Genus Stock

Welcome, everybody, to the Genus FY '26 results. It's bright and early. Thank you very much for joining us in person and also to those of you that are connecting via the conference call. It's a pleasure to see you this morning. My name is Jorgen Kokke, and I am the Genus CEO.

This has been an excellent first half for the group. And I want to start by thanking all of my colleagues for their hard work and dedication in making this possible. We've delivered strong profits alongside substantial strategic progress. We're executing well against our priorities in both PIC and in ABS while taking important steps to strengthen our long-term growth platform.

I now want to point you to the customary disclaimer before I'll start summarizing the key highlights from H1 and before our Chief Financial Officer, Andy Russell, takes you through the numbers in more detail.

Starting then with the highlights. The first half was strong across the group. We delivered record first half profit driven by PIC growth and further benefits from the Value Acceleration Programme, or VAP, in ABS. Making sure we turn our profits into cash is, of course, critical. And I'm delighted that free cash flow generation remained very solid compared to last year's record inflow.

We achieved further regulatory progress on PRP, the PRRS Resistant Pig, including a major step towards North American commercialization with the Canadian approval in January. And last but not least, we formed the porcine joint venture in China, positioning the business for long time growth in the largest porcine market in the world. We'll, of course, touch on all these points in more detail as we go through the presentation.

Before we dive further into the detail, this slide is a brief reminder of what Genus does. Our vision is pioneering animal genetic improvement to sustainably nourish the world. We have performed well against our 3 strategic priorities. The first is growing porcine, including accelerating PIC's growth in China.

The second is successfully commercializing PRP and generating attractive returns from our R&D activities. And the third priority is driving greater value from bovine. Progress against each of these priorities contributed meaningfully to our financial and strategic progress in H1. We'll discuss the impact in more detail.

Before I hand over to Andy, I did want to pause and reflect on the significant transaction that we completed in January. As many of you will know, the formation of our porcine joint venture is a significant strategic step. It creates the right platform to capture the substantial growth opportunity in the largest porcine market in the world.

I'd like to remind you that half of the world's pigs are in China. Our partner, Beijing Capital Agribusiness, or BCA, is partially owned by a very large state-owned agribusiness with commercial interest across the wider food and beverage sectors. We've worked very well with BCA for over 5 years now, and we believe the partnership of the 2 companies will create significant value for our shareholders. We're very excited to partner with BCA as we execute against the tremendous opportunity in China for the PIC business.

Let me now turn the presentation over to Andy, who will take you through the financials.

Thanks, Jorgen, and good morning, everyone. My name is Andy Russell, and I'm Genus' CFO. Before we dive into the numbers, I wanted to flag we've slightly changed the presentation to reduce complexity and really hone in on the key drivers of performance. Rest assured that the key data that was previously reported can be found in the appendix and in the interim announcement.

Having completed almost 7 months with the company now, I'd like to take -- to share a few observations. When I stood up here in September, I said I was excited by Genus' strong IP and significant growth opportunities. As I've seen more of the company, my conviction in these initial observations has only grown. I continue to be impressed by my colleagues' passion for the business and dedication to our customers. We have a tremendous platform for growth, and I'm extremely excited to help drive the execution of these opportunities.

Let me now take you through our strong financial performance in the first half. On this slide, we're showing our headline group financials. We've delivered strong first half profit on unchanged revenue with PBT up 57% to GBP 55.7 million and EPS up 53% to 60.8p per share. I should flag that these figures include the benefit of a GBP 5.6 million milestone receipt from our Chinese partner, BCA. Excluding this milestone, we still would have delivered record profits with PBT up 42% and EPS up 37%.

Moving to our balance sheet and returns metrics. Leverage reduced to 1.4x from 1.5x at the end of June 2025. We have a strong balance sheet already. And in fiscal Q4, we also expect to receive approximately GBP 100 million of joint venture formation proceeds from BCA. Our 12-month rolling return on capital improved significantly from 14.7% at the end of June 2025 to 15.8%. And this is a key focus area for us.

Lastly, on free cash flow generation. We generated an GBP 8.2 million inflow in the first half, which is a strong performance compared to last year's record level. I'd remind you that first half free cash flow tends to be seasonally lower than the second half. Conversion of 60% looks a bit lower than you might expect. However, this was predominantly driven by the timing of the receipt of the BCA milestone and dividends from Agroceres, our JV partner in Brazil. The cash for both has now been received, and I'm confident we will beat our 70% conversion target at the full year.

Our first half performance was underpinned by strong operational delivery across both PIC and ABS. In PIC, royalty revenue growth is a good indicator of performance. We delivered 6% actual currency growth to GBP 93 million in the first half, comprising very strong performance in Asia driven by over 50% royalty revenue growth in China. Notably, every region grew royalty revenue in constant currency.

On the back of the solid royalty growth and including the BCA milestone payment of GBP 5.6 million, PIC adjusted operating profit increased 30% to GBP 72 million at a margin of 34.5%. Excluding the milestone payment, operating profit grew 19% with a margin of 33%.

In ABS, VAP initiatives were the key drivers of profit growth. Sexed volumes grew 1% in the period with conventional volumes declining 2%. VAP initiatives drove a profit increase of 27% and a 180 basis point improvement in margin to 7.1%.

Moving then to group operating profit. You can see that we generated excellent first half profits with strong growth in the core and PIC China. On the right-hand side, you can see the building blocks of the year-on-year increase with significant contributions across the board. It's a record first half performance even excluding the milestone payment from BCA. Group operating profit margin also increased to 19.2% or 17.5%, excluding the milestone.

Diving into PIC. This slide shows a more detailed breakdown of performance. As mentioned, every PIC trading region achieved royalty revenue growth in the half. Within the regions, Brazil and China were the biggest contributors to a GBP 10 million increase in profits. The BCA milestone receipt was, of course, a big year-on-year driver as well. As a reminder, we recognize this milestone upon regulatory approval for the formation of our joint venture. This is the final milestone payment that we expect to receive from BCA.

As planned, PRP costs continue to increase as we ramp up our market acceptance activity. For the full year, we expect an increase in underlying PRP-related expenditure of about GBP 3 million. Excluding the BCA milestone, PIC margins expanded to 33%.

Moving then to ABS. VAP benefits were again the primary driver of profit growth. We realized GBP 4.7 million of benefit in the first half, comprising GBP 2 million of annualized phase 2 benefits and GBP 2.7 million of in-year phase 3 benefit. Regional trading remained solid, including an unexpected decrease in Asia profitability following China's decision to close its borders to U.S. bovine genetics.

As expected, ABS' first half result was impacted by an increase in bovine product development costs of GBP 2.1 million. This increase in product development costs is due to higher depreciation on prior period investments and the impact of acquiring the minority interest in de novo. For the full year, we expect bovine product development costs to increase by approximately GBP 4 million.

As we think about other factors for the full year, we now expect an in-year benefit from VAP phase 3 initiatives of approximately GBP 7 million as we've been able to progress slightly faster. We still expect the annualized benefit to be approximately GBP 9 million. ABS' margin increased 180 basis points to 7.1%, and we continue to target a double-digit margin in the medium term.

R&D is core to our business. And excluding the BCA milestone, we spent almost GBP 35 million in the first half. Approximately 80% was spent on product development and 20% on research projects. Our spend was marginally lower as a percentage of revenue in the first half, but we expect a slightly higher level of spend in the second half. We'll continue to invest in product development to drive genetic progress and research that can drive game-changing innovation.

Moving to our statutory income statement. As a reminder, 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 noncash items, in particular, IAS41, which can give a misleading picture of the group's underlying performance.

Picking out the key line items. The movement in the IAS41 valuation for the half was a GBP 6.4 million decrease compared with the prior year valuation, primarily driven by porcine. Exceptional expenses were slightly higher year-on-year at GBP 6.7 million and comprise 2 main elements: GBP 4.6 million in relation to VAP and GBP 1.9 million in relation to the PIC China JV formation. Based on what we can see today, we expect lower exceptional costs in the second half. In summary, statutory operating profit and PBT were significantly ahead of the prior year.

Moving to free cash flow. We generated GBP 8.2 million in the first half, which compared to a very strong GBP 10.3 million last year. The milestone of GBP 5.6 million had a distorting impact because it was recognized in first half EBITDA, but we received the cash post period end. We had higher bonus payment outflows in the first half compared to a low level last year. These bonus payments are driven by prior full year outcomes. And FY '25 was, of course, a lot stronger than FY '24.

The significant working capital negative movement on the chart is worth reflecting on. I'd remind you that this is the year-on-year change. Last year, we had a significant working capital improvement due to a decrease in bovine inventories and receivables. We're pleased to have held on to those gains, but the year-on-year impact is, of course, a negative.

There's also a positive impact of lower cash exceptionals in the half. Overall, we're pleased with the first half cash generation, and I'd remind you that second half cash generation is typically seasonally stronger. With what we can see today, we're expecting a step-up in H2 free cash generation, such that we expect FY '26 free cash flow to be above FY '25's record level.

Following on from free cash flow, our balance sheet continues to strengthen with leverage reducing from 1.5x to 1.4x. Gross debt increased marginally to GBP 233 million at December 31, '25 with higher EBITDA driving the leverage reduction. Following the formation of our porcine JV in China, we expect to receive approximately GBP 100 million in fiscal Q4 of FY '26. 12-month roll-in ROIC improved materially to 15.8% in the first half, albeit this includes the BCA milestone.

As a result of our strong financial progress, the Board is proposing an interim dividend of 11.2p per share compared to last year's 10.3p per share.

Back in September, I outlined our high-level capital allocation framework. We believe we're moving into a new cash flow paradigm. FY '25 was a record year for free cash flow, and we believe FY '26 will be even stronger. We're also, of course, expecting receipt of over GBP 100 million in fiscal Q4. I therefore wanted to provide some additional granularity on how we assess and prioritize capital deployment.

Before we deploy any capital, we must secure our balance sheet. A strong balance sheet derisks the group and gives us strategic optionality. I know Genus has previously targeted a leverage range of 1 to 2x net debt to EBITDA, and I think this remains the right through the cycle range for us to operate within. That being said, I want to be clear that we won't be rigidly bound by this range. In the short term, on receipt of the BCA proceeds, we will delever our balance sheet below the bottom end of the range as we appraise opportunities.

After maintaining the strength of our balance sheet, our first capital allocation priority is investing in organic growth. To give you a near-term example, PRP is a transformative opportunity that we will absolutely continue to ramp up our investment in.

After funding the best organic growth opportunities, we clearly want to continue rewarding our shareholders through our progressive dividend policy. We've also simplified the mechanics of our dividend policy to make it easier to model. Going forward, we intend to pay a full year dividend of between 30% to 40% of our adjusted earnings per share. We will continue to split the full year dividend into an interim and final. And the interim of 11.2p per share is 35% of the previous full year dividend, in line with our updated policy.

Continuing down the capital allocation waterfall, we get to inorganic growth opportunities. You can expect us to continue applying strict financial and strategic criteria to any potential M&A transactions. We'll be very focused on returns, earnings accretion, cash flow generation and strategic fit. Genus has a good track record of value-enhancing bolt-on deals, and we are amenable to doing more.

Moving then to the bottom of the slide. We will assess surplus capital returns to shareholders. We've given this significant thought and recognize it's an important element to shareholder value creation. We've established a defined process for evaluating surplus capital return options, and we will be judicious in deploying capital in line with this approach. I hope that gives you some additional color on how we think about capital deployment, and I expect we will return to this topic in the future.

Before I turn the presentation back over to Jorgen, I wanted to share an analysis we've put together to help you with your modeling. Going forward, PIC China will be deconsolidated from our group accounts. Whilst PIC China continues to grow, this is a significant change to our reporting. We've also received one-off milestones from our Chinese partner, BCA, which also makes comparison a little difficult.

On this slide, we've shown you a pro forma P&L for FY '25 H1 and FY '26 H1. We've also included the same pro forma analysis for the whole of FY '25 in the appendix. We think looking at the group this way probably gives the best like-for-like comparator for our future performance. The box on the right also flags a couple of the key elements that aren't in this analysis that are likely to impact the second half.

Within PIC, we're expecting higher PRP market acceptance and product development costs. PIC China also had a particularly strong first half, and we just want to be cautious about this level of growth continuing in the second half. Turning to ABS. We're expecting further VAP 3 benefits to be partially offset by an increase in costs half over half. And lastly, at the group level, we expect lower net finance costs due to lower average net debt over the period.

I'd finally also remind you that in our appendix, we have a technical guidance slide, which outlines expected impacts in our FY '26 accounts for various line items that, again, should help you with your modeling.

With that, let me now turn the presentation back over to Jorgen to take you through our strategic progress and outlook for the rest of the year.

Thank you, Andy. Let me now take you through the excellent strategic progress we've made in H1. As a reminder, our 3 strategic priorities remain clear and unchanged.

Let's discuss first PIC's royalty revenue. PIC royalty revenue is a critical driver of our financial performance. The royalty revenues are very high margin, recurring in nature and extremely sticky. The royalty model aligns our success with our customers' success, decouples our earnings from the underlying pork price volatility and supports the fostering of long-term genetic partnerships. You can see on the left-hand side of the page that PIC continued to grow royalty revenue in every region of the world in H1.

As Andy mentioned, total PIC royalty revenue grew by 6%. Our 4-year compound annual growth rate was also very healthy. Looking at the 4 regions, Asia is, of course, the standout at 34% over the 4-year period. Our commercial pivot 2 years ago to sell predominantly under the royalty model in China is a major driver of our growth. We generated around GBP 93 million of royalty revenue in H1, and continuing to drive royalty growth is a significant area of focus for us as we move forward.

Moving to PIC China, which, of course, is part of PIC Asia. We achieved a very strong improvement in operating profit in H1. The chart on the left demonstrates that this was predominantly driven by a more than 50% increase in royalty revenue in China. Again, this is in line with the change we made in China to our commercial approach, which is now focused on selling under the royalty model.

I'm also really pleased that the strong financial performance was achieved despite a weak market backdrop as pork prices in China have been low. This highlights the value our genetics can bring to our customers in China, just as they do elsewhere in the world.

The right-hand side of the chart is a reminder that post period end, we formed our strategic porcine JV in China with BCA. We are very excited by the platform this creates as we seek to execute against the tremendous opportunity for growth in China.

Moving then to our second priority. We continue to make steady progress on PRP regulatory approvals globally. January marked another major milestone towards North American commercialization with Canada approving the use of the PRP gene edit. As a reminder, to commercialize in North America, we still believe we also need the Mexican and Japanese approvals. We're encouraged about the engagement with both of the regulatory bodies in those countries.

Before turning to our outlook, let me touch on the Value Acceleration Programme, or VAP, in ABS. As a reminder, we initiated VAP in FY '24 to accelerate ABS' growth and structurally improve margins, return on invested capital, and cash generation. In FY '26, we're executing Phase 3 initiatives, which have been focused on reshaping our go-to-market strategy and embedding commercial excellence across our global teams. We've also launched a broad operational excellence initiative led by our new Head of Supply Chain for ABS.

Achievement in the first half was good with GBP 2.7 million of annualized operating profit benefit delivered from Phase 3. We now expect to achieve an in-year benefit of approximately GBP 7 million, which is ahead of our previous expectations of about GBP 6 million. We still expect the total annualized benefit from Phase 3 to be approximately GBP 9 million as we continue our journey towards achieving a double-digit margin in the medium term.

Let me now turn to our outlook for the second half of the year. As we discussed earlier, our royalty model significantly insulates our financial performance from underlying market conditions, specifically in PIC, of course. As such, our momentum from H1 continues into H2 despite challenges in some of the markets.

Looking at the market environment for our customers, we'd probably characterize the first half as being mixed with the Americas stronger than the rest of the world. As we look to the second half of the year, the global porcine outlook appears relatively stable, albeit there are continuing disease challenges in some regions, such as the outbreak of ASF in Spain. Pork prices in China also remain relatively weak. In bovine, we're seeing global milk prices weaken, and the China border is still closed to U.S. bovine genetics.

Overall, therefore, we see a generally stable market environment in the second half of the year. This comes with the usual caveats that these markets are dynamic and the situation could change quickly.

Turning then to our outlook for the second half of the year. I'd start by saying that we're delighted with our first half performance: record profits, solid free cash flow generation and significant strategic progress. We're very pleased to have formed our porcine JV in China. As mentioned, we expect to receive the proceeds of approximately GBP 100 million in fiscal Q4, and we have outlined our capital allocation framework for assessing capital deployment.

As we look to the second half, we continue to see good momentum across the business. As such, we're confident that we can deliver significant growth in FY '26 adjusted PBT, in line with market expectations that were raised in January.

With that, let me thank you for your attention, and we're now happy to take your questions.

Charles, please.

Just a couple of questions. Can we just start on PIC in China and in Brazil? Obviously, very strong performances from both of them. It doesn't feel as though the market is helping you in China. So can you just run through how sustainable the performance is there and what your opportunity is with customers? Have you won any new customers in the period? Or is it just penetration of existing customers? And then can you just talk through the Brazilian market and what's happening there?

Yes. Well, thanks, Charles. We have put significant effort on China over the last 2 years, supported our team. We've built a formidable organization there, which is supported by our global team. And as I mentioned, we changed our approach in China 2 years ago by focusing on the royalty model, which previously we did not. And the reason for the change is that the market in China has changed profoundly post-ASF, which, as you, know the outbreak that happened in 2020.

Post that ASF outbreak, we've seen a professionalization of the industry in China. We've seen concentration happen with the big players becoming bigger. And that has led to an increased level of sophistication among our customers. And it is just a requirement for pork producers to have a high level of sophistication, a high level of ability to interpret data to take advantage of elite genetics. And so we've seen that Chinese market become much more conducive to using advanced genetics, and we've taken advantage of that.

So specifically to your question, we have won a very significant number of customers over the last 2 years, about 25 new customers. And we won additional new customers in FY '25. As to your question of what was driving it, it's both. It's the customers that we won in the last 2 years as well as also some that we won just more recently. So we're pleased. And we believe that we're in the very early innings of the growth in China.

As you know, our market share in China is very low. We are already probably the largest player in China with a market share of below 5, probably in the 4-ish range. And so we see tremendous opportunity to continue to drive growth over the next years.

As for Brazil, do you want to comment a bit on Brazil, Andy?

Yes, sure. So Brazil, clearly, we have our joint venture partner, Agroceres, there. They cover Brazil and Argentina. Royalty revenue contract penetration is slightly lower than North America, but we saw good growth across the board, both upfront breeding stock sales and within royalty revenues. And a lot of that is driven by the underlying market. So there's a strong market there with strong pricing. And we do -- we see that continuing, albeit that penetration of royalty revenue is just slightly lower than North America. So there is a bit more of those upfront breeding stock sales. But it's largely driven by a strong underlying market.

And if I could just follow up on ABS. The beef market has obviously been very challenging over the last couple of years. Beef prices now very high around the world. Are your customers starting to feel more optimistic that they can expand production and invest in genetics?

Well, I would say that beef prices has been very, very high. As you know, the beef herd in the U.S. is down very significantly, driven by weather events, right, a couple of years of drought in the Western parts of the United States. that has pushed up prices. And so that's a good thing for dairy farmers, right? If you think about beef on dairy, it's quite attractive. And so beef is -- selling their calves into the beef industry is a major sort of value creation opportunity for the dairy farmers. And so that bodes well for us with our beef on dairy products in for -- in ABS.

Yes. Seb, do you want to go next?

Seb Jantet from Panmure Liberum. So 2 questions, if I can. First of all, just staying on ABS for a little bit. Obviously, we've had some really good kind of margin growth from the VAP program over the last few years, but it feels like we're kind of coming towards the end of that program and we're now into perhaps more of a phase of continuous development. And I'm kind of wondering, what are the levers you've got left to pull to get that business towards the double-digit margin? And when we say double digit, do we mean low double digit? Can it get to teens? I'm just trying to get a sense of where that might go.

And then the second question is actually just around the PRP investments. So I was wondering if you could just give us a little bit more detail on the investment you're making in PRP around market acceptance, how you're gearing up for the launches in Colombia and the Dominican Republic.

Yes. Okay. Let me start with ABS. Yes, the VAP has been a major driver and has resulted in improved margins in ABS. It also positions the business for growth because you have to be lean and fit to grow. And we're making this into a much better business. We've made a lot of changes in terms of people, in terms of organizational structure, in terms of culture, in terms of incentive schemes and so forth. But you're right. A major transformation program will have a beginning and an end probably, right? And we're certainly looking beyond VAP.

And there's 2 major initiatives and value drivers that we're embedding in ABS as we speak. One is around commercial excellence, which is a broad sort of theme around strengthening our go-to-market activities.

And I'll give you a few examples of what we are doing. We are standing up inside sales desks, for example, that have a lower cost to serve for, let's say, smaller and more transactional customers so that the field sales force can focus more on the largest and most attractive opportunities. We have expanded our sales agents and authorized representatives network and, in some cases, we have reduced our own field sales force because we felt there was a more appropriate a more efficient way to go to market in certain geographies.

We are also investing in certain capabilities. For example, we are hiring hunters that are incentivized to hunt in certain sales territories, so very much more rewarded on the basis of growth. We have invested in a pricing manager with very clear pricing methodology and pricing guardrails. And we have been doing a lot of work on pricing over the last, really, 2.5 years, but we're embedding and institutionalizing that in our business, and you need to anchor that with processes and also with people and capabilities. We have brought in a sales compensation manager, for example, an expert in that regard, how do we incentivize our people for driving results that align with our objectives?

So those are just a few examples but there's many, many more. And so we're really standing up that capability. That's on the commercial excellence.

The other lever that we're pulling, Seb, is around operational excellence, which is a broad theme that's used across manufacturing businesses widely. And so we have hired a new Supply Chain Leader for ABS. He's been with us now for about a year. He is a world-class expert in Lean and Six Sigma, which is about eliminating waste from the business and driving efficiencies. We're taking all of our people in operations through the Toyota training philosophy. And we're setting the appropriate targets for the people in the business, continuous improvement targets to actually deliver savings.

To give you a few examples what we're working on, we're moving the ABS IntelliGen labs to 24/7. They operate 5 days a week. So that drives more throughput through your labs, so thereby, you lower the cost. We're implementing further automation. We -- yes, and so there's lots of opportunities that we're pursuing in that area. Clearly, we haven't made the decision on VAP in the future. We're very focused on delivering the result in H2, but we're not sitting still and we're clearly thinking beyond VAP.

Yes, maybe on PIC, maybe on the target, Seb, we think that double-digit operating profit margin is an appropriate target. Let's get there first. And once we hit that target, we will always be ambitious and we'll also set more targets. But let's get to the double digits first. You want to talk about PRP?

PRP investment, yes. So you'll have seen on Page 14, in the first half of this year, we spent almost GBP 5 million, so a GBP 1 million increase on the same period last year. In the second half, that growth will expand in that we'll spend an extra GBP 2 million compared to the second half last year. So full year, about GBP 3 million up, which is about GBP 13 million in the year of spend on PRP.

There's quite a diverse range of spend within that bucket. Clearly, we have a lot of animals that we continue to maintain. So there's cost of running the farms. But then there's also the other costs around marketing, focus groups and a lot of work we're doing around the broader market acceptance piece. So there's a broad range of spend which we continue to invest and increase that investment as we go through. And we expect a further increase in the spend next year into FY '27.

Sorry, just on the -- what are you doing in Colombia and the Dominican Republic and when you think you might be launching in those markets?

Yes. I think we're carefully considering the launch in those products -- sorry, in those countries, but we haven't done that as yet. So we'll definitely keep the market apprised as we move closer to commercialization in those geographies. But clearly, we see them as opportunities to experiment, gain valuable experience with the introduction of the technology. And rest assured that there is a strong desire and appetite to utilize the technology in those countries.

Sean Conroy from Shore Capital. I'll just sort of follow-on from Seb's question really around that investment into the PRP program. I mean, is that going to be more a consumer level? Or is that more a producer level that you're trying to drive that acceptance ahead of the launch? And has your confidence changed in any way in terms of the level of adoption you think that you can get to with PRP versus the numbers that you stated us to at the Capital Markets Day?

And then just on ABS, as a follow-up question. Do you see any risk that the margin improvement story at ABS is going to become a distraction from the growth opportunity that you have in porcine?

Okay. Sean, thank you. In terms of our investment in PRP. PRP, of course, is a transformative new technology. CRISPR-Cas9 gene editing was awarded a Nobel Prize for chemistry. The technology is used in pharmaceuticals. For example, there's a successful drug that is used for treating sickle cell anemia. There is also a lot of work on crops, I think about 500 different crops where the technology would be used.

As a reminder, GE is different from GMO. I mean, we do not use any foreign DNA. It's essentially disabling the receptor for the disease. It's been very rigorously reviewed by regulators, most recently in Canada, prior to that, in the USA, where we've submitted all of the safety and efficacy data really reviewed over multiple years. And if you think about a new technology like this, right, there's, first, the scientific and technical risk that you need to hurdle that you need to overcome. Then you get the regulatory risk. We're making good progress.

And then you have the market acceptance. We obviously have invested in all 3. But there's sort of a sequence, right? In the beginning, you do a lot of studies on the animals. Then there's, of course, the regulatory work, where we had to hire people, work with consultants, pull dossiers together. The market acceptance work has been going on for a long time. We have hired public relations experts, people that speak at conferences. We speak at conferences. I would say, probably multiple times a month.

We have a website that is the prrsresistantpig.com, which, in essence, is consumer-facing. I would highly recommend everybody to go to that website. It's very informative. You can read studies, consumer studies. You can read about what experts in this field say about the technology. So yes, I mean, the market acceptance is an area where we're very engaged at this point. We welcome a debate with all of the stakeholders, to your question. The ultimate decision makers will be our customers' customers. I think it will be the brand owners and the retailers will have a key influence on that.

As to your question on ABS, is it a distraction? I would say no. ABS and PIC are run as different businesses. And ABS people are not involved with PIC and vice versa. So they have very, very clear agendas on how they can create value and what their focal areas are. So we're not worried about that.

Damian?

Damian McNeela from Deutsche Numis. First question is on the third pillar of your capital allocation policy, inorganic opportunities. Can you give us a sense of what the current pipeline looks like, what the sort of priorities may be in that area? And any guidance around returns metrics that you're looking at there?

Yes. Maybe I'll talk a little bit about M&A and then hand it over to Andy. Look, I think what is so great about Genus is that we have fantastic organic growth opportunities to create shareholder value. And as such, M&A is not a must-do for us. The priority is really to deliver against the PRRS Resistant Pig, to improve the economics of ABS, to take advantage of the opportunity that we have in China and to continue to grow our business. And that is reflected in my strategic priorities that I defined for the business when I joined 2.5 years ago.

However, of course, we do want to be opportunistic when attractive opportunities present themselves, right? We know the industry and the industry knows us. And so that's where we think -- how we think about it. So it's not a must-do. The pipeline is probably, I would say, not very robust at this point. As you may know, there isn't a huge number of potential targets, and we're comfortable with that.

However, things can always shift and then we have very clear criteria. And to give you some examples, we'd love to, of course, do bolt-on in PIC, where we have a great track record with -- and it probably would be smaller businesses that would help us grow. But again, I mean, I don't have any visibility to any of that happening in the near term.

In bovine, the bar would be higher, and I would like to see clear synergies, for example, cost synergies that would help us to get to our objective. If you think about other species, it would have to be a foundational assets with really good leading position and a really good growth trajectory.

Yes. I guess just to add to that, we've had a pretty good track record of doing M&A in the past, albeit some of them have been opportunistic. I think we'd continue to apply some of the criteria that we've always looked at. So clearly, we look at return on invested capital. I talked about ROIC being a key metric for me. So we'll look at ROIC compared to our WACC in the medium term post acquisition, as you'd expect. We'd look at IRR and net present value, that sort of thing.

But then in terms of a bit like what Jorgen said, it has to be accretive to growth, has to be accretive operating profit margin levels. And then, of course, that translates to EPS growth, right? So I think we've got some clear financial criteria combined with strategic fit, which we'll continue to apply. But like Jorgen said, in terms of pipeline and strategic priorities, it's not quite up there.

And If I may, just one on China JV. Obviously, we've become the minority partner. But can you give us a sense of what changes, what doesn't change? What confidence you've got that the strategy is going to be maintained that you've set in train, that sort of thing, please?

Yes, yes. Well, clearly, our PIC business in China is a successful business as it is, and we look forward to execute against that road map. So there is not a huge amount of changes that need to happen in the near term. Clearly, we feel that the partner is extremely helpful and probably will be instrumental in unlocking the PRP opportunity in China, and that is a significant consideration in doing this deal.

As we look at the governance of the PICC, so PIC China business, I do want to say a few things about that. We will have 2 out of 5 Board seats. We have the right to appoint the CEO, and the CEO is the current or the former PIC General Manager for China. The CEO will have broad management rights. And we believe that the interest will be very much aligned with BCA. To remind you, BCA has multiple shareholders. 40% is held, in essence, by the Chinese government, but 60% is held by private investors, institutional as well as private individuals. And our interests are aligned with those in terms of growing the business, generating cash driving profitability.

Okay. And just one quick follow-up on PRP in China approval process.

Yes. We have PRRS Resistant Pigs in China. And they've been there now probably for about 18 months and they're reproducing. And China is the only country in the world where we need to replicate all of the testing that we have done in the U.S. for the rest of the world. We need to replicate that in China. They require us to expose the pigs to China-born viruses.

That process is underway. That's progressing well. The animals are in biosecure facility on the top of a mountain, and nobody can go in or out of the facility. And actually, the workers live in the facility. They cannot go out. They can only go out, I think, every 2 months or so to go back to their family so as to avoid any contamination. The data that we generate, all of the safety, efficacy data will be used to generate a dossier just as we have generated for the U.S., in Canada, Brazil, Argentina and so forth. And the testing will be done by the end of this calendar year and then we can proceed to the next stage, which is submission, yes, of the dossier.

Jens Lindqvist at Investec. I saw the percentage of volume under royalty dropped a bit in Asia in the first half in spite of a very strong relative revenue growth in China. Just wondering if you could walk me through that dynamic, please?

And secondly, you're thinking on the preferred means of capital return perhaps in the short term, whether you will return part of the GBP 100 million from BCA, perhaps.

And then one final one. You mentioned very exciting game-changing innovation. Could you give me any more color on that, please, refer to anything in particular?

Yes, sure. So the proportion of royalty revenue in Asia, that the -- I'll start with the royalty revenue. So you've seen royalty revenue in Asia is predominantly driven by China. And the royalty revenues in China did see quite a significant step-up from sort of GBP 6 million in the first half last year to GBP 9 million. So we've got strong revenue -- royalty revenue growth within China. The non-revenue growth is lower margin but it did step up in terms of upfront breeding stock sales and a little bit of byproduct.

But in terms of impact on profit, that's been close to immaterial in that we still saw a profit growth highly correlated to the royalty revenue growth. So there's a bit of noise and lumpiness in that non-royalty revenues within Asia which can fluctuate half to half. So I'm not overly concerned with that.

In terms of your second question around capital allocation and potential shareholder return. So first of all, we haven't got the proceeds yet, okay? So we've still got a few months before we get those proceeds. And then clearly, we're assessing what else is on the landscape. I talked about priority #1 being around organic growth opportunities, which we'll continue to look at. And of course, we've got dividend return. We talked about M&A. So then you get down to number four on the framework, and that's something we'll assess at the right time. And we'll probably come back to it.

Yes. Jens, as for your question on innovation, I think you used the term exciting innovation. I like that. Yes, you're right. I mean, we spent a significant amount of money on ensuring that our products are leading edge. It's about 10% of revenue. 80% goes in product development, about 20% in more game-changing breakthrough R&D.

I think your question is more about the breakthrough R&D. The focus has been on disease-resistant animals, and PRP is a case in point. That obviously is quite a long journey. And we have previously talked about other potential diseases that we're interested in, and we named ASF. But we have to be very careful because, of course, we're still in the discovery phase. So that means that we do not have a proof of concept. It also means that we don't have intellectual property.

So it's too early to talk about a path towards commercialization. As you know, these things could take a while. In addition, an area of focus in R&D is sexing as a broad topic, and our intelligent technology is the case in point there. Again, I can't really discuss anything further for commercial and confidentiality reasons. But rest assured that we back R&D bets where we have conviction, and that continues to be a very important lever for us as we move forward.

Adam Tomlinson from Berenberg. Just a follow-up on PRP in China. So you talked about the regulatory process there. But I'm just wondering if you have any color in terms of market acceptance, your activity that you've been undertaking over there. Just any steer on that. I think a lot of the surveys you've done in terms of the consumers view have been U.S.-focused. So just anything around any color you can give on what's happening in China in that sense would be great.

You've also talked, sorry, just another one on regulatory approvals, further progress in Mexico and Japan. I don't know whether you can give any other color around that. And then just a third one on -- small one on costs. In PIC, you talked about lower input cost of production in H1. So just wondering if you could give a bit of detail on that and the outlook for H2 on that.

Okay. So I think there's 3 questions. You want to take the last one, maybe, and then we go to the other 2. Yes.

Jorgen, I'll do that first. Yes, yes. So PIC, in the second half, there's actually quite a few moving parts which you need to think about if you're looking at H1 v. H2, so the half-on-half. Clearly, there's the China deconsolidation, which will reduce. Then we've talked about PRP costs stepping up. So again, that's a reducing factor. And then the third one is around product development costs.

And on product development, clearly, we have a lot of animals going through, and there's input costs and there's outputs as the animals flow through. So far, we've benefited from lower input costs and then stronger pricing as we exit. We don't think that will continue over the long term. So we're being cautious around what we expect in the second half. And that translates to an increase in overall product development costs because we have a lot of animals going through that part of the P&L.

Does that help?

Yes.

Yes. Your first question was around PRP market acceptance specifically in China, right? I would say that the arguments for the use of PRP are similar to elsewhere in the world, right? And those arguments are it addresses the most devastating disease among pigs. And the benefits are much improved animal welfare, which I think is an important argument. Another argument is, it lowers the use of antibiotics. Another argument is it lowers greenhouse gas emissions, and we've done a life cycle analysis that shows that it lowers GHGs by about 8%. And last but not least, it drives very significant economic benefits to our customers.

Now as for market acceptance in China, of course, in China, relationship and support from the government is absolutely critical. It's probably important in every country, but I would say more so in China than in many other countries. And of course, that is one of the reasons why we have aligned ourselves with a state-backed entity. And so that's where the benefit will kick in. Our partner is leading the charge in that regard. And they are, for example, very active in hosting conferences and then engaging with government officials, where some of our research scientists make appearances and give talks. And so that work around both regulatory as well as market acceptance is very much underway in China.

Then I think the other question that you had was in relation to Mexico and Japan. So we are -- as I mentioned, we're encouraged about the interaction with both regulators. We've been in very, very active dialogue with both of them for years now, similar to the U.S. and Canada, right? The process has taken years literally. And if we think about Mexico, we're dealing with an organization called SENASICA, which is more or less the equivalent of the FDA. We're also dealing with SADER, which is the Ministry of Agriculture. We believe that they're very receptive based on all the information that we have provided.

What is somewhat different in Mexico is that there isn't a very clearly defined pathway towards getting a technology like this approved. What is very helpful, we believe, is that we get very strong support from Mexican pork producers. So they are active in making their position known to the government. Mexico definitely has a PRRS problem. So there is, I would say, a strong desire to adopt the technology in Mexico.

I would say Japan is maybe a process that is somewhat more similar to what we have seen in Canada and the U.S. but certainly not exactly the same. Certainly, it appears to be moving a little bit more deliberately, a little bit more slowly. But Japan does have a record of supporting modern biotechnology. They have approved other gene-edited products. So we remain optimistic about both countries, really.

I think we're getting to the end. Yes.

Okay. We have no further questions on the webcast or the conference call at the moment, Jorgen, so maybe back to you for any closing remarks.

Well, I would like to thank everybody for your interest and for your questions. Once again, we're very pleased about the progress. My gratitude goes out to all of the Genus colleagues.

And thank you for appearing here this morning, and I wish you a very good day.

Thank you for joining us this morning. My name is Jorgen Kokke, and I'm the Genus CEO. First, I am delighted to introduce Andy Russell, our new CFO, who has succeeded Alison Henriksen on the 1st of August, and a bit more about Andy will follow later. I'm also very pleased to report that we've made a significant announcement this morning related to the acceleration of our porcine joint venture formation in China.

Andy and I will take you through Genus' results for the year, which will be followed by a presentation on our China JV. In summary, we have achieved strong financial results and made significant strategic progress. I'd like to take the opportunity to thank all Genus employees for their contributions in achieving these results. After the disclaimer, let me start with an overview of our strategic performance as well as our key financial headlines.

Our three strategic priorities remain unchanged. Our first priority is continued growth in porcine. I am pleased to report that PIC, excluding China, achieved an 11% increase in operating profit for the full year. As for PIC China, I'm delighted to announce this morning that we're accelerating our joint venture formation with BCA. Under the terms of the agreement, Genus will receive an accelerated $7.5 million milestone payment and upon completion of the transaction, a gross cash payment of $160 million, with BCA taking a 51% stake in PIC China.

This provides the best possible route to obtaining PRP approval in China. I'll take you through more detail on this later in the presentation. Our second priority is the successful commercialization of PRP, which is the biggest opportunity from our R&D program. In April, we achieved a critical milestone as the U.S. FDA approved our PRP gene edit. This important accomplishment is a testament to the hard work and dedication of numerous Genus teams over many years.

We are continuing to seek approvals from other regulators around the world, and we are encouraged by the progress that we're making. Our third priority is driving greater value from bovine. As a reminder, we initiated a comprehensive value acceleration program in FY '24 which will return the ABS business to growth while improving margins, return on capital and cash generation. I'm pleased to say that VAP actions are bearing fruit with Phases I and II delivering over GBP 21 million of annualized benefit. We are now implementing Phase III, which targets an additional GBP 9 million of annualized benefit.

ABS is a strong business, and we remain focused on accelerating profitable growth. Turning then to our headline financial performance in the year. You can see the strong numbers on the slide and note that this was achieved despite a significant GBP 8.5 million FX headwind. This was driven by strong growth in PIC and VAP actions benefiting ABS. Let me then look at our markets, and let me pick out a few highlights on each of the species. In the Americas, pork producers operated at positive margins throughout the year. European pork producers also made healthy margins, but our European business was negatively impacted by ongoing health challenges and customer herds.

In China, the market environment for pork producers was relatively stable throughout the year. Outside of China, the Asian industry continued to face disease challenges. Looking ahead, the outlook for the first half of FY '26 is stable, albeit there are the normal risks around disease.

Moving to bovine. In North America and Europe, dairy and beef producers were profitable in the period. In LatAm, demand for beef genetics in Brazil continued to be weak despite signs that the beef cycle is stabilizing. In Asia, the environment for Chinese dairy producers continue to be very challenging. In addition, in February, the Chinese government restricted bovine genetic imports from the U.S. due to Bluetongue virus being found in several U.S. herds.

This actually led to a stronger H2 performance from ABS China as customers look to secure their supply of ABS' elite genetics. However, this is only a short-term boost to sales in China as there is currently no ability to replenish in-country inventories. In terms of the H1 outlook for FY '26, we believe the market environment in Europe and Americas is reasonably stable, whereas China dairy continues to be weak with restrictions on the U.S. bovine genetics posing an additional challenge for ABS China.

Overall, therefore, aside from ABS China, market conditions appear relatively stable across both of our businesses for the first half. And Andy and I will discuss the full year outlook for Genus later on. Let me now update you on our sustainability progress. At Genus, our vision is pioneering animal genetic improvement to sustainably nourish the world. We know we have a significant positive impact on industry sustainability.

Our genetics and services enable farmers to raise healthier animals that produce more high-quality protein per unit of input. In FY '25, through the use of our genetics and services, protein producers were able to avoid over 8 million tonnes of CO2 equivalent emissions. These so-called Scope 4 reductions that are underpinned by rigorous life cycle assessments show the powerful impact Genus advanced genetic has on improving industry sustainability.

Let me now hand over to Andy Russell to take you through our FY '25 financial performance. On behalf of the entire Board, we're delighted we've been able to secure an executive of Andy's caliber. Andy joined us on the 1st of August, and before Genus, spent nearly 12 years at Smith & Nephew in operational and strategic finance roles. Prior to that, Andy spent 17 years with KPMG. I'm looking forward to working closely with Andy as we continue to advance our strategic agenda.

With that, let me turn it over to Andy.

Thank you for the introduction, Jorgen, and good morning, everyone. I'm very excited to be joining Genus at this stage in its journey. Before joining, it became clear to me that the group has very strong IP and significant growth opportunities. In the last few weeks, I've been impressed by the people I've met and their passion for the business and our customers.

I'm looking forward to working with Jorgen and the team to deliver these initiatives and drive profitable growth for the group. I'm pleased to say I've inherited a strong set of FY '25 results. My four key takeaways are: first, PIC continued to demonstrate the strength of its business with good growth ex China and continued progress winning new royalty customers in China.

Second, ABS has delivered VAP 1 and 2, and driving significant profit growth. VAP 3 has commenced, which we expect to drive significant benefits in FY '26. Third, we generated record free cash flow that covers our dividend and expect strong free cash flow in FY '26. And finally, we have a strong balance sheet with debt leverage now down to 1.5x EBITDA. With that, let's now dive into the detail. Let's start with volume growth. I'm pleased to report that PIC volume was strong with total volume up 10% or 9% excluding China. Ex-China volume growth was broad-based with the Americas being particularly strong.

Moving to ABS. It's pleasing to see more stable volume after a challenging FY '24. On an underlying basis, we continue to see the mix shift to sexed continuing with sexed volume up 11% for the year. There's one point to note, however, when looking at the chart, over the course of the year, a significant proportion of ABS' dairy volume growth came from India, where units typically sell at a lower price point. Excluding India, volume growth in the year was about 1%.

Looking to FY '26, this creates a tough volume comparator, albeit the profit impact of this is less material. Moving to our trading performance. Group adjusted operating profit increased 30% in constant currency and 19% in actual currency to GBP 93.1 million. Adjusted operating profit, excluding PIC China, was GBP 84.7 million. PIC China adjusted operating profit also improved significantly to GBP 8.4 million for the year, driven primarily by stronger byproduct revenue.

PIC adjusted operating profit grew 16% in constant currency and 8% in actual currency. It's important to note that PIC's adjusted operating profit included a net GBP 3.7 million milestone receipt following the U.S. FDA's approval of the PRP gene edit. ABS adjusted operating profit increased 53% in constant currency and 39% in actual currency, driven primarily by benefits from the VAP initiatives.

The increase in central costs is largely driven by variable costs associated with underlying group profit growth, including performance-related employee rewards. Group operating profit margin increased 210 basis points from 11.7% to 13.8%, reflecting better leverage achieved in both businesses and the planned optimization of R&D investments following the strategic review in FY '24.

Net financing costs increased slightly to GBP 18.8 million as a result of higher interest rates and average borrowings over the year. Overall, the group achieved adjusted PBT growth of 38% in constant currency. As you know, Sterling strengthened, particularly against LatAm currencies, resulting in a significant GBP 8.5 million FX translation headwind during the year.

As a result, adjusted PBT grew by 24% in actual currency to GBP 74.3 million. Let's now look at the divisions in detail, starting with PIC. PIC's adjusted operating profit increased 16% in constant currency, on revenue that was 8% higher. As mentioned, adjusted operating profit includes the GBP 3.7 million milestone receipt. The chart on the right shows the building blocks of PIC's profit growth. I'll cover the performance of our trading regions on the next slide, but you can see that PRP costs came in GBP 2.5 million lower year-on-year, but remember that this includes the GBP 3.7 million milestone receipt.

On an underlying basis, PRP costs were up GBP 1.2 million for the year. The last point to flag is that FX was a significant headwind for PIC during the year with a GBP 7.9 million translation impact due to Sterling strength, particularly relative to the Mexican Peso and the Brazilian Real. This next slide presents our normal regional view of PIC performance. PIC North America continues to deliver very resilient growth with constant currency profit growing 3%. Royalty revenue accounts for a large proportion of this region with growth of 2%.

Latin America performed well with operating profit growth of 14% in constant currency, supported by a very strong 11% increase in royalty revenue. That was broad-based across the countries within the region. PIC Europe had a tougher year with full year profit down 4% in constant currency. We made good progress in Spain and Germany, but this was more than offset by lower sales in Russia due to challenging market conditions. In Asia, profits were 70% higher, albeit from a lower base. Within this, PIC China profits increased GBP 5.2 million, driven predominantly by higher byproduct revenues as well as modest royalty revenue growth. It's pleasing to report that Asia ex China also grew profits 29% with good growth in Vietnam, the Philippines and South Korea.

Moving to ABS. We're clearly seeing the benefits of our value acceleration program coming through. In constant currency, revenue increased 2%, but adjusted operating profit increased 53% to GBP 19.5 million. As a result, ABS' margin improved 190 basis points to 6.3%. As you can see from the chart on the right, VAP was the key driver of profit growth. In FY '25, the annualization of VAP Phase I initiatives achieved GBP 3.8 million of benefit. This brings the total benefit from VAP Phase I to GBP 11 million. VAP Phase II achieved a further GBP 8 million of in-year benefit.

We continue to expect these initiatives to deliver an annualized benefit of GBP 10 million. We've also pulled out ABS China, where profits were up GBP 0.7 million year-on-year. I'll discuss ABS China in a bit more detail on the next slide. The increase in performance-related pay reflects both the significant progress made under VAP and the fact that there was minimal payout last year. ABS was also impacted by a GBP 2 million FX translation headwind over the course of the year. The next slide shows our regional performance in ABS.

As you can see, we saw strong profit growth of 26% in North America and 21% in EMEA. And these are the regions that have been key markets for the VAP initiatives. In North America, volume grew 8% with very strong sex growth of 25%. In Europe, volume growth of 2% was more stable with sex volume growing 11%. In contrast, ABS performance in Latin America was fairly weak with profits down 6% in constant currency and down 20% in actual currency.

The key volume factor remains a relatively weak market for beef genetics in Brazil, which led to ABS LatAm's beef volume decreasing 6% year-on-year. The regional dairy market was stronger, and there was a notable 7% increase in sex volume, albeit off a relatively low base. ABS Asia profits were down 4% year-on-year, an improvement from H1's 22% decline. The improvement was primarily driven by China's decision to hold bovine genetic imports from the U.S. in February after the Bluetongue virus was found in a number of U.S. herds. Paradoxically, this resulted in a strengthening of ABS China's sales in the second half as customers look to secure their supply of ABS' elite genetics. This was a short-term boost to sales, however, and ABS China faces a challenging FY '26 with the import ban still in place and a continuing tough underlying market for dairy producers.

ABS Asia volume growth was primarily driven by good progress in India, albeit at lower -- relatively lower price points. In aggregate, ABS volume growth of 5% comprised sex volume growth of 11%, a beef volume decline of 3% and dairy conventional volume growth of 6%. Let's now move to research and product development, where I'm excited by what I've learned about the innovative work and capabilities of our scientific teams.

We've made one change on this slide, and that's to show you the combined research and product development spend as a percentage of group revenues. And you can see that in FY '25, this was 11%, which demonstrates our significant financial commitment to R&D initiatives to continue our profit growth over the long term. Moving to research specifically, our spend decreased 24% to GBP 16.5 million as a result of the actions taken from the R&D strategic review that was initiated in February '24.

Our more focused research spend represented 2.5% of group revenue. And going forward, we expect this spend to be relatively stable and to remain below 3%. Moving to porcine product development. The reduction in PRP costs is driven by the milestone receipt. Excluding this, PRP costs increased by GBP 1.2 million for the year. Bovine product development costs meanwhile were broadly unchanged from the prior year, although we did make a substantial investment during the year through the buyout of the De Novo genetic herd. The acquisition is progressing well, and we've already seeing stronger KPIs in our genetic program. We're expecting higher bovine product development in FY '26 due to higher bull depreciation.

Moving to our statutory income statement. So we consistently measure and report adjusted results as we think these give a better view of the group's underlying performance. Our statutory results can be significantly affected by noncash items, in particular, IAS 41, which can give a misleading picture of the group's underlying performance. Picking out the key line items, the movement in the IAS 41 valuation for the year was at GBP 13.3 million decrease compared with the prior year valuation, primarily driven by bovine assets.

Exceptional expenses were significantly lower year-on-year at GBP 11.4 million as expected and comprised 2 main elements, approximately GBP 9 million in relation to VAP restructuring costs and GBP 2 million in relation to other corporate transactions. Based on what we can see today, we expect similar exceptional costs in FY '26 with the principal component being onetime restructuring costs in relation to VAP Phase 3. Reported operating profit was GBP 42.4 million, a significant improvement on last year's GBP 6.4 million. Net finance costs were similar to last year, resulting in statutory profit before tax of GBP 28.5 million, a GBP 23 million improvement year-on-year. Our adjusted tax rate was 27.5%, consistent within -- with our expected range, and our statutory tax rate was 36.7%.

With that, let me now turn to our cash flow performance. FY '25 was a strong year for free cash generation, and we both covered our dividend and reduced debt. Looking first at the chart on the left, you can see that improved working capital was the biggest driver of our increase in free cash flow. Improved working capital has been a key focus area within our ABS VAP program. And during the year, we made significant improvements in inventory management as well as receivables. 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.

Lower capital expenditure was expected and a function of the group moving into a period of stable CapEx spend. We expect FY '26 CapEx to be slightly higher and in the region of about GBP 21 million to GBP 23 million. We had a significant exceptional cash outflow in FY '25 as expected. The total exceptional cash outflow of GBP 24.2 million included approximately GBP 8 million in relation to the ST settlement agreed in FY '24, GBP 9 million in relation to VAP restructuring costs and GBP 7 million in relation to potential corporate transactions in FY '24 that are no longer active.

Looking forward, we expect exceptional cash outflows to be much lower in FY '26. We have one final GBP 4 million payment in relation to the ST litigation settlement and expect further restructuring costs in relation to that. The chart on the right shows our progress in relation to cash flow generation and cash flow conversion over the last 5 years. You can see that FY '25 was a standout year in terms of operating cash flow, free cash flow and cash flow conversion. Looking to FY '26, I expect that cash conversion will remain strong. But I'd just remind you that first half cash flow is normally lower than the second half, and we expect this to be the case this year.

Moving to our balance sheet. I'm pleased to report that we have reduced our net debt and leverage. Net debt decreased to GBP 228 million from GBP 249 million at June 2024. As shown on the chart, our free cash flow of GBP 41 million covered GBP 21 million of dividend payments in the year as well as GBP 4 million of equity investments. There were broadly 2 offsetting impacts in the year, a GBP 10.6 million increase in deferred consideration relating to the acquisition of the De Novo minority interest and an GBP 8.3 million reduction in lease liabilities, primarily related to PIC's LuoDian farm being sold into a joint venture.

As a reminder, the De Novo deferred consideration is payable in 4 equal installments over 4 years ending July 2029. We also had a GBP 7.3 million favorable reduction in debt on the translation of our U.S.-based debt. As a result, our net debt to EBITDA at the end of the year calculated per our financing facility was 1.5x compared to 2x last year. The 0.5 turn improvement was predominantly driven by higher EBITDA and strong cash flow as well as improved lease liability terms in our new RCF. Our targeted leverage range remains 1 to 2x, and we expect to continue deleveraging in FY '26.

We completed a refinance in June, and our new facility for approximately the same size with maturity extending out to June 2029. We had headroom of GBP 119 million at year-end, and our covenant remains at 3x. Our return on adjusted invested capital increased to 14.7% in FY '25, and we are focused on improving this further in FY '26. I'd also remind you that in our appendix, we have a technical guidance slide, which outlines expected impacts in our FY '26 accounts for various line items that should help you with your modeling.

Let me now take a moment to remind you of Genus' capital allocation framework, which will be a key focus area for me going forward. As you know, our balance sheet is in a strong position. Our leverage has now been reduced to 1.5x EBITDA, which is the midpoint of our targeted range. We, therefore, wanted to share our disciplined framework for capital allocation, which we divide into 4 categories. Supporting organic growth opportunities such as investments in facilities, innovation and commercial capabilities, continuing to strengthen our balance sheet, value-creating inorganic growth opportunities, which must meet strict financial and strategic hurdles and additional shareholder returns over and above our current dividend.

With that, let me now turn the presentation back to Jorgen, who will give you more detail around our strategic progress, the porcine JV in China and our outlook for FY '26.

Thank you, Andy. I'll now discuss our strategic progress during the year in more detail. Let me review each of the 3 strategic priorities that I defined 2 years ago. Firstly, I'd like to take a deeper look at PIC's royalty revenues. The chart on the left shows PIC's 4-year royalty revenue CAGR by region. You can see robust royalty revenue growth with a CAGR of 5% in North America, 11% in Latin America and 6% in Europe. PIC continues to demonstrate it can grow with both existing and new royalty customers. In Asia, our 4-year royalty revenue CAGR is negative 4%, which highlights why we increased our commercial focus on royalties in China 18 months ago.

I'm pleased to say that in FY '25, royalty revenue growth in Asia was 12%. Adoption of PIC's royalty model is high and continues to be led by 97% penetration in North America. This underpins the stable growth of PIC. 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 demonstrably grown royalty revenues throughout these cycles.

Let's now move to PIC China. Our goal is, of course, to grow the business, but also to improve its stability. The first chart shows the pig price to corn ratio in China. This is a proxy for corn -- for pork producer profitability. When this ratio is above 6, Chinese pork producers are making a positive margin, which was the case during the year. 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. As Andy explained, the increase in non-royalty revenues was predominantly a result of higher byproduct revenues.

That being said, there was a 6% increase in royalty revenue in China as well, and we continue to expect strong royalty revenue growth going forward. The chart on the right is the same one we've shown before and illustrates that royalty revenues from new customers can take up to 4 years to reach financial steady state, with revenues and gross margin in the first 2 years typically being fairly limited. The point of this chart is to highlight that PIC China's commercial success, winning 25 new royalty customers over the last 2 years, hasn't turned into significant royalty revenue or margin yet, but it will.

Moving now to PRP. I am delighted to say we made significant regulatory progress in the year with the U.S. FDA granting approval for our gene edit in April. This clearly represents a very important milestone for Genus. In order to commercialize PRP in the U.S., we believe we need approvals in major U.S. pork export markets, namely Mexico, Canada and Japan. We continue to advance with the regulatory authorities in these jurisdictions as well as with other international regulators, including China. In addition to FDA approval, we also secured favorable determinations from the Dominican Republic and Argentina. These determinations further expand our PRP regulatory footprint, and we will continue to pursue further approvals in FY '26.

Moving now to bovine and our value acceleration program. We initiated this program 2 years ago with clear objectives to accelerate growth and improve ABS' margins, returns 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 bovine business. Let's then move on to the achievements of VAP Phase 1 and Phase 2 and our areas of focus for VAP Phase 3. To recap, Phase 1 initiatives were completed in FY '24. We unified dairy, beef and IntelliGen under one leader and started implementing stronger pricing governance and value capture, achieving annualized benefit of GBP 11 million.

In Phase 2, we've created global product management, global marketing and global supply chain teams. The work on supply chain has already achieved significant working capital gains, and we see further potential for improvement. Across Phase 1 and Phase 2 together, we've achieved GBP 21 million of benefit, which is a significant achievement. We've now commenced Phase 3 of VAP. We're focusing on reshaping ABS' go-to-market and enhancing commercial excellence. Fundamentally, we're concentrating on bringing the right product to the right market, providing value-creating service to our customers and delivering the product to our customers in the most efficient manner.

We're already in the process of implementing material changes in our biggest markets, and we expect the profit benefit of these changes to be substantial. We're targeting GBP 9 million of benefit from Phase 3, of which GBP 6 million is expected to be achieved in FY '26. I'd now like to take a moment to commend our ABS teams on the progress we're making through VAP. We can see the benefits come through, and it is increasingly clear that we are positioning ABS for accelerated growth.

Let me now remind you of the background to our partnership with BCA, Beijing Capital Agriculture (sic) [ Beijing Capital Agribusiness ]. Back in 2019, Genus and BCA announced a strategic porcine collaboration to jointly research, develop and secure regulatory approval for PRP in China. As a reminder, PRRS remains one of the biggest disease issues for Chinese producers. As a leading Chinese state-backed agribusiness with wide-ranging interest in animal genetics, we chose BCA as a partner to commercialize PRP. Upon regulatory approval of PRP in China, a joint venture would be formed, whereby BCA would acquire 51% of PIC China.

On this slide, we've laid out the key financial terms of the updated agreements and the original agreements. The first box shows the upfront consideration payable to us on formation of the joint venture. Under the original agreements, this gross consideration was subject to a cap and collar of $120 million to $160 million. Under the new agreements, we will receive gross proceeds of $160 million, i.e., the top end of the range. After withholding tax, transaction costs and potential working capital and net debt adjustments, we expect to receive net proceeds of around $140 million. We expect to receive this upfront consideration in the second half of FY '26. The second box shows milestone payments from BCA to Genus. Under the original agreements, these totaled $20 million. Since the signing of the original agreements, we have already received $12 million.

Under the new agreements, the trigger points for the remaining $7.5 million have been brought forward, thereby accelerating our value crystallization. The third and fourth boxes show the IP royalties and dividends that we expect to receive from the JV on an ongoing basis. Under the new agreements, both future earnings streams are consistent with the prior agreements. We believe the new agreements are very positive for Genus, both strategically as well as financially. From a commercial point of view, this should accelerate our ability to capture the long-term growth opportunity for PIC in China. Forming the joint venture also cements both parties' commitment to achieving PRP approval and commercialization in China.

The terms we've agreed accelerate value crystallization for Genus shareholders while retaining our future economic rights. The transaction is expected to complete in 2026, subject to regulatory approvals for a Chinese state-backed entity. And our current expectation is that the deal proceeds will be used for balance sheet deleveraging and potential additional shareholder returns, in line with the capital allocation framework that Andy talked about earlier.

Before I conclude, let me briefly remind you of our PRP progress in China and the scale of the porcine opportunity. China is the largest porcine market in the world with approximately 37 million sows. That's around 6x larger than the U.S., which is currently PIC's largest individual business. In relation to PRP, we continue to make good progress with the Chinese regulatory authorities. We have PRRS-resistant pigs in China, and we have successfully bred a new generation of PRP animals. Testing is underway in preparation for regulatory assessment. Again, we believe accelerating the joint venture formation will strengthen our position with regards to obtaining Chinese regulatory approval for PRP.

Lastly, let me now turn to Genus' outlook. FY '25 was a very good year with strong financial performance and excellent strategic progress on multiple fronts, including the PRP FDA approval, the accelerated PIC China joint venture and the ABS value acceleration program. We generated record free cash flow, and our balance sheet is deleveraged. Looking to FY '26, market conditions appear relatively stable. We, of course, continue to monitor potential geopolitical and disease challenges around the world. FX rates are currently trending relatively neutral vis-à-vis FY '25. We expect significant growth in FY '26 adjusted profit before tax in constant currency. This compounds on the strong growth achieved in FY '25 and is in line with market expectations. That concludes our presentation of Genus' FY '25 results. Thank you very much for your time and interest.