Genus ShareCast News (GNS)

Pig and bovine semen seller Genus says customers have faced modest pressure in March and April but the first four months of the year have proceeded broadly in line with expectations.

Genus's business model is based on providing the best genes to each market to increase productivity both in meat volumes and for milk production.

It's an extraordinary business; the bovine programme has around 190 leading animals producing 13m doses of top-notch sperm, which is then frozen in liquid nitrogen and sold around the world.

In North America, the porcine (pig) business has sustained positive momentum with volumes up by 10% leading to a similar rise in royalty income.

Latin America apparently did well in both porcine and bovine, with Mexico particularly strong.

In Europe, bovine volumes were up on last year driven by growth in distributor markets, with the company eyeing more sales in Poland after the acquisition of its distributor in the country.

Asia has seen porcine volumes lower due to the phasing of deliveries but bovine semen sales have been especially strong in Russia and China.

Genus is set to unveil its new strategy to investment analysts and major investors on Thursday, with the company pledging to renew its focus on research and development (R&D), as a result of which the R&D is now reporting directly to Karim Bitar, the Chief Executive Officer who took the helm back in September of last year.

Bitar has been working on the new strategy for several months, and he wants to see the company place particular emphasis on continuing to grow in those large markets and segments in which the group currently operates as well as markets offering strong growth potential such as the BRIC (Brazil, Russia, India and China) countries. Meanwhile, back in the old world, Genus will be restructuring to increase the focus on what it calls "larger more integrated customers" in Europe. Implementation costs of the restructuring are expected to be around £1m to £2m.

In the porcine market in China, Genus is already in discussions with a number of leading integrated pig producers looking to improve the quality of their genetics and expand their production. These discussions envisage the creation of joint ventures with these producers who will use a significant proportion of the breeding animals produced by the joint venture to build their own pig production system.

Genus has concluded that this type of structure will enable the group to provide its genetics in a manner that protects its intellectual property and enables the introduction of a royalty model that Genus already operates in its porcine business across other geographies.

The group is planning to up its capital expenditure to support planned organic growth, but said such expenditure will remain modest. It expects to continue to benefit from the high return on investment it currently achieves and, as a result, increased capital investment needs will be financed from cash flows generated from Group operations.

Genus shares were down 1.3% on the update but over the last year the stock is still 44% up.

BS