February 22, 2012

 

Genus sets sights for Asian livestock sector

 

 

Genus has serious consideration about opportunities in the livestock sectors of developing countries, in particular China's pig industry, as the animal genetics group unveiled a 27% increase in profits, boosted by growth within Asia.

 

Karim Bitar, appointed Genus chief executive in September, said that the early results of a strategic review he implemented had revealed "very significant" opportunities for supporting livestock farmers' efforts to boost productivity, in the face of "fine land, water and energy resources".

 

"The opportunity to perform this role in the pork, beef and dairy markets is very significant indeed, especially in developing markets in general and the BRIC countries (Brazil, Russia, India and China) in particular," Bitar said.

 

The pig genetics market in China was "at an inflection point", he said, stressing that Genus should "act promptly to take full advantage" of opportunities, "and as a result, accelerate the long-term growth that the group is able to achieve".

 

The comments come the day after Mark Post, a Dutch stem cell scientist, highlighted the potential for a long-term squeeze in meat supplies in revealing that he had grown strips of muscle tissue in the laboratory, with the aim of creating the world's first "test-tube burger".

 

China's pork supplies in particular have come under scrutiny thanks to its growing appetite for the meat, which has cost the country its historic self-sufficiency.

 

Indeed, Chinese pork imports more than doubled, to 500,000 tonnes, between 2009 and 2011, according to US data.

 

The Chinese government has introduced a range of initiatives, from sow subsidies to income tax breaks, in an effort to help domestic producers, facing feed costs higher than other exporting countries, such as the US.

 

The Chinese hog industry is already by far the world's largest, accounting for some 60% of the world herd.

 

Its intensity was highlighted by an USDA report last week, which noted a density of nearly one hog per acre of cropland, compared with 0.2 hogs per acre in America.

 

China's swine market played a large part in doubling to GBP6.3 million (US$10 million) Genus's operating profits in Asia in the July-to-December half, on revenues up 57% at GBP26.3 million (US$42 million).

 

"In China, good progress was made in establishing relationships with major pig producers… and profitability benefited from the high pig prices that prevailed for most of the period," the group said.

 

Other regions recorded slower growth, including Latin America, where profits growth was limited to 1.2% by the impact of export restrictions in Brazil, which prompted a pig market "oversupply", forcing down prices.

 

"With pig prices rising recently, we expect improved performance (in Brazil) in the second half."

 

In Europe, the continuing losses in a pig sector unable to pass on in full higher feed costs, prompted "weak" demand for Genus products, and driving regional operating profits 7.9% lower to GBP9.5 million (US$15 million).

 

The group said it had already revamped its German sales force "to address the weak market", and was considering "further restructuring in Europe".

 

Helped by the Asian growth, underlying group operating profits rose 22% to GBP23.3 million (US$37 million), on sales up 8.9% at GBP166.9 million (US$264 million).

 

The results were welcomed as "strong" by Panmure Gordon analyst, Graham Jones, who restated a "buy" recommendation on Genus shares, with a 1225p target.

 

The stock closed up 1.6% at 1127p in London.

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