Preliminary Results
Genus PLC
18 September 2007
For immediate release 18 September 2007
Genus plc
Preliminary Results for the twelve months ended 30 June 2007
Genus plc ('Genus'), a world leading animal genetics company, announces its
preliminary results for the year to 30 June 2007. These results are reported
under International Financial Reporting Standards ('IFRS').
Un-audited Pro-forma(*) 2007 2006 2006
(12 mths) (12 mths) (12 mths)
Actual Constant Actual
Rates Rates Rates
£m £m % £m
Total Operations
Profit for the period 14.6 5.9 +147 7.7
Basic EPS 26.6p 10.8p +146 14.1p
Continuing Operations
Revenue 233.8 225.2 +4 236.7
Adjusted Operating Profit 28.7 21.6 +33 23.6
Operating Profit 28.4 21.7 +31 24.1
Basic EPS 23.1p 20.9p +11 24.1p
Basic adjusted EPS 22.6p 16.0p +41 18.4p
Audited Statutory Results 2007 2006
(12 mths) (15 mths)
£m £m %
Total Operations
Profit for the period 14.6 7.8 +87
Basic EPS 26.6p 17.2p +55
Continuing Operations
Revenue 233.8 201.2 +16
Adjusted Operating Profit 28.7 19.8 +45
Operating Profit 28.4 20.1 +41
Basic EPS 23.1p 24.5p -6
Basic adjusted EPS 22.6p 19.7p +15
(*) Results for the 15 months to 30 June 2006 included Sygen International plc
('Sygen') from 1 December 2005. Un-audited pro-forma 12 month comparatives to 30
June 2006 have been prepared on a constant currency basis as if the Sygen
acquisition and related financing had taken place at 1 July 2005. A
reconciliation from actual reported results to pro-forma results, together with
details of the underlying assumptions, is set out in the Appendix.
Highlights from Continuing Operations
(comparisons based on un-audited pro-forma results*)
Group
• Revenue increased by 4% to £234m (2006: £225m)
• Bovine volume up 7% to 11.3m doses. Reduced porcine revenue compensated
by a margin increase of 2% to 37% of sales following accelerated adoption of
new business model
• Adjusted operating profit# increased by 33% to £28.7m
• Basic adjusted earnings per share increased by 41% to 22.6p
• Net debt reduced by a further £9m to £111m
• Disposal strategy progressed with disposal of SyAqua Thailand
• Board recommending dividend increase of 10% to 9.1p per share
The Americas
• Revenue increased by 4% to £119m (2006: £114m)
• Bovine volume up 11% to 7.6m doses and porcine margin improved from 47%
to 50% of sales
• Bovine market share increased
• Adjusted operating profit rose by 22% to £20.8m (2006: £17.1m)
• £1.7m of foreign exchange translation losses absorbed
Europe & Asia
• Revenue increased by 3% to £122m, (2006: £118m)
• Bovine volume 3.7m doses (Australia drought -15%). Porcine margin
improved from 21% to 23% of sales
• Adjusted operating profit rose by 24% to £14.3m (2006: £11.5m)
• £0.3m of foreign exchange translation losses absorbed
Commenting on these results Genus' Chief Executive, Richard Wood, said:
'While driving business growth and generating further synergy benefits from
integrating the porcine business, we have continued to deliver strong underlying
financial results and excellent EPS growth.
With an improving global agricultural climate and a more robust and diverse
business, the Board is confident that Genus will continue to deliver strong
operational progress and solid long term growth.'
# Operating profit before fair value movements on biological assets,
amortisation of intangible assets, share based payments and exceptional items.
For further information please contact:
Genus plc Tel. 01256 345970
Richard Wood, Chief Executive
Martin Boden, Finance Director
Buchanan Communications Tel. 020 7466 5000
Charles Ryland
Suzanne Brocks
Christian Goodbody
Landsbanki Securities (UK) Ltd Tel: 020 7003 3000
Shaun Dobson
Fred Ward
Panmure Gordon Tel: 020 7459 3600
Mark Lander
Dominic Morley
This announcement is available on the Genus website, www.genusplc.com
Notes to Editors:
Pro-forma information
Because of the complexity of these results, un-audited pro-forma results for the
12 months to June 2006 have also been provided. Statutory results for the 12
months to 30 June 2007 are compared with the 15 month period to 30 June 2006,
because of the change in the Group's year end. Part way through the comparative
period, the acquisition of Sygen was made. There was also a significant currency
movement arising on translation of the results of overseas entities.
The un-audited pro-forma comparatives have been prepared on both actual and a
constant currency basis, as if the Sygen acquisition and related financing had
taken place at 1 July 2005. The Financial Review included in the preliminary
results, sets out the reported audited statutory IFRS results. Details of the
assumptions underlying the pro-forma results, and a reconciliation of pro-forma
to actual results are set out in the notes and in the appendix to the accounts.
About Genus
Genus creates and sells added value products for livestock farming and food
producers by creating advances to animal breeding through biotechnology. Its
non-Genetically Modified Organism (GMO) technology is applicable across all
livestock species but is only commercialised by Genus in the bovine and porcine
farming sectors.
Genus' worldwide sales are made in seventy countries under the trade marks 'ABS'
(dairy and beef cattle) and 'PIC' (pigs) and comprise semen and breeding animals
with superior genetics to those animals currently in production. Customers
produce offspring with greater production efficiency, milk and meat output and
quality and use these to supply the global dairy and meat supply chain.
Genus' competitive edge has been created from the ownership and control of
proprietary lines of breeding animals, the biotechnology used to improve them
and the Group's global production and distribution network.
Headquartered in Basingstoke, England, Genus companies operate in 30 countries
on five continents, with research laboratories located in Madison, USA.
CHAIRMAN'S STATEMENT
Genus has made excellent progress this year. Trading was strong in all sectors
and territories, with the exception of Australia that had a major drought.
The acquired PIC business has now been successfully integrated, with synergies
contributing to the strong financial results achieved.
Strong EPS growth has been achieved even after foreign exchange losses.
Group Performance
The results for the financial year to 30 June 2007 compare with a fifteen month
extended period to 30 June 2006 as a result of the Group's change in the
financial year end.
Statutory Results
For the Group as a whole, profit and basic earnings per share for the period
were £14.6m (2006 15 months: £7.8m) and 26.6p (2006 15 months: 17.2p)
respectively. Operating profit was £28.4m (2006 15 months: £20.1m).
Revenue for the period increased by 16% to £234m (15 months to 30 June 2006:
£201m). Adjusted operating profit for the period of £28.7m was 45% ahead of the
result for the 15 months to 30 June 2006 (£19.8m).
Whilst these figures show strong improvements, the implication of Genus' change
in year end last year to June, acquisition of Sygen International plc ('Sygen')
part way through last year and losses on translation of overseas earnings mask
the truly impressive strength of the underlying performance. In order to
demonstrate this underlying performance, we have shown the remaining comparisons
in this statement, and in the business review which follows by reference to
un-audited pro-forma results for the year to June 2006. These pro-forma
comparatives are reconciled to actual reported results in the appendix to this
announcement, including details of the assumptions. The financial review
discusses the results on a statutory basis.
Un-audited Pro-forma Results
At constant exchange rates, revenue for the period was 4% higher, despite the
revenue reduction implicit in the strategy for reducing the impact of market
volatility on porcine profits. Adjusted operating profit was 33% higher at
constant exchange rates, with the increase being 22% at reported exchange rates.
Adjusted earnings per share show equally strong growth, up 41% on a constant
currency basis.
Dividend
To reflect the Board's continuing confidence in its long-term strategy for
growth, it is again recommending a 10% increase in the dividend to 9.1 pence per
ordinary share. Subject to shareholder approval at Genus' AGM to be held on 15
November 2007, this dividend will be paid on 4 January 2008 to shareholders on
the register at the close of business on 7 December 2007.
Employees
Genus' continued success is a result of our talented employees across the Group.
I would like to pay tribute to all Genus employees for their efforts, enthusiasm
and dedication during a period of considerable change.
Board
Professor Barry Furr joined the Board as a non-executive director in December
2006. Professor Furr, aged 63 years, was previously Chief Scientist and Head of
Project Evaluation for AstraZeneca plc. He was awarded an OBE in 2000 for his
services to cancer drug discovery and was the inventor of Zolodex and Casodex,
world-leading anti-cancer drugs.
Martin Boden joined the Board on 2 April 2007 as Group Finance Director. Martin
joined Genus from GUS plc, a FTSE 100 retail and business services group, where
he was Group Financial Controller. He succeeds David Timmins whom the Board
would like to thank for his contribution to the success of the Group.
As announced in March 2007, Richard Wood, the Company's Chief Executive, is to
continue with the Group until 31 March 2009, during its next stage of
development, including the intended move to the Official List.
Move from AIM to the Official List
It remains the Company's intention to move its listing from AIM to the Official
List of the London Stock Exchange. The Board expects to make a formal
announcement in the near future concerning this move and will post a circular to
shareholders giving full details of the move in due course.
The Board is aware that a number of small shareholders hold AIM listed stock for
Inheritance Tax purposes and we intend to offer these investors an opportunity
to exit from their investment at minimum cost, should they so wish. This will be
accomplished by offering a low cost dealing facility under which Genus shares
will be bought in and placed with institutional shareholders.
We will also be asking our brokers to help manage the transition for the larger
IHT motivated shareholders who wish to sell their shares as a result of the move
to the Official List.
Non - Core Businesses
The Board has progressed its strategy to concentrate on the bovine and porcine
genetics businesses and has accordingly disposed of SyAqua Thailand for £1m in
the period and progressed the divestment of the non-core businesses Animalcare
Limited, Development Consulting and the Mexican shrimp business.
Trading in Animalcare Limited, the principal non-core veterinary pharmaceutical
business, has been profitable and to plan, as has trading in the non-core
development consultancy business. A recovery has been achieved in our Mexican
shrimp business.
Outlook
The new financial year has started well. Genus is in an unique position to
benefit from changing world agricultural markets and to deliver solid long-term
growth. This will arise from organic growth in the market and productivity
improvements as further country markets are integrated.
BUSINESS OVERVIEW
Genus creates and sells added value products for livestock farming and food
producers by creating advances to animal breeding through biotechnology. Its
non-Genetically Modified Organism (GMO) technology is applicable across all
livestock species but is only commercialised by Genus in the bovine and porcine
farming sectors.
Genus' worldwide sales are made in seventy countries under the trade marks 'ABS'
(dairy and beef cattle) and 'PIC' (pigs) and comprise semen and breeding animals
with superior genetics to those animals currently in production. Customers
produce offspring with greater production efficiency, milk and meat output and
quality and use these to supply the global dairy and meat supply chain.
The Group's competitive edge has been created from the ownership and control of
proprietary lines of breeding animals, the biotechnology used to improve them
and its global production and distribution network.
Genus' research and product development expenditure for the 12 months to June
2007 was £17.7m. Approximately 20% was spent on research and 40% each on bovine
and porcine product development.
Genus operates bovine studs in five countries. More than 170 world leading beef
and dairy animals of the commercial breeds are in production in these studs,
with around 2,000 in various stages of product development. The breeding
selection programme was recently expanded to test 400 dairy bulls per year in a
rolling five year programme which includes creating and measuring the output of
40,000 daughters. The commercially active stud has a replacement rate of 25-35%
per annum.
Approximately 12 million doses of semen are collected from these studs each
year. The semen is frozen in tanks containing liquid nitrogen so that it can be
kept indefinitely and can be transferred and sold in any country of the world.
Genus is unique amongst its competitors in that it operates a global
insemination service through a network of employees and self-employed exclusive
agents who operate under the 'ABS' trademark.
The Genus porcine business sells breeding males, females and semen. The company
owns nine pure-bred pig lines which it is continuing to develop in its two
nucleus herds, located in the USA and Canada. These animals are crossed and then
multiplied in around 1,000 predominantly sub-contracted multiplication units
located in all our markets around the world.
More than 100 million slaughter pigs produced each year contain Genus genetics
and we believe that these pigs are those with the highest value and can be
produced with the lowest production cost of any of our competitors supplying
large integrated pig production units.
Headquartered in Basingstoke, England, Genus companies operate in 30 countries
on five continents, with laboratories located in Madison, USA.
Corporate Objectives & Strategy
The principal objectives for the year under review have been to drive underlying
growth in the bovine and porcine businesses while integrating the acquired PIC
business in order to drive the potential for productivity improvement in future
years.
To do this, we have re-organised operations using a territorial matrix under two
regional Chief Operating Officers (the Americas region, headed by Ian Biggs and
the Europe & Asia region, headed by Philip Acton), supported by consolidated
global Research, Development and Production facilities under a third global
Chief Operating Officer, Steve Amies.
In this way, barriers to change have been reduced and synergies at an annualised
rate of approximately £6m per year have been driven out of non-sales related
functions. For example, the Americas organisation now comprises:-
• Bovine semen sales under the trademark, ABS;
• Porcine breeding sales under the trademark, PIC; and
• Regional services provided centrally in one location.
Due to the relatively fragmented nature of the European and Asian businesses,
full consolidation into an equivalent structure in these businesses has yet to
be completed. Additionally, the regional management has concentrated upon a
turn-round of the historically loss-making porcine operations in Europe and an
expansion in the Far East.
The Company plans to seek further productivity improvements and achieve
additional administrative function savings from consolidating worldwide business
systems using the Oracle platform already being used by the acquired business.
This complex project has been progressed with the help of external consultants
and is likely to create potential for further productivity improvement.
There will also be some potential for productivity improvements from continuing
integration of country businesses.
The Board continues to believe that it should concentrate the Group's efforts on
growing the animal genetics business while driving down debt. In this respect,
we have actively pursued the divestment of the remaining non-core businesses,
while ensuring that such sales will realise good shareholder value.
BUSINESS REVIEW
Group Performance
As noted in the Chairman's statement, the comparisons in this review have been
made for continuing operations against un-audited pro-forma figures, on a
constant currency basis, for the twelve months to 30 June 2006. The performance
against IFRS reported statutory figures is summarised in the financial review
below.
Revenue for the year to 30 June 2007 increased by 4% to £234m despite the impact
of changes to the porcine business model, as discussed in the Business Review
below. The weakening of the US dollar lowered this increase by £10m when
translated into actual exchange rates with the result that revenue was 1% lower
than in 2006.
Bovine sales volume increased by 7% with prices remaining firm. However, the
Group's strategy for de-risking pig operations from the volatility of the 'hog
cycle', by increasing the proportion of business using the indirect royalty
model lowered porcine sales as expected when compared with 2006, whilst
improving margins from 35% to 37% of sales.
The Board believes that adjusted operating profit provides an informative
measure of the underlying performance for the business. This measure is defined
as operating profit before exceptional items and a number of non cash items:
•fair value movement of biological assets;
•amortisation of intangible assets; and
•share based payments.
Adjusted operating profit increased by 33%, at constant exchange rates, to
£28.7m (2006: £21.6m). A £2.0m exchange impact lowered this increase to 22%.
Operating profit increased by 31%, at constant exchange rates, and by 18% to
£28.4m (2006: £24.1m) at actual exchange rates.
Exceptional expenditure of £4.7m (2006: £2.7m) related to the integration of the
porcine and bovine businesses, to an adjustment to goodwill required as a result
of recognition of pre-acquisition tax assets, and to work associated with
preparation for the move to the Official List, principally the work carried out
to complete the IFRS restatement. The Board believes the integration expenditure
will deliver continuing operating expense benefits.
The effective rate of tax on adjusted profit before tax was 34% as expected.
Adjusted earnings per share increased by 41% at constant currency to 22.6p
(2006: 16.0p) and by 23% from 18.4p at actual exchange rates.
Basic earnings per share for the Group as a whole were 26.6p, an increase of
146% over the pro-forma period.
Net debt was reduced by £9m to £111m at 30 June 2007 (2006: £120m). It is
intended to use any proceeds from divestments of the remaining non-core
businesses to reduce net debt further to leave the Group well placed to pursue
other opportunities for growth, as and when they arise.
World Agricultural Markets
There was a general improvement in market conditions towards the end of the
year, although two growth markets, Brazil and Australia, remained depressed.
This was largely due to an outbreak of Foot & Mouth Disease (FMD) in Brazil and
the harsh drought in Australia.
Foot & Mouth Disease (FMD) in Brazil prevented farmers from selling meat in
their export markets. This reduced farm profitability and the potential for the
sale of semen and breeding pigs. However, there was a partially compensating
upside in that other producers, the USA in particular, experienced a more
buoyant export market.
In Australia, the extended drought caused the previously strong and growing
market to contract. In this depressed market situation the company nonetheless
increased its market share and cemented its new position in the retail sector.
This bodes well for the future especially now that the rainfall has returned and
farming has begun the long haul to recovery.
During the latter part of the year, the dynamics of the general agricultural
markets improved. The long term pattern of supply and demand moved strongly from
surpluses to deficits. As a result, milk prices hardened strongly in the USA in
the latter part of the year and have started to rise in the UK and more
generally in Europe. The demand for milk and meat products in the Far East has
accelerated and the shortfall in world capacity is improving farmer sentiment so
that the dairy semen market, in particular, should improve further in the new
financial year.
The export growth for US producers offset the expected cyclical downturn in hog
prices. Elsewhere, prices remained generally flat, although shortages of supply
increased prices in the Far East to the level at which farmers began to
re-invest in extending capacity.
Market commentators are predicting structural rather than cyclical increases in
agricultural commodity prices in the future. This change is being driven by
increased demand for milk and meat products, particularly in the Far East. In
addition, agricultural crops are increasingly being used to produce ethanol, a
renewable fuel source. A visible indication of the change is the disappearance
of the highly controversial EU food mountain.
These changes are being accelerated by an ever increasing world population,
whilst droughts and flash floods caused by climate change are adversely
affecting yields.
Together, these changes will mean that food prices are likely to rise and
farmers and governments will increasingly seek to increase farming productivity.
Improved animal genetics will be a key ingredient in this quest. Genus'
scientific and marketing leadership will ensure that the company is well placed
to take advantage of this positive change in market growth.
We view the markets, particularly in dairy, as being favourable for the coming
year.
Genus Products
The current bovine product strength, led by Shottle, Bolton and Boliver, three
of the highest regarded bulls in the world, contributed to sales volume growth
of 10% in the year to 30 June 2007. A particularly encouraging aspect was that
this growth was achieved across the world, with increases in 12 of Genus' 13
owned semen sales subsidiaries, the exception being in Australia that was
affected by the harsh drought.
We have also made progress with the sexed semen project. During the reporting
year, we started selling sexed semen under the trademark ABS Sexation, in a
range of markets, including the large US market. From a standing start, sexed
semen sales revenue rose to an annualised 5% of dairy semen revenue. We are
currently in the process of increasing capacity on the expectation that sales
will more than double in the new financial year.
In response to the changing market conditions over the last few years, we have
developed two value added services, to support semen sales. The first is a
computer assisted Genetic Mating Service (GMS) and the second is a comprehensive
Reproductive Management Service (RMS). Already a key component for the US
business these services are now being introduced to other markets, with great
success. The services have been developed particularly for use by larger farms,
where improving management control is important for financial success. One of
the benefits of the farmers contracting to use the service is that they also
enter into a semen supply contract that provides Genus with a stronger forward
order book.
In our porcine business, we have been hastening the de-risking strategy begun by
PIC to reduce the sensitivity of business profit to movements in the market
price of pigs ('the hog cycle'). To achieve this change, PIC had begun to
subcontract pig multiplication to third parties, thereby reducing the proportion
of sales of live animals from in-house production. Approximately 90% of
multiplication in the USA, Western Europe and a number of other large country
markets has now been subcontracted.
Another change we have accelerated in many developed agricultural markets has
been to move away from selling breeding animals on an outright basis. Instead we
now sell on an indirect model whereby breeding animals are sold for a lower
price but with a royalty attached to any progeny they produce. This change in
business practice has substantially been made in North America, Western Europe
and a few other markets, but will not be applied in less developed markets in
order to protect our intellectual property.
The impact of the implemented changes has been to lower headline sales in the
year of introduction, even though market share may have increased. Margins
improve from the accumulation of royalties and for the longer term, sales accrue
throughout the breeding life of the animals sold. In addition, this indirect
royalty model smooths cash flow.
During the year, we extended and refreshed our product range of elite parents by
adding a new dam line, called C29. This parent female is as prolific as the
Company's world renowned breeding dam line, the Camborough, but is cheaper to
maintain. This latter trait will be increasingly important for pig producers now
that the average cost of feed is increasing.
The C29 product was launched in its first market, the USA, during the 2007
financial year and should add growth and market share to the business in the new
financial year.
An increased uptake of the Company's new products is expected, particularly for
bovine sexed semen and porcine female lines.
The Americas Region
Nature of the Business
Trading in the North and South American continents takes place through wholly
owned subsidiaries in the six largest markets in the region and through agents
in the smaller markets.
Growth Drivers
In the developed agricultural markets of the USA and Canada, customers continue
to expand and consolidate in all sectors.
In the developing markets of Latin America, primarily Mexico, Brazil, Argentina
and Chile, growth came from the underlying expansion of the markets, driven by:-
• Increased demand to address an expanding and wealthier population;
• Growth in exports as the region took advantage of its inherently lower
agricultural cost base; and
• Greater use of advances in agricultural techniques.
Competitive Position
Most competitors are co-operatives, particularly in the bovine sector.
Genus' market share grew throughout the region. In North America, strong growth
in bovine volume saw market share increase. The porcine business' market share
also grew.
In Latin America, Genus is the clear market leader in both bovine dairy and
porcine genetics in the large and growing markets of Mexico, Brazil, and Chile.
Trading Progress
In constant currency, revenue increased by 4% to £119m (2006: £114m) and
adjusted operating profit increased by 22% to £20.8m (2006: £17.1m).
Most of the region's business is conducted in US Dollars. Even with the strong
operational improvement, the large change in the US Dollar to Sterling exchange
led to the absorption of translational losses equivalent to £10m for revenue and
£1.7m for operating profit.
Growth has been achieved in the Americas region by recognising the changing
needs of the larger and increasingly integrated customers and by responding to
them more quickly than our competitors have done. The development of the RMS and
GMS services added value for customers, while helping to add predictability to
Genus' business as more revenue came from forward orders and repeat business.
Despite prices being relatively soft for most of the year in the bovine sector,
revenue rose in constant currency by 13% to £44m, because of volume increases
and a mix improvement following the introduction of sexed semen, which is
relatively highly priced. Sexed semen had been trialled in South America over
the past two years. The launch in North America, under the trademark 'ABS
Sexation', was a great success and the product is selling at a price some three
times higher than the equivalent un-sexed semen.
North America
The bovine business saw strong growth in volume. This lifted market share to
22%, the highest in over ten years. The porcine business, now largely converted
into a less volatile royalty operating model, saw its market share rise by three
percentage points to 45%; such royalties now comprise over 90% of gross profit
in the region.
During the year, PIC's successful line in male products was complemented by the
launch of the C29 female and other supporting products. Additional resources
were directed at technical support for the customer base to attempt to translate
as far as possible into customer profits the full benefit of the genetic
potential of the PIC products.
South America
Bovine volume grew by 14%, despite difficult trading conditions for most of the
year. This confirmed Genus' leadership in dairy genetics in Brazil, Chile and
Mexico.
Bovine sales moved ahead strongly with revenues up 20% to £12m, largely because
of the volume increase which arose from the expansion of RMS and GMS. These
services were introduced over the last two years and have been particularly
successful in Mexico.
The porcine business is in the early stages of converting to the indirect
royalty model and this, combined with difficult market conditions and supply
problems, saw volumes fall slightly.
The porcine market was relatively soft and supply disruption caused a slow start
to the year. Performance in the second half outstripped expectations and doubled
the performance achieved in the first half.
Business Integration
North American administrative functions have been integrated into a central
shared services unit based in Wisconsin, USA. This enabled the porcine business
to move into smaller offices in Nashville, Tennessee.
These changes have enabled the four key regional businesses to concentrate on
customer needs, while the region has achieved cost efficiencies in central
services.
The region has also opened a joint office for the bovine and porcine business in
Santiago, Chile as the first stage of a programme for increasing productivity in
South America.
The Europe & Asia Region
Nature of the Business
Trading in the Europe & Asia region takes place through wholly owned
subsidiaries in the four primary markets and through agents in 15 secondary
country markets. In Europe, Genus has particularly strong businesses in the UK,
France, Germany, Italy and several other Eastern European countries. In Asia,
the business is particularly strong in China, Japan and the Philippines.
Growth Drivers
The market for pork and dairy products is growing throughout the region with
growth particularly strong in the Far East (especially China) and Eastern
Europe.
The agricultural industry continued to consolidate in Western Europe as
production subsidies reduced. The privatisation process of Eastern Europe has
created many new large and highly productive farming units that, over time, will
begin to replace less efficient units in Western Europe.
The Government of China is supporting investment in 'state of the art' farming
in order to feed its fast increasing population.
Regional milk prices began to rise towards the end of the period as demand
outstripped supply and Far East pig meat prices rose to a level that allowed
farmers to become profitable again.
In Russia, demand for high quality pig breeding stock and dairy semen ran at
record levels as the nation's herd is being rebuilt after years of decline under
previous Governments.
Competitive Position
Genus is the overall market leader in the Europe & Asia region in both the
porcine and bovine sectors. Although competitors generally hold high market
shares in their home markets they export very little.
European bovine competitors are generally co-operatives and in the porcine
sector industry consolidation has reduced the number of competitors.
Trading Progress
Unlike in the Americas region, currency movements during the year were small,
creating a translational loss of just £0.3m.
Regional revenue from continuing operations, increased by 3% to £122m. In
bovine, the volume of conventional semen was flat (Australia drought -15%) while
prices increased by 7%. Porcine revenues reduced from the introduction of the
indirect royalty model which we began to introduce in some markets. Adjusted
operating profit grew by 24% to £14.3m (2006: £11.5m).
All country businesses recorded profit improvements on the previous 12 months
with the bovine contribution increasing by 10% and the porcine by a record 89%.
Europe
In the United Kingdom bovine revenue growth of 6% was achieved. RMS customers
accounted for 10% of sales in the UK with the service contracted to farms with a
total of 65,000 cows by the year end.
In Italy, bovine revenue grew by 15% from increased sales of the RMS service
achieving a market share of 14%.
In France, where the business traditionally occupied an elite breeder niche,
revenue increased by 16% from a change in mix which included a greater
proportion of higher priced semen together with the contribution from a larger
sales force. New breeding laws that will free up competition are expected to
come into force early in 2008. This will create an opportunity for Genus to
increase its market share over time.
European distributors increased revenues by 9% with notable successes in Spain
and Turkey.
In the porcine sector, new boar products were introduced and product mix for the
gilts was improved.
A review of the acquired operations, aimed at reducing the vulnerability of the
business to reverses in the hog cycle and to cut losses in difficult or below
core sized markets, resulted in:-
1. The sale of the Cazals Genetic Nucleus farm in France for £2.0m and an
improvement of £0.5m per year in profitability.
2. Closure of the loss-making business in Denmark.
3. A re-organisation in Spain produced a year on year improvement.
4. Administrative function re-organisation and consolidation produced an
operating expense saving of £0.6m per year.
Despite the above closures, business volume and revenue rose by 3%, particularly
from Russia and some countries in Western Europe.
Asia
The Asian Bovine business increased revenue by 5%, with particularly good
results being recorded in Japan.
In the face of the extensive drought throughout Australia much of agriculture
retrenched. Genus adapted to these conditions by consolidating the recent retail
acquisitions to improve productivity. The sales force has been re-trained and
was repositioned to concentrate on those areas where the effects of the drought
have begun to reduce. As a result, the negative profit impact of the drought was
constrained to £0.6m.
The Philippines porcine business had its best ever year. Key account volumes
were strong and parent boar sales were significantly higher than last year.
Business in China improved as the market recovered from the low prices of last
year. As part of the first phase of an expansion plan, we sold one farm and
appointed a new general manager to lead change, including the appointment of
further contract multipliers. Also, we have invested in pure lines to meet
increasing demand for production in the region.
Research & Product Development
Product development continues to be a key driver in the success of Genus'
business, producing a continuous stream of genetically superior bulls and pigs.
This is augmented by carefully targeted research, aimed at producing
breakthroughs that will change the business model to Genus' competitive
advantage.
In total, research and development expenditure in the reported period was
£17.7m. On a like for like basis, this represents a saving of £1.8m on the
previous year's pro-forma expenditure of the separate Genus and Sygen research
and development which total £18.1m (at actual exchange rates, the 2006
expenditure was £19.3m). These savings were made in the areas of fundamental
research and administration, in line with the Company's objective of
concentrating selectively on commercial targets while eliminating more academic
research and any overlapping activities. Research now accounts for approximately
20% of total R&D expenditure, with bovine and porcine product development
accounting for around 40% each.
Bovine Product Development
Due to the five year lead time associated with the bovine genetic inventive
process, Genus, in commercially targeting its research, looks five years ahead
to estimate the likely requirements of agriculture in the future. Thus, the
products currently being sold have been based upon development decisions made in
2002. At that time, the company was projecting that farmers would require semen
that selectively increased the robustness of their herd and improved animal
welfare, at reasonable outputs, rather than the previous prime target of
increased output. This has proved to be correct and has resulted in an increase
in the competitiveness of the Genus stud.
We have been able to compare the genetic merit of the Genus stud with that of
competitor bulls. Of the bulls that will become available for commercial sale
between 2008 and 2011, the prospects are most encouraging:
• Throughout the period, the bulls in the test programme are very strong
in the newly measured traits associated with longevity (productive life,
somatic cell count, daughter pregnancy rate);
• We have improved our position and are now very strong in the traditional
longevity associated traits of legs, feet & udders. These traits are also
very important for the 'breeder' sector of the market;
• We have also moved to the top in quantity of butterfat, a trait to which
we had probably given insufficient emphasis in the recent past; and
• The aggregate of these traits in terms of net merit confirms Genus is
ahead of its competitors and the lead is improving.
In general, our major competitors have retained their historical and traditional
selection objectives, being variously strong on type (looks) and production, but
weak on the longevity traits.
With continuing growth anticipated, we are in the process of increasing by 35%
the number of bulls evaluated in the large US based testing programme and
investing the £2 million required to house these extra bulls.
We have also made some exciting developments to address opportunities in the
beef business.
Historically, the beef industry has been reluctant to use artificial
insemination (AI). One of the reasons is that in the fragmented production chain
it is impossible for a breeder of genetically superior calves to realise a
premium price when they are slaughtered. The increasing demand for meat
consistency and tenderness has created the potential for a change in this sector
of the food chain. Building on experience gained by PIC, Genus is leading this
change and is seeking early wins in both the US and UK. In this respect, we are
working with household names like Tesco and McDonalds.
Porcine product development
For pigs, the inventive lead-time at approximately three years is shorter than
for bovines. This enables a more rapid response to changes in the agricultural
environment. Since the acquisition of PIC, we have carefully reviewed its
development programme and we have satisfied ourselves that the product selection
criteria set up three years ago will continue to produce commercially
competitive animals ideally suited to current market conditions. We have,
however, made small changes to the weighting of selection traits to ensure that
the strong competitive advantage currently demonstrated in the side-by-side
trials against competitor products is maintained, as longevity traits become
more important in the pig sector.
In this respect, the selection programme will benefit from the strong progress
we have made with the fundamental science programme in genetic markers.
The main platform of the acquired science programme was the identification of
genetic markers for yield and feed conversion in animals. During the ten year
period during which this objective was pursued, the technology available to
scientists evolved considerably. As a result, the early pioneering work quickly
became overtaken as modern techniques became available from contractors.
Since acquisition, Genus has transferred the remaining genotyping work to
contractors using the new and faster technology. As a result, we have progressed
much more rapidly in the complex identification programme for markers for the
evolving commercially important traits in future agriculture. We have evaluated
the increase in rate of genetic progress from incorporating marker data into
conventional genetic analysis. The results show that:
1) Nearly all traits of commercial importance are controlled by many genes as
opposed to single genes.
2) The incorporation of marker information has limited benefit if a trait is
easily measured directly e.g. daily weight gain.
3) The incorporation of marker information conveys significant benefit if a
trait is more difficult to measure accurately by direct means e.g. mortality.
4) We now incorporate 100 markers into routine genetic evaluations, as compared
with 10 two years ago.
5) These 100 markers are influencing the selection of the next generations of
animals in our breeding programme and should benefit the Company's competitive
position from 2010.
In anticipation of, and to support, future sales growth, the Board has
sanctioned the building of an enhanced nucleus herd facility in South Dakota,
USA, at a cost of £9 million over the coming two years. This facility will
provide an additional benefit of being of sufficient size and diversity to
develop customised lines for key additional customers, giving us a significant
competitive advantage. In addition, new facilities will enhance health and
environmental standards and lower operating costs.
FINANCIAL REVIEW
This is the first year that the Group has reported under International Financial
Reporting Standards. Details of the Group's accounting policies and adjustments
arising on the transition to IFRS can be found on the Company's website
www.genusplc.com
As indicated at the time of publishing the Transition Document, the Board
indicated that additional volatility would be introduced into the Group's
results principally arising from the fair value movement in biological assets as
required under IAS 41. As a result, the income statement shows separately the
fair value adjustments and adjusted operating profits, defined as operating
profit from continuing operations before the fair value movement arising on
biological assets, amortisation of intangibles, share based payments and
exceptional items.
In addition, given the difficulty in comparing the results for the 12 months to
30 June 2007 to the 15 month period to 30 June 2006, arising from the change in
the Group's year end, the acquisition of Sygen part way through the comparative
period, and the significant currency movements arising on translation of the
results of overseas entities, the Chairman's Statement and Business Review
discusses the performance of the business compared to un-audited pro-forma
results for the 12 months to June 2006 and the Financial Review sets out a
review of the reported audited statutory IFRS results.
Revenue
Revenue from continuing operations grew by 16% from £201m to £234m.
Profit
Adjusted operating profit increased by 45% to £28.7m (2006: £19.8m).
Adjusted profit for the Group (including the share of profit/(loss) from joint
ventures and associates and adjusted operating profit from discontinued
operations), net of finance costs was £22.4m for the year (15 month period ended
30 June 2006: £17.6m).
Finance costs
Net finance costs increased from £6.7m to £10.0m, reflecting higher net debt
costs resulting from the acquisition of Sygen. Interest payable, excluding
amortisation of debt issue costs, the net interest cost in respect of pension
scheme liabilities and other interest payable, amounted to £11.0m and was 2.6
times covered by adjusted operating profit from continuing operations (15 month
period ended 30 June 2006: 3.2 times).
Taxation
The effective rate of tax for the year, based on adjusted operating profit, was
33.7% compared with 32.0% during the last period. The tax rate depends upon the
mix of profits by country, particularly upon the high level of profits generated
in North America, where the tax rate is around 40%, and the ability of the group
to recognise deferred tax assets in respect of losses in some of the group's
smaller territories.
Earnings per share
Basic earnings per share were 26.6p in the year ended 30 June 2007 compared with
17.2p for the 15 month period ended 30 June 2006. Adjusted earnings per share
from continuing operations of 22.6p for the year ended 30 June 2007 were 15%
higher than for the 15 month period ended 30 June 2006.
Share Price and Shareholder Funds
The Genus share price ranged from a low of 427p to a high of 705.0p during the
financial year. On 29 June 2007 (the last trading day of the financial year),
the mid-market price was 700p, giving a market capitalisation of £392m at that
date.
At 30 June 2007, shareholder funds amount to £150.9m, an increase of £6.9m in
the year. This is equivalent to 270p per share and compares with 261p at the
prior period end.
Dividend
The Board has proposed a 10% increase in the dividend to 9.1p per share (2006:
8.25p).
The dividend will be covered 2.5 times from adjusted earnings (2006: 2.4 times)
and the cost of the proposed dividend will amount to £5.1m (2006: £4.5m).
Financing and cash flow
The Company's secured bank credit facilities comprise a term loan of £20m which
expires in October 2008, a £60m amortising term loan expiring in 2010, and a
£70m multi-currency revolving credit facility expiring in 2010. In less than two
years the term loans have been reduced by £20m and net debt, has reduced from
£120.1m at 30 June 2006 to £111.1m at 30 June 2007. Two further repayments of
the term loans will be made in October 2007 and April 2008 of £5.0m and £7.5m
respectively.
Gearing at 30 June 2007 was 47% compared with 51% at 30 June 2006.
The Group's operating cash inflow for the year to 30 June 2007 amounted to
£23.8m (15 month period ended 30 June 2006: outflow £12.7m) as a result of
increased profits and tighter focus on working capital. The net cash outflow for
the year was £4.6m (15 month period ended 30 June 2006: inflow £15.2m) arising
principally from debt servicing and repayments.
Exceptional items
The exceptional items during the period totalled £4.7m (15 month to 30 June
2006: £2.7m) of which £3.0m (15 month period ended 30 June 2006: £2.7m) related
to the integration and restructuring expenses of the Sygen business and the
implementation of the global Oracle management information system, £0.7m related
to an adjustment to goodwill on recognition of tax assets (15 month period ended
30 June 2006: nil) and £1.0m (15 month period ended 30 June 2006: nil) related
to the move to the Official List. There will be further integration and
restructuring costs and further Oracle implementation costs during 2008. The
costs incurred during 2007 relating to the move to the Official List were mainly
for the conversion to IFRS. In the 2008 financial year, there will be sponsors,
brokers, lawyers and accountants fees associated with the move.
By the end of the 2008 financial year the Sygen business should have been fully
integrated.
Biological Assets
In accordance with IAS 41 the Group shows the carrying value of biological
assets in the balance sheet with the fair value movement shown in the income
statement.
Bovine biological assets represent the fair value of proven bulls and bulls on
test, based on expected net cash flows from the sale of semen. The significant
assumptions determining the fair values are the expected future demand for
semen, estimated production value, the life of each bull and, for bulls on test,
the percentage expected to be actively marketed.
Porcine biological assets represent the fair value of breeding pigs which are
calculated using the average slaughter value of the animals plus a premium for
genetic characteristics determined by average achieved sales prices. The
significant assumptions determining fair values are the expected life of the
breeding herds, the percentage of production animals expected to be saleable as
breeding pigs and expected sales prices.
Breeding animal semen is transferred to inventory at fair value at point of
harvest, at which point it becomes agricultural produce valued at deemed cost.
At 30 June 2007, the fair value of bovine biological assets was £73.9m (2006:
£70.6m) and the fair value of porcine biological assets was £65.8m (2006:
£71.1.m), with the total value on the Group balance sheet being £139.7m (2006:
£141.7m).
The fair value movement in the income statement amounted to £10.9m (2006: £7.0m)
with this favourable increase being broadly offset by the effect of the weaker
US dollar in arriving at the balance sheet IAS 41 valuation.
Group income statement
For the year ended 30 June 2007 Note 2007 2006
(comparative for the 15 month period to 30 June 2006) £m £m
Revenue from continuing operations 2 233.8 201.2
Adjusted operating profit from continuing operations 2 28.7 19.8
Fair value movement on biological assets 9 10.9 7.0
Amortisation of intangible assets (5.1) (3.0)
Share based payments (1.4) (1.0)
33.1 22.8
Exceptional items
Integration and restructuring expenses (3.0) (2.7)
Adjustment to goodwill on recognition of tax assets (0.7) -
Preparation for main market listing (1.0) -
5 (4.7) (2.7)
Operating profit from continuing operations 2 28.4 20.1
Share of post tax profit/(loss) of joint ventures and 1.3 (0.2)
associates
Other gains and losses 0.2 1.9
Finance costs 6 (10.0) (6.7)
Profit before tax from continuing operations 19.9 15.1
Taxation 7 (7.2) (4.0)
Profit for the period from continuing operations 12.7 11.1
Profit/(loss) for the period from discontinued operations 3 1.9 (3.3)
Profit for the period 14.6 7.8
Earnings per share from continuing operations 10
Basic earnings per share 23.1p 24.5p
Diluted earnings per share 22.5p 23.9p
Basic adjusted earnings per share 22.6p 19.7p
Diluted adjusted earnings per share 21.9p 19.2p
Earnings per share from total operations 10
Basic earnings per share 26.6p 17.2p
Diluted earnings per share 25.8p 16.8p
Group statement of changes in equity
Called up Share Own shares Translation Hedging Retained Total
share premium reserve reserve earnings
capital account
£m £m £m £m £m £m £m
Balance at 1 3.7 40.0 (0.1) - - 46.5 90.1
April 2005
Foreign
exchange
translation
differences,
net of tax - - - (6.2) - - (6.2)
Fair value
movement on
net investment
hedge, net
of tax - - - 1.3 - - 1.3
Fair value
movement on
cash flow
hedges, net
of tax - - - - 0.8 - 0.8
Actuarial
losses on
retirement
benefit
obligations,
net of tax - - - - - (2.2) (2.2)
Net income
and expense
recognised
directly in
equity - - - (4.9) 0.8 (2.2) (6.3)
Profit for
the period - - - - - 7.8 7.8
Total
recognised
income and
expense for
the period - - - (4.9) 0.8 5.6 1.5
Recognition
of share
based
payments,
net of tax - - - - - 1.3 1.3
Adjustment
in respect
of employee
share schemes - - (0.1) - - - (0.1)
Issue of
ordinary shares 1.8 52.2 - - - - 54.0
Dividends - - - - - (2.8) (2.8)
Balance at
30 June 2006 5.5 92.2 (0.2) (4.9) 0.8 50.6 144.0
Balance at 1
July 2006 5.5 92.2 (0.2) (4.9) 0.8 50.6 144.0
Foreign
exchange
translation
differences,
net of tax - - - (14.7) - - (14.7)
Fair value
movement on
net investment
hedge, net
of tax - - - 0.9 - - 0.9
Fair value
movement on
cash flow
hedges, net
of tax - - - - 1.6 - 1.6
Actuarial
gains on defined
employee benefit
schemes, net
of tax - - - - - 5.2 5.2
Net income
and expense
recognised
directly in
equity - - - (13.8) 1.6 5.2 (7.0)
Profit for
the year - - - - - 14.6 14.6
Total
recognised
income and
expense for
the period - - - (13.8) 1.6 19.8 7.6
Recognition
of share
based payments,
net of tax - - - - - 3.4 3.4
Issue of
ordinary shares 0.1 0.3 - - - - 0.4
Dividends - - - - - (4.5) (4.5)
Balance at
30 June 2007 5.6 92.5 (0.2) (18.7) 2.4 69.3 150.9
Group balance sheet
As at 30 June 2007 Note 30 June 2007 30 June 2006
£m £m
Assets
Goodwill 60.7 64.9
Other intangible assets 77.4 86.0
Biological assets 9 114.1 115.1
Property, plant and equipment 27.3 30.4
Interests in joint ventures and associates 3.5 3.4
Available for sale investments 0.5 0.8
Derivative financial assets 4.5 3.0
Deferred tax assets 10.4 10.8
Total non-current assets 298.4 314.4
Inventories 18.8 18.1
Biological assets 9 25.3 25.7
Trade and other receivables 43.0 41.6
Cash and cash equivalents 12 26.0 32.2
Assets held for sale 4 21.9 22.7
Income tax receivable 1.4 1.6
Total current assets 136.4 141.9
Total assets 434.8 456.3
Liabilities
Trade and other payables (34.8) (37.0)
Interest-bearing loans and borrowings 12 (27.2) (25.5)
Provisions (1.9) (2.9)
Obligations under finance leases 12 (0.9) (2.1)
Current tax liabilities (4.3) (4.5)
Liabilities held for sale 4 (8.3) (8.8)
Total current liabilities (77.4) (80.8)
Interest-bearing loans and borrowings 12 (108.9) (126.4)
Retirement benefit obligations (15.9) (22.8)
Provisions (2.3) (2.3)
Deferred tax liabilities (78.0) (79.9)
Obligations under finance leases 12 (1.4) (0.1)
Total non-current liabilities (206.5) (231.5)
Total liabilities (283.9) (312.3)
Net Assets 150.9 144.0
Equity
Called up share capital 5.6 5.5
Share premium account 92.5 92.2
Own shares (0.2) (0.2)
Translation reserve (18.7) (4.9)
Hedging reserve 2.4 0.8
Retained earnings 69.3 50.6
Total equity 150.9 144.0
Group statement of cash flows
For the year ended 30 June 2007 Note 2007 2006
(comparative for the 15 month period to 30 June 2006) £m £m
Net cash flow from operating activities 11 23.8 (12.7)
Cash flows from investing activities
Dividends received from joint ventures and associates 1.3 2.2
Interest received 2.1 0.3
Proceeds from disposal of subsidiaries 1.0 9.1
Acquisition of subsidiaries and businesses (net of cash - (181.1)
acquired of £17.3m)
Purchase of property, plant and equipment (7.1) (6.4)
Proceeds from sale of property, plant and equipment 4.3 13.8
Net cash inflow / (outflow) from investing activities 1.6 (162.1)
Cash flows from financing activities
(Repayment) / drawdown of borrowings (13.8) 146.3
Debt issue costs - (2.2)
Interest paid (10.9) (5.2)
Payment of finance lease liabilities (0.9) (1.5)
Cashflows from derivative financial instruments 1.7 -
Equity dividends paid (4.5) (2.8)
Issue of ordinary shares 0.4 54.1
(Decrease) / increase in bank overdrafts (2.0) 1.3
Net cash (outflow) / inflow from financing activities (30.0) 190.0
Net (decrease) / increase in cash and cash equivalents - (2.7) 17.2
continuing operations
Net decrease in cash and cash equivalents - discontinued (1.9) (2.0)
operations
Net (decrease) / increase in cash and cash equivalents (4.6) 15.2
Cash and cash equivalents at start of period 34.0 18.2
Net (decrease) / increase in cash and cash equivalents (4.6) 15.2
Effect of exchange rate fluctuations on cash held (2.1) 0.6
Total cash and cash equivalents at 30 June 27.3 34.0
Of the cash and cash equivalents of £27.3m at 30 June 2007, £1.3m is included in
assets held for sale in the Group balance sheet (30 June 2006: £1.8m).
Notes to the preliminary financial information
for the year ended 30 June 2007
1. Basis of preparation
Status of audit
The financial information set out below does not constitute the company's
statutory accounts for the year ended 30 June 2007 or the fifteen month period
ended 30 June 2006, but is derived from those accounts. Statutory accounts for
the fifteen month period ended 30 June 2006 have been delivered to the Registrar
of Companies and those for the year ended 30 June 2007 will be delivered
following the company's annual general meeting. The auditors have reported on
those accounts; their reports were unqualified and did not contain statements
under s. 237(2) or (3) Companies Act 1985.
IFRS adoption
The financial information for the year ended 30 June 2007 has been computed in
accordance with International Financial Reporting Standards (IFRSs). This is
the first financial period for which IFRSs have applied. Comparative financial
information for the fifteen month period ended 30 June 2006 has been restated
accordingly.
Whilst the financial information included in this preliminary announcement has
been computed in accordance with
IFRSs, this announcement does not itself contain sufficient information to
comply with IFRSs. The company expects to publish full financial statements
that comply with IFRSs later in September 2007. IFRS 1 First-time adoption
permits companies adopting IFRS for the first time to take some exemptions from
the full requirements of IFRS and also make certain elections in the transition
period. The exemptions and elections adopted by the Group are disclosed in the
Group's IFRS transition document, which is available on the Group's website
www.genusplc.com together with full details of the Group's IFRS accounting
policies.
This preliminary announcement was approved by the Board on 17 September 2007.
Notes to the preliminary financial information
for the year ended 30 June 2007
2. Segmental information
Segment information is presented in respect of the Group's business and
geographical segments. The primary format, business segments, is based on the
Group's management and internal reporting structure.
Area of activity - continuing operations
Year ended 30 June 2007
Bovine Porcine Unallocated
Genetics Genetics Total
£m £m £m £m
Revenue from continuing operations 102.3 131.5 - 233.8
Adjusted operating profit before 20.0 32.8 (6.4) 46.4
research and product development
Research and product development (8.3) (9.4) - (17.7)
before amortisation of intangible
assets
Adjusted operating profit from 11.7 23.4 (6.4) 28.7
continuing operations
Fair value movement on 10.0 0.9 - 10.9
biological assets
Amortisation of intangible (0.1) (5.0) - (5.1)
assets
Share based payments (0.4) (0.3) (0.7) (1.4)
Exceptional items
-Integration and restructuring (0.4) (2.6) - (3.0)
expenses
-Preparation for main market - - (1.0) (1.0)
listing
- Adjustment to goodwill on
recognition of tax asset - (0.7) - (0.7)
Operating profit from continuing 20.8 15.7 (8.1) 28.4
operations
Share of profit of joint
ventures and associates - gross 1.5
Taxation (0.2)
Share of profit of joint
ventures and associates - net of
taxation 1.3
Other gains and losses 0.2
Finance costs (10.0)
Profit before tax from
continuing operations 19.9
Taxation (7.2)
Profit for the period from
continuing operations 12.7
Profit for the period from
discontinued operations 1.9
Profit for the period 14.6
Notes to the preliminary financial information
for the year ended 30 June 2007
2. Segmental information (continued)
Area of activity - continuing operations
15 month period ended 30 June 2006
Bovine Porcine Unallocated
Genetics Genetics Total
£m £m £m £m
Revenue from continuing 120.0 81.2 - 201.2
operations
Adjusted operating profit before 23.6 18.0 (5.4) 36.2
Research and product development
Research and product development (10.2) (6.2) - (16.4)
before amortisation of
intangible assets
Adjusted operating profit from 13.4 11.8 (5.4) 19.8
continuing operations
Fair value movement on 9.2 (2.2) - 7.0
biological assets
Amortisation of intangible (0.1) (2.9) - (3.0)
assets
Share based payments (0.3) (0.2) (0.5) (1.0)
Exceptional items
- Integration and restructuring (0.9) (1.8) - (2.7)
expenses
Operating profit from continuing 21.3 4.7 (5.9) 20.1
operations
Share of loss of joint ventures (0.1)
and associates - gross
Taxation (0.1)
Share of loss of joint ventures (0.2)
and associates - net of taxation
Other gains and losses 1.9
Finance costs (6.7)
Profit before tax from 15.1
continuing operations
Taxation (4.0)
Profit for the period from 11.1
continuing operations
Loss for the period from (3.3)
discontinued operations
Profit for the period 7.8
Notes to the preliminary financial information
for the year ended 30 June 2007
2. Segmental information (continued)
Geographical segments
The bovine and porcine segments are managed on a worldwide basis, but operate in
a number of geographical areas.
Sales revenue by Sales revenue by
geographical region of geographical region at
origin destination
Year ended 15 month Year ended 15 month
period ended period ended
30 June 30 June 30 June 30 June
2007 2006 2007 2006
Continuing operations £m £m £m £m
United Kingdom 44.3 50.5 44.9 48.6
Continental Europe 55.0 36.3 63.9 43.3
North America 111.5 78.1 94.9 78.8
Latin America 19.7 22.0 23.8 22.1
Rest of the world 10.4 19.0 13.4 13.1
Inter-segmental sales (7.1) (4.7) (7.1) (4.7)
Continuing operations - total 233.8 201.2 233.8 201.2
Discontinued operations 29.2 86.0 29.2 86.0
Total 263.0 287.2 263.0 287.2
Discontinued sales revenue derives from the Development Consulting and Animal
Health businesses, which originates in the United Kingdom and from the Shrimp
Genetics business in Latin America and Thailand.
Adjusted operating profit Operating profit from
from continuing operations continuing operations
Year ended 15 month Year ended 15 month
period ended period ended
30 June 30 June 30 June 30 June
2007 2006 2007 2006
Continuing operations £m £m £m £m
United Kingdom 4.3 5.1 7.3 3.9
Continental Europe 7.1 2.8 7.1 3.1
North America 15.1 10.9 14.9 11.2
Latin America 5.7 1.5 6.0 2.0
Rest of the world 2.9 4.9 1.2 5.8
Unallocated (6.4) (5.4) (8.1) (5.9)
Total 28.7 19.8 28.4 20.1
Notes to the preliminary financial information
for the year ended 30 June 2007
2. Segmental information (continued)
Discontinued operations
Area of activity - discontinued Year ended 30 June 2007
operations
Animal Development Shrimp Total
Health Consulting Genetics
£m £m £m £m
Revenue 7.8 18.2 3.2 29.2
Adjusted operating profit 1.6 0.8 - 2.4
Winding up of legacy pension scheme (0.6) - - (0.6)
Share based payments (0.1) - - (0.1)
Operating profit 0.9 0.8 - 1.7
Area of activity - discontinued 15 month period to 30 June 2006
operations
Animal Development Shrimp Total
Health Consulting Genetics
£m £m £m £m
Revenue 51.3 29.5 5.2 86.0
Adjusted operating profit 2.3 1.1 0.4 3.8
Impairment of goodwill in Animal (2.3) - - (2.3)
Health
Impairment of non-current and
current assets in Shrimp Genetics - - (2.4) (2.4)
Operating profit / (loss) - 1.1 (2.0) (0.9)
Notes to the preliminary financial information
for the year ended 30 June 2007
3. Discontinued operations
The Board decided prior to 30 June 2006 that the Shrimp Genetics business and
the Group's other non-core operations, the Animal Health businesses and
Development Consulting would be sold. Accordingly, the results these businesses
are shown within discontinued operations, and their assets and liabilities shown
as held for sale at 30 June 2007 and 30 June 2006.
The Shrimp Genetics business in Thailand was sold on 9 October 2006 for £1.0
million cash resulting in a profit on disposal of £0.2 million.
In the period ended 30 June 2006, the Animal Health Veterinary product and
Dental product wholesale businesses were sold on 28 October 2005 and 22 February
2006, respectively and the Shrimp Genetics business in Brazil was sold on 7 June
2006.
The remaining Mexican Shrimp Genetics business, together with the remaining
Animal Health business and Development Consulting continue to be actively
marketed. The directors expect these to be completed by the end of 2007.
Profits / (losses) attributable to the discontinued operations were as follows:
Year ended 15 month
30 June period
ended 30 June
2007 2006
£m £m
Adjusted operating profit / (loss) from discontinued
operations comprises:
Profit in Animal Health for the period 1.6 2.3
Profit in Development Consulting in the period 0.8 1.1
Profit in Shrimp Genetics for the period - 0.4
Adjusted operating profit from discontinued operations 2.4 3.8
Share based payments (0.1) -
Winding up of legacy pension scheme (0.6) -
Impairment of net assets in Shrimp Genetics - (2.4)
Impairment of goodwill in Animal Health - (2.3)
Operating profit / (loss) from discontinued operations 1.7 (0.9)
Other gains and losses
Sale of properties 0.7 -
Loss arising on sale of Dental products wholesale - (0.5)
division, a division of Animal Health
Loss on sale of Veterinary product wholesale business, - (2.1)
a division of Animal Health
Profit on sale of Brazil operation of Shrimp Genetics - 0.6
Profit on sale of Thailand operation of Shrimp 0.2 -
Genetics
Profit / (loss) from discontinued operations before 2.6 (2.9)
tax
Tax (0.7) (0.4)
Profit / (loss) from discontinued operations 1.9 (3.3)
Earnings per share from discontinued operations:
Basic earnings / (loss) per share 3.5p (7.3p)
Diluted earnings per share 3.4p (7.3p)
An exceptional impairment of net assets in Shrimp Genetics of £2.4m and an
exceptional impairment of goodwill in Animal Health of £2.3m were recognised in
operating profit for the 15 months ended 30 June 2006 to write down the carrying
value of net assets and goodwill to their recoverable amounts.
Notes to the preliminary financial information
for the year ended 30 June 2007
4. Non-current assets held for sale
At 30 June 2007, Animal Health, Development Consulting, Shrimp Genetics and PIC
Italia Spa were classified as held for sale together with one freehold property
(2006: Animal Health, Development Consulting, Shrimp Genetics and Cazals
Genetique SA together with two freehold properties).
The major classes of assets & liabilities comprising the operations held for
sale are as follows:
30 June 30 June
2007 2006
£m £m
Assets
Goodwill and Intangibles 6.3 6.1
Biological assets 0.3 0.9
Property, plant and equipment 2.7 2.0
Inventories 1.3 1.7
Trade and other receivables 10.0 10.2
Cash and cash equivalents 1.3 1.8
Total assets 21.9 22.7
Liabilities
Trade and other payables (8.3) (8.8)
Total liabilities (8.3) (8.8)
Net assets of disposal groups 13.6 13.9
5. Exceptional items
Exceptional items comprise:
Year 15 month
ended period
30 June ended 30
June
2007 2006
£m £m
Integration and restructuring expenses 3.0 2.7
Adjustment to goodwill on recognition of tax assets 0.7 -
Preparation for main market listing, including IFRS 1.0 -
adoption
4.7 2.7
Integration and restructuring expenses of £3.0m (2006:£2.7m) comprise £2.6m
(2006: £1.8m) in respect of the Porcine Genetics business, £nil (2006:£0.9m) in
respect of the Bovine genetics business and £0.4m
(2006:£nil) in respect of project management fees for new systems.
The Group has acquired certain of the Sygen businesses with tax losses. These
were recognised in the Group Balance sheet on acquisition to the extent that
they were expected to be realised based on information at the acquisition date
and to the end of the hindsight period. The Group has subsequently been able to
use tax losses to a greater extent than anticipated thereby reducing the value
of goodwill. In order to comply with the requirements of IAS 12 'Income Taxes',
a charge for the reduction in goodwill is reported to the extent of any further
recognition of tax losses that arose pre-acquisition.
Preparation for main market listing expense primarily relates to professional
fees in relation to the early adoption of International Financial Reporting
Standards.
Notes to the preliminary financial information
for the year ended 30 June 2007
6. Finance costs
Year 15
ended month
30 June period
ended
30 June
2007 2006
£m £m
Interest payable on bank loans and overdrafts (11.0) (6.2)
Amortisation of debt issue costs (0.3) (0.3)
Net interest cost in respect of pension scheme (0.6) (0.4)
liabilities
Other interest payable (0.2) (0.2)
Interest expenses (12.1) (7.1)
Interest income on bank deposits 1.2 0.3
Other interest receivable 0.9 0.1
Interest income 2.1 0.4
Net finance costs (10.0) (6.7)
7. Income tax expense in the income statement
Year 15
ended month
30 June period
ended
30 June
2007 2006
£m £m
Current tax expense
Current period 7.5 6.1
Adjustment for prior periods (1.7) (0.7)
Total current tax expense in the Group income statement 5.8 5.4
Deferred tax expense
Origination and reversal of temporary differences 1.5 0.1
Adjustment for prior period 0.9 (0.4)
Reduction in tax rate (0.4) -
Total deferred tax expense in the Group income statement 2.0 (0.3)
Income tax expense from continuing operations 7.2 4.0
Income tax expense from discontinued operations 0.6 1.1
(excluding gain on sale)
Total income tax expense excluding tax on sale of
discontinued operations and share of income tax of equity
accounted investees 7.8 5.1
Income tax on gain on sale of discontinued operations 0.1 (0.7)
Share of income tax of equity accounted investees 0.2 -
Total income tax expense in the Group income statement 8.1 4.4
Notes to the preliminary financial information
for the year ended 30 June 2007
8. Dividends
Amounts recognised as distributions to equity holders in the period:
Year 15 month
ended 30 period
June ended 30
June
2007 2006
£m £m
Final dividend for the 15 month period ended 30 June 2006
of 8.25p (2006: 7.5p) per share 4.5 2.8
A dividend of 9.1p per share has been proposed by the directors for 2007. The
dividend cost of £5.1m (2006:£4.5m) has not been provided for in these financial
statements.
9. Biological assets
Bovine Porcine Total
Fair value of biological assets £m £m £m
Balance at 1 April 2005
- continuing operations 61.2 - 61.2
Acquired through business combination - 78.2 78.2
Transfers to inventory (18.5) (3.8) (22.3)
Changes in fair value less estimated sale costs 27.3 0.3 27.6
Effect of movements in exchange rates 0.6 (3.6) (3.0)
Balance at 30 June 2006 70.6 71.1 141.7
Non current biological assets 70.6 44.5 115.1
Current biological assets - 25.7 25.7
Biological assets - continuing operations 70.6 70.2 140.8
Biological assets included within assets held for - 0.9 0.9
sale
Balance at 30 June 2006 70.6 71.1 141.7
Balance at 1 July 2006 70.6 71.1 141.7
Transfers to inventory (19.9) (5.9) (25.8)
Changes in fair value less estimated sale costs 27.9 6.3 34.2
Effect of movements in exchange rates (4.7) (5.7) (10.4)
Balance at 30 June 2007 73.9 65.8 139.7
Non current biological assets 73.9 40.2 114.1
Current biological assets - 25.3 25.3
Biological assets - continuing operations 73.9 65.5 139.4
Biological assets included within assets held for - 0.3 0.3
sale
Balance at 30 June 2007 73.9 65.8 139.7
Notes to the preliminary financial information
for the year ended 30 June 2007
9. Biological assets (continued)
Bovine Porcine Total
£m £m £m
Year ended 30 June 2007
Fair value movement on biological assets
Changes in fair value of biological assets 27.9 6.3 34.2
Inventory transferred to cost of sales at fair value (17.9) (5.9) (23.8)
Cost of sale already reflected in adjusted operating - 0.5 0.5
profit
10.0 0.9 10.9
15 month period to 30 June 2006
Fair value movement on biological assets
Change in fair value of biological assets 27.3 0.3 27.6
Inventory transferred to cost of sales at fair value (15.4) (3.8) (19.2)
Cost of sale already reflected in adjusted operating (2.7) 1.3 (1.4)
profit
9.2 (2.2) 7.0
Notes to the preliminary financial information
for the year ended 30 June 2007
10. Earnings per share
Basic earnings per share from continuing operations
The calculation of basic earnings per share from continuing operations at 30
June 2007 is based on the profit attributable to ordinary shareholders of £12.7m
(2006: £11.1m) and a weighted average number of ordinary shares outstanding of
54,890,931 (2006: 45,331,452), calculated as follows:
Weighted average number of ordinary shares (basic)
Year ended 15 month
period
30 June ended 30
June
In thousands of shares 2007 2006
Issued ordinary shares at start of the period 55,239 37,261
Effect of own shares held (956) (564)
Shares issued on exercise of stock options 608 804
Shares issued in December 2005 in relation to - 7,830
Sygen acquisition
Weighted average number of ordinary shares in 54,891 45,331
period
Diluted earnings per share from continuing operations
The calculation of diluted earnings per share at 30 June 2007 is based on profit
attributable to ordinary shareholders of £12.7m (2006: £11.1m) and a weighted
average number of ordinary shares outstanding after adjustment for the effects
of all dilutive potential ordinary shares of 56,528,031 (2006: 46,415,578),
calculated as follows:
Weighted average number of ordinary shares (diluted)
In thousands of shares
Year ended 15 month
30 June period
ended 30
June
2007 2006
Weighted average number of ordinary shares (basic) 54,891 45,331
Dilutive effect of share options 1,637 1,085
Weighted average number of ordinary shares for the
purposes of diluted earnings per share 56,528 46,416
Adjusted earnings per share is calculated on profit before fair value movements
on biological assets, amortisation of intangible assets, share based payments,
exceptional items and other gains and losses after charging taxation associated
with those profits, of £12.4m (15 months ended 30 June 2006 £8.9m), as follows:
Notes to the preliminary financial information
for the year ended 30 June 2007
10. Earnings per share (continued)
Year 15 month
ended 30 period
June ended 30
June
Adjusted earnings from continuing operations: 2007 2006
£m £m
Profit before tax from continuing operations 19.9 15.1
Add/(deduct):
Fair value movement on biological assets (10.9) (7.0)
Amortisation of intangible assets 5.1 3.0
Share based payments 1.4 1.0
Integration and restructuring expenses 3.0 2.7
Preparation for main market listing 1.0 -
Adjustment to goodwill on recognition of tax assets 0.7 -
Share of post tax (profit) / loss of joint ventures and associate (1.3) 0.2
Other gains and losses (0.2) (1.9)
Profit before fair value movement on biological assets, 18.7 13.1
amortisation of intangible assets, share based payments,
exceptional items and other gains and losses
Adjusted tax charge (6.3) (4.2)
Profit before fair value movement on biological assets, 12.4 8.9
amortisation of intangible assets, share based payments,
exceptional items and other gains and losses, after taxation
Total operations
Earnings per share for total operations has been calculated as the profit
attributable to ordinary shareholders of £14.6m (15 months ended 30 June 2006 £
7.8m) divided by weighted average number of ordinary shares (basic and diluted)
as calculated above.
Notes to the preliminary financial information
for the year ended 30 June 2007
11. Notes to the cash flow statement
Year ended 15 month
30 June period
ended 30
June
2007 2006
£m £m
Profit for the period 14.6 7.8
Adjustment for:
Fair value movement on biological assets (10.9) (7.0)
Amortisation of intangible assets 5.1 3.0
Adjustment to goodwill on recognition of tax assets 0.7 -
Share based payment expense 1.5 1.0
Share of (profit) / loss of joint ventures and associates (1.3) 0.2
Other gains and losses (0.2) (1.9)
Finance costs 10.0 6.7
Income tax expense 7.8 4.0
(Gain)/loss on disposal of discontinued operations (0.2) 3.3
Depreciation of property, plant and equipment 4.7 4.5
Gain on disposal of property, plant and equipment - (6.0)
Decrease in provisions (0.9) (1.4)
Operating cash flows before movement in working capital 30.9 14.2
Decrease / (increase) in inventories 1.6 (2.3)
Increase in receivables (1.2) (4.7)
Decrease in payables (4.0) (15.4)
Cash generated / (used) by operations 27.3 (8.2)
Income taxes paid (3.5) (4.5)
Net cash from operating activities 23.8 (12.7)
12. Net debt
30 June 30 June
2007 2006
£m £m
Cash and cash equivalents 26.0 32.2
Cash and cash equivalents within assets held for sale 1.3 1.8
Interest bearing loans due within one year (27.2) (25.5)
Obligations under finance leases - within one year (0.9) (2.1)
Net current (debt) / funds (0.8) 6.4
Interest bearing loans - non current (108.9) (126.4)
Obligation under finance leases - non current (1.4) (0.1)
Net debt (111.1) (120.1)
Appendix
Pro forma un-audited results for the 12 months ended 30 June 2006
Last year, Genus changed its financial year-end to 30 June. As a result the
comparative information to be included in the 2007 Annual Report and Financial
Statements will be for the 15 month period to 30 June 2006. To assist with
analysis and comparison, summary un-audited pro forma results for the twelve
months to 30 June 2006 are provided below:
Financial results
Audited Un-audited Un-audited
15 month period 30 Year ended 30 June Year ended 30 June
June 2006 2006 2006
Actual exchange Constant exchange
rate rate
Continuing operations: £m £m £m
Revenue from continuing 201.2 236.7 225.2
operations
Adjusted operating profit 19.8 23.6* 21.6
Continuing operating profit 20.1 24.1 21.7
Finance costs 6.7 8.9 8.9
Adjusted profit after taxation 8.9 10.0 8.7
Profit after tax 11.1 13.2 11.4
Adjusted EPS 19.7 pence 18.4 pence 16.0 pence
Basic EPS - continuing 24.5 pence 24.1 pence 20.9 pence
Total operations:
Profit after tax 7.8 7.7 5.9
Basic EPS 17.2 pence 14.1 pence 10.8 pence
Weighted average number of 45,331,452 54,450,570 54,450,570
shares (see note 8)
* Amended from 18 July 2007 press release figure of £25.3m to exclude a
discontinued operation included in error.
Segmental revenue by destination
Audited Un-audited Un-audited
15 month period 30 Year ended 30 June Year ended 30 June
June 2006 2006 2006
Actual exchange Constant exchange
rate rate
£m £m £m
Porcine 81.2 139.7 133.0
Bovine 120.0 97.0 92.2
Total 201.2 236.7 225.2
United Kingdom 48.6 41.8 41.8
Continental Europe 43.3 62.5 61.7
North America 78.8 100.7 92.1
Latin America 22.1 24.4 22.4
Rest of the world 13.1 15.4 14.6
Inter-segmental sales (4.7) (8.1) (7.4)
Total 201.2 236.7 225.2
Reconciliation of financial results
Audited Un-audited Un-audited Un-audited Un-audited
As per Continuing Adjustments Pro forma
Group operations to get to at
statutory Adjustments pro forma constant constant
accounts to get to year ended exchange exchange
12 months rate
15 months ended 30 June Year ended
ended 30 Note 2006 (Note 9)
June 2006 30 June 30 June
2006 2006
£m £m £m £m £m
Revenue from continuing 201.2 35.5 1 236.7 (11.5) 225.2
operations
Adjusted operating profit
from continuing operations
19.8 3.8 1 23.6 (2.0) 21.6
Fair value movement on 7.0 2.1 2 9.1 (0.6) 8.5
biological assets
Amortisation of intangible (3.0) (2.1) 3 (5.1) 0.2 (4.9)
assets
Share based payments (1.0) 0.2 4 (0.8) - (0.8)
Exceptional items (2.7) - 5 (2.7) - (2.7)
Operating profit from
continuing operations 20.1 4.0 24.1 (2.4) 21.7
Share of post tax (loss) /
profit of joint ventures
and associates (0.2) 1.0 2 0.8 - 0.8
Other gains and losses 1.9 - 5 1.9 - 1.9
Finance costs (6.7) (2.2) 6 (8.9) - (8.9)
Profit before tax from
continuing operations 15.1 2.8 17.9 (2.4) 15.5
Taxation (4.0) (0.7) 7 (4.7) 0.6 (4.1)
Profit for the period from
continuing operations 11.1 2.1 13.2 (1.8) 11.4
Loss for the period from
discontinued operations (3.3) (2.2) 2 (5.5) - (5.5)
Profit / (loss) for the 7.8 (0.1) 7.7 (1.8) 5.9
period
Notes
1. Numbers extracted from the Group's management accounts. Included in
the results are pre-acquisition profits of Sygen for the five months ended 30
November 2005.
2. For Porcine five month Biological movement obtained from the
management accounts of Sygen for the period from 1 July 2005 to 30 November
2005, other seven months is already reflected in the statutory result. For
Bovine the 15 month movement was adjusted on a pro-rata basis over time to be 12
months.
3. This charge related to the Sygen acquisition and is thus grossed up
from seven months in the statutory result to a full 12 months.
4. Pro-rata over time the 15 month charge in the statutory accounts to
be 12 months.
5. These items all occurred in the year ended 30 June 2006.
6. The finance charge assumes the borrowing in place post the
acquisition of Sygen had been in place throughout the year ended 30 June 2006,
therefore the 7 months additional borrowing cost in the statutory result is
adjusted to a full year basis.
7. The gross adjustments are tax affected at the rate applying for the
15 months ended 30 June 2006.
8. Weighted average number of shares adjusted to reflect the share issue
made on the 2 December 2005, in respect of the Sygen acquisition, having instead
occurred at the start of the year.
9. The average exchange rates which applied for the 15 month period
ended 30 June 2006 have been adjusted to reflect the rates which applied to the
year ended 30 June 2007.
This information is provided by RNS
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Monday, 20th May 2024
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