gianluca - south africa roadshow 2019 - pic rsa...gilts) or semen •support pig farmers with...

2/11/2019

1

February 2019

Genus PICBusiness UpdateSouth Africa Roadshow

Genus vision

“Pioneeringanimal genetic improvement

to help nourishthe world”

©Pig Improvement Company. | 2

2/11/2019

2

Genus strategy: drive genetic gain with own technology

Genomic Selection Gene Editing

Shared Proprietary Technology Platform

Genetic Improvement

Pork

Dairy

Beef

Biosystems Engineering

Genome Science


Strong strategic and financial progress

> Results in line with expectations

− Profit before tax up 4% (9% in constant currency)

− Strong free cash flow

− Earnings per share 75.9p, up 9% (15% in constant currency)

> Dividend increased 10% to 26.0p per share

2/11/2019

3


Genus: leader in animal genetics for pork, dairy & beef

FY18 Revenue £mln

FY18 Operating Profit £mln

Pork Dairy Beef

~150mln MPEs Over 18m doses

£470 mln1

£121mln2

FY18 R&D spend: £47mln

Employees: 2,600 employees worldwide

248 211

95 26


Genus invests heavily in research and development

FY18 R&D spend (£mln)

Create differentiated products with genomic selection

in pork, beef, dairy

• Use proprietary germplasm in PIC and ABS nucleus herds

• Develop proprietary indexes based on commercially relevant traits

Develop gene editing technology with focus on

disease resistance, e.g.

• PRRS-resistance in pork

• BRD-resistance in cattle

Commercialize gender skewing

• Launch Sexcel (sexed semen from ABS bulls) and Intelligen (licensing of sexing technologies to third parties)

Research & Development focus

17

17

5

8

Porcine product development

Bovine product development

Gene editing

Other research

2/11/2019

4

PIC FY18 Results and future overviewJanuary 2019


Never Stop Improving

2/11/2019

5


PIC: leader in animal genetics for pork

• Breed genetically superior boars and sows that produce offspring with commercially desirable traits, such as feed-efficient growth or leaner meat

• Distribute genetics through shipping breeding stock (boars, gilts) or semen

• Support pig farmers with technical services

• Build long term relationships

Activities

Figures

• #1 globally with ~25% share1

• Each year, ~150m pigs with 100% PIC genetics are slaughtered

• Manage 400+ multiplication herds and 400+ boar studs in 40+ countries; >95% of herds are owned by 3rd parties or customers

10

Strong performance in 2018, increasingly challenging market context for 2019

> Increasingly challenging market context

− Trade tariffs impacting customers

− African Swine Fever in China

> PIC strategic progress

− Møllevang strategic partnership

− PRRSv resistance programme

2/11/2019

6

11

Approximately 7% of pork is traded, primarily from west to east

1.MT = Metric Ton; 2. Arrows representing 6.3mln metric ton of trade (~80% of global trade flows of 8MT excluding intra-Europe flows), not shown: Intra-Europe flow (>4mln MT); flows to Japan/Korea have been combined, flows from Europe have been combined; Source: Rabobank, US Meat Export Federation

Main trade flows 2017 (mln MT)1,2

share of production (exporters) or consumption (importers

Global trade flows 2017

Largest net importers

Largest net exporters0-15% >30%

Main trade flows 2017 (mln MT)1,2

share of production (exporters) or consumption (importers

15-30%

0.90.5

0.6

0.3

0.4

1.8

0.4

0.3

0.30.6

0.2

12

Cost of production difference drives trade patterns

Americas are the lowest cost producers Especially China prices have come down

Source: AHDB 2017, USDA ERS, Boyar, Promar

2017 pig production cost (£ / kg deadweight)

Pig price(£ / kg deadweight)

Brazil

US

China

EU

0.00

1.00

2.00

3.00

4.00

Dec 14 Dec 15 Dec 16 Dec 17 Dec 18

0.00

1.00

2.00

3.00

4.00

USA Brazil EU China

Feed

Other variable cost

Labor

Depreciation & finance

2/11/2019

7

13

Increasingly challenging market context

Trade barriers / uncertainty

US/China NAFTA Brexit70% tariff 20% tariff

14

Trade disputes is impacting US pork exports

0 2 4 6 8

Japan

Mexico

China

Canada

Korea

Other

Total

2017 US Export ($mln)

0

25

50

75

100

0

50

100

150

200

Volume(MT x1,000)

Value($k)

Mexico

0

25

50

75

100

0

50

100

150

200

Volume(MT x1,000)

Value($k)

Japan

0

25

50

75

100

0

50

100

150

200

Volume(MT x1,000)

Value($k) China

0

25

50

75

100

0

50

100

150

200

Volume(MT x1,000)

Value($k)

Korea

0

25

50

75

100

0

50

100

150

200

Jan

Feb

Mar

Ap

r

May Jun

Jul

Au

g

Sep

Oct

No

v

Dec

Volume(MT x1,000)

Value($k) Canada

0

50

100

150

200

250

0

150

300

450

600

750

Jan

Feb

Mar

Ap

r

May Jun

Jul

Au

g

Sep

Oct

No

v

Dec

Volume(MT x1,000)

Value($k) Total

20% retaliatory tariffs (Jun ‘18)

Retaliatory tariffs raised to 62% (Jun ‘18)

25% retaliatory tariffs (Apr ‘18)

US-Korea FTA2 signed (sep 18),pork stays duty-free

Volume 2017 Volume 2018Value 2017 Value 2018

USMCA signed, tariffs still in effect

EU-Japan EPA1 (Dec 17) will – over time – lower tariffs on EU pork by >20% relative to US

USMCA signed, pork continue to be traded duty free

1. Economic Partnership Agreement; 2. Free Trade Agreement

Export accounts for >25% of

total US production

2/11/2019

8

15

ASF has spread in Europe & China and is causing uncertaintyAfrican Swine Fever (ASF) situation in January 2019

• Entered Europe in 2014 from Russia and spread westward via wild boars

• The # of new cases in Eastern Europe has declined since July 2018, but especially Romania has seen high incidence in domestic pigs

• ASF ‘jumped’ to Belgium in Sep 2018: it has been contained to wild boars but has recently spread beyond the original buffer zone

• Spread from Russia to China in Aug 2018• Over 100 cases reported and ~1mln pigs have been slaughtered – generally

perception is that actual outbreaks are much higher1

• Strong price variation by province (up to 80%) due to local supply demand imbalance• Transport bans for breeder pigs and piglets got eased in

January to support pig production and pork supplies

1. Graph represents officially reported cases – there are known outbreaks in some of the provinces where there are no official reports

ASF reported, restrictions in place Neighboring provinces where hog transport is banned (China only) no cases detected, no restrictions

Sichuan

Heilongjiang

Jilin

Liaoning

Hebei

Shandong

FujianJiangxi

AnhuiHubei

Hunan

GuangdongGuangxi

Shanghai

Henan

Shanxi

Hainan

InnerMongolia

Shaanxi

Ningxia

Gansu

Qinghai

Guizhou

Yunnan

Tibet

Xinjiang

Jiangsu

Zhejiang

TianjinBeijing

Chongqing

16

Potential impact of ASF in China on pork industry

Decline in demand for breeding stock Demand for breeding stock grows

Short term Thereafter

High risk of spreadDISEASE

SUPPLY

PRICES

Endemic (possible)

Oversupply &

movement limitations

Supply shortfall &

accelerating technification

Probable decline in ChinaProbable increase in China

& globally

IMPACT

2/11/2019

9

0

10

20

30

40

50

60

70

Jan-18 Feb-18 Mar-18 Apr-18 May-18 Jun-18 Jul-18 Aug-18 Sep-18 Oct-18 Nov-18 Dec-18

Lean hog futures US ($/cwt1)

DEC 18 Futures DEC 19 Futures

17

Together, trade disputes & ASF drive price volatility in the US

US pork numbers

begin tracking 4% to

5% above prior year

levels pressuring prices

Mexico announces

20% increase intariff on US pork

First cases of

ASF in Chinaare reported.

USMCA is

announced

although Mexico's

retaliatory tariff on US pork continues

Market more optimistic for the long

term about US pork potential

1. Center weightSource: Chicago Mercantile Exchange

18

Supply-demand imbalance led to 2018 losses in export regions

Margin drivers:

↘ Expanded supply in 2016-2018 years

↘ China & Mexico tariffs on US pork

↗ Expanded packing capacity provided some support

Short term outlook:

continued volatility with competing dynamics from trade issues and ASF in export destinations

Margin drivers:

↘ Flat or declining domestic demand

↗ Increased China demand post ASF

↗ Supply decline following buy-out programs & increasing cost to comply with welfare practices

Short term outlook:

depressed pricing with strong regional variation if ASF spreads in Europe

Margin drivers:

↘ Continued expansion↕ ASF and related

transport controls cause prices to fluctuate heavily among provinces; average price increased

↗ Continued reduction in backyard farming

Short term outlook: margins trending up given supply shortage but continued high variance across provinces

Margin drivers:

↘ Lower export volume following Russia ban

↘ Higher input cost given increased soy prices following buy-up by China

↗ Increasing domestic demand given low prices

Short term outlook: lift of Russia export ban and increased access to China is likely to provide price support in near future

Source: Genus, PIC analysis

Profit/loss(£/kg)

Price(£/kg)

Profit loss Carcass price

US pork producer profitability

0.50

1.00

1.50

2.00

2.50

-0.50

0.00

0.50

1.00

Dec-13 Dec-14 Dec-15 Dec-16 Dec-17 Dec-18 Dec-19

TodayProfit/loss

(£/kg)Price(£/kg)

Profit Loss Carcass price

Europe pork producer profitability

Brazil pork producer profitability China pork producer profitability

0.50

1.00

1.50

2.00

2.50

3.00

-0.50

0.00

0.50

1.00

1.50

Dec-13 Dec-14 Dec-15 Dec-16 Dec-17 Dec-18

Profit/loss(£/kg)

Price(£/kg)

Profit Loss Live price

0.80

1.20

1.60

2.00

-0.50

0.00

0.50


0.50

0.75

1.00

-0.50

0.00

0.50


Profit/loss(£/kg)

Price(£/kg)

Profit Loss Live price

2/11/2019

10

19

Many competitive pressures, but PIC is well-positioned

Traditional competitors

Fragmentation post DanAvl breakup

Ongoing consolidation

Continuing price pressure

Competition by trait vs total economics

New entrants & substitutes

Application of new technologies

Entry of non-genetics players into genetics

Entry of other genetics players into pigs

Suppliers, partners

Cost increase from shift to CBV+/max

Competition for technical talent

Producers

Consolidation & integration

Volatility given trade issues & diseases

Increasing consumer demands

Meat alternatives

Competitive product portfolio

Relations with top producers

Global supply chain

Deep technical expertise

Scale, cash, strong governance

20

PIC has strong competitive advantages to drive future growth

Global supply

chain

Competitive

product

portfolio

Deep technical

expertise

Strong cash

generation &

governance

• Leading products for all segments• Strengthened Duroc program• Earliest adopter of technology

• Deliver improved germplasm (Duroc)• Use sequencing data for accuracy• Progress PRRSv-resistance program

• Supply in all regions reduces genetic lag & provides contingency

• Expand supply – especially North America and China

• Largest cross functional technical team in the industry

• Invest in technical team through training, hiring, partnerships

• Strong cash position • Global scale

• Monitor for M&A

Relations with

top producers• Serving >70% of top 250 producers• 79% of volume under long term

royalty contracts

• Continue key account strategy • Leverage distribution model for

smaller producers

Competitive advantage Strategic direction

2/11/2019

11

21


Global supply

chain

Competitive

product

portfolio

Deep technical

expertise

Strong cash

generation &

governance








• Monitor for M&A

Relations with


royalty contracts


smaller producers


22

Relative to competition, PIC’s portfolio has more optionality

Composite (pure)

Duroc (pure)

Pietrain (pure)

Hampshire (pure)

Cross breds

Landrace (pure)

Large white (pure)

Other purelines

337 (total economics)

Tempo (full value pigs)

800 DurocNorsvinDuroc

Kanto DNA 600

408 Pietrain Maxter

327

359, 410 Talent, Traxx Magnus

L02 / L04 Landrace Landrace Landrace Landrace

L03 / L05 Large White Large White Large White Large White

L18 / L19 Norsvin LR

Camborough (+4 others)

1x 3x 1x 1x

Tailored, e.g. total profit or throughput

Meat quality, growth

Carcass yield

Robustness, outdoor markets

Tailored, e.g. live market or robustness

F1 products(commercial)

Sire

lines

Dam

lines Typically only for

sale to closed herd systems

Breeding goal/system

Tailored, e.g. live market or robustness

2/11/2019

12

23


Global supply

chain

Competitive

product

portfolio

Deep technical

expertise

Strong cash

generation &

governance








• Monitor for M&A

Relations with


royalty contracts


smaller producers



PIC is the global leader in swine genetics

Not modernized production

Internalprograms

Other(modernized, commercial

production)

12%

>50%

2/11/2019

13

28%

0%

20%

40%

60%

80%

100%

NorthAmerica

LatinAmerica

Europe Asia Total

Other

Internal programs

Fast Genetics

Choice Genetics

Genesus

Hypor

DNA

Danish Genetics

DanBred

Topigs Norsvin

PIC

25

PIC is even better positioned with top 250 producers

1. Loosely defined as producers and or production systems that represent 10,000 sows or more; includes franchises and GTCs/distributors; 2. includes full country sows for franchises (e.g. Netherlands 0.8mln sows and Vietnam 3mln sows)

545.1mln~70%

Key accounts/prospects• # of accounts• Sows in accounts• Share of total market

Marketshare

Share among key accounts & prospects1

722.5mln2

~65%

827.8mln2

~45%

428.2mln2

~20%

25023mln

30-35%

26


Global supply

chain

Competitive

product

portfolio

Deep technical

expertise

Strong cash

generation &

governance








• Monitor for M&A

Relations with


royalty contracts


smaller producers


2/11/2019

14

27

PIC Supply Chain is measured by three success factors

Multiplication

Commercial

production

Nucleus 1. Effective dissemination of genetic gain

2. Local availability of supply

3. Availability of premium product

Supply chain design principles

• Large nucleus structure with redundancy to drive & disseminate gain

• Multiplication in all regions to be able to sell when borders close

• Low boar-to-sow selection ratio to have high share of premium product

To balance cost, control, and risk, PIC has a mix of owned, contracted & customer-owned supply

Supply chain success factors

28

Backup: supply chain structure has regional supply

Sireline nucleus farm (owned/contracted)Genetic nucleus farm (owned)1

Franchise / Distributor

Direct sales

JV

1. Apex, Aurora

Sales regions

Elite farms

2/11/2019

15

29

Resilience and flexibility of our business

Planned new farms in next ~4 years

Existing elite farms

75%of largest producers

globally use PIC genetics

2,000+customers

400multipliers

35+countries

PIC global platformPIC elite nucleus farms

400boar studs

Ireland

Canada

China

Russia

Brazil

30


Global supply

chain

Competitive

product

portfolio

Deep technical

expertise

Strong cash

generation &

governance








• Monitor for M&A

Relations with


royalty contracts


smaller producers


2/11/2019

16

Largest cross functional technical team in the industryExpressing the genetic potential

• Deep technical expertise

• Global team

• Expertise in genetic services, reproduction, wean to finish, nutrition, meat quality, etc.

• On-farm visits, road shows, symposiums, etc.

• Broad suite of technical resources:

• Manuals and fact sheets

• Benchmarks

• Calculators

• Farm management tools

• Etc.

32


Global supply

chain

Competitive

product

portfolio

Deep technical

expertise

Strong cash

generation &

governance








• Monitor for M&A

Relations with


royalty contracts


smaller producers


2/11/2019

17

96% 96% 96% 97% 97%

FY14 FY15 FY16 FY17 FY18

33

Growing royalties and strengthening our supply chain

North America EMEA

Latin America Asia

65% 64%73% 77% 77%


38%

59% 64% 63%70%


35%

46%41%

50%45%


% volumes under royalty % volumes under royalty

Volumes based on market pig equivalents; geographical split indicative of internal segmentation of territories

% volumes under royalty % volumes under royalty

• Expanding supply

to improve

biosecurity and

support growth

• 30% growth in

royalty revenues

• Significant upfront

stockings in China

• Key account growth

particularly Spain

• Delivering value

from Hermitage

• Entering Denmark

through Møllevang

• Strong growth in

royalty accounts,

particularly in Brazil

• Driving industry

toward ‘liquid

genetics’ model

FY19 Milestones

2/11/2019

18

Context on breakup of DanAvl

36

Before July 1, 2017

~25 nucleus breeders with 8,500 pure line sows

~200 multipliers of which ~40% outside Denmark

~10 boar studs in Denmark

International network of distributors & traders Independent breeder per July 1, 2017

DanAvl rebranded as DanBred in January 201860-70% of original DanAvl pure lines

Danish Genetics

~23 breeders, multipliers, traders announced break away from DanAvl in October 2017

Breakup after July 1, 2017

2/11/2019

19


• Elite nucleus breeder of all 3 populations (only 2 in system)

• At time of departure,• Index LR: 115.2 • Index LW: 112,6• Index DU : 117,6

PIC Mollevang Relationship – A brief history

New PIC SLN/PN & multiplier in Europe

PIC-Møllevang relationship

effective per July 2, 2018 History

Owners: Niels & Gitte Pedersen

Møllevang is a premier Danish nucleus breeder with Landrace, Large White & Duroc pure lines

2000: started as multiplier of Landrace, Large White & Durocpure lines

2002: expanded into nucleus production with close to 15% of Danish pure lines

2017: became independent breeder with focus on Denmark and beyond

38

Møllevang strategic partnership commences

>Leading porcine breeder, formerly part of Danish cooperative

>PIC exclusive relationship commenced on 2 July 2018

PIC enters Danish market

• Møllevang to distribute PIC genetics in Denmark

• PIC previously had no presence in this Top 10 global market

Stronger supply chain in Europe

• Møllevang to multiply PIC genetics• Will supply Denmark and other

European markets

Accelerate genetic improvement

• Increased genetic diversity will strengthen product

• Customers to be offered superior genetics and service

Strategic

Partnership

2/11/2019

20

PRRSv resistance programme progressing

39

First births from

founder pig breedings

~100 Homozygous

edited pure line

animals off test

~100 Homozygous

Camborough™ parent

sows farrowed

Live animal disease

challenge of Genus edit

Additional animal disease

challenge of Genus edit

Cell line disease testing

of Genus edit

Animal

Amplification &

Evaluation

Disease Testing

Workstream

Regulatory

Submissions

First US FDA

submission

US FDA package

complete(1) First batches created in 2017 (2) ‘475 patent granted to the University of Missouri; and patent ‘790 patent granted to the University of Edinburgh in 2017Note: Timeline represents calendar years

2019 2020 2021 2022+2018

~1000 terminal

pigs evaluated

Gateway #1 Gateway #2

Batches of edited

founder pigs created1

US and European

patents granted2

Current


Questions?

gianluca - south africa roadshow 2019 - pic rsa...gilts) or semen •support pig farmers with...

Documents