How Genus became a global success story

The senior panel of judges for this year’s Food & Farming Industry Awards chose to make a special presentation to former Genus CEO Richard Wood in recognition of his outstanding contribution to the business of agriculture. He talks to Chris Lyddon about how Genus became an international success story under his watch

Richard Wood took Genus, a company that was turning over £35 million a year and operating only in the UK, and turned it into a global leader in technology with annual sales of around £350m. His success has been recognised by an array of accolades, culminating this year with a lifetime achievement award from Deloitte as CEO of the Year.

Mr Wood retired from his role as chief executive in September. Farm Business asked him how he had gone about building Genus and what the agricultural industry needs to do to face the challenges of the future.

He was called in to lead Genus at the end of 1996 after it had been privatised as part of the break-up of the Milk Marketing Board.

“Genus was then just a service company run by people who were quasi civil servants,” he recalls. “They’d been operating the company in the way that a cooperative would, offering the cheapest price but not the best value.

“No one was thinking about how to add value and how to help customers add value in their farms. I saw Genus then as being a distribution vehicle with no value-added products that could improve the productivity of farming.

“So we set up the research and development to change that. It was an interesting period. The Milk Marketing Board (MMB) had believed it had a breeding programme, but it was for pure
Holsteins and separately for pure Friesians.

“My colleague Steve Amies had persuaded the MMB that the rest of the world’s dairy farming had become more productive by using crossbreds so the board had taken the wrong approach,” says Mr Wood. “All the animals in the breeding programme had to be slaughtered and we had to start again.

“Because the gestation period was in excess of five years, we had to find a way of invigorating the company in the meantime. We became involved in distributing veterinary products. We even had a small animal veterinary pharmaceutical business. But that was a transitional period.

“We talked about us having the artificial insemination leg and a research and development leg, and we thought the business needed a third leg, because a three-legged stool doesn’t fall over, and our third leg was the veterinary business.”

He praises the support he got from his first board. “They could have had a much more comfy life but they wanted change and appointed a maverick to get it,” he says.

“They were forward thinking. There was some concern about being too aggressive and free-thinking in a traditional farming business, but the chairman managed to carry unanimously the direction in which we went. It was up to me and the Genus team to make it work.”

Even more free thinking was involved when it came to the acquisition of ABS, the American company that would provide Genus with global reach.

“ABS had a larger turnover than us,” Mr Wood points out. “Its profitability was quite poor and this needed to be turned round. We had to persuade the banks to fund that acquisition and they were aware that many UK companies have failed by overstretching themselves.

“We clinched the deal and helped restructure the share register with the help of the NFU Mutual, and changed to Barclays Bank. Genus raised £10m of new equity from institutional investors and extended its debt in order to buy a company that was larger and more diverse than Genus.

“That then left us with a management task, the integration of an international company with a small UK business, but with Genus in charge! Our success came down to the quality of the Genus team.”

Genus managers were excited by the challenge. They felt as though they could be achievers and rose to the occasion, he points out.

“They also won the admiration of the ABS staff and we added new friends and colleagues to the Genus team. With the deal done the Genus share price began to firm, so we gave our smaller shareholders the opportunity to sell the shares given to them at the privatisation. At that time we had 26,000 customer farmer shareholders.

“Inevitably some of them were interested in what Genus was doing, but some just had the certificate on the mantelpiece behind the clock and were not looking at their shares as a pension investment.

“Until we involved the institutions in the share register there was no real market for the shares. Nobody was buying or selling, so the price was flat.

“To improve matters Genus bought back shares through a broker and placed them with institutional holders, with the biggest then being the NFU Mutual that provides assurance and pensions for farmers,” Mr Wood explains. “The NFU has been a tremendous supporter of Genus and it’s been good for NFU Mutual and its farmer customers as the value of its holding has risen tenfold.”

The next big step was the takeover of the world-leading pig breeding company PIC.

“I had always believed that with the right research and development we could create a world-class company by providing synergies with the bovine business. The PIC management thought so too,” says Mr Wood. “They courted us and we courted them but the best guys won. To do the deal we needed £187m and Genus had a market capitalisation of just £100m. How could we do it and in just the 21 days given to us by the PIC board?

“The money eventually came from the sale of the veterinary business, an institutional fundraising and increased bank debt, but the interim was underwritten by Barclays. Barclays felt we had handled the ABS deal well, realised our R&D was being successful and decided to back what it saw as a winning management team.

“The deal turned out to be a mega success, and profits rose from the synergies achieved, the chemistry between the businesses and the potential in the international markets. The high level of debt was quickly driven down. With this success the share price rose to peak at £11.17 in 2011 and made the Genus investment a market leader at a time when stock markets had fallen because of the world economic problems. In 1996, when we began, the share price was just 50p!”

Looking forward, Mr Wood says: “For years the Chinese had a subsistence diet of rice. Now, as they are becoming more wealthy and moving to urban conurbations, the Chinese people want more protein in their diet. They enjoy an ice cream on a hot day. They like to have yoghurt on the breakfast table. Pigmeat is their favourite delicacy. We may have turkey on Christmas Day but if the Chinese want a celebration at Chinese New Year they want to eat pigmeat.”

With this change moving quickly forward, China’s government is concerned to make sure the right food becomes available without increasing prices.

“That’s a very difficult thing to achieve,” Mr Wood points out. But he welcomes the challenge. “We’re in a changing world and I’m sure I would rather be managing a situation where things are getting better.”

In Britain, government thinking has been dominated by a desire to keep farming subsidies and its contributions to the CAP as low as possible. “It hasn’t been forward thinking in its agricultural policy in the way China has to be or the way Brazil has been embracing the opportunities of international agriculture and realising that land, water, fuel resources etc are limited and the population is growing and appetites are changing.”

Producing food has become more expensive in the UK and Europe than it has in the US and Latin America, and people in Britain are now eating a diet of 50% imported food. “That’s not good for the country or the environment,” Mr Wood asserts. He advises the Government on sustainable agriculture. “They need to look at modernising commodity British farming as opposed to trying to make it recess into speciality farming niches. For instance, in China the government has a belief that it must feed the people before it worries about the aesthetics of farming.

“While we’ve been holding back from change in Europe, Brazil has achieved a tremendous amount of agricultural change,” he says.

“I’ve been impressed by the country’s brave attitude. It did away with all farming subsidies and challenged farmers to change and meet international business opportunities. Now, everybody will argue that Brazil has a much bigger land mass, probably has lower labour costs and its water is in abundance, but that’s a fact of life.

“If I were to go to the City and say to an investor, ‘Genus’ profit growth will be a bit difficult this year because of the recession’, they would say, ‘fine, we will invest in another company’!

“It’s good to have choices as it drives successful change. What the UK and Europe needs to understand is that the majority of the rest of the world is increasing its farming scale and productivity,” Mr Wood warns. “People in many of those countries don’t have the luxury or ability to pay more for their food. If one prevents British farmers from becoming world-class by insisting on costly controls and stopping the setting up of global scale production, UK food prices will continue to rise more than elsewhere and carbon consuming imports will rise even more than they have already.

“If change is not introduced soon, I believe British farming may find itself in the situation Genus did when it had to slaughter the animals and start again!”