Genius Group Limited Price & Performance (GNS)

I'm happy to report that we've made substantial progress. The FDA has accepted our environmental assessment, and the FDA has also conducted site inspections of our PRP facilities. In the meantime, we have responded to the FDA's site inspection feedback and we continue to expect approval for PRP in calendar year 2020 Beyond the FDA, our engagement with other international regulators continues to be encouraging. Our third priority is driving greater value from Bovine. As a reminder, we initiated a comprehensive value acceleration program eighteen months ago. To return our ABS business to growth and also improve margins, return on capital and cash generation. There has been very good progress and VAP is on track to deliver 21,000,000 run rate benefit the end of this fiscal year. One area I'd particularly like to highlight is the substantial improvement in Bovine cash flow from better inventory management. Benefit from VAP. Alison will take you through this in her section. During the first half, we also acquired the minority interest in ABS's de novo joint venture. This acquisition demonstrates our commitment to a strong genetic lineup in Bovine. And we are already seeing the benefits of full ownership. Turning then to our headline financial performance in the first half of FY twenty twenty five.

Adjusted operating profit grew 19% actual currency to $45,200,000 And adjusted profit before tax grew 21%. In actual currency to $35,400,000 We're delighted and we are maintaining an interim dividend of 10.3p per share. Looking then at our markets. And I will pick out a few highlights for each of the species. PIC performed very well across The Americas with producers also operating with positive margins. European producers also made money although there were a number of disease challenges Against this backdrop, PIC Europe performed well Though flat, against a tough year prior a tough year period comparator. Profits in Asia also increased, driven predominantly by higher byproduct revenues. Chinese pork producers were profitable throughout the period but the pig price has gradually softened in recent months. We believe the H2 outlook across the regions is stable albeit there are normal disease and other risks. Moving to bovine. The high level overview is that ABS performed well in North America and in Europe. While Brazil Beef and China Dairy continue to be challenging. In North America, dairy and beef producers were profitable in the period and ABS achieved strong [indiscernible] VAP initiatives also helped drive a strong performance. It was a similar story in Europe We as a result of VAP [indiscernible] Demand for beef genetics in LatAm continues to be weak ABS LatAm performance stable in constant currency but significantly impacted by FX station. [indiscernible] In Asia, China dairy continues to be extremely challenged.

Data suggests a 9% contraction in Chinese dairy production in the fourth quarter of twenty twenty four. ABS China performance was therefore below prior year. In India, we achieved very strong conventional and SEX volume growth, although unit prices In India, are relatively low. In terms of outlook, we believe the market environments in Europe and North America will be reasonably [indiscernible] while Brazil beef and Chinese dairy will continue to be challenging. With that, let me now turn over to Alison to take you through our first half financial performance.

Thank you, Jorgen, and good morning, everyone. I'm now going to take you through the financial performance. For the half. But before I do that, I did want to highlight a few takeaways. Firstly, PIC is stronger than ever. [indiscernible] ABS has turned the corner. [indiscernible] But there's more to do. And operating cash flow is very strong. The high investment period is behind us. And we've now passed the peak of exceptional cash outflows. So we're well on our way to delivering strong free cash flows cover our dividends. But there have been no free passes We focused on what we can control And I want to thank everyone at Genus for their passion, and dedication delivering these results. So let's get into it. And we'll start with volume. If you recall last year, things were pretty tough. In several porcine markets. In fact, it was the worst we'd seen over a decade. What PIC have proven over many cycles as they emerge stronger. After downturns, And that's because there's further consolidation of the winners. And their PICs customers. And that's what's happened. As you can see on the chart on the left, PIC's volume was up 9%. And up 10% excluding China.

And this group growth was broad based. With every region achieving volume growth. And as you can see, the growth of PIC's volumes excluding China the highest it's been. For over five years. ABS volumes have stabilized after a very challenging period in FY 'twenty four. When volumes declined, And it was good to see Sext volume growth return to 13%. However, whilst total volume growth was 5%, I want to flag that a significant proportion of dairy volume growth came from India. And That's where units typically sell. At lower price points. So excluding India, aggregate volume growth for ABS was flat compared with the prior year. But this is still an improvement on the prior year trend. Moving to our trading performance. Group adjusted operating profit increased 31% in constant currency and 19% in actual currency to £45,200,000 And our adjusted operating profit excluding China was $41,200,000 and as shown on the chart to the right, this is a record first half performance. And there was steady improvement from PIC China. Our operating total operating profit margin increased 200 basis points to 13.4 both our businesses are performing. Both contributed to that progress. ABS delivered profit improvements from VAP PIC delivered strong growth and R and D savings flowed through Net financing costs increased to $9,800,000 as a result of higher interest rates and average borrowings over the period.

And adjusted PBT, therefore, grew 38% in constant currency And Sterling has not been our friend, strengthening primarily against the LatAm currencies. And therefore having an adverse impact of £4,800,000 on translation. But nevertheless, PBT grew by 21% in actual currency. To $35,400,000 So now let's have a look at the divisions in a bit more detail, and I'll start with [indiscernible] PIC's adjusted operating profit increased 16% in constant currency revenue that was 8% higher.

And adjusted operating margin increased 140 basis [indiscernible] 28.1% and that's through operating leverage. [indiscernible] The chart on the right of the slide shows you the detail, the key drivers. And can see TIC achieved good growth ex China with constant currency operating profit increasing by 4,600,000.0 or 6% year on year. [indiscernible] PIC China profits themselves increased by $1,500,000 And this was primarily because of byproduct revenues which were higher reflecting higher China pig prices in the period. [indiscernible] Lower fee costs were the main driver of product development costs being a bit lower. And PRP costs were also lower in the first half, but this was due to phasing. And we expect them to be higher. In the second half. The last point to flag is that FX was a very significant headwind for PIC in the period. With a GBP 4,000,000 impact on translation. Of sterling strengthening really against the Mexican peso and Brazilian real. And this slide presents our normal walk around the world for PIC. And as you can see, their performance was broad based North America continues to deliver very resilient growth with constant currency profit growing 6% on royalty revenue growth of 5%.

Europe's first half was down 3% in constant currency. But to remind you, that follows profit growth of 26% last year. [indiscernible] Latin America was the standout region with operating profit growth of 13% in constant currency supported by very strong 11% increase in royalty revenue. And that was across the countries in the region. In Asia, profits were up 28%. Albeit from a low base. And within this PIC China increased their profits 59%. And Asia excluding China grew 3% and that was because of growth in Vietnam and Korea. So PIC as a whole achieved royalty revenue of growth of 5% and it was 6% if we exclude China. In China, the associated royalty revenue streams take time. Take two to four years to ramp up. To a steady state. Moving to ABS. Had a significantly better performance. Revenue increased 3% in constant currency on a volume increase of 5%.

And adjusted operating profit grew 38% constant currency, and by 18% in actual currency. To 8,600,000.0 with the margin improving 100 basis points. To 5.6%. And as I previously said, sex volume growth was good. 13%. Conventional dairy volume growth was also strong at 7%. However, some of the Sext growth was in India at prices materially lower than the rest the world. And B volumes were 4% lower in the half. As demand for beef genetics in Brazil continues to be weak. Thus, there was margin contribution growth So you can see, in the chart on the right of the slide, that was the key driver of profit growth in the period. The annualization of that Phase one initiatives achieved £3,800,000 of benefit in the first half and that in fact Phase two initiatives achieved a further 2,500,000.0 leading to a total benefit in the period of £6,300,000 And we now expect that Phase two to deliver [indiscernible] For the full year of 2025. ABS China profits were down 1.6% year on year as that as China dairy continues to be very challenged And we expect it to continue to be challenging. With the recent restriction placed on importing bovine seamen from The U. S. Higher supply chain costs of $1,300,000 were predominantly caused by inventory provisions.

And this relates to inventory that was produced towards the end of twenty twenty three before ABS reduced its production. And as a result, these provisions represented cleanup, of older inventory, and are unlikely to repeat. And ABS was also impacted by FX in the half with a GBP 1,400,000.0 impact. [indiscernible] sterling strengthening against Brazilian real and Mexican peso. And this slide shows a regional performance in ABS. The standout performers were In North America, volume grew 7% with very strong sex growth of 22%. And that initiatives were also impactful resulting in profit growth of 25%. And in Europe, volume growth was generally unchanged for prior year, but the positive impact of VAT initiatives drove a substantial 34%. Increase in profits. In Latin America, 5% as Brazil beef continues to be challenged. And Sext volumes grew 17%, but that is from a comparatively low base. So as a result, profits were unchanged in constant currency but down 20%. In actual currency. In Asia, volume growth was 14% whilst profits decreased 22%. And the reason for this profit decline is China dairy. So let's now move on to research and product development. And I'd just remind you that research constitutes other gene editing and key R and D investments in reproductive biology, genome science and bioinformatics.

And our research spend decreased 30% to £7,900,000 and this represented 2.3% of revenue in the first half. And going forwards, we'd expect spend to remain below 3% of revenue. The annualized impact of actions taken last year is a total of £5,000,000 And as previously mentioned, there is some phasing of PRP costs into the second half.

Bovine product development costs, meanwhile, were broadly unchanged on the prior year. Although as Jorgen mentioned, we made a substantial investment to buy out the Ddivo genetic herd. And across our re research and product development, we are continuing to spend more than 10% of revenue on these innovative activities, and this remains a key focus for the group. Now moving to our statutory income statement. Those of you who know us know that we consistently measure and report adjusted results as we think these give a better view of the group's underlying performance. Our statutory results are affected by certain non cash items, in particular, IAS 41, which is the valuation of our biological asset. [indiscernible] the movement in this valuation in the half was a $16,000,000 decrease compared with a $2,600,000 increase in the prior year. And this is dominantly due to a decrease in bovine. Exceptional expenses in the first half dollars dollars that included $3,700,000 of VAT restructuring costs, and 1,500,000.0 in relation to aborted corporate transactions that were largely in FY 'twenty four. [indiscernible] And exceptional expenses in the second half expected to be lower than in the first half. Although we are expecting further restructuring costs as ABS continues to execute that.

Our adjusted tax rate was 26%, which was slightly higher year on year due to an increased profit mix from higher tax jurisdictions. But we continue to expect an adjusted tax rate between 2628% for the full year. Now with that, let me now turn to our cash flow performance. I'm very pleased. To say we've returned to a position of generating positive free cash flow in the first half of the year.

And looking at the chart on the left, you can see The big improvement in free cash flow was a result of almost $20,000,000 year on year improvement in working capital. A $7,000,000 reduction in cash outflows for biological assets and $6,500,000 lower spend on capital expenditure.

Now the improvement in group working capital is primarily driven by better bovine inventory and debtor management. Supply chain management has been one of the key focus areas under VAP The year on year reduction in biological asset outflows was a function of a sizable outflow last year.

As PIC restocked its Aurora Nucleus farm in Canada after completing a refurbishment. And lower capital expenditure is expected although there was some phasing from the first half to the second half. But we're expecting for the full year CapEx of $17,000,000 to $19,000,000 and that's well below our spend in FY '24. As we previously guided, our exceptional cash outflows peaked. In this half, we just finished, at 15,200,000.0 That included exceptional expenses that were recognized in the second half of FY 'twenty four. In the second half of this year, we accept We expect exceptional outflows to be around half of the level of the exceptional cash outflows we've had in the first half. [indiscernible] also as we look into FY 'twenty six, we expect exceptionals to be Much lower. For the year noting that we have one settlement payment left in relation to the historical ST litigation of £4,000,000 and we expect further restructuring costs to arise in relation to VAP. [indiscernible] the chart on the right shows our progress in relation to free cash flow generation and cash conversion over the last five years. I want to remind you that our peak investment period is behind us having upgraded and expanded the facilities for both PIC and ABS.

And we also completed last year the rollout of Genus One, our global ERP system. There's now been three consecutive years of improvement in operating cash flow and cash conversion. In fact, both were records for the half. [indiscernible] And we're very focused on delivering positive free cash flow going forwards. I'd expect free cash flow in the second half to be similar to the first half. [indiscernible] Bovine working capital has reached a steady level therefore, cash conversion will be lower than in the first half. [indiscernible] outflows should also be lower. So let me lastly now talk about our balance sheet, which remains [indiscernible] Net debt rose as expected to $261,000,000 at July, December, sorry, as shown on the chart. We generated free cash flow of $10,300,000 and paid $14,300,000 of dividends in the period. Returning to a position where we're recovering our dividend with free cash flow as a high priority. A $10,600,000 increase in deferred consideration relating to the acquisition of the de novo minority interests And a $9,200,000 reduction in lease liabilities primarily relating to [indiscernible] Being sold into a joint venture. The de novo deferred consideration is payable in four equal installments over four years.

Ending in July 2029.

And our net debt to EBITDA at the period end was two times, which is within our targeted range of one to two times. And we expect a similar leverage level in June. Our facilities mature in August 2026, and we have over £100,000,000 of headroom. At the end of the period. And lastly, I'll just remind you there have been a lot of moving parts. I've talked about but we have got a technical guidance slide which outlines the expected impacts of our FY 2025 accounts for various line items So with that, let me now turn the presentation back to Jorgen. Who will give you more detail around our strategic progress and outlook. [indiscernible] Thank you, Alison. I'll now discuss our strategy and outlook in more detail. Let me review each of the three strategic Firstly, I'd like to take a deeper look at PIC's royalty revenues. We continue to grow our royalty revenue in every region, excluding Asia. Our four year CAGR is 5% in North America, 12% in Latin America and 6% in Europe. As BIC continues to demonstrate, it can grow with both existing and new royalty customers. In Asia, our four year royalty revenue CAGR is minus 1% which highlights why we increased our commercial focus on royalties in China eighteen months ago.

I will discuss China in more detail on the next page. But first, the high adoption of the royalty model led by 97% penetration in North America, underpins the stable growth of BIC. The chart on the right helps demonstrate this stability. It shows U. S. Pork producer profitability over time. There is no doubt that U. S. Pork producer profitability is cyclical. And yet PIC North America has consistently grown royalty revenue throughout is volatile. [indiscernible] Let's now move to PIC China. Our goal is of course to grow the business. But also to improve the stability of earnings. The first chart shows the pig price to corn ratio in China. This is a proxy for pork producer profitability. When this ratio is above six, Chinese pork producers on average are making a positive margin. As you can see, Chinese pork producers were generally making money during the period. Which provided a stable market backdrop for PIC China. Moving to the chart in the middle. You can see that it was the increase in non royalty revenue that was the primary driver of our profit improvement in the half. As Alison explained, the increase in non royalty revenues was predominantly a result of higher byproduct revenues.

The logical question is why were our royalty revenues [indiscernible] Despite our signing new royalty customers. The reason moving to the chart on the right is that as we have flagged before, Royalty revenues from new customers can take up to four years to reach financial steady state. Revenues and gross margin in the first two years are typically fairly limited. As a result, our commercial success from winning 20 new royalty customers over the last eighteen months, hasn't turned into significant sales yet. We expect China royalty growth to start becoming more prominent in FY 2026. In this context, I'd like to highlight that we now have royalty agreements with three of the top five Chinese producers in place. Although initial volumes within their systems are modest. Moving to our purse resistant pick. [indiscernible] We made significant progress with the U. S. FDA during the period and post We submitted our validation report and durability plan and our environmental environmental assessment. The EA has now been accepted accepted by the FDA. The FDA has also conducted site inspections of two of our facilities. And we have already responded to the FDA site inspection feedback. We expect the remaining steps to approval to be Firstly, FDA acceptance of our validation report and [indiscernible] technical submissions.

Secondly, after FDA acceptance of our final submissions, we will submit a new animal drug [indiscernible] And thirdly, the FDA will conduct a final review of our new animal drug application which typically takes around sixty days to complete. I am pleased with the progress and thankful to our team for getting us this point. We continue to expect FDA approval for PRP in calendar year 2025. Looking beyond the FDA to other jurisdictions, we remain encouraged by the progress we're making in Canada and in Japan. In Mexico, we've had good discussions with the new administration about the regulatory pathway for gene edited animal protein. And increased our collaboration with domestic producers who are keen to access [indiscernible] Lastly, in China, when we last spoke in September, we had PRPs on route to a specially designed research farm that has been built by our Chinese partner BCA. I'm pleased to say that our animals arrived safely and we now have pregnant sows, so generational testing will begin So good progress all around. Although I would remind you that the timing of regulatory decisions remains uncertain as this is the first mainstream gene edited protein to seek approval. Moving now to Bovine and our value acceleration program.

We initiated this program eighteen months ago with clear [indiscernible] To accelerate growth and and improve ABS' margins returns on capital and cash generation. By embedding commercial excellence and deploying our resources more effectively. We can now see the benefits of our actions and we remain committed to building a better and more profitable and growing bovine business. Let's move on to the details. Of VEP Phase one and Phase two. Phase one initiatives were completed in FY twenty twenty four, As you know, we made significant changes to the ABS organization by unifying the dairy, beef and intelligent business units under the leadership of a new leader that joined us from the outside, Jim Lowe, who took up his position in April of twenty twenty four. Alongside this, we also started implementing stronger pricing governance and value capture in Phase one. Phase one delivered $7,300,000 of benefit in FY 2024, And in the first half of FY 'twenty five, we achieved a further €3,800,000 of benefit.

Taking the total realized benefit under Phase 1,000,000 to £11,000,000 Moving to Phase two, We outlined our new focus areas of selective globalization, and product allocation and mix management last September. At the same time, we are continuously improving the processes that were implemented in Phase one sales and operation planning, inventory management being a case in point. We have made considerable progress in these areas. With regards to selective globalization, we have further optimized our organizational structure to create global product management and supply chain teams. Through these teams, we have identified and actioned improvements to our commercial strategy and product focus. [indiscernible] Product allocation and mix management refers to how we produce, price and allocate our genetics. [indiscernible] are already seeing the benefits of our optimization work. In aggregate, these Phase two initiatives achieved a €2,500,000 benefit in the first half. We now expect deliver £6,500,000 of benefit versus 5,000,000 previously indicated And we are confident that we can reach our Phase two goal of €10,000,000 run rate the end of this year. Across Phase one and Phase two, we're therefore expecting to achieve 21,000,000 of annualized benefit which is a significant [indiscernible] [indiscernible] That said, we believe we can go further and we are now scoping the focus areas for a Phase three of VEP.

It is too early to give much detail at this stage. But we will be focused on strategies to accelerate profitable growth and embed commercial excellence. In closing, let me now turn to Genus Genus' [indiscernible] We have achieved a strong first half financial performance with broad based improvement across the business. We have also made good strategic progress on multiple fronts. Not least with PRP the FDA has conducted its site visits [indiscernible] [indiscernible] Looking then to the second half, we're seeing continued positive momentum. Underlying market conditions for our producer customers are stable albeit there is the usual expect both BIC and ABS to grow profits year on year in the second half. Currency has been a significant headwind for us in the first half and we expect this to continue in the second half given current exchange rates. Continue to expect an €8,000,000 to €9,000,000 FX headwind the full year. If rates remain where they are today. [indiscernible] You will be aware that we raised our FY 2025 PBT expectations just over a month ago. On January 15. We are reiterating that view today which will result in significant FY 2025 PBT growth in actual currency. This is in line with the current market expectations.

That concludes our presentation of Genus' FY 2025 first half results. Before I conclude, I wanted to take a moment to thank [indiscernible] for her leadership and contributions as CEO of Genus over the last five years. It has been a true privilege to partner with Alison And I look forward to working with her over the next five years and hopefully Five months, five months, five months.

Yeah.

That reflects my desire.

My desire. Unfortunately, it's only five months and hope to to sign off on a high note. Thank you very much. All for your time and interest and we now look forward to addressing your questions. Charles, please.

Charles Hall from Peel Hand. Joachim, can you just talk a little bit about tariffs and what you see in both PIC and ABS? And obviously, there's lots of unknowns, but how do you see tariffs and how do you prepare for them? [indiscernible] So we would say that in general, tariffs are unhelpful. And it is unclear what exactly they will be. Of course, we read the newspapers. But the way we're thinking about it is sort of the indirect impact, so the impacts on our customers and their customers further down the chain. I can give you a few examples. The U. S. Exports significant portion of their pork about 30% to Mexico. It's the largest U. S. Trading partner in the pork chain. If The U. S. Would implement tariffs and Mexico would retaliate, What would the impact be? I mean, it would be inflationary, I would say, at a minimum probably. Would that impact demand for ham, for example, in Mexico? [indiscernible] Would that mean, for example, that there is an opportunity for Brazil to play a role a bigger role in Mexico and export. Possibly if that was to happen, we are well positioned with our supply chain because we have multiple supply points and we could, for example, benefit from an increased demands on on Brazil.

Another indirect example would be Canada.

They [indiscernible] for further slaughtering and processing. If there was to be a let's say, 25% duty it would again, it would be inflationary. Potentially that would mean that there would be a rearrangement of the supply chain, but Canada doesn't quite have the capacity to process all these pigs. So it remains quite uncertain and I can give you similar examples for the dairy and beef supply chains. If you go more to the direct impact on on Genus, Again, I would say that The U. S. Is an origin of exports to us. So The U. S. Implementing tariffs wouldn't necessarily impact us very much it would be the retaliation Again, I can't speculate on what that's going to be and when. But we are well positioned relative to our competitors, I would say, We have multiple sourcing points. If you think about PIC in Brazil, in Europe, in China, and in The U. S. And in Canada, So we'll see how that plays out. If you look at ABS, there's probably a bit more of exports from The U. S. To The U. K. For example.

I know that The U. K. Prime Minister is making a visit to Washington, D. C. So read the newspapers what may come out of that. But also to Europe and to China. But overall, We'll watch this space very, very closely, but it is too early to give you any indication as to how it might impact us.

Thanks. And so I'm just turning to PIC, very strong performance in the first half, well above the long term trend you see that as a short term blip because of the bounce back from last year Or can it be sustained for a period and then go back to trend?

We feel that ABS is sorry, PIC is is well positioned to perform well We highlighted the customer wins in China, which has been going on now for a while. The royalty revenues in China haven't really shown in our results yet. I mentioned that we're more optimistic about that from FY 2026 on forward. So I think there are some upside there, if you will, if you look out. But we believe that PIC is well positioned to continue to perform well.

I'd say North America had particularly strong growth, which is above their A typical run rate. So as we go into FY 'twenty six, we'd expect North America's growth to be low single digits which means that the overall growth may be a little lower.

Than what you saw in this half.

And then lastly, on PRP, can you just comment on the Doge process and whether you've seen any impact from that? And also there was mention of increased spend on commercialization in H2. Can you give a bit of detail on what you're actually doing?

Yeah. Our interaction with the FDA has been positive. We find him extremely professional. And constructive. And we have not detected any signs of political interference. Things have progressed As planned, And so yes, we remain we remain optimistic about next steps. We are preparing for market acceptance And so we're doing various studies consumer studies. We're engaging with various players in the pork supply chain and we're preparing Communication materials, we're speaking at conventions, we're developing websites, We are developing contracts We have hired a number of people that are very experienced in these matters. And so, yes, we continue to prepare. [indiscernible] Seph.

Good morning. Thanks. Seph Jainte from PAMMIA Liberum.

Thanks for taking my questions. So just a couple, I guess. Just so obviously, very pleased to see you signed up some of the big producers in China on the royalty contracts and appreciate its small volumes. But I guess what I'm curious of, if you looked at Examples in the past perhaps in The States where you've done a similar thing signed up a big kind of supply with a small volume. How long has that then taken for it to progress through the rest of their herd? Is that a kind of a rapid process? It take a long time just to get Yes.

It generally takes about two years until we see material revenues and it has to do with the fact that they need to take deliveries and then they need to disseminate the genes throughout their supply chain and multiply the pigs. And so it takes several generations to get to a point where that commercial impact is is significant. But there are sort of two elements to it. One is you sign up a customer and they would commit to using our genes at one farm or a particular number of farms. Over time, once we demonstrate that our Genus, our genetics are superior, we will also gain market share. So there's sort of a two step approach where first you need to get a foot in the door and that establish a working relationship. It established enables the customer to fully understand the financial and commercial value of working with PIC And then over time, typically, we would gain more market share.

I guess the question was, in your experience in The States, how long does it then take I guess it I get it takes two years to generate revenue, but how long does it then take for them to start taking it across a bigger proportion of their farm? Is that pretty rapid? Or does it take them another two years after the Probably a couple more years. [indiscernible] And then second question is just around kind of VAP3. I I guess you're not going to tell us what it's worth, but maybe if I can ask the question slightly differently. Within the current structure, [indiscernible] do you think you can get the margins to? Can that still get to be a double digit kind of margin business? Once you've kind of got through the kind of the VAP3?

Still work to do to get to that. But yes, the medium term aspiration is to get to double digit Okay. The last question is just around kind of on PRP approval and particularly in Mexico. And just trying to get a sense of kind of what that potentially does for commercialization timelines because except you don't need to have China necessarily to commercialize PRP in the States. But as things currently stand, obviously, this might change if the tariffs come in. A lot of export from U. S. To Mexico. Have you got can you give us any more details on where you are in that process and whether it's going be an approval or determination? And does that are you still think you can get that approved during the course of this year or early next year so that you can kick off U. S. Commercialization in 2026? [indiscernible] So just to refresh everybody's memory, right, indicated that For The U. S. Commercialization, we need to get approval in The U. S, Canada, Mexico and Japan. We don't think China is absolutely required [indiscernible] commercialize in The U. S. Well, There's clear processes. There's very good interaction. Exchange of data, Q and A, and we find them constructive.

And things are moving along. I can't tell you exactly when things might be approved, but it appears to be developing well. As it relates to to Mexico, There's a new government in place, the Scheinbaum and administration, which I think they were installed in October. We've been in contact with the Agricultural Ministry and other key players in that in that process we're trying to understand whether it's going to be a determination, so more similar to Colombia or Brazil. Which in a sense is a lighter process than a few than a full approval, which does include a full safety review. And so it's much more heavy in terms of data. We are working closely with the Mexican pork producers, We have hired good legal advisors and regulatory advisors And we've had initial discussions with the new administration we don't perceive any major blockages but there's still a lot of work to be done and things to be navigated. So that's where we are.

Excellent. Thank you. First question is just in reference to PIC China.

Clearly encouraging to sign new customers there. I wondering how we should think about the cadence of royalty customer growth from here and your view of the size of the prize there? What number of desirable customers either out there beyond those other two major producers that you referenced Second question just in reference to working capital. Clearly, positive outcome. Can you just provide some more color as to what exactly has been done to release that cash into the business? And how much further work there is to be done on working capital?

Do you want to take first or take the second? Yes, yes, yes, yes. Look, I mean, I think our natural place to compete in the China market would probably be the top 100 customers. So there's still more customers to gain. But building on the question that Seth just asked, there's also of course, once you sign a contract with a customer, it doesn't mean you have 100% of their business, typically you don't. And so there's also that market share opportunity within those customers. But I would say what we're looking for in China is probably double digit royalty revenue growth over the next couple of years. That's probably sort of a realistic expectation to have as it relates to to PIC China.

In terms of Bovine and working capital, a few things have happened. First of all, in the early days, if you like, last year, The leadership of our intelligent production, And our ABS commercial operations was merged under one leader. [indiscernible] And that in itself was a benefit in terms of alignment between supply and demand within the business. And secondly, we've created an SNOP function We didn't have that function before in ABS. Now it's still quite early days actually with that function. There's more to do and more opportunity in the future. But we have had a significant reduction in inventory, which you see in terms of that movement in cash flow in the half. And you shouldn't expect that same degree of improvement again in the next six months certainly. But over the medium term, I would expect there's more opportunity to improve the inventory holdings that we have in ABS.

Great.

Thank you. [indiscernible] [indiscernible] HSBC.

Can you talk a little bit about the acquisition you made, the de novo joint venture? What's Are those benefits operational or is there a financial aspect to that as well?

Yes.

Yes.

Yes, we're very pleased with the de novo acquisition. We had a minority we had a majority, but we had a minority partner who actually executed, let's say, the work We've now taken full control and that is accelerating our progress. It means we're in control of our own genetic destiny. We've seen improvements, for example, in pregnancy rates. We've seen we've been able to work with younger animals There is logistical efficiencies We've moved animals to our Wisconsin campus and our Wisconsin farms and there are synergies with that. So we're very pleased with that. There was an additional factor and that was that the minority partner wasn't motivated to continue in the long run.

So we're very pleased and we're already seeing benefits from that de novo acquisition.

Thank you. And then just on the R and D side, obviously, the spend has kind of come down across the group, not just in the standalone bucket, but also within the divisions as well. I don't think the microphone works.

Is that better?

In terms of the R and D buckets, obviously, the spend has come down not just in standalone bucket, but also in the divisional spend as well. Is that R and D spend now to level that that you would like to sustain it at? Or is there further efficiencies to come out of that spend?

Yes.

I can talk to R and D and Alison, please chime in. I think the question was whether the R and D spend is now at a level where continue There's a couple of comments that I'd like to make relative to R and D. As Alison mentioned, the research part, so the real kind of R and D is focused on research will remain below 3% But if you look at our Genus' investment, and spent on research and product development it adds up to more than 10% of revenues. So we have a substantial investment in ensuring that our product is leading edge that we invest in innovation So I'd say there's a very significant commitment there. We have world class scientists and we have a very exciting R and D program PRP is a case in point. I would also point to the fact that PRP the spent on PRP for the most part has moved from R and D into PIC. I think you see that on Page 15. The gray part in the PIC bar. But just to answer your question, yes, we see we sort of see it remaining at this level.

I just want to make the point that we're not looking to reduce product development cost. We did have a little decrease in poor product development, which reflects lower feed costs. Which is good for everyone in PIC. And we had some phasing of PRP spend. So you shouldn't expect a decreasing trend in pulsing product development. And Bovine has been steady But we have made the investment in the genetic herd through the acquisition of the minority interest in de novo as well. Hi, Sean Comroy from Shaw Capital.

Just a question around FAP.

And how the changes you've been implemented there are being felt by your ABS staff. I mean, is the pace of change that's occurring in that business something that they've been quite receptive to? Or when you're looking towards Space three and the plans that you have there, would you be looking rolling out things at a slower pace of change?

Did you catch that?

I didn't fully catch the question. How have employees react [indiscernible] Yes. Clearly, when you look at ABS and VAP, that is a major transformation take great care of our employees. Treat them with the utmost respect make a huge effort in communicating very well with our teams, town halls, Q and A sessions, In general, I would say that the teams at ABS understand that there is a a need for change and as such Engagement scores, which we measure have actually trended up surprisingly over the last year. I would also note that our voluntary turnover rate has also dropped [indiscernible] [indiscernible] This time, I'd say you have two sort of indications there that ABS team members understand what we're doing and they're buying in. To what we're doing. And there they're motivated. [indiscernible] Thank you.

Damien from Deutsche Numis.

Two questions on ABS, please. The first one is India, clearly, you indicated we had good volume growth there. How should we think about the profitability of that country sort of short term and then perhaps sort of medium to long term Just hopefully a quick one on ABS China. [indiscernible] Is the business profitable in China? And again, should we think about the evolution of that?

Yes, sure. So, yes, so look, our India business [indiscernible] grown absolute profit significantly in the five years I've been here.

So it's a profitable business. It's just the point is that the margin we make on each unit we sell in India is just lower than the average margin we make elsewhere in the world. Because the price per unit is lower. That's all.

So if there's a higher mix of growth, from China, that's going to bring down your average [indiscernible] And your second question about China for ABS, It's a breakeven business essentially at the moment. [indiscernible] Christian Hany from Stifel.

Maybe just to keep going a bit on the sort of that role the conversion of those customers to the royalty side and the the pull through effect of that. To understand Is it just really a matter of time and or what are some of the risk factors demonstrate that means you get that sort of level of adoption Presumably there's a certain critical hurdles that you need to demonstrate? Is it just about productivity and things? What are some of the key things that a customer needs to see for them to roll it out more across their herd?

Yes. I would say that there is a lot of time that gets invested with the customer before they sign up. Meaning trips around the world, they may come to The U. S. Or to Mexico or to Brazil. To speak with other customers. To look at their data for example. So we host these large Chinese producers typically in The U. S. Travel around through the Midwest [indiscernible] So I would say that that process may take more than a year in terms of these discussions. So once they do sign up, I mean, typically they do sort of go Yes. So we have a fairly good degree of confidence that we will grow our royalty revenue in China from FY 'twenty six on forward.

Thank you. And then Maybe a point of clarification on PRP and Japan, I think originally it was [indiscernible] Put in as a originally as a determination then an approval in the last set of results and now it's a determination.

Is that been a change on their side? Thank What's going on there?

No, I think I think the style of the review with the Japanese is probably very different from any other country. And so it's very conversational. It appears to be very conversational. And quite not as regimented data driven as let's say with the U. S. FDA But they do ask very good questions. But it's just a bit different type of and style of process. As compared to other countries. [indiscernible] Are there any questions From the call?

Okay. So Alex Jones, Bank of America.

Two if I can. One on the FDA site visit.

You talked about that having happened and you're giving comments back. Can you expand a little bit on how that went? And then the second on CapEx, I think in the back of the deck, you talk about sort of €2,000,000 or €3,000,000 reduction in the guidance for the year. Just explain the drivers of that, whether that's sustainable going forward or a one off for this year?

I'll answer the second question. Yes. You want to answer the second question first?

Yes. Yes, sure. Look, yes, it's it's not really timing. No. We were cautious. We're now estimates at the beginning of the year. And I think CapEx that we'll incur in this year represents a run rate for a few years. Just given all the investments we've now made.

So Alex, just want to make sure I got your first question right. Right? It was around the FDA process and specifically the inspections? And any feedback, yes. The inspections we had well prepared for the inspections with external consultants ex FDA people, for example, to prepare us for that. I would say that the inspections went [indiscernible] there was a number of observations They were around standard operating procedures, So it's very rigorous, right? They follow the whole product and all the sign offs authorizations by different people and track the reports. So there was a number of observations around SOPs, excess rights, for example, also to certain parts of the facilities. There was also one follow-up in terms of a calibration of equipment that we use to test I actually went to Wisconsin two weeks ago and looked at the piece of equipment. But we worked with the vendor and so we've already done that. We've calibrated with the vendor. That piece of equipment. So we feel that we have adequately responded to the FDA and some of these let's say, corrections are still going to have to be implemented. But we're hopeful that the FDA will be satisfied with our our response.

So I think with that, unless if there's any last question, we're going to close.

There is one. There's one at the back of the room. It's Ed Shamm from Zinger Capital Markets.

I just wanted to kind of probe you on that kind of comment you made about F 'twenty six growth. [indiscernible] In terms of the royalty programs? So I just wondered if that's been baked into guidance or is that something that you see feather upside? [indiscernible] it's within guidance, yes. Okay.

You have to remember, it's off a low base, of course.

Double digit growth. But yes, we're standing by that.

Okay. Perfect. And then just on the ABS business, and then kind of obviously the kind of elevated global beef prices you see that as any sort of downside risk if prices kind of come off and in terms of maybe the volumes for the B side of the business, Is that kind of stable or is that kind of gone backwards and then potentially what kind of other drivers behind that?

If it has gone backwards?

I think the other factor is I mean, there's a few there's been a couple of things going on, right? Economic factors particularly in Brazil, So the been hit by both. And right now, it's climatic factors. But When they pass and I'm sure they will mean, we would expect the beef market to improve and supply to increase.

With that, yes, I'd like to thank you very much for your attention. Both people in the room here as well as online. We look forward to seeing many of you during the roadshow.