product development was up 5%, primarily the costs associated with increased genetic testing around the Møllevang animals. And we saw encouraging results as we started to incorporate those genetics into our development programs. And those increased costs were partially offset by some efficiencies in our nucleus herd costs. The bovine product development grew 13%, and that's as we continue to invest in our IntelliGen platform to drive even better performance going forward. And also we were amortizing the historical capitalized development costs. And our core genetic programs in dairy and beef continue to perform very, very well. Karim will share with you some more details of how we've been doing in that area, but we continue to lead the industry. Gene editing spend increased as planned for -- up 42%, and we're continuing to grow the number of animals we have produced and have a very constructive dialogue with the FDA. So that's the picture on R&D.

If we turn to the statutory income statement. You're all familiar with the fact that we use the adjusted results because those give a better view as to our underlying performance as a business. And you saw at the half year stage that our statutory results were affected by a lot of large noncash items. Well, that's the same in the current period. After all of those items, statutory profit before tax was up 27%. But on an after-tax basis, it was significantly lower, and that's because we had very large noncash deferred tax credits in the prior year arising from the U.S. tax reforms.

So if we step through some of the asset items here. Biological assets fair value was a GBP 15 million reduction compared with GBP 29 million in the prior year, and that's primarily again coming from the reduction in the value of bovine biological assets. I think as we've discussed many times, these reductions in the fair value models aren't really indicative of either past or future performance. The other significant item that we discussed at the half year was pension GMP equalization. I'll just remind you that there's no cash cost to Genus, and the debit in the income statement here is fully offset by a credit in the statement of other comprehensive income. And you can find some further details in the appendix on this matter. And then exceptional costs relate primarily to the ongoing litigation with ST in the year, joint venture income from Brazil, and our Besun JV in China was a bit higher. And then financing costs benefited from some hedging gains and from lower overall borrowing in the year.

Turning to cash flow. Cash generated by operations was GBP 48 million. That was GBP 10 million lower than the prior year due to a number of factors. We expanded our PIC genetic nucleuses, and as we do that, we invest in the animals there. So that grows our inventory balances. We had a higher cash cost of exceptionals, and creditor balances grew less than in the prior year.

The cash conversion, which is a measure that we focus on, was about 84%. And that was very much in line with what we discussed at the half year when I think I guided that we would be between 80% and 90% cash conversion for the year. We also grew our capital expenditure, again in line with guidance, as we invested in some of those nucleuses. And we made a lot of progress with our new enterprise system, which we call Genus One, where the implementation of that is progressing very well.

In the acquisitions and investments area, that was primarily related to the Møllevang acquisition. And as you recall, we made in December a 5% equity placing to raise GBP 66.5 million net of fees to provide flexibility. So we continue to actively pursue future growth opportunities. So all of that left us at the end of the year with net debt finishing at GBP 79.6 million. So that leaves us with a very healthy balance sheet. Net debt-to-EBITDA, as measured under our bank covenants, came in at 1.0, and we've got ample financing facilities available to us.

I need to mention to you IFRS 16, the new standard on leasing. So this is going to come into effect in our FY '20 fiscal year. We've provided a chart in the appendix which gives some details on it. Those of you familiar with it will know that under this standard, we take our operating leases and capitalize the right-of-use asset and then the lease liability. The growth up in the balance sheet is going to be about GBP 28 million resulting from that, with minimal change to overall net assets. And similarly, there will be an increase in operating profit and an increase -- an offsetting increase in financing cost of around about GBP 1 million each as we implement that standard. Again, minimal change in our reported profit. So you can find further details on that in the appendix.

Bob mentioned the dividend. So the final dividend position is that we're raising the dividend by 7%. That's made up of a 10% increase at the interim stage and 5% in the final dividend. So we did consult with our shareholders during the course of the year, and we've moved to now to a -- what we describe as a progressive dividend policy, where we're targeting to keep our dividend within an adjusted earnings coverage range of 2.5x to 3x going forward.

So let me just wrap up then on financial performance. We have actually delivered a good performance in 2019 despite the challenges that we faced in China. And without those challenges in China, we'd have been ahead of our medium-term financial goals. And as we look forward then, we expect to make further strategic and financial progress in the coming year and to perform in line with our expectations.

So with that, I'm going to wrap up and hand over to Karim.

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Karim Bitar, Genus plc - Former CEO & Executive Director [3]

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Good morning. It's a real pleasure to be with you here today, and I must say it's a little bit of a bittersweet moment for me personally. But this is the 16th time that I'll actually be spending time with you reviewing the performance of Genus. And what I'm pleased to say is that we've made financial and strategic progress with both the bovine business and the porcine business. And so what I'd like to do at this point is to dig in and give you some color as to how did that all happen.

On the porcine side, I think what's important to note is that in terms of growing our profits, we were able to do that despite a really challenging situation in China. And I'm going to try to give you a little bit more color exactly what happened in China and what do we expect to happen here moving forward.

Secondly, we formed an incredibly important strategic collaboration in China with the Beijing Capital Agribusiness Group to go ahead and develop and seek regulatory approval of our PRRSv resistance technology. These would pigs that would be resistant to PRRSv.

And thirdly, in terms of the strength of our genetics, which is at the heart of our business, by integrating the Møllevang genetics, we've actually strengthened our portfolio. And we're rolling out those genetics on a global basis today. And I'd like to give you more color around that.

If you look at the bovine business, again, financially, that business performed very, very well. We experienced the fifth semester in a row of double-digit growth. And I think I've shared with you in a variety of occasions that we need 6 semesters of double-digit growth to be able to say that we've turned the business around. So I'm counting on Stephen here to hopefully be able to tell you that here in the February time frame period, but I'm cautiously optimistic.

But the point is that financially, the business has been doing well, and it's really been driven by Sexcel, by IntelliGen, our sexed genetics. And as a result of the demand for this new product being so strong, what we've decided to do is to go ahead and increase capacity, increase the number of facilities worldwide that we're putting in place to drive even further growth.

Thirdly and lastly, as I said, the heart of our business is genetics. And what I'm pleased to be able to say is that the strength of our bovine genetics is as strong as it's ever been, and it continues to very much be leading-edge.

But let's dig in at this point and try to look at some data and facts to go ahead and provide you with a little more detail. So on the porcine business, we grew our royalty revenues by 7%. And as Stephen told you, 82% of our volumes on a global basis are under these long-term royalty agreements. And that's very cash-generative and is a signal of a high degree of stickiness with our business model.

When you look at the various geographies, you'll notice that in North America, we continue to grow our share of market with our maternal lines. On the terminal side of the equation, as you remember, we had some challenges with supply. And so what we did was we added capacity in terms of the sire line nucleus capacity, and in addition, are rolling out some brand-new genetics that have been incorporating the Møllevang genetics, and that's our sire -- terminal sire genetics. So this bodes well for further growth in FY '20 and '21, and we started seeing already some improvement in the second half of FY '19, which Stephen referred to.

In Europe, we went ahead and saw our profits grow by 30%. I mean, again, really substantial growth there. And so we had significant customer wins in key geographies such as Germany and Spain. And in addition, as a result of rolling out the Møllevang genetics throughout Europe, we started securing additional agreements with key producers. We've yet to see the impact of those Møllevang genetics agreements that we've secured into our financials, and you'll see the financial impact of those agreements starting to bear fruit in FY '20 and '21.

If you look at Latin America, we went ahead and grew our profits again very substantially there, 23%. And when you think about Latin America and you think about how strong that growth is, it's really a reflection of the fact that we serve over 80% of the key producers in Latin America, so folks like Brazil Foods, folks like JBS, et cetera. And we do that very, very well.

So I'd say bottom line, despite what happened in China, the business performed well. We grew in Asia in places like Japan and Vietnam and the Philippines. And so the real question is, well, what is happening in China? And that's where I'd like to dedicate some time now.

So let's see what's happened in China. What we'll notice in China is that China produces -- or used to produce, I should say, 50% of global production of pork and would consume 50% of all the pork in the world. And the Chinese diet in terms of animal protein consumption, 75% was actually pork. So pork is big in China. No other way to describe it. As a result of the African swine fever and this devastating disease, we saw a reduction in pork production of 25 percentage points. And we would anticipate that if we move forward, there's going to be even further reduction, frankly, in how much pork is produced, maybe to the tune of approximately 40%. That's a very significant drop. As a result of reduction in supply, what we see now happening is that very recently, we've seen a very strong uptick in the price of pork. Last year, we'd have been hovering about maybe RMB 15, now we're at RMB 25. That's a very, very attractive price point, and clearly, if you're a pig farmer, you can make some good coin at this point in time.

If you then try to say, well, frame for us what happened in FY '19. What do you think is going to happen in FY '20 and what will happen beyond? Well, what I would point out to you is that we've color-coded these 3 time series. FY '19 was really tough on us, right? We took a hit of about GBP 5 million. FY '20 will be a transition year, and that's why we've highlighted it as being yellow. FY '21 through FY '23 we actually think is going to be quite positive for Genus.

So in FY '19, the disease is widespread. Prices were pretty flat at about RMB 15. And from our perspective, we couldn't even move our breeding stock. So even if someone wanted it, it was very, very difficult, and folks were very much buttoned-down thinking, "Do I really want to take more breeding stock? I mean I could only get RMB 15, which is very close to breakeven, and I'm worried if I restock, the animals will die again," right? What's happening now is that the price is RMB 25, people are starting to better understand they're going to have to have larger scale farms, better buyer security, be close to a (inaudible) pork producer. And you're thinking, "At RMB 25, maybe I can make some coin." And so we started seeing that the price is incenting restocking. These transportation limitations have been reduced significantly. There still are some, but they're much less than what we saw last year. And so we think this is going to be the year where we're going to see some transitioning. We're starting to see some improvement in our ability to go ahead and provide breeding stock.

If you then go to FY '21 til '23, we think that at this point, you'll get some additional government intervention further supporting large commercial farms and technification. And we anticipate that prices will remain, frankly, pretty high for a while. Because when you wipe out 40% of production, you're not going to make it up in a year. It's going to take several years. It's going to take many, many years, frankly, to rebuild that supply chain in China, right? And so we anticipate that there will be very strong demand for our breeding stock. And in just a second, I'll explain to you how we're actually adding capacity right now in China, multiplication capacity, to be able to meet that demand.

In addition to what's happening locally in China to provide supply of pork, we need to understand what's happening on a global basis. Well, on a global basis, there's a lot more export of pork into China. China's having to up how much it imports. It just can't make enough locally. And so that's boding well, frankly, for folks in Europe. It's boding well for folks in Latin America and for folks in North America. These would be pork producers who are exporting their pork into China. And what I would say is that despite the current trade war between the U.S. and China, I actually believe that fundamentally, China will be importing significantly more pork on a global basis. And so this bodes well for all of our businesses outside of China.

So what are we doing in China? We're adding multiplication capacity. So back in FY '14, we would have had about 10,000 pure lines. These are our great grandparents and grandparents. The third-party, highly selected farmers multiply up our genes, okay, and provide them to pig farmers. If you look at where we're at today in FY '19, we're about 25,000. So we've been ramping up that multiplication capacity. And if you look at where we anticipate being during the course of the next 24 months, we ought to be north of 50,000 pure lines. And again, we've been putting in place agreements and contracts to be able to do that today to drive this multiplication because our fundamental view is that there's going to be some important growth to be had in China during the course of the next several years.

Beyond what we're doing in the area of nonPRRSv-resistant pigs, nongene-edited pigs, we've put in place a very important strategic collaboration. We've put in place a collaboration with the Beijing Capital Agribusiness Group. These folks go ahead and breed, and so they're breeders in the area of poultry genetics, dairy genetics and porcine genetics. And they're very much of a state-owned enterprise. And what's important to highlight is that their key backer or investor is actually CITIC Agriculture. And for any of the Sinophiles, what's important to highlight here is that CITIC, in fact, is the single-largest state-owned conglomerate in China, and it's the only one that's actually owned by the Ministry of Finance and was blessed by Deng Xiaoping back in 1979. So let's just say that this is an important institution and enterprise in China that is backing the BCA group.

So what is it we're trying to do with the BCA group? Well, we've agreed that they're going to research, develop and secure a regulatory approval for PRRSv-resistant pigs in China, right? So they're going to use all of their capabilities and networks to secure that. In addition, what we are looking to do is to leverage the BCA Group to expand our multiplication network in China, which I spoke about just a minute ago. And once they secure an approval for the PRRSv-resistant pigs in China, then they will go ahead and fold that operation with our PIC China, and we'll take a 51% ownership of PIC China. And we'll be receiving a check for anywhere between $120 million to $160 million. So we will benefit because we will have access to the profit stream at 49%. And in addition, that entity will be paying Genus a royalty for all the technology we would have licensed.

So very, very exciting. But the main message is China, today, is going to be important for us with our non PRRSv-resistant genetics. We're going to grow that. But for tomorrow, more medium term, this is a medium-term intervention, we are working with a very important and strategic partner to try to secure PRRSv-resistant pigs into the Chinese marketplace. So hopefully you're getting a sense that the business is performing well. China is an opportunity.

But what about our core genetics? How are we doing there? Well, what's important to highlight is that we are going to go ahead and do that with our Møllevang genetics. But before I do that, I would be remiss not to give you a little bit of an update as to where are we at with our PRRSv-resistance programs in the United States.

In the United States, what I would highlight to you is that we've been working with 2 different populations: population A and B is the way we've labeled them. And these 2 populations basically look at us deactivating a gene. So we're looking to deactivate the CD163 gene. So think of it as a switch. Do you want to partially turn off the gene? Or do you want to fully turn off the gene? And as we've been interacting with the FDA, we've been having some very constructive dialogues, we've been getting guidance as to how do we want to set up all of our testing. And so the plan is very much to carry out live animal testing with populations A and B, and we will start doing that in 2020. And in addition, you'll note that in 2020, we'll actually start submitting and we will start and commence our FDA dossier, okay? So we're making progress with PRRSv-resistance.

So again, just to summarize one more time: strong financial performance. PRRSv-resistance is moving along in China and in the U.S.

And now I'm going to come to the point that I was referring to before, which was about our core genetics and how we're integrating the Møllevang genetics. What's important to note is that we've integrated the Møllevang genetics, and this is the classic graph that we highlight the rate of genetic improvement, and you can see how that rate of genetic improvement has really become a lot steeper. We've sustained that rate of genetic improvement for the 40 key traits. And as we do that, we're actually launching, in our mind, the PIC800. So we're trying to have a best-in-class portfolio, and we're launching the PIC800. And this is truly an outstanding terminal sire, and we've launched it in the United States right now, and there's a lot of interest in this. And so we've been growing our share on the maternal side, and we think this ought to help us grow our share on terminal side.

Let's shift gears and move to the bovine side of the business. On the bovine side, we've gone ahead and really driven growth by our sexed genetics. We actually grew Sexcel and IntelliGen sales by 42%. I mean, that's massive. We had double-digit growth across all 4 regions. So this product is doing really, really well. And it begs the question, why is that? So yes, the product is a superior product, but in addition, market trends are helping us. And let's understand those market trends.

You'll notice that in the United States, back in 2016, about 1/6 of all of our genetics were beef genetics or sexed genetics. Most of them were conventional straws, 50-50 chance you get a male or a female. If you look at 2019, you'll notice that nearly half, that's 45% of all of our genetics, are actually either sexed genetics or beef genetics. So what's changed? What changed is the market dynamic, where now, dairy farmers are saying, "If I want to upgrade the quality of my herd, 1/3 of my herd, I'll use high-quality sexed genetics, i.e., Sexcel; and the remaining 2/3, I'll actually use a beef straw, beef genetics to create a hybrid animal because that will produce a byproduct and allow me to have a 13-month milk check," right? So economically, it makes a lot of sense. So all of a sudden, guess what, we have the very best sexed genetics. We have the very best beef genetics. We had structured ourselves to do that. And so that's why you see continued double-digit growth on the bovine business.

We think this trend is going to continue. Therefore, what are we doing? We've been adding capacity. These are the number of sites or facilities that we have producing sexed genetics. Not all the sites produce the same amount of product, just to be clear, okay? But we added -- we doubled the number of sites last year. We added sites in Latin America, in Europe, in Asia. We'll continue to increase the number of sites. And what you can see is that we launched our technology roughly 2 years ago, fall of '17. Roughly, we were doing about 200,000 units per quarter. We're now up to 800,000 units per quarter. And that's going to keep on growing. So we're very, very excited about this product offering.

If you then say, "It's great to see that Sexcel is doing very well. Your beef genetics are doing very well. What about the heart of your business?" So similar to the point we're trying to make with porcine: again, really strongly genetics. How do we know that? Well, if you look at the green line, these are our currently marketed bulls, these are the latest ones, the genomic young sires, we have 40 of the top of 100. So a disproportionate amount of them. But then if you say, "Well, that's great to know that today, you've got 40 of the top 100. What about tomorrow?" And as you know, we test genomically young sires. They're not producing enough semen. They may be 2 months old. But we've taken a DNA sample. We know if you're a winner or not. And again, if you look at the pipeline, guess what, we anticipate that in the future, we'll continue to have 40 plus of the top lead bulls worldwide. So I think the message for the bovine business is again, it's in very robust shape.

Let me try to summarize at this point. Hopefully, what you've gotten a sense of is that we made financial and strategic progress with both businesses. On the porcine side, we went ahead and had strong financial performance outside of China. On the porcine side, we put in place a very important strategic collaborations on PRRSv-resistance with BCA, and we've strengthened our product portfolio. On the bovine side, we have driven strong growth, particularly using the sexed genetics, Sexcel and IntelliGen, and our beef genetics. We're adding capacity because we expect more growth in that area. And lastly, we've sustained our leadership position in terms of the quality of our dairy genetics. In terms of expectations, what I would say is we expect to perform in line with our expectations in FY '20.

Now normally, this is where I would end, and I would say thank you. But I did want to go ahead and maybe just share with you 2 additional thoughts. They're a little bit more on a personal note, but I do feel the need to and the desire, frankly, to share those with you this morning. The first thought is I really want to express a tremendous amount of gratitude and thank you to all my Lilly colleagues -- I said Lilly. That's interesting that I said that. That was a Freudian slip, so I apologize for that. I meant to say all my Genus colleagues.

And as I think about it, many of you know that I'm actually a city boy. And so I didn't grow up on a farm. I didn't grow up in a world of agriculture. But I got to say, in working with all of my Genus colleagues, I've loved every single minute of it. You don't know how many times my spouse, (inaudible), would say, "Karim, I've never seen you talk so much about work and business at the dinner table." I normally keep them quite separate because I'm always wanting to talk about the bulls and the cows and my experiences in all these farms. And so it's really very heartfelt, but it's been an absolute pleasure to work with all the folks at Genus, an incredibly talented group of individuals, an incredibly smart group of individuals, tremendously humble. And so I just wanted to make sure that as you see what we've been able to do during the course of the last 8 years, that I really acknowledge all of the work that they have done, frankly. And it's just been a privilege for me to have a chance to work with all of them.

The second thing that I want to highlight to you is that whenever you have the privilege of being the captain of the team, which is a privilege that I had for the last 8 years, you try to build a team because its actually teams that get things done. I often like to say that when things go well, frankly, you get given undue amount of credit. And when things get to be not so good, you also are given an undue amount of credit. That's just the nature of the way it works.

So the reality is it's a team. But when you work as a team, it's also true that there oftentimes is 1 individual who tends to be that trusted adviser, that lieutenant who gives you tremendously wise advice, who's there to support you, who's there to encourage you. And you just build an incredibly tight bond. And I just want to thank publicly, Stephen, for having been that individual. I cannot imagine having been able to do as well and for Genus to have done as well had it not been for Stephen Wilson. So I am absolutely delighted that he's going to be the new Chief Executive. I think he's going to do a superb job. And on that note, just know that I will absolutely be rooting for Genus, and I look forward to working with you.

So thank you.

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Robert Arthur Lawson, Genus plc - Non-Executive Chairman [4]

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As it's Karim's last meeting, I felt it might be useful just to review what's been achieved during Karim's career. That's good enough. There we go. Thank goodness.

It's a simple graph. All it has on it is the major strategic moves that we made under Karim's leadership of the company and when you see what it was when he joined us, and this is the period where he is taking what was Genus and making it the Genus today and then building, by a number of very clever moves, the business we've got today. And that's been achieved over a period of 8 years.

And for me, I've chaired a few companies in my time. This one has been the most pleasant to do, and indeed, the most fulfilling. I was a farmer's son. So coming into this industry, I came home when I joined it, and this has been the culmination of it. And when you look at that, it's a tremendous achievement. And if you look at each of those moves, you can understand the strategic sense by which they have been made. And the culmination of it all is that if you put GBP 100 on the nose of Karim when he joined us, it's GBP 322 today.

And -- but that's not the whole story. Those of you who had visited the company know the cultural change that's occurred, the enthusiasm with which people participate, the professionalism that they execute. So all I can say to Karim, thank you. It's a great achievement.

Now I'm going to leave it up there for the rest of the day. Right, and we'll take questions.

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Questions and Answers

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Robert Arthur Lawson, Genus plc - Non-Executive Chairman [1]

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Okay. Charles. The usual rules. Off you go.

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Charles Hall, Peel Hunt LLP, Research Division - Head of Research [2]

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Right. As for my question, could I just support Bob's words in terms of Karim's tenure. It's been a remarkable journey over the last 8 years. And Genus was a successful business when Karim arrived, but it needed a hell of a lot of work. And he turned it in a truly global leader. And it's been a real pleasure following the business over the last 8 years.

Moving on to more mundane matters. So questions about ASF. The -- could you just fill us in about the -- what you're seeing on the ground in terms of customers and their speed of restocking? We're starting to see a few announcements of intentions. But are you actually starting to see that happen in reality? Also, are you able to move the pigs around more freely? Or are there still restrictions in various states? And also, with the disease spreading in various parts of Asia and further reports in Europe, how do you see that impacting your business over the current year?

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Karim Bitar, Genus plc - Former CEO & Executive Director [3]

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Yes. A process that we're going to do today, just so I don't surprise everybody is that Stephen's got a full grip of the business, so he's going to be taking the questions.

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Stephen Wilson, Genus plc - CEO & Director [4]

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I might pass a few to you. We'll see. Yes. Look, let's start with ASF in China. And our company is starting to restock. I think the situation that we see on the ground is -- inevitably, it's a bit mixed. So you have a number of companies which really see the opportunity and they're trying to seize it, and they're actively in the mode of putting down investment and making plans to expand and grow. But you also see a number of businesses which have taken pretty big hits and are scarred. And then you have the whole backyard sector where there's been a tremendous wipeout of the pig population, and it's unclear exactly how quickly they're going to step back into it. So we see the current year as being a bit of a year of transition. We do expect there to be more activity in the market than there was last year. But probably FY '21 will be a further upswing where it will really get going.

In terms of transport restrictions, those did ease in the second half of the last fiscal year. It was still pretty challenging to get all of the permits to move animals around, but we were able to make movements. And I think that situation is likely to continue to gradually get a little bit more predictable.

Around the rest of the world, we see the disease spreading in Southeast Asia. It's going to remain a challenge for many of these countries to contain it and manage it. In Europe, I think there's a better chance of it being managed and contained. We -- it appears the Belgians are getting on top of the outbreak they had in the wild boar population. So I think you're going to see differences based on the sophistication of the countries that -- and the strength of the veterinary practices and governmental intervention in these different territories.

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Robert Arthur Lawson, Genus plc - Non-Executive Chairman [5]

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Sorry, yes. Go on.

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Kenneth Charles Rumph, Jefferies LLC, Research Division - Equity Analyst [6]

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Ken Rumph from Jefferies. A couple of questions. One was you comment on the GBP 5 million profit for -- related to ASF in China. But in a way, the deficit is from the growth that you would have had less the benefit in other markets because they were exporting to China. I would still guess that the impact, in a sense, versus the kind of trajectory we might have expected is kind of more than the GBP 5 million. You didn't benefit as much in non-Chinese markets growing faster because they were exporting to China than you lost out in China.

Second question is a less kind of hypothetical one. It's just a comment on kind of trends in the different lines of the Genus R&D slide, Slide 11. We can keep the -- Karim's history slide, but just the different [components] of the R&D budget for the year ahead.

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Stephen Wilson, Genus plc - CEO & Director [7]

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Yes. Yes. So look, let me answer your ASF question first. So the GBP 5 million that we talk about was not based on a projection of what we might have achieved in China. It was based on what we did achieve the previous year and what we actually achieved in the current year. So that's a very factual number.

In the rest of the world, you can't just turn on pig production like a switch. There's a time lag. And so frankly, the rest of the world, while European producers, for example, were busy trying to sell some pork to China because they could get a nice price, they weren't making more. Because you can't just turn that pipeline on. So I would say that the rest of the world, I don't think you can really determine that there was an impact of the ASF on our business in the rest of the world in the last fiscal year. There may be going forward, but not in the last fiscal year.

Regarding the R&D, then...

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Robert Arthur Lawson, Genus plc - Non-Executive Chairman [8]

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It won't seem to go back.

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Stephen Wilson, Genus plc - CEO & Director [9]

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Yes. The -- we don't give guidance on specific line items.

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Kenneth Charles Rumph, Jefferies LLC, Research Division - Equity Analyst [10]

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Just -- I'll ask then the sort of scale between gene editing.

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Stephen Wilson, Genus plc - CEO & Director [11]

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Yes. So gene editing, we will continue to grow our expenditure in R&D. I think that's the first point to make. So we have a bias towards continuing to invest in our R&D platform because that drives future growth of the business. And the way we think about that is very much project-by-project, business-by-business. We don't target a particular percent of spend, but we really look for what are the returns we're going to get out of the money that we're putting into different projects.

Specifically, on gene editing, we would expect that number to grow. But it will be a little bit ameliorated by the fact that we expect over the next several years to be collecting some money from BCA through the upfront and milestone payments, which will help to partially fund the activity in gene editing.

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Karim Bitar, Genus plc - Former CEO & Executive Director [12]

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Just one comment I would add just from a philosophical perspective, which is something that Stephen and I have always been very pre-aligned with along with the Board, we really despise percentages of R&D and x or y amount. I think we really try to focus on saying if there are 3 key elements, we invest. And you might say, what are those elements? It's pretty simple actually. If we find a situation where there's a significant unmet need in the marketplace, we need to establish that, okay? Two, can we go ahead and offer a differentiated, okay, offering? And three, can we build a formidable intellectual property position. If we have those 3 things, when different R&D projects or initiatives are being presented to us -- and it's been fantastic working with Stephen, it could be 15% increase or it could be a 2% increase, and the idea is just do really, really good science, have really, really good people, and that's how you grow the business. And you don't get stuck on these percentages, which are a little fictitious, frankly.

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Robert Arthur Lawson, Genus plc - Non-Executive Chairman [13]

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Sophie?

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Sophie Maye Jourdier, Liberum Capital Limited, Research Division - Analyst [14]

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Sophie Jourdier of Liberum here hiding in the back. Just going back to ASF in China, if I could. Could you just talk about how the Chinese government is sort of reacting to it? I think in previous meetings, you've mentioned that it was sort of a bit more reactive than proactive, and I just wondered whether that had changed at all with, I guess, especially now that the pig prices in China are rocketing.

And then the second question. I mean you mentioned in the release today about the consolidation in the U.S bovine market some of your competitors. And I just wondered whether you could talk to us as to where you are and where you think the industry is in terms of that consolidation process and whether if opportunities arise, you would like to participate or not. But obviously, you're doing very well as is.

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Stephen Wilson, Genus plc - CEO & Director [15]

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Yes. Yes. So in terms of ASF in China and the government response to it, I think there are a variety of responses, and that's partly because you have a variety of ministries involved. So I think now that the price has really started to rise to the consumer, you're starting to see more of the Commerce Ministry is getting involved in trying to see what can they do to influence price in the market and not have the consumer unduly impacted. On the agricultural side, we're starting to see some levels of subsidies being given around breeding stock, restocking to try and encourage rebuilding of the herd. We've seen a policy promulgated by the central government, which is to put in place 5 regions in China and try and contain pork production within those 5 regions and try and build more slaughter capacity close to the pig farms so that live animals are transported less and meat is actually what is transported. So there are a variety of approaches being adopted. Yes. I think it's too soon to say how effective all of those different approaches are going to be.

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Sophie Maye Jourdier, Liberum Capital Limited, Research Division - Analyst [16]

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I'm sorry, is it still being massively reported in terms of -- in terms of how the Chinese government is sort of reporting ASF, is it still sort of really the case that most of the cases are not being reported as far as industry so people can see?

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Stephen Wilson, Genus plc - CEO & Director [17]

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Yes. I think we've moved beyond the place where the government is really focused on the reporting. It's more on how do we now provide affordable meat to our consumers and how do we start the process of rebuilding.

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Karim Bitar, Genus plc - Former CEO & Executive Director [18]

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Right.

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Stephen Wilson, Genus plc - CEO & Director [19]

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The loss is so great now at this point. And sorry, you had a second question.

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Sophie Maye Jourdier, Liberum Capital Limited, Research Division - Analyst [20]

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Well, the second question is just on the consolidation ...

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Stephen Wilson, Genus plc - CEO & Director [21]

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Yes, bovine. So yes, I think there has been some consolidation in the industry. I think it's clear that when you look at some of the actions we have taken across the time period if we have the 8-year time period chart there, you'd see that we like to be involved in strategic moves in the industry. I would say just in terms of the U.S. if you look at our volume growth in the year, a 9% volume growth. Let's be clear, there were no more dairy cows in the U.S. last year. So 9% volume growth must mean that we're growing share.

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Robert Chantry, Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst [22]

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Rob Chantry of Berenberg. I just had a series of questions on the BCA agreement in China. Clearly, a pretty significant kind of transaction. Was it always the case that you'd have to have entered a JV to gain real scale in China? Was the structure of the minority holding your preference? Are there any other western genetics firms with similar types of agreements in the Chinese market looking to exploit it in the same way? And then finally on that, could you just then talk about the broad magnitude difference of what can be achieved here rather than going alone in the Chinese market?

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Stephen Wilson, Genus plc - CEO & Director [23]

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Yes. Do you want to answer?

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Karim Bitar, Genus plc - Former CEO & Executive Director [24]

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Yes. I mean what I would say -- sorry, just a little bit of a sensitivity, so I'll just say it openly. So I don't think we're looking to exploit the Chinese market. I think we're actually looking to serve Chinese consumers and Chinese families and provide them with higher-quality and more affordable pork. That's the intent. B, what I would say is the reason for the JV is not about scale. We have enough scale in China. That's not what it's about. What it's about fundamentally is really 2 aspects: one is balancing how much risk do we want to take? So it's basically being thoughtful as to how much financial risk do we want to go ahead and put into our gene editing platform. So we've been very thoughtful in terms of making the investment in the United States, but at the same time, wanting to leverage that investment. And so having a partner that's going to basically finance the development in China is very, very important. And then secondly, not only are we looking for a financial contribution from that partner, but there's a strong element of capabilities. And by capabilities, I mean the ability to go ahead and drive development in China with a technology which is very novel, which is very cutting-edge, and frankly, from a regulatory perspective, is heavily influenced by the state authorities. And so this was really not related to scale. It was much more related to significant opportunities to serve Chinese consumers, how do you go ahead and develop complementary skills and how do you share in the risk and how do you share in the return.

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Robert Arthur Lawson, Genus plc - Non-Executive Chairman [25]

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Then Sally was up.

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Sally Anne Taylor, Numis Securities Limited, Research Division - Director & Healthcare Analyst [26]

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Sally Taylor from Numis. Just to echo Charles' comments as well, so congratulations to you both, and good luck, Karim. Just I wondered if you could give a little bit more color on the PRRSv program in the U.S. in terms of some numbers of pigs and generational update there, and obviously, whether there's any change in regulation that you could highlight or in terms of labeling. Anything new to give us on that in the U.S. market.

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Stephen Wilson, Genus plc - CEO & Director [27]

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Yes. Look, starting at the back end of your question around labeling. I don't think there's much new to say on that topic at this stage. In terms of the numbers of animals produced, then we're continuing to produce animals. You may have noticed on the chart, we're going actually take in-house some of the production of gene-edited founder animals. So we're continuing to build our internal capabilities there. And we've also now, I think, got a clear understanding with the FDA as to the sorts of tests that we need to demonstrate to get to, ultimately, an approval.

And that's why you see on the chart that we are talking now about these 2 generations for disease [challenge] and 3 generations for what we call molecular characterization and phenotypic stability of the edit. That basically means when you edit the first generation and then you go all the way through to the third, can you see exactly the same molecular changes that has been made and preserved through those generations? So those are the tests that the FDA is looking for us to be able to demonstrate, and that's what we're in the process of doing now, both in the -- what we call the population A and the population B, where we have slightly different approaches to exactly how we're doing the edit. So I'd say development is continuing to progress, yes.

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Sally Anne Taylor, Numis Securities Limited, Research Division - Director & Healthcare Analyst [28]

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That's helpful. And then just a little bit more color in terms of sort of cash consumption next year around sort of Genus One, the Sexcel expansion and the litigation costs that you could sort of guide us to. So the sort of CapEx and exceptionals, please.

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Stephen Wilson, Genus plc - CEO & Director [29]

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Yes. Yes. So I'd say there's no change really to the CapEx guidance that we've given before. So the GBP 28 million, we -- I think we talked about roughly speaking being around GBP 30 million a year for 3 years, which was a step-up from where we've roughly been before of around GBP 20 million. And we talked about the investment in our bovine facilities, in our Genus One program and in our genetic nucleus. And so that's, I would say, consistent. In terms of cash generated by operations, we do expect the result to be, I would say, more in line with history than this year. So we do expect cash generation from operations to be a bit stronger going forward. Exceptionals, I think by their nature they're what they say, so a little bit more difficult to predict. And so I think you'll -- I'll leave it there on that one.

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Robert Arthur Lawson, Genus plc - Non-Executive Chairman [30]

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I think we've got time for 2 more questions and then we have to conclude.

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James Francis Thomas Mainwaring, Stifel, Nicolaus & Company, Incorporated, Research Division - Associate [31]

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It's James Mainwaring from Stifel. Just sort of 2 questions on the ABS, which is obviously integrating very well. One on the beef, on dairy. Obviously, you've seen good volume growth in that. But you also did a lot of work kind of along the whole supply chain and kind of, if I have to say, top-down push of that. But I was just trying to get a sense of that kind of dynamic and how has that helped compared to kind of on sales force, and then also whether you're kind of doing similar studies elsewhere in the world.

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Stephen Wilson, Genus plc - CEO & Director [32]

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Yes. Look, I think we're still at the very early stages of exploiting the beef opportunity and delivering more value to the farmer through NuEra beef and dairy genetics and then putting -- linking together the whole supply chain so that that provides benefit all the way through to the packer and the consumer. So there's a lot of opportunity still there. We're at the early stage. And I would say at this point, if I look at this last year, it was more pull from the farmer to realize that he could get a 13th milk check by having a higher-value byproduct animal and linking that with the improved fertility he was seeing on sexed genetics, where he could then use sexed genetics more aggressively in his herd to get the replacement heifers that he wanted. So I'll say that was the primary factor driving growth on beef and dairy in the last year.

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James Francis Thomas Mainwaring, Stifel, Nicolaus & Company, Incorporated, Research Division - Associate [33]

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And then one on Sexcel. You obviously had very strong growth in sort of Asia kind of region. I just want to get a sense -- I mean, you always highlighted India was being a very sort of strong growth country. Just wanted to get a sense of breakdown between -- compared to other countries and the opportunity in the other Asian countries.

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Stephen Wilson, Genus plc - CEO & Director [34]

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Yes. India is becoming a major opportunity for us with sexed genetics. You'll be familiar with the fact that the Indian market is actually the largest dairy market in the world. I'm sure you've all seen pictures of the animals roaming the streets and the issue that there is there in terms of unwanted male calves. So there's a strong governmental push to encourage the use of sexed genetics, and we've been working very well with a number of state governments now to put in place agreements to help them produce sexed genetics. We've also been supplying sexed genetics out of our Brahma laboratory, which is our own facility in India. So we think the opportunity for sexed genetics in India is very large.

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Robert Arthur Lawson, Genus plc - Non-Executive Chairman [35]

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Is there one final question?

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Anand Dhananjay Date, HSBC, Research Division - UK MidCap Equity Analyst [36]

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Yes. Sorry, I've actually -- so it's Anand from HSBC. I've got a few but it shouldn't take too long, hopefully. I just wanted to clarify, so you're saying that in FY '20, you think your customers will be increasing exports. If it takes a year to increase production roughly, does that mean you're already talking to them? So through your royalty mechanism, you already know that this is starting to happen and they're ramping up? Or are you saying they will only start thinking about it in the year to come?

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Stephen Wilson, Genus plc - CEO & Director [37]

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So I think the way to think about it is this, that if you're -- let's say, you're a pork producer in Europe, then you'll have established routes to market with maybe supermarket chains in Europe. But there will also be a certain amount of your product, which is sort of discretionary, and you can choose where to place it. And maybe in a year when there isn't much export demand, you'll put promotions on and you'll try to and move it through supermarkets with promotional prices. And so the way producers today are meeting this export demand from China is basically, they're substituting. They're saying, "I can get a higher price. If my quantity of pork I can produce is relatively fixed in the short-term, I'm in price optimization mode, I can go sell this to China for a higher price instead of having to promote it through a supermarket at a discount." So that's what's happening in the short-term.

Then as you look to, well, do people then respond and want to grow the production base, that takes more time to put in place. And typically, I think, you would see that producers who are already in expansion mode, so take a market like Spain which is already in expansion mode, they're in that mindset of, "Let's do even more. Let's go quicker." And so Spain, you sort of see them starting to more aggressively invest as compared to, say, some of the Northern European markets where things have been shrinking a bit and then it's a different psychology.

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Anand Dhananjay Date, HSBC, Research Division - UK MidCap Equity Analyst [38]

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And I was surprised that embryo volumes were stable. Is that not -- that's -- would you have expected better than that?

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Stephen Wilson, Genus plc - CEO & Director [39]

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Yes. I think if you look at -- well, firstly, there were some timing and phasing issues in Latin America. So we did well in the North America market. But also, I think as you've pointed out in our discussions if you look at actually how profitable milk producers have been in markets like the U.S., it's been pretty challenging. And investing in embryos are reasonably significant upfront investment you have to make in the future genetics of your herd. And if cash is constrained, then you're going to be less willing to make that investment. So I think that's been a factor.

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Anand Dhananjay Date, HSBC, Research Division - UK MidCap Equity Analyst [40]

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And then maybe one for Bob. I think read, buried in the statement somewhere, that the Chief Scientific Officer has left as well. If I'm a long-term investor, are there any comments you want to make around that given that there's a lot going on especially right now? And is there any risk around that?

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Robert Arthur Lawson, Genus plc - Non-Executive Chairman [41]

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Yes. Okay. Do you want to take that?

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Karim Bitar, Genus plc - Former CEO & Executive Director [42]

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Yes. I'm happy to. Yes, look, I mean, the reality is that Dr. Jon Lightner, who had been our Head of R&D for several years, retired. Jon honestly did a very, very good job. And it was one of those lifetime decisions. And he decided he wanted to be a sheep farmer. So it's quite difficult to say, "Jon, we're going to be able to do sheep farming here at Genus." I mean maybe one day, we'll get into sheep, I don't know. But sincerely, look, Jon continues to be an adviser to us.

And maybe most importantly, we've recruited an incredibly talented new Head of R&D, Dr. Elena Rice. She's a brilliant lady. Very, very talented biotechnologist. She has over 20 years of experience having worked with Bayer. Deep expertise in discovery, deep expertise in development, deep expertise in regulatory, frankly. And not to take anything away from the predecessor, but one of the advantages is when you do make some changes, you try to adjust. And since now we're getting close to commercialization, I think, frankly, her regulatory expertise will be very, very valuable. And so she has started with us. She's very active, fully engaged. And I think Dr. Rice is going to do a really nice job for us.

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Anand Dhananjay Date, HSBC, Research Division - UK MidCap Equity Analyst [43]

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And then 2 other just really, really quick ones. The royalty revenues that you restated for last year, given how closely followed they are, is there any -- could you explain basically what's happening there? And then also just ST litigation, anything there? And then that's it.

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Stephen Wilson, Genus plc - CEO & Director [44]

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Yes. So ST litigation, that is actually taking place during the course of this week. I think, as you may know, they've tried to sue us on 7 patents and a variety of other claims. We already knocked out 5 of those and all of the subsidiary claims. We are very aggressively defending that, and we're very confident in the future of IntelliGen and our position going forward. So basically, I would say that the litigation noise is going to be behind us shortly, and we're confident that IntelliGen is going to have a very bright future. Sexcel is going to have a very bright future in the marketplace.

Regarding the royalty restatement, it was -- we could get into the weeds of the accounting, but it was just really looking at how we characterize some of the revenue lines. And I think if you look at the royalty growth rate of 7% in the year, then we expect royalties to continue to be a growing portion of our business in PIC and continue to be a very important source of profit and stability to the Genus earnings growth story.

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Robert Arthur Lawson, Genus plc - Non-Executive Chairman [45]

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Thank you. Well, as you all know, the terrible twins are going to part very shortly and go their separate ways. To Karim, a sincere thanks and every good wish for the future. And I think, looking to the Genus future, the span of answers you've received to your questions has underlined the quality of our new CEO and the -- how we reached our decision that Stephen was absolutely the right man to take it forward. And I think both businesses, his new one and ours, are going to be in very safe hands. And I'm sure we should be able to report to you in the future from the Genus perspective, continued exciting activities.

Thanks ever so much for coming. Thank you for the questions, and good morning.