GENUS WORLD ANOTHER GOLDEN YEAR FOR GENUS. Winter 2011/12 LEADING THE WORLD IN BOVINE AND PORCINE ANIMAL GENETICS

Transcription

1 GENUS WORLD Winter 2011/12 ANOTHER GOLDEN YEAR FOR GENUS LEADING THE WORLD IN BOVINE AND PORCINE ANIMAL GENETICS

2 Leading the worldwide revolution in milk, beef and pork production By applying science to solve complex global food production needs, Genus is enabling businesses to achieve growth both now and in the future

3 Contents GENUS Winter 2011/12 World-class animal genetics GENUS WORLD Winter 2011/12 ANOTHER GOLDEN YEAR FOR GENUS LEADING THE WORLD IN BOVINE AND PORCINE ANIMAL GENETICS Genus strategic aim is to embrace agricultural change and help feed the world Richard Wood, CEO Genus plc 6 Genus in the News Commentary from leading investment journals 8 Insight Richard Wood CEO talks about Genus evolutionary approach to bovine and porcine genetic development 10 Dairy Markets Understanding our customers customers is reaping real benefits 14 Genomics Update New approaches to genomics to aid competitiveness in the food chain 16 RIC Region Focus Growth in markets continues to provide further investment opportunities 18 FINREP Project World Class financial reporting contributes to global success 20 Besun & Pipestone Success for PIC genetic technology in China continues 22 House of Lords Report on recent Genus meeting of minds for the dairy industry in the heart of government 24 PIC Portugal Success with Portugal s leading pork producer Raporal S.A. 26 CBVPlus Programme Delivering value leads to significant margin growth for Genus customers 28 Market Focus Mexico Reporting on Keken, the country s leading producer, and success with Genus 30 Outlook Foresight Report A review from the Government Office for Science on the future of the food and farming industry 32 Focus on India Advanced ABS genetics improving India s milk yields 34 Insight CEO Richard Wood and his successor Karim Bitar 36 Results John Worby From Group Finance Director, John Worby 38 Interview Keith Hopkinson An update on IT developments at Genus 40 In Focus Latin America Solid and consistent growth in Latin America from bovine and porcine genetics Thank you to all our contributors Publisher Alan Whibley Editor Caroline Whibley Design Mark Day Copy Editor Chris Lyddon Photography istockphoto.com, Genus Libraries, Grove House Libraries Contributors Dr Dave McLaren, David Crosby, Keith Hopkinson, Ricardo Campos, Philip Acton, Noel Williams, John Giles, Jerry Thompson, Stuart MacLennon, Ian Bond, Richard Wood, Cara Crichton, Ian Farrelly, Chris Walkland, John Worby, Clarisse Chávez Theurel, Albert Reurink, John Marshall. Genus World is produced by Grove House Publishing Ltd. The magazine is printed by Headley Brothers, Ashford, Kent, UK. The contents of this magazine may not be reproduced without permission. To comment on this edition or future editions contact: ccrichton@genus-plc.co.uk Genus plc, Belvedere House, Basing View, Basingstoke, Hampshire RG21 4HG Tel: +44(0) Fax:+44(0)

4 GENUS NEWS Revenues were up 10% to 153.2m and pre-tax profits rose 22% to 19.1m, with a particularly bullish picture in North and Latin America. Yet these well established markets for beef and pork are not where the real potential for future growth lies. If emerging economies such as Russia and China show the same appetite for beef and pork as their European counterparts, Genus could be flying. These markets are less squeamish about whether their food has been bred from happy au naturel cows, sows and bulls than the UK and there is unlikely to be an organic revolution in, say China, whose middle class population seems to be swapping rice for meat with alacrity. Genus is hoping to make further in-roads into the Chinese market through its partner Mengnui, the country s largest dairy producer. It has bought a stud in Russia, where it will place bulls from the United States. It has also thrown resources into The Times, 23rd February 2011 Maybe not glamourous but it s great stuff Bull and pig semen are not the most glamourous of commodities, yet Genus which euphemistically calls itself an animal genetics company, did rather well out of it in the six months to December 31. Daily Telegraph, 23rd February 2011 Genus maintains a leading position in a bull market It's difficult to escape current concerns about food prices. As the global population rises and gets richer, food security will continue to grab the headlines. Questor says buy. This was the basis of the recommendation of cow and pig specialist Genus and yesterday's interim numbers showed all is on track. Genus animals have better genes compared with normal livestock in terms of yield, health and hardiness. The positive genetic traits include more meat per animal and resistance to disease. The company provides bull sperm or live pigs that produce animals with these superior characteristics. Livestock from Genus tends to increase the value of the herd. The company operates its own stud farms and sells its products globally. Genus has acquired a bovine stud in Russia to provide local semen production from the next financial year. It is already selling imported genetic material in the country. In China, bovine volumes doubled with this including the first sales of Genus semen from a partner s local stud. It has also signed a commercial agreement for production of locally- produced semen in India. In the six months to December 31, revenues rose 14pc to 153.2m and pre-tax profits leapt 77pc to 23m. The group increased the sale of pig breeding animals, with volumes up 9pc and royalty income up 10pc. Bull sperm sales volume rose 10pc, representing an acceleration from the first half of 2009, when sales rose 3pc. No interim dividend was announced, as usual, as it normally only makes a final payment. Net debt fell from 80m to 70.6m, which was significantly better than expected. As people get wealthier, meat consumption increases, so the gentrification of Asian nations is a key driver of the group s markets. As a country develops, its farming sector tends to become more industrialised, increasing productivity. The company moved into Latin America a number of years ago and this area showed impressive growth. Revenues in the region were up 33pc and the group managed to increase its market share. There was also a good recovery in the US pig market, although the US dairy business is still relative subdued. Of course there are challenges for the company. Grains prices have been soaring, so feeding livestock is becoming more expensive for farmers. However, this is likely to be a long-term benefit for the group, as when feed costs are high it is better for a farmer to have a more resilient and higher-yielding animal. The shares are trading on June 2011 earnings multiple of 21.3 times, falling to 19.1 next year. This is undoubtedly a high rating, but Questor feels it is deserved. The company's business has a high barrier to entry and is going to be a strategically important one over the next decade or two. A purchase was first recommended on September at 700p and the shares are up 24pc since then compared with a FTSE 100 up 17pc. The shares remain one of Questor's favoured plays on future demand for food. research and development to try to ensure that its genetic products area ahead of the game. About 8% of sales is spent on product development. Potential downsides include a further rise in feed prices, which would put farmers off reinvesting in their herds, and falls in the price of beef or pork. Analysts are setting target prices of 20 times 2013 estimated earnings per share. Trading at around 19 times 2012 estimated eps yesterday, the share prices is not exactly a bargain basement at the moment. Hold for now, buy on future weakness. Evening Standard, 6th January 2011 Genus in good shape to feed the world s growing hunger Richard Wood, the affable and highly enthusiastic chief executive of Genus, is convinced that over the coming couple of decades food will replace oil as the world s most wanted commodity. Well, as the boss of Britain s most successful animal breeding company, Wood would say that wouldn t he? But the fact is that his vision looks increasingly likely to come true. It is six years since I first came across Genus s first star: that was the five-tonne Holstein bull Picston Shottle, who lives in a luxury byre somewhere near Ruthin in North Wales. He was already the highest-ranked UK bull in world league tables, and had sired his first 100 daughters. Wood reckoned he was good for up to half a million more shots of his valuable sperm. Actually, at the age of 11, Shottle is still going strong and well on his way to producing his millionth sperm shot. He has sired 28,000 milking daughters and 150,000 Holstein calves. Even more impressively, 14 of his sons are now at full stud, and seven of them are in the US top 100 for bull genes. In total Genus has 33 bulls in the world top 100, and 10 of those have already produced over one million shots. This has not been done with controversial genetic modification but with straightforward breeding science, which Genus is rather good at. Indeed, the firm can show that while your normal cow produces between 3,000 and 6,000 litres of milk a year, a Genus one can supply up to 15,000 litres. Similarly, when it comes to beef, the average cattle requires up to 13lbs of feed to produce 1lb of meat but a Genus one needs only 6lbs. And in the case of pork (where the firm deals in piglets rather than sperm), a Genus pig turns 3lbs of feed into 1lb of pork while your average hog needs up to 5lbs of feed to do the same. When you look at forecasts showing that food demand is set to increase by 50% by 2050, driven largely by demand from the Bric economies where rapidly growing middle classes are demanding more and more protein, the Genus argument makes even more sense. It already has massive joint ventures producing dairy herds and piglets for pork farmers in China and Brazil. It is in India and Russia and is rapidly expanding in South-east Asia and the Eastern Bloc. Pork is the favourite source of protein in the Far East, and demand is likely to outstrip that for any other meat. Wood still describes his company as being only at the start of a learning curve and describes the potential for it as huge. Certainly, with the share price nudging an alltime high, he has his share of convinced investors. Daily Telegraph, 01 June 2011 Impending food crisis will boost Genus Oxfam said yesterday that decades of steady progress in the fight against hunger is now being reversed as demand outpaces food production. Genus is a buy. The charity believes that agricultural commodity prices will soar by up to 180pc by 2030 unless governments take action to tackle the squeeze on food supplies expected from climate change and the growing global population. This trend underscores the investment case for Genus, which provides farmers with high-quality bull and pig semen to use for breeding. Oxfam said that demand for food will increase by 70pc before 2030 and with Genus s animals having better genes compared with normal livestock in terms of yield, health and hardiness, the attraction of the company s product is clear. However, rising feed costs are a headache for livestock farmers as cattle and pigs need to be fed well to generate high meat yields. But in its last market update a few weeks ago, Genus said that its markets were continuing to improve, despite the high feed costs. Pig prices have kept pace with the increases in feed costs in most countries and, as a result, customer profitability and the demand for Genus s products have been sustained, the company said. The exception to this has been in Europe where price increases have not been sufficient to restore profitability for pig producers and so the market has been relatively soft. In China, prices have started to increase following disease outbreaks last year and this has led to stronger demand for genetics. Milk prices have risen to better levels in most markets, Genus added, helping the cattle business. The company said that trading in the first four months of the year was ahead of last year. No trading figures were released, but Genus said that net debt at April 30 was 85.4m, lower than the 94m at the same stage last year, but higher than in December. The group completed a refinancing in March 2011 to provide 135m of facilities on an unsecured basis through to September Last week, Genus revealed that Richard Wood, its longstanding chief executive, was retiring, to be replaced by external hire Karim Bitar. Mr Bitar is former president of Eli Lilly Europe, Canada and Australia, and there will be a one-month handover in September. This looks like a good appointment and the succession issue is now clear for investors. The shares are trading on a June 2011 earnings multiple of 23.7 times, falling to 20.7 next year. This is undoubtedly a high rating and the average target price of four City analysts covering the shares and monitored by Bloomberg is This is a matter of pence above the current share price. However, Questor feels the high rating is deserved because of the quality of the company s offering and the underlying trends towards a potential global food crunch in the next few decades. Therefore a buy stance is maintained. A purchase was first recommended on September 16, 2009, at 700p and the shares are up 40pc since then compared with a FTSE 100 up 17pc. British Dairying, 01 March 2011 Genus share wow What s going on at Genus? Their share price has soared in the past two weeks following a steady rising price, now at over 980 pence, an all time high. There were some huge trades in a recent week: in three trades alone in a period of two minutes, nearly 1.8m was spent buying 207,000 shares at 850p. In the same space of five trading days, the Genus share price rose by nearly 16%. Something must be up surely? Financial Times, 26th May 2011 Chief of Genus to bow out after 14 years Richard Wood is to bow out as chief executive of Genus, a supplier of bull semen and breeding pigs, after 14 years in which he has led the company from flotation on London s junior market to FTSE 250 status. Analysts who follow the animal genetics company said Mr Wood would be a hard act to follow, but expressed satisfaction with the appointment of Karim Bitar, currently president of Eli Lilly s European operations, as chief executive designate. Mr Bitar will succeed Mr Wood on his retirement aged 65 in September. Bob Lawson, chairman of Genus, said the appointment of Mr Bitar, who holds a degree in biochemistry, moves him from the human field into the animal kingdom. He added that Picston Shottle, Genus s prize Holstein sire which for many years was considered the world s top ranked bull, would remain on with the company though he hinted at the looming retirement of Genus s best-known asset. He is happily sitting up in North Wales, completely unaware of what is happening, said Mr Lawson. During his career at Genus, Picston has delivered millions of pounds of revenue to Genus following years of strong orders for the bull s sperm which have commanded 40 a shot compared with the average of between 10 and 30 for other dairy breeding animals. But Mr Lawson said the high premiums commanded by several of Genus s younger prime bulls had overtaken Picston s, as Genus had developed its expertise in finessing the genetic make-up of cattle depending on the climatic and arable conditions in which they are grazed. Picston is getting towards the end of his time, said Mr Lawson. There are quite a few contenders for his crown. Young contenders are already outselling It was something of a tribute to Richard Wood that yesterday, when he announced he was standing down as chief executive of Genus, the share price dipped sharply. Then investors clocked who he had found to hand over to, and they rallied rapidly. Wood has taken Genus from a small, somewhat obscure British research group, which was originally launched on the Ofex stock market in 1997, to one of the world's biggest players in animal breeding and Picston, who is now three generations behind in terms of genetic selection. We have multiple succession plans in place. Genus, which specialises in genetically tweaking the bloodlines of pigs as well as cattle, argued that the productivity of animal stock in the delivery of meat protein or milk can be improved by up to several hundred per cent, depending on correct husbandry, for farmers using its eugenics services. Genus has worked with Tesco, the UK s biggest retailer, to improve the blood stock of meat supplied to British consumers as well as Cargill, the privatelyowned US food producer, on projects which include the improving the quality of tender beef it supplies to the Japanese market. Mr Lawson said under Mr Wood s leadership Genus had managed to establish market leading positions in improving the productivity of cattle and pig herds by outperforming competitors. Growing demand for meat and dairy protein was placing increased demands to improve yields from animal stock in the emerging economies, said Mr Lawson. Meanwhile, an increased emphasis on the taste and quality of meats in the developed world, exemplified by a move back in consumer preference to the marbling of fine steak cuts, was driving demand for more diversification in cattle herds. Genus survived early wobbles with BSE scares and has seen its share price rise from 170p at its debut in 2000 to trade at 980p on Thursday, outperforming the FTSE all share index by 500 per cent over the last decade. Charles Hall, analyst at company broker Peel Hunt, said: Richard will be a hard act to follow, having successfully led Genus from being a loss-making UK business into the global leader across porcine and bovine markets Daily Express, 23 February 2011 GENUS IS BULLISH Rising world food prices helped bull and pig breeding firm Genus cash in on strong demand in Latin America and a recovering in the US. Genus, which said population growth was boosting demand for meat, topped forecasts with a 23% rise in half year profits to 19.1m on a 14% rise in sales to 153.2m. Evening Standard, May 26th 2011 Retiring Genus boss has a rare breed of enthusiasm genetics valued at almost 600 million on the main stock market. His successor 26 years his junior at 46 is Karim Bitar, the Italian-American president of Europe for multinational drugs giant Eli Lilly. That is a pretty big-hitting appointment and probably signals that Genus is about to enter a new period of growth with the likelihood of more deal-driven activity as is consolidates its position in emerging markets and enters new countries. I would also expect Genus in the news... Daily Telegraph, 10th September 2010 Genus is well positioned in a long-term bull market There is no doubt that Genus, which provides bulls and pigs with superior genetics, is trading on a high rating. However, the company is plugged into what Questor believes will be a major theme over the next few decades producing enough food to feed a rising global population. The company provides animals which have better genes compared with current livestock in terms of yield, health and hardiness. Animals with better genes produce more meat, live longer and are cheaper in terms of vet bills. Genus produces the sperm (in the case of bulls) or animals (in the case of pigs) that provides these traits. It operates stud farms and sells quality breeding pigs and bull semen to farmers across the globe. The food security theme has become very prominent over recent months, with Russia halting wheat exports because of drought and fires and BHP Billiton making a bid for fertiliser group PotashCorp of Saskatchewan. There have even been food riots in Maputo, the capital of Mozambique, in an echo of the 2008 food crisis. These themes are not going to go away as the global population rises and gentrifies. Quite simply, more people in the world require additional food and richer people eat more meat. That s the long-term investment case of Genus. The agriculture market has gone through a very deep recession over the past couple of years, but markets will recover. The company has a target of growing earnings per share by 12pc to 14pc each year from Full-year results, released on Tuesday, were ahead of analysts expectations, and upgrades in the current year are expected. In the year to June 30, revenues rose 2pc to 285.3m and pre-tax profits jumped 56pc to 40.8m. However, on an adjusted basis, which strips out amortisation and valuation movements on biological assets, pre-tax profits rose a more modest 3pc. Positively, operating profits saw double-digit growth in the second half of the year. The company does not pay an interim dividend, but the final payment was raised by 10pc to 12.1p. It will be paid on January 7 and the shares trade ex-dividend for this payment on December 8. The company also said that Bob Lawson will become its executive chairman when John Hawkins retires later this year. Mr Lawson is also chairman of Barratt Developments and Hays, although he will shortly retire from the latter. The US dairy market has been sluggish and is not expected to recover until 2012, but strength in emerging economies should take up some of the slack. Cows cannot produce milk unless they are pregnant and farmers have been running down their stores of semen. Signs of a recovery in the Chinese pig industry are also not yet clear. Genus said pig prices had risen sufficiently to restore customer profitability in all markets except China and that customer confidence in investing to upgrade porcine genetics has returned. All of this uncertainty means that the shares are unlikely to outperform in the short term. However, as a strategic investment Questor likes the shares because the themes of rising population and a looming food crisis will not go away. The shares are trading on a June 2011 earnings multiple of 19.3 times, falling to 16.8 in The yield is 1.7pc. A purchase was first recommended on September 16 last year at 700p and the shares have been volatile since then as the US dairy market remained sluggish. They are up 7pc, in line with the market. Shares in Genus are a buy based the long-term bull market in food production. chickens to join the cows and pigs that Genus currently breeds. Wood s retirement is richly deserved and I hope he enjoys many more hours of sailing on the Solent. He is one of those people too rare in British business a complete enthusiast and advocate for his industry. Wood was willing to spend hours explaining to investors and people like me how Genus worked and where it could go. He delivered on virtually every promise. But most of all I remember our first long chat when he went into such graphic detail as to how semen was collected from Genus s most prized bull that it barely made it into this family newspaper. As Bitar prepares to take over from Wood at the end of September, he could do worse than learn the names of all that superstud Picston Shottle s daughters. There are just over 100 of them! 6 GENUS Winter 2011/12 GENUS Winter 2011/12 7

5 INTRODUCTION RICHARD WOOD GENUS Genus meeting the of world agriculture Natural disasters of fire, flood and earthquake have added biblical colour to an unfolding fear of high food prices and the possibility of famine. By 2050 world grain output will have to rise by half and meat production must double to meet demand. How can this happen with little extra farmland available and water resources running short?, asks Genus CEO Richard Wood Richard Wood CEO, Genus plc Iam old enough to remember the 1973 oil crisis when the common perception was that oil reserves would last only 25 years came and went without a crisis. New oil reserves in remote places added to the dwindling 1973 stock pile. The answer was that the global oil industry used the incentive of higher prices to invent new technology that bridged the gap and increased oil production. This is what will happen with food production. But just like with oil, the change necessary for agriculture will not occur without a general understanding and acceptance that the farming techniques and technologies of the past will need to change by allocating greater importance to high productivity farming when forming agricultural policy. It is a sanguine thought to realise that dwindling agricultural output over the last ten years has resulted in the UK now only producing half the food that it consumes with the remainder relying on fossil fuels to transport it as imports. By contrast, for the same period, Brazil decided to expand domestic production through farming modernisation and scientific research, not subsidies. Instead of trying to protect farmers from international competition as much of the rest of the world still does, it opened up to free trade and let inefficient farms go to the wall. This was a remarkable and some would say risky strategy because most of the land resources at the time, were judged to be unfit for agriculture. Since then Brazil s agricultural output has grown to such an extent that it is the first tropical agriculture to challenge the USA, Europe, Australia and Argentina as great agricultural exporters. This record of success gives me great confidence that the changes to agriculture now underway in Russia, India and China will be successful. These countries are already embracing high productivity technologies pioneered in the USA to improve agricultural output without depleting the land and water resources. Five years ago, there were few large dairy herds in the USA, now more than 50% of US milk is produced on farms of over 2,000 cows producing in the region of 10,000 litres of milk per cow per year, compared with 5,000 litres per cow per year in Europe, 3,000 litres per cow in China and just 1,500 litres per cow in India. Top quality genetics and modern practices in beef farming offer the potential to produce consistently tender beef from animals consuming only half the feed they consume in less advanced agricultures. The story for pigs and poultry is similar although in these sectors productivity is generally more advanced than beef. At the forefront of modern agricultural technology, Genus is investing heavily in research and development and increasing its production capacity in those countries aiming to embrace new technology. We are already operating the leading bull stud in Brazil and, through a long-term joint venture, multiply and distribute pigs there. The original porcine crosses were created in the recently expanded nucleus herd in the USA and the local multiplication has made world class genetics available even in remote places. Many years ago Genus exported from India the Gyr range of Zebu tropical dairy cattle to help with Brazil s transition to higher productivity agriculture. Since then this species has been developed and improved in Brazil, including cross-breeding with Holsteins to create the Girlando, a new species that has a higher milk production capability. This has been possible without losing the important tropical adaption traits. As an article later in this issue of Genus World will explain, Genus is poised to re-introduce this unique development into its new Indian stud and thereby to help make a step change to Indian milk production in a vegetarian country that relies on milk as a principle source of protein. Over the last two years, Genus has copied its successful business model developed for Brazil and has demands established bull studs in China, Russia and India, to augment growing pig production nucleus herd capacity so that, as the new world class industrial farms being established in these countries develop, Genus will be the natural supplier of the genetics necessary to achieve their business goals. Such new farms are often being developed as joint venture projects with international food companies, well used to the production benefits of Genus genetics. These companies have been surprised and relieved to find that Genus has available locally the kind of animals with which they normally work. This reduces the lead time for start up or herd upgrading and lessens the risk of animal disease by avoiding international movement of animals. Ten million cooked breakfasts require 5,000 acres of crops to feed the pigs that make the bacon, to feed the hens that lay the eggs and make the bread for the toast. If we used 1950s genetics and ways of farming we would need 16,000 acres to do the same job. Since the 1950s world population has grown steadily from 2.6 billion and, according to the UN forecast, by 2050 will have risen to 9.2 billion. With 81% of people living in the developing world, the RIC countries are joining Brazil and other Latin American countries in adopting the modern technologies that will enable them, not only to feed their rapidly increasing populations but also to become exporters of agricultural products to the rest of the world. In this new world of opportunity Genus is uniquely placed to become a natural part of that evolutionary change. That is why Genus strategic aim is to embrace all agricultural change and therby to help feed the world. This will result in the importance of the BRIC countries as profit earners for Genus to rise from 25% to 40% of total earnings over the next 4 years. Meanwhile, we should still achieve the historical 5% to 6% growth in the rest of the world as we continue to win market share from our competitors. Look out the rest of the world agriculture; the BRIC countries are coming and you might get left behind! 8 GENUS Winter 2011/12 GENUS Winter 2011/12 9

6 DAIRY MARKETS DAIRY MARKETS Understanding our customers customers in international dairy markets A patchy global economic recovery, volatility in prices, inputs and currency, strong NGO activity, the role of the middle market and an efficient supply chain are still likely to be a strong feature and present both a threat and opportunity, reports John Giles, Genus Chief Economist and Divisional Director of Promar International, the value chain consulting arm of Genus plc John Giles Genus Chief Economist and Divisional Director of Promar International The strength of the overall Genus business relies on a number of key external factors not least how confident livestock farmers, processors and retailers around the world are about the future prospects for their own business and that of their customers. There are of course internal criteria too, such as the success of our R&D programmes and how we manage our business in emerging markets such as India, Brazil, Russia and China with that in more mature markets such as the EU and US. Our ability to collect payment from customers on a global basis is also critical. We can control many of these factors. There are however a huge number of other key industry drivers that we need to analyse and factor into how we run our business which are well beyond our immediate control. For example, while the likes of the so-called BRIC countries all seem to be moving ahead in terms of economic recovery and recording strong GPD growth, the prospects for the EU and US still look less promising and in some cases have been downgraded. A review of the key developments in the global dairy market as an example shows just how fast-moving the sector is and underlines the challenges we all face. We have picked out here a few of the main factors that are impacting on our customers and in turn, their customers too. World policy developments progress in WTO talks is still slow. Not least, many of the key players are pre-occupied with their own economic problems and challenges. In a worst case scenario, there is a fear that an overly inward looking focus on economic policy will lead to greater protection in areas such as agricultural trade talks. While the big picture WTO talks seem destined not to reach an early conclusion, there is still plenty of activity in other areas of policy development in the agri food sector. Dairy is often high on the agenda. The regulatory situation in the international agri food sector is still often caught between two opposing forces the need to open up agri food markets on one hand and a clear willingness for governments to intervene in the cause of national self interest on the other. World dairy production world milk production in 2010 reached some million tonnes, an increase of 1.6% from 2009 (but below the 2.1% average annual growth seen in the past decade). The quickest growth is still being seen in the emerging markets, while in the EU and US, this is more modest. Asia is now the largest global region with 257 million tonnes. North America s production increased by 1.1% to 87 million tonnes, with South America seeing a 2.5% increase to 61.3 million tonnes and the EU by just 1% to 133 million tonnes. New Zealand s production grew 6% from the 2009/10 season to 17.8 million tonnes and in Australia, growth was at 2% to 9.2 million tonnes. Fast-growing urban consumers World milk production in 2010 reached some million tonnes, an increase of 1.6% from 2009 World dairy prices the Food and Agriculture Organization s (FAO) food price index hit a record high in December 2010, topping 2008 s previous high when soaring food costs led to food shortages and riots in many parts of the world. Producer prices in the US and the EU have increased over the last 12 months, although in the EU there is still a big difference across the EU 27. In other major markets of interest to Genus, such as China and Australia, farm gate prices have stabilised. High farm gate prices are essentially good news for farmers in theory, but can be offset by concerns over the costs of inputs and any time lag between prices going up and payment being received. It also causes problems for other players in the supply chain, such as processors and retailers/foodservice catering companies who are reluctant to pass on additional costs to their customers. Oil prices this determines the cost of energy and transport for both farmers and food processors. For many processors, the cost of energy is now the single largest cost they incur as opposed to labour and staff. Oil prices have risen significantly over the last 12 months and even more so, if a longer term view is taken. There has for some time been concern over the concept of peak oil where the availability of relatively easy to access and relatively affordable oil comes under severe pressure. Events in the Gulf of Mexico and now possible disruption to oil supplies from the Middle East have all added to this concern. Meanwhile, demand in Asia is still booming, especially China. Feed prices are largely determined by wheat prices on global market and in the last 12 months the overall trend has been upwards and the price quoted on international exchanges has topped US$350 per tonne. This can often be due to reaction to global events such as what is happening in Japan and the Middle East not data on crop production, quality and availability. The international market is still nervous in its attitude. There is a real danger that short-term reactions to key developments become the norm as opposed to a more calculated mid to long-term view being adopted. The reason behind this nervousness in the market as often is the case multi-faceted. It includes the impact of a ban on Russian exports of grain in 2010, the impact of severe weather events, in the likes of Pakistan and Australia, poor crop conditions in the US and Latin America, lower than expected world stocks and again, booming demand in Asia (this is a recurring theme). Retail developments in the UK, the combined market share of the discounters has now reached 6%. The so-called middle market which is characterised by a mix of discount retailers, independent retailers and foodservice companies is thought to account for c. 40% of all liquid milk sales. It is a highly price conscious market. Both Aldi and Lidl have announced ambitious plans for significantly more store openings in the UK over the next few years. The mainstream UK retailers have been forced to readjust their position in the market. The plans of the German discount giants do not appear to stop at capturing 10 GENUS Winter 2011/12 GENUS Winter 2011/12 11

7 MARKET FOCUS increased market share in the UK. Long term, Aldi have stated their intention to continue expansion, not only in the UK, but also in the US, as well as in other attractive markets such as China and Russia as well as New Zealand. Lidl are sizing up opportunities in markets such as the US, Turkey and Russia too. Non governmental organisations (NGO) activity the response to the need to feed more consumers in the world in some cases considerably more, maybe up to an additional 3 billion by the middle of this century has been to develop largescale dairy farms. In parts of the US, such as California, dairy farms and herds of up to 30,000 are not uncommon. It is worth noting though that the role of the smallscale family farm in the US is still critical over 75% of them still have less than 100 animals. In the UK, the average herd size is 140. There are also plans for large-scale dairy units in many other parts of the world stretching from China, Vietnam and Russia to Latin America. There have also been plans for much larger units in the UK, most notably in Lincolnshire, where plans were submitted for a 4,000 cow unit. The project in Lincolnshire was eventually rejected after a review of its impact by the Environmental Agency, as well huge pressure from a well planned and implemented consumer protest focusing more on animal welfare issues. In the US, one of the leading fast food chains has declined to source milk from a large-scale dairy farm on similar grounds. Animal disease problems still remain here for example, South Korea has had a massive FMD outbreak, where 2.2 million animals have been slaughtered. They have been using emergency vaccination and are now considering whether vaccination should play a larger part in their control strategy. There have been other outbreaks in Eastern Europe and in China. What does this all mean? The implications of the world we live and operate in and how this impacts on the livestock sectors we serve are numerous and include the following: Business models there is probably no one single business model that is totally right. Businesses that have achieved a degree of scale to their operations, however, have access to unique technologies and services, have a good spread of international markets and have well developed supply chain relationships would appear to be in a better position than those that have not. Trade policy governments and companies will look to develop their own agendas if international organisations are unwilling, unable or unprepared to reach agreement on wider objectives. We would expect to see more of this unilateral style of approach to trade and policy development in the future. Large-scale farms can achieve high standards of animal welfare, environmental good practice, good working conditions for staff and produce high quality food and at competitive prices Farm sizes the concerns of pressure groups, consumers and others in the supply chain are understandable and of course need to be addressed. There is plenty of evidence from around the world though that large-scale farms can achieve high standards of animal welfare, environmental good practice, good working conditions for staff and produce high quality food and at competitive prices. The idea that some small farms do not suffer from poor levels of husbandry is misplaced. Size of farm is not always the key driver of these issues. The role of NGOs the attention that world agriculture and food production and processing systems receive from wellorganised NGOs is not going to go away indeed, it might well intensify. We need to be able to find ways of working with them on key issues not against them. We need to base any discussion on more tangible facts and evidence, not emotive anti reactions. Food security and sustainability of supply is a real issue for both governments and commercial companies in the supply chain. Witness the imposition of export bans in a number of countries over the last few years India, Russia and Argentina have all instigated these. The Chinese government has laid plans for emergency storage and distribution of food if supplies of key essentials tighten or costs continue to escalate. In the commercial supply chain, retailers are looking to develop dedicated supply chains for key products and build strong relationships with the best suppliers. They want to make sure they are working with the best farmers, encourage high standards of animal welfare, other aspects of CSR, and environmental good practice. They want to be able to procure enough product at the prices and quality that suits their business model. Adding value to products and services in this environment, it is not necessarily about who has the cheapest products. It will be just as much to do with who can add the market, customer and industry knowledge to their basic portfolio of products and services and who can forge strong supply chain relationships with key partners. International food companies will look for more advanced ways of trading their products and in turn input suppliers of all types will need to look at more sophisticated ways of working with them in more dedicated supply chains. Key success factors we are in an environment where there is concern over the cost of energy and other inputs to farming and food processing as well as downward pressure from the middle markets. Supply chains can only survive, let alone thrive by looking to develop slick and efficient operations. While scale has a part to play here, it is not the answer in its own right. Using top class R&D, NPD, innovation and knowledge are all critical. Good marketing is also essential. Protecting the environment and promoting good bio security are also critical. Feeding a world of 6, let alone 9 billion consumers, against a backdrop of high commodity prices, high input costs, patchy global economic recovery and price pressures throughout the supply chain is a considerable challenge. There are plenty of reports available from all round the world on this subject. All agree that we will need to produce more from less. Companies who can demonstrate that they can contribute to this situation will be ones who are wellpositioned to benefit from it too. Yet as with all things, this highly challenging environment will also produce opportunities for those that can initially identify them and then act on them. It is an exciting time to be a farmer or food processor, whether you are in Cheshire or China. Leading the revolution in global beef production 12 GENUS Winter 2011/12 Genus powering productivity improvement in the global food chain

8 GENOMICS UPDATE GENOMICS UPDATE Improving efficiency and effectiveness of pork production worldwide Our passion is to be first in identifying and applying new technology that will benefit customers and agricultural productivity, says Genus Director of Research Dr Dave McLaren Dr Dave McLaren Genus Director of Research There was a naive notion within the industry a decade ago that genomic selection would eliminate the need for performance and progeny testing in livestock improvement. The reality is that the genomic information is only beneficial if used alongside abundant, accurate, realworld performance data that is continually updated by genomic training. I wrote in the last issue of Genus World that we are entering a new technological era in which I believe the agricultural industry will be capable of increasing livestock productivity sufficiently to meet urgent human needs. Using genomics technology, Genus is today delivering record genetic improvements, boosting the accuracy of selection in pigs and decreasing the generation interval in dairy cattle. Rates of genetic improvement are directly proportional to the accuracy of breeding value estimation. Results from genomic research implemented in 2010 in two of our major pig lines show the significant increases in accuracy obtained for lowly heritable and hard to measure yet important pork production traits (Table 1). The next step will be to extend the application to all improvement objective traits simultaneously in these lines using a Genomic Relationship Matrix and to expand this practice to all eight product lines. To do this practically requires the use of a technique called imputation to derive high density (e.g. 60,000 SNP marker) genotypes from small low density (e.g. <1k SNP marker) panels. This allows affordable tests on selected candidates to predict genomic breeding values almost as accurately as by using explicit high density genotypes. This is done by tracking chromosome segments, or haplotypes that are inherited, and filling in missing information across generations. With a sufficient number of related genotyped individuals, and using Genus High Performance Computer system, we are able to distinguish between fragments of DNA in a population and link them to performance traits. Additionally, we can predict with greater accuracy the genetic relationship between members of a population, thus improving accuracy and genetic response to selection. The details are clearly complex, but here is a short exercise to help explain the concept. Imputation works in the way the spell check in your computer could correct the misspelling in the paragraph below: Aoccdrnig to rscheearch at Cmabrigde Uinervtisy, it deosn't mttaer in waht oredr the ltteers in a wrod are, the olny iprmoetnt tihng is taht the frist and lsat ltteer be at the rghit pclae. The rset can be a toatl mses and you can sitll raed it wouthit a porbelm. Tihs is bcuseae the huamn mnid deos not raed ervey lteter by istlef, but the wrod as a wlohe. Imputation algorithms learn how to distinguish and track haplotypes, stretches of DNA, in a population and to fill in the SNPs not provided by a small low density chip. Thus elevating the result to a near equivalent of the 60k SNP chip information content, with high accuracy, the low density information available on selection candidates. At Genus research headquarters, imputation in pig populations is already progressing well. The imputing software our scientists use has been shown to be robust, scalable, efficient and accurate. We are currently testing the effect of imputation at different densities on the accuracy of genomic breeding values and designing low-density panels for efficient genomic evaluation of genetic Table 1 Line Trait Increase in EBV accuracy Sire line Scrotal hernia 38.9% Sire line Finishing pig mortality 58.1% Dam line Total born / litter 40.5% nucleus littermates at a young age. Over the past two decades, we have developed a world-class infrastructure to collect, handle, identify, and store tissue samples, and to extract and prepare DNA for genotyping at contract laboratories. Computer programmes run quality control on the genotypes returned, which are stored and made available to the R&D team. This capability provides a competitive advantage for Genus and is also readily expandable into other species. Genus has a unique repository of porcine data with more than 10 million pedigreed animals listed with detailed performance records, and approaching 2 million DNA samples collected over the past decade in storage. This aspect of genomics the innovative integration of new technology into the established improvement system has been the first commercial benefit to have arisen from the public work on the swine genome sequence. From this early beginning and the work since done by Genus, we confidently predict potential for a 30% increase in the rate of improvement in customer profit. That improvement, estimated to be worth $1.60 per commercial pig today, is predicted to increase to $2.10 per pig in two years time. In a business that provides genetics for more than 50 million commercial pigs a year in North America and over 100 million annually worldwide, this represents considerable value creation. We are currently building a training database of high density genotypes using the Illumina PorcineSNP60 BeadChip, which includes 64,232 SNPs. More than 12,000 pure line animals at the top end of the breeding pyramid have been tested today using the 60k chip. The maturity of the Genus development infrastructure then allows rapid technology transfer from research to application, so the benefits of our progress are made available quickly to customers. New genotyping technologies and competition among service providers will continue to reduce the cost of genotype data collection, with the result that genomic selection will become an increasingly cost effective and powerful tool with which to obtain productivity improvement in animals of all species. Next generation sequencing is now becoming an affordable research tool, aiding identification of specific genes controlling quantitative traits. With ever more powerful computers and laboratory techniques, animal scientists are learning more about the genetic architecture and biology underlying key performance traits while biotechnology tools are already available for modifying genomes with much increased efficiency and precision than possible in the past. The recent publication of a breakthrough made by scientists at the Roslin Institute and the University of Cambridge has demonstrated a genetic modification can shut down the transmission of the influenza virus in chickens. This drew a lot of media attention in January. Livestock diseases cause enormous welfare issues and massive economic losses. In farming, at the moment, such diseases can only be addressed by vaccination and biosecurity. In the future, considerable attention will be paid to genetic solutions as alternatives, or complements to, vaccines. In the case of chickens, the transgene introduced served as a decoy for the influenza virus replication apparatus, mimicking the part of the virus genome controlling the process and preventing replication. The infected chickens died as expected but their pen mates did not get infected. The disease did not spread. Further research will endeavor to make birds resistant to initial infection as well as controlling spread, and to determine if the virus is able to mutate and escape the decoy. Much remains to be done, but the chicken work is a most exciting proof of concept with potential for use in other species affected by influenza viruses, notably pigs. Research with our pigs is now uncovering intricacies of interaction between economically significant viruses and their host. Opportunities to engineer a step change in disease resistance will likely increasingly present themselves as strong commercial targets that improve animal welfare going forward. Genus has a long legacy of successfully transferring research from the laboratory to commercial practice for the benefit of customers. An example of how new technology has been implemented in our pig business was the creation of reciprocal translocation testing for elite AI boars. Reciprocal translocations (RTs) are rare genetic defects that can be inherited or occur naturally. Breeding animals that carry an RT produce 50% smaller litters than normal animals. Boars carrying an RT typically meet semen quality standards and have normal sexual behaviour; therefore, genetically testing boars using a fresh blood sample is the only way to determine if a translocation is present. In 2009, the Genus laboratory in DeForest, WI, became the first laboratory in North America to provide a porcine genetic testing service for RTs. This enabled farmers to ensure carrier boars were not used in their herds. Although rare, a boar carrying an RT will produce 4,000 fewer pigs in his working lifetime; an extra $80,000 cost of production. In the last 12 months, Genus has tested thousands of customers boars and detected 60 with RTs. Detecting and culling these boars increased the productivity of the customers herds and has been reflected in an increase in sales to those customers. Feeding the world s growing human population with limited resources will require rapid application of scientific advances in agricultural production. Food safety will continue to be paramount. Production methods must be morally and ethically acceptable to the consuming public. However, if we are to meet human nutritional needs it will be necessary to adopt modern biotechnology developments in livestock production, as has become the norm in plant breeding today. Genus scientists network with academic and other research colleagues worldwide to ensure they stay aware of advances being made and work closely with the leading institutions. Our passion is to be the first in identifying and applying new technology that will benefit customers and agricultural productivity. Our research projects are directed to solving farming problems, and our success is measured by the speed of finding the right solutions. Genus is a global leader in animal genetics and we are committed to continuing to provide effective solutions to the challenges faced in feeding the world s growing population using all the techniques and technologies available from modern science. 14 GENUS Winter 2011/12 GENUS Winter 2011/12 15

9 RIC REGION FOCUS RIC REGION FOCUS Growth provides investment opportunities for Genus in emerging markets in China Constrained local production, soaring imports, challenges of food security and meeting new customer needs are key drivers behind Genus strategy for investment in emerging markets, writes Philip Acton, Chief Operating Officer Europe & Far East Philip Acton Chief Operating Officer, Europe & Far East While the mature economies of the USA and Europe have struggled since 2008 to emerge from the global financial crisis, most leading international economists believe that the real speed and strength of the global recovery will be driven by Russia, India and China. As these countries become more wealthy and their populations grow, so must their agricultural sectors if their people are to be fed. While local agricultural production is failing to keep pace with demand, imports for a range of agri-food commodities have been high. However, the pattern of imports has been inconsistent, generally soaring across a range of commodities like pork, cheese, SMP and butter while remaining volatile but still growing in other sectors. Not all this demand will ever be met by local production not least because skilled exporters from Australia, New Zealand and the USA have invested considerably in building business in these markets. However, imports will always remain a bridge rather than be an alternative to local production and the Ministries of Agriculture in all these countries have made this abundantly clear. The problems faced by the governments trying to stimulate local production are numerous, including the relatively small size of farms with low yields and low productivity. There is a lack of appropriate investment in the processing of milk, distribution and storage logistics and a lack of supply chain understanding. Production of Pork, Russia & China, (000 tonnes) This is particularly so in India. Allied to this has been the failure or inability of many existing farms to modernise and adapt to problems like climate change, soaring commodity prices, volatility in the price of key farming inputs, energy and food safety. These three nations do not have the luxury of time to achieve the changes by evolutionary stages as the Western world has over the decades. These nations need to concentrate on achieving a step change from basic agricultural practices to state of the art systems and productivity. Quite a challenge but one they are all attempting to meet with their agricultural policies. These policies aim to provide food security through the creation of investment opportunities and employment. Attractive incentives are being offered for high productivity agricultural projects as well as the more pragmatic subsidies offered to all farmers. However, although many new investments are being driven by locally based private sector entrepreneurs, international food companies are now beginning to make inward investments, looking to develop and reap the benefits of large scale projects. For instance, in Russia, companies like Russia 1,400 2,160 China 39,900 49,900 Danone, the leading French based dairy processor, has made a number of acquisitions. Such food companies see these markets as being important for their future growth. For these new state of the art dairies and similarly large pig units, Genus is the ideal source for the genetics required. In many cases, Genus already supplies the multinationals involved in their home countries. They, along with local investors, require genetics of international quality and proven effectiveness to start up and maintain their farms. Genus is the only world class supplier with in-country production facilities capable of fulfilling their needs. It has been three years since we embarked on our strategy substantially to increase our presence and accelerate our growth in these markets. Our goal is to capture 50% of the growth in the sectors that employ modern farming techniques and practices. In the mid to long term, and put simply, major processors will require large farms that can supply the volume of milk and meat required. This has to be produced to a high technical standard. It is almost impossible for farmers to do this on their own. Genus being involved at the very start of this process with its high quality genetics and huge experience of farming systems across the world, allied to a strong R&D base has, in many cases, become an integral part of these emerging supply chains. Genus experience of working with leading food multinationals and joint venture partners will be invaluable in Russia, India and China as new operations in these countries will eventually require all the same disciplines as those commonly used in the EU or USA. The drive for efficiency in dairy and meat production starts with the use of high quality genetics, but also requires farm management advice and a full understanding of the local and international supply chain. This advice is available through Genus consulting business, Promar International. Genus collaborates with large local producers in China In the dairy sector Genus is supplying bovine genetics through collaboration with China s largest dairy producer, Mengniu. A new stud has been constructed to house Genus elite bulls, 45 have already been transferred from Genus Australian stud. Semen is being collected from these bulls and is being sold alongside semen imported from the USA to Mengniu s huge supplier base. The business is progressing exceptionally well. During 2009/10 it captured more than 30% of the country s total imports of semen from North America and local semen from the stud is now beginning to be sold, both as normal semen and as sexed semen. Following a difficult period in 2009/10, the market has bounced back and is now profitable for pig producers so that we are now forging ahead with key account partnerships with large modern producers. As an example, we recently secured an agreement with the international partnership Pipestone Besun, to supply them with the next 15 months total breeding output from one of our production nucleus farms, Benxi 1 you can read more about this in a separate article in this edition. Similar agreements have been struck with local producer COFOC, and others are in the pipeline watch this space for further developments. New purpose-built stud in Inner Mongolia Bull stud, India Our new Russian stud Genus in co-operation deal in India Not only is India the largest milk producer in the world, it also uses the greatest diversity of animal types to produce this milk. Approximately half the country s milk is produced from 50 million milking buffalo cows while the balance is produced from original native Zebu breeds, Holsteins and Jersey cows. To begin to penetrate this disparate market, Genus has established a local bull stud through a joint co-operation agreement with Chitale, a family-owned dairy processor in Maharashtra. Ultimately Genus plans to reintroduce improved Zebu and Girolando animals from its stud in Brazil but, in the meantime, Genus is selecting local animals using its specialist expertise, so improving local breeding programmes. During the current financial year, the stud produced its first Girlando bull and its first Holstein calf has been born using sexed semen. Genus has established a local sales office and has recruited sales staff, all of whom have been trained in the USA. Local semen sales have doubled and the sale of semen imported from the USA has exceeded expectations. Russian pig producers recognise the value of Genus genetics One of Genus longest established RIC businesses is the Russian Porcine operation. From the early pioneering days of setting up supply lines to customers in Siberia with parent and grandparent stock imported from western and central Europe, the business has matured to such an extent that most of the genetics are now generated within Russia and a growing proportion of business has become royalty based. Two of the largest pig producers in Russia certainly recognise the value of Genus genetics. Belgorod based Agrobelagoria, that previously used JSR genetics received their second stocking of 500 sows shipped from Canada this year to form the core of a 50,000 production sow system that will yield downstream royalties for Genus over the coming years. Similarly sized Moscow based Cherkizovo has decided to switch from Danbred for their expansion programme and is now importing 1,300 breeding sows from the Genus nucleus. This production pyramid will support an equally large system, also yielding significant downstream royalties for Genus. The next phase of strategic expansion and development for Russia was put firmly in place with the establishment of a Genus bovine production facility in Krasnodar. As in India and China, the acquired facilities will be used to establish local production to supplement sales of imported semen. Refurbishment of the stud was completed during the year and nine proven bulls from North America were shipped to the stud during May. In the meantime, a local sales force has already been established and the sale of imported semen is progressing well. Target customer farms are advanced large commercial operations requiring the best quality genetics but sourced locally. Dairy farming is a continuous process. Our customers require semen from the right bulls at the right time to achieve their breeding goals. 16 GENUS Winter 2011/12 GENUS Winter 2011/12 17

10 FINREP PROJECT FINREP PROJECT The FINREP project: world-class financial reporting for a world-class company A business like Genus must have information to support the decision makers and, most importantly, one version of the truth, reports David Crosby, Group Financial Controller David Crosby Group Financial Controller Genus has grown rapidly, both organically and through acquisition, to become a global, world class company. Its commercial success has demanded an infrastructure that can support its ongoing aspirations, and nowhere is this more keenly felt than its ability to provide meaningful, accurate and up-to-date financial information. Behind the scenes, the Finance Departments throughout Genus have been changing. Not so very long ago, many companies in the Genus Group operated along autonomous lines using legacy financial systems that had very little in common with each other. The ability to consolidate the Group s results was a painful exercise. The ability to slice and dice information was almost impossible without a lot of painstaking effort. Adding a new acquisition was a major challenge. In common with many organisations exhibiting the same sort of growth pattern as Genus, culturally the focus has been on profits and profit growth and not so much on the balance sheet and cash flow. In effect, Genus was using a spreadsheet-based consolidation and reporting system, with many inconsistencies from country to country and between species. But a growing business likes ours must have information to support the decision makers and, most importantly, one version of the truth. The simple fact is that Genus is not a simple business. We operate in 30 countries in five continents, selling through 70 different countries and of course covering two species. We have our research facility, product development and centralised production facilities that supply the commercial regions. We have transfers around the world at arm s length transfer prices and recorded at our internal management costs. We operate through a full matrix responsibility network in local currencies and consolidated at the centre in GBP. We enter new markets with local supply as well as global supply sales, offering a variety of blend prices and product types. We recognised that we needed the ability to fully report holistic management data by each reporting unit, in a manner that can aggregate up to the sub-regions, regions and Group levels. We wanted the flexibility to report by responsibility, by legal entity and statutorily. We wanted the facility to report consistently through the organisation with drill down ability, comparing against last year, budgets and forecasts. We wanted to weave financial and non-financial data into the reporting suite, such as volumes and headcount. We wanted a reporting platform that was flexible and robust, capable of many layers of interrogation that would work as a tool for the business, and enable consistency of format when it comes to pulling the detail together. We wanted the ability to have on-line graphical reporting, allowing quick, easy and efficient dissemination of useful data. Finally, we recognised that we needed a system that could take some of the effort out of the reporting process and enable us to achieve some activity and cost efficiencies, ensuring more timely reporting and more detailed understanding. Phase 1 was the Oracle programme. Oracle had been selected as the financial system to be used for all future upgrades and was implemented in Stapeley and DeForest. Other locations were also considered and assessed to determine The simple fact is that Genus is not a simple business. We operate in 30 countries in five continents, selling through 70 different countries and of course covering two species Rauna Hall and Patrick Dawson using Cognos whether such an implementation was warranted, and the inevitable conclusion was many locations are simply too small to justify the implementation of Oracle. Phase 2 was the selection of a consolidation and reporting platform to sit above the transactional processing systems used by the units. This clearly negated the need to have Oracle everywhere, since the critical issue is the systems currently being used were capable of transmitting the same detail of information to the consolidation platform. Provided this could be done, local systems could continue in situ, appropriate for the size and complexity of location. The search was on to select the right combination of financial reporting system functionality, consultancy advice and project support, and the choice boiled down to two options: Cognos and Hyperion. For many years, Hyperion, an Oracle product, has often been considered the system of choice, but IBM had recently launched Cognos to compete with Hyperion. We visited a number of entities and locations, including Chemring and Shire, to see both products in action, and critically, discuss their relative ease of use and implementation experience with the people directly involved, the users. Through this process, it became apparent that Cognos, or IBM Cognos 8 Controller and Business Intelligence to give the full name, was the right system for Genus. One of the main attractions is that it is not heavily IT reliant in terms of its management and upkeep. In fact, it soon became apparent to us that it does not require extensive development resources or tedious and costly programming. It is a system that becomes owned by Finance rather than IT. It allows users themselves to amend entities, account details, and organisational structures as needed in a very logical and straightforward manner. Since Genus does not have an extensive IT department, this was an important condition. Even the approach to implementation was appealing, with the focus being on Genus personnel performing the implementation under the guidance of consultants. Through this process it is our employees who become in-house experts, rather than a team of external consultants implementing it for us and then exiting at the end, with little knowledge transfer to the users. The new system will increase transparency across the Group and enable a greater depth of financial understanding than has been achieved before. This will allow more time to be spent analysing the data rather than number crunching. We have been running live with Cognos for several months now and continue to see increasing benefits as each month passes and our knowledge of the system grows and spreads. We are still finessing the Business Intelligence reporting tool and there is more work to do, but overall we are very pleased with what we see and look forward to the benefits that will come. 18 GENUS Winter 2011/12 GENUS Winter 2011/12 19

11 BESUN PIPESTONE Global partnerships and the latest Chinese revolution Jerry Thompson, Genus General Manager for Russia and Asia Pacific, and Noel Williams, General Manager PIC North America, report on a successful global partnership with Besun Food Group and US based PIC customer Pipestone System in China Jerry Thompson Genus General Manager for Russia and Asia Pacific Noel Williams General Manager PIC North America China is home to half the world s pigs and the pork industry is developing fast. These changes are bringing opportunities both to PIC and to our overseas partners. The 48 million sows in China account for 50% of the global sow herd, more than double the herd size of the EU 27 and five times larger than the US herd. For the Chinese population of 1.3 billion people, pork remains firmly the meat of choice. Average annual pork consumption is in excess of 30kg/head this has been increasing at an annual rate of 2.5% over the last 10 years. Food security is a key objective for the Chinese government and it has implemented a series of measures to bring about rapid change. Ten years ago 75% of pig meat in China was produced by small holdings of less than 50 pigs, today that same backyard sector accounts for only 35% of meat produced. Following the recent melamine scandals in the milk industry, food safety Food security is a key objective for the Chinese government and they have implemented a series of measures to bring about rapid change is also vitally important for a government intent on securing enough domestic production to feed the nation. In the last five years over 20,000 small slaughterhouses have been closed and it is projected that by 2015 these units will handle less than 20% of meat sold. This rapid consolidation is leading towards the development of an integrated industry in China and major players are starting to emerge with a solid understanding of the entire pork value chain. A good example is the Besun Food Group based in Yangling, Shaanxi Province. The Group started producing and selling animal feed in 2006 and has in the last five years developed into a fully integrated pork operation with production capacity of 100,000 pigs per year. The pigs are slaughtered and processed at their facility in Yangling and distributed through their own network of 90 retail outlets. They have aggressive plans for expansion and construction of new farms is under way to achieve their initial target of 500,000 heads per year by As part of these plans PIC is currently stocking Besun s 4,500 sow high health breeding unit from one of its nucleus units in China. This farm will provide Besun with the breeding animals for the first stage of its expansion. As well as developing owned production capacity the group is also actively developing contracted production with smaller local farmers. Food security has to come first Speaking with Ms Yan, Besun s Chairperson, she explains the Group s basic philosophy: Hunger breeds discontent and so food security has to come first. Food safety is also of paramount importance and our mission at Besun is to provide safe pork products to our general consumers, she says. The two Chinese characters in the name Besun mean natural and flavoursome and that is exactly what we aim to achieve by controlling the entire pork chain, from feed milling, modern pig farms, state of the art slaughtering and processing facilities plus our own distribution and retail operations. We also have a duty to support the local rural communities and help smaller farmers increase their income which we are doing through our contracted raising scheme. We provide farmers with young pigs and feed and buy them back for slaughter. Mr Gao, CEO of Besun Group, goes on to explain that Yangling has a long historical association with agriculture. According to the Biography of Emperors, 4,000 years ago Houji was the first high ranking official in the history of China to be in charge of agriculture, he says. He taught people to produce crops here making Yangling the birthplace of the Chinese agricultural civilisation. This tradition of innovation is now being continued with the development of the Yangling Hi- Tech Agricultural Demonstration Zone, established in 1997 by the Shaanxi Provincial People s Government. The objective is to build a modern agricultural demonstration park where innovators will work on different ideas for developing agriculture. This initiative will play a key role in modernising the Chinese agricultural industry, including the arid and semi arid zones. Before embarking on the Besun project Ms Yan and Mr Gao spent time thoroughly researching the modern pig industry overseas and came into contact with members of Pipestone Swine Systems (PSS). The Pipestone team showed us the need to have healthy genetics combined with good management practices if we are to reach our target of Measurable value to our customers slaughtering 3.9 million pigs within 10 years, says Mr Gao. It was clear that we needed to align ourselves with a global leader in the genetics business rather than to run our own breeding operation. PIC is well established in China and we are working closely with them on the stocking of our 4,500 sow breeding farm. We are also very pleased to have signed a management contract with PSS for the management of our production operations. We now have monthly visits from members of Pipestone s senior management team during which they provide strategic advice as well as spending significant amounts of time training our own employees. In addition we have sent our own managers over to the US for training on the Pipestone farms and the first group have just returned. PSS roots date back to 1944 when Pipestone Vet Clinic was founded. It operated as a mixed animal clinic and continues to today with 14 veterinarians on staff. In the early 80s under the leadership of Dr Gerald Kennedy and Dr Gordon Spronk, the vet clinic increased their focus on the swine industry. They saw an opportunity to help swine producers improve their production with better health, management, and genetics. In 1990, the clinic built its first sow farm (Hiawatha Gilts Ltd.) which was a 700 sow farm producing PIC Camborough gilts for local producers. With increasing demand for PIC genetics they built a second gilt multiplier in In 1993, recognising the coming opportunity in artificial insemination and the ever increasing demand for PIC genetics, the clinic founded Pipestone Artificial Breeders (PAB). This was a 100 head exclusive PIC Gene Transfer Center. Since that time PAB has grown to over 1,700 boars on multiple sights and services over 250K sows with PIC semen. In the mid 90s the clinic began to be much more involved in the direct management of sow farms. The increasing size of farms meant improved management was needed to realise the genetic potential of the animals. In 2001, PSS bought a management company called SMS and began a rapid expansion into the direct farm management for producers who owned farms. These producers wanted the high health supply of PIC weaned pigs, but did not have the skills to manage the day to day operations of the large farrow to wean sow farms. Today, under the leadership of Dr Luke Minion, PSS directly manages over 140K sows for its producer members. Their services now include management, consulting, and marketing of the pigs from semen all the way to market. Today, Pipestone is seizing opportunities around the world with its new partnership with Besun Corporation. Under the leadership of Dr Minion and Dr Gordon Spronk, Pipestone is working with the Besun Group to manage its pig production operations as well as potential opportunities on semen distribution with the construction of a new stud. The Chinese market is moving fast and increasing consumer demand will continue to drive the expansion of these new integrated businesses. This offers a great opportunity for PIC as we demonstrate measurable value to our customers throughout the entire pork chain. With four nucleus farms already operating in China and two more due for completion in the very near future, PIC is set up to capitalise on this opportunity and to work with groups such as Besun and Pipestone to meet the ever increasing demand for high quality pig meat in China. 20 GENUS Winter 2011/12 GENUS Winter 2011/12 21

12 HOUSE OF LORDS MEETING OF MINDS Genus leads the way as Britain faces up to global objectives Stuart MacLennan, General Manager Bovine UK & Ireland, explains how Genus is taking the lead in the dialogue addressing the need for change in British agriculture to meet the challenges of global food production Stuart MacLennan General Manager Bovine UK & Ireland Time waits for no man, goes the age old adage. But as far as the future of mankind is concerned time may well be running out. Not for all of us, admittedly. But, if the population analysts have it right, for some. Gosh, what a melodramatic start! But the fact of the matter is that there are going to be 9 billion of us sharing the world s green and pleasant lands before long and we re not capable of producing enough food for them all just yet. Not only that, but with GM and other technologies currently being unacceptable in the EU, there is seemingly a groundswell of opinion against gearing-up agriculture to try to ensure we do have enough food for the future. There are twin goals at play here the need for intensification without intensification and they are at the opposite ends of the spectrum. In between there is (on the one hand) muddled thinking, questionable priorities, and shameful vested interests, but (on the other), a huge morale-swelling technological talent to improve, to produce more, and to deliver. Like it or not, the world s farmers must produce more, better quality food, from fewer resources. The clock is ticking... the debate has begun... and numerous organisations are talking loud and large about the issue (in the UK the most recent being the Foresight Report by the UK Government Office for Science in February 2011). But this doesn t mean the answers are within our grasp. Procrastination on the issues that matter means they still elude us. But one day soon the talking has to stop. Somebody has to act. In the UK, Genus started this process in December 2010 when it hosted a major industry forum in conjunction with Clydesdale Bank. The forum was held at the foundation of the nations democracy, the House of Lords, and brought together an influential cross-section of 50 of the leading dairy farmers, processors, farming organisations, processor groups, Government departments and retailers, as well as delegates from Genus and its consultancy arm named Promar. The objective was to focus thinking and discussion around the ways to improve productivity, profitability, sustainability and competitiveness and to facilitate discussions in order to shape the understanding among stakeholders of the way forward. As well as a number of technical presentations designed to place the issues in context, the forum heard contributions from HRH the Countess of Wessex and from Jim Paice (Minister of State for Agriculture and Food). It was a high level meeting indeed. The clock is ticking... the debate has begun... and numerous organisations are talking loud and large about the issue Delegates were told that, in the pig sector, the focus on genetics over 40 years had underpinned a 50% increase in piglets per sow, had resulted in a 33% reduction in feed use and a 50% reduction in manure output per kg of lean meat. Genetics had helped meet the global challenges of producing more from less, of protecting the environment, and of helping ensure sustainable farming systems, while reducing the cost to the consumer. It is a huge, largely unsung success story for the industry. The same is true for milk production carbon emissions from the dairy industry are down massively on what they used to be because of genetic, nutritional and technical progress. As a biotechnological company Genus is, of course, ideally placed to help respond to the challenge of protein food production by the application of its technologies, global research and its focus on creating solutions that help customers produce food. And the good news is that we have long started in the sectors we work with. In pigs, in dairy, and in beef we have, for many years, worked with a wide range of businesses and organisations from across the supply chain to develop these industries. We are now moving this activity to a new high level to encourage the creation of a sense of direction and urgency about what needs to happen in the future if we are to meet the challenges ahead. However, we recognise that no one business or part of the supply chain can take food supply to the next level and effect the change required. We are very aware that commercial solutions need to be found that benefit the full supply chain, and tick many boxes on the sustainability agenda. We are thus committed to holding constructive debate with other key supply chain players, from Government departments and agencies, to other suppliers of inputs, including banks, farmers, their representative organisations, processors, retailers, foodservice companies and consumers. We believe that only by companies coming together leading collective change, can the development of the farming systems of the future be made so that we will have a chance of meeting the global challenges that lie ahead. It won t be easy. But it is do-able. Companies like Genus have the brains, the commercial incentive and the research vision to ensure that the technology behind food production keeps up with the number of mouths we have to feed. Can the other parts of the production and distribution chain join in to achieve the industry change necessary? It is surely time to harness and exploit our joint talents and abilities, before we wake up one day to find that time has left us in its wake and that it is too late to make the difference that is required. 22 GENUS Winter 2011/12 GENUS Winter 2011/12 23

13 PIC PORTUGAL PIC PORTUGAL PIC genetics help major Portuguese pork producer & processor win national award This victory is not Raporal s but also of all the partners who are involved in this project This victory is not Raporal s but also of all the partners who are involved in this project, said Raporal Production Director Pedro Lagoa. Important amongst these is PIC. Ian Bond, Key Account Director PIC Europe, reports on the role PIC has played for Raporal Ian Bond Key Account Director, PIC Europe Amajor PIC customer, Raporal SA, was recently awarded the prestigious Portugal Winner 2010 in recognition of a successful project aimed at producing better quality pork. The award, sponsored by Intervet Schering-Plough, the Universidade Católica and the national newspaper Jornal O Público, rewards innovations in the area of animal production and health. Raporal is currently one of the three largest pork producers in Portugal, with over 10,000 PIC sows all produced from PIC breeding stock. Over the last few years, this dynamic Portuguese company has changed its approach to meat production, placing a far greater focus on the flavour of the finished product. In the course of this project, PIC focused on changing the genetic line in addition to supporting changes in the feed formulation and the environment where the animals are reared. The resulting meat, which is tastier and In this new product we have intramuscular fat, those veins in the middle of the meat, which avoids the need to add oil or other fats more tender, is being sold under the brand name Pingo Doce. Raporal has been a customer of PIC Portugal since 1990 and the close collaboration of the two companies was a fundamental factor in the success of this project. When Raporal started the discussions with Grupo Jerónimo Martins (JM), Portugal s largest fresh meat retailer and owner of the Pingo Doce brand, PIC expertise was a crucial factor in developing a meat quality line specifically aimed at the high-end Portuguese market. PIC s scientists were instrumental in working with Raporal and Pingo Doce to define the requirements of such a product and the PIC technical services team were involved from the outset, providing expert knowledge in the areas of genetics, nutrition and meat science. The boar used to produce the tastier pork is the PIC L16; a high meat quality Duroc line. Raporal has agreed that all pigs in the project must be sired by this PIC boar. In return, PIC has developed a Raporal index, which is used to select sires from within PIC s population that are best suited for the specific needs of the Pingo Doce project. PIC has had a presence in Portugal since the mid 1980s. Based in Lisbon, PIC Portugal works with many of the major producers in the country. Fat gives flavour In general, consumers prefer lean meat, but this is not ideal, explains Raporal director Nuno Ramalho. In this new product we have intramuscular fat, those veins in the middle of the meat, which avoids the need to add oil or other fats. In addition to the clearly defined genetic make-up of the pigs used, the facilities where the animals are raised have been improved and more vegetable fat included in their rations to produce a more natural flavour. The pigs are also slaughtered later than normal to encourage the deposition of intramuscular fat. Raporal was in a good position to carry out this innovative project, as its business covers the entire In five years, 100 million kg of meat is contracted, which means that every Portuguese person will eat, on average, 10 kg of pork a year by 2016 production process from the feed mill through production and slaughter to the final meat product. At present, the production volume of Raporal is still 45% of what was agreed in the contract, but in October, when it reaches full capacity, the company will produce between 350 and 400 tons of meat per week, amounting to 18 to 19 million kg per year. In five years, 100 million kg of meat is contracted, which means that every Portuguese person will eat, on average, 10 kg of pork a year by 2016, claims Mário Guarda, one of the directors of Raporal. In order to ensure the production quota demanded by Grupo JM, Raporal has agreed contracts with nine other smaller producers. 24 GENUS Winter 2011/12 GENUS Winter 2011/12 25

14 CBVPLUS PROGRAMME DELIVERING VALUE Delivering value to our customers At PIC North America, our motto is Never Stop Improving, says Noel Williams, General Manager PIC North America Noel Williams General Manager, PIC North America Various ways have been used to describe our approach to providing value to our customers, but over the past two years we have focused our efforts on delivering what we refer to as the Flywheel. This approach is described schematically in Figure1. With this approach, we demonstrate to our customers that our genetic improvement is world class and is superior to any competitor in the world. We then focus on measuring and demonstrating this product differentiation at the customer level. This includes validating our performance through competitor trials within customer systems as well as insuring that our technical services programmes allow full genetic potential of our products at the customer level. With this product performance, we must provide service and quality that is second to none in all aspects of customer interface including order fulfilment, transportation and any interaction with our customers. When these aspects of our business are fulfilled, we can price our genetic products to producers at a premium to the market and this fuels the Flywheel allowing us to continue investment in our genetic programmes and people that allow us to continue to deliver. During this business year, we have focused on an innovative strategy to deliver increased value to our customer called the CBVPlus programme. CBV refers to crossbred breeding values and it is an index we use to calculate the relative value of our boars we produce in our Figure 1. Flywheel This year, we have seen an increase of CBVPlus sales of over 400% and growth continues to accelerate nucleus farms. This value is unique to PIC in that it combines production performance from the Genus Nucleus Farms as well as from progeny performance captured in commercial environments from our GN crossbred programme. This is unique to PIC in that we are the only genetic company in the world that provides breeding values based on commercial performance. The CBVPlus Programme further differentiates our boar products from the competition because within this programme, we select the top 20% of boars ranked on CBV index and offer them to our producer. Depending on sire line product, we have demonstrated that progeny from CBVPlus sires deliver an additional $1.33 to $1.75 per pig more profit than the average boar from the PIC ranking. Additionally, CBVPlus category boars are certified as tested free of reciprocal translocations (RT) which is a rare but debilitating genetic defect that can result in a 50% reduction in litter size. The Genus Laboratory is one of the few facilities in the world that offers this service. One of the unique aspects of this programme is that we do price the programme relative to the value it provides. Customers pay PIC 1/3 of the economic advantage per pig that CBVPlus sires deliver. This typically ranges from $.30 to $.40 increase in royalty to PIC, but delivers the customer over $1.00 dollar per pig in greater value. The success of this programme focus has been dramatic this past year. With increased production costs due to higher input costs, producers are willingly applying technologies that improve production costs and increase revenue. This year, we have seen an increase of CBVPlus sales of over 400% and growth continues to accelerate. Because we Never Stop Improving, our customers realise the value that PIC genetics deliver and continues to strengthen our business. 26 GENUS Winter 2011/12

15 MARKET FOCUS MEXICO The pride of PIC PIC México Sales team with Kekén people and a contract producer Kekén production plant 2011 National Export Award being presented to Kekén by Mexican President Kekén takes pride in the quality of its pork and its relationships with PIC genetics The country s leading producer, Kekén, is an important Genus customer and its General Manager Claudio Freixes talked to Clarisse Chávez Theurel about how Genus has helped to improve its growth and profitability Clarisse Chávez Theurel Marketing Coordinator, PIC Mexico History Kekén takes its name from the Mayan word for pig. The company is based in the Yucatan Peninsula, which was the centre of the ancient Mayan civilisation (see below, right). The company was formed in 1984 by a group of farmers and entrepreneurs who began with a herd of 1,500 sows. Today it is part of KUO, a large corporation listed on the Mexican Stock Market, which also produces chemicals, plastics, car parts, food and aerospace businesses. Besides pig production, Kekén also manufactures animal feed and it will sell more than USD $300 million worth of additional products this year, a figure that has doubled in the last five years. Exports account for 25% of the company s sales. Amongst its international customers is Korea and Japan. In the domestic market, which makes up 35% of sales, Kekén has 150 of its own shops retailing fresh meat directly to its consumers. When we began operations over 20 years ago, we defined ourselves as swine producers, says Claudio Freixes. Today we import and export meat, build shops, work with supermarkets and incorporate partners in our production farms. We believe that you cannot be successful in the swine industry without co-ordinated vertical integration and a diversified business strategy. Strong, healthy pigs Mr Freixes says Genus PIC genetics thrive in our farming environment. Disease, such as Classical Swine Fever and Aujeszky s Disease, is minimal because we operate in the relative isolation of the Yucatan Peninsula. The excellent characteristics of this zone allow us to raise strong and healthy pigs that, after being processed in our world-class slaughter plants, provide a delicious, healthy and safe meat that can be sold in any country in the world, reaching the highest quality standards of our clients. Having said that, the hot, humid climate does offer difficult conditions for the intensive rearing, and the robustness of the PIC genetics help. As a result, it has been possible to achieve good results at low cost, through a combination of high health status, nutrition and the technical support from the PIC team. Today, almost all the activities at finishing are done by the farmers and by associated smaller producers who, together with Kekén, are able to comply with the requirements of the national and export markets, Mr Freixes says (DWG 750gr/day of life, FC 2.3, LW 120Kg, Mort. 1.3%). Kekén pigs Passion and pride The company employs 2,500 people directly and about 500 indirectly. Employees are proud to be part of an institution that is a model in the community, Mr Freixes says. They are very much involved in the process of making it more competitive, and bring passion and pride to their efforts. Kekén seeks its future executives among its staff, with the aim of allowing them to use their talents and realise their potential. Young professionals learn from their older, more experienced colleagues and under this effective leadership develop projects and achieve their goals. The management team sees participatory leadership as a vital contributor to its status as a model of integrated pork production and commercialisation in Mexico. Sustainability, in terms of social and environmental responsibility, is also a major part of the company philosophy. Its farms are required to treat the environment with care and imagination, for example by the use of biodigesters to produce methane gas which is used to generate electricity, and by growing Jatropha fields for biodiesel. Quality that crosses borders Kekén s contribution to Mexico s international standing through its exports, and to projects with economic, environmental and social benefits, has not gone unrecognised. In 2008 and 2009 it won awards from México Calidad Suprema (Mexico Supreme Quality). In 2009 it was acknowledged by the Mexican Company Council for International Trade, in 2010 the President of Mexico presented the company with the National Agro-food Award and were recently presented with the National Export Award by the Mexican President. Parent company KUO also recognised Kekén s achievements with an award for Value Creation last year. KUO has invested strongly in its subsidiary with the aim of setting the foundation for future growth in the productive base, feed plant, processing plant and shops. Kekén s mission statement is: To be leaders in pork production and commercialisation, looking for low costs and sustained growth, through the development of healthy products and services to satisfy our customers, with competent and committed personnel. Kekén concluded by saying Genus has always made business relationships successful because of its transparency and professional ethics and has achieved good availability with its products, all of which are widely competitive and available in the local market. Additionally we greatly appreciate the willingness of their professionals to assist us in diverse areas as genetics, health, meat processing, nutrition, handling etc. " Who were the Mayans? The Mayans were one of the most brilliant and powerful cultures in Mesoamerica, and their civilisation lasted for 3,000 years. They had the only know fully developed written language in the pre-columbian Americas and were skilled architects and mathematicians, daring traders and talented artists. Mayan influence is still evident today in Honduras, Guatemala, Northern El Salvador and central Mexico. 28 GENUS Winter 2011/12 GENUS Winter 2011/12 29

16 OUTLOOK FORESIGHT REPORT The Foresight Report an open response from Genus The UK government s Foresight Report isn t the first report to raise the issues that face the food sector. The challenge is to do something about them. By Stuart MacLennan, General Manager Bovine UK and Ireland Stuart MacLennan General Manager Bovine UK and Ireland The report from the Government Office for Science on the Future of Food and Farming, known as the Foresight Report, has been seen as a landmark document and rightly so. However, it is not the first report of its type. There have been a number; from FAPRI, FAO, USDA, the EU Commission, OECD, ABARE and others. Many of the messages of the Foresight Report are not especially new. Many of these were being talked about when reports such as Food Matters were published in These issues have been a long time coming. This is not to underestimate them. It seems as if we have plenty of analysis, but, as always, the real challenge is to do something about it. The UK and international agricultural and food production system has always responded, albeit at different speeds to changing market and policy demands, be it the pressure exerted on it from the CAP, the US Farm Bill, WTO, or that from leading food processors and retailers/foodservice companies. The reaction of commercial companies across the supply chain often drives change relatively quickly. Soaring commodity prices The issues on how we produce food might seem much clearer cut from the UK, especially from the point of view of consumers One of the responses around the world has been the creation of large-scale farms. Another response has been the call for greater levels of investment in both producing and processing. There have also been concerns over levels of self sufficiency, not least in the UK. These three factors are inextricably linked. It does seem however that the concept of large-scale livestock farming in the UK is in danger of being demonised before it even gets under way. The concerns of pressure groups, consumers and others in the supply chain are understandable and need to be addressed. It is a fallacy that only small farmers look after the welfare of their animals, particularly this view is held by pressure groups in the UK, and yet, to be profitable and efficient in any business must necessitate attention to welfare after all, you are looking after your assets, your future, if it is unwell, how can it be profitable, productive? Larger units only operate through efficiency, and efficiency means healthy well-kept animals. We have seen some excellent large-scale farms, and some poor small farms (and of course vice versa), in the UK and in other parts of the world too. We believe that in any farming system, there is room for all types of farms. If we are however serious about feeding a world of 9 billion, where natural resources will be put under pressure and food security is a real issue, some, but not all of these farms, will and actually need to be bigger than we typically see at present. The commercial response required to solve these problems means that some farmers might choose to go quite a bit bigger than the current norm. Big or small, the best farms we see Nine billion hungry consumers around the world share a number of common characteristics: a willingness to invest in high quality genetics and take outside advice on key issues, good management, a well developed understanding of market and an ability to think mid to long term. They are invariably, regardless of size, well organised, financed and produce high quality products that have a specific end customer in mind. They also produce at an appropriate scale, based on a combination of farmer aspiration and market reality. What do consumers want, not least in the UK? Good food, high quality, sustainable farming (but which for many, might be a difficult to define concept) all seem a given. For a high percentage, value for money is also still a key issue. It is also reasonable to assume that most would also want to see a world where millions of people do not go to bed hungry every night, where global food supplies are not threatened and the environment is first protected and then enhanced and high levels of animal The concerns of pressure groups, consumers and others in the supply chain are understandable and need to be addressed welfare are attained as the norm. That s quite a long shopping list of wants. Can large-scale farms contribute to these goals? Of course. Can small farms deliver all these factors alone? Probably not. There is a real danger that while as consumers we seem to want it all, we rule out the potential benefits that larger scale farms can bring to the supply chain. At the same time, we do not need to consign smaller farms to the history book. The issues on how we produce food might seem much clearer cut from the UK, especially from the point of view of consumers. Life in many other parts of the world is not as straightforward, either for many farmers or consumers. Not least, in this debate there is a need to consider the contribution of the UK in terms of feeding the world. Can the UK alone feed the 9 billion? No. Can we show at least some of the way forward and play our part in terms of encouraging investment in new farms and new ways of farming? Yes. This clearly might involve the use of new technologies from across the supply chain of which we should embrace on farms of whatever size. Doing something about the challenges we face is not least what Genus is committed to whether this is with big farms or small, in the UK or internationally. The biggest danger we might face is doing nothing in light of a strong evidence base about what the real issues we face over the next generation. 30 GENUS Winter 2011/12 GENUS Winter 2011/12 31

17 FOCUS ON INDIA ZEBU GENETICS Zebu genetics for India sourced from Brazil Brazil s Zebu type dairy cattle originally came from India. Now Genus plans to bring advanced genetics from Brazil back to India to help farmers there achieve much higher milk yields. Report from Albert Reurink, Director Genus India Albert Reurink Director Genus India The Zebu type cattle that form the majority of Brazilian herds were originally imported from India in the early 1900s. These indigenous Indian cattle were well adapted to the tropical climate and low levels of nutrition that prevailed in much of Brazilian agriculture at the time. The main Zebu breed is called the Gyr and has since been developed in two directions to provide both beef and milking strains, with the milking strain now boasting some impressive yields when compared with the original animals imported from India. Genus has contributed to these improvements by selective development in Brazil. Today, the stud has bulls whose progeny have superior milk production to those in the top animals in the national herd and so command market leading positions and premiums for the semen. Also, Genus has helped develop a crossbreed between a milking Gyr and a Holstein. This is a new breed called a Girolando. The hybrid vigour associated with crossbreeding produces an even higher milk yield than the standard Gyr while retaining many of the tropical resistance traits from the Gyr parent. A new product line for India? The adapted and enhanced Brazilian Gyr could enable Genus to provide a differentiated product line in the Indian market, now that it has an Indian stud in operation. Also, the introduction of the higher yielding Girolando could provide a step change in the potential of Indian dairy farming, over time and could provide Genus with a unique business advantage in India. Negotiations have already begun with the Indian government to agree an Export Health Certificate so that we will be able to transfer both semen and embryos from Brazil to create Brazilian Gyr bulls in India. Unfortunately, transferring live animals is not allowed so there will be a two year lead time before Brazilian genetics will be available to the Indian sales team. A further stumbling block is that the Indian Ministry of Agriculture requires that all semen donors be in the top 20% of the breed as measured by progeny test results for milk fat and protein and, unfortunately, there is no official PTA information in Brazil for protein as this is not routinely milk recorded. Genus India is already working with the Indian government to change the protocol and is seeing a political will on the Indian side to do this as the Minister can clearly see the benefits of the Brazilian Gyr. However, governments have a reputation for working slowly on these issues. In the meantime In the meantime, there will be no similar constraint on Genus creating Girolando branded crossbreeds from Indian animals and this will proceed as soon as possible. Genus India has sourced (the best available) local Gyrs and has produced the first Gyr x Holsteins at the stud this year. The oldest of these locally produced Girolandos is already approaching 12 months of age and should be producing semen in the 2012 financial year. Although not as genetically advanced as a Brazilian Gyr x Holstein, this locally produced Girolando will still have a strong yield increase over local Gyrs so that the semen will command a premium price and will allow the development of the Genus Girolando brand prior to the creation of improved animals from Brazilian genetics. There are also further Girolando pregnancies in progress at the stud so that Gyr heifers will be mated with US Holstein sires to make a new crop of improved Girolandos for the next year. Every effort is being made to get premium Gyr genetics from Brazil into India either as semen or embryos while, at the same time, developing Girolandos from Genus crossbreeding with the anticipation of further improved genetics from Brazil later. 32 GENUS Winter 2011/12 Brazilian Gyr Bulls

18 INSIGHT INSIGHT Key to success? Aim high, target, choose the right people, deliver on promises, continue to innovate... all in a day s work for Richard Wood Following the announcement that Richard Wood was retiring as chief executive after 14 years, Genus World asked John Marshall to interview both Richard Wood CEO Genus plc, and his successor, Karim Bitar. (JM) Richard, when you joined Genus it had recently been demerged from the old Milk Marketing Board. You initially floated it on OFEX, the junior share market, when its only shareholders were dairy farmers. Today Genus has evolved through AIM to become a FTSE 250 company with a top-flight institutional and private shareholding and a market cap of some 620 million. You have transformed a UK-centric business into a world-leading international company operating in 70 countries. In building the company you have created many job opportunities and made Genus a British success story. Congratulations. What has been the key to this success? (Richard) The old Milk Marketing Board was always wary of change and the UK market was constrained by the Milk Quota. I had to change the scope of the business. We had to give UK farmers the opportunity to produce milk more cheaply while internationalising the business. That has led to good careers for the staff of Genus and good returns for the expanding shareholder base. I inherited a R&D Programme with little in it. Now we have world-class R&D. The continued emphasis on R&D is the key to Genus future growth. No one thought that Genus would acquire ABS but that deal gave us a route to market in the rest of the world, an expanded technology base and additional high quality staff to help drive growth. (JM) Both Genus and Sygen decided it was necessary to move away from a dependence on just one market to a multi-specie strategy. Why did Genus succeed where they failed? I inherited a R&D programme with little in it. Now we have world-class R&D (Richard) We were both following a similar strategy eyeing up each other. Sygen was the more vocal but underperformed against its declared strategy. We preferred to play a waiting game. We never understood why Sygen bought a shrimp business as it did not produce any synergies with existing operations and was in an unsophisticated sector of agriculture. We were handicapped by the fact that Genus price earnings ratio was lower than Sygen s. However as they continued to underperform, the gap narrowed. As we drove growth our earnings and share price improved. Finally Sygen produced another set of poor results and we were given a three weeks exclusivity period in which to mount a bid. I suspect that the Sygen Board believed that Genus could not raise the funds. However we had good relations with Barclays who underwrote the total cost. It was a tremendously exciting three weeks!! Apart from extensive synergies, the Sygen deal gave us access to great technology in a new sector and we have added to this so that Genus genetics produce pigs with a $5 advantage over slaughter pigs using competing genetics. Our parent animals produce pigs that are more robust, grow faster and have better feed conversions. (JM) Having acquired Sygen, do you believe that Genus should enter the chicken industry? (Richard) Obviously we have considered this option and the benefits of further diversification remain. However, Genus is now a much bigger company so that the immediate synergy benefits would provide proportionately less to underpin the acquisition case but the chemistry for growth would be greater. (JM) What is the most important constituent of your legacy? (Richard) The wonderful team I leave behind. My colleagues have been transformed from intellectual giants with tremendous knowledge about genetics into becoming well-rounded businessmen. Everyone is hungry for success. At all levels the staff have made high level contributions and our internet university enables the whole team to learn more about business and how to be more successful in it. Genus is the only genetics company in the world of sufficient critical mass to self fund its growth in developing markets and this gives us a considerable competitive advantage. As a result, we are moving ahead of our competitors as the only international genetics company of repute. This year we have added bull studs in India and Russia and have expanded in China, we are the only international company with production nucleus farms for pigs in China and Russia. These will add high growth to the already rapidly growing investments made in Latin America. Genus has literally been transformed over the past 14 years and is unrivalled in the market place for its products, technology, market presence and the quality of its customer service. (JM) Before you joined Genus you had little experience of dealing with the City. Have you enjoyed meeting with analysts and fund managers? (Richard) I have learned a lot from dealing with the City, although it has occasionally been difficult to listen to a guy half my age telling me how to run Genus. I have always taken something back from those meetings and Genus has been changed for the better because of it. (JM) Richard, you obviously have huge energy. How do you plan to spend your retirement? (Richard) When I was offered the opportunity to join Genus my wife Nancy and I were sailing our boat to the Caribbean. I had to decide to turn back or sail on and I am so glad that I turned back. However, having accomplished what I set out to do at Genus, I would now like to finish that journey. I still have an active mind and would like to be associated with one or two exciting development companies. Indeed, I am talking to one or two of them at the moment. (JM) What is your valedictory message to your colleagues? (Richard) I know that I have been a pretty hard taskmaster, pushing people hard and demanding high standards. I hope my team will demonstrate the same loyalty and enthusiasm to Karim as they have shown to me. Introducing Genus plc s new CEO (JM) Karim, you are joining Genus after a successful career with McKinsey and large multinationals such as Johnson & Johnson and more latterly Eli Lilly. You were marked out for further promotion. What attracted you to Genus? (Karim) There are a number of good reasons for this. Genus has a huge opportunity in the market place. Increased urbanisation in the developing world and population growth will lead to an increased demand for food. This will lead to greater sales of meat and dairy products in countries such as Brazil, India and China which Genus will help to meet. In the developed world we spend some 8% of our income on food. In India the comparable figure is 45%; in China 30%. This underlines the scope for increased demand as real incomes grow in the developing world. Further, Genus appeals to me as a company. Genus is a leader in animal genetics. Being the pacemaker is very appealing. The company has a very strong technological platform which provides a firm base for further innovation. The Group s strong international operations are also attractive. Genus has a mission to put more food on the table which I find attractive. Genus has a fantastic opportunity to alleviate world hunger. It will be a huge privilege to lead the company as it prepares to fulfil that mission. It is also more exciting to work for a medium-sized organisation which is seeking to develop and grow than a large established corporation. I have always aspired to lead an organisation which can make a contribution to society. Genus gives me that opportunity. It provides the chance to create the next multinational which is an opportunity no one can refuse. Genus is a leading life sciences company which has much to offer Britain and the world. (JM) With your varied experience, what are the main strengths that you bring to Genus? (Karim) I have demonstrated an ability to lead, to rally the troops and make an impact in the market place. At McKinsey I developed strategic skills and an ability to solve problems. I have a very strong global perspective and speak several languages; my father was a UN diplomat which meant that we lived in several countries and, throughout my career, I have worked in China, Italy, the US, France, the UK and Turkey. I don t therefore need to live in a particular country to be able to understand its people s mindset. (JM) What will be your priorities when you become chief executive? (Karim) My number one priority will be getting to know the people. I plan to visit all the main sites this autumn so that I can get to know the people who are so key to the future success of Genus. That will help me develop an appreciation of where and how we want to compete. I am a huge believer in teamwork. These visits will help me to build a team to take Genus forward. (JM) New chief executives are often expected to produce strategic changes. With your McKinsey background the market will expect you to unveil an updated strategy next year. (Karim) I believe that it would be wrong to produce an early update. I would much prefer to take time to listen to my colleagues and assess the opportunities in the market places we operate in. I intend to update the market on strategy in the first half of Karim at home Karim is married to Arzu and they have three children twins Sarah and Sabrina, and Dani. He loves spending time with the kids. He enjoys teaching them sports such as tennis, soccer and skiing, and helping with their homework especially maths. He enjoys reading novels and historical biographies. He also loves going to the theatre to watch comedies and dramas. John Marshall John Marshall followed Genus from its privatisation originally as a stockbroker and then as a journalist with Shares where he worked from 1999 until last month. He worked as a stockbroking analyst specialising in the food sector for many years, was also an MEP from 1979 until 1999 and served as the MP for Hendon South from 1987 until GENUS Winter 2011/12 GENUS Winter 2011/12 35

19 RESULTS JOHN WORBY RESULTS JOHN WORBY Record results with pre-tax profits up 19% Genus Group Finance Director John Worby provides a summary of the Genus plc results announcement made to the London Stock Exchange in September 2011 Genus achieved a strong performance in the year to 30 June 2011, delivering record results with revenues up 9% to 309.9m and adjusted profit before tax increasing by 19% to 39.0m. The recovery in global agricultural markets that began to improve the genetics market in the first half of this year continued to progress. This led to improved demand for genetics from our customers, especially in Latin America and the USA. Genus achieved good volume growth in those markets but the Far East porcine market remained depressed until the final quarter and the European porcine market is yet to recover. Group Performance Genus achieved record results in the year to 30 June 2011 as recovery in agricultural markets continued: Adjusted profit before tax rose by 19% to 39.0m (2010: 32.9m) with growth in operating profits enhanced by lower interest costs. Revenue rose 9% to 309.9m and adjusted operating profit, including the contribution from joint ventures, increased by 7% to 45.3m: o Volume growth continued with bovine volumes up 11% and porcine volumes up 6% o North America and Latin America led the recovery with double digit profit increases o Strategic investment in research and development increased by 8% to 25.3m. The business achieved improved cash Adjusted results* Year ended 30 June Movement Actual Constant Currency Currency + m m % % Revenue Adjusted operating profit inc JVs Adjusted profit before tax Adjusted earnings per share (pence) * Adjusted operating profit, adjusted profit before tax and adjusted basic earnings per share measures are before net IAS 41 valuation movement on biological assets, amortisation of acquired intangible assets, share-based payment expense and exceptional items. + Constant currency percentage movements are calculated by restating 2011 results at the exchange rates applied in generation enabling debt to be reduced by 10m to below 70m. Good progress was made in laying the foundations for growth in developing markets including establishing local production: o Regional management was strengthened in both the Far East and Latin America regions o Bovine stud acquired in Russia became operational o Production and marketing of locally produced semen in India started o Strong volume growth in China in both bovine and porcine. The Americas Region The region had a successful year. Market improvements particularly in Latin America and the porcine sector in North America encouraged customers to invest in the genetics for their herds. As a result, sales across the region rose by 14% to 161.5m. This strong growth together with improved performance from US bovine led to a 13% increase in profits to 48.8m. Europe and Far East Region On sales up a modest 3%, profits were 4% lower at 25.8m. In Europe, profits were held back by the difficult market conditions for pig producers. The Far East benefited from growth in bovine but profitability was depressed until the final quarter by disease in the pig markets in China. Good progress was made with the strategy for growth in the Region. Research and Product Development Research and Product Development costs increased by 8% to 25.3m as we continued to invest in our product development programmes. Bovine product development rose as a result of the increased size of the bull development programme to provide capacity for anticipated growth. Porcine development costs increased as the use of genomics was further extended in the development programme. The benefits of these programmes continue to be seen in the improving quality of our products. A strong performance as recovery in agricultural markets continued Dividend The strength of the Group s performance is underpinned with a recommended 10% increase in the final dividend for the year to 13.3p. Subject to shareholder approval at the Company s AGM in November, this dividend will be paid on 25 November 2011 to shareholders on the register at the close of business on 11 November Share Price The Genus share price rose from 742p at the start of the year to 1,030p at 30 June Despite a subsequent reduction as global equity markets fell, the Genus share price has outperformed the all share index by 17% over the last 12 months and by more than 100% over the last five years. Outlook Despite the current economic uncertainties, by the end of Genus financial year, most global agricultural markets were considerably more favourable than a year ago and we expect these market conditions to continue. In July, US bovine sales were reduced by a heat wave in some states but this was offset by a much improved performance in our porcine business across the Far East. Overall trading has been in line with our expectations and we look forward confidently to another year of good growth. Looking further out, the Group s global footprint, investment in research and product development and industry leading product portfolio leave Genus well placed to continue to benefit from the long-term growth available in its global markets. 36 GENUS Winter 2011/12 GENUS Winter 2011/12 37

20 INTERVIEW KEITH HOPKINSON IT: making the business work IT people we love them, don t we? They re there when things go wrong, and we can t live without them, let alone do business! Keith Hopkinson, Chief Information Officer, gives an update on IT developments at Genus Keith Hopkinson Chief Information Officer But they re IT, right? Superbright, undoubtedly, but in unfathomable ways. They live in a world of their own, with their heads in computing clouds (as they call them), or buried deep in networks and servers, wireless this, LANline that. They re also not noted for their communication skills, dealing, as they do, in incomprehensible code. As for having a knack for business... well forget that! With all that in mind, then, step forward Keith Hopkinson Chief Information Officer at Genus and the top IT man in the business. Now bin all of those prejudicial typecasts he s none of the above. Instead of geek meet an extremely personable individual; for world of their own find a leader and team player; for head in the clouds read feet on the ground. As for the lack of business nous, meet someone who can talk the talk and walk the walk at any level be it at a technical IT level, or in The Boardroom, or to anyone throughout the business. An IT man he may be through role, through title, but he s the antithesis of the image that surrounds the IT crowd. That s largely because Keith Hopkinson is a man with a business head, who happens to know and understand IT, rather than being an IT man who knows about business. There s a big difference, he says. Keith s first job was to put a new strategy in place. A global business consultation was conducted, culminating in a four-day think tank lockin with his fellow IT managers. From that came the new IT strategy. Investment followed in new computers, new business systems, and the renegotiation of contracts. First off was a major investment in High Performance Computing to process data for genetic evaluation. Normally used by top universities to carry out research, the High Performance Computing System was introduced into the Genus Science Group to manage the rapid growth of genetic analysis in both the porcine and the bovine businesses. The computers allow fast access and retrieval of data and provide a storage capacity of over 20 terabytes (that s the equivalent of over 500 PCs!) This increased capacity has permitted Genus to handle much greater amounts of information, allowing the use of more complex statistical models for estimation of genetic merit. These advances have been especially important for the rapid analysis of molecular data, where Genus has accumulated over 750 million data points in the last nine months! A new global Customer Relationship Management system is being rolled out to all sales regions, giving sales personnel fingertip information on matters like customer contacts, sales history, and leads. Most obvious to grass roots employees will be new equipment and software for a new global system, with messaging and video conferencing facilities all of which have come, or will be coming, to an office near you helping to bring all closer together as a single business. Behind the scenes there have been some big changes too. A major project was carried out to create a new global data centre in Madison, Wisconsin, USA with a secondary back-up site in Minneapolis, Minnesota. Summed up, it all sounds simple, but behind the scenes was a massive logistical project involving system relocation from the old data centre in Nashville, Tennessee and the commissioning of new equipment in the new locations. And all of it had to be carried out with no interruption to the business. That it was all achieved flawlessly was a massive achievement for the business and he gives great credit to everyone in his team for making it happen. It was one of the best run projects I have ever been involved in, he says. That s some compliment he s undoubtedly been involved in a few. Already his team have moved onto the next big challenge, and it s one which will bring by far the biggest benefits, he says. Called the Business Information Programme, this aims to deliver better information to those making the key business decisions, and faster. There ll be better integration, consolidation and cohesion between IT systems throughout the business. There will be less time taken to collate data, leaving more time to analyse it, he insists. There is massive scope to improve processes, efficiencies and outcomes, and huge potential for IT to help people achieve more and better within every aspect of the Genus business. Genus employees around the world will, therefore, be seeing a lot more of the Genus IT team, and Keith Hopkinson, going forward. But that will be all for the better. Most obvious to grass roots employees will be new equipment and software for a new global system, with messaging and video conferencing facilities all of which have come, or will be coming, to an office near you Thanks to his leadership, experience and unique perspective his team clearly understand the business, and individual s roles, requirements and objectives within it, and are facilitating strategies to improve, simplify and add value to every part of the business. There won t be an unfathomable geek in sight! Keith s profile An engineer by training, Keith s early career saw him gain extensive experience in operations at Cargill. It taught him a great deal not least that IT people were good at IT, but often ignorant of business and fairly lousy at the project management skills that went with it. Equally he learned that those at the sharp end of business knew little of IT. Neither side understood each other. He duly set about changing that, and wrote a management guide for the firm. They d seen nothing like it before... loved it... and before long he found himself working in an IT capacity at Cargill s US HQ. The marriage of business and IT proved a happy one, he says. I learnt to talk both languages. In 1998 he returned as head of IT for Cargill Foods UK, with special responsibility for the looming, dooming, Millennium (Y2K) bug. He stayed for three years before leaving to take an Operating Board position at IMI- Norgren Ltd. Being engaged at the sharp end of the business was, he says, just what I wanted in my career saw him take the top IT role at Genus. 38 GENUS Winter 2011/12 GENUS Winter 2011/12 39

21 IN FOCUS Genus Latin America: consistent and solid growth Latin America has a huge potential for the production of animal protein, says Ricardo Campos, General Manager Genus Latin America Ricardo Campos and Marcio Nery LATIN AMERICA ABS Pecplan bull stud Ricardo Campos General Manager, Genus Latin America Forty per cent of the cattle in the world s top five cattle countries are in Latin America. Furthermore, several countries in the region have made great strides in pig and cattle production efficiency. To capture the potential of Latin America, Genus has adapted its pig and cattle business models to provide a more flexible approach to customer needs. This successful strategy has created high growth and regional success for the company by operating local businesses with local production tailored to the customer needs but supported by Genus world-class technology and corporate research and development. Since 2004 we have opened four new Genus subsidiaries in Latin America (Argentina, Chile, Colombia and Uruguay), adding 64 new employees in these strategically located countries with a high productive potential for both meat and milk. Genus companies in Latin America have seen business profits more than double in the past five years. We have become a region with a high level of dynamism and growth, changing the paradigm of it s a region with a future to the future is now. The expected FY 2011 profit for all Genus Latin America subsidiaries, combining the cattle and pig businesses, is $25 million. Our employees take great pride in belonging to companies in the Genus Group. It is with this enthusiasm that they comment below on their companies achievements, illustrating some business highlights. Sales growth in bovine genetics ABS Pecplan is the Brazilian bovine unit for the Group, the only one of our Latin American businesses with a bull stud. Located in Uberaba in the state of Minas Gerais, the stud holds 120 bulls. The company currently has 97 employees and 72 representatives spread throughout the country. According to the Director General, Marcio Nery, five years ago the focus was on growing ABS Pecplan s market share in Brazil, but the company lacked sound programs and tools to differentiate it from competitors. Today, while we still have a continued focus on growing market share, the primary objective is to build a profitable business; a strategy based on exclusive programmes and an indisputable genetic leadership. Innovation has always been part of the DNA of our company: technical programs, technologies such as sexed semen, FTAI (Fixed Time Artificial Insemination), Fertility Plus and even the Genus University, are all clear examples", he said. He continued: Currently we sell more than two million doses of semen a year with a 20% profit per dose, yet the goal is to double turnover over the next five years, taking advantage of the enormous potential and size of the country, the largest in Latin America, using genetic quality and technical services as tools to increase customer loyalty and blend. ABS Chile was founded in 2004 through the purchase of our then franchise. The General Manager, Alejandro Luco, comments on the growth in market share from 20% at the time of the acquisition to the current 33%. New salespeople were hired to work in southern Chile with a focus on technical services such as GMS (Genetic Management System for dairy), positively impacting sales growth. We are a business unit very happy to be able to offer services commensurate with the global size and reach of Genus. We intend to continue growing, becoming a recognised player in the dairy and beef cattle industries, a company that adds value to its customers and improves their profitability. All of us in ABS Chile are proud of these achievements, says Alejandro. Dr Luis Gonzalez, General Manager of ABS Mexico, says that six years ago the company sold 425,000 doses of semen, with revenues of $4.8 million. Currently the volume exceeds 724,000 doses (a market share of 41%) with total sales of $8,500,000. He goes on to state This result owes much to our expansion of the technical services that we offer, especially our extensive use of GMS. Recently we exceeded 560,000 cows evaluated with over 165 clients accessing our technical Maximise your production! A joint advertisement between ABS Uruguay and Frigorico Las Piedras, which runs monthly in the Uruguayan beef producers trade magazines services. The advantage of having business units across Latin America is that it allows us to manage the business across the region, without intermediaries, being able to make decisions rapidly to improve profitability and market share. Growth should remain strong; especially now that we have sufficient volume of semen from top Holstein bulls and other breeds, as well as increased ease of import and export within our region. In 2006 ABS Uruguay was just a distributor of ABS semen with a modest market share that hovered around 7%. Recently, according to General Manager Marcelo Baggio, sales have reached 110,000 doses per year with higher sales prices and profitability, achieving a market share of over 23%. In 2007 the company became a wholly-owned subsidiary of ABS. Without doubt our technical services, which are free to customers, allow us to attract new clients, as well as maintaining the loyalty of existing customers. We are confident of achieving a profitability of $500,000 per year, aiming to reach 200,000 doses annually over the next five years. To do this we will be hiring new salespeople and working together with technicians from other countries in programmes such as ABS Pecplan s GMS, and Technical Services from ABS ABS technical service team in action Chile. Synchrony with global and regional policies is the key to success, confirms Baggio. Eduardo Echenique, the General Manager of ABS Argentina, says that in 2005, his first year working for ABS Argentina, the company sold 170,000 doses of semen and had five salespeople. This year sales have maintained strong growth and will exceed 535,000 units with a team of 27 salespeople. This impressive increase in sales volume, coupled with a low fixed cost structure resulted in an increase in operating profit of 70%. Latin America is the region that has the potential and gives us all the conditions to continue growing in a safe and steady way. ABS is a global leader; its business units presence in the region demonstrates our strong commitment to regional producers. Prospects are excellent and we will continue on track attests Eduardo. Growth at a strong pace in porcine genetics Many readers may be surprised to learn that, as is also the case in North America, over half the Genus Latin America profits come from our pig genetics companies. Alexandre Furtado da Rosa is the General Manager of Agroceres PIC in Brazil, a business in which Genus owns 49%. He says PIC Mexico in a roadshow that some years ago, the company was more focused on growth in sales volume, revenue and market share. Today we focus much more on business quality than just on selling the largest volume. Analysing the evolution of our market share and our profit over that period, we can easily see that the profitability of our operation has grown at least 50% more than the growth in share he explains. More recent strategies to concentrate sales in the indirect model via royalties for weaned pigs, investment in Liquid Genetics (sales of semen), and de-linking the slaughter price from product margins, among others, are leveraging strong gains in profitability without a proportional increase in expenses, which is highly positive. Today we are a company growing in a stronger and more coordinated way. Areas key for the future will be continuous updating and disseminating of genetics from the USA, the structure and health status of the multiplication pyramid, the logistics of customer service, technical services and exclusive service to key accounts. These guidelines were completely redesigned and are now perfectly aligned with our commitment to grow profit by 60% over the next five years. In the markets where Agroceres PIC operates (Brazil and Argentina) the 40 GENUS Winter 2011/12 GENUS Winter 2011/12 41

22 LATIN AMERICA company sets the standard for technology, innovation and technical knowledge of the various links that make up the value chain of swine production. The company provides full technical advice, whether for new investors in the sector or for those who simply want to expand their current systems. The advice covers virtually all stages of production including the pork processing industry. We provide services all the way from a civil engineering department for farm building projects through to more specific services such as farm manpower training, technical audits of pre-harvest handling of pigs or even assessment of procedures at slaughter that directly impact pork quality. No competitor offers such a breadth of services, explains Alexandre. Brazil and Argentina are emerging and very important markets with respect to global production of grains and meats so that the potential for growth is even greater. The main competitive advantages of the region for growth in swine production include land availability, supply of grain, ample water availability, access to skilled professionals and few environmental constraints. Brazilian farms also use biodigesters that generate clean power and sell carbon credits on the international market. Also, Brazil and Argentina have large domestic populations. There are 240 million people between the two countries and this has resulted in growth in domestic pork consumption of 30% over the past five years. Additionally, these countries are very competitive in terms of production costs. Alexandre goes on to say: The two countries will increasingly become an ever more important platform for exporting meats to the world. It is good to know that PIC and Genus are well positioned in these markets; we will certainly gain greatly with the growth that is coming. The year 2011 has been a very good period for Agroceres PIC, especially as prices have been leveraged by the growth in domestic consumption and tight pig supply. For the coming fiscal year, the company expects customers will continue to have positive profit margins, but they will face more pressure on production costs, primarily from the higher cost of grain and labour. To offset this they will want to use the high feed conversion genetics supplied by Genus. The market has been consolidating steadily over the last three to four years with a high concentration of players in the vertically integrated agribusiness sector, and with relatively few new investors but this will change as world economies improve. Barriers to entry are much higher today when compared with 10 years ago. However, today's producers, especially those that are more competitive, feel confident and encouraged to expand and adopt more technology, to be more innovative. And in that field, we are unbeatable. Among Brazilian producers we are Top of Mind as suppliers of the best solutions for the pig production chain. Much more than a genetics company, we are seen as partners with our customers, truly committed to the success and profitability of their operations. In Brazil and Argentina the future has arrived and fortunately we are an active part of it, summarises Furtado. We have established local multiplication in Chile (a Production Nucleus of 600 sows), and doubled the capacity of the Production Nucleus in Colombia by adding 500 females Martin Perez, Director of PIC Mexico, has good reason to feel the same optimism. Its market share grew from 33% in 2006 to 46% in Among the strategies for growth are a strong decoupling of the direct model of selling, switching to customer-focused technical services to improve customer productivity and launching new programmes for genetic dissemination such as PICPlus and Liquid Genetics. We also have excellent business relationships, customers who see in PIC a partner or supplier of high reliability. We are present inside most of the 13 producer groups that represent more than 50% of the pig market. Our differentiation and competitive advantage is to provide high quality products produced at lower cost than our competitors, says Martin. The profitability of our business in Mexico has doubled in the last five years and the prospect is 20% additional growth in 2012 compared to the current fiscal year. PIC Andina, under General Manager Patricio Vidal, is responsible for PIC s business in the six Andean countries near to Chile. In 2006 PIC Andina s market share, calculated as Sow Share, was 53%. For FY11 it is estimated it will reach 63% when calculated as Market Pig Equivalents (MPE), which would be equivalent to a 58% Sow Share. We have established local multiplication in Chile (a Production Nucleus of 600 sows), and doubled the capacity of the Production Nucleus in Colombia by adding 500 females. We have accelerated the process of changing the business model to royalties and the proportion has increased from 45% to 66%. In addition, PIC Andina implemented a model for genetic dissemination via Liquid Genetics and placed strong emphasis on the concept of Total Value. We have also set up a company in Venezuela, with, like other PIC companies in the region, technical assistance programmes as part of the genetic package, giving support to our customers all along the production chain; this helps retain customers and attract new accounts. Within the next two years we envisage strong growth, given that most of the market leading producers are PIC customers. We are changing the business model to charge for productivity, so that expectations are for very good profit growth of 19% per year over the next four years, he concludes. In the global context, the correct distribution of Genus capital resources is extremely important and understandable. The tremendous potential of countries like Russia, China and India as well as the US, have challenged our managers to demonstrate that Latin America can maximise the process of converting potential into reality, constantly improving its competitiveness. We believe that we have proved this can be done. Genus Latin America has been able to increase its presence in the region with one common goal: to accelerate the process of capturing opportunities and turning them into sustainable growth. Leading the revolution in global pork production 42 GENUS Winter 2011/12 Genus powering productivity improvement in the global food chain

23 Leading the revolution in global milk production Genus powering productivity improvement in the global food chain