Interim Results
Genus PLC
17 November 2004
FOR IMMEDIATE RELEASE 17th November 2004
GENUS plc
Interim Results for the six months ended 30 September 2004
Genus plc, the Global Bovine Genetics company announces interim results for the
six months to 30 September 2004.
Group Highlights Six months to 30 Six months to 30 Change
Sept 2004 Sept 2003
Turnover £91.1m £93.5m -3%
Operating Profit £4.8m £3.9m +25%
Profit before Tax £4.4m £3.2m +35%
Profit after Tax £2.8m £1.9m +45%
Basic EPS 7.9p 5.8p +36%
Net Debt £11.7m £16.9m -31%
Net Gearing 21% 35% -40%
• Group
- Operating profit up 25% to £4.8m (2003: £3.9m).
- Profit before tax up 35% to £4.4m (2003: £3.2m).
- Basic EPS up 36% to 7.9p (2003: 5.8p).
• Bovine Genetics Division
- Volume up 4%; market share increased in the large USA and UK markets.
- Turnover increased 4% in constant currency (1% in sterling, after
translation losses).
- Semen prices remained steady after returning to more normal levels in
improved market conditions first established in the second half of last
year.
- Operating profit before goodwill amortisation up 14% in constant currency
(8% after exchange impact).
- Sexed semen sales trials commenced in Brazil in August.
• Animal Health & Consultancy Divisions
- Planned reduction of low margin bulk trading in veterinary products
decreased sales by £2.7m but gross margin improved.
- Animal Health operating profit increased by 27% to £0.9m (2003:£0.7m).
- Development Consultancy continuing operating profit increased by 12% to
£0.38m (2003: £0.34m) on turnover up 6%.
Commenting on prospects, Richard Wood, Chief Executive, said:-
'Yet another strong set of results. First half trading progressed in the
improved market conditions which were evident late last year. The main selling
season for Bovine Genetics has now begun. Order levels are buoyant,
particularly in the USA. The new top UK-bred bull called 'Picston Shottle' is
now sold out until April 2005. The Bovine Genetics business is seasonally
second half weighted.'
'Overall we believe the company is well placed to meet its targets this year
while offering the potential for further growth next year'.
Contact:
Richard Wood Chief Executive Tel: 01256 347101
David Timmins Finance Director Tel: 01256 347102
Charles Ryland/Suzanne Brocks Tel: 020 7466 5000
Buchanan Communications Limited
Chairman's Statement
In this my first statement to shareholders as the new Chairman of Genus plc, I
am pleased to be able to report continued strong profit growth for the first six
months of the financial year.
As we predicted, the improved market conditions for Bovine Genetics, first
established in the second half of last year, have continued. This provided a
good start in all major markets as the Bovine Genetics business moved into its
main selling season, which began in September.
Although market conditions for the Animal Health Division were highly
competitive, the Division was able to improve the quality of its earnings by the
planned reduction of some high volume, low margin bulk trade business. The
residual small consultancy business maintained its strong profit growth trend.
The strength of Sterling and the reduction in low margin veterinary bulk trading
reduced Group turnover by 3% to £91.1m (2003: £93.5m) but operating margins
improved in all three business sectors. The improvement was driven by price
increases in certain markets and better sales mix. Group operating profit
increased by 25% to £4.8m (2003: £3.9m). On a continuing operations basis,
Group operating profit increased by 16% from £4.1m to £4.8m.
On a like-for-like basis, Bovine Genetics' operating profit before goodwill
amortisation was up 14% to £5.5m (2003: £4.8m) but this was reduced by an
adverse foreign currency movement of £0.3m. Animal Health's operating profit
was up 27% to £0.9m (2003: £0.7m) and Development Consultancy's continuing
operating profit rose 12% to £0.38m (2003: £0.34m).
Group profit before tax of £4.4m increased by 35% (2003: £3.2m) and profit
after tax increased by 45% to £2.8m from £2.0m in the prior period. Basic
earnings per share increased by 2.1p to 7.9p from 5.8p for the same period last
year.
Net Debt & Dividend
Net debt at 30 September 2004 of £11.7m was £5.2m lower than at the same point
last year (2003: £16.9m) but was £4.2m higher than at the financial year end on
31 March 2004. The seasonal nature of the business means that working capital
is absorbed in the same half year that the Company pays the full year dividend
which, this year, increased to £2.3m (2003: £1.9m).
The cash consideration of £1.6m, plus expenses, paid for the acquisition of
Supersires in August was subsequently funded by a placing with institutions
comprising 1,000,000 ordinary shares at 210p per share.
In line with previous years and our stated dividend strategy, the Board does not
recommend an interim dividend due to the high cost of distribution to the
relatively large number of shareholders. The Board expects to recommend an
improved final dividend when the full year results are known.
Share Register Restructuring
The Board remains keen to achieve this year a substantial re-structuring of the
very large share register which currently comprises approximately 25,800
shareholders. However, progress with a court-approved buy-back scheme we had
hoped to introduce before Christmas, has been slower than expected.
Meanwhile, the Board is currently implementing a further voluntary buy-back
scheme aimed at small shareholders. This will be followed by a placing of the
shares acquired to meet institutional demand. This time, the scheme will take
the form of a low cost dealing facility with a proactive telephone helpline
campaign.
Other initiatives will also be taken later in the year in pursuit of the
re-structuring strategy, including the consideration of an alternative version
of a court-approved buy-back scheme.
Bovine Genetics - 44.5% of Group Turnover
Operations
In the better market environment established during the second half of last
year, the business expanded its share in its largest markets of the USA and the
UK. Sales volume increased by 4% overall and by 5% in the USA. European
markets were subdued because of farmer concerns about impending changes to EU
support schemes. However, margins increased as new bulls, commanding higher
prices, were added to the Genus stud. Prices remained firm in most world
markets and combined to lift operating margins from 11.9% to 13.0%.
Of particular merit in the enhanced stud this year, has been the UK-bred bull '
Picston Shottle' which is by far the highest ranking UK-proven bull ever for '
type merit', a measure of stature and longevity. Sales of Shottle have been so
strong that all production is sold out well into April 2005, despite semen
output having been expanded by the application of our bioscience programmes. A
normal annualised output for a bull is 120,000 doses per year. Biotechnology
has raised the output of top Genus bulls to 200,000 doses per year.
The acquisition of the Genus agent in Chile, made approximately six months ago,
has proved to be a success. Strong volume growth has been achieved during the
first six months of trading under Genus management.
Similarly, the acquisition of Supersires, which was completed in August, has
been integrated into UK operations and its performance is progressing to plan.
The business in Australia has also progressed. However, as the season is
counter-cyclical with the principal markets in the Northern Hemisphere, it is
too early to estimate how the market will develop in its peak season which runs
from Christmas to the spring.
With more than half of Bovine Genetics' sales having been made in countries with
US Dollar related currencies, the results have been negatively impacted by the
relative strength of Sterling. Sales growth in US Dollars has been strong at 4%
but when translated into Sterling, growth has been reduced to around 1%.
Similarly, in constant currency, operating profits before goodwill amortisation
have advanced by 14% but this has been reduced to 8% when translated into
Sterling.
Research & Development
Progress has been made in implementing our commercially targeted biotechnology
research programme. In the spring of this year, we began to produce small
quantities of sexed semen in Brazil. Since August we have been test-marketing
that semen. As expected, demand has seriously out-stripped the Group's ability
to supply from the small facility installed. Meanwhile, significant progress
has been made with other higher volume approaches which we hope will follow into
the market within a year or so.
Animal Health - 42.9% of Group Turnover
This year, we focused on growing the higher margin licensed pharmaceutical
business, at the same time, exiting from some of the very low margin bulk trade
in wholesaling while trying to hold discounts on regular business.
Sales and profit growth have been strong in Animalcare, the marketing company
which sells licensed pharmaceuticals and other products to vets. This helped
improve operating profits by 27% to £0.91m for the half year (2003: £0.72m).
For the future, Animalcare continues to make good progress in its acquisition of
high value pharmaceutical products to develop its range. Agreement has been
reached with a major pharmaceutical supplier that gives the business exclusive
access in the UK and certain other EU countries to a product in a therapeutic
area new to the company. Following signature of the final agreement, regulatory
submissions will be made in the UK and in other countries in Europe.
Strong progress has been achieved with the introduction of the second generation
iDENTICHIP, which also measures the temperature of the animal. This was
introduced last year and has already captured a significant market share.
Development Consulting - 12.6% of Group Turnover
The contribution from this small business moved forward positively, achieving an
increase in continuing operating profit of 12% to £0.38m (2003: £0.34m).
Invitations to tender were lower than of late but the implementation programme
for jobs already won was accelerated and drove billings up by 6%.
In October, the business won a large new contract in Kyrgyzstan, for more than
4,000 fee days over two years. Also, the project managers are well advanced in
developing and implementing the systems necessary for managing the UK Government
FMD contract won in May 2004.
Group Outlook
For the second half year, we believe semen markets will remain healthy so that
our market strength will drive growth. As usual, the business in Bovine
Genetics is seasonally weighted towards the second half year, so expectations
are for an increase in activity in that business.
A global re-organisation and productivity improvement programme in Bovine
Genetics will produce operating cost savings next year, with a neutral impact
this year because of the costs of implementation. We expect our other
businesses to continue to perform to plan.
Overall, we believe that the Company is well placed to meet its targets this
year while offering the potential for further growth next year from its market
strength, the benefits of productivity improvements in Bovine Genetics and the
potential for a scientific breakthrough from our commercially targeted
biotechnology programme.
Summarised Group Profit and Loss Account
Six months ended 30 September 2004
Unaudited Unaudited
Total six Total six
months months Year
ended ended ended
30/9/04 30/9/03 31/3/04
£000 £000 £000
Turnover from continuing operations (note 4) 91,054 93,479 183,710
Operating profit from continuing operations
before amortisation of goodwill (note 4) 5,613 4,999 10,856
Discontinued operations - (284) (436)
Amortisation of goodwill (799) (849) (1,674)
Operating profit (note 4) 4,814 3,866 8,746
Of which;
- Continuing operations 4,814 4,150 9,182
- Discontinued operations - (284) (436)
(Loss) / profit on disposal of properties (3) - 711
Net interest payable and similar charges (459) (648) (1,314)
Profit on ordinary activities before taxation 4,352 3,218 8,143
Tax on profit on ordinary activities (note 5) (1,534) (1,240) (2,796)
Profit on ordinary activities after taxation 2,818 1,978 5,347
Minority interests - equity - (39) (74)
Profit for the financial period attributable to 2,818 1,939 5,273
ordinary shareholders
Dividend (note 6) - (7) (2,306)
Retained profit for the financial period 2,818 1,932 2,967
Earnings per share - basic (note 7) 7.9p 5.8p 15.5p
- diluted (note 7) 7.8p 5.6p 15.3p
- underlying (note 7) 9.9p 8.8p 19.5p
Dividend per share - - 6.5p
STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES
Unaudited Unaudited
Total six Total six
months months Year
ended ended ended
30/9/04 30/9/03 31/3/04
£000 £000 £000
Profit for the financial period 2,818 1,939 5,273
Exchange difference on the re-translation
of net assets of subsidiary undertakings 557 (994) (4,772)
Exchange difference on borrowings - - 607
Total recognised gains and losses relating to the period 3,375 945 1,108
SUMMARISED GROUP BALANCE SHEET
At 30 September 2004
Unaudited at
30 September 31 March
2004 2003 2004
£000 £000 £000
Fixed assets
Intangible assets 26,797 27,229 25,875
Tangible assets 15,944 16,784 15,876
Investments 244 150 241
42,985 44,163 41,992
Current assets
Stocks 18,005 17,476 16,233
Debtors 39,480 36,430 32,456
Cash at bank and in hand 4,722 4,584 4,330
62,207 58,490 53,019
Creditors: Amounts falling due within one year 49,279 49,504 44,990
Net current assets 12,928 8,986 8,029
Total assets less current liabilities 55,913 53,149 50,021
Creditors: Amounts falling due after more than one year 474 4,085 605
Provisions for liabilities and charges 1,003 248 681
Accruals and deferred income 29 30 30
Equity minority interests - 250 -
Net assets 54,407 48,536 48,705
Capital and reserves
Called up share capital 3,658 3,382 3,536
Share premium account 39,180 34,824 36,975
Profit and loss account 11,569 10,330 8,194
Equity shareholders' funds 54,407 48,536 48,705
SUMMARISED GROUP CASH FLOW STATEMENT
Six months ended 30 September 2004
Unaudited Unaudited
Six months Six months Year
ended ended ended
30/9/04 30/9/03 31/3/04
£000 £000 £000
Net cash inflow from operating activities (note 8) 1,339 2,141 14,393
Returns on investments and servicing of finance (459) (648) (1,314)
Taxation (1,893) (1,444) (2,542)
Capital expenditure and financial investments (1,663) (2,170) (2,519)
Acquisitions and disposals (1,699) (161) (1,234)
Equity dividends paid (2,299) (1,853) (1,853)
Net cash (outflow) inflow before management of
liquid resources and financing (6,674) (4,135) 4,931
Financing 624 869 (5,125)
Decrease in cash (6,050) (3,266) (194)
RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET DEBT
Unaudited Unaudited
Six months Six months Year
ended ended ended
30/9/04 30/9/03 31/3/04
£000 £000 £000
Decrease in cash (6,050) (3,266) (194)
Repayment of loan notes 1,637 793 979
New long term loans (437) (3,039) (378)
Repayment of bank loans - 1,337 6,133
New finance leases (83) (715) (160)
Repayment of capital element of finance lease 587 896 997
contracts
Change in net debt resulting from cash flows (4,346) (3,994) 7,377
Exchange differences 107 (745) (2,639)
Other - (6) -
Movement in net debt (4,239) (4,745) 4,738
Net debt at 1 April (7,458) (12,196) (12,196)
Net debt at 30 September / 31 March (11,697) (16,941) (7,458)
Notes to the Report
1 Accounting policies
The interim results, which are unaudited, have been prepared on the basis
of the accounting policies set out in the group's statutory accounts for
the year ended 31 March 2004.
2 Basis of consolidation
The group's interim result consolidates the results of the company and its
subsidiary companies made up to 30 September 2004.
3 Basis of preparation
The financial information does not constitute statutory accounts as defined
in section 240 of the Companies Act 1985. The financial information for
the full preceding year is based on the statutory accounts for the
financial year ended 31 March 2004. Those accounts, upon which the
auditors issued an unqualified opinion, have been delivered to the
Registrar of Companies.
The interim results were approved by the Board of Directors on 17 November
2004.
4 Turnover and segmental analysis
Turnover, which is stated net of value added tax, represents amounts
invoiced to third parties. Turnover and operating profit attributable to
the acquisition completed in the period are not considered material and
have not been shown separately.
Turnover Operating Profit from continuing operations
before goodwill amortisation
Unaudited Unaudited Unaudited Unaudited
Six months Six months Year Six months Six months Year
ended ended ended ended ended ended
30/9/04 30/9/03 31/3/04 30/9/04 30/9/03 31/3/04
£000 £000 £000 £000 £000 £000
Area of activity
Bovine Genetics 40,585 40,162 80,650 5,276 4,787 10,064
Consultancy 11,442 10,835 22,657 378 339 764
Animal Health 39,079 42,520 80,438 907 716 1,624
91,106 93,517 183,745 6,561 5,842 12,452
Inter-segmental sales (52) (38) (43) - - -
Unallocated costs - - 8 (948) (843) (1,596)
91,054 93,479 183,710 5,613 4,999 10,856
4 Turnover and segmental analysis continued
Operating Profit
Unaudited Unaudited
Six months Six months Year
ended ended ended
30/9/04 30/9/03 31/3/04
£000 £000 £000
Area of activity
Bovine Genetics 4,855 4,315 9,145
Consultancy 362 40 297
Animal Health 545 354 900
5,762 4,709 10,342
Unallocated costs (948) (843) (1,596)
4,814 3,866 8,746
Turnover Operating Profit
Unaudited Unaudited Unaudited Unaudited
Six months Six months Year Six months Six months Year
ended ended ended ended ended ended
30/9/04 30/9/03 31/3/04 30/9/04 30/9/03 31/3/04
£000 £000 £000 £000 £000 £000
Geographical region
of origin
United Kingdom 70,021 72,360 141,308 3,502 3,501 5,888
Europe 2,857 3,367 6,687 658 823 1,550
North America 17,668 16,796 34,749 281 (543) 785
Rest of the world 5,258 5,227 10,026 1,321 1,269 2,119
95,804 97,750 192,770 5,762 5,050 10,342
Inter-segmental sales (4,750) (4,271) (9,060) - - -
Unallocated costs - - - (948) (1,184) (1,596)
91,054 93,479 183,710 4,814 3,866 8,746
Turnover
Unaudited Unaudited
Six months Six months Year
ended ended ended
30/9/04 30/9/03 31/3/04
£000 £000 £000
Geographical region of destination
United Kingdom 57,952 60,553 116,473
Europe 8,764 7,337 19,953
North America 11,812 11,202 22,721
Rest of the world 12,526 14,387 24,563
91,054 93,479 183,710
The segmental analysis includes an operating loss of £284,000 for the six months
ended 30 September 2003 and £436,000 for the year ended 31 March 2004 resulting
from discontinued operations. All discontinued operations derive from the
Consulting business.
5 Taxation
The taxation charge for the period is based on the estimated effective tax
rate for the full year.
6 Dividends
The dividend charged in the period ended 30 September 2003 of £7,000
represents the final dividend for the year ended 31 March 2003 on new
shares issued subsequent to the year end.
7 Earnings per share
The basic earnings per share is based on a profit for the period of
£2,818,000 (30/9/2003: £1,939,000; 31/3/2004: £5,273,000) and the weighted
average number of ordinary shares in issue of 35,565,000 (30/9/2003:
33,550,000; 31/3/2004: 34,051,000).
The underlying earnings per share is based on the underlying earnings as
set out below:
Unaudited Unaudited
Six months Six months Year
ended ended ended
30/9/04 30/9/03 31/3/04
£000 £000 £000
Profit for the period 2,818 1,939 5,273
Add: amortisation of goodwill 799 849 1,674
exceptional operating items - 112 503
loss (profit) on disposal of properties 3 - (711)
loss on discontinued operations - 284 436
3,620 3,184 7,175
Less: associated taxation on adjustments (94) (223) (539)
Underlying earnings 3,526 2,961 6,636
The diluted earnings per share is based on a profit for the period of £2,818,000
(30/9/2003: £1,939,000; 31/3/2004: £5,273,000) and on 36,023,000 (30/9/2003:
34,453,000; 31/3/2004: 34,489,000) diluted weighted average ordinary shares,
calculated as follows:
Unaudited Unaudited
Six months Six months Year
ended ended ended
30/9/04 30/9/03 31/3/04
000's 000's 000's
Basic weighted average number of shares 35,565 33,550 34,051
Dilutive potential ordinary shares:
Employee share options 458 903 438
36,023 34,453 34,489
8 Reconciliation of operating profit to net cash flow from operating
activities
Unaudited Unaudited
Six months Six months Year
ended ended ended
30/9/04 30/9/03 31/3/04
£000 £000 £000
Operating profit 4,814 3,866 8,746
Depreciation 1,740 1,791 3,636
Amortisation of milk quota 4 4 8
Amortisation of goodwill 799 849 1,674
Loss on disposal of fixed assets 5 103 183
Deferred government grants (1) (2) (2)
(Increase)/decrease in stocks (1,772) 164 1,558
Increase in debtors (5,346) (4,253) (33)
Increase/(decrease) in creditors 1,096 (381) (1,377)
1,339 2,141 14,393
9 Reconciliation of Group shareholders' funds
Unaudited Unaudited
Six months Six months Year
ended ended ended
30/9/04 30/9/03 31/3/04
£000 £000 £000
Total recognised gains and losses 3,376 945 1,108
Dividends - (7) (2,306)
Movements in respect of share issues 2,327 141 2,446
Total movements during the period 5,703 1,079 1,248
Shareholders' funds at 1 April 48,705 47,457 47,457
Shareholders' funds at 30 September / 31 March 54,408 48,536 48,705
10 Acquisition of SuperSires Limited
On 12 August 2004, the group completed its acquisition of the trade and
certain assets and liabilities of SuperSires Limited, which distributes
semen and provides artificial insemination services to cattle farmers in
Somerset, Devon and Cornwall.
The acquired business contributed £230,000 to group turnover for the six
months ended 30 September 2004. Its contribution to group operating profit
for the same period was immaterial. Goodwill has been calculated based on
provisional fair values of net assets at the date of acquisition and will
be finalised for the full year annual report and accounts.
INDEPENDENT REVIEW REPORT TO GENUS plc
Introduction
We have been instructed by the company to review the financial information for
the six months ended 30 September 2004 which comprises the Summarised Group
Profit and Loss Account, Group Statement of Total Recognised Gains and Losses,
Summarised Group Balance Sheet, Summarised Group Cash Flow Statement,
Reconciliation of Net Cash Flow to Movement in Net Debt and the related notes 1
to 10. We have read the other information contained in the interim report and
considered whether it contains any apparent misstatements or material
inconsistencies with the financial information.
This report is made solely to the company having regard to guidance contained in
Bulletin 1999/4 'Review of interim financial information' issued by the Auditing
Practices Board. To the fullest extent permitted by the law, we do not accept or
assume responsibility to anyone other than the company, for our work, for this
report, or for the conclusions we have formed.
Directors' responsibilities
The interim report, including the financial information contained therein, is
the responsibility of, and has been approved by, the directors. The directors
are responsible for preparing the interim report as required by the AIM Rules
issued by the London Stock Exchange.
Review work performed
We conducted our review having regard to the guidance contained in Bulletin 1999
/4 'Review of interim financial information' issued by the Auditing Practices
Board for use in the United Kingdom. A review consists principally of making
enquiries of management and applying analytical procedures to the financial
information and underlying financial data, and based thereon, assessing whether
the accounting policies and presentation have been consistently applied, unless
otherwise disclosed. A review excludes audit procedures such as tests of
controls and verification of assets, liabilities and transactions. It is
substantially less in scope than an audit performed in accordance with United
Kingdom Auditing Standards and therefore provides a lower level of assurance
than an audit. Accordingly we do not express an audit opinion on the financial
information.
Review conclusion
On the basis of our review we are not aware of any material modifications that
should be made to the financial information as presented for the six months
ended 30 September 2004.
Ernst & Young LLP
Southampton
17 November 2004
Financial Calendar
Financial year end 31 March 2005
Announcement of final results June 2005
Annual General Meeting August 2005
Full and final dividend payment August 2005
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