Genus plc (GNS) Earnings Call Transcript & Summary

Welcome to the Genus Capital Markets Event 2021. We really appreciate you spending some time with us, and we hope that you find these sessions we have for you this afternoon engaging and informative. We've got a series of presentations for you today which members of our Genus executive leadership team will be making, and we're going to have the whole team present for a live question-and-answer session after the presentations. I'm going to pass over the usual disclaimer slide and move to a chart here which tries to put into context what we're going to be talking about today. Those of you who followed the company for some time are probably familiar with how we've talked about our business model, which you see on the right. At its center is the delivery of genetic improvement. That's our core focus. And it's illustrated on this chart by the genetic distribution curve, which you can see here shifting to the right. Today, we do this in 3 protein markets: pork, dairy and beef. And we achieve this genetic improvement through our R&D activities with 4 core development pillars: that's genomic selection, biosystems engineering, gene editing and reproductive biology. And that's all underpinned by genome science and bioinformatics. Our successful strategy is outlined on the left of the chart. And that focuses on how we create differentiated and sustainable genetic solutions and bring these to market effectively and try and share in the value created. Now we're clearly not going to have time to talk about all aspects of our business in the presentations this afternoon. So what we've decided to do is to really focus on those areas, which, based on the feedback and our sessions with investors, are really attracting the most interest at the moment. So let me move forward and introduce our agenda and the participants today. I'm going to lead off the presentations by talking about how sustainability is an integral part of what we do. In fact, we view genetic improvement, that thing that was at the center of our business model, as one of the keys to improving sustainability of animal protein production around the world. Then Bill Christianson, who heads the porcine division PIC, will talk about the key growth opportunity we have in China and how we're seizing it. He's going to be followed by Elena Rice, our Chief Scientific Officer and Head of R&D. And she'll provide an update and try and give you some scientific insight into the progress we're making with our pioneering gene editing program for PRRS-resistant pigs. She'll be followed by Jerry Thompson, Chief Operating Officer of ABS Beef, on how we're bringing new value to the beef industry. And then Alison Henriksen is going to wrap up the presentations with some thoughts on how our proven financial model has enabled us to both deliver returns and invest for the future. We're going to close the afternoon with a live Q&A session. And at that, all the members of the Genus executive leadership team will be present and you'll be free to ask questions on any aspect of our business. So let's start the presentations and lead off really with sustainability. You see that we've had a consistent vision now for close to a decade. It's pioneering animal genetic improvement to help nourish the world. It's at the heart of how we think about the business and it really does guide our decision-making. And when we ask our employees through surveys, we find that this vision really motivates and inspires our people. As we look at that vision, it really naturally falls and links very strongly to 2 of the United Nations Sustainable Development Goals. First, genetic improvement helps to address the issue of climate change by making the production of animal protein more efficient and sustainable. We've reduced greenhouse gas emissions, lower usage of land and water. And the second half of that vision, the piece that says nourish the world. That really speaks to the UN development goal of zero hunger. And we firmly believe that Genus is making a contribution to the realization of these goals, and I hope to talk you through that as we go through the presentation. But before diving into a bit more detail on how we're making that contribution to those goals, I just wanted to frame our approach to the broad arena of sustainability within our overall ESG framework. As I said, we deliver solutions to our customers that help with the sustainability of protein production. You can see that on the top left. But we're also working to reduce the environmental impact of our own operations. You can see that on the top right. Our people strategy is focused on making Genus a fulfilling and exciting place for everyone to work. And we need to ensure that we maintain a healthy business for our investors and the communities we operate in, and Alison is going to touch on that. Now let's focus on what we do for customers and how that drives sustainability. Now I asserted at the outset that genetic improvement is good for environmental sustainability. And you may well ask me, well, what's the evidence? So first of all, let's look at some really long-term industry level data in the pig and the dairy industry. On the left-hand side of this chart, you can see the amount of feed required to produce a slaughter pig relative to its weight. It's what we call the feed conversion ratio. And you can see that, that has gone from about 3.8x in 1970, down to about 2.2x today. That's a 58% improvement and over 1.5x the pig's body weight in feed is being saved. So huge, huge improvements. On the right-hand side, you can see the U.S. dairy industry. And over a 40-year period, 13% fewer cows are producing 76% more milk, another massive improvement in the sustainability of protein production, fewer animals, more output. Now, of course, there's been a whole variety of things driving these pretty staggering improvements in both pork and dairy. You could look at feed formulations. You could look at the farm management systems. You could look at veterinary practices and drugs to name just a few. But in fact, actually, genetics has been the major driver. Based on some industry studies and our own analysis, we estimate that 50% to 60% of the improvement you see on these charts has been driven by better genetics. Now this is industry data and it's looking backwards. So now I think it's relevant to ask the question, what about Genus' genetics and what about the future? How good are they and are we going to drive improvements going forward? In fact, what I can tell you is that we actually see that since the advent of genomic selection over the last several years, the rate of genetic improvement is running at roughly double the historical average. We see it continuing at that pace. So on the left-hand side of this chart, you can see some key metrics for some leading PIC customers, what they were achieving in 2010, where they are today, and where we anticipate them being in 2030. You can see more weaned pigs per litter, better feed efficiency, more pork per sow per year, all of which improves the sustainability of pork production. You may say, well, how can we know what those metrics are going to look like in 2030? Well, this chart is describing what we expect to be experienced in our customers' herds. It takes time to disseminate the genetics from our nucleus herds down to the customer level, actually, I feel around about 4 years. Our nucleus herds are always running ahead of our customers. And furthermore, within our nucleus herds, we're measuring those animals. And we can see the most elite outlier animals within the nucleus herds, and they're the animals that are going to give birth to the next generation. So we truly can see the future genetically. And based on the outlier animals within our nucleus, we can measure today and we can see that we're already over halfway to that 2030 performance. So I think the good news is, there are some tremendous performance gains in the pipeline coming for our customers. What about dairy? So on the right-hand side of the chart, here, we can look at genetic data on bulls we're selling today. And we can compare it to the average of cows born in 2015. What you see is that the genetics are improving across the industry. The daughters of bulls being marketed today will be healthier. They're going to produce more milk, with more fat, more protein than those of 5 years ago. What you can also see is that Genus' genetics, on average, are going to give you an even better result. So I think whether you're looking at core dairy, and Jerry's slate are going to talk about beef, we can tell you that genetic improvement works and Genus is going to continue to deliver improved performance and improved sustainability to our customers. So now I'd like to switch from the focus on what we do for our customers to the greenhouse gases our own operations produce. We've measured and we've analyzed these, and we have a whole variety of initiatives underway to reduce them, and we're illustrating a few of them here. About half of our own emissions come from manure, principally actually from our pig nucleus farms. We've got a lot more pigs than we have bulls. We're working on ways we can capture and use the biogases that come off that manure in place of burning fossil fuels. We're looking at making use of the organic fertilizers produced by our animals in soils around our farms so that we can sequester or capture the carbon back from the atmosphere. In fact, here in the picture, you can see manure being put into a eucalyptus plantation in Brazil, where the trees are extremely efficient at carbon capture. We've got a whole variety of other initiatives underway as well. We're planning to move our vehicle fleet to electric over time. We're installing solar panels at our new bull stud facilities to meet their electricity needs. And we're looking at ways that we may potentially be able to reduce enteric methane from our bulls through feed formulation. So we've analyzed all of these initiatives, and we believe that we have a clear path to achieving our commitment of a 25% reduction in the carbon intensity of our operations by 2030 as a first milestone on the way to driving for carbon neutrality by 2050. So hopefully, what you've seen is how environmental sustainability is at the core of what Genus does and the actions we're taking to reduce the environmental emissions of our own operations. I'd say like many companies, we're on a journey to ensure we make the right decisions to support our sustainability objectives and that we have the right processes and systems in place to capture the data and measure our progress. We also have some work to do to educate others so that they really understand the positive impact Genus can make. As I said, it's a journey. I think we're making the necessary investments and we're really committed to achieving consistent progress. So that wraps up what I'd like to say around sustainability at this point. And I'd now like to hand over to Bill Christianson, the Chief Operating Officer of PIC, who's going to talk to you about our opportunity in China. Over to you, Bill.

Good afternoon, and thank you, Stephen, for the introduction. I'm pleased to join you today from our office in the U.S. We're going to focus today's discussion on PIC really on China because it reflects how important the Chinese business is to us every day. And really, for a long time, we've talked about potential in the Chinese business. And after the last couple of years, we see even further growth beyond potential. We're really going to focus on opportunity. You'll see in my title slide, the photograph in the back is actually a picture of some of the team, the local team in China at a training exercise earlier this year. What you really can't see in that photograph is the level of energy and enthusiasm that team brings to work every day. It's really impressive. And I think it reflects the big changes, profound changes that have occurred within the Chinese industry itself. And that's really what we want to talk about as a base of how our business grows going forward. So the next slide, this slide really puts the market, I think, into context as the title says. First of all, it looks by region, China on the left versus the other regions, just sheer size. So clearly, China is a very large market. There's 2 time frames in there, our fiscal year '20 and our fiscal year '25, to compare the change that we anticipate as well. So the second thing you really look at is growth within the Chinese market, very impressive scheduled growth. And then third, the different shades in the bars represent the level of consolidation that's occurring, and it's dramatic in China today. Those darker shades represent customers really around the world on all the bars that have produced more than 0.5 million pigs a year. And you see the level that China is getting to by the end of this time period approaches what North America has done. The difference being, it took North America about 50 years to get to that point, and we see China doing it in 5. So again, truly impressive, the size, the growth and the level of consolidation. If we look around the world, there's about 40 different companies that would have more than 100,000 sows. Today, 15 of those companies are in China. And that's on the growth of just really in the last 2 or 3 years, it would have been less than 5, so tremendous consolidation. And you have to ask them what's causing that. And really, the introduction of African swine fever a couple of years ago has accelerated what was already happening in the marketplace as far as consolidation. We're going to talk in-depth about African swine fever in the next slide, but you'll see on the right-hand side of this slide, pork consumption in China, which took a big drop really based on availability and price then of the pork that was there post-ASF. And to give you some sense of scale of that, it represents essentially the entire size of the U.S. market. That's how big the drop was. We see that recovering. It's being reported, and a lot of predictions would have it going forward recovering completely. So the market is big. It's consolidating. This slide represents the pig price in China over the last 7 years. And you see the tremendous impact ASF had. It's really been a game-changer with a drive up of price towards the right-hand side of this graph. And really, what ASF has done is drive the consolidation we talked about on the previous slide. And you have to ask, why has that occurred? First of all, the consolidation was already happening. The second, in order to make the investments, especially in biosecurity to be able to control this disease, it meant a lot of the smaller backyard production went out. And at the same time, the overall profitability in the business drew many millions of capital, dollars of capital into the marketplace to build new modern facilities to capitalize. We see today a drop down to about RMB 16, and that reflects a few things. I think, first of all, the increase in supply that occurred in relation to the high prices. It's interesting to note that the imports of pork have continued strong. And so it represents some of the volatility in this base market price that I think we've always dealt with and need to deal with going forward in China. I'd draw your attention to sort of the bottom right of the slide that shows what we believe to be continued strong demand for at least the next few years of breeding stock. And that's really for a couple of different reasons. First of all, about half the current breeding herd are essentially repurposed slaughter animals. They need to be replaced by more productive breeding stock as that becomes available. So that's going to be a strong drive going forward. And then secondly, if you think about all the level of investment and the assets that are being utilized, they're not going to sit empty. They're going to run. They're going to need to run as efficient as possible. And part of that efficiency means new modern genetics going forward. So we're optimistic about that part of the marketplace. The next slide really depicts different business models that we use in China. But before I go into those, I think just a quick review of what a breeding pyramid is, is important. You'll see GGP represents great grandparents on the top of that pyramid. One great grandparent impacts 10 grandparents, impacts 100 parents, which produce about 2,500 slaughter pigs per year. So you see the tremendous leverage in that breeding pyramid. Each step of the way in the pyramid takes about 1 year. So look at the time and the leverage involved in disseminating our genetics. And that's true all over the world. What this slide represents really is a model. On the right-hand side, you see a key partner of ours. We've developed a few of these that have mixed models. This one is Giantstar. You see the details of their growing operation. They're great partners of ours today. And really, we use genes, we sell genes 3 different ways in their system. First, in a traditional way where they take the GGP and run the entire breeding pyramid themselves and pay us a royalty for the use of the genes in that pyramid. That's a kind of straightforward one. Secondly, they contractually produce extra breeding animals that we purchase and sell to other customers within China, so essentially acting like contract multipliers. And third, they take current animals they produce and they sell to local customers that they then pay us a royalty back on. So essentially, a smaller distribution model as well. So all 3 of those models coming together are important because I think it really helps us manage our cost, it helps us manage our risk and critically helps us grow our supply because the market today in China is all about growing that supply base. Speaking of supply base, the next slide demonstrates the growth in that supply base. The line is the total number of GGPs and GPs over time from FY '17 until today. And you see we're going to be up at 140,000 or so as of FY '22. The shades represent different models. The darkest one being owned production nucleus facilities. The mid shade there is joint venture. And the lighter shade is contract multiplication, either stand-alone contract multiplication or multiplication within customer systems. And really, that shift over time represents not only growth, but it represents a shift in the level of investment and risk that we take across the business. I should also note that this year, we will add another owned nucleus facility and another joint venture in China to, again, help fuel that growth. On the right-hand side of the slide, we look at volume. We measure that in market pigs. And you see, first of all, the business is growing, but there's a big drop in the middle. That is ASF. We literally couldn't move breeding animals during that time period. But you see the growth accelerating going forward. That's impressive, but I'd point out that it still represents not more than 5% of the Chinese market. So a huge opportunity for us to capitalize on going forward. The other thing, the different shades represent, at the bottom part of the bar, represents the percentage of our business that's in royalty versus upfront. China traditionally is an upfront genetics business, and a lot of our competitors still are on that model. We've successfully introduced the royalty model across the world and really over the last 5 years have begun to build it in China. And we would see over the next couple of years, the royalty representing more than 50% of our business within China. My final slide, my summary slide kind of, I hope, pulls it together, which is, we really want to make China a home market for PIC. And incidentally, the Mandarin symbol for home is actually a pig with a roof over it. You see it represented on the slide there. But what does that mean to be a home market? First of all, it means a local team. And we're really excited about the team that we're growing in China today. There's 170 people, soon to be more than 200, led by a Chinese national. And so that sort of enthusiasm and bringing that level of expertise, building that team is critical for us. A lot of our competitors would import some animals in China, but really not have that local presence and understanding of the market, which we think is critical. The second thing is supply. We've already talked about supply, just how critical that is to grow this business to go from that small percentage I talked about to growing it further. We have local supply. That local supply is growing. That's very important when it comes to availability of breeding stock, when it comes to cost, health, when it comes to border closures potentially down the road. So having that is a critical success factor to our business. And the third thing I'd list there is strategic relationships we've built, the number of groups in China. And I'd like to particularly call out the Beijing Capital Agribusiness for a couple of different reasons. First of all, growth in the supply chain as we've talked about. And together with BCA doing business with some state-owned enterprises that we wouldn't historically have had relationships with, that's helped. And then the second thing is, we're in the middle of the regulatory process and ultimately hope to have commercialization of our PRRS-resistant gene-edited pig together with BCA in China. That's a critical relationship for us to get that done. So maybe just to finish, there's a Chinese saying I've picked up which is, may you live in interesting times. And I can assure you that for PIC, China at this moment is extremely interesting. I'm optimistic that the growth won't be in a smooth line. It never is. But we're building a resilient business to be able to capitalize on the tremendous opportunity in China going forward. Thank you. I'd like now to introduce our next speaker, Dr. Elena Rice, our CSO. Elena is going to talk about the PRRS-resistant gene-edited pig project. And by way of transition, we'd like to show a short video that we made together with the BBC. It's part of a BBC video series entitled Nature's Building Blocks that are available now today. Thank you. [Presentation]

Hello, everyone. As you just saw in the video, porcine reproductive and respiratory syndrome is a devastating disease and impacts our customers globally, causing significant losses in pigs production. We initiated PRRS-resistant program several years ago and previously shared with you our project time lines. It is my pleasure to provide an update on this program as we continue to make the expected progress. So today, I want to focus a little bit more on science and what we learned over the course of last several years. Porcine CD163 protein was identified as an entrance point for virus. What you see on this slide is a diagram of porcine CD163 protein, where you can see 9 cysteine-rich soluble domains and 1 transmembrane domain. The domain 5 was identified as the domain responsible for binding the virus and playing key role in viral entering pigs. We are using CRISPR-Cas9 technology to remove a portion of the DNA which encodes domain 5. How it works. Well, Cas9 nuclease in a complex with synthetic guide RNAs is delivered into a cell, and there it acts as molecular scissors and cuts DNA at the desired location. So in this case, we are making actually 2 cuts and removing a portion of the DNA, leaving the rest of the gene and the resulting protein untouched. As a result of this, virus cannot enter the pig body. So it is important to point out here that no foreign DNA is being inserted during this process of editing. During the last several years, we built in-house capabilities to enable PRRS-resistant program, including growing our molecular biology skills. We also build strong reproductive biology foundation, extensive genome science and bioinformatic approaches. And we also developed a process to use our elite germplasm to introduce edits and maintain genetic progress of edited animals through our breeding pipeline. So when we started this program, there was really not any handbook written for us how to progress the editing from the research stage to commercialization and at the same time, taking into consideration all the regulatory requirements. So we learn through our own experience. We designed many checkpoints starting from selection of editing reagents, Cas9 and guide RNAs and testing many of them in vitro. Then only few selected ones went through multiple validation stages in embryos and only one combination of the reagent and the editing side we then applied in animals. What are we looking for during this whole process of editing? Well, first, we ensure that we can reliably produce the desired precise edits in several lines of founder animals. We confirm that the result is stable in the first and also several following generations of pigs. So second, we are evaluating for a potential presence of unintended edits. We are testing genomic DNA for undesirable edits at first using bioinformatic approach. Then we confirm it in vitro. And finally, we're validating all the sites in vivo. Also because the approach we have taken to avoid insertion of template DNA and rely on natural repair process, there is a chance that one of the alleles will have additional nucleotides inserted during the repair process. Therefore, we are selecting against such alleles in live animals. It is rigorous approach and it requires information at all levels from genome sequence, where we're using several different sequencing technologies, confirmation at the RNA level. And finally, we need to confirm it also at the protein level. Because we did rigorous screening for off-target effects, it gave us confidence that the animals we use as a foundation for the breeding of PRRS-resistant herd carry only desired edits. I want to take a few minutes to describe how we approach development of the PRRS-resistant breeding population. As I already described, when we edit pigs, we select animals that have precise edit and select out animals that don't. At this stage, the selected pigs carry a single copy of the corrected edit. Well, we breed them with unedited pigs so that we can increase the size of the herd and also making sure that only desired allele transmitted to next generation. You probably already know that for complete PRRS resistance, we need 2 alleles of the gene in the same animal. To achieve this, we crossbreed the animals at the second stage and then we select the population that carries 2 alleles. We call them homozygous for edit animals. Well, at this point, we can start testing the animals for disease tolerance for regulatory purpose. We also expand the herd through breeding and we initiate all other studies required for regulatory approvals. This is a relatively long process, but this is the process that gives us confidence in their outcomes. As it was announced this morning, we conducted live animal disease challenge in March of this year and confirm that edited animals showed complete resistance to PRRS virus. In this challenge, we tested 2 groups of animals. One was homozygous for edit animals and second group, unedited animals. We tested them with 2 main prevalent types of virus: type 1, which is prevalent in Europe and U.S.; and type 2, which is prevalent in Asia and also present in U.S. So as you can see on this chart, we measured a level of viral replication in blood samples, shown on the left side of the chart. And development of antibodies, which is another way to confirm if animals had virus in their body, and that is shown on the right side of the chart. The green line here shows results for the edited animals and the brown line show results for the unedited animals. As you can see here, unedited animals showed both amplification of the virus in their blood and development of the antibodies after several days of infection. The edited animals, as expected, had no viral amplification and for that reason, they did not develop any antibody. So next, we will be repeating this test, this challenge with several generations of the animals. As a part of the process built in our PRRS-resistant program, we also build intellectual property portfolio around CD163 edit. Through our collaboration with Missouri University, Genus secured global exclusive rights to the gene edit. We also secured access to CRISPR-Cas9 through our collaboration with Caribou. And in 2019, we signed agreement with BCA China to develop PRRS-resistant program in China as well. More recently, we filed our own patent applications where we covered commercial edits and methods, the ones that I just talked about. So today, we have issued patents in 37 countries, total of 43 patents and we have 43 patents in application stage globally. So since we're achieving our technical milestones, we're also moving forward with the regulatory process. At this point, we submitted the first step and got acceptance from the FDA. This month, we have submitted the second step. And next, we will be continuing studies for full molecular characterization of 3 generations of animals, followed by complete phenotypic characterization, demonstration of durability of the edit and resistance to the virus across generations. And we also will be conducting food and environmental safety assessment. The time lines are well aligned with breeding the animals and producing, which is really key, sufficient number of animals in each generation to conduct those studies. We're also working with our partner, BCA, on a parallel regulatory process in China. Many steps required by the FDA have similar requirements in China regulatory process. And we're also working with the key pork trade markets, including Japan, Canada and Mexico. So I hope I was able to share with you that we are confident with our progress as we achieved major technical milestones. We also made progress with regulatory work and secured our intellectual property portfolio. Thank you. I will hand it over to Jerry Thompson.

Thank you, Elena, and good afternoon, everybody. I'll start today with a brief overview of the global beef business. And the 3 points I'd like you to take away from this first slide are, firstly, it's a large global industry. Secondly, despite competition from other cheaper animal proteins such as chicken and pork, and in fact, from plant-based proteins to a lesser degree, consumption of beef continues to grow. And thirdly, that beef is produced in multiple diverse systems around the globe, which I will now go on to describe. On the left-hand side of the chart, you can see what we refer to as our European native breeds. Here, think of the Aberdeen Angus herds that you see grazing out in the countryside in the U.K. These type of cows are typically raised on marginal land, land not suitable for producing other crops. They're bred once a year. They produce one calf per year. The calf is reared by the cow before weaning and then going on to feeding systems, either rearing on grass or going inside for more intensive feeding to improve growth and efficiency. In the center, there's a picture of a classic tropical crossbreeding farm in Brazil. In the background, you can see the white Nelore cattle. These are the indigenous cattle that are widespread in Brazil. And what we're seeing a lot at the current time is a significant increase in the use of European native breeds to be crossed on to those Nelore cattle to produce the black animals that you can see in the front. These are the offspring of that crossbreeding. And these are the animals that are used then to go on into the beef supply chain to create quality beef in Brazil. And then on the right-hand side, a lot of beef is actually already coming out of the dairy supply chain. So we'll get into more detail here. But fundamentally, one of the rising, one of the great trends that we're seeing is farmers using sexed semen on their cows and then topping them up with beef semen to create higher-value calves. Moving on to the next slide. Let's look in a little bit more detail some of the core markets for our beef business. The table demonstrates the output, the annual output in numbers of head of quality beef animals harvested by country. So looking at North America, we can see 24 million head a year coming from that native beef herd and around 2 million head coming from the beef-on-dairy cross. What is really significant to note though, looking down at the bottom, at the chart at the bottom, you can see that only 7% of those native beef animals are actually produced by artificial insemination or advanced breeding technologies. So a relatively small impact from the semen that we're selling. It's just not penetrating into that segment because we're competing with a bull. The industry in the U.S. is highly fragmented. There are over 700,000 small beef producers in the country. The average herd size is only 30 cows. And so a lot of these, the vast majority of these use a bull rather than artificial insemination. In Brazil, a slightly different story. Vast majority of the animals again coming from that native beef herd, beef-on-dairy really in its infancy. But in Brazil, 22% of breedings are actually done by artificial insemination, the rest being done by the bull. The reason driving this is the rise in tropical crossbreeding where you cannot use a European bull in a Brazilian tropical crossbreeding environment because of the heat and just general resistance to the environment down there. So that's really driving the uptake of artificial insemination in Brazil and creating opportunities for us as a company. Looking at the U.K., a smaller market but a core home market for us. Already worth noting, over 40% of the beef in the U.K. is coming out of the dairy herd. And again, as with the U.S., relatively low penetration of artificial insemination within the native beef breeds there. So huge opportunities were that to open up. If the industry were to adopt more widespread use of artificial insemination, big opportunities for selling semen or selling genetics in artificial insemination. The challenge is that number has really changed very little over the years, and we continue to compete with the bull. At the last Capital Markets Day, I said that we were at the start of an exciting journey to capture a large opportunity with our beef business. Looking at the charts on the next slide, you can see the progress that we've made in the last 4 years. In North America, we have a strong core base of genetics going into that native beef segment, but we've seen explosive growth in our beef-on-dairy market, the adoption of beef genetics going into that dairy herd. In Brazil, we're seeing growth both in the native beef market. So that's Nelore genetics going into that base indigenous native herd, but also a strong increase in volumes going into the tropical crossbreeding segment to create those higher-value crossbred calves. And in the U.K., although we already have high penetration of beef-on-dairy across the business, we're still seeing strong growth in our beef-on-dairy volumes growing across that business as we drive sales. So one of our core values at Genus is customer centricity. So looking at the next slide, why is it that sexed semen and beef-on-dairy is the right strategy for our customers? Fundamentally, by using Sexcel, which is our proprietary sexed semen technology, farmers are now able to produce only their very best cows with elite dairy genetics to create their replacement heifers for the next generation. That enables them to use beef semen or beef genetics on the lower end of the herd, the genetically less elite animals to create a higher value beef calf. Bear in mind that every cow needs to create a calf or to give birth to a calf once a year to maintain lactation. Now we're able to drive genetic improvement from the best cows in the herd and maximize the value of every other pregnancy. To put that into context, in the U.K. at the current time, if you were to have a black and white bull calf out of your dairy herd, the market value of that animal will be GBP 70 to GBP 80. But by creating a high-value beef-on-dairy calf, those animals would be selling in the market at over GBP 300. So a significant uptick in farm revenues by using this sexed and beef strategy. Looking over on to the right-hand side here, you can see that as well as driving overall volumes, we're seeing also a major uptake and swing towards that sexed and beef strategy. And we very much believe that, that will continue to grow fundamentally because it is the most profitable strategy for the dairy farmer. In the vein of customer centricity, again, looking at what are we doing to service the tropical crossbreeding market. Historically, the Brazilian industry would be selecting genetics based on how those animals have performed on a U.S. typical system. We believe that actually taking those genetics down into Brazil and using them for crossbreeding, then rearing them on different rations in a tropical environment would actually mean that there would be a significant reranking of those bulls, i.e., bulls that work very well or perform well in the U.S. would not necessarily perform well in Brazil. By setting up strong data pipelines over the last 5 years, we've been able to collect significant data on our bulls and to rerank them based on how they perform and their profitability within the local Brazilian system. So that now means that as we're selling our bulls, we're using what we call our proprietary XBlack index. And we can project to farmers how much profit they're going to be able to make from using different bands of genetics within their system. Looking at the charts on the right-hand side, this is demonstrating the value of crossbreeding versus just creating a straight Nelore animal. So we're increasing carcass weight by over 15%. But most significantly, we're getting these animals, these crossbred animals into a packing plant or into harvest 12 months earlier than they would have been naturally had they just been a straight Nelore animal. So significant financial gain for the farmer. We're estimating gains in the region of $150 to $200 a head simply from using the crossbreeding system. As well as innovating with our genetic platforms and proprietary indices, we also continue to innovate with our new sales channels. Over the last couple of years, we've been focusing a lot on driving digital sales or exploring digital sales and digital engagement in our Latin American markets. On the right-hand side here, we could see some figures from a sale that we ran recently in Brazil for beef animals. Fundamentally, the goal is to engage a significant number of customers with a series of webinars and relevant information in the days leading up to a sale. And then to take them through a sales process using WhatsApp, which is a very popular social media app in Latin America. So the last sale we did in May over a weekend, we were able to engage 2,500 customers and prospects, of which over 45% actually converted and became customers or bought during that sales process. Most significantly, of that 45%, 25% of the total customers on that sale were new customers, had not done business with ABS in the last 3 years. So a significant, a great opportunity to engage with a fragmented industry and drive digital sales. Our existing sales team, our representatives are then visiting these digital customers to deliver product and collect cash as a first-time sale and to start building that relationship with them. Looking at how that's developed over the last couple of years, in the first half of our current financial year, almost 30% of our sales volumes came from the digital sales revenue. And we see that continuing to grow moving forward. We see that a very exciting part of our business. So I've spoken a lot about the different markets and the opportunities, but how are we capturing that opportunity? Just like PIC established nucleus herd 65 years ago, over the last 5 years, we've been working to establish 2 proprietary nucleus operations, both in the U.S. and the U.K., where we're developing our own in-house proprietary genetic lines. In the U.S., we're creating the T14 line, a black animal based on an Angus Simmental composite, which is highly popular not only in the U.S. but also in Latin America and China. In the U.K., our nucleus herd there is based on a British Blue animal, and that animal is being used not only across Europe but also in Canada as well. The chart on the right-hand side depicts how these nucleus operations are operated. So we maintain elite herds of donor females, donor cows from which we create embryos which are implanted into recipient herds. Those herds create calves for us. And after weaning, those calves are moved back into our nucleus facility. Those animals then are tested for growth rates, for feed efficiency. As the animals reach mature carcass weight, the carcasses are scanned or the animals are scanned to measure for carcass composition and also meat quality. We use genotyping to increase the accuracy of selection. And then with all that data combined, we put that into a proprietary NuEra profitability index to rank those animals. The top end of those animals are then moved into stud for semen collection. They are then tested for semen fertility and also for calving ease to ensure that the calves coming out of the dairy herd or the cows later on in life do not create any problems. They're not too large. Fundamentally, going through this process, only the top 5% of these super-elite animals end up making it all the way through into full production. So starting with a super-elite, highly terminal female herd, design the matings to create genetic improvement and a very high selection intensity to ensure that we're getting the very best animals going forward. On the left-hand side of the graph, you can see the results that we've had over the last 4 years. Really from a standing start, NuEra genetics this year is accounting for 30% of our total volumes of beef sales for ABS on a global basis. Moving out, this will rapidly grow, and we envisage that to be way over the 50% mark within the next 4 years. The second part of the strategy is demonstrating the performance of our NuEra genetics in customer herds. And the chart on the left-hand side demonstrates or shows the results of a trial we did with a leading U.S. packer earlier this year. So we took animals from the dairy herd, beef-on-dairy animals, from competitor genetics, from Angus genetics that we also sell and from our NuEra herd. You can see that there was a significant increase or improvement in lifetime profitability. That's in terms of growth rates, feed efficiency and also carcass value of the animals coming from versus the competitor, but also significant gains over straight Angus animals. So really demonstrating that our terminal focus on these NuEra animals is creating value, both for cattle feeders and for the beef supply chain, the packing industry as well. In line with our initiative in terms of sustainability, we're also looking at the impact that individual bulls have on greenhouse gas emissions. And on the chart on the right, you can see an experiment, a trial that we did with a relatively small number of bulls, ranking how those bulls perform in terms of greenhouse gas emissions per kilo of meat produced. What we saw was that, perhaps not surprisingly, those traits of economic interest, i.e., growth and feed efficiency, are strongly correlated with greenhouse gas emissions. So the faster you grow and the more efficiently you convert feed into meat, the lower your greenhouse gas emission. So very strong correlation there, which is great for us as we aim to drive down greenhouse gas emissions from beef animals across the industry. On the final slide, there's a depiction here of the beef supply chain, the entire supply chain. The first point I'd like to make here is that the supply chain remains relatively fragmented. These animals may well change hands 3, 4, even 5 times from birth before they end up into a packing plant for harvest. So unlike the pig industry, we're not seeing the advent at this stage of large integrated operations. We have multiple different stakeholders all the way along the chain. As part of our strategy, we're working very closely with each of these stakeholders, demonstrating the value of genetics, in particular, demonstrating the value of NuEra genetics. And that's helping us to really create what we like to refer to as pull-through. So creating demand for ABS Genetics, NuEra Genetics right the way through the system so that our customers know there's strong demand for the animals they're producing. A great example in the U.S. of this in action, the trial that I referenced in the previous slide enabled us, having demonstrated the value of these animals, the packer supported us as we went on a customer visit. That opened the doors to us winning the beef business in a significant dairy operation in the U.S., a 40,000-cow dairy operation. The exciting part about that deal is actually we're not just selling semen, we're actually providing genetics. And then the customer is paying us based on the beef-on-dairy calves that are being produced. So very similar to the PIC per pig model, we've actually shifted to an outcome-based pricing model within this particular account, and they pay us based on the number of calves being produced. In Brazil, we're working closely with multiple feeders. We've actually already have a signed agreement in place with one of the leading feeders there to take our beef-on-dairy animals. They've already seen the advantage of these animals, and we're working with them to develop a strong supply chain in Brazil. And then looking at the U.K., we have significant supply chains already in place. I've spoken in the past about Sainsbury's and ABP. One of the more exciting ones -- new ones to talk about is a supply chain that we're establishing to produce Wagyu genetics to go into both Aldi and to Harrods. So here, not only is ABS producing the genetics and supplying with semen for production but were also using our genomic technology to parent-verify the animals that are being produced to guarantee that they are actually Wagyu genetics that the supermarkets are selling. So as I said at the start, I think we've made significant progress over the last 4 years. There is still a huge opportunity ahead of us, and we're very well placed to capture that going forward. With that, I'd like to hand over to Alison. Thank you.

Thank you, Jerry. I must say I'm looking forward to buying some of the Wagyu beef from Aldi. I have tried, but it's flying off the shelves. But if you're interested, I understand supply will be increasing in about a year's time. So good afternoon, everyone. I hope you have enjoyed my colleagues' presentations. To finish, I'm going to briefly touch on how our strategy is translating into our financial results and the strong business models that we have that enable us to continue to invest for the future. Before I move forward, just wanted to highlight in the picture here, you can see Dr. Rebecca Krisher. She's our Director of Reproductive Biology and joined us last year. And she's sitting in our new repro biology lab in Wisconsin, working on embryo culture media. I'm sharing in the top half of this slide 2 charts you may have seen before, but I wanted to remind you of our medium-term objectives in relation to profit and cash flows. We're committed to delivering 10% CAGR in operating profit after adjusting for gene editing costs and cash conversion of at least 90% each year. Given the performance we've achieved in the past few years, you may ask whether these targets are still appropriate, and I want to reiterate that I think they are. You can see on the chart in the past 5 years and in the earlier years, our growth was lower, whilst in the past 2 years, it has been much higher. But over the medium term, we've achieved the target. Similarly, in the future, we expect it won't be a straight line. There will be some years where growth is a bit lower, others where it's a bit higher. But we're confident we can continue to deliver the 10% target over the medium term. I also want to point out that whilst terrific growth has and will be achieved in China, it comes with a more volatile profile than some other markets. And there will no doubt be times when we have to ride through dips because the porcine market is impacted by disease or macroeconomic events. But we have our eyes on the long term and are confident of growth opportunity. On the bottom half of the slide, you can see how over the past 5 years our performance has translated into great returns for our shareholders with consistent EPS growth, and we've been outstripping the FTSE 250 by an increasing margin. Our market cap today stands at over GBP 3 billion, triple what it was 5 years ago. Now I'm often asked about the difference in the profitability of PIC and ABS and whether there's scope for growth in the margins. I'm sharing here some aspects of the businesses, which helps explain some key differences. The first difference is the maturity of our customers' markets. Porcine production is consolidated and sophisticated market, with the most efficient and mature being North America. The bovine markets are also gradually consolidating but are a lot less consolidated than porcine, which reflects in the sheer volume of customers that each of our businesses serve. As you can see, ABS has a much higher number of customers contributing to 70% of its revenues, and they also have a much longer tail in the thousands. As you heard from Jerry, ABS is exploring new sales channels, for example, using digital to reach its customers that could enable higher leverage of its sales efforts in the future. The genetics markets also differ in historical development. In porcine, genetics leadership is determined by ownership of differentiated products; whilst as you heard from Jerry, ABS is leading the way and shifting the market towards proprietary products. Our T14 and T15 herds are good examples of this. PIC enjoys premium pricing, usually under multiyear royalty contracts, where there is a very strong alignment of value creation and reward for ourselves and our customers. ABS is starting on the path to shift the relationships with its customers to become multiyear and outcome-based. And as you've heard from Jerry in the example of NuEra, great progress is being made, but it is a journey. So to conclude, both businesses have scope to improve their margins over time as they continue to grow and leverage their organizations. And as we continue to grow as a group, we will leverage further our centralized shared functions. This should mean Genus' profit margin will grow in the future. The call-outs I would make is that if PIC China converts a high proportion of its revenue to royalty contracts over a short period of time, this will dampen margin in the short term only because we typically recover costs in the first year of royalty contracts with no margin. Also, we are heavily investing in R&D, and this spend may sometimes grow at a faster rate than the business' operating profit. But we are in a very fortunate position of having 2 highly cash-generative businesses. And what this chart shows is that in the past 5 years, almost all investments in the company and returns to our shareholders are being funded through operating cash flow, enabling us to manage a conservative level of debt at around 1x EBITDA. You can see the degree of investment made in R&D has been significant at over GBP 300 million, of which around 2/3 has been invested in product development; and over GBP 25 million has been invested in gene editing, mostly in relation to the first program. And as I mentioned earlier, we expect to increase our investments in R&D. CapEx of around GBP 120 million has been predominantly for our IntelliGen production facilities; bull housing; and Genus One, our global enterprise system. Our level of spend will be higher over the next 18 months as we complete some of these investment programs and build a new nucleus farm for PIC. M&A has been relatively small at just under GBP 70 million, but the value creation has been significant through the various transactions that have been completed. M&A is part of our growth strategy, and we're constantly exploring opportunities. To sum up then, my overall message is that we are making all these investments because we are confident that the group is well positioned for good growth in the future, and our strong business models will continue to deliver robust returns. So thank you for listening to us. Before we open for Q&A, I wanted to mention that our whole executive team is joining: Nate Zwald, our COO for ABS Dairy; Dan Hartley, our General Counsel; and Angelle Rosata, our HR Director, are all here too. And we'll be pleased to answer your questions.

Now we have got our first question from Charles Hall from Peel Hunt.

Could I just ask on PIC? It's probably for Bill. The slide talking about the growth in the tonnes of pork per sow. Pretty dramatic increase by 2030 and very clearly shows the acceleration in genetic progress that you're seeing. Can you just put that into context as to whether you're outpacing the market in this area or whether this is something that the whole industry is seeing?

Thank you, Charles. I think the broad industry numbers are improving, there's no doubt, but we are seeing differentiation in our program. And that particular metric, looking at the kilos of pork produced per sow per year, really involves a number of different things that we're selecting for: the growth rate, the survivability of the pigs, along with many other metrics go along. So I think we demonstrate that. Our customers challenge us every day with trial work, validation work, and we carry that out around the world to show our rate of improvement compared to the next best competing offer. So I feel strong about that.

And obviously, you've largely insulated a lot of the PIC business from price over the last few years. China is a bit different. Can you just talk a little bit about where you see prices going? Because they're on a bit of a rollercoaster at the moment. And also talk a little bit about the U.S. market, where we conversely got record prices.

Yes. Thanks again for the question. Yes, to talk a little bit about that rollercoaster, I taped this presentation a few days ago, and the market has continued to go down, in fact. And the fundamentals that are occurring right now in China, there's more supply of pork than there is demand. And so you have to ask, "Well, why is that?" The profitability has driven a lot more production to come into the marketplace, first of all. Second, there was a big spike in African swine fever, sort of the second wave, that occurred over the winter. And we think a lot of pigs have been pushed on to the market early because of that. And then finally, the level of importation of pork into China has continued at a high level. So the frozen pork inventories are high. So there's just -- there's no doubt that it has to correct, and it is correcting. We said all along, this isn't a straight line. But I get it. I think the fundamentals of our business that we've talked about in my presentation, the opportunity doesn't change with that short-term volatility. We'll learn more. It's fast-moving. It's still early, and I think we need to come back and revisit the market over the next months, and certainly, report back to it in the fall. As far as the U.S. goes, I'd refer back to the half year presentation, half year results in that really the U.S. is one of the places in the world where COVID-19 hit our customers on the background industry, and it had a lot to do with really slaughter capacity that was backed up as plants were taken off-line. That's come back on place and rebalanced. And really, I believe we've turned the corner in our American business. And I base that on growth in our female business by getting a big chunk of Smithfield's business and related businesses, but also the PIC 800 of boar product that we've put on the market. Both those things, we see coming on strong as we go forward.

And then just picking up a bit on the China PIC price. The feeling generally in the market seems to be that there's been a significant pull-forward because of African swine fever, which presumably means that there's going to be a deficit in some months' time, and I know it's difficult to predict accurately. But is that the general feel that you've got on the ground?

Yes. I think you'll get a lot of different viewpoints out, so we need to see it develop. But yes, it is -- by the end of this calendar year, I think we'll be a lot smarter, and things will sort it out. Yes. And as we look at customer behavior, as you can imagine, there's been a variety of customer reactions, right? A few have hit the pause button, others have not. You have to recognize kind of where we came from, which was a situation where we didn't have enough breeding stock in the last 18 months, so taking some of that slack out as we go forward. But again, I just think we need to monitor it closely, and we'll be a lot smarter in the fall.

And one last question. You talked about a 5% market share in China. Where do you think that can get to in, say, a 5-year period?

Yes. I might hit my pause button and prefer that to Alison. I'm the optimist on the call. But on a serious note, we look at businesses around the world where you know where we've got to. We would be in the neighborhood of a 25% global market share, and I don't think there's any reason why we can't do the same thing in China. It's going to take time. There's just no question it's going to take time as the industry has consolidated so fast. But over time, the efficiency of that will win. The good genetics will win. The professionalism that can measure it, and that's where we'll shine. But I -- yes, that will be years in the future, no doubt.

I think also -- if I could just add context. Obviously, when you're growing the business, then you have to put in place a lot of infrastructure, resources, supply chains. So this isn't a sort of -- create customer relationship of trust. So this isn't something that you just wake up one morning and it arrives on your doorstep. You work hard to build that level of trust. We've done it in other parts of the world over long periods of time and proven that our genetics are really valued by customers, and we're intent on doing the same in China.

And I guess also, Bill, really the competition on the ground. I mean we really don't have any international competition on the ground, right?

Yes. I would phrase it slightly different in the -- our traditional international competitors are there by importing genes. What we haven't seen is strong local presence, what I tried to stress at the end of my presentation of the local team, the local supply chain, the local critical relationships that we've developed with BCA and others. That's -- you're absolutely right. That's not present in China today, but we'll see as it goes forward.

And we'll now move on to our next questioner there. Our next question will be from Alistair Campbell from Liberum.

Actually, a question for Elena. I'm just looking at the PRRSv program. I mean, I guess we live in a world where we're all very thankful that vaccines exist. But obviously, that's been a real challenge for PRRSv over the years, but people are still working in that field. But as I think of the product that you're bringing to market, it sort of strikes me that even if there were a successful vaccines program, it would be very hard to compete with the gene editing program because you'd have vaccine for 2 strains, not one potentially. You'd have to go through the vaccination program of vaccinating every single piglet that's born, whereas you have something that's simply in-built in the animal. So from that point of view, presumably, you would have -- you'd expect to have great advantages over vaccine program anyway if it came through and actually give you plenty of headroom to charge a good economic premium for the product.

Elena, do you want to comment on that?

Yes, sure. Thank you for your question. Yes, we believe that gene editing also will bring that opportunity to actually eventually eliminate PRRSv as a disease, but it all will depend also on combination. And we always would -- I personally always would say that it's not one solution. We fully believe that we will need both. We will need gene editing animals, but we also will need vaccination because it also depends on the speed of distribution of these animals globally and in all markets, and that will define how quickly we can really combat this disease overall.

And Bill, maybe you've got experience with several other vaccine programs that have been in existence today. Do you want to just comment on that?

Yes. I think it's a bit complicated because certainly, for more than 25 years, we've had different vaccine products available, and none of them have been a complete success obviously. They're used as tools in various programs. Just to build on what Elena said, I think we have to keep in mind that this gene edit project, just by definition, the technical piece, the regulatory piece, but also the market acceptance piece and then multiplying up these animals globally is just going to take a number of years. And so I think we'll continue to use those vaccines as tools along the way. But I agree with your original point, Alistair, that gene edit solution is a better one, in my opinion, and ultimately could lead to eradicating the disease in customer systems.

And maybe I can follow up with the questions sort of more generally on the pig genetics that you're talking about. I mean, clearly, substantial improvements coming through, and you have that visibility out for 10 years in terms of nucleus herds. Do you have any sort of sense on sort of what biology tells you about potential ceilings along the way or how close you are having fully optimized where you can go? Or you still think there's a good runway beyond that? And maybe also just as you push some of those sort of economically-based outputs much harder, do you still you can very close align the quality of the protein in terms of how it tastes and how that customer experiences as well? And does that get impacted, too?

Bill, do you want to take that?

Yes. Thank you for the question. When we look at kind of this biologic limits question, sometimes I remind people that if you look in the broader world, chickens are related to dinosaurs. And you can see how fast something like T-Rex can grow, but we'll leave that to the side a second. In reality, what happens is you do in some traits reach biologic limits, but then there are other traits that become important at the same time. So as a whole package, no, we don't see the end of the runway on that. As far as the issue around quality, absolutely. We select these lines and directions in different directions but with a balanced portfolio approach. And we certainly measure, in that example, meat quality metrics across all our lines to make sure that we're headed in the right direction. So it is a balance in that selection intensity.

And we have got our next question from Max Herrmann. [Operator Instructions]

Got a list of them here, but let me fire away with 2 or 3, if I may. First, I just wanted to get a bit more -- you've obviously got us slides here presenting the regulatory pathway with the FDA for the PRRSv program. And obviously, we've made a few submissions during 2021. I wondered how interactive that process was and how clear the definition is. And I noticed, I think from your previous slide on this, I think in the half year results, there seems to be maybe an additional submission, a Phase III submission now. I just wanted to know if that was a change in the regulatory pathway that was needed or if that's just more detail than we had previously. So that would be my first question.

Yes. Elena?

Yes, sure. You asked how we interact with the FDA, right, is one part of the question. We have a lot of interactions with FDA. We're very happy actually with the relationships that we built with the agency. And the reason because we're one of the first companies that actually go in through the staff with genetics and animals. So there are a lot of unknowns. There were a lot of unknowns at the beginning. And working very closely with the agency, we are codeveloping that path to approval of genetics in animals. You mentioned that there are some additional things. The scope of what we need to submit to agency, it's true we didn't have all the answers at the beginning. As we were going through the process, we created more clarity what studies need to be submitted. And right now, what you saw on the slide is the full package that we are planning to submit. And we agree with the FDA that, that would be the package that they will be acquiring.

If I could maybe add to that, Max, compared to what we showed at the half year, there's no change actually to the expectations from the FDA. So it's just we've given you a little bit more detail as to what exactly we're doing when. And I think in terms of the process, part of the process, when we say we make these different stage submissions, we actually review with the FDA a draft version of those submissions before and get feedback from them before we then formally submit the document. And then they come back some period later, usually a few months later and tell us it's been formally accepted. So we're not putting something in blind. We've already reviewed draft versions of the documents with them.

Great. That's great to hear. Just -- I mean you obviously talked about beef, dairy and pork. You highlighted the capital investment -- all the investment that you've made over the last 5 years as well. And I just wondered whether there's any other genetics. What's your thoughts about bringing or applying the knowledge that you have in how to enhance genetics in those protein sources into potentially other proteins sources, though? So what are your thoughts on...

Yes, maybe I'll take that. Just I think from a science perspective, DNA is DNA. So a lot of the processes and techniques here, very, very similar. Obviously, the biology of the animals and the production systems are a little bit different. But in terms of can we apply our science into other animal proteins, the answer is yes. So really it comes down to a question of do we think the markets are attractive and are the entry points where we could add value both from a fundamental perspective and also for our shareholders. And I'd just say we review that and actively look at that area, and that's been the case for some time. But we continue to actively look at that -- look at possibilities.

Great. Then just a quick point of clarification. I'm trying to understand, I think it's on Slide 35. You present the value add to NuEra. And there's a comparison with -- I think it's with your -- with Angus, which -- is that, that NuEra is also more profitable in a dairy herd compared with an Angus in a classic beef herd? Is that -- am I understanding that correctly? Or is that an Angus produced in another way?

Jerry, do you want to take that up?

Yes, sure. So that particular comparison is actually for an Angus cross-dairy animal versus a NuEra animal. What we are seeing is that actually the NuEra animals are more profitable than Angus because they've been bred to create a larger-framed animal, which has a higher carcass yield, more red meat yield in the resulting animals.

Okay. So it's both beef on dairy, but it's an Angus versus a NuEra realm?

Yes. That's it. So absolutely comparing apples-to-apples. What we do see, though, is that beef-on-dairy animals with the right genetics, with the right NuEra genetics, are actually comparable or even better than native beef animals as they go through that beef supply chain in terms of growth, feed efficiency and carcass value.

Okay. I need to look out for it in Sainsbury's then, I think.

We have had another question that's come through from Anand Date, and she's typed the question as her Internet's not that strong. For PIC, especially, could you talk about unit profitability in China versus North America, i.e. a royalty NPE in China generates the same as a royalty in NPE in North America or not? What do you see?

Yes. Bill, would you like to take that?

Yes. Broadly, I would say that's correct. What we're really trying to get at in China, if you remember we talked about the pyramid, is if you sell an animal at the top of the pyramid and put all the genetic margin of the pyramid on that animal and we would comp the market big equivalents at that time, that has a different margin profile than a royalty that we're transferring genetics in essentially at cost of goods and collecting a royalty as the genetics are being used. There are broad ranges and specifics here about pricing around the world, but I would say the broad approach is similar around the world. Really those 150 customers that Alison talked about, many of them are global themselves. So the approach is the same. There would be some local conditions, background conditions, cost of production conditions, other things that would adjust that, but the basic model will be the same.

Yes.

There's a follow-up question there, which is why is the adoption of AI and sexed stroke beef-on-dairy so slow and so varied across regions? Is it education? Is it genetic lag? When or why does this accelerate?

Yes. So this question, I assume, is really around the bovine business and just rates of penetration of sexed and beef-on-dairy [indiscernible]. Nate?

Yes. So maybe first of all, just separating the questions, really because there are different reasons. So the adoption of AI and lack thereof in some markets really has all to do with logistics and catching the animals and some of the infrastructure around just getting the animals inseminated by AI means. We've seen a big increase in the AI rates in places like Brazil with some of the consolidation efforts. So as markets get more technified and more consolidated and customers get larger, the benefits of AI become more transparent to them, both in terms of reproduction success but also in terms of genetic success. Then separating off the second part of the question into the uptake of the Sexcel and Beef InFocus strategy. I think first of all, it's important to recognize that we're really, really happy with how Sexcel has been taken up by the market. We're selling about 4x the amount of sexed semen today as we did 4 years ago prior to our own proprietary technology being launched, and that's really a testament to the success of the product and what customers are realizing when they use it in terms of fertility performance and SKU ratio in terms of the resulting calves. So that's been fantastic. So what it takes to see more adoption of this Sexcel and Beef InFocus strategy is it simply has to be the right strategy for our customers. And we see in markets like the U.K. and the U.S. where the adoption is very, very high, and most of our more consolidated customers are 100% use of Sexcel plus Beef InFocus. And that's all because the beef supply chain has been -- has adopted a need for these beef-on-dairy calves and has seen the value of them, as Jerry pointed out. And in other markets, it's been driven by the price of Holstein heifer calves. And so some of the countries that are able to export their excess animals like Australia or Chile to places like China and Turkey, that's really driven the prices of female dairy calves, and that's driven the demand for Sexcel in those regions. So what it takes for all other markets to really adopt this is that the market has to be ready to both appreciate the value of the Beef InFocus calves and have the management to make Sexcel really part of the dairy herds. And that comes with consolidation, technification and just an acceptance of both the benefit for the customer and the scientific reasons to utilize that strategy. But I think we're well on our way, and we see the opportunities by some of the markets like the U.S. and the U.K. that are kind of hitting that plateau, but also in terms of the uptake of Sexcel in a place like China in this past year. That's really been fantastic.

Thanks, Nate.

So we're going to move to our next question, which is from Damian McNeela, who's from Numis.

Just a couple of questions from me. Firstly, on China and PIC. I think you've touched on the competition and -- or the nature of competition and the fact that it's mainly pigs, but I was just wondering if you could sort of give some color about the sort of the quality of the competition and where you see sort of any major threats and how you can sort of defend about that. And then just on the development of the market in China, it's clearly growing very quickly. You're talking about sort of doing what the U.S. did in 50 years in 5 years. I mean are you comfortable that you can make the most of that opportunity given the amount of investment that it may require and how you think about that? And then I'll ask another question about bovine after you've answered that.

So Bill, if you'd like to take those.

Yes. I'm just thinking that really, in many ways, those things are linked to what you just asked. If you look at the quality of competition, one of the things that we didn't -- I didn't go into depth about is, historically, China is a market where the customers purchase really pure lines from people around the world. And quite often, we would say with no strings attached, with no long-term agreement that limits the use, really no protection around the IP. That's the historic market. They would be bringing in those animals, use them, cross them for 5 years and then bring in some more from somebody else. That's changing. And as customers become more professional, we still see some very large groups in China attempting to run their own internal genetics program. That would be our #1 competitor, if you want to call it that, in China. As we've dealt with that in the rest of the world, in North America and Brazil and other places, I think we're well positioned to do that. The second part of the question, though, was about are we prepared to take advantage of the opportunity. We challenge ourselves every day to become more prepared, and part of that has to do with growing that supply chain and getting the balance right on the risk of how much you -- how fast you invest and what's that reward versus the background market exposure. I think we've got that balance right going forward, and we are in a position to grow. But ultimately, to get to the kind of levels that I talked about earlier, we need to grow with customers, which means to work very closely together, demonstrate our genetic value, work together to help them multiply out the genetics in their systems to get the thing implemented. And again, that's not a new model. That's something we've done around the whole world with success.

I think, Damian, if I could just add, I think there are really 2 fundamental investments you need in China to capture the opportunity. One is in people and having a great team on the ground, and we've been building that team. We have close to 200 people in our team in China today. So it's -- we've really built that over time. And then the second is supply chain capacity. And as Bill pointed out in his charts, the way we're really growing the supply chain capacity is primarily through working with our customers and having third-party multiplication, just as we do in other parts of the world. So that means, in effect, that the customer is investing to help us grow our supply chain. We will make some owned investments ourselves, but in the context of the whole supply chain, that's really pretty modest.

Okay. That's pretty clear, Bill and Stephen. And then just the second question on bovine. I think on Chart 36, you sort of give a couple of examples of where you've worked with particular partners in the supply chain. I was just wondering if you could give us some indication of whether there were some parts of the supply chain that had more power and that had the potential to accelerate the adoption of genetics than other parts? And what efforts you were sort of doing in that area to sort of speed up adoption, please.

Jerry, I hand that to you.

Yes, sure. Thank you. So if we go back 5 years, I would say that the understanding of the value of genetics across the beef supply chain was very low. We've put a lot of effort into working with not only cow/calf producers, but with cattle feeders, with packers and even with retailers to demonstrate the value that genetics can provide in terms of driving down the cost of production of high-quality beef. And we're really seeing some solid engagement. Now I mentioned in the presentation that we're working much more closely now with Sainsbury's and ABP. We have supply chains now creating Wagyu genetics to go into Aldi and to Harrods. I didn't mention we have another supply chain putting Angus genetics also into Aldi. So we're also seeing the retailers getting a lot more interested in their sourcing, their ability to tell a story to the customer as they come in to buy prime beef. The other one to point out is actually Walmart in the U.S. have backward-integrated and actually started to establish their own packing facilities here. So they're now actually taking carcasses, breaking them down and creating case-ready meat. So whilst I said that the industry remains fragmented, there are very early signs that people are looking to expand their role. We would anticipate that potentially Walmart would do more of that sort of activity moving forward in North America.

We're now going to move on to our next question, which is from Mel from Sterling Investment.

I'll direct these questions to Stephen, and then he can direct it to anybody he wants really. The first one really being in terms of kind of accelerating the growth here. Is it -- am I right to assume in my head that we really can't be acquiring companies because that will kind of -- there'll be a crisscross of our studies of obviously the gene and genetics?

Do you have several questions, Mel? And...

No. Can we go one by one, if that's okay?

Yes, so we do them one at a time. So I think the question really is around do acquisitions make sense. And I think there are a variety of reasons why we would be interested in certain acquisitions, and I could illustrate it maybe with some of the things we've done in the past. So sometimes, we will be interested in fundamentally growing our market position rather than the genetics of the company acquiring. So an example would be, a few years ago, we did a deal called Génétiporc in the U.S., Canada and Latin America. And we did not really retain the genes. We thought we had better genes, but we did gain some valuable market share and market position with key customers through that acquisition, and that worked out very, very well for us. Sometimes, we will be interested in technology. And so an example there would be, for example, we acquired IVB, In Vitro Brasil, because we wanted to get into the business of embryo production. And then sometimes we would be interested in the genetics themselves. So the Møllevang transaction that we did was basically all about getting access to the genetics that they had because we felt that they would be very complementary to what we had and would give us opportunities in different segments of the market. And so I would sort of highlight this, there's a variety of situations that may arise. We'll look at the situations very much on their merits and really try and construct a business case and an integration plan that fits the basic thesis of why we're doing this.

Sure, sure. Okay. Cool. And I know it's a totally different kind of lines of business, but any thoughts on lamb, poultry, fish? Is that something where we do not add much value, and therefore, we'll kind of continue to stay away from those categories?

Yes. I don't know, Alison, do you want to comment on that?

Yes, sure. I mean we certainly are interested in other species, some more than others. Lamb isn't really a market that -- where genetics are very prevalent. Poultry, more mature and more consolidated in genetics than markets that we play in. But -- so just makes it more difficult for us to enter. But aqua's interesting. It's a smaller market, but there are several segments and high growth. But it's got to make sense, as Stephen said. There's got to be a really solid business case, and we need to be sure that we can really leverage the knowledge and skills and operations that we've already got if we move into another species.

Sure. And probably this one is for Stephen being the numbers man, well, at least formerly.

It's Alison now.

What -- I mean is the future growth rates of Genus over a 5- to 7-year period expected to be similar to what's been in the past?

I'm going to pass to Alison.

Well, not really. As I said in the presentation, we haven't changed our financial targets that we've committed to our shareholders over the medium term. They are the same. So I think to answer your question, yes, we expect our growth prospects to be good and just as they have been in the past. And that's why, of course, we continue to make investments to support that growth that we can see.

Sure. Any more color, please, Alison, would help.

I think we're not going to go beyond those targets we're very explicit about, and I think I'll leave it there, yes.

Obviously, when we come back with our full year results, we'll probably give some more guidance around the year ahead. But we're very much in this frame of we want a chance, of course, over the medium term, deliver over the medium term. Some years, as Alison said, will be a little bit lower, some will be a little bit higher. But we want to achieve as we have done in the past and deliver that growth for our investors. Scott, back to you. We have any other questions?

Yes. Promoting Jens Lindqvist to panel.

Sorry about this. It's just for more over a longer term which is my understanding of kind of what the business might look like when gene editing comes online. I'm just really trying to get a sense of the breadth -- within PIC the breadth of current product offerings you've got for your customers. And as gene editing comes onboard, fingers crossed as a mainstream addition to that product, what does that mean in terms of how you integrate that into the products that you maintained? What would implications that have for things like the size of nucleus herd you have to maintain going forward? And just logistically, how do you think that ultimately works? And what strains it might have put on the system?

Okay. Bill?

Yes. I guess, initially, you put on something very important, and that is as we make these edits, and I think Elena touched on it in her presentation, we absolutely need to be at our elite germplasm globally to keep as competitive as possible. So that's one track. Another track is going to continue with that elite germplasm without the edit. And really, for the foreseeable future, we would have that parallel track long term. Will that trade be accepted everywhere and become mainstream in the program? I can't say. It's too far out. But at least to begin with, we would certainly give all customers choice to go down one path or the other and aim to have the baseline genetic improvement to be the same in those suited product offerings.

Yes. Obviously, Alistair, implicit in that, there would be some more costs in nucleus of doing that. But equally, we would expect that the opportunity to get paid in our fair share of the value of the PRRSv trade would lead to a very significant overall profit opportunity from those genetics.

Yes, agreed.

And I think just one other point to note would be that, as you could see from Elena's description of how we're even in the development program, crossing the edited pigs with the non-edited pigs, we can continue to do that through time to keep these populations moving forward to the other. So we won't necessarily be seeing divergence of these lines through time.

Alistair, thank you for your question. We are now going to move to Jens Lindqvist, who is going to be promoted to panelists.

I think my Internet cut out for a moment. I'm not sure if you can hear me.

Yes, we could, Jens.

Sorry. Just a couple of follow-on questions, if I may. On the -- first of all, on the China supply chain. You're expanding capacity principally through multiplication agreements. So does that not mean that you, to an extent, lose control over the paternal side of the genetics equation? And how do you manage that going forward? I guess it's important if you're increasingly migrating towards a royalty model. Second question is just to clarify, in terms of the first project, are you working on a particular breed, the PIC 800 or something similar? And would the ultimate regulatory approval apply to that breed only? Or will it apply more broadly? Then the final question, which I'm sure you probably is not going to answer, is sort of what level of premium pricing one could potentially expect throughput? I know there's...

Okay. Well, Bill, do you want to start on the answers to those? And then if, I believe, Elena to comment on any of what we can and Alison?

Yes. So maybe I'll start with the second question, which is a particular product or line that we're implementing the edit program on. We actually have started off with 4 different base pure lines that go into the lion's share of our hybrid product, cross-product that we would sell in the markets that we're expecting to go forward with. So that's the initial phase. Elena can talk on as we get the process regulatory approval, the ability for us then to put other lines in. We would certainly see that going forward. But today, we've done it on 4 lines that will go into commercial products. The first question you asked about China and as we go to multiplication within customer herds, don't we lose control, it's really the same or an extension of the same model that we use around the whole world. We have -- who we do business with, at what level of the pyramid, it depends on where we are and that relationship that we have around the world, who we would put pure lines with, who we would put crossbred lines with, how we do that contractually, how we do that from an account management and implementation phase, a lot of it has to do with our technical service working together with our customers in their pyramids to make sure that they do get the most out of our genetics because we're incented for them to get the most out of our genetics. So -- and then a process to audit how that's going, both the use of our genes according to the contract as well as how we're getting the most out of it. So all those things will be in place in China. Again, I don't think it's any different than the rest of the world. It's just at a different kind of younger phase. And so we're having to go through some of that process and build up that team, as Stephen said, locally to get it done.

Elena, do you want to pick up the point of can we add further pure lines further down the line?

Yes. Just like Bill described, right now, we do these into genetics into 4 founder lines. And I think it's very important because we are -- once we've created several animals from founder lines that are genetic, after that, it's all going through the normal breeding process and crossbreeding, just like we will do for our -- all other lines and maintaining that genetic progress as we're going through the breeding process. If we would need, and that's where we will have to just [indiscernible] and others in the organization, we can add additional lines as needed to create more diversity for crossbreeding.

And maybe on the last point, Stephen, without going into details on how you might price this, just to say that this is a different situation than we're used to on an everyday basis, which is continual genetic improvement. That's what we sell and deliver and get paid for. In this case, it's a stand-alone trait. It's binary. It's yes or no, and so our approach to the marketplace could well be different because of that.

Yes. Just to add to what Bill said too, I mean what we know is that PRRSv costs in the industry, certainly in the U.S., about $6 a pig a year. And our approach is typically to when we create the value to obviously create value for our customers in the industry. But typically, we'd like to have 1/3 of that ourselves. So it's in that sort of theoretically, that $2 range, you could argue that's the premium. Obviously, that's to be tested when we go to market. And perhaps, we'll translate some of that into volume growth or market share. But that's -- I think that's the best we can say at this point.

We're going to take a question that has come through on the question function that's there from Anand Date, who's from HSBC. You're constantly assessing your genetics versus competitors in customer trials, et cetera. Would you be able to tell us that in PIC, the gap versus peers is widening? In ABS, could you talk about the consolidation in the industry and when or if we should expect ABS to only be selling Genus proprietary genetics?

Okay. Quite a lot of questions there, and we don't have an awful lot of time to answer them. So Bill, quick fire first of all, and then we'll go to Nate.

We do trial, as you say, in a number of different customer systems. Unfortunately, it's a difficult thing to give a transparent answer on in that each of those trials are different lines against different competitors and different environments. I would say we win the vast majority of the trials that we have taken place. We would win them in the $2 to $5 kind of range, and that would be my summary. We don't win every single time. But again, it depends on the product, the customer, the environment, the health of a lot of different factors come into place there.

Yes.

Yes. On the dairy side, I would say specifically how close are we to only selling proprietary genetics. It's important to recognize, first and foremost, that when we sell our beef genetics to dairy herds, which is a big part of the growth of our -- of what we've seen that those genetics are all proprietary already. That's the NuEra program. That's exactly what it's meant to be. Likewise, in the dairy side, a vast majority of our genetics today come from our nucleus herd and related partners in a sense of what we would call proprietary because other competitors don't have access to those genetic lines. So our nucleus, combined with our genetic protection strategy, has really transformed our ability to say we really have proprietary genetics in the dairy space, and that's the primary product lines that we sell today. But I would also say that we're always going to be open to that great outside germplasm or genetics when and if it's available to us because that's going to be very unique to our breeding program. And while those genetics get less and less accessible, when there is one available, we're always going to be interested in that.

We've got one final question, Stephen, from Charles Hall.

A quick one. One for Nate. I barely recognized you, Nate. Could you just comment about the breeding program that you just touched on as to where the latest rankings of ABS? And you also mentioned about China seeing good progress there. Can you just give a bit more color on what you're seeing in the Chinese market and whether that could be a decent-sized opportunity for you and very quickly India as well?

Yes. So first of all, maybe I'll take the China one first. It's -- we've seen the market expand in China, partially because they want to produce more dairy products, just like they want to expand their agricultural footprint. So they're importing cattle from all around the world, and those cattle got to be bred. And so we've seen a big uptake not only of our business in general and the appreciation for good genetics, but also Sexcel specifically. It's had great results. We really expanded our penetration with Sexcel as a portion of our business and really seeing China start to convert to that model. So that's been fantastic. As for our rankings in our current germplasm situation, we're as strong as we've ever been, I would say. We really have a great product line, whether we look at our proven genetics, our genomic pipeline -- our genomic product line that we're selling today and also our pipeline going forward, including the bulls that are babies yet that aren't at semen production level yet. We're also really confident in what we have pregnancies in session, so those are bulls that aren't yet born, but we're very excited about some of the top bulls in the industry starting to have sons being born in the next couple of months here. So I think overall, we're in an incredibly strong position where our competitors are looking at us and understanding that as well that the consolidation is partially driven by who has the best genetics in the industry. So now one caveat to that is when we look at Net Merit rankings, the industry formula for Net Merit is going to change here come this August, and they're adding some new traits to the index. They're putting the traits together in a little bit different way. So the goalposts are moving a little bit, which means that -- our goal as product development is to create the best genetics that are the most profitable for our customers. And if that goalpost moves a little bit away from what we think is right with that end goal in mind, then we have to adjust as well. And so sometimes, it's easy to look at the top 100 bulls in the industry for Net Merit, and that's a good metric, but we want to make sure we have the top bulls overall for all of our customer needs and wants. And we have some divergence from Net Merit, especially the new formula across the world, depending on how our customers are paid, and we really want to have the best genetics for all of those situations. So there'll be a little modification there, but we're really confident with where we are right now.

That's the -- we have no further questions at the moment. So Stephen, I'll pass back to yourself for closing remarks.

Yes. Look, just very briefly, thank you all for joining. Thanks for your attention. Thanks for all good questions, and we appreciate the time that you've spent learning a little bit more about the Genus business and look forward to further engaging with you in the future. Thank you very much.