TIDMGNS
RNS Number : 2474J
Genus PLC
08 September 2016
FOR IMMEDIATE RELEASE 8 September 2016
Genus plc
Preliminary Results for the year ended 30 June 2016
Significant Strategic Progress and Continued Profit Growth
Genus plc ('Genus', the 'Company' or the 'Group'), a leading
global animal genetics company, announces its preliminary results
for the year ended 30 June 2016.
Actual currency Constant
currency
**
Year ended 30 2016 2015 Movement Movement
June
Adjusted results* GBPm GBPm % %
Revenue 388.3 398.5 (3) (3)
Operating profit 49.3 47.2 +4 +6
Operating profit
inc JVs 54.3 51.2 +6 +9
Profit before
tax 49.7 46.6 +7 +10
Basic earnings
per share (p) 60.7 56.8 +7 +10
--------------------- ------ ------ --------- -------------
Statutory results
Revenue 388.3 398.5 (3)
Operating profit 58.6 59.5 (2)
Profit before
tax 60.9 57.8 +5
Basic earnings
per share (p) 81.1 65.7 +23
Dividend per share
(p) 21.4 19.5 +10
* Adjusted results are before net IAS 41 valuation movement on
biological assets, amortisation of acquired intangible assets,
share-based payment expense and exceptional items. Adjusted results
are the measures used by the Board to monitor underlying
performance at a Group and operating segment level. Refer to the
Financial Review section for a reconciliation of adjusted results
to statutory results.
** Constant currency percentage movements are calculated by
restating FY16 results at the average exchange rates applied in
FY15.
2016 Highlights
Financial Highlights
-- Adjusted profit before tax up 7% to GBP49.7m (up 10% in
constant currency), driven by strong performances in Genus PIC and
Genus Asia, particularly China
-- Statutory profit before tax up 5% to GBP60.9m includes a
pension related exceptional credit of GBP44.2m (2015: GBP0.4m) and
a reduction in the value of biological assets GBP17.1m (2015:
GBP24.9m increase)
-- Adjusted basic earnings per share up 7% to 60.7p (up 10% in
constant currency) and statutory basic earnings per share up 23% to
81.1p reflecting a lower statutory tax rate on adjusting items
-- Revenue of GBP388.3m, reduced 3% due to lower bovine volumes
in tough dairy markets and lower porcine by-product and up-front
sales. Growth of 17% (14% in constant currency) in strategically
important royalty revenues
-- Solid cash conversion(1) as expected of 88% (2015: 107%)
after two years of exceptional performance above 100%
-- After tax return on invested capital(2) of 19.1% (2015:
21.7%), impacted by year end currency translation on our US asset
base following the recent strengthening of the US Dollar against
Sterling
-- Dividend increased by 10% to 21.4p, well covered by adjusted
earnings at 2.8 times (2015: 2.9 times)
Operational and Strategic Highlights(3)
-- Continued volume growth of 4% in porcine, however bovine
volumes 6% lower in tough dairy markets
-- Very strong results across Asia, more than doubling operating
profit including joint ventures
o China delivered over GBP6m in additional operating profit,
benefiting from market tailwinds and strong product performance
o Signed three new large porcine royalty customers in China and
a commercial multiplier agreement with Yunnan Shennong
-- Strong profit growth in Genus PIC of 9% in constant currency,
with growth in royalty volumes and revenues
-- Genus ABS had a challenging year in very difficult dairy
markets and took action to reduce costs, manage margins and improve
pricing, however, profits were 16% lower in constant currency. The
pace of strategic change was accelerated through:
o In Vitro Brasil S.A. ('IVB'), our world leading bovine in
vitro fertilisation ('IVF') business focused on driving genetic
improvement via embryos, was rapidly integrated and performed ahead
of expectations in its first full year in Genus
o Introduced proprietary TransitionRight(TM) genetic indices for
Holstein and Jersey breeds focused on key dairy health traits
o Formed De Novo Genetics on 1 September 2016, a majority-owned
strategic partnership combining the elite Holstein breeding
programmes of ABS and De-Su, the world's leading independent
Holstein breeder, to accelerate internal production of elite
bulls
-- Scaled up Genus Sexed Semen ('GSS') technology to commercial launch readiness
o Outcome of litigation against Sexing Technologies ('ST')
announced post-period end provides a path towards
commercialisation, with further Court rulings to provide additional
clarity expected in the coming months
-- Achieved substantial progress in establishing gene editing as
a key strategic platform for future growth and transformation of
Genus
o In collaboration with the University of Missouri, discovered a
major breakthrough to create pigs resistant to the devastating
Porcine Reproductive and Respiratory Syndrome Virus ('PRRSv')
disease through gene editing
o Exclusive strategic collaboration with Caribou Biosciences to
licence leading CRISPR-Cas9 gene editing technology, enabling
further development of PRRSv resistant pigs and multiple other
applications
o Exclusive licence from Washington State University to use gene
editing to target bovine respiratory disease ('BRD'), a major
disease challenge for beef and dairy producers
Commenting, Karim Bitar, Chief Executive said:
"Genus performed well overall in 2016 with another year of
double digit constant currency profit growth and substantial
strategic progress in our R&D endeavours in addition to growth
in key markets such as China. We established gene editing as a core
strategic longer term growth platform in Genus that offers
considerable opportunity in disease resistance which will benefit
animals, customers and consumers. Our GSS technology is ready for
commercial launch and we expect to have legal clarity in the coming
months on when we will be able to bring it to market.
"To pursue our long-term growth objectives, we plan to increase
R&D investment in FY17 and therefore expect broadly stable
constant currency results, however exchange rates should provide a
benefit to the reported numbers. Overall we expect to perform in
line with market expectations. We are confident in the future of
the business and are proposing a 10% increase in the dividend."
(1) Cash conversion is the cash generated by operations GBP43.3m
(2015: GBP50.7m) divided by adjusted operating profit from
continuing operations GBP49.3m (2015: GBP47.2m).
(2) After tax return on invested capital is adjusted operating
profit including joint ventures less tax of 25.8% (2015: 26.0%),
divided by net operating assets on a historic cost basis, excluding
net debt and pension liability.
(3) Based on adjusted results.
An analyst meeting will be held at 9.00am today at Buchanan's
offices (107 Cheapside, London EC2V 6DN). A live audio feed will be
available to those unable to attend this meeting in person. To
connect to the web cast facility, please go to the following link
approximately 10 minutes (8.50am) before the start of the meeting:
http://vm.buchanan.uk.com/2016/genus080916/registration.htm
For further information please contact:-
Genus plc Tel: 01256 345970
Karim Bitar, Chief Executive
Stephen Wilson, Group
Finance Director
Buchanan Tel: 0207 466 5000
Charles Ryland/Victoria
Hayns
This announcement is available on the Genus website,
www.genusplc.com
About Genus
Genus creates advances to animal breeding and genetic
improvement by applying biotechnology and sells added value
products for livestock farming and food producers. Its technology
is applicable across all livestock species and is currently
commercialised by Genus in the dairy, beef and pork food production
sectors.
Genus's worldwide sales are made in over seventy-five countries
under the trademarks 'ABS' (dairy and beef cattle) and 'PIC' (pigs)
and comprise semen, embryos and breeding animals with superior
genetics to those animals currently in production. Genus's
customers' animals produce offspring with greater production
efficiency, and quality, and use these to supply the global dairy
and meat supply chains.
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 supply chain,
technical service and sales and distribution network.
With headquarters in Basingstoke, United Kingdom, Genus
companies operate in over twenty-five countries on six continents,
with research laboratories located in Madison, Wisconsin, USA.
Chief Executive's Review
FY16 was another good year for Genus. The Group performed well
overall and we met our financial and operational goals, as the
breadth of our business by geography and species helped drive
growth, despite challenges in some of our markets. We also made
strong progress with implementing our innovation-led strategy, as
we develop Genus into a company, based on leading-edge science and
biotechnology.
Group Performance
Genus achieved a robust performance in FY16, with adjusted
profit before tax including joint ventures ('JVs') rising 7% (10%
in constant currency) to GBP49.7m. On a statutory basis, profit
before tax rose 5% to GBP60.9m. Porcine volumes rose by 4%,
although bovine volumes were 6% lower in tough dairy markets.
Strategically important revenues such as porcine royalties rose
strongly, however, total revenue was 3% lower.
Genus PIC had another strong and successful year, despite
challenging conditions for our customers in most regions, achieving
a 9% growth in adjusted operating profit including JVs in constant
currency. Profits were up in all regions and the business achieved
strong growth in royalty volumes and revenues. Over the last few
years we have repositioned PIC's European operations away from low
margin up-front parent gilt sales towards royalty contracts,
particularly with integrated pork producers, and we saw encouraging
results in the year from this work.
With dairy customers facing depressed milk prices across major
markets, Genus ABS had a tough year and saw adjusted operating
profits fall by 16% in constant currency. We took tactical actions
on costs and margins to protect short-term performance and
strategic actions outlined below to position the business for
long-term growth. IVB, the world's leading supplier of bovine IVF
services and products, was successfully integrated following our
acquisition of 51% in March 2015 and delivered an encouraging
performance in its first full year in Genus.
Our Asian operations achieved very strong results across the
region, more than doubling operating profit including joint
ventures. Growth in China stood out, as we saw the benefit of our
work to focus on large scale pork producers while reducing farming
risk in this business. We also benefited from strong porcine market
conditions in China. Performance in Russia also improved as porcine
import restrictions were lifted.
Strategic Progress
R&D is the starting point for our innovation-led strategy to
enable us to increase genetic control and product differentiation.
Genomic selection techniques continue to advance and our
application of them to accelerate genetic gains in porcine
continues in our nucleus herds and is now starting to feed into
performance gains for our customers. We also apply these techniques
in bovine, developing proprietary indices such as
TransitionRight(TM) focused on dairy health traits and progressing
our internal breeding programme, which is now producing some of our
most elite bulls.
On 1 September 2016, we formed De Novo Genetics, a
majority-owned Holstein breeding strategic partnership, with De-Su,
the world's leading independent Holstein breeder. De Novo will
further accelerate the proportion of bulls Genus produces
internally by combining ABS's and De-Su's elite Holstein breeding
programmes. This will gives us greater control of the genetics we
need in order to create differentiated solutions that help
commercial dairy farmers increase profitability through improved
herd productivity, health and efficiency.
We made excellent technical progress with our GSS technology in
FY16, as we prepared it for commercialisation. Our litigation
against ST went to trial in August 2016 and, while there are
several issues still pending with the Court, the initial verdicts
finding that ST had wilfully maintained a monopoly should give us a
path to the commercial launch of the technology. This could be
within the next few months if our request for an injunction
releasing us from our contract with ST is granted. The jury's
findings that our technology infringes two of ST's patents and
specifying royalties to be paid to ST will be subject to further
review by the Court and is not expected to delay commercialisation.
We look forward to bringing competition to this important
market.
Gene editing is becoming a key part of our technology platform
that could transform Genus over time. Our collaboration with the
University of Missouri produced a major breakthrough during the
year, by using gene editing to create the first pigs resistant to
the devastating PRRSv disease. We are working to develop this
technology, aided by our new strategic collaboration with
biotechnology pioneer Caribou Biosciences. This gives us an
exclusive worldwide licence to use the revolutionary CRISPR-Cas9
gene editing technology to develop new traits in pigs, cows and
potentially other livestock species. Since the end of the year, we
have also announced an exclusive worldwide licence with Washington
State University, for patents and know-how relating to gene editing
targets for BRD.
Genus continued to target key growth markets during the year,
with particular progress in India and China. India is the world's
largest dairy market and the opening of our joint venture's new
bull stud was an important milestone for Genus. This new stud is
one of the most advanced designs in the world. China is the biggest
pork producer globally and we strengthened our position by signing
landmark royalty agreements with three key Chinese integrated pork
producers.
People and Organisation
With Genus Asia now well established and growing successfully,
we intend to integrate its porcine and bovine operations into PIC
and ABS in the coming year. This will support our strategy for each
species and help us to deliver a consistent experience to customers
around the world. Jerry Thompson, who has successfully led Asia,
will take on a new role to further focus our efforts in
establishing a greater presence with beef customers globally as COO
Genus ABS Beef. He will work closely with Saskia Korink, who will
now lead our global Genus ABS Dairy operations.
Our employee pulse survey continued to show that our people find
Genus an engaging and stimulating place to work. They are committed
to our vision and understand our strategy for achieving it. I want
to thank all my colleagues for their contribution to delivering for
our customers, which in turn enables Genus to succeed.
Outlook
Over the last two years, Genus has grown adjusted profit before
tax in double digits in constant currency. In FY17, we will further
accelerate our efforts to develop and apply the science and
technology that is essential to our longer-term success. This will
lead to a significant step up in R&D investment in FY17
resulting in profit for the year being similar to FY16 in constant
currency. However, we anticipate a benefit from exchange rates,
with sterling having declined sharply towards the end of FY16.
Overall, we expect to make further strategic progress in FY17 and
to perform in line with market expectations.
Karim Bitar
Chief Executive
7 September 2016
Financial and operating review
Financial Review
Genus delivered a solid financial performance in the year ended
30 June 2016, with adjusted profit before tax up 7% (up 10% in
constant currency) and cash conversion of 88%. Adjusted earnings
per share were also up 7% (10% in constant currency).
On a statutory basis, profit before tax was 5% higher and
earnings per share were 23% higher in actual currency, primarily
due to a lower statutory tax rate. We continue to use adjusted
results as our primary measures of financial performance as they
better reflect our underlying progress. Unless stated otherwise,
this financial review quotes constant currency adjusted growth
rates, which better reflect the Group's underlying performance.
The effect of exchange rate movements on the translation of our
overseas profits was to reduce the Group's adjusted profit before
tax for the year by GBP1.5m or 3% compared with FY15. At the end of
the period, Sterling devalued sharply following the UK referendum
on Brexit. While this had little effect on FY16 profits, it had a
significant translational impact on the year-end balance sheet.
Actual currency Constant
currency
2016 2015 Movement Movement
Adjusted Profit GBPm GBPm % %
Before Tax
Genus PIC 64.2 57.2 12 9
Genus ABS 19.5 24.0 (19) (16)
Genus Asia 11.3 5.7 98 98
Research and development (34.4) (28.6) (20) (16)
Central costs (11.3) (11.1) (2) 4
------- ------- --------- ----------
Adjusted operating
profit 49.3 47.2 4 6
Attributable to
non-controlling
interests (1.4) (0.6) (133) (183)
Share of JV profits
* 6.4 4.6 39 61
------- ------- --------- ----------
Adjusted operating
profit inc JV 54.3 51.2 6 9
Net finance costs (4.6) (4.6) - 2
------- ------- --------- ----------
Adjusted profit
before tax 49.7 46.6 7 10
* Excludes net IAS 41 valuation movement in biological assets
and taxation.
Revenue
Revenue declined by 3% in actual and constant currency to
GBP388.3m (2015: GBP398.5m) during the period. In porcine, Asia
revenue growth of 22%, primarily in Russia and China, was offset by
the planned continued reduction in up-front sales in Europe. Lower
porcine by-product sales were the result of lower pig prices and
there was a 4% decline in global bovine revenue, due to the poor
dairy market conditions.
Adjusted Operating Profit Including Joint Ventures
Adjusted operating profit including JVs was GBP54.3m (2015:
GBP51.2m), up 9% in constant currency and 6% in actual currency.
Genus's share of JV profits was higher at GBP6.4m (2015: GBP4.6m),
helped by the strong performance of the Besun JV in China due to
improved market conditions and lower production costs.
Profits in Genus Asia, excluding JVs, almost doubled with 98%
growth, helped by Asia Porcine growing by more than 200%. PIC China
performed very strongly, buoyed by exceptional market conditions
and reduced production costs resulting from the shift from owned
farms to more contracted production. The Russia, Vietnam and
franchise porcine businesses also achieving strong double-digit
growth, with Russia helped by the country reopening its borders to
pig imports. Asia Bovine grew 8%, helped by improvements in our
Australia and Russia businesses following restructuring in the
prior year.
Genus PIC had a strong year, with profits up 9%. Volume growth
of 2% continues to be affected by the shift to royalty contracts,
with volumes recognised later in the sales cycle. There was also
some reduction in up-front volumes in Europe during the second half
of the year, as market conditions remained challenging for our
customers.
Dairy producers have suffered two years of reducing milk prices
and Genus ABS began a vigorous drive to mitigate the profit impact
of these weak market conditions. Operating profit fell 16% before
minority interest, on a volume decline of 9%. The actions focused
on cost efficiencies in Europe and North America and pricing in
Latin America. IVB performed ahead of expectations in its first
full year of ownership.
R&D costs increased by 16%, as planned, as Genus pursued key
strategic initiatives to further strengthen its proprietary
differentiated offerings. This included intellectual property
creation and protection in gene editing capabilities, aided by our
new partnerships with University of Missouri and Caribou
Biosciences, and further advances in our GSS initiative. We also
continued to invest in product development, including expansion of
the beef and dairy elite heifer programs, which produced
encouraging results. Net porcine product development costs also
increased, driven largely by the decline in slaughter by-product
revenues from our nucleus herds resulting from lower pork
prices.
Performance by Species
The table below shows our global performance by species, after
allocating product development costs specific to each species.
Actual currency Constant
currency
2016 2015 Movement Movement
Revenue GBPm GBPm % %
Dairy and beef 172.8 183.4 (6) (4)
Porcine 207.5 201.3 3 1
Research and development 8.0 13.8 (42) (43)
------- ------- --------- ----------
388.3 398.5 (3) (3)
======= ======= ========= ==========
Adjusted operating
profit inc JV
Dairy and beef 9.1 14.5 (37) (32)
Porcine 64.5 52.4 23 22
Central costs and
research (19.3) (15.7) (23) (16)
------- ------- --------- ----------
54.3 51.2 6 9
======= ======= ========= ==========
Dairy and beef revenues declined 4% and volumes declined 6% in
tough dairy markets, with Europe and North America particularly
challenging. Operating profit declined by 32% due to lower volumes
and adverse currency cross rates. Actions are continuing to reduce
cost run rates and increase selling prices in key markets.
Porcine revenues grew by 1%, with royalty income up 17% to
GBP97.8m. Volumes were up 4% (including Agroceres PIC, our JV in
Brazil), with growth strongest in Asia. Profits were up 22% on
2015, with growth in all regions, a focus on pricing appropriately
for the value of our genetics and strong execution of our business
model.
Finance Costs
Net finance costs remained at GBP4.6m (2015: GBP4.6m) and
include IAS 19 pension interest of GBP2.2m (2015: GBP2.3m). The
cost of higher average borrowings in the year, following recent
acquisitions and the investment in GSS technology, was offset by
interest savings from the lower financing rates achieved in the new
facility agreement and the maturing of fixed interest rate
swaps.
Exceptional Items
There was a GBP36.3m net exceptional credit in 2016 (2015:
GBP5.1m expense), including an exceptional credit of GBP43.9m, from
changing the index used for pension and deferred pension increases
in the Milk Pension Fund from RPI to CPI, and a GBP0.3m settlement
gain related to the Milk Pension Fund. Exceptional costs were
GBP6.9m for ongoing legal fees and damages in Genus ABS's case
against ST, GBP0.2m for acquisition and integration related
expenses, primarily St Jacobs and IVB, and other items of GBP0.8m
including restructuring costs.
Statutory Profit Before Tax
The table below sets out a reconciliation between adjusted
profit before tax and statutory profit before tax:
2016 2015
GBPm GBPm
Adjusted Profit Before Tax 49.7 46.6
Operating profit attributable
to non-controlling interest 1.4 0.6
Net IAS 41 valuation movement
on Biological assets in joint
ventures and associates 1.9 (1.0)
Tax on joint ventures and
associates (1.4) (0.7)
Adjusting items:-
Net IAS 41 valuation movement
on Biological assets (17.1) 24.9
Amortisation of acquired
intangible assets (6.1) (6.1)
Share-based payment expense (3.8) (1.4)
Exceptional items 36.3 (5.1)
------- ------
Statutory Profit Before Tax 60.9 57.8
======= ======
Our statutory profit before tax was GBP60.9m (2015: GBP57.8m).
The statutory results benefited from the GBP36.3m net exceptional
credit described above but were reduced by a GBP17.1m decline
(2015: GBP24.9m increase) in the net IAS 41 valuation of biological
assets (see below). These items, which tend to be volatile and
mostly non-cash, are less representative of the Group's underlying
performance and have been excluded from adjusted results.
Taxation
The effective rate of tax for the year, based on adjusted profit
before tax, was 25.8% (2015: 26.0%). The effective rate remains
higher than the UK corporate tax rate. This is due to the mix of
overseas profits, particularly the proportion of profits generated
in the US and Latin America, where the statutory tax rates are
typically between 30 and 39%, and the impact of withholding taxes
on the repatriation of funds to the UK.
The tax rate on statutory profits was 19.7% (2015: 31.1%). In
addition to the factors mentioned above, there was a favourable
impact on the statutory tax rate in the year, due to the reversal
of deferred tax at US rates on the reduction in the IAS 41
biological assets valuation, while the exceptional pension credit
carried deferred tax at 18%.
Earnings Per Share
Adjusted basic earnings per share increased by 7% to 60.7 pence
(2015: 56.8 pence) and rose 10% in constant currency. Basic
earnings per share on a statutory basis were 81.1 pence (2015: 65.7
pence), an increase of 23%, reflecting the lower statutory tax rate
in the year.
Biological Assets
A feature of the Group's net assets is its substantial
investment in biological assets, which under IAS 41 are stated at
fair value. At 30 June 2016, the carrying value of biological
assets was GBP354.4m (2015: GBP315.9m), as set out in the table
below:
2016 2015
GBPm GBPm
Non-current assets 264.6 242.7
Current assets 66.4 50.2
Inventory 23.4 23.0
------ ------
354.4 315.9
====== ======
Represented by:
Porcine 184.7 148.1
Dairy and beef 169.7 167.8
------ ------
354.4 315.9
====== ======
The movement in the overall carrying value of biological assets,
excluding the effect of exchange rate translation increases of
GBP49.8m, includes:
-- a GBP9.4m increase in the carrying value of porcine
biological assets, due principally to an increase in the number of
animals sold on royalty contracts; and
-- a GBP26.5m decrease in the carrying value of dairy and beef
biological assets, arising from the impact of lower current year
volumes from dairy bulls and an increase in the proportion of
future semen sales from younger genomic animals not yet in our
asset base.
The historical cost of these assets, less depreciation, was
GBP42.5m at 30 June 2016 (2015: GBP34.1m), which is the basis used
for the adjusted results.
Retirement Benefit Obligations
The Group's retirement benefit obligations at 30 June 2016,
calculated in accordance with IAS 19 and IFRIC 14, were GBP44.5m
(2015: GBP63.1m) before tax and GBP34.9m (2015: GBP49.9m) net of
related deferred tax. The largest element of the liability relates
to the multi-employer Milk Pension Fund, where the deficit reduced
due to the change in pension increases from RPI to CPI, partially
offset by the impact of falling bond yields. We account for this
scheme on the basis of Genus being responsible for 75% of the
plan's IAS 19 deficit, together with the IFRIC 14 additional
liability for agreed deficit repair contributions in excess of this
valuation.
During the year, contributions payable in respect of the Group's
defined benefit schemes amounted to GBP6.7m (2015: GBP6.1m).
Cash Flow
Cash generated by operations remained solid at GBP43.3m (2015:
GBP50.7m). Conversion of adjusted operating profit into cash was
88% (2015: 107%) before capital expenditure, investments, interest,
tax and dividends, with 2015 benefiting from the exit from the
Quebec porcine nucleus.
The cash outflow from investments was GBP7.2m, primarily
relating to the acquisition of St Jacobs and an investment in
Caribou Biosciences. This compares with GBP9.6m, net of cash
acquired, from the acquisition of Birchwood and IVB in 2015. The
increase in capital expenditure of GBP3.8m to GBP18.6m (2015:
GBP14.8m) included investment in a licence to Caribou Bioscience's
gene editing technology and in GSS capacity and technology. The
total cash outflow for the year after these investments, interest,
tax and dividends was GBP3.7m (2015: inflow GBP1.9m).
2016 2015
Cash Flow (before debt GBPm GBPm
repayments)
Cash generated by operations 43.3 50.7
Interest, tax and dividends (25.5) (27.0)
Investments net of cash
acquired (7.2) (9.6)
Capital expenditure (18.6) (14.8)
Other 4.3 2.6
------- -------
(3.7) 1.9
======= =======
Adjusted operating profit 49.3 47.2
Cash Conversion 88% 107%
Net Debt
Net debt increased from GBP71.8m to GBP89.7m at 30 June 2016,
primarily due to exchange movements increasing net debt by
GBP13.6m, as most of our borrowings are in US Dollars. These
exchange movements were particularly pronounced following the UK's
decision to leave the EU.
During the year, we agreed new five-year borrowing facilities on
improved terms. At the end of June 2016 there was substantial
headroom of GBP49.8m under the renewed facilities of GBP169.7m,
which run to February 2021. The Group's financial position remains
strong.
Our borrowing ratios are strong. Interest cover was 35 times
(2015: 32 times). The ratio of net debt to EBITDA, as calculated
under our financing facilities, moderately increased to 1.4 times
(2015: 1.2 times) primarily due to the impact of exchange rate
movements on our US Dollar borrowing.
Return on Invested Capital
We measure our return on invested capital on the basis of
adjusted operating profit including JVs after tax, divided by the
operating net assets of the business, stated on the basis of
historical cost, excluding net debt and pension liability. This
removes the impact of IAS 41 fair value accounting, the related
deferred tax and goodwill. The return on invested capital decreased
to 19.1% after tax (2015: 21.7%). This reduction largely reflects
the translational impact on the balance sheet of exchange rate
movements at the end of the year.
Dividend
Reflecting the Board's continuing confidence in the Group's
prospects, it is recommending to shareholders a final dividend of
14.7 pence per ordinary share, resulting in a total dividend for
the year of 21.4 pence per ordinary share, an increase of 10% for
the year. It is proposed that the final dividend will be paid on 2
December 2016 to the shareholders on the register at the close of
business on 18 November 2016. Dividend cover remains consistently
strong, with the dividend covered 2.8 times by adjusted earnings
(2015: 2.9 times).
Stephen Wilson
Group Finance Director
7 September 2016
Review of Operations
Genus PIC
OPERATING REVIEW
Actual currency Constant
currency
2016 2015 Movement Movement
GBPm GBPm % %
Revenue 176.5 175.5 1 (2)
Adjusted operating
profit exc JV 64.2 57.2 12 9
Adjusted operating
profit inc JV 68.7 61.9 11 9
Adjusted operating
margin exc JV 36.4% 32.6% 3.8pts 3.7pts
Market
Market conditions for Genus's porcine customers were challenging
in most regions over the past year. High output, along with
geopolitical instability in Brazil, Russia and the EU,
significantly affected profitability across the animal protein
value chain. Global meat price indices for pork reached a 12-year
low.
North American producers maintained a positive net return for
the fiscal year, despite these challenging macroeconomic factors. A
strong export programme, coupled with relatively low cost of
production, delivered an estimated average of GBP5 profit per head
to producers in the United States. Additionally, farm debt ratios
in the US were low which continued to support expansion in FY16.
The outlook for prices in North America is challenging in the near
term, but a 6% forecast increase in slaughter capacity in the US
during 2017 is providing some optimism to the industry. This will
support overall demand, along with an expected 5% increase in
exports.
In Europe, the porcine industry suffered from increased
production and export bans. This led to oversupply and pork prices
declining around 9% compared with the previous year, leaving prices
about 20% below the average for the last five years and resulting
in producers making significant losses. The outlook for producers
is a bit more encouraging, as prices have recently started to rise
and some herd contraction has taken place. It is also anticipated
that exports to China should remain stable.
In Latin America, disease and economic volatility continue to
challenge producers' profitability. In Mexico, porcine epidemic
diarrhoea virus ('PEDv') and PRRSv have affected supply and
contributed to higher pig prices. The political turmoil and
recession in Brazil have hampered the otherwise promising
performance of the Latin America pig industry. Even so, Brazil was
the fourth largest pork producer in FY16 and continues to be a
major participant in the global market. Firm exports to Russia and
China, in conjunction with strong domestic demand, has Brazil on
track to increase pork production 3% by the end of the calendar
year, in spite of elevated input costs. Despite these challenges,
Latin America remains a growth market.
Overall, market conditions are mixed heading into FY17. China
will continue to be a driving force globally and exporting nations
will rely on their consumption to bolster production and financial
performance.
Performance
During FY16, Genus PIC performed strongly. Adjusted operating
profits including joint ventures were GBP68.7m, up 9% in constant
currency, and margins expanded by 4% to 36%. Volumes grew by 2%,
with all regions contributing strong growth in royalty volumes.
Revenue was 2% lower, primarily due to lower sales of up-front
animals. However strategically important royalty revenues rose by
13% in constant currency.
In North America, profits were up 8% in constant currency, on
volume growth of 3%. Strong customer uptake of high genetic merit
boars through the CBV plus and CBV max pricing structures, in
addition to high health in customer herds, contributed to royalty
growth of 9%. A number of customers expanded their herds, which
contributed to high breeding stock sales volumes.
Latin American profits improved 12% in constant currency, on 3%
volume increases, helped by a strong operating profit performance
in Mexico, up 29%. In Brazil, the PIC Agroceres joint venture also
performed well, with a 23% increase in constant currency operating
profit, but the rest of the region declined due to lower animal
shipments to Venezuela, where customers' access to foreign currency
was curtailed.
In Europe, volumes were slightly down, with an 8% increase in
royalty volumes and a 14% decline in up-front volumes, in line with
the strategic direction of the business. Revenue declined by 9% due
to the lower up-front sales but operating profit increased 22% in
constant currency. The strategic repositioning of the PIC Europe
business over the last few years, to focus on royalty business with
larger producers, is starting to show benefits despite the tough
trading environment in the European pig industry.
Overall, PIC's successful execution of its strategy has enabled
continued positive momentum globally.
Genus ABS
OPERATING REVIEW
Actual currency Constant
currency
2016 2015 Movement Movement
GBPm GBPm % %
Revenue 158.7 167.8 (5) (3)
Adjusted operating profit 19.5 24.0 (19) (16)
Adjusted operating profit
inc minority interest 18.2 23.5 (23) (21)
Adjusted operating margin 12.3% 14.3% (2.0)pts (1.8)pts
Market
Conditions in the dairy and beef markets affect our customers'
profitability and in turn their willingness, at least in the short
term, to invest in genetics.
During the year, milk prices remained depressed across major
markets, with further declines in the US and Europe. Continued milk
production growth in key regions such as EMEA and continued weak
import demand from markets such as Russia, China and the Middle
East led to prices of the main dairy commodities being between 20%
and 50% below their three-year averages. It looks likely that
prices will not improve sustainably until early 2017.
In Europe, the continuing trade ban imposed by Russia and weak
exports to China, following previous stockpiling, were exacerbated
by a supply increase as quotas were lifted and mild weather helped
production. In the US, demand has remained solid and milk
production growth has slowed, but higher milk imports have affected
the supply/demand equation. However, lower feed costs have reduced
the impact on operating margins compared with the rest of the
globe. In Brazil, the deepening economic recession has led to a
further deterioration in dairy demand and a fall in farm-gate
prices of 18% in real terms, resulting in the first contraction in
milk production since 1993. Meanwhile, the Argentina dairy industry
has been badly affected by some of the worst flooding in over a
decade.
Beef prices in the US were volatile, with a downward trend in
the first half of FY16 and a return towards normal levels by the
end of the year. In Brazil, cattle prices remained stable in the
worsening economy, helped by a combination of female retention,
which has reduced finished cattle going to market, and higher
exports with the opening of the US as an export destination and the
devaluation of the Brazilian Real. The outlook for global beef
prices is broadly stable.
Performance
Adjusted operating profits for Genus ABS fell by 16% in constant
currency (21% after minority interest), on the back of a 9% volume
decrease and a 3% decline in revenues. Excluding IVB, Genus ABS's
revenues were 9% lower. Europe and to a lesser extent North America
were key contributors to the lower results. In response to the
challenging conditions, ABS took robust actions to reduce costs,
particularly in Europe, and to raise prices, especially in Latin
America to counteract the significant currency depreciation there.
Global beef volumes and revenues increased in the year.
In North America, profits decreased by 8% in constant currency,
driven by a 9% conventional dairy volume decrease, although this
was partially offset by increased sorted semen volumes (up 14%), a
higher blend and strong cost management. Beef had another strong
year, with volumes up 1% over the record prior year, including the
continued increased use of beef semen in dairy cows.
In Europe, profits decreased by 16% in constant currency. The
severe weakness in the dairy market drove significant volume
decreases in the UK, France and the European Distributor business.
However, beef volumes increased by 13% as customers sought to trim
dairy herd sizes by producing beef cross-bred offspring for
slaughter. A strong focus on cost reduction, including reducing
employee numbers and improving service margins, also helped to
mitigate profit pressures in the second half, even as the market
prices fell further.
In Latin America profits were up 20% in constant currency,
despite volumes declining 10% in tough dairy markets, exacerbated
by drought in Brazil and flooding in Argentina. In actual
currencies, profits reduced as a result of the significant
devaluations across the region. In response, Genus ABS took the
lead in increasing selling prices in key markets such as Brazil,
Argentina and Mexico and by June, prices were on average 24%
higher. Our ongoing efforts to manage local supply chain costs and
operating expenses have also been beneficial. Beef performed
solidly, given the adverse conditions in Brazil and Argentina, with
flat volumes.
IVB made a strong contribution to the full year results and
exceeded our expectations, delivering revenues of GBP9.3m and total
operating profit of GBP2.3m in its first full year of
ownership.
Genus Asia
OPERATING REVIEW
Actual currency Constant
currency
2016 2015 Movement Movement
GBPm GBPm % %
Revenue 45.1 41.4 9 10
Adjusted operating
profit exc JV 11.3 5.7 98 98
Adjusted operating
profit inc JV 13.1 5.5 138 138
Adjusted operating
margin inc JV 29.0% 13.3% 15.7pts 15.6pts
Market
Conditions for our porcine business improved significantly from
the previous year. In particular, we saw a recovery within China,
the world's largest porcine market, following two years of losses
in the industry. Rising demand, coupled with limited supplies
following reductions in the country's sow herd, placed a premium on
available animals and pushed up prices to record highs.
In parallel, the market within Russia rebounded as the country
re-opened its borders to imports of pigs from North America and the
EU. Demand for pork also remained high in our other target
markets.
In contrast, conditions for our bovine business were
challenging. Dairy prices remained low, reflecting the global
picture. Milk prices fell in Australia and are likely to reduce the
number of cows and farms within the country. Low prices within
China continue to drive consolidation of the country's dairy
industry. Although prices in India remained stable, the country
experienced a major drought which affected production and
demand.
Performance
2016 was a year of significantly improved performance,
increasing operating profit by 138%, with tailwinds from the
revitalisation of porcine markets in China and Russia. The
performance, however, also shows that the business has benefited
from the strategic decisions and investments made in recent years
and the tailoring of our business model to the needs of each
market.
Porcine
Overall results were significantly higher than for the preceding
year. Volumes rose by 19%, leading to increases of 22% in revenue
and over 300% in operating profit including joint ventures in
constant currency.
Operating profits in China rose by over GBP6m, as prices
increased and demand for breeding animals grew. Our business also
continued to reap the benefits of our move away from owned farms to
a more contracted production model, which is helping us reduce
farming exposure and commodity price risk. During the year, we
signed further multiplication and royalty-based contracts with
major producers.
In Russia, we increased profits by 75% in constant currency
through growth in key accounts, following the re-starting of
imports to the country. This was also aided by more than doubling
our sire-line pricing, to reflect the value delivered by our
high-quality genetics. In contrast, profit in the Philippines fell
by 9%, mainly due to lower up-front margins during the transition
to a royalty business model.
In Vietnam, where we operate in partnership with GreenFeed,
profits rose by 92%. We also renewed our porcine franchises in
Australia and Korea on improved terms, increasing sire-line pricing
significantly in the process, and we signed a new franchise in
Ukraine.
Across the region, we continued to expand the use of our royalty
model, which provides extra revenue streams and additional
resilience in the event of a fall in demand for new breeding
animals. Royalty revenues across the region rose by 32%.
Bovine
Despite difficult market conditions, bovine volumes rose by 2%
and operating profits by 8%. In China, we further strengthened our
relationships with key distributors and in Russia, performance
improved following the refocusing of the business in the prior
year.
We continued to build our business in India and strengthened our
capabilities in the country with the beginning of operations at our
new Brahma stud, a joint venture with BG Chitale.
Our Australian business increased operating profit, aided by
innovative promotions to mitigate the impact of falling milk
prices. Operating profit fell in Japan, however, influenced by
fewer top bulls in local rankings and the strength of the US
Dollar.
We also invested in skills and structure to drive performance of
our bovine business, including appointing our first Regional
Director for bovine.
Research and Development
OPERATING REVIEW
Actual currency Constant
currency
2016 2015 Movement Movement
GBPm GBPm % %
Research 8.0 4.6 74 67
Porcine product
development 13.5 11.6 16 12
Bovine product
development 12.9 12.4 4 0
----- ----- --------- ----------
Net expenditure
in R&D 34.4 28.6 20 16
===== ===== ========= ==========
Performance
Our investment in R&D for the year increased by 16% in
constant currency and capital spending also increased. This
reflected our investments in gene editing capabilities and
licensing, genome science, advancing our GSS initiative, and
furthering our computational capabilities in bovine and beef
product development. In porcine product development, increases in
global volume and related dissemination costs, along with lower
slaughter prices and higher product validation costs, drove the
year over year increase. In September 2016, we also formed a new
strategic partnership (De Novo Genetics) with the world's leading
independent Holstein breeder, strengthening our ability to produce
our own elite bulls.
As in previous years, our research focused on genomic
evaluation, gender skew and animal health and welfare. Research
expenditure increased by 67% this year, in part due to significant
advancements in gene editing and our partnerships with the
University of Missouri and Caribou Biosciences, as well as related
legal expenses and capability building. We also invested in core
informatics capabilities and expanded research efforts in a number
of promising areas.
In genomic evaluation, we continued to explore the frontiers of
genomic information and its use in animal genetic improvement. We
are actively exploring genotype by sequencing approaches that could
be applied across our animal systems. We successfully initiated our
multi-year collaboration with the Roslin institute, exploring
genotype by sequencing opportunities in our PIC system. This
project is partially funded by a grant from the UK government.
In gender skew, where costs were largely capitalised, we
completed additional testing of our commercial scale capabilities.
We completed final commercial performance tests of our GSS
technology, refined our manufacturing processes and initiated the
production and inventory of units for commercial sale, pending the
outcome of our Court proceedings. We also invested in technology
improvements to the current GSS system, which included new
detection approaches with the promise of further improvements in
fertility. We also continue to build our internal capabilities in
intellectual property development, regulatory affairs and research
strategy.
Bovine product development expenditure was unchanged in constant
currency. We invested in both dairy and beef in our internal heifer
nucleus breeding programmes, and in genetic services resources to
develop proprietary breeding indices and predictive genomic mating,
to deliver higher genetic control and differentiation. We also made
several key dairy bull acquisitions to strengthen our global line
up. Depreciation of dairy bulls increased year over year,
reflecting the continued rising cost of competitive bulls in the
genomic era, however progeny testing costs and management overheads
were reduced.
Porcine product development expenditure increased by 12%, driven
in large part by a decline in slaughter by-product revenues from
our nucleus herds resulting from lower pork prices, partially
offset by lower feed prices, and by the non-recurrence of a
Canadian government support payment in FY15. We also increased
investment in growing the breadth and depth of our genomic testing
of animals and continued to expand our global product validation
programme.
Principal Risks and Uncertainties
Genus supplies biological products to agricultural customers and
is exposed to a wide range of risks and uncertainties. Some of
these risks relate to current business operations in our global
agricultural markets, while others relate to future commercial
exploitation of our extensive R&D portfolio. The table below
outlines the principal risks and uncertainties affecting Genus and
how we manage them.
The Directors confirm that they have undertaken a robust
assessment of the principal risks and uncertainties facing the
Group.
Strategic Risks
-------------------------------------------------------------------------------------------
Risk description How we manage risk Risk change
in FY16
------------------------------ --- --------------------------- ---------------------
Developing products Dedicated teams align No change in
with competitive our product development porcine but
advantage to customer requirements, increased in
while our technical bovine due to
-- Development programmes services help customers continuing trend
fail to produce make best use of to genomic bulls.
best genetics for our products. We
customers. frequently measure
-- Increased competition our performance against
to secure elite competitors in customers'
genetics. systems, to ensure
the value added by
our genetics remains
competitive.
------------------------------ --- --------------------------- ---------------------
Commercialising We have a rigorous No change. The
GSS technology process to prepare initial verdicts
-- Launching a new for the successful in the legal
product technology commercial launch proceedings
carries technical, of our GSS technology, create a path
production and financial supported by dedicated to commercialisation
risks. internal resources but further
-- Failure to commercialise and external expert rulings by the
our GSS technology advice. Court are awaited
due to intellectual to bring clarity
property ('IP') We also initiated to the next
and other disputes. legal proceedings steps. Technical
in the US, in relation progress to
to anti-trust issues scale up for
which, together with commercial launch
patent counter-claims, also progressed
went to trial in well, reducing
August 2016. launch risk.
-------------------------------- --------------------------- ---------------------
Developing and commercialising Our R&D Portfolio Increased due
gene editing technologies Management Team oversees to the discovery
our research, ensures and pursuit
-- Failure to successfully we correctly prioritise of new gene
develop and commercialise our R&D investments editing applications
gene-editing technologies and assesses the and consequent
due to technical, adequacy of resources higher investment
IP, market, regulatory and its IP freedom in FY16 and
or financial barriers. to operate. Formal beyond. All
-- 'Game-changing' collaboration agreements key initiatives
technology secured are in place with are progressing
by competitors. key partners to ensure through the
responsible exploration R&D life cycle.
and development of
the technologies
and the protection
of IP. The Board
is updated regularly
on key development
projects.
-------------------------------- --------------------------- ---------------------
Capturing value We have a rigorous No change
through acquisitions acquisition analysis
-- Failure to identify and due diligence
appropriate investment process, with the
opportunities or Board reviewing and
to perform sound signing-off all projects.
due diligence. We also have a structured
-- Failure to successfully post-acquisition
integrate an acquired integration planning
business. and execution process.
-------------------------------- --------------------------- ---------------------
Growing in emerging We have a robust No change. Revised
markets organisation, blending plans and approach
-- Failure to appropriately local and expatriate to the market
develop business executives supported in China and
in China and other by the global species other emerging
emerging markets. teams, to ensure markets continue
we comply with our to improve our
global standards. ability to control
The Board provides and mitigate
regular oversight the risk.
and dedicated significant
time in FY16 to discussing
our strategy and
the results of our
operations in China.
-------------------------------- --------------------------- ---------------------
Operational Risks
-------------------------------------------------------------------------------------------
Risk description How we manage risk Risk change
in FY16
------------------------------ --- --------------------------- ---------------------
Protecting Intellectual We have a global, No change
Property ('IP') cross-functional
-- Failure to protect process to identify
our IP means Genus-developed and protect our IP.
genetic material, Our customer contracts
methods, systems and our selection
and technology could of multipliers and
become freely available JV partners include
to third-parties. appropriate measures
to protect our IP.
We conduct robust
'Freedom To Operate'
searches to identify
third-party rights
to technology.
------------------------------ --- --------------------------- ---------------------
Ensuring biosecurity We have stringent No change
and continuity of biosecurity standards,
supply with independent
-- Loss of key reviews throughout
livestock, owing the year to ensure
to disease outbreak. compliance. We continue
-- Loss of ability to extend the geographical
to move animals diversity of our
or semen freely production facilities,
(including across to avoid over-reliance
borders) due to on single sites.
disease outbreak,
environmental incident
or international
trade sanctions.
-- Industry-wide
disease outbreaks
affecting demand
for Genus products.
-------------------------------- --------------------------- ---------------------
Financial Risks
-------------------------------------------------------------------------------------------
Risk description How we manage risk Risk change
in FY16
----------------------- --- ------------------------------------- ------------------
Managing agricultural We continuously monitor markets No change
market and commodity and seek to balance our costs
prices volatility and resources in response to
-- Fluctuations market demand. We actively
in agricultural monitor and update our hedging
markets affect strategy to manage our exposure.
customer profitability Our porcine royalty model and
and therefore demand extensive use of third-party
for our products multipliers mitigates the impact
and services. of cyclical price reductions
-- Increase in or cost increases in pig production.
our operating costs,
due to commodity
pricing volatility.
----------------------- --- ------------------------------------- ------------------
Funding pensions We are the principal employer No change.
-- Exposure to for the Milk Pension Fund and The trustees
costs associated chair the group of participating decision to
with failure of employers. The fund is now grant future
third-party members closed to future service and pension increases
of joint and several has an agreed deficit recovery on the basis
liabilities pension plan, based on the 2015 actuarial of the movement
scheme. valuation. We monitor the strengths in CPI, rather
-- Exposure to of other employers in the fund than RPI,
costs as a result and have retained external will reduce
of external factors consultants to provide expert costs. However,
(such as mortality advice. this is currently
rates, interest being partially
rates or investment offset by
values) affecting the impact
the size of the of falling
pension deficit. bond yields
following
the EU referendum
in the UK.
------------------------- ------------------------------------- --------------------
Group Income Statement Genus plc
For the year ended 30 June 2016
2016 2015
Note GBPm GBPm
REVENUE 2 388.3 398.5
ADJUSTED OPERATING PROFIT 2 49.3 47.2
Adjusting items:-
* Net IAS 41 valuation movement on biological assets 9 (17.1) 24.9
* Amortisation of acquired intangible assets 8 (6.1) (6.1)
* Share-based payment expense (3.8) (1.4)
(27.0) 17.4
Exceptional items:-
* Pension related 3 44.2 0.4
* Litigation 3 (6.9) (2.8)
* Acquisition and integration 3 (0.2) (1.4)
* Other (including restructuring) 3 (0.8) (1.3)
36.3 (5.1)
Total adjusting and exceptional
items 9.3 12.3
OPERATING PROFIT 58.6 59.5
Share of post-tax profit of
joint ventures and associates
retained 6.9 2.9
Finance costs 4 (4.7) (4.8)
Finance income 4 0.1 0.2
PROFIT BEFORE TAX 60.9 57.8
Taxation 5 (10.6) (17.3)
PROFIT FOR THE YEAR FROM CONTINUING
OPERATIONS 50.3 40.5
ATTRIBUTABLE TO:
Owners of the Company 49.3 39.9
Non-controlling interest 1.0 0.6
50.3 40.5
EARNINGS PER SHARE FROM CONTINUING
OPERATIONS 6
Basic earnings per share 81.1p 65.7p
Diluted earnings per share 80.3p 64.9p
NON-STATUTORY MEASURE OF PROFIT
Adjusted operating profit from
continuing operations 49.3 47.2
Operating profit attributable
to non-controlling interest (1.4) (0.6)
Pre-tax share of profits from
joint ventures and associates
excluding net IAS 41 valuation
movement 6.4 4.6
ADJUSTED OPERATING PROFIT INCLUDING
JOINT VENTURES AND ASSOCIATES 54.3 51.2
Net finance costs 4 (4.6) (4.6)
ADJUSTED PROFIT BEFORE TAX FROM
CONTINUING OPERATIONS 49.7 46.6
ADJUSTED EARNINGS PER SHARE
FROM CONTINUING OPERATIONS 6
Basic adjusted earnings per
share 60.7p 56.8p
Diluted adjusted earnings per
share 60.1p 56.1p
Group Statement of Comprehensive Income Genus plc
For the year ended 30 June 2016
2016 2016 2015 2015
GBPm GBPm GBPm GBPm
PROFIT FOR THE YEAR 50.3 40.5
Items that may be reclassified
subsequently to profit
or loss
Foreign exchange translation
differences 76.6 14.5
Fair value movement on
net investment hedges (13.3) (6.1)
Fair value movement on
cash flow hedges (0.7) -
Tax relating to components
of other comprehensive
income (16.8) (6.7)
45.8 1.7
------ -----
Items that may not be
reclassified subsequently
to profit or loss
Actuarial loss on retirement
benefit obligations (12.8) (7.3)
Movement on pension asset
recognition restriction (0.6) (1.2)
Recognition of additional
pension liability (14.9) -
Tax relating to components
of other comprehensive
income 4.5 1.6
(23.8) (6.9)
------ -----
OTHER COMPREHENSIVE INCOME/(EXPENSE)
FOR THE YEAR 22.0 (5.2)
TOTAL COMPREHENSIVE INCOME
FOR THE YEAR 72.3 35.3
ATTRIBUTABLE TO:
Owners of the Company 72.1 35.0
Non-controlling interest 0.2 0.3
72.3 35.3
Group Statement of Changes in Equity Genus plc
Called
up Share Trans-lation Non-
share premium Own reserve Hedging Retained controlling Total
Note capital account shares GBPm reserve earnings Total interest equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
BALANCE AT 30
JUNE
2014 6.1 112.2 (0.1) (12.1) - 178.6 284.7 0.6 285.3
Foreign exchange
translation
differences,
net of tax - - - 6.8 - - 6.8 (0.3) 6.5
Fair value
movement
on net
investment
hedges,
net of tax - - - (4.8) - - (4.8) - (4.8)
Actuarial loss
on retirement
benefit
obligations,
net of tax - - - - - (5.9) (5.9) - (5.9)
Movement on
pension
asset
recognition
restriction,
net of tax - - - - - (1.0) (1.0) - (1.0)
Other
comprehensive
(expense)/income
for the year - - - 2.0 - (6.9) (4.9) (0.3) (5.2)
Profit
for the
year - - - - - 39.9 39.9 0.6 40.5
Total
comprehensive
income for the
year - - - 2.0 - 33.0 35.0 0.3 35.3
Recognition of
share-based
payments,
net of tax - - - - - 2.2 2.2 - 2.2
Adjustment
arising
from change in
non-controlling
interest and
written put
option - - - - - - - (6.6) (6.6)
Dividends 7 - - - - - (11.1) (11.1) - (11.1)
BALANCE AT 30
JUNE
2015 6.1 112.2 (0.1) (10.1) - 202.7 310.8 (5.7) 305.1
Foreign exchange
translation
differences,
net of tax - - - 58.2 - - 58.2 (1.2) 57.0
Fair value
movement
on net
investment
hedges,
net of tax - - - (10.6) - - (10.6) - (10.6)
Fair value
movement
on cash flow
hedges, net of
tax - - - - (0.6) - (0.6) - (0.6)
Actuarial loss
on retirement
benefit
obligations,
net of tax - - - - - (11.0) (11.0) - (11.0)
Movement on
pension
asset
recognition
restriction,
net of tax - - - - - (0.6) (0.6) - (0.6)
Recognition of
additional
pension
liability, net
of tax - - - - - (12.2) (12.2) - (12.2)
Other
comprehensive
income/(expense)
for the year - - - 47.6 (0.6) (23.8) 23.2 (1.2) 22.0
Profit
for the
year - - - - - 49.3 49.3 1.0 50.3
Total
comprehensive
income for the
year - - - 47.6 (0.6) 25.5 72.5 (0.2) 72.3
Recognition of
share-based
payments,
net of tax - - - - - 3.3 3.3 - 3.3
Adjustment
arising
from change in
non-controlling
interest - - - - - - - (0.5) (0.5)
Dividends 7 - - - - - (12.2) (12.2) - (12.2)
Issue of ordinary
shares - 0.1 - - - - 0.1 - 0.1
BALANCE AT 30
JUNE
2016 6.1 112.3 (0.1) 37.5 (0.6) 219.3 374.5 (6.4) 368.1
Group Balance Sheet Genus plc
As at 30 June 2016
2016 2015
Note GBPm GBPm
ASSETS
Goodwill 8 86.0 73.9
Other intangible assets 8 78.0 69.8
Biological assets 9 264.6 242.7
Property, plant and equipment 61.8 50.3
Interests in joint ventures
and associates 24.3 19.6
Other investments 3.6 0.2
Deferred tax assets 4.7 7.8
TOTAL NON-CURRENT ASSETS 523.0 464.3
Inventories 35.7 32.2
Biological assets 9 66.4 50.2
Trade and other receivables 10 78.1 74.7
Cash and cash equivalents 34.0 21.3
Income tax receivable 1.0 0.4
Derivative financial asset 0.6 0.7
Asset held for sale 0.3 0.5
TOTAL CURRENT ASSETS 216.1 180.0
TOTAL ASSETS 739.1 644.3
LIABILITIES
Trade and other payables (65.1) (58.9)
Interest-bearing loans and
borrowings (4.6) (12.2)
Provisions (1.2) (2.4)
Obligations under finance
leases (1.1) (1.1)
Current tax liabilities (4.9) (6.3)
Derivative financial liabilities (0.5) (0.2)
TOTAL CURRENT LIABILITIES (77.4) (81.1)
Interest-bearing loans and
borrowings (115.3) (77.4)
Retirement benefit obligations 11 (44.5) (63.1)
Deferred tax liabilities (118.5) (105.2)
Derivative financial liabilities (12.6) (10.0)
Obligations under finance
leases (2.7) (2.4)
TOTAL NON-CURRENT LIABILITIES (293.6) (258.1)
TOTAL LIABILITIES (371.0) (339.2)
NET ASSETS 368.1 305.1
2016 2015
GBPm GBPm
EQUITY
Called up share capital 6.1 6.1
Share premium account 112.3 112.2
Own shares (0.1) (0.1)
Translation reserve 37.5 (10.1)
Hedging reserve (0.6) -
Retained earnings 219.3 202.7
Equity attributable to owners
of the Company 374.5 310.8
Non-controlling interest 5.0 4.3
Put option over non-controlling
interest (11.4) (10.0)
Total non-controlling interest (6.4) (5.7)
Total equity 368.1 305.1
Group Statement of Cash Flows Genus plc
For the year ended 30 June 2016
2016 2015
Note GBPm GBPm
NET CASH FLOW FROM OPERATING
ACTIVITIES 12 30.0 34.8
CASH FLOWS FROM INVESTING
ACTIVITIES
Dividends received from joint
ventures and associates 2.4 2.3
Joint venture loan repayment 1.0 -
Acquisition of subsidiaries
(net of cash acquired) 14 (3.5) (8.8)
Acquisition of investment (3.5) -
Acquisition of investment
in joint venture (0.2) (0.8)
Disposal of subsidiary (net
of cash disposed) 0.1 -
Purchase of property, plant
and equipment (11.8) (12.0)
Purchase of intangible assets (6.8) (2.8)
Proceeds from sale of property,
plant and equipment 1.8 0.3
Proceeds from sale of assets
held for sale 0.7 -
NET CASH OUTFLOW FROM INVESTING
ACTIVITIES (19.8) (21.8)
CASH FLOWS FROM FINANCING
ACTIVITIES
Drawdown of borrowings 53.6 51.8
Repayment of borrowings (37.3) (53.0)
Payment of finance lease liabilities (1.9) (1.5)
Equity dividends paid (12.2) (11.1)
Dividend to non-controlling
interest (0.4) -
Issue of ordinary shares 0.1 -
Debt issue costs (1.4) -
NET CASH INFLOW/(OUTFLOW)
FROM FINANCING ACTIVITIES 0.5 (13.8)
NET INCREASE/(DECREASE) IN
CASH AND CASH EQUIVALENTS 10.7 (0.8)
Cash and cash equivalents
at start of the year 21.3 22.8
Net increase/(decrease) in
cash and cash equivalents 10.7 (0.8)
Effect of exchange rate fluctuations
on cash and cash equivalents 2.0 (0.7)
TOTAL CASH AND CASH EQUIVALENTS
AT 30 JUNE 34.0 21.3
Notes to the Preliminary Results Genus plc
For the year ended 30 June 2016
1. REPORTING ENTITY
Status of audit
The financial information given does not constitute the
Company's statutory accounts for the year ended 30 June 2016 or the
year ended 30 June 2015, but is derived from those accounts.
Statutory accounts for the year ended 30 June 2015 have been
delivered to the Registrar of Companies and those for the year
ended 30 June 2016 will be delivered following the Company's annual
general meeting. The auditors have reported on those accounts;
their reports were unqualified, did not draw attention to any
matters by way of emphasis without qualifying their reports, and
did not contain statements under s. 498(2) or (3) Companies Act
2006.
Basis of preparation
The financial information for the year ended 30 June 2016
together with the comparative year has been computed in accordance
with International Financial Reporting Standards (IFRSs) as adopted
by the European Union.
The Group Financial Statements are presented in Sterling, which
is the Company's functional and presentation currency. All
financial information presented in Sterling has been rounded to the
nearest million at one decimal point.
The principal exchange rates were as follows:
Average Closing
------------------------- -------------------------
2016 2015 2014 2016 2015 2014
US Dollar/GBP 1.47 1.57 1.64 1.34 1.57 1.71
Euro/GBP 1.33 1.32 1.20 1.20 1.41 1.25
Brazilian Real/GBP 5.47 4.26 3.75 4.28 4.89 3.77
Mexican Peso/GBP 25.38 22.68 21.44 24.66 24.68 22.18
While 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 in October 2016. These financial
statements have also been prepared in accordance with the
accounting policies set out in the 2015 Annual Report and Financial
Statements, as amended by the following new accounting
standards.
New standards and interpretations
No new standards and interpretations have been adopted in the
current period.
New standards and interpretations not yet adopted
At the date of authorisation of these Group Financial
Statements, the following standards and interpretations which have
not been applied in preparing these Group Financial Statements were
in issue but not yet effective (and in some cases had not yet been
adopted by the EU):
-- Amendments to IFRS 11 'Accounting for acquisitions of
interests in Joint ventures', IAS 27 'Equity method in separate
financial statements', IAS 1 'Disclosure Initiatives', IAS 12
'Recognition of deferred tax assets for unrealised losses';
-- Amendments to IFRS 10, IFRS 12 and IAS 28 'Investment
entities: Applying the consolidation exception';
-- Amendments to IAS 16 and IAS 38 'Clarification of acceptable
method of depreciation and amortisation';
-- 'Improvements to IFRS 2012 - 2014 cycle';
-- IFRS 9 'Financial Instruments';
-- IFRS 14 'Regulatory Deferral Response';
-- IFRS 15 'Revenue from Contracts with Customers'; and
-- IFRS 16 'Leases'.
The Group is currently assessing the impact of the new
pronouncements on its results, financial position and cash flows.
It is not practicable to provide a reasonable estimate of the
effect of these standards until a detailed review has been
completed.
Going concern
After making enquiries, the Directors have a reasonable
expectation that the Group has adequate resources to continue its
operational existence for the foreseeable future and for a period
of at least twelve months from the date of this report.
Accordingly, the Directors continue to adopt and consider
appropriate the going concern basis in preparing the Annual Report
and Accounts.
Non-GAAP measures - adjusted operating profit, adjusted profit
before tax and adjusted earnings per share
Adjusted operating profit, adjusted profit before tax from
continuing operations and adjusted earnings per share exclude the
net IAS 41 valuation movement on biological assets, amortisation of
acquired intangible assets, share-based payment expense,
exceptional items and other gains and losses.
We believe these non-GAAP measures provide shareholders with
useful information about the Group's trading performance. The
reconciliation between operating profit from continuing operations
and adjusted operating profit from continuing operations is shown
on the face of the Group Income Statement.
This preliminary announcement was approved by the Board on 7
September 2016.
2. SEGMENTAL INFORMATION
IFRS 8 'Operating Segments' requires operating segments to be
identified on the basis of internal reports about components of the
Group that are regularly reviewed by the Group Chief Executive and
the Board to allocate resources to the segments and to assess their
performance. For management purposes, the Group's operating and
reporting structure comprises four operating segments; Genus PIC,
Genus ABS, Genus Asia and R&D. These segments are the basis on
which the Group reports its segmental information. The principal
activities of each segment are as follows:
Genus PIC - Our global porcine sales business excluding Asia
Genus ABS - Our global bovine sales business excluding Asia
Genus Asia - Our porcine and bovine business in Asia
Research and Development - Our global spend on research and
development
A segment analysis of revenue, operating profit, depreciation,
amortisation and non-current asset additions and segment assets and
liabilities are detailed below. We do not include our adjusting
items in the segments as we believe these do not reflect the
underlying progress of the segments. The accounting policies of the
reportable segments are the same as the Group's accounting policies
as described in the financial statements.
Revenue 2016 2015
GBPm GBPm
Genus PIC 176.5 175.5
Genus ABS 158.7 167.8
Genus Asia 45.1 41.4
Research and Development
----------------------------------- ------------ ------------
Research - -
Porcine Product Development 8.0 13.8
Bovine Product Development - -
----------------------------------- ------------ ------------
8.0 13.8
------------ ------------
388.3 398.5
------------ ------------
Operating profit by segment is set out below and reconciled to
the Group's adjusted operating profit. A reconciliation of adjusted
operating profit to profit for the year is shown on the Group
Income Statement.
Operating profit 2016 2015
GBPm GBPm
Genus PIC 64.2 57.2
Genus ABS 19.5 24.0
Genus Asia 11.3 5.7
Research and Development
------------------------------ ------------- -------------
Research (8.0) (4.6)
Porcine Product Development (13.5) (11.6)
Bovine Product Development (12.9) (12.4)
------------------------------ ------------- -------------
(34.4) (28.6)
Segment operating profit 60.6 58.3
Central costs (11.3) (11.1)
Adjusted operating profit 49.3 47.2
------------- -------------
Our business is not highly seasonal and our customer base is
diversified, with no individual customer generating more than 2% of
revenue.
Other segment information
Depreciation Amortisation Additions
to non-current
assets
2016 2015 2016 2015 2016 2015
GBPm GBPm GBPm GBPm GBPm GBPm
Genus PIC 0.6 0.5 5.9 6.1 1.1 0.5
Genus ABS 1.6 1.5 1.0 0.6 2.5 1.8
Genus Asia 0.3 0.5 0.1 - 0.4 0.4
Research and Development
------------------------------------ ------- ------- ------- ------- -------- --------
Research - 0.1 - - 3.6 5.2
Porcine Product Development 1.8 1.9 - - 1.7 0.6
Bovine Product Development 1.4 0.2 - - 7.3 5.2
------------------------------------ ------- ------- ------- ------- -------- --------
3.2 2.2 - - 12.6 11.0
Segment total 5.7 4.7 7.0 6.7 16.6 13.7
Central costs 2.2 1.6 - - 4.3 3.3
Total 7.9 6.3 7.0 6.7 20.9 17.0
Segment assets Segment liabilities
2016 2015 2016 2015
GBPm GBPm GBPm GBPm
Genus PIC 211.6 194.9 (45.9) (45.5)
Genus ABS 124.2 112.3 (43.7) (39.9)
Genus Asia 42.1 37.0 (8.4) (7.6)
Research and Development
---------------------------------- ------- ------- ---------- ---------
Research 3.7 6.0 (0.4) (0.1)
Porcine Product Development 146.7 110.0 (59.6) (47.6)
Bovine Product Development 203.1 178.9 (51.2) (52.2)
---------------------------------- ------- ------- ---------- ---------
353.5 294.9 (111.2) (99.9)
Segment total 731.4 639.1 (209.2) (192.9)
Central 7.7 5.2 (161.8) (146.3)
Total 739.1 644.3 (371.0) (339.2)
Exceptional items of GBP36.3m credit (2015: GBP5.1m expense),
relate to Genus ABS (GBP8.0m expense) and our central segment
(GBP44.3m credit). Note 3 provides details of these exceptional
items.
We consider share-based payments on a Group-wide basis and do
not allocate them to reportable segments.
Geographical information
The analysis of revenue by geographical area is stated on the
basis of where the legal entity is incorporated and therefore in
the country the revenue will be reported. The Group's revenue by
geographical segment is analysed below:
Revenue
2016 2015
GBPm GBPm
North America 178.7 181.2
Latin America 58.6 59.0
Europe, Middle East and Africa 105.9 116.9
Asia 45.1 41.4
388.3 398.5
------------ ------------
Non-current assets (excluding deferred taxation and financial
instruments)
2016 2015
GBPm GBPm
North America 347.5 306.3
Latin America 56.3 51.2
Europe, Middle East and Africa 98.2 85.0
Asia 16.3 14.0
518.3 456.5
----- -----
Revenue by type
2016 2015
GBPm GBPm
Sale of animals, semen, embryos
and associated products and services 283.5 307.9
Royalties - animal and semen 97.8 83.6
Consulting services 7.0 7.0
388.3 398.5
Interest income (see note 4) 0.1 0.2
388.4 398.7
3. EXCEPTIONAL ITEMS
2016 2015
Operating income/(expenses): GBPm GBPm
Pension related 44.2 0.4
Litigation (6.9) (2.8)
Acquisition and integration (0.2) (1.4)
Other (including restructuring) (0.8) (1.3)
36.3 (5.1)
Pension related
During the year, a gain of GBP43.9m arose as a result of
changing the index used for pensions and deferred pension increases
in the Milk Pension Fund from RPI to CPI, and a GBP0.3m settlement
gain arose from members leaving the same scheme. See note 11.
Litigation
Litigation includes legal fees of GBP5.4m (2015: GBP2.8m)
related to the action by ABS Global, Inc. against Inguran, LLC (aka
Sexing Technologies) and GBP1.5m ($2m) for up-front damages related
to patent infringement and confidential information.
On 14 July 2014, ABS, a wholly owned subsidiary of the Company,
launched a legal action against ST, in the US District Court for
the Western District of Wisconsin alleging, among other matters,
that ST (i) has a monopoly in the processing of sexed bovine semen
in the US and (ii) unlawfully maintains this monopoly through
anticompetitive contractual provisions and the repeated acquisition
of exclusive patent rights related to semen processing. The legal
action aimed to remove these barriers and allow free and fair
competition in the sexed bovine semen processing market ('ABS
Action'). On the same date, ABS also filed an Inter-Partes Review
application ('IPR') challenging the validity of one of ST's group
patents, US Patent No. 7,195,920 (the '920 patent') before the US
Patent Office. Subsequently, ABS also filed IPRs challenging the
validity of ST's group patents US Patent No. 7,820,425 (the '425
patent'), US Patent No. 8,206,987 (the '987 patent') and US Patent
No. 8,198,092 (the '092 patent').
ST and its subsidiary XY filed an Answer and Counterclaim to the
ABS Action, denying any anticompetitive activities, and alleging,
among other matters, (i) that ABS fraudulently induced ST to enter
into the parties' semen sorting agreement, (ii) that the Company
and ABS repudiated and breached the agreement, and (iii) that the
Company and ABS have infringed the '920, '425, '987 and '092
patents.
On 29 April 2015, the PTAB ruled that ABS had not demonstrated a
reasonable likelihood of prevailing on its assertion that relevant
claims of the '987 patent were invalid and declined to order the
institution of a trial. On 11 January and 15 April 2016, the PTAB
ruled that the '920 and '425 patents were unpatentable. ST has
appealed these decisions. The parties await a decision of the PTAB
on whether a hearing will be instituted on the validity of the '092
patent.
On 21 July 2016, the Court issued its Summary Judgment decision
which, among other things, confirmed that ST's fraudulent
inducement claim failed as a matter of law.
On 1 August 2016, the litigation commenced in the US District
Court for the Western District of Wisconsin. On 10 August 2016, the
jury determined that ABS and Genus had proved that ST had wilfully
maintained monopoly power in the market for sexed bovine semen
processing in the US since July 2012, but that Genus had not proved
that it had suffered injury to date as a result. On 11 August 2016,
the jury also determined that (i) ST's '987 and '092 patents were
valid and infringed and (ii) that ABS had materially breached the
confidentiality obligations under the 2012 semen sorting agreement
between the parties. On 12 August 2016, the jury determined that
(i) Genus should pay ST an up-front payment of $750,000 and an
on-going royalty of $1.25 per straw on commercialisation of the GSS
technology for the use of ST's '987 patent; (ii) Genus should pay
ST an up-front payment of $500,000 up-front and anon-going royalty
of $0.50 per straw for the use of ST's '092 patent; and (iii) ABS
had materially breached the confidentiality obligations under the
2012 semen sorting agreement between the parties and damages were
determined to be $750,000.
In response to the verdicts reached Genus has sought an
injunction from the Court to allow, among other things, ABS to
terminate the 2012 semen sorting agreement and to provide relief
from the restrictive provisions under that agreement. The parties
have also commenced the Court briefing on post-trial motions. Genus
has sought, among other things, judgement as a matter of law that
the '987 patent is invalid and that the '092 patent is not
infringed, or alternatively a new trial on the patent claims. Genus
plans to commercialise its GSS technology in the US and globally
and introduce competition into the market.
Acquisitions and integration
During the year, GBP0.2m of expenses were incurred in relation
to acquisition and integration, principally GBP0.1m in relation to
In Vitro Brasil S.A. and GBP0.1m for St Jacobs Animal Breeding
Corp. See note 14.
Other (including restructuring)
Included within 'other' is a GBP1.4m provision for prior year
receivables from Venezuelan customers due to government
restrictions on foreign exchange and a GBP0.8m provision for
restructuring the European ABS business, partially offset by income
of GBP1.4m from an historical insurance reclaim.
4. NET FINANCE COSTS
2016 2015
GBPm GBPm
Interest payable on bank loans
and overdrafts (1.7) (1.8)
Amortisation of debt issue costs (0.5) (0.4)
Other interest payable (0.1) (0.1)
Net interest cost in respect of
pension scheme liabilities (2.2) (2.3)
Net interest cost on derivative
financial instruments (0.2) (0.2)
Total interest expense (4.7) (4.8)
Interest income on bank deposits 0.1 0.2
Total interest income 0.1 0.2
Net finance costs (4.6) (4.6)
5. INCOME TAX EXPENSE
2016 2015
Income tax expense GBPm GBPm
Current tax expense
Current period 10.4 13.0
Adjustment for prior periods (1.4) (0.4)
Total current tax expense in the Group
Income Statement 9.0 12.6
Deferred tax expense/(income)
Origination and reversal of temporary
differences 0.7 5.1
Adjustment for prior periods 0.9 (0.4)
Total deferred tax expense in the
Group Income Statement 1.6 4.7
Total income tax expense excluding
share of income tax of equity
accounted investees 10.6 17.3
Share of income tax of equity
accounted investees 1.4 0.7
Total income tax expense in the
Group Income Statement 12.0 18.0
6. EARNINGS PER SHARE
Basic earnings per share is the amount of profit generated for
the financial year attributable to equity shareholders divided by
the weighted average number of shares in issue during the year.
Basic earnings per share from
continuing operations 2016 2015
Basic earnings per share 81.1p 65.7p
The calculation of basic earnings per share from continuing
operations for the year ended 30 June 2016 is based on the net
profit attributable to owners of the Company from continuing
operations of GBP49.3m (2015: GBP39.9m) and a weighted average
number of ordinary shares outstanding of 60,814,000 (2015:
60,702,000), which is calculated as follows:
Weighted average number of ordinary shares (basic)
2016 2015
000s 000s
Issued ordinary shares at start
of the year 60,968 60,919
Effect of own shares held (177) (239)
Shares issued on exercise of stock
options 23 22
Weighted average number of ordinary
shares in year 60,814 60,702
Diluted earnings per share from
continuing operations 2016 2015
Diluted earnings per share 80.3p 64.9p
The calculation of diluted earnings per share from continuing
operations for the year ended 30 June 2016 is based on the net
profit attributable to owners of the Company from continuing
operations of GBP49.3m (2015: GBP39.9m) and a weighted average
number of ordinary shares outstanding, after adjusting for the
effects of all potential dilutive ordinary shares, of 61,387,000
(2015: 61,476,000), which is calculated as follows:
Weighted average number of ordinary shares (diluted)
2016 2015
000s 000s
Weighted average number of ordinary
shares (basic) 60,814 60,702
Dilutive effect of share options 573 774
Weighted average number of ordinary
shares for the purposes of diluted
earnings per share 61,387 61,476
Adjusted earnings per share from
continuing operations 2016 2015
Adjusted earnings per share 60.7p 56.8p
Diluted adjusted earnings per
share 60.1p 56.1p
Adjusted earnings per share is calculated on profit before net
IAS 41 valuation movement on biological assets, amortisation of
acquired intangible assets, share-based payment expense and
exceptional items, after charging taxation associated with those
profits, of GBP36.9m (2015: GBP34.5m), which is calculated as
follows:
2016 2015
GBPm GBPm
Profit before tax from continuing
operations 60.9 57.8
Add/(deduct):
Net IAS 41 valuation movement
on biological assets 17.1 (24.9)
Amortisation of acquired intangible
assets 6.1 6.1
Share-based payment expense 3.8 1.4
Exceptional items (see note 3) (36.3) 5.1
Net IAS 41 valuation movement
on biological assets in joint
ventures (1.9) 1.0
Tax on joint ventures and associates 1.4 0.7
Attributable to non-controlling
interest (1.4) (0.6)
Adjusted profit before tax 49.7 46.6
Adjusted tax charge (12.8) (12.1)
Adjusted profit after taxation 36.9 34.5
Effective tax rate on adjusted
profit 25.8% 26.0%
7. DIVIDS
Amounts recognised as distributions to equity holders in the
year:
2016 2015
GBPm GBPm
Final dividend
Final dividend for the year ended
30 June 2015 of 13.4 pence per share 8.1
Final dividend for the year ended
30 June 2014 of 12.2 pence per share - 7.4
Interim dividend
Interim dividend for the year ended
30 June 2016 of 6.7 pence per share 4.1 -
Interim dividend for the year ended
30 June 2015 of 6.1 pence per share - 3.7
12.2 11.1
The Directors have proposed a final dividend of 14.7 pence per
share for 2016. This is subject to shareholders' approval at the
Annual General Meeting and we have therefore not included it as a
liability in these financial statements.
8. INTANGIBLE ASSETS
Brand, Separately
multiplier identified
contracts acquired Genus Patents,
and customer intangible Sexed license
Technology relationships assets Software Semen and Total Goodwill
other
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Cost
Balance at
1 July 2014 42.7 54.9 97.6 6.5 7.7 0.5 112.3 69.9
Additions - - - - 2.8 - 2.8 -
Acquisition 3.5 4.1 7.6 - - - 7.6 5.3
Disposal - - - - - (0.2) (0.2) -
Effect of
movements
in exchange
rates (0.1) 2.5 2.4 0.1 0.6 - 3.1 (1.3)
Balance at
30 June 2015 46.1 61.5 107.6 6.6 11.1 0.3 125.6 73.9
Additions - - - - 4.6 2.2 6.8 -
Acquisition
(see note 14) - 0.7 0.7 - - - 0.7 1.9
Effect of
movements
in
exchange rates 0.5 10.5 11.0 0.3 2.1 0.1 13.5 10.2
Balance at
30 June 2016 46.6 72.7 119.3 6.9 17.8 2.6 146.6 86.0
Amortisation and
impairment losses
Balance at
1 July 2014 17.5 26.6 44.1 3.8 - - 47.9 -
Amortisation
for the year 2.3 3.8 6.1 0.6 - - 6.7 -
Effect of
movements
in exchange
rates - 1.1 1.1 0.1 - - 1.2 -
Balance at
30 June 2015 19.8 31.5 51.3 4.5 - - 55.8 -
Amortisation
for the year 2.3 3.8 6.1 0.7 - 0.2 7.0 -
Effect of
movements
in
exchange rates - 5.6 5.6 0.2 - - 5.8 -
Balance at
30 June 2016 22.1 40.9 63.0 5.4 - 0.2 68.6 -
Carrying amounts
At 30 June
2016 24.5 31.8 56.3 1.5 17.8 2.4 78.0 86.0
At 30 June
2015 26.3 30.0 56.3 2.1 11.1 0.3 69.8 73.9
At 30 June
2014 25.2 28.3 53.5 2.7 7.7 0.5 64.4 69.9
Additions in the year to intangible assets of GBP4.6m relates to
costs capitalised in respect of the GSS development project.
Included above is GBP17.8m of capitalised development expenses in
respect of GSS, and in addition there is also GBP7.7m included
within fixed assets relating to GSS.
During the year, we acquired a world-wide licence to use Caribou
Biosciences, Inc.'s leading CRISPR-Cas9 gene editing technology
platform.
9. BIOLOGICAL ASSETS
Fair value of biological assets Bovine Porcine Total
GBPm GBPm GBPm
Non-current biological assets 128.6 80.3 208.9
Current biological assets - 44.1 44.1
Balance at 30 June 2014 128.6 124.4 253.0
Increases due to purchases 6.9 119.6 126.5
Decreases attributable to sales - (166.3) (166.3)
Decrease due to harvest (34.8) (16.7) (51.5)
Changes in fair value less estimated
sale costs 34.5 78.7 113.2
Effect of movements in exchange
rates 9.6 8.4 18.0
Balance at 30 June 2015 144.8 148.1 292.9
Non-current biological assets 144.8 97.9 242.7
Current biological assets - 50.2 50.2
Balance at 30 June 2015 144.8 148.1 292.9
Increases due to purchases 7.7 112.9 120.6
Decreases attributable to sales - (152.0) (152.0)
Decrease due to harvest (31.6) (18.0) (49.6)
Changes in fair value less estimated
sale costs 2.1 67.7 69.8
Acquisition 1.9 - 1.9
Effect of movements in exchange
rates 21.4 26.0 47.4
Balance at 30 June 2016 146.3 184.7 331.0
Non-current biological assets 146.3 118.3 264.6
Current biological assets - 66.4 66.4
Balance at 30 June 2016 146.3 184.7 331.0
Bovine biological assets include GBP7.8m (2015: GBP6.0m)
representing the fair value of bulls owned by third parties but
managed by the Group, net of expected future payments to such third
parties and are therefore treated as assets held under finance
leases.
There are no movements in the carrying value of the bovine
biological assets in respect of sales or other changes during the
year.
The current market determined post-tax rate used to discount
expected future net cash flows from the sale of bull semen is the
Group's weighted average cost of capital. This has been assessed as
8.0% (2015: 8.0%).
Decreases due to harvest represent the semen extracted from the
biological assets. Inventories of such semen are shown as
biological asset harvest.
Included in increases due to purchases is the aggregate increase
arising during the period on initial recognition of biological
assets in respect of multiplier purchases, other than parent gilts,
of GBP49.4m (2015: GBP43.3m).
Decreases attributable to sales during the period of GBP152.0m
(2015: GBP166.3m) include GBP49.6m (2015: GBP37.0m) in respect of
the reduction in fair value of the retained interest in the
genetics of animals, other than parent gilts, transferred under
royalty contracts.
Porcine biological assets include GBP69.3m (2015: GBP65.2m)
relating to the fair value of the retained interest in the genetics
in respect of animals, other than parent gilts, to customers under
royalty contracts.
Total revenue in the period, including parent gilts, includes
GBP127.2m (2015: GBP114.5m) in respect of these contracts,
comprising GBP38.1m (2015: GBP37.4m) on initial transfer of animals
to customers and GBP89.1m (2015: GBP77.1m) in respect of royalties
received.
For pure line porcine herds, the net cash flows from the
expected output of the herds are discounted at the Group's required
rate of return, adjusted for the greater risk implicit in including
output from future generations. This adjusted rate has been
assessed as 11% (2015: 11.0%). The number of future generations
which have been taken into account is seven (2015: seven) and their
estimated useful lifespan is 1.3 years (2015: 1.3 years).
Year ended 30 June 2016
Bovine Porcine Total
GBPm GBPm GBPm
Net IAS 41 valuation movement
on biological assets*
Changes in fair value of biological
assets (2.9) 67.7 64.8
Inventory transferred to cost
of sales at fair value (23.6) (18.0) (41.6)
Biological assets transferred
to cost of sales at fair value - (39.7) (39.7)
(26.5) 10.0 (16.5)
Fair value movement in related
financial derivative - (0.6) (0.6)
(26.5) 9.4 (17.1)
Year ended 30 June 2015
Bovine Porcine Total
GBPm GBPm GBPm
Net IAS 41 valuation movement
on biological assets*
Changes in fair value of biological
assets 34.5 78.7 113.2
Inventory transferred to cost
of sales at fair value (30.0) (16.7) (46.7)
Biological assets transferred
to cost of sales at fair value - (42.2) (42.2)
4.5 19.8 24.3
Fair value movement in related
financial derivative - 0.6 0.6
4.5 20.4 24.9
*This represents the difference between operating profit
prepared under IAS 41 and operating profit prepared under
historical cost accounting, which forms part of the reconciliation
to adjusted operating profit.
10. TRADE AND OTHER RECEIVABLES
2016 2015
GBPm GBPm
Trade receivables 65.0 64.4
Other debtors 5.5 4.7
Prepayments and accrued income 5.3 3.3
Other taxes and social security 2.3 2.3
78.1 74.7
Trade receivables
The average credit period our customers take on the sales of
goods is 61 days (2015: 59 days). We do not charge interest on
receivables for the first 30 days from the date of the invoice. We
provide for all receivables based upon knowledge of the customer
and historical experience, and estimate irrecoverable amounts by
reference to past default experience.
No customer represents more than 5% of the total balance of
trade receivables (2015: nil).
At 30 June 2016, GBP50.5m (2015: GBP45.0m) of trade receivables
were not yet due for payment.
11. RETIREMENT BENEFIT OBLIGATIONS
The Group operates a number of defined contribution and defined
benefit pension schemes covering many of its employees. The
principal funds are the Milk Pension Fund and Dalgety Pension Fund
in the UK, which are defined benefit schemes. The assets of these
funds are held separately from the assets of the Group and are
administered by trustees and managed professionally. These schemes
are closed to new members.
The financial position of the defined benefit schemes as
recorded in accordance with IAS 19 and IFRIC 14, are aggregated for
disclosure purposes. The liability split by principal scheme is set
out below.
2016 2015
GBPm GBPm
The Milk Pension Fund - Genus's
share 34.3 54.3
The Dalgety Pension Fund - -
Other retirement benefit obligations
and other unfunded schemes 10.2 8.8
Overall net pension liability 44.5 63.1
Overall, we expect to pay GBP7.1m (2016: GBP6.7m) in
contributions to defined benefit plans in the 2017 financial
year.
Summary of movements in Group deficit during the year
2016 2015
GBPm GBPm
Deficit in schemes at the
start of the year (63.1) (58.2)
Administration expenses (0.7) (0.6)
Gains on curtailments and
settlements 0.3 0.4
Change from RPI to CPI for
benefit increases in the MPF 43.9 -
Contributions paid into the
plans 6.7 6.1
Net pension finance cost (2.2) (2.3)
Actuarial loss recognised
during the year (12.8) (6.8)
Movement in restriction of
assets (0.6) (1.2)
Recognition of additional
liability (14.9) -
Exchange rate adjustment (1.1) (0.5)
Deficit in schemes at the
end of the year (44.5) (63.1)
The (income)/expense is recognised in the following line items
in the income statement
2016 2015
GBPm GBPm
Administrative expenses 0.7 0.6
Settlement gain in exceptional items (0.3) (0.4)
Change from RPI to CPI for benefit
increases in the MPF in exceptional
items (43.9) -
Net Finance charge 2.2 2.3
(41.3) 2.5
Actuarial assumptions and sensitivity analysis
Principal actuarial assumptions at the reporting date (expressed
as weighted averages):
2016 2015
Discount rate 2.8% 3.8%
Consumer Price Index (CPI) 1.6% 2.0%
Retail Price Index (RPI) 2.7% 3.1%
The mortality assumptions used are consistent with those
recommended by the schemes' actuaries and reflect the latest
available tables, adjusted for the experience of the scheme where
appropriate. For 2016, the mortality tables used are 97% of the
SN2A tables, with birth year and 2014 CMI projections, subject to a
long-term rate of improvement of 1.25% for males and females (2015:
the mortality tables used are 90% of the SN1A tables, with birth
year and 2011 CMI projections, subject to a long-term rate of
improvement of 1.25% for males and females).
12. NOTES TO THE CASH FLOW STATEMENT
2016 2015
GBPm GBPm
Profit for the year 50.3 40.5
Adjustment for:
Net IAS 41valuation movement
on biological assets 17.1 (24.9)
Amortisation of acquired intangible
assets 6.1 6.1
Share-based payment expense 3.8 1.4
Share of profit of joint ventures
and associates (6.9) (2.9)
Finance costs (net) 4.6 4.6
Income tax expense 10.6 17.3
Exceptional items (36.3) 5.1
Adjusted operating profit from
continuing operations 49.3 47.2
Depreciation of property, plant
and equipment 7.9 6.3
(Gain)/loss on disposal of plant
and equipment (0.2) 0.4
(Gain)/impairment on asset held
for sale (0.2) 0.3
Amortisation of intangible assets 0.9 0.6
Earnings before interest, tax,
depreciation and amortisation 57.7 54.8
Exceptional item cash (4.7) (4.7)
Other movements in biological
assets and harvested produce (3.8) 1.9
(Decrease)/increase in provisions (1.2) 1.0
Additional pension contributions
in excess of pension charge (6.1) (6.1)
Other 0.3 (0.4)
Operating cash flows before
movement in working capital 42.2 46.5
Increase in inventories (0.7) (0.6)
Decrease in receivables 2.6 0.6
(Decrease)/increase in payables (0.8) 4.2
Cash generated by operations 43.3 50.7
Interest received 0.1 0.2
Interest and other finance costs
paid (1.6) (2.2)
Cash flow from derivative financial
instruments 0.1 (1.2)
Income taxes paid (11.9) (12.7)
Net cash from operating activities 30.0 34.8
Analysis of net debt
At 1 Net cash Foreign Non-cash At 30
July flows exchange movements June
2015 GBPm GBPm GBPm 2016
GBPm GBPm
Cash and cash equivalents 21.3 10.7 2.0 - 34.0
Interest bearing loans
- current (12.2) 8.6 (2.0) 1.0 (4.6)
Obligation under finance
leases -
current (1.1) 1.9 (0.3) (1.6) (1.1)
(13.3) 10.5 (2.3) (0.6) (5.7)
Interest bearing loans
- non-current (77.4) (24.9) (13.0) - (115.3)
Obligation under finance
lease - non-
current (2.4) - (0.3) - (2.7)
(79.8) (24.9) (13.3) - (118.0)
Net debt (71.8) (3.7) (13.6) (0.6) (89.7)
Included within non-cash movements is GBP1.6m in relation to new
finance leases.
13. CONTINGENCIES
Contingent liabilities are potential future cash outflows, where
the likelihood of payments is considered more than remote but is
not considered probable or cannot be measured reliably.
The retirement benefit obligations referred to in note 11
include obligations relating to the Milk Pension Fund defined
benefit scheme. Genus, together with other participating employers,
is joint and severally liable for the scheme's obligations. Genus
has accounted for its section and its share of any orphan assets
and liabilities, collectively representing approximately 75% of the
Milk Pension Fund. As a result of the joint and several liability,
Genus has a contingent liability for the scheme's obligations that
it has not accounted for.
14. ACQUISITION OF SUBSIDIARIES
On 31 March 2016 the Group acquired 100% of the share capital of
St Jacobs Animal Breeding Corp. (St Jacobs), a bovine breeding
company based in Vermont, USA. St Jacobs core capabilities are
around the ability to identify and source genetics that target the
Type or show cattle orientated segment of the dairy market.
The amounts recognised in respect of the identifiable assets
acquired and liabilities assumed are set out in the table
below.
GBPm
Intangible assets identified
- Trade name 0.7
Biological assets 1.9
Inventory 0.1
Financial liabilities (1.1)
Total identifiable assets 1.6
Goodwill (note 8) 1.9
Total consideration 3.5
Satisfied by:
Net cash outflow arising on acquisition
of subsidiary 3.5
The goodwill of GBP1.9m arising from the acquisition consists
largely of future growth and synergies expected from combining the
acquired operations with existing Genus operations. None of the
goodwill recognised is expected to be deductible for income tax
purposes.
Acquisition and integration related costs included within
exceptional items amount to GBP0.1m.
St Jacobs contributed no revenue and GBP0.1m profit to the Group
for the period between the date of acquisition and the balance
sheet date.
If the acquisition of St Jacobs had been completed on the first
day of the financial period, Group revenues and Group profit would
have been no increase and GBP0.7m, respectively.
15. NON-CONTROLLING INTEREST
2016 2015
GBPm GBPm
Non-controlling interest 5.0 4.3
Put option over non-controlling
interest (11.4) (10.0)
Total non-controlling
interest (6.4) (5.7)
Summarised financial information in respect of each of the
Group's subsidiaries that has a material non-controlling interest
is set out below. The summarised financial information below
represents amounts before intra-Group eliminations.
2016 2015
IVB Group GBPm GBPm
Current assets 4.6 3.9
Non-current assets 5.4 4.4
Current liabilities (2.1) (2.5)
Net assets 7.9 5.8
Equity attributable
to owners of the Company (3.2) (1.7)
Non-controlling interest
for IVB Group 4.7 4.1
Other non-controlling
interest 0.3 0.2
Non-controlling interest 5.0 4.3
GBP0.4m of dividends were paid to non-controlling interests
(2015: GBPnil).
16. POST BALANCE SHEET EVENTS
On 1 August 2016, the litigation commenced against Inguran, LLC
(aka Sexing Technologies ('ST')). See note 3. On 10 August 2016,
the jury determined that ABS and Genus had proved that ST had
wilfully maintained monopoly power in the market for sexed bovine
semen processing in the US since July 2012, but that Genus had not
proved that it had suffered injury to date as a result. On 11
August 2016, the jury also determined that (i) ST's '987 and '092
patents were valid and infringed and (ii) that ABS had materially
breached the confidentiality obligations under the 2012 semen
sorting agreement between the parties. On 12 August 2016, the jury
determined that (i) Genus should pay ST an up-front payment of
$750,000 and an on-going royalty of $1.25 per straw on
commercialisation of the GSS technology for the use of ST's '987
patent; (ii) Genus should pay ST an up-front payment of $500,000
up-front and on-going royalty of $0.50 per straw for the use of
ST's '092 patent; and (iii) ABS had materially breached the
confidentiality obligations under the 2012 semen sorting agreement
between the parties and damages were determined to be $750,000.
In response to the verdicts reached Genus has sought an
injunction from the Court to allow, among other things, ABS to
terminate the 2012 semen sorting agreement and to provide relief
from the restrictive provisions under that agreement. The parties
have also commenced the Court briefing on post-trial motions. Genus
has sought, among other things, judgement as a matter of law that
the '987 patent is invalid and that the '092 patent is not
infringed, or alternatively a new trial on the patent claims. Genus
plans to commercialise its GSS technology in the US and globally
and introduce competition into the market.
On 1 September 2016, we formed De Novo Genetics, a 51%
majority-owned Holstein breeding strategic partnership, with De-Su,
the world's leading independent Holstein breeder. De Novo will
further accelerate the proportion of bulls Genus produces
internally by combining ABS's and De-Su's elite Holstein breeding
programmes. This will gives us greater control of the genetics we
need in order to create differentiated solutions that help
commercial dairy farmers increase profitability through improved
herd productivity, health and efficiency.
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR LLFLDARIDIIR
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