TIDMGNS
RNS Number : 0426Q
Genus PLC
07 September 2017
For immediate release 7 September 2017
Genus plc
('Genus', the 'Company' or the 'Group')
PRELIMINARY RESULTS FOR THE YEARED 30 JUNE 2017
STRONG STRATEGIC PROGRESS AND SOLID FINANCIAL RESULTS
Genus, a leading global animal genetics company, announces its
preliminary results for the year ended 30 June 2017.
Actual currency Constant
currency
**
Year ended 30 June 2017 2016 Movement Movement
Adjusted results* GBPm GBPm % %
Revenue 459.1 388.3 18 6
Operating profit 55.1 49.3 12 (1)
Operating profit inc
JVs 60.1 54.3 11 (2)
Profit before tax 56.4 49.7 13 (1)
Basic earnings per
share (pence) 69.4 60.7 14 -
---------------------- ------ ------ --------- -------------
Statutory results
Revenue 459.1 388.3 18
Operating profit 38.2 58.6 (35)
Profit before tax 40.7 60.9 (33)
Basic earnings per
share (pence) 53.8 81.1 (34)
Dividend per share
(pence) 23.6 21.4 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 2017 results at the average exchange rates applied in
2016.
2017 Highlights
-- 2017 was a year of successful development for Genus with
strong strategic progress being achieved and a solid financial
performance
Financial Highlights
-- Revenue of GBP459.1m increased 18% (6% in constant currency)
with strong porcine revenues, up 20% (7% in constant currency),
particularly in Asia and from royalties, and a return to growth in
bovine revenues which increased 13% (2% in constant currency)
-- Adjusted profit before tax up 13% to GBP56.4m (down 1% in
constant currency) with strong performance in Genus PIC,
particularly China, offset by planned increased R&D investments
and lower Genus ABS results
-- Statutory profit before tax down 33% to GBP40.7m primarily
due to lower pension related exceptional credits of GBP5.7m
compared with a GBP44.2m credit in the prior year, partially offset
by a smaller reduction in the value of biological assets of GBP1.1m
(2016: GBP17.1m decrease)
-- Adjusted basic earnings per share up 14% to 69.4p (unchanged
in constant currency) and statutory basic earnings per share down
34% to 53.8p reflecting the lower exceptional pension credit
mentioned above
-- Strong free cash flow(1) of GBP25.4m (2016: GBP15.7m) with
solid cash conversion(2) of 84% (2016: 88%) and good cash inflows
from joint ventures of GBP8.3m (2016: GBP3.4m)
-- Net debt to EBITDA of 1.5x (2016: 1.4x) after acquisitions
and investments of GBP30.0m (2016: GBP7.2m)
-- After tax return on invested capital(3) improved to 19.9% (2016: 19.1%)
-- Recommended dividend increased by 10% to 23.6p, well covered
by adjusted earnings at 2.9 times (2016: 2.8 times)
Operational Highlights(4)
-- Continued operating profit growth of 7% in PIC on volumes up
4%, with particular strength in Asia
o Secured three new Top 20 porcine customers in North
America
o Signed three new royalty agreements with key Chinese porcine
customers, raising our total number of Chinese royalty customers to
eight(5)
o Acquired Hermitage's porcine genetics and entered into a
strategic distribution and production partnership in March 2017,
with encouraging early results
-- Improved second half performance in ABS as a result of
actions taken to strengthen execution and improve efficiency
o Volumes growth of 8% in H2 resulting in volumes growth of 1%
overall in the year (2016: 6% lower)
o Full year operating profit 13% lower (30% lower in H1)
o Appointed new Chief Operating Officer ('COO') of Genus ABS
Dairy in January 2017
o IVB continued to grow its presence with large accounts in the
US and in its newly established Mexican business, which is already
performing well
o Acquired the remaining 49% stake in IVB for GBP11.4m in March
2017 to further accelerate integration and growth
-- Research and development investment increased as planned by
27% (12% in constant currency) as key initiatives in genomic
selection, gender skew and gene editing made significant
progress
o Genus Sexed Semen ('GSS') technology successfully scaled up
and manufacturing sexed semen in the US and India. Sexcel(TM) , the
marketing brand of GSS, launched with customers globally on 1
September 2017 and sales have now commenced
o Successfully obtained a permanent injunction against Sexing
Technologies ('ST'). ST commenced new patent infringement
litigation in June 2017 which will be vigorously defended
o Launched new dairy genetic improvement programme in September
2016, De Novo, in partnership with leading breeder De-Su with
promising early results in scale and quality of genetics
produced
o PRRSv resistance development programme progressing as planned:
launched a gene editing venture with new experimental facilities,
optimised the molecular scissors for carrying out edits, obtained
an Investigational New Animal Drug ('INAD') regulatory application
from the US Food and Drug Administration ('FDA') and created the
first gene edited pregnancies for the programme(6)
Commenting, Karim Bitar, Chief Executive said:
"Genus made substantial strategic progress in 2017 and performed
in line with expectations for the year. We have now brought Sexcel,
our proprietary innovative sexed semen product, to market and are
excited about its prospects to improve the outcomes for our
customers. ABS overall had an improved second half year following
actions taken. IVB continued to perform well and we are pleased to
now own 100% of this important business. PIC continued to perform
well and we further strengthened it with the genetic acquisition
and distribution and production partnership with Hermitage.
"As planned, we increased our investment in our gene editing
platform and made good progress in the development plan. We expect
to further increase this investment in 2018.
"We see solid growth opportunities in the year ahead across our
businesses and anticipate performing in line with our expectations.
Reflecting the Board's continuing confidence in the Group's
prospects we are recommending a 10% increase in the dividend for
the year."
An analyst meeting will be held at 9.00am today at Peel Hunt's
offices (120 London Wall, London, EC2Y 5ET). 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://webcasting.brrmedia.co.uk/broadcast/5991aeb59ec769224a42b185
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
(1) Free cash flow is before debt repayments, acquisitions,
investments and dividends.
(2) Cash conversion is the cash generated by operations GBP46.3m
(2016: GBP43.3m) divided by adjusted operating profit from
continuing operations GBP55.1m (2016: GBP49.3m).
(3) After tax return on invested capital is adjusted operating
profit including joint ventures less tax of 25.0% (2016: 25.8%),
divided by net operating assets on a historic cost basis, excluding
net debt and pension liability.
(4) Based on adjusted results.
(5) Includes one new royalty agreement signed post period end in
July 2017.
(6) The PRRSv programme refers to our development-phase gene
editing programme to confer resistance to pigs to Porcine
Reproductive and Respiratory Syndrome virus.
About Genus
Genus is a world-leading animal genetics company. We
continuously produce better breeding livestock with desirable
characteristics, which helps farmers to produce better quality meat
and milk more efficiently and sustainably. We do this by analysing
animals' DNA to select those with desirable characteristics, and
then breed successive generations from those animals. We also own
technology to screen and process semen for desirable traits, such
as gender, and license technology to make precise, desirable gene
edits to animals' DNA.
Genus's worldwide sales are made in over seventy 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.
The Group's competitive edge has been created from the ownership
and control of proprietary lines of breeding animals, proprietary
technology and knowhow used to improve them, relationships with
leading meat and milk producers, and its global supply chain and
distribution networks.
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
In 2017, Genus achieved an improving financial performance
through the year and made strong strategic progress. We grew our
investment in our leading-edge proprietary technology platform and
positioned Genus to seize the significant growth opportunities
ahead of us.
Group Performance
The Group performed in line with our expectations for the year.
In constant currency terms, revenue increased by 6% while adjusted
profit before tax including joint ventures was 1% lower, after our
planned increase in R&D investment. In actual currency, revenue
and adjusted profit before tax rose by 18% and 13%
respectively.
Genus PIC continued to perform well, with adjusted operating
profit including joint ventures up by 7% in constant currency.
Growth in Asia was strong, particularly in China. Genus PIC
continued to extend its royalty base, grew its presence with key
integrated producers in China and won business with new large
customers in North America.
We were disappointed with Genus ABS's performance in the first
half of the year and took action to address the issues, including
appointing a new COO for ABS Dairy to sharpen our commercial
execution and drive our strategic initiatives. ABS Dairy
performance improved in the second half, resulting in adjusted
operating profits including non-controlling interest for the full
year declining by 13% in constant currency compared with a 30%
decline in the first half. We continue to be pleased with the
performance of IVB.
Our R&D programme had a planned increased investment in gene
editing, as well as other areas of research and product
development. We achieved further strong results in porcine product
development, with rates of genetic improvement exceeding our
target. We also incurred pre-launch costs for our GSS technology,
which we brought to market as planned after the end of the
financial year (see below).
Strategic Progress
In addition to our increased investment in R&D, we concluded
a number of important strategic developments in 2017 which
continued to build Genus's leading position in pioneering animal
genetic improvement.
Our efforts to improve Genus PIC's European business in recent
years were rewarded with robust growth in 2017. To strengthen
further this revitalised operation, we formed a strategic
partnership with Hermitage and acquired its porcine genetics. This
will help us to accelerate genetic improvement for the customers of
both organisations, whilst we benefit from the substantial
footprint of Hermitage's European supply chain. Early results of
the partnership are encouraging.
In bovine, IVB's strong performance led us to acquire the
outstanding 49% a year early in March 2017. The business continues
to expand in the US and, with the successful launch of its
operations, in the important Mexican market.
We also formed De Novo Genetics, a majority owned joint venture
with De-Su, the leading independent Holstein breeder. De Novo has a
world-leading dairy genetic improvement programme and significantly
expands and strengthens our capability in dairy product
development. While the biological results will take time to come
through, De Novo has already produced industry leading bulls.
We launched Sexcel, our proprietary semen sexing product, on 1
September 2017. This followed the granting in our favour of a
permanent injunction against ST, which was ruled to have wilfully
maintained monopoly power in the US market for processing sexed
bovine semen. We are excited by the prospects for Sexcel, which is
the first competing technology in this space for over a decade.
Sexcel is now available in the US, India and key markets around the
world. ST has launched new patent litigation, which we had
anticipated and will vigorously defend.
Our longer-term PRRSv-resistance programme made good progress in
conjunction with our partner Caribou Biosciences. We have edited
elite pig embryos and implanted them, achieving pregnancies. We
co-founded RenOVAte Biosciences, a biotech company focused on
creating gene edited livestock, which is supporting this programme.
We also secured an INAD from the US FDA and continued to develop
constructive relationships with regulatory authorities.
People
Nate Zwald joined us in January 2017 as COO of ABS Dairy. We are
very pleased with the leadership, customer-centricity and people
focus he has already brought to the business.
Catherine Glickman stepped down as Group HR Director and will
retire from Genus at the end of 2017. I want to thank Catherine for
her outstanding contribution to our progress during her six years
at Genus. Angelle Rosata was promoted to the role from July 2017
and we welcome her to the Genus Executive Leadership Team.
I also extend my thanks to all my colleagues around the world.
Their hard work and dedication to delivering for our customers
enables Genus to succeed.
Outlook
The fundamental drivers of our markets remain favourable, with
demand for superior genetics continuing to grow. We expect to make
further strategic progress as we continue to invest in R&D and
the benefits of this year's initiatives come through in both PIC
and ABS. We anticipate making further positive financial progress
in 2018 and to perform in line with our expectations.
Karim Bitar
Chief Executive
6 September 2017
Financial and Operating Review
Financial Review
Genus achieved a solid financial performance in line with
expectations in the year ended 30 June 2017, with revenue growth of
18% (6% in constant currency) and adjusted profit before tax up 13%
(1% lower in constant currency) after increased investment in
R&D. Adjusted earnings per share were also up 14% (flat in
constant currency).
On a statutory basis, profit before tax was 33% lower primarily
due to the significant pensions-related exceptional gain in the
prior year. 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.
The effect of exchange rate movements on the translation of our
overseas profits was to increase the Group's adjusted profit before
tax for the year by GBP7.0m or 14% compared with 2016 caused by the
sharp devaluation of Sterling at the end of the prior period
following the UK referendum on Brexit.
Actual currency Constant
currency
2017 2016 Movement Movement
Adjusted Profit Before GBPm GBPm % %
Tax*
Genus PIC 94.8 78.0 22 7
Genus ABS 21.3 22.0 (3) (13)
Research and development (43.8) (34.4) (27) (12)
Central costs (12.2) (11.3) (8) 5
------- ------- --------- ----------
Adjusted operating profit
inc JV 60.1 54.3 11 (2)
Net finance costs (3.7) (4.6) 20 18
------- ------- --------- ----------
Adjusted profit before
tax 56.4 49.7 13 (1)
------- ------- --------- ----------
* Includes share of adjusted pre-tax profits of joint ventures
and removes share of profits of non-controlling interests.
Revenue
Revenue increased by 18% in actual currency and 6% in constant
currency to GBP459.1m (2016: GBP388.3m) during the year. In Genus
PIC, growth of 7% in constant currency was across all regions but
was particularly strong in Asia where revenues grew 24%. All
regions also grew royalty revenue with particularly notable growth
in Europe of 22% and Asia of 28%. In Genus ABS, revenues grew 2% in
constant currency (13% in actual currency) with mixed performances
across regions. Growth was strongest in Latin America and IVB.
Adjusted Operating Profit including Joint Ventures
Adjusted operating profit including joint ventures was GBP60.1m
(2016: GBP54.3m), up 11% in actual currency and 2% lower in
constant currency. Within this, Genus's share of adjusted joint
venture operating profits was higher at GBP7.1m (2016:
GBP6.4m).
Genus PIC had another robust year, with profits including joint
ventures up 7%. Volume growth of 4% included royalty volume growth
of 6%, helped by 45% growth in royalty volumes in Asia which was
particularly encouraging. Upfront sales reduced as planned.
Genus ABS had a challenging year, however performance improved
in the second half as a result of actions taken. For the year,
volumes grew 1%, while profit was 13% lower (3% lower in actual
currency), driven by weaker performance in North America and China
and an increase in ST-produced inventory provisions as we prepared
to launch Sexcel. Performance improved in Europe and Latin America,
and IVB continued to grow.
R&D costs increased by 12%, as planned, as we created our
first gene edited pregnancies, ramped up GSS manufacturing
processes, and incurred increased costs in our porcine nucleus
herds.
Net Finance Costs
Net finance costs reduced to GBP3.7m (2016: GBP4.6m) principally
due to lower IAS 19 pension interest of GBP1.2m (2016: GBP2.2m),
following the prior year's agreement to change the inflation index
used to pay pensions in the Milk Pension Fund. Average borrowings
and debt interest in the year were higher, following the
depreciation of Sterling after the Brexit referendum, the Hermitage
acquisition, and the purchase of the remaining 49% of IVB for
GBP11.4m. Off-setting this, the Group earned higher interest income
through the year on Brazilian Real cash deposits hedging the
anticipated 49% IVB acquisition.
Exceptional Items
There was a GBP2.5m net exceptional expense in 2017 (2016:
GBP36.3m credit). The prior year included a large exceptional gain
of GBP44.2m related to the Milk Pension Fund's adoption of CPI in
place of RPI to determine pension increases. In comparison, the
current year included an exceptional credit of GBP5.7m in respect
of the arrangements for National Milk Records plc ('NMR') exiting
the Milk Pension Fund in June 2017. There was also GBP5.3m for
legal fees in Genus ABS's case against ST, GBP0.6m for acquisition
and integration related expenses, primarily De Novo and Hermitage,
net of a gain on the cancellation of the IVB put option, and other
items of GBP2.3m including restructuring costs.
Statutory Profit Before Tax
The table below sets out a reconciliation between adjusted
profit before tax and statutory profit before tax:
2017 2016
GBPm GBPm
Adjusted Profit Before Tax 56.4 49.7
Operating profit attributable to non-controlling
interest 2.1 1.4
Net IAS 41 valuation movement on biological
assets in JVs and associates 0.5 1.9
Tax on JVs and associates (1.4) (1.4)
Adjusting items:-
Net IAS 41 valuation movement on biological
assets (1.1) (17.1)
Amortisation of acquired intangible
assets (8.7) (6.1)
Share-based payment expense (4.6) (3.8)
Exceptional items (2.5) 36.3
------ -------
Statutory Profit Before Tax 40.7 60.9
------ -------
Our statutory profit before tax was GBP40.7m (2016: GBP60.9m),
with the prior year benefiting from a large exceptional credit
relating to the Milk Pension Fund mentioned above. Statutory profit
before tax also included a net IAS 41 valuation biological asset
movement decline of GBP1.1m (2016: GBP17.1m), amortisation of
acquired intangibles of GBP8.7m (2016: GBP6.1m) and share-based
payment expense of GBP4.6m (2016: GBP3.8m). These items tend to be
non-cash, can be volatile and do not correlate to the underlying
trading performance in the period.
Taxation
The effective rate of tax for the year, based on adjusted profit
before tax, was 25.0% (2016: 25.8%) reflecting a higher mix of
profits in lower tax jurisdictions compared with the prior year.
The effective rate remains higher than the UK corporate tax rate
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. These
effects are partly mitigated by the availability of manufacturing
relief, R&D credits and agricultural reliefs in certain
jurisdictions.
The tax rate on statutory profits was 18.5% (2016: 19.3%) and is
lower than the effective rate on adjusted profits primarily due to
a reduction in the applicable deferred tax rate on the balance
sheet carrying value of biological assets based on the anticipated
mix of future sales by territory.
Earnings Per Share
Adjusted basic earnings per share increased by 14% to 69.4 pence
(2016: 60.7 pence) and was unchanged in constant currency. Basic
earnings per share on a statutory basis were 53.8 pence (2016: 81.1
pence), a decline of 34%, with the prior year benefiting from
changing the index used for pension and deferred pension increases
in the Milk Pension Fund from RPI to CPI.
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 2017, the carrying value of biological
assets was GBP375.3m (2016: GBP354.4m), as set out in the table
below:
2017 2016
GBPm GBPm
Non-current assets 279.2 264.6
Current assets 73.9 66.4
Inventory 22.2 23.4
------ --------
375.3 354.4
------ --------
Represented by:
Porcine 215.6 184.7
Dairy and beef 159.7 169.7
------ --------
375.3 354.4
------ --------
The movement in the overall carrying value of biological assets,
excluding the effect of exchange rate translation increases of
GBP10.9m, includes:
-- a GBP24.9m 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 GBP14.8m decrease in the carrying value of dairy and beef
biological assets, arising from the increasing sales mix of genomic
bulls which tend to have shorter productive lives than proven
bulls, offset partially by the assets acquired through the
completion of De Novo Genetics.
The historical cost of these assets, less depreciation, was
GBP51.5m at 30 June 2017 (2016: GBP42.5m), which is the basis used
for the adjusted results. The historical cost depreciation of these
assets included in adjusted results was GBP7.0m (2016:
GBP5.5m).
Retirement Benefit Obligations
The Group's retirement benefit obligations at 30 June 2017,
calculated in accordance with IAS 19 and IFRIC 14, were GBP40.9m
(2016: GBP44.5m) before tax and GBP32.4m (2016: GBP34.9m) net of
related deferred tax. The largest element of this liability relates
to the multi-employer Milk Pension Fund, where we account for this
scheme on the basis of Genus being responsible for 85% of the
scheme since the exit of NMR (2016: 75%).
During the year, contributions payable in respect of the Group's
defined benefit schemes amounted to GBP7.2m (2016: GBP6.7m).
Cash Flow
Free cash flow was strong at GBP25.4m (2016: GBP15.7m), driven
by solid cash generated by operations of GBP46.3m (2016: GBP43.3m),
representing conversion of adjusted operating profit of GBP55.1m
(2016: GBP49.3m) into cash of 84% (2016: 88%), and strong cash
inflows from joint ventures of GBP8.3m (2016: GBP3.4m) following
good trading performance in our PIC joint ventures in China and
Brazil. Capital expenditure of GBP18.9m (2016: GBP18.6m) included
continued investment in GSS capacity and technology, research and
continued investments in the Group's facilities.
The cash outflow from investments was GBP30.0m, primarily
relating to the acquisition of De Novo Genetics, Hermitage Genetics
and the purchase of the remaining 49% of IVB. This compares with
GBP7.2m, net of cash acquired, from the acquisition of St Jacobs
and an investment in Caribou Biosciences in 2016. The total cash
outflow for the year after these investments and dividends was
GBP18.1m (2016: outflow GBP3.7m).
2017 2016
Cash Flow (before debt repayments) GBPm GBPm
Cash generated by operations 46.3 43.3
Interest and tax paid (11.7) (13.3)
Capital expenditure (18.9) (18.6)
Cash received from JVs 8.3 3.4
Other 1.4 0.9
------- -------
Free cash flow 25.4 15.7
Acquisitions and investments (30.0) (7.2)
Dividends (13.5) (12.2)
------- -------
(18.1) (3.7)
------- -------
Net Debt
Net debt increased from GBP89.7m to GBP111.6m at 30 June 2017,
primarily due to the GBP30.0m investments in De Novo Genetics,
Hermitage Genetics and the remaining 49% of IVB. During the year,
we exercised a portion of an accordion in our credit facilities to
increase them by GBP29.2m and extended the facilities by one year
to February 2022. At the end of June 2017 there was substantial
headroom of GBP73.6m under the extended facilities of GBP202.0m
The Group's financial position and borrowing ratios remain
strong with interest cover remaining at 37 times (2016: 35 times).
EBITDA as calculated under our financing facilities includes cash
received from joint ventures and historical cost depreciation of
biological assets. The ratio of net debt to EBITDA on this basis
moderately increased to 1.5 times (2016: 1.4 times) primarily due
to acquisitions and investments in the year, partially offset by
increased EBITDA.
Return on Invested Capital
We measure our return on invested capital on the basis of
adjusted operating profit including joint ventures 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
increased to 19.9% after tax (2016: 19.1%), reflecting the increase
in adjusted profit and lower tax rate in the year.
Dividend
Reflecting the Board's continuing confidence in the Group's
prospects, it is recommending to shareholders a final dividend of
16.2 pence per ordinary share, resulting in a total dividend for
the year of 23.6 pence per ordinary share, an increase of 10% for
the year. Dividend cover by adjusted earnings remains consistently
strong at 2.9 times (2016: 2.8 times).
It is proposed that the final dividend will be paid on 1
December 2017 to the shareholders on the register at the close of
business on 17 November 2017.
Stephen Wilson
Group Finance Director
6 September 2017
Review of Operations
Genus PIC - Operating Review
Actual currency Constant
currency
2017 2016 Movement Movement
GBPm GBPm % %
Revenue 249.5 207.5 20 7
Adjusted operating profit
exc JV 87.7 71.7 22 8
Adjusted operating profit
inc JV 94.8 78.0 22 7
Adjusted operating margin
exc JV 35.2% 34.6% 0.6pts 0.3pts
Market
Market conditions for most of Genus PIC's customers improved
during the year, primarily due to increased global trade with Asia.
Other factors included tighter supply in Europe and continued
favourable crop prices in North America and other key markets.
Global pork prices increased 13% over the 12 months, and the
outlook is generally moderately favourable.
In China, supply constraints following reductions in the sow
herd in prior years, continued to support elevated pig prices and
stimulated record pork imports. However, prices have more recently
returned to more normal levels as large producers have expanded
supply and imports have also slowed. Production also expanded in
Russia and in other core Asian markets such as the Philippines.
Increasing demand prompted expansion in the US breeding herd
during 2017, which will lead to further production growth. While
processors recorded significant profits, US producers realised more
modest returns. With new production and packing capacity coming
online in 2018, continued strong domestic and export demand is
required for future producer profitability.
The European porcine industry enjoyed a steady recovery in pig
prices and producer profitability after a prolonged period of
losses. The main drivers were a 1.6% decline in the European sow
herd and increased exports to China.
Brazilian producers experienced volatile input prices and pig
prices, following political and market turbulence involving the
meat industry. During the past five months, producers have returned
to slightly positive margins per pig, after 12 months of losses. In
Mexico, the second largest producer in Latin America, pig producers
have been expanding. However, the industry is still suffering
significant impacts from disease.
The porcine genetics market saw further consolidation in 2017.
Genus PIC took a leading role, partnering with and acquiring the
genetic rights of Hermitage. Other North American and European
competitors have also entered into partnerships and distribution
agreements, to expand their reach.
Performance
Genus PIC achieved a good performance, with operating profits
including joint ventures of GBP94.8m, up 7% in constant currency.
Volumes grew by 4% and revenue was 7% higher, primarily due to
royalty growth and higher breeding stock sales.
Asia's results were particularly strong, with a 45% increase in
royalty volumes and 60% increase in operating profit. China profits
grew over 80% in constant currency, with strong demand from large
scale producers for PIC genetics. PIC China has signed up a further
three royalty customers. Strong double-digit growth in Russia,
Philippines and franchises further underpinned performance across
Asia.
In North America, volumes were stable and revenue grew 2%, but
stockings of new customer systems contributed to 12% growth in
breeding stock shipments, positioning the business for future
royalty growth. To support this future growth, PIC invested in
expanding the supply chain, upgrading Company-owned facilities, and
increasing the quality and number of staff, leading to a 3%
reduction in profit in the year.
Latin American profits improved by 2% in constant currency, on
stable volumes. Mexico performed strongly and operating profit
increased by 11%. This growth was offset by the Andean region,
where profit declined by 15% due to on-going economic instability
in Venezuela. In Brazil, profit increased by 5% in constant
currency, despite market volatility.
Europe once again achieved strong growth, with revenue and
volumes up 8% and 6% respectively and profits increased by 26% in
constant currency, driven primarily by higher royalty fees and
lower costs. Transforming Europe to focus on royalty business with
producers that value genetics has been under way for several years
and is delivering sustained benefits, which will be further
enhanced by the Hermitage Genetics acquisition and partnership.
Overall, Genus PIC performed well, despite varying global market
conditions and continued investment to enhance product supply and
differentiation. These investments will continue to enable Genus
PIC to better serve customers, mitigate market risks and support
future growth.
Genus ABS - Operating Review
Actual currency Constant
currency
2017 2016 Movement Movement
GBPm GBPm % %
Revenue 195.9 172.8 13 2
Adjusted operating profit 22.3 23.3 (4) (15)
Adjusted operating profit less
non-controlling interest 21.3 22.0 (3) (13)
Adjusted operating margin 11.4% 13.5% (2.1)pts (2.1)pts
Market
Global dairy producers started to recover in 2017 from their
unprecedentedly low profitability in 2016. In Europe, the legacy of
the low prices resulted in milk supply contracting, with France,
Germany, the Netherlands and UK producing 3% less milk in the first
four months of 2017 compared with 2016. Combined with modest
increases in demand, this has resulted in Europe experiencing
firmer farm gate milk prices.
Global milk output in the first four months of 2017 was at the
same level as 2016 due to increases in production in Argentina, the
US, Australia and New Zealand. The US increased production 2%, with
0.6% of this contributed by increasing cow numbers. Consistently
low milk prices in China continue to challenge smaller farms,
leading to consolidation to fewer, larger dairy farms, and to
reduced imports during the year, although recent signs suggest an
improved outlook.
Following two years of strong beef cattle prices in the US,
producers faced a sudden and unexpected decline in prices in the
first half of the year, due to increased cattle numbers and reduced
packer capacity. This resulted in a rapid drop in the rate of herd
expansion and reduced artificial insemination usage in this key
beef market. Beef prices and producer profitability in Brazil were
adversely impacted by the tainted meat scandal in the second half
of the year.
Challenging conditions for customers over the last two years
have constrained demand for quality bovine genetics as customers
conserved cash. This has affected the bovine genetics market,
driving consolidation and a focus on distribution chain
efficiencies, exemplified by the takeover of the Accelerated
Genetics cooperative in the US by Select Sires, a major US
cooperative.
Performance
Adjusted operating profits for Genus ABS fell by 13% in constant
currency with the decline all in the first half of the year.
Volumes in the second half grew significantly, up 8% year to year,
resulting in a positive second half performance. For the year as a
whole, volumes increased 1% and revenues 2%. North America and Asia
were key contributors to the lower results for the year but
performance improved in Europe and Latin America, and IVB continued
to grow. Results in the second half were also impacted by
provisions for ST-produced sorted inventory as we prepared for the
launch of Sexcel.
In North America, profits decreased by 12% in constant currency,
driven by an 8% dairy volume decrease, partially offset by a 25%
increase in sexed semen volumes and strong cost management. A
strengthened focus on strategic key account management led to the
addition of a top five US enterprise dairy as an IVB customer. Beef
volumes were down 13% against the record prior year, due to low
market steer prices and competition with natural service.
In Europe, profits increased by 8% in constant currency. The
severe dairy market weakness experienced in 2016 improved in 2017,
with many customers returning to profitability and dairy volumes
increased by 5%. Beef volumes also increased by 9%, as dairy
customers continued to produce beef cross-bred offspring for
slaughter. A continued focus on cost reduction and improving
service margins, also yielded benefits throughout the year.
In Latin America, profits grew 41% in constant currency, despite
volumes declining 2% due to tough beef markets. Genus ABS continued
to take the lead in increasing selling prices in key markets, and
by June, ABS prices were on average 9% higher. Beef volumes were
down 6% from last year, hampered by political turmoil as well as
misconduct allegations in the downstream supply chain in
Brazil.
Results in Asia were 32% lower, driven primarily by adverse
trading conditions in China, where many producers have been
loss-making. Australian producers also struggled with reduced milk
prices and trading in India was impacted by the demonetisation
process. Despite these challenges, Asia performance improved in the
second half of the year.
IVB continued to deliver strongly with revenues and operating
profit less non-controlling interest both up over 30% in constant
currency (over 60% in actual currency), on embryo volume growth of
20%. Commercial integration between ABS and IVB enabled over 15 new
accounts to be won in Mexico, including two large enterprise
accounts, leveraging a new world class IVF facility in Torreon. In
North America, IVB secured a new key account with a herd of over
60,000 animals, with a new laboratory to serve it starting in early
FY18.
Research and Development - Operating Review
Actual currency Constant
currency
2017 2016 Movement Movement
GBPm GBPm % %
Gene editing 3.5 0.9 289 251
Other research 8.4 7.1 18 2
Porcine product development 16.6 13.5 23 7
Bovine product development 15.3 12.9 19 6
----- ----- --------- ----------
Net expenditure in
R&D less non-controlling
interest 43.8 34.4 27 12
----- ----- --------- ----------
Performance
As planned, R&D investment increased by 12% in constant
currency, while capital spending remained flat. This reflected
increased investments in gene editing capabilities, genome science,
advancing GSS and furthering our computational capabilities in
bovine product development.
Our investment in gene editing increased by GBP2.6m, as we built
platform capabilities, co-founded a gene editing company, RenOVAte
Biosciences, to perform the edits, selected and optimised the gene
editing reagents, created the first pregnancies of gene edited pigs
for testing, and carried expenses for our collaboration with
Caribou Biosciences from which we license market leading and
proprietary CRISPR-Cas9 gene editing technology. We secured an INAD
with the US FDA for the PRRSv programme. As planned, we expect gene
editing expense to grow to around GBP6.0m in 2018.
As in previous years, our research focused on genomic
evaluation, gender skew and animal health and wellbeing. Research
expenditure increased by 2% this year. We also continued to invest
in core informatics capabilities and expanded research efforts in a
number of promising areas. Additionally, we continued to build our
internal capabilities in intellectual property development,
regulatory affairs and research strategy.
Bovine product development expenditure increased by 6% in
constant currency, as we incurred pre-launch costs of GSS partially
offset by strategically increasing the efficiency of our product
development programme, including reducing the size of our bull herd
and the expenses associated with progeny testing. In GSS, we
continued to refine and scale up our manufacturing processes in
preparation for commercial launch incurring costs in the year in
excess of GBP2m. We added resources in quality and operational
controls and invested in technology improvements to the current GSS
system, which enhanced the technology's performance and promise
further advances in fertility.
De Novo achieved promising genetic results, while running to
plan financially. We also brought into production 23% (2016: 20%)
of our bulls from our ABS internal herd with the impact of De Novo
expected to grow significantly in future years. We continued to
invest in genetic services resources, to develop proprietary
breeding indices and predictive genomic mating, to deliver higher
genetic control and differentiation. We leveraged this work through
our beef nucleus breeding programme to launch our proprietary NuEra
Genetics (TM) beef genetics in the market after the end of the
year.
Within porcine product development, the single-step genomic
evaluation of all pure line populations, retail products and traits
of economic importance is continuing to exceed the aim of a 35%
increase in the rate of genetic gain compared with the period
before its implementation. Porcine product development costs
increased 7% in constant currency, driven by increased animal
volumes and the related operating expenses in our nucleus herds,
and lower market prices for by-product pigs. These cost increases
were partially offset by lower genetic testing fees, due to project
phasing, and reduced global genetic dissemination costs.
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 facing
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. As part of this assessment, we considered the Group's
increased investment in leading-edge R&D, along with the
technical and customer-facing skills needed to deliver our growth
plans. In response to the latter issue, we identified and evaluated
a new principal risk relating to our ability to hire and retain
talented people, as detailed below.
Strategic Risks
------------------------------------------------------------ ------------------------------------ -----------------------------
Risk description How we manage risk Risk change in 2017
------------------------------------------------------------ ------------------------------------ -----------------------------
Developing products Dedicated teams align No change in porcine
with competitive advantage our product development but decreased in
to customer requirements. bovine, due to the
* Development programmes fail to produce best genetics We use large-scale data acquisition of De
for customers. and advanced genomic analysis Novo genetics, which
to ensure our breeding has secured increased
goals are met. We frequently access to elite
* Increased competition to secure elite genetics. measure our performance dairy genetics.
against competitors in
customers' systems, to
ensure the value added
by our genetics remains
competitive.
------------------------------------------------------------ ------------------------------------ -----------------------------
Commercialising GSS We have rigorously prepared Reduced.
technology for the successful commercial
* Failure to manage the technical, production and launch of our GSS technology, The granting of
financial risks associated with launching a new supported by dedicated a permanent injunction
product technology. internal resources and against ST in the
external expert advice. US legal proceedings
We initiated legal proceedings removed certain
* The industry response to the introduction of against ST in the US in research, marketing
competition into the sexed semen market. 2014, to open the market and non-compete
to competition. restrictions. Technical
progress on GSS
continued as we
scaled up for commercial
launch in September
2017, with strong
product trial results.
In June 2017 new
patent infringement
proceedings were
filed by ST in the
US which the Group
is defending vigorously.
------------------------------------------------------------ ------------------------------------ -----------------------------
Developing and commercialising We maintain awareness Increased, due to
gene editing technologies of new technology opportunities our discovery and
through a wide network pursuit of new gene
* Failure to develop successfully and commercialise of academic and industry editing applications
gene editing technologies due to technical, IP, contacts. Our R&D Portfolio and consequent higher
market, regulatory or financial barriers. Management Team oversees investment in 2018
our own research, ensures and beyond. Key
we correctly prioritise initiatives are
* 'Game-changing' technology secured by competitors. our R&D investments and progressing through
assesses the adequacy the R&D life cycle.
of resources and the relevant
IP landscapes. We have
formal collaboration agreements
with key partners, to
ensure responsible exploration
and development of technologies
and the protection of
IP. The Board is updated
regularly on key development
projects.
------------------------------------------------------------ ------------------------------------ -----------------------------
Capturing value through We have a rigorous acquisition No change.
acquisitions analysis and due diligence
* Failure to identify appropriate investment process, with the Board The acquisition
opportunities or to perform sound due diligence. reviewing and signing-off process continues
all material projects. to provide valuable
We also have a structured and timely access
* Failure to successfully integrate an acquired post-acquisition integration to the right investment
business. planning and execution opportunities. Our
process. experiences with
post-acquisition
integration provide
a platform for integrating
newly acquired businesses.
------------------------------------------------------------ ------------------------------------ -----------------------------
Growing in emerging We have a robust organisation, No change.
markets blending local and expatriate
* Failure to appropriately develop our business in executives, supported Business performance
China and other emerging markets. by the global species has continued to
teams. This allows us be strong in China.
to grow our business in However, we remain
key markets, while managing exposed to the pig
risks and ensuring we cycle in China,
comply with our global as the majority
standards. of our business
there is not yet
on a royalty model.
------------------------------------------------------------ ------------------------------------ -----------------------------
Operational Risks
------------------------------------------------------------ ------------------------------------ -----------------------------
Risk description How we manage risk Risk change in 2017
------------------------------------------------------------ ------------------------------------ -----------------------------
Protecting Intellectual We have a global, cross-functional No change.
Property ('IP') process to identify and
* Failure to protect our IP could mean Genus-developed protect our IP. Our customer
genetic material, methods, systems and technology contracts and our selection
become freely available to third parties. of multipliers and joint
venture partners include
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 biosecurity No change.
and continuity of supply standards, with independent
* Loss of key livestock, owing to disease outbreak. reviews throughout the
year to ensure compliance.
We regularly review the
* Loss of ability to move animals or semen freely geographical diversity
(including across borders) due to disease outbreak, of our production facilities,
environmental incident or international trade to avoid over-reliance
sanctions. on single sites.
* Lower demand for our products, due to industry-wide
disease outbreaks.
------------------------------------------------------------ ------------------------------------ -----------------------------
Hiring and retaining We have a robust talent New principal risk.
talented people and succession planning
* Failure to attract, recruit, develop and retain the process, including annual Growth in new business
global talent needed to deliver our R&D programmes assessments of our global areas (including
and growth plans in our chosen markets. talent pool and active IVB and GSS) and
leadership development delivery of our
programmes. The Group's R&D programmes depend
reward and remuneration on having people
policies are reviewed with appropriate
regularly, to ensure their skills.
competitiveness. We work
closely with a number
of specialist recruitment
agencies to identify candidates
with the skills we need.
------------------------------------------------------------ ------------------------------------ -----------------------------
Financial Risks
------------------------------------------------------------ ---------------------------------- ----------------------------
Risk description How we manage risk Risk change in 2017
------------------------------------------------------------ ---------------------------------- ----------------------------
Managing agricultural We continuously monitor No change.
market and commodity markets and seek to balance
prices volatility our costs and resources
* Fluctuations in agricultural markets affect customer in response to market
profitability and therefore demand for our products demand. We actively monitor
and services. and update our hedging
strategy to manage our
exposure. Our porcine
* Increase in our operating costs, due to commodity royalty model and extensive
pricing volatility. use of third-party multipliers
mitigates the impact of
cyclical price reductions
or cost increases in pig
production.
------------------------------------------------------------ --- --------------------------------- ----------------------------
Funding pensions We are the principal employer Reduced.
* Exposure to costs associated with failure of for the Milk Pension Fund
third-party members of joint and several liabilities and chair the group of During the year
pension scheme. participating employers. the trustees and
The fund is closed to Genus consented
future service and has to a Flexible Appointment
* Exposure to costs as a result of external factors an agreed deficit recovery Agreement ('FAA')
(such as mortality rates, interest rates or plan, based on the 2015 resulting in the
investment values) affecting the size of the pension actuarial valuation. In NMR Group leaving
deficit. agreement with the employers, the scheme after
the trustees implemented making payments
an investment de-risking to the fund and
strategy and have started to Genus.
a liability management
exercise. We also monitor
the strengths of other
employers in the fund
and have retained external
consultants to provide
expert advice.
------------------------------------------------------------ --- --------------------------------- ----------------------------
Group Income Statement Genus plc
For the year ended 30 June 2017
2017 2016
Note GBPm GBPm
REVENUE 2 459.1 388.3
ADJUSTED OPERATING PROFIT 2 55.1 49.3
Adjusting items:
- Net IAS 41 valuation movement on biological
assets 9 (1.1) (17.1)
- Amortisation of acquired intangible assets 8 (8.7) (6.1)
- Share-based payment expense (4.6) (3.8)
------- -------
(14.4) (27.0)
- Exceptional items: 3
* Pension related 5.7 44.2
* Litigation (5.3) (6.9)
* Acquisition and integration (0.6) (0.2)
* Other (including restructuring) (2.3) (0.8)
------- -------
Total exceptional items (2.5) 36.3
------- -------
Total adjusting items (16.9) 9.3
------- -------
OPERATING PROFIT 38.2 58.6
Share of post-tax profit of joint ventures
and associates retained 6.2 6.9
Finance costs 4 (4.5) (4.7)
Finance income 4 0.8 0.1
------- -------
PROFIT BEFORE TAX 40.7 60.9
Taxation 5 (6.4) (10.6)
------- -------
PROFIT FOR THE YEAR FROM CONTINUING OPERATIONS 34.3 50.3
ATTRIBUTABLE TO:
Owners of the Company 32.8 49.3
Non-controlling interest 1.5 1.0
------- -------
34.3 50.3
------- -------
EARNINGS PER SHARE FROM CONTINUING OPERATIONS 6
Basic earnings per share 53.8p 81.1p
Diluted earnings per share 53.0p 80.3p
------- -------
ALTERNATIVE MEASURE OF PERFORMANCE
Adjusted operating profit from continuing
operations 55.1 49.3
Adjusted operating profit attributable to
non-controlling interest (2.1) (1.4)
Pre-tax share of profits from joint ventures
and associates excluding net IAS 41 valuation
movement 7.1 6.4
------- -------
ADJUSTED OPERATING PROFIT INCLUDING JOINT
VENTURES AND ASSOCIATES 60.1 54.3
Net finance costs 4 (3.7) (4.6)
------- -------
ADJUSTED PROFIT BEFORE TAX FROM CONTINUING
OPERATIONS 56.4 49.7
------- -------
ADJUSTED EARNINGS PER SHARE FROM CONTINUING
OPERATIONS 6
Basic adjusted earnings per share 69.4p 60.7p
Diluted adjusted earnings per share 68.4p 60.1p
------- -------
Group Statement of Comprehensive Income Genus plc
For the year ended 30 June 2017
2017 2017 2016 2016
GBPm GBPm GBPm GBPm
PROFIT FOR THE YEAR 34.3 50.3
Items that may be reclassified
subsequently to profit or loss
Foreign exchange translation
differences 7.7 76.6
Fair value movement on net investment
hedges (2.7) (13.3)
Fair value movement on cash
flow hedges 2.1 (0.7)
Tax relating to components of
other comprehensive income (4.6) (16.8)
----- ------
2.5 45.8
Items that may not be reclassified
subsequently to profit or loss
Actuarial gain/(loss) on retirement
benefit obligations 1.2 (12.8)
Movement on pension asset recognition
restriction 0.3 (0.6)
Recognition of additional pension
liability (4.3) (14.9)
Tax relating to components of
other comprehensive income 0.4 4.5
----- ------
(2.4) (23.8)
OTHER COMPREHENSIVE INCOME FOR
THE YEAR 0.1 22.0
------ ------
TOTAL COMPREHENSIVE INCOME FOR
THE YEAR 34.4 72.3
------ ------
ATTRIBUTABLE TO:
Owners of the Company 33.8 72.1
Non-controlling interest 0.6 0.2
------ ------
34.4 72.3
------ ------
Group Statement of Changes in Equity Genus plc
For the year ended 30 June 2017
Called Share Trans-lation Non-
up premium Own reserve Hedging Retained controlling Total
Note share account shares GBPm reserve earnings Total interest equity
capital GBPm GBPm GBPm GBPm GBPm GBPm GBPm
GBPm
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
(expense)/income
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 and
written
put option - - - - - - - (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
Foreign exchange
translation
differences, net
of tax - - - 3.9 - - 3.9 (0.9) 3.0
Fair value
movement
on net
investment
hedges,
net of tax - - - (2.2) - - (2.2) - (2.2)
Fair value
movement
on cash flow
hedges,
net of tax - - - - 1.7 - 1.7 - 1.7
Actuarial gain
on retirement
benefit
obligations,
net of tax - - - - - 1.0 1.0 - 1.0
Movement on
pension
asset
recognition
restriction,
net of tax - - - - - 0.3 0.3 - 0.3
Recognition of
additional
pension
liability, net
of tax - - - - - (3.7) (3.7) - (3.7)
-------- -------- ------- ------------- -------- --------- -------- ------------ --------
Other
comprehensive
(expense)/income
for the year - - - 1.7 1.7 (2.4) 1.0 (0.9) 0.1
Profit for the
year - - - - - 32.8 32.8 1.5 34.3
-------- -------- ------- ------------- -------- --------- -------- ------------ --------
Total
comprehensive
income for the
year - - - 1.7 1.7 30.4 33.8 0.6 34.4
Recognition of
share-based
payments,
net of tax - - - - - 4.0 4.0 - 4.0
Adjustment
arising
from change in
non-controlling
interest - - - - - - - 8.6 8.6
Dividends 7 - - - - - (13.5) (13.5) - (13.5)
Issue of ordinary
shares - 0.5 - - - - 0.5 - 0.5
-------- -------- ------- ------------- -------- --------- -------- ------------ --------
BALANCE AT 30
JUNE
2017 6.1 112.8 (0.1) 39.2 1.1 240.2 399.3 2.8 402.1
-------- -------- ------- ------------- -------- --------- -------- ------------ --------
Group Balance Sheet Genus plc
As at 30 June 2017
2017 2016
Note GBPm GBPm
ASSETS
Goodwill 8 104.7 86.0
Other intangible assets 8 88.3 78.0
Biological assets 9 279.2 264.6
Property, plant and equipment 67.5 61.8
Interests in joint ventures and
associates 22.7 24.3
Other investments 5.5 3.6
Derivative financial asset 0.1 -
Deferred tax assets 3.8 4.7
TOTAL NON-CURRENT ASSETS 571.8 523.0
------ ------
Inventories 33.1 35.7
Biological assets 9 73.9 66.4
Trade and other receivables 10 88.8 78.1
Cash and cash equivalents 26.5 34.0
Income tax receivable 1.9 1.0
Derivative financial asset 1.3 0.6
Asset held for sale 0.3 0.3
------ ------
TOTAL CURRENT ASSETS 225.8 216.1
------ ------
TOTAL ASSETS 797.6 739.1
------ ------
LIABILITIES
Trade and other payables (76.4) (65.1)
Interest-bearing loans and borrowings (7.7) (4.6)
Provisions (2.7) (1.2)
Obligations under finance leases (1.4) (1.1)
Current tax liabilities (5.2) (4.9)
Derivative financial liabilities (0.6) (0.5)
TOTAL CURRENT LIABILITIES (94.0) (77.4)
------ ------
Interest-bearing loans and borrowings (127.2) (115.3)
Retirement benefit obligations 11 (40.9) (44.5)
Provisions (3.7) -
Deferred tax liabilities (124.2) (118.5)
Derivative financial liabilities (3.7) (12.6)
Obligations under finance leases (1.8) (2.7)
------- -------
TOTAL NON-CURRENT LIABILITIES (301.5) (293.6)
------- -------
TOTAL LIABILITIES (395.5) (371.0)
------- -------
NET ASSETS 402.1 368.1
------- -------
2017 2016
GBPm GBPm
EQUITY
Called up share capital 6.1 6.1
Share premium account 112.8 112.3
Own shares (0.1) (0.1)
Translation reserve 40.0 37.5
Hedging reserve 1.1 (0.6)
Retained earnings 239.4 219.3
------- -------
Equity attributable to owners of
the Company 399.3 374.5
Non-controlling interest 6.1 5.0
Put option over non-controlling
interest 15 (3.3) (11.4)
------- -------
Total non-controlling interest 2.8 (6.4)
Total equity 402.1 368.1
------- -------
Group Statement of Cash Flows Genus plc
For the year ended 30 June 2017
2017 2016
Note GBPm GBPm
NET CASH FLOW FROM OPERATING ACTIVITIES 12 34.6 30.0
------- ------
CASH FLOWS FROM INVESTING ACTIVITIES
Dividends received from joint ventures
and associates 3.8 2.4
Joint venture loan repayment 3.0 1.0
Acquisition of subsidiaries, net
of cash acquired 14 (17.5) (3.5)
Increase in investment in subsidiaries 14 (12.0) -
Acquisition of investment (0.3) (3.5)
Acquisition of investment in joint
venture (0.2) (0.2)
Disposal of subsidiary, net of cash
disposed - 0.1
Disposal of joint venture 1.5 -
Purchase of property, plant and
equipment (13.4) (11.8)
Purchase of intangible assets (5.5) (6.8)
Proceeds from sale of property,
plant and equipment 1.4 1.8
Proceeds from sale of assets held
for sale - 0.7
------- ------
NET CASH OUTFLOW FROM INVESTING
ACTIVITIES (39.2) (19.8)
------- ------
CASH FLOWS FROM FINANCING ACTIVITIES
Drawdown of borrowings 68.1 53.6
Repayment of borrowings (55.7) (37.3)
Payment of finance lease liabilities (2.0) (1.9)
Equity dividends paid (13.5) (12.2)
Dividend to non-controlling interest (0.1) (0.4)
Issue of ordinary shares 0.5 0.1
Debt issue costs (0.4) (1.4)
------- ------
NET CASH (OUTFLOW)/INFLOW FROM FINANCING
ACTIVITIES (3.1) 0.5
------- ------
NET (DECREASE)/INCREASE IN CASH
AND CASH EQUIVALENTS (7.7) 10.7
------- ------
Cash and cash equivalents at start
of the year 34.0 21.3
Net (decrease)/increase in cash
and cash equivalents (7.7) 10.7
Effect of exchange rate fluctuations
on cash and cash
equivalents 0.2 2.0
------- ------
TOTAL CASH AND CASH EQUIVALENTS
AT 30 JUNE 26.5 34.0
------- ------
Notes to the Preliminary Results Genus plc
For the year ended 30 June 2017
1. REPORTING ENTITY
Status of audit
The financial information given does not constitute the
Company's statutory accounts for the year ended 30 June 2017 or the
year ended 30 June 2016, but is derived from those accounts.
Statutory accounts for the year ended 30 June 2016 have been
delivered to the Registrar of Companies and those for the year
ended 30 June 2017 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 2017
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
--------------------- -----------------------
2017 2016 2015 2017 2016 2015
US Dollar/GBP 1.27 1.47 1.57 1.30 1.34 1.57
Euro/GBP 1.16 1.33 1.32 1.14 1.20 1.41
Brazilian Real/GBP 4.11 5.47 4.26 4.30 4.28 4.89
Mexican Peso/GBP 24.61 25.38 22.68 23.51 24.66 24.68
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 2017. These financial
statements have also been prepared in accordance with the
accounting policies set out in the 2016 Annual Report and Financial
Statements, as amended by the following new accounting
standards.
New standards and interpretations
The following new standards and interpretations have been
adopted in the current period:
-- Amendments to IFRS 11 'Accounting for acquisitions of
interests in Joint ventures', IAS 27 'Equity method in separate
financial statements', IAS 1 'Disclosure Initiatives';
-- 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'; and
--'Annual Improvements to IFRS 2012 - 2014 cycle'.
There has been no significant impact on the results or
disclosures for the current period from the adoption of these new
standards and interpretations.
New standards and interpretations not yet adopted
At the date of authorisation of these Group Financial
Statements, the following standards and interpretations were in
issue but not yet effective (and in some cases had not yet been
adopted by the EU). These standards and interpretations have not
been applied in preparing these Group Financial Statements:
-- 'Annual improvement 2014-2016 cycle';
-- IFRIC 22 'Foreign currency transaction and advance
consideration';
--IAS 7 (amendments) 'Disclosure Initiative';
--IAS 12 'Recognition of deferred tax assets for unrealised
losses';
-- IFRS 2 (amendments) 'Classification and Measurement of
Share-based Payment Transactions';
-- IFRS 9 'Financial Instruments';
-- IFRS 10 and IAS 28 (amendments) 'Sale or Contribution of
Assets between an Investor and its Associate or Joint venture';
-- 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.
Alternative performance measures
In reporting nancial information, the Group presents alternative
performance measures, ('APMs'), which are not de ned or speci ed
under the requirements of IFRS.
The Group believes that these APMs, which are not considered to
be a substitute for or superior to IFRS measures, provide
stakeholders with additional helpful information on the performance
of the business. The APMs are consistent with how the business
performance is planned and reported within the internal management
reporting to the Board and the executive leadership committee. Some
of these measures are also used for the purpose of setting
remuneration targets.
The key APMs that the Group uses include: adjusted operating
profit, adjusted profit before tax from continuing operations,
adjusted earnings per share, adjusted EBITDA and net debt.
The Group reports some nancial measures, on both a reported and
constant currency basis. The constant currency basis, which is an
APM, retranslates the previous year results at the average actual
periodic exchange rates used in the current nancial year. This
measure is presented as a means of eliminating the effects of
exchange rate uctuations on the year-on-year reported results.
The Group makes certain adjustments to the statutory pro t
measures in order to derive many of these APMs. The Group's policy
is to exclude items that are considered to be signi cant in both
nature and/or quantum and where treatment as an adjusted item
provides stakeholders with additional useful information to assess
the year-on-year trading performance of the Group. On this basis,
the following were included within adjusted items for the year
ended 30 June 2017:
-- net IAS 41 valuation movements on biological assets -
movements can be materially volatile and do not directly correlate
to the underlying trading performance in the period. Furthermore,
the movement is non-cash related and many assumptions used in the
valuation model are based on future projections rather than current
trading;
-- amortisation of acquired intangible assets - by excluding it
helps the comparability between acquired operations and organically
grown operations, as the latter are not able to recognise
internally generated intangible assets. Adjusting for amortisation
provides a more consistent basis for comparison between the
two;
-- share based payments - this expense is considered to be
relatively volatile and is not fully reflective of the current
period trading as the performance criteria are based on EPS
performance over a three year period and include estimates of
future period performance; and
-- exceptional items - are items which either due to their size
or their nature are excluded to improve the understanding of the
Company's underlying performance, see note 3 for further
details.
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. All other
reconciliations are included within the Financial Review
section.
This preliminary announcement was approved by the Board on 6
September 2017.
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 effective from 1 July 2016,
the Group's operating and reporting structure comprises three
operating segments: Genus PIC, Genus ABS and Research and
Development.
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;
Genus ABS - our global bovine sales business and
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 2017 2016
GBPm GBPm
Genus PIC 249.5 207.5
Genus ABS 195.9 172.8
Research and Development
----------------------------------- ------------ ------------
Research - -
Porcine Product Development 10.7 8.0
Bovine Product Development 3.0 -
----------------------------------- ------------ ------------
13.7 8.0
------------ ------------
459.1 388.3
------------ ------------
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.
Adjusted operating profit 2017 2016
GBPm GBPm
Genus PIC 87.7 71.7
Genus ABS 22.3 23.3
Research and Development
----------------------------------- ------------- -------------
Research (11.9) (8.0)
Porcine Product Development (16.6) (13.5)
Bovine Product Development (14.2) (12.9)
----------------------------------- ------------- -------------
(42.7) (34.4)
Adjusted segment operating profit 67.3 60.6
Central (12.2) (11.3)
Adjusted operating profit 55.1 49.3
------------- -------------
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
2017 2016 2017 2016 2017 2016
GBPm GBPm GBPm GBPm GBPm GBPm
Genus PIC 0.8 0.8 6.0 5.9 1.1 1.4
Genus ABS 2.1 1.7 2.1 1.1 3.4 2.6
Research and Development
---------------------------------------- ------- ------ ------- ------ ---------- ----------
Research 0.3 - 0.9 - 2.5 3.6
Porcine Product Development 1.9 1.8 - - 2.6 1.7
Bovine Product Development 1.4 1.4 2.2 - 5.6 7.3
---------------------------------------- ------- ------ ------- ------ ---------- ----------
3.6 3.2 3.1 - 10.7 12.6
------- ------ ------- ------ ---------- ----------
Segment total 6.5 5.7 11.2 7.0 15.2 16.6
Central 2.3 2.2 - - 5.0 4.3
------- ------ ------- ------ ---------- ----------
Total 8.8 7.9 11.2 7.0 20.2 20.9
------- ------ ------- ------ ---------- ----------
Segment assets Segment liabilities
2017 2016 2017 2016
GBPm GBPm GBPm GBPm
Genus PIC 258.3 233.5 (60.1) (50.3)
Genus ABS 132.8 144.4 (41.1) (47.7)
Research and Development
---------------------------------------- -------- ------- ---------- ----------
Research 5.9 3.7 (1.4) (0.4)
Porcine Product Development 182.4 146.7 (72.0) (59.6)
Bovine Product Development 202.7 203.1 (52.6) (51.2)
---------------------------------------- -------- ------- ---------- ----------
391.0 353.5 (126.0) (111.2)
-------- ------- ---------- ----------
Segment total 782.1 731.4 (227.2) (209.2)
Central 15.5 7.7 (168.3) (161.8)
-------- ------- ---------- ----------
Total 797.6 739.1 (395.5) (371.0)
-------- ------- ---------- ----------
Exceptional items of GBP2.5m expense (2016: GBP36.3m credit),
relate to Genus ABS (GBP6.9m expense), Genus PIC (GBP2.1m expense)
and our central segment (GBP6.5m credit). Note 3 provides details
of these exceptional items.
We consider share-based payment expenses 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
2017 2016
GBPm GBPm
North America 214.5 178.7
Latin America 71.4 58.6
Rest of Europe, Middle East and Africa 48.5 40.7
UK 70.0 65.2
Asia 54.7 45.1
459.1 388.3
---------- ----------
Non-current assets (excluding deferred taxation and financial
instruments)
2017 2016
GBPm GBPm
North America 407.9 376.0
Latin America 47.2 43.2
Rest of Europe, Middle East and Africa 37.1 22.0
UK 60.9 59.6
Asia 14.8 17.5
567.9 518.3
----- -----
Revenue by type
2017 2016
GBPm GBPm
Sale of animals, semen, embryos and associated
products and services 335.7 283.5
Royalties - animal and semen 116.1 97.8
Consulting services 7.3 7.0
459.1 388.3
Interest income (see note 4) 0.8 0.1
------ ------
459.9 388.4
------ ------
3. EXCEPTIONAL ITEMS
2017 2016
Operating (expense)/income: GBPm GBPm
Pension related 5.7 44.2
Litigation (5.3) (6.9)
Acquisition and integration (0.6) (0.2)
Other (including restructuring) (2.3) (0.8)
(2.5) 36.3
------ ------
Pension related
On 23 June 2017, National Milk Records plc ('NMR') withdrew from
the MPF under a Flexible Apportionment Arrangement between NMR,
Genus and the Trustees of the MPF. In return for the right to
withdraw from the MPF, NMR made a one-off, lump sum cash payment of
GBP10.1m to the MPF, equivalent to the undiscounted value of all
NMR's future payments under the existing MPF recovery plan which
extends to March 2026; and NMR also made a payment to Genus of
GBP4.7m, with GBP1.4m being satisfied by the issue NMR shares.
As a result of the NMR withdrawal, Genus has recognised GBP5.7m
as an exceptional credit, with GBP4.5m (GBP4.7m payment net of
fees) being received directly from NMR, and GBP1.2m from the MPF
pension scheme reflecting the impact of NMR paying undiscounted
amounts into the scheme. See note 11 for further details.
During the prior 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.
Litigation
Litigation includes legal fees of GBP5.3m (2016: GBP5.4m)
related to the action by ABS Global, Inc. ('ABS') against Inguran,
LLC (aka Sexing Technologies ('ST')) and GBPnil (2016: GBP1.5m
(US$2m)) for up-front damages related to patent infringement and
confidential information.
On 14 July 2014, ABS 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 conduct. The legal action aimed to
remove these barriers and allow free and fair competition in the
sexed bovine semen processing market ('ABS Action'). In parallel
with the ABS Action, ABS also filed Inter-Partes Review
applications ('IPR') before the US Patent Office challenging the
validity of several of ST's group patents, including US Patent No.
7,195,920 (the "920 patent'), 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 Inc. filed an Answer and Counterclaim
to the ABS Action, denying any anticompetitive activities, and
alleging, among other matters, that the Company and ABS infringed
the '920, '425, '987 and '092 patents.
On 29 April 2015, the Patent Trial and Appeal Board ('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.
However, trials were instituted for the other three patents. 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 from the PTAB on whether the '092 patent
is unpatentable.
On 1 August 2016, the trial of the ABS Action commenced and
lasted for approximately two weeks. Following the jury verdicts,
both sides filed post-trial motions. On 31 March 2017, the Court
entered a judgment which confirmed: (i) the Company and ABS had
proved that ST had wilfully maintained a monopoly in the market for
sexed bovine semen processing in the US since July 2012, and
awarded a permanent injunction against ST which, among other
matters, relieved ABS of certain research, marketing and other
non-compete restrictions contained in the 2012 semen sorting
agreement between the parties; (ii) ST's '987 and '092 patents were
valid and infringed; and (iii) that ABS had materially breached the
confidentiality obligations under the 2012 semen sorting agreement.
The Court also confirmed that: (i) the Company and ABS should pay
ST an up-front amount of US$750,000 and an on-going royalty of
US$1.25 per straw on commercialisation of the Genus Sexed Semen
technology for the use of ST's '987 patent in the US; (ii) the
Company and ABS should pay ST an up-front payment of US$500,000 and
an on-going royalty of US$0.50 per straw for the use of ST's '092
patent in the US; and (iii) ABS should pay ST damages of US$750,000
for having breached the confidentiality obligations under the 2012
semen sorting agreement. Both parties have appealed the Court's
decision.
On 7 June 2017, ST, XY LLC and Cytonome/ST, LLC filed
proceedings against ABS Global, Inc., the Company and Premium
Genetics (UK) Limited ('PG') in the United States District Court
for the Western District of Wisconsin ("New Litigation"). The New
Litigation alleges that ABS and the Company infringe seven patents
and asserts trade secret and breach of contract claims. ABS, the
Company and PG have filed a Motion to dismiss the trade secret and
breach of contract claims. The Company and ABS intend to vigorously
defend the patent infringement claims.
Acquisitions and integration
During the period, GBP0.6m of expenses were incurred, with
GBP1.6m of expenses in relation to acquisitions and integration,
principally of De Novo Genetics and Hermitage Genetics, being
partially offset by a gain on cancellation of the IVB put
option.
Other (including restructuring)
Included within 'other' of GBP2.3m is GBP1.8m restructuring
costs primarily relating to ABS operating business, especially
supply chain.
4. NET FINANCE COSTS
2017 2016
GBPm GBPm
Interest payable on bank loans and overdrafts (2.7) (1.7)
Amortisation of debt issue costs (0.4) (0.5)
Other interest payable (0.1) (0.1)
Net interest cost in respect of pension
scheme liabilities (1.2) (2.2)
Net interest cost on derivative financial
instruments (0.1) (0.2)
------ -------
Total interest expense (4.5) (4.7)
Interest income on bank deposits 0.8 0.1
------ -------
Total interest income 0.8 0.1
------ -------
Net finance costs (3.7) (4.6)
------ -------
5. INCOME TAX EXPENSE
Income tax expense 2017 2016
GBPm GBPm
Current tax expense
Current period 9.9 10.4
Adjustment for prior periods 0.4 (1.4)
------ -------
Total current tax expense in the Group Income
Statement 10.3 9.0
------ -------
Deferred tax expense
Origination and reversal of temporary differences (2.6) 0.7
Adjustment for prior periods (1.3) 0.9
------ -------
Total deferred tax expense in the Group Income
Statement (3.9) 1.6
------ -------
Total income tax expense excluding share
of income tax of
equity accounted investees 6.4 10.6
Share of income tax of equity accounted investees 1.4 1.4
------ -------
Total income tax expense in the Group Income
Statement 7.8 12.0
------ -------
6. EARNINGS PER SHARE
Basic earnings per share is the 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 2017 2016
Basic earnings per share 53.8p 81.1p
------- -------
The calculation of basic earnings per share from continuing
operations for the year ended 30 June 2017 is based on the net
profit attributable to owners of the Company from continuing
operations of GBP32.8m (2016: GBP49.3m) and a weighted average
number of ordinary shares outstanding of 60,944,000 (2016:
60,814,000), which is calculated as follows:
2017 2016
Weighted average number of ordinary shares
(basic) 000s 000s
Issued ordinary shares at the start of the
year 61,013 60,968
Effect of own shares held (163) (177)
Shares issued on exercise of stock options 47 23
Shares issued in relation to Employee Benefit 47 -
Trust
------- -------
Weighted average number of ordinary shares
in year 60,944 60,814
------- -------
Diluted earnings per share from continuing
operations 2017 2016
Diluted earnings per share 53.0p 80.3p
------- -----------
The calculation of diluted earnings per share from continuing
operations for the year ended 30 June 2017 is based on the net
profit attributable to owners of the Company from continuing
operations of GBP32.8m (2016: GBP49.3m) and a weighted average
number of ordinary shares outstanding, after adjusting for the
effects of all potential dilutive ordinary shares, of 61,833,000
(2016: 61,387,000), which is calculated as follows:
2017 2016
Weighted average number of ordinary shares 000s 000s
(diluted)
Weighted average number of ordinary shares
(basic) 60,944 60,814
Dilutive effect of share options 889 573
--------- ---------
Weighted average number of ordinary shares
for the purposes of diluted earnings per share 61,833 61,387
--------- ---------
Adjusted earnings per share from continuing
operations 2017 2016
Adjusted earnings per share 69.4p 60.7p
Diluted adjusted earnings per share 68.4p 60.1p
--------- ---------
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 GBP42.3m (2016: GBP36.9m), which is calculated as
follows:
2017 2016
GBPm GBPm
Profit before tax from continuing operations 40.7 60.9
Add/(deduct):
Net IAS 41 valuation movement on biological
assets 1.1 17.1
Amortisation of acquired intangible assets 8.7 6.1
Share-based payment expense 4.6 3.8
Exceptional items (see note 3) 2.5 (36.3)
Net IAS 41 valuation movement on biological
assets in joint
ventures (0.5) (1.9)
Tax on joint ventures and associates 1.4 1.4
Attributable to non-controlling interest (2.1) (1.4)
-------- --------
Adjusted profit before tax 56.4 49.7
Adjusted tax charge (14.1) (12.8)
-------- --------
Adjusted profit after tax 42.3 36.9
-------- --------
Effective tax rate on adjusted profit 25.0% 25.8%
-------- --------
7. DIVIDS
Amounts recognised as distributions to equity holders in the
year
2017 2016
GBPm GBPm
Final dividend
Final dividend for the year ended 30 June
2016 of 14.7 pence per
share 9.0 -
Final dividend for the year ended 30 June
2015 of 13.4 pence per
share - 8.1
Interim dividend
Interim dividend for the year ended 30 June
2017 of 7.4 pence
per share 4.5 -
Interim dividend for the year ended 30 June
2016 of 6.7 pence
per share - 4.1
----- ------
13.5 12.2
----- ------
The Directors have proposed a final dividend of 16.2 pence per
share for 2017. 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 licence
Technology relationships assets Software Semen and Total Goodwill
other
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Cost
Balance at 1
July 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 - 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
----------- -------------- ----------- --------- ------ --------- ------ ---------
Additions - - - 0.9 3.1 1.5 5.5 -
Acquisition
(see note 14) 6.7 7.4 14.1 - - - 14.1 16.2
Reclassified
from tangible
fixed assets - - - 1.0 - - 1.0 -
Effect of
movements
in
exchange rates 0.1 2.2 2.3 - 0.4 - 2.7 2.5
----------- -------------- ----------- --------- ------ --------- ------ ---------
Balance at 30
June 2017 53.4 82.3 135.7 8.8 21.3 4.1 169.9 104.7
----------- -------------- ----------- --------- ------ --------- ------ ---------
Amortisation
and impairment
losses
Balance at 1
July 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 -
----------- -------------- ----------- --------- ------ --------- ------ ---------
Reclassified
from tangible
fixed assets - - - 0.7 - - 0.7 -
Amortisation
for the year 2.7 6.0 8.7 1.3 0.4 0.8 11.2 -
Effect of
movements
in
exchange rates - 1.0 1.0 0.1 - - 1.1 -
----------- -------------- ----------- --------- ------ --------- ------ ---------
Balance at 30
June 2017 24.8 47.9 72.7 7.5 0.4 1.0 81.6 -
----------- -------------- ----------- --------- ------ --------- ------ ---------
Carrying
amounts
At 30 June 2017 28.6 34.4 63.0 1.3 20.9 3.1 88.3 104.7
----------- -------------- ----------- --------- ------ --------- ------ ---------
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
----------- -------------- ----------- --------- ------ --------- ------ ---------
Additions in the year to intangible assets of GBP3.1m relates to
costs capitalised in respect of the GSS development project.
Included above is GBP20.9m of capitalised development expenses in
respect of GSS, and a further GBP9.3m is included within fixed
assets relating to GSS.
Additions to patents and licences of GBP1.5m relate to a stage
payment for the worldwide 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 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
------ ------- -------
Increases due to purchases 11.9 176.0 187.9
Decreases attributable to sales - (197.8) (197.8)
Decrease due to harvest (40.7) (19.3) (60.0)
Changes in fair value less estimated
sale costs 10.3 66.0 76.3
Acquisition 5.4 - 5.4
Effect of movements in exchange
rates 4.3 6.0 10.3
------ ------- -------
Balance at 30 June 2017 137.5 215.6 353.1
Non-current biological assets 137.5 141.7 279.2
Current biological assets - 73.9 73.9
------ ------- -------
Balance at 30 June 2017 137.5 215.6 353.1
------ ------- -------
Bovine biological assets include GBP6.9m (2016: GBP7.8m)
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% (2016: 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 GBP87.0m arising on
the initial recognition of biological assets acquired through
multiplier purchases, other than parent gilts (2016: GBP49.4m).
Decreases attributable to sales during the period of GBP197.8m
(2016: GBP152.0m) include GBP66.6m (2016: GBP49.6m) 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 GBP111.0m (2016: GBP69.3m)
relating to the fair value of the retained interest in the genetics
animals, other than parent gilts, transferred to customers under
royalty contracts.
Total revenue in the period, including parent gilts, includes
GBP159.5m (2016: GBP127.2m) in respect of these contracts,
comprising GBP54.0m (2016: GBP38.1m) on the initial transfer of
animals to customers and GBP105.5m (2016: GBP89.1m) in respect of
royalties received.
For pure line porcine herds, the net cash flows from the herds'
expected output 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
11.0% (2016: 11.0%). The number of future generations taken into
account is seven (2016: seven) and their estimated useful lifespan
is 1.4 years (2016: 1.3 years).
Year ended 30 June 2017 Bovine Porcine Total
GBPm GBPm GBPm
Net IAS 41 valuation movement on biological
assets*
Changes in fair value of biological
assets+ 10.3 66.0 76.3
Inventory transferred to cost of sales
at fair value (38.8) (19.3) (58.1)
Biological assets transferred to cost
of sales at fair value - (18.8) (18.8)
------ -------- ------
(28.5) 27.9 (0.6)
Fair value movement in related financial
derivative - (0.5) (0.5)
------ -------- ------
(28.5) 27.4 (1.1)
------ -------- ------
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 2.1 67.7 69.8
Inventory transferred to cost of sales
at fair value (28.6) (18.0) (46.6)
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)
------ -------- ------
* 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.
+ Includes GBP2.1m write down in bovine assets.
10. TRADE AND OTHER RECEIVABLES
2017 2016
GBPm GBPm
Trade receivables 73.7 65.0
Other debtors 5.4 5.5
Prepayments and accrued income 7.8 5.3
Other taxes and social security 1.9 2.3
------ ------
88.8 78.1
------ ------
Trade receivables
The average credit period our customers take on the sales of
goods is 59 days (2016: 61 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 (2016: nil).
At 30 June 2017, GBP56.4m (2016: GBP50.3m) 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.
2017 2016
GBPm GBPm
The Milk Pension Fund - Genus's share 30.4 34.3
The Dalgety Pension Fund - -
Other retirement benefit obligations and
other unfunded schemes 10.5 10.2
Overall net pension liability 40.9 44.5
------- -------
Overall, we expect to pay GBP7.3m (2017: GBP7.1m) in
contributions to defined benefit plans in the 2018 financial
year.
Summary of movements in Group deficit during the year
2017 2016
GBPm GBPm
Deficit in schemes at the start of the
year (44.5) (63.1)
Administration expenses (0.6) (0.7)
Gains on curtailments and settlements - 0.3
Exceptional gain on NMR withdrawal from 1.2 -
MPF
Change from RPI to CPI for benefit increases
in the
MPF - 43.9
Contributions paid into the plans 7.2 6.7
Net pension finance cost (1.2) (2.2)
Actuarial loss recognised during the
year 1.2 (12.8)
Movement in restriction of assets 0.3 (0.6)
Recognition of additional liability (4.3) (14.9)
Exchange rate adjustment (0.2) (1.1)
------- -------
Deficit in schemes at the end of the
year (40.9) (44.5)
------- -------
The expense/(income) is recognised in the following line items
in the Income Statement
2017 2016
GBPm GBPm
Administrative expenses 0.6 0.7
Settlement gain in exceptional items - (0.3)
Exceptional gain on NMR withdrawal from MPF (1.2) -
Change from RPI to CPI for benefit increases
in the MPF in exceptional items - (43.9)
Net finance charge 1.2 2.2
0.6 (41.3)
Actuarial assumptions and sensitivity analysis
Principal actuarial assumptions at the reporting date (expressed
as weighted averages):
2017 2016
Discount rate 2.65% 2.8%
Consumer Price Index (CPI) 2.05% 1.6%
Retail Price Index (RPI) 3.15% 2.7%
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 2017, 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 (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).
12. NOTES TO THE CASH FLOW STATEMENT
2017 2016
GBPm GBPm
Profit for the year 34.3 50.3
Adjustment for:
Net IAS 41valuation movement on biological
assets 1.1 17.1
Amortisation of acquired intangible assets 8.7 6.1
Share-based payment expense 4.6 3.8
Share of profit of joint ventures and associates (6.2) (6.9)
Finance costs (net) 3.7 4.6
Income tax expense 6.4 10.6
Exceptional items 2.5 (36.3)
------- -------
Adjusted operating profit from continuing
operations 55.1 49.3
Depreciation of property, plant and equipment 8.8 7.9
Loss/(profit) on disposal of plant and equipment 0.2 (0.2)
Gain on asset held for sale - (0.2)
Amortisation of intangible assets 2.5 0.9
------- -------
Adjusted earnings before interest, tax,
depreciation and
amortisation 66.6 57.7
Exceptional item cash (5.4) (4.7)
Other movements in biological assets and
harvested produce (5.7) (3.8)
Increase/(decrease) in provisions 0.1 (1.2)
Additional pension contributions in excess
of pension charge (6.6) (6.1)
Other (0.9) 0.3
------- -------
Operating cash flows before movement in
working capital 48.1 42.2
Decrease/(increase) in inventories 1.4 (0.7)
(Increase)/decrease in receivables (9.0) 2.6
Increase/(decrease) in payables 5.8 (0.8)
------- -------
Cash generated by operations 46.3 43.3
Interest received 0.8 0.1
Interest and other finance costs paid (3.1) (1.6)
Cash flow from derivative financial instruments 0.6 0.1
Income taxes paid (10.0) (11.9)
Net cash from operating activities 34.6 30.0
------- -------
Analysis of net debt
At 1 July Net cash Foreign Non-cash At 30
2016 flows exchange movements June 2017
GBPm GBPm GBPm GBPm GBPm
Cash and cash equivalents 34.0 (7.7) 0.2 - 26.5
---------- --------- ---------- ----------- -----------
Interest-bearing
loans - current (4.6) (3.0) (0.1) - (7.7)
Obligation under
finance leases -
current (1.1) 2.0 - (2.3) (1.4)
---------- --------- ---------- ----------- -----------
(5.7) (1.0) (0.1) (2.3) (9.1)
---------- --------- ---------- ----------- -----------
Interest-bearing
loans - non- current (115.3) (9.4) (2.5) - (127.2)
Obligation under
finance lease - non-
current (2.7) - (0.1) 1.0 (1.8)
---------- --------- ---------- ----------- -----------
(118.0) (9.4) (2.6) 1.0 (129.0)
---------- --------- ---------- ----------- -----------
Net debt (89.7) (18.1) (2.5) (1.3) (111.6)
---------- --------- ---------- ----------- -----------
Included within non-cash movements is GBP1.3m in relation to new
finance leases.
13. CONTINGENCIES AND BANK GUARANTEES
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 85% (2016:
75%) of the MPF. 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. The total deficit of the MPF scheme from
the most recent triennial valuation can be found in note 11.
During the year, as part of a commercial agreement in favour of
a third party, we entered into a bank guarantee for GBP4.1m which
will expire within 2 years.
14. ACQUISITION OF SUBSIDIARIES
De Novo Genetics
On 1 September 2016, we formed De Novo Genetics, a 51% 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 gives us greater control of the genetics we need to create
differentiated solutions that help commercial dairy farmers
increase profitability through improved herd productivity, health
and efficiency.
The preliminary amounts recognised in respect of the
identifiable assets acquired/transferred and liabilities assumed,
at the date of acquisition, are set out in the table below.
GBPm
Intangible assets identified - customer relationships 5.0
Biological assets (including asset transferred) 11.5
Financial assets 0.5
Financial liabilities (6.3)
Total identifiable net assets 10.7
Equity attributable to non-controlling interest (5.3)
5.4
Goodwill 4.8
Total consideration 10.2
Satisfied by:
Net cash outflow arising on acquisition of subsidiary 2.3
Deferred cash consideration 3.5
Deferred contingent cash consideration 0.8
Biological assets transferred 3.6
10.2
The goodwill of GBP4.8m arising from the acquisition consists
largely of future 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.
The fair value of the financial assets includes trade
receivables with a fair value of GBP0.5m and a gross contractual
value of GBP0.5m.
Hermitage Genetics
On 31 March 2017, we acquired the entire share capital of
Hermitage Genetics, which included technology being the genetic
rights and intellectual property of Hermitage. As part of the
agreement, the remaining Hermitage business will also become a
strategic supply chain and distribution partner for PIC covering
the supply of porcine genetics in several markets.
In addition, we acquired certain Hermitage customer
relationships in various geographies including Russia, the US and
several European countries.
The preliminary amounts recognised in respect of the
identifiable assets acquired/transferred and liabilities assumed,
at the date of acquisition, are set out in the table below.
GBPm
Intangible assets identified
6.7
* Technology 2.4
- Customer relationships
Financial assets 0.1
Financial liabilities (1.1)
Total identifiable net assets 8.1
Goodwill 11.4
Total consideration 19.5
Satisfied by:
Cash consideration 15.2
Deferred contingent cash consideration 4.3
19.5
The goodwill of GBP11.4m arising from the acquisition consists
largely of future 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.
The fair value of the financial assets includes trade
receivables with a fair value of GBP0.1m and a gross contractual
value of GBP0.1m.
If the acquisition of Hermitage Genetics had been completed on
the first day of the financial period, Group revenues and Group
profit would have been GBP2.9m and GBP1.5m, respectively.
In Vitro Brasil S.A.
During the year, with the agreement of the existing shareholder
we purchased the remaining 49% of In Vitro Brasil S.A. for
GBP11.4m, and the option was cancelled, with a gain of GBP1.0m
being recognised as an exceptional credit.
PIC Italia S.r.l
On 29 September 2016, we increased our shareholding in PIC
Italia S.r.l from 50% to 85%, for a cash consideration of
GBP0.6m.
Net acquisition and integration related costs included within
exceptional items amount to GBP0.6m.
15. NON-CONTROLLING INTEREST
2017 2016
GBPm GBPm
Non-controlling interest 6.1 5.0
Put option over non-controlling interest (3.3) (11.4)
------ -------
Total non-controlling interest 2.8 (6.4)
------ -------
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.
2017
De Novo Genetics GBPm
Biological assets 10.2
Current assets 1.4
Non-current assets 2.4
Current liabilities (2.1)
Net assets 11.9
Equity attributable to owners of
the Company (6.1)
Non-controlling interest for De
Novo Genetics 5.8
Other non-controlling interest 0.3
Non-controlling interest 6.1
During the year GBP0.1m of dividends were paid to
non-controlling interests (2016: GBP0.4m).
During the year, with the agreement of the existing shareholder
we purchased the remaining 49% of In Vitro Brasil S.A. for
GBP11.4m.
16. POST BALANCE SHEET EVENTS
There are no post balance sheet events.
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR LLFITARIRIID
(END) Dow Jones Newswires
September 07, 2017 02:00 ET (06:00 GMT)
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