Shares in Genus tumbled after the group unveiled a
larger-than-expected drop in profits, hurt by the knock-on effects of factors
from "extreme weather" in Latin America to poor dairy margins in Australia.
The livestock genetics group reported earnings for the year
to June down 30% at £38.1m, on revenues up 1.0% at £345.3m.
While the decline was largely down to one-off factors, such
as adjustments in valuations of its herd, the fall was bigger than that
forecast by analysts, who had expected profits of £55.1m.
Even excluding one-time effects, growth of 1.5% to £47.2m
underlying pre-tax profits fell short of expectations of many investors.
Karim Bitar, the Genus chief executive, said that market conditions
were "made challenging by high feed costs" which pressed margins at its
customers, beef, dairy and pig farmers worldwide.
In the Americas and Europe, the dairy and beef operations "had
a difficult year", Genus said, riding out "a combination of adverse weather
conditions, particularly in Latin America, and lower milk prices, affecting the
demand for dairy semen".
In Latin America, "extreme weather conditions affected
customers", driving volumes down 6%, with trade in Brazil, "where the beef
breeding season was affected", falling 10%.
In pig genetics, North America proved "very challenging, with
high feed prices and low slaughter prices pushing the industry into losses".
The Asian division proved a better performer, helped by a
38% jump in operating profits in China, which offset slower trade in some other
markets, such as Australian dairy.
Genus said: "Australian milk prices were low through the
year, with many producers struggling. As a consequence, there has been less
spend on breeding programmes."
Mr Bitar forecast a fillip to the group's prospects from the
decline in grain prices from 2012 highs, boosting hopes for livestock sector
"Good harvests are predicted in the northern hemisphere
which should result in lower input costs and an improvement in profitability in
the dairy, beef and porcine industries," he said.
"We expect this to lead to a gradual improvement in market
conditions for our customers and demand for our products," with prospects
improving particularly in 2014.
"I am confident that 2014 will be a year of accelerating
progress, both operationally and financially," he said.
The outlook reassured Panmure Gordon, which raised its
target price on Genus shares to 1500p from 1250p, despite saying the results
had fallen short of its expectations.
"With an improving outlook and a return to more typical
mid-teens earnings growth we move our recommendation from sell to hold and
increase our price target to 1500p," Panmure analyst Damian McNeela said.
However, Genus shares tumbled to close at 1348p in London, a
drop of 8.9%.