24th May 2005 07:01
Genus PLC24 May 2005 FOR IMMEDIATE RELEASE 24 May 2005 GENUS plc Preliminary Results for the year ended 31st March 2005 Record Profits Genus plc, (AIM:GNS) the world leading bovine genetics company, announces recordGroup profits for the year ended 31st March 2005. Financial Highlights 2005 2004 % ChangeGroup turnover £183.2m £183.7m -Profit before tax £8.8m £8.1m +9%Profit after tax £6.4m £5.3m +21%Basic EPS 17.6p 15.5p +14%Final dividend per share 7.5p 6.5p +15% Operational Highlights • Group - Profit before tax up 9% to £8.8m; (£8.1m in 2004) - Profit after tax up 21% to £6.4m; (£5.3m in 2004) - Basic EPS up 14% - Research related tax incentives reduced the effective ongoing tax rate by 2% - 1.7m shares issued and placed with institutions to improve the liquidity in the Company's shares • Bovine Genetics - Sales up 6% to £85.7m (£80.7m in 2004) at constant exchange rates. (Translation impact was a negative £2.1m). - Sales volume up 3.2% to 9.5m doses (2004: 9.2m); prices up in many markets - Strong results to December 2004 were tempered by a slow down in the fourth quarter as UK and European markets temporarily adjusted to the introduction of new agricultural support mechanisms - Underlying operating profit of £11.0m at constant exchange rates was up 4%; (£10.6m in 2004). Translation impact was a negative £0.3m - Small UK acquisition mid-year has increased market share in South West England • Other businesses - Planned reduction in low margin bulk trading in Animal Health reduced sales by £4.2m but improved margins - Animal Health underlying operating profit up 19% to £1.9m (£1.6m in 2004) - Development Consulting underlying operating profit up 4% to £0.79m (£0.76m in 2004) Commenting on prospects Richard Wood, Chief Executive, said: "We are pleased to report record results with another strong improvement inGroup profits". "In Bovine Genetics, we expect the UK and European markets to return to a morenormal trend. Early signs are already evident". "Internationally, the competitiveness of the stud has again improveddramatically with the addition of six new high ranking bulls. This increase,together with further investment in the sales force in the USA, will hasten ouractivity in that market. Operating productivity improvements resulting from theglobal reorganisation should offset inflationary pressures". "We expect both Animal Health and Development Consultancy to continue to grow athistorical rates. New product introductions to the range of exclusivelymarketed veterinary pharmaceuticals should underpin profitable growth in AnimalHealth, despite extreme price competition in Veterinary Wholesaling." "Overall, we view Group prospects positively". Contacts: Richard Wood Chief Executive 01256 347101 David Timmins Group Finance Director 01256 347102 Genus plc Charles Ryland/Suzanne Brocks 020 7466 5000 Buchanan Communications - ends - About Genus: Genus is the world's leading Bovine Genetics company. At the core of itsbusiness lies an approximately £9m per year research and development programme.Laboratory bioscience is used to target and augment traditional mating andselection programmes testing 400 new bulls each year. The rolling five yearprogramme aims continuously to improve the genetic make-up of the successivegenerations of the bulls created. Semen from the bulls selected from thisprogramme for stud is sold for use on customers' herds, to improve the outputand stature of their offspring. Genus distributes beef and dairy semen, both for tropical and temperateagricultures, from its six studs located in four continents to farmers inseventy countries. It operates an unrivalled network of overseas sellingoffices and exclusive agents. In some countries it also offers inseminationservices and the sale of supporting products. In the UK, Genus Animalcare markets licensed veterinary pharmaceuticals andGenusxpress wholesales a range of other companies' veterinary pharmaceuticalsand products. Genus also operates an overseas consultancy practice whichmanages projects funded by aid agencies for less developed countries. Genus offers unrivalled expertise in its sector of modern agriculturaltechnology. Chairman's Statement In this, my first year as Chairman of Genus plc, I am pleased to be able toreport yet another year of record profits. Group turnover was £183.2m (£183.7m in 2004). At constant exchange rates(applying 2003/2004 exchange rates to 2004/2005 results), Group turnover was£185.3m, an increase of 1% on prior year. Bovine Genetics was up 6% at constantexchange rates and Development Consulting was up 6%. Animal Health turnover wasdown £4.2m to £76.2m (£80.4m in 2004) due to a deliberate policy of exiting somevery low margin bulk trade in wholesaling. Group underlying operating profit before non-recurring charges, was up 4% to£11.8m (£11.4m in 2004). Non-recurring charges in the current year totalling£0.4m related to securing the Research & Development tax credits and consultancyand redundancy costs regarding the global re-organisation for Bovine Geneticsreferred to in the Chief Executive's report. The Bovine Genetics contribution to Group underlying operating profit of £11.0m(£10.6m in 2004), was up 4% at constant exchange rates, but was reduced by £0.3mto £10.7m due to the impact of the weak US dollar. By December 2004, BovineGenetics was well ahead of last year's underlying operating profit. However, astronger performance for the full year was held back, in the final quarter,because of temporary market uncertainties in the UK and Europe prior to therecent implementation of a new European Union agricultural subsidy regime. In the other businesses, underlying operating profit together increased by 12%to £2.7m; (£2.4m in 2004). Animal Health's underlying operating profitcontribution was up 19% to £1.9m (£1.6m in 2004), despite the competitiveveterinary wholesale market. Development Consulting's underlying operating profit of £0.79m, was up 4%(£0.76m in 2004) despite having absorbed the cost of opening a new office inPakistan. Operating profit before exceptional and non-recurring charges and goodwillamortisation was up 8% to £11.8m (£10.9m in 2004). The net result was a 9% increase in profit before tax to £8.8m (£8.1m in 2004).The reduced tax rate resulting from current and retrospective tax rebates on R&Dexpenditure, largely in the USA, further improved profit after tax which rose by21% to £6.4m (£5.3m in 2004). Basic earnings per share increased by 14% to 17.6pence (15.5 pence in 2004), despite the Group having issued and placed withinstitutions 1.7m new shares, partly to fund a small UK acquisition for BovineGenetics, and thereby improving liquidity in the company's shares. Share Capital The Board made considerable progress with its strategy for restructuring theshare register to improve liquidity. A voluntary buyback scheme was implementedin November 2004. This procedure reduced the number of small shareholders by3,500, or 19% (13% of total number of shareholders), by acquiring 1,589,974shares into treasury. These shares, together with 699,470 shares issued as a result of the exercise ofexecutive options, were then placed with new and existing institutionalinvestors. As a result, the percentage of issued shares now held byinstitutions has increased from 37% to 45%. The Board will continue to keep under review options for further restructuringof the share register to improve the liquidity of the Company's shares. I am pleased to be able to inform shareholders that Genus plc shares have beenincluded in the new FTSE AIM 50 Index of top companies launched on 16th May2005. Dividend Because of the continued confidence the Board has in the long-term strategy forgrowth, it is recommending a record dividend of 7.5 pence (6.5 pence in 2004).This dividend will be 2.7 times covered by underlying earnings. Subject toshareholder approval at the Company's AGM, this dividend will be paid on 30thAugust 2005 to shareholders on the register at the close of business on 5thAugust 2005 with an ex-dividend date of 3rd August 2005. Board Changes I succeeded John Beckett as Chairman of the Board upon his retirement at theAnnual General Meeting held on 12th August 2004. I would like to thank John forhis considerable contribution to the success of Genus as the inaugural Chairman. During his stewardship, Genus has evolved from being a small UK privatecompany to become a public company which is world leader in its sector. John Worby was appointed to the Board on 1st September 2004 and replaced me asChairman of the Audit Committee. His strong financial background means he iswell qualified for this role. New Accounting Reference Date The Board has been considering for some time the desirability of changing theaccounting reference date from 31st March to 30th June. The seasonal nature ofthe Bovine Genetics business means that peak selling seasons straddle both theinterim and final reporting dates. Also, the Board is aware that forcomparative purposes it would be useful to align with the accounting referencedates of public companies in our sector. Accordingly, the Board proposes to effect a change to 30th June 2006 by issuinginterim reports for the six months ending 30th September 2005, for the twelvemonths ending 31st March 2006 and then Group Report & Accounts for the fifteenmonth period ending 30th June 2006. Outlook We view the Group's future positively. We are confident of the improvingprospects and long term potential for Bovine Genetics. We expect the UK andEurope to return to a more normal trend, with farmers adjusting to the newsupport mechanisms. Indeed, early signs are already evident. Internationally, the competitiveness of the stud has again improved dramaticallywith the addition of six new high ranking bulls. Also, an extension to thesales force in the USA will hasten our activity in that market. Operatingproductivity improvements resulting from the re-organisation should offsetinflationary pressures. The decision to maintain the location of a large partof the cost base in the USA rather than the UK, should provide a natural hedgeagainst some of the profit impact of any adverse Dollar exchange movements. We expect both Animal Health and Development Consultancy to continue to grow athistorical rates. New product introductions to the range of exclusivelymarketed veterinary pharmaceuticals should underpin profitable growth in AnimalHealth, despite extreme price competition in veterinary wholesaling. John Hawkins, Chairman24 May 2005 Chief Executive's Review Group Strategy At the beginning of the financial year, the Board met to review group strategyand the five year business plan. The strategy for development involves:- • Concentration on Bovine Genetics over the long term. • Increasing the level of intellectual property, directly owned or exclusively licensed, in both Bovine Genetics and Animal Health. • Driving underlying sales and achieving profit growth from improved margins and increased productivity in all businesses, pending achievement of a step change through: - a product differentiating R&D invention in Bovine Genetics and/or; - synergy through major international acquisition in the Bovine Genetics or related sectors. • Continuing to improve the liquidity of the company's shares by initiating buybacks, placings and issuing shares in preference to other types of funding for small as well as large acquisitions, but balancing earnings dilution. Operating Progress This year, all three businesses improved their market penetration. To reduce costs and improve productivity in the core Bovine Genetics business,we began to re-organise distribution operations worldwide. Bovine Genetics nowsells to 70 countries from six studs on four continents. Until recently, efforthas been concentrated on improving the R&D investment, maximising global productavailability and reducing the overlap within the studs. This year we began atwo year project aimed at harmonising country operations and removingsuperfluous costs by beginning to operate as one worldwide business, rather thanan amalgamation of independent country businesses. In the USA, the retail sales force was extended by a further twenty six peopleas part of a plan aimed at reducing dependency on distribution agents. Weexpect this investment in the future to hasten penetration of the large USmarket. We have also extended distribution strength in the UK by acquiring theSupersires insemination business from the French co-operative competitor. In Animal Health we began to extend intellectual property by applying for aproduct licence for a new veterinary pharmaceutical therapeutic. Details of the operating results for the three businesses are set out below:- Bovine Genetics - 45% of Group Turnover This international business uses bio-technology to drive genetic change in beefand dairy cattle. This year it sold 9.5m doses of semen (9.2m doses in 2004)sourced from the Group's six bull studs on four continents to farmers in 70countries. Sales increased by £5m, up 6%, to £85.7m (£80.7m in 2004) atconstant exchange rates but the weakening of the US Dollar reduced the increaseon translation by £2.1m to £83.6m. The business had a good year until the final quarter when a change in the EUagricultural price support mechanism temporarily changed farmers' buyingpatterns in the UK and Continental Europe. By the end of the third quarter, underlying operating profit was well ahead ofthe same period last year but then slowed to achieve a 4% underlying increase to£11.0m (£10.6m in 2004) for the year as a whole at constant exchange rates,before the translation impact of £0.3m relating to the weak US dollar. Throughout the year in the UK and Europe, farmers faced the most major change totheir subsidy regime for a decade but few industry changes were noticeable untilclose to the first phase implementation dates in February and March 2005. Atthat stage, farmers were forced into making lifestyle decisions as the subsidieschanged in some markets from being output related to being based on the acreageand historical receipts. The less efficient farmers needed to consider whetherto retire over the next few years or continue. In anticipation of selling theirherds, some farmers stopped buying Holstein semen to impregnate their animals infavour of cheaper beef semen, which achieves a milk producing pregnancy, butwithout producing a replacement calf for the herd. We judge this change to be of a temporary nature pending quotas being releasedby exiting farmers to the more efficient farmers who are ultimately Genus' bestcustomers. Even against this background, sales volume in the UK was up by 2.7% and UKinsemination numbers increased by 3%, despite cow numbers being down, as theyhave been in each of the last ten years because of industry consolidation. Elsewhere in the world business was strong, particularly in the large US market,Canada, Mexico and Latin America. Prices for Holstein semen were steady andbeef semen prices increased. In the USA, milk prices were buoyant and this provided a "feel good" factor forfarmers. With the Canadian border remaining closed because of BSE, US farmerswere unable to buy-in replacements for their herds from Canada and so used morehigher priced dairy semen to breed their own replacements. Dairy semen pricesincreased, beef semen volume improved and the sale of support productsincreased. Sales in Canada were also strong, primarily due to a strengthened product rangethat had specific appeal to pedigree breeders. This was possible despite achallenging market environment due to continuing cases of BSE and the closedexport border with the USA. Mexico had an exceptional year locally with sales up 15%. However, thetranslation impact of its weak currency negated much of the profit benefit. In Brazil, sales were up by 18% on 2004 in local currency and drove through astrong profit uplift underpinned by cost savings initiated last year. The new business in Chile, acquired from the Genus agent in March 2004,developed sales and profits strongly. Volume was up 40% on last year as thesales team concentrated business development in the cow-dense area of SouthernChile. Taking advantage of the improved economic stability in Latin America, towardsthe end of the financial year, we re-opened operations in the massiveArgentinian market and trade has recommenced after the extended closure causedby of the economic uncertainties of the past. Australia proved more of a difficult market, with farming still depressed in theaftermath of the drought eighteen months ago. As a result, the agriculturalsupport industry experienced financial difficulties with many wholesalers anddistributors being forced to liquidate or amalgamate. This has made Genus'route to market more challenging, as Australia is the only major market in theworld in which we do not have ultimate control of our own distribution. Accordingly, we have begun to set up a Genus owned distribution network and havealready made one small acquisition upon which to base this new network. Finally, we had a most successful year in Japan with sales volume up 47%. Wewere able to raise prices because of the strength of our product portfolio. Research & Development Genus' biotechnology strategy aims selectively to concentrate on projects whichwill differentiate its products in addition to improving the hit rate in thecore genetic selection process. Indeed, Genus' application of short-termbioscience advances to those established processes has already made it the mostsuccessful Bovine Genetics company in the industry. As it takes five years from the inclusion of a bull in the development programmeto produce commercial test results, we believe that the identification of thetraits likely to be important in the market in five years time to be asimportant as the hit rate in selecting the right bull. Genus used its extensiveknowledge of world agriculture to predict in 1999 and 2000 that longevity traitswould increase in importance and this has proved to be a correct analysis.Also, we decided to restrict further investment in gene marking technology tothat of a watching brief in a science we believe to be of a very long-termnature. Instead, we will be increasing our investment in projects related toimproving the fertility of our customers' herds, judged to be a most importanttrait for the future. This year, in February, Genus introduced six new bulls to the world top rankingleague table while all its competitors added none. The additional traitsavailable from the new bulls introduced this year will enable farmers to breedprogeny with special longevity characteristics. The semen now beginning to besold from these new stud bulls will achieve premium prices. Last year, the bio-technology programmes developed a particle separation processto be used in separating male and female sperm. Independently, a flow systemhas since been constructed, capable of handling multi-dose volumes of semen.The immediate challenge is to bring these two technologies together. An alternative sexed semen project, which enhances the proportion of females instandard semen doses, is now moving to preliminary field trials. The pregnancyratios achieved by co-operator farmers in their herds in many disparatelocations will be used to establish whether the invention provides sufficientadded value to achieve a beneficial marketable effect. Animal Health - 42% of Group Turnover This year the focus was on expanding the higher margin licensed pharmaceuticalbusiness whilst exiting, as planned, some very low margin bulk trade inwholesaling. The latter reduced sales by £4.2m but improved the average marginin the business. Sales and profit growth in the licensed pharmaceuticalbusiness contributed to a 19% increase in overall divisional underlyingoperating profit to £1.9m. Like-for-like sales in Veterinary Wholesaling remained level in the face ofincreased competitor activity. After some account losses in the early part ofthe year, marketing and selling initiatives secured recent account gains whichincreased fourth quarter sales by 3% compared with the prior year. The Wholesaling business continued to invest in improving the service offered tocustomers and to achieve operational efficiency improvements. The latestproject involves a £300,000 investment in "2D" data matrix bar coding which willimprove order picking accuracy and reduce waste. "2D" bar coding also makes iteasier for veterinary practices to trace their stock through batch numbers andexpiry dates. In the licensed pharmaceutical business, there were notable advances in allproducts but particularly from the idENTICHIP, especially the innovativeidENTICHIP with Bio-Thermo, from the Aqupharm range of IV fluids and fromdatabase related products and services. In the course of the year, we concluded an international licence and supplyagreement with a major supplier of human generic pharmaceuticals. This will leadshortly to the submission for registration in the UK of the product forveterinary use. It is a generic version of a widely used companion animalpharmaceutical. The UK submission will be followed by regulatory submissions inother major European markets. We are also in the final stages of negotiations with two other multinationalcompanies concerning the development and acquisition of international rights tointellectual property which should see the submission of two more regulatorydossiers in the new financial year. These investments in new pharmaceutical products and intellectual property arein line with the strategic decision by the Group to maximise the potential ofthis sector of the veterinary business. Development Consulting 13% of Group Turnover Based in the UK, Development Consulting increased its turnover by 6% to £24.0m(£22.7m in 2004). This business provides programme management and consultingservices to the UK Government, the EU and overseas aid agencies. Most projectsare in less developed countries. In response to changing client requirements, the business began a process ofestablishing offices in key overseas regions. The first was opened in Pakistanduring 2004. The aim is to benefit from the flow of international developmentfunds to Afghanistan and other Asian markets. Amongst notable projects in progress at the year end were: 1. Kyrgyzstan Republic - Support to the Village Investment Programmes. This continues the successful four-year programme previously reported. 2. Vietnam - Support for the small and medium Enterprise Development Funds. 3. Georgia - Financial management for the Ministry of Agriculture and Food. 4. UK/Ireland - Project for the EC's LIFE Environment programme. Africa has become a strategic new market for Development Consulting. The verylarge UK government funded State and Local Government Programme in Nigeriacontinued to be a focus of the company's work. At the year end, Genus was namedpreferred bidder for a project to establish a Policy and Knowledge Facility inthe same country. The business also won contracts in South Africa and Uganda. Governments and international development agencies have increased sharply theircommitments to Africa, for example through the Prime Minister's initiative, theCommission for Africa. The Development Consultancy Division has had 50 yearsexperience in the region and operates with a strong team of specialists withAfrican experience. It will be well placed to participate in the expandedprogrammes that are planned. Richard Wood, Chief Executive 24 May 2005 Finance Director's Review Operating Results Group operating profit before goodwill amortisation increased by £1.0m (10%) to£11.4m (2004: £10.4m) with all divisions achieving increases over the prioryear. At constant exchange rates, group operating profit before goodwillamortisation would have been £0.3m higher at £11.7m, an increase of 13% over theprior year. In the face of challenging conditions in some of the BovineGenetics markets, and the highly competitive Veterinary Wholesale market, Groupfocus has been on improving margin. This has been achieved for all divisionsfor the reporting year. Group operating margin, before goodwill amortisation,increased from 5.7% to 6.2% of sales. A one-off consultancy expense for £0.2m and a £0.1m redundancy cost have beenincurred in the year in respect of a globalisation strategy in Bovine Geneticsto improve operating efficiencies and achieve cost savings, the main benefits ofwhich will accrue over the next two years. A further one-off cost for £0.1m wasfor specialist tax advice. This related to current and retrospective claims forResearch & Development expenditure in the USA and the UK. A charge of £0.1m hasbeen accrued with respect to first time application of UITF 17, regarding theExecutive Performance Share Plan. As part of the global re-organisation for Bovine Genetics, we are integratingoperations in the UK regarding bull rearing and lay-off. As a result, one majoragricultural facility is being closed in phases and sold in lots. The firstmajor lot was sold during the year and realised £0.3m cash and generated aprofit of £0.3m. Further lots are expected to be sold in the new financialyear. Interest Charge The interest expense reduced by £0.1m to £1.2m from £1.3m, despite higherinterest rates, due to lower average debt levels than the prior year. Interestwas covered 9.7 times (2004: 7.9 times) by operating profit before goodwillamortisation. Taxation The tax credits expected from the Research & Development claim amount to £0.5m,of which £0.2m and £0.3m relates to current year and prior years respectively.These credits have reduced the effective rate of tax to 27.3% (2004: 34.3%).On an ongoing basis, the effective rate of tax is expected to be approximately31%. Earnings Per Share & Dividend Basic earnings per share has increased by 14% to 17.6p (2004: 15.5p). On alike-for-like basis, earnings per share based on profit before goodwillamortisation and exceptional items and excluding the retrospective tax credit,increased by 0.8p (4.1%) to 20.3p (2004: 19.5p). The Board has recommended a 15% increase in the dividend to 7.5 pence per share(2004: 6.5 pence per share). This dividend is covered 2.7 times by underlyingearnings (2004: 2.9 times). Financing & Cash Flow Operating cash inflow for the year was £9.4m (2004: £14.4m) after a workingcapital increase in the year of £5.6m which was due mainly to temporary timingdifferences at the end and beginning of the year. Net debt of £7.5m was in linewith the previous year end. Balance Sheet & Shareholder Funds Shareholder funds increased to £55.1m during the year (2004: £48.7m) reflectingthe retained profit of £3.6m and new issue of approximately 1.9 million newshares (one million as an institutional placing at £2.10 per share andapproximately 900,000 shares in respect of share option exercises). Gearing at31st March 2005 was 14% (2004: 15%). Treasury The Group has a centralised treasury function to manage foreign exchange andinterest rate risk following guidelines laid down by the Board. Derivativeinstruments are used solely to mitigate these risks. The Group's borrowings at the end of the year were of two principal types: • Bank borrowings, provided by Barclays Bank PLC • Finance Leases and Hire Purchase contracts, which are used to finance the acquisition of certain fixed assets The main risks arising from the Group's financial instruments are interest rate risk, liquidity risk and foreign currency risk. The Board reviews and agrees policies for managing each of these risks and these policies are summarised below. • Interest Rate Risk The Group borrows principally in Sterling, US Dollars and Australian Dollars (AUD). Interest rate swaps may be used to generate the desired interest profile and to manage exposure to interest rate fluctuations. At the year end, the company had fixed interest loans of AUD 6.95m. • Liquidity Risk The Group's objective is to maintain a balance between continuity of funding and flexibility through the use of overdrafts, bank loans and finance leases. At the year end, 90% of the Group's borrowings excluding overdrafts were due to mature within one year and 10% between one and two years. During the year, the balance of the loan notes of £1.6m was repaid in full. Short-term flexibility is achieved through overdraft facilities, a bank multi-option facility to cover bank guarantees, borrowings and other items totalling £15m and a bank revolving credit facility of £10m which is available until 30th September 2005. At 31st March 2005, the Group had drawn down £1m on the revolving credit facility. • Foreign Currency Risk The Group is exposed to two principal types of foreign currency risk: - transaction risk and translation risk. Transactional exposures arise from operating units selling and/or purchasing goods and services in currencies other than their reporting currency. Where these exposures are large or other than short-term, they are typically hedged by the use of forward contracts. The Group operates a policy to settle trading inter-company balances on a monthly basis to minimise foreign currency exposure. Translational exposure arises on the re-translation of overseas subsidiary companies' profits and net assets into Sterling for financial reporting purposes. Overseas trading is mainly US Dollar linked. The company's decision to maintain the location of a large part of the Bovine Genetics' cost base in the USA rather than in the UK, provides a natural hedge against translation exposure of overseas profits. Translation of overseas net assets may be hedged by borrowings in the currency of those net assets where the exposure is perceived to be material to the Group's net assets. At the year end, the Group had borrowings in Australian Dollars which largely hedged the translation of its net investment in that currency. Pensions Genus' largest pension scheme is the Milk Pension Fund, a UK based definedbenefit scheme which has a number of participating employers. Milk MarqueLimited, the principal employer, has recently revoked its notice of intendedwithdrawal from the Milk Pension Fund and has confirmed its continuing activeparticipation. There is agreement between all parties involved to sectionalisethe fund for each employer, but progress is currently awaiting the impact of therecent legislative changes. Under FRS 17, the value of the scheme's assets and liabilities at 31st March2005 showed the Genus section of the scheme as having a market value of £99.1mrepresenting 91% of accrued benefits. The last full actuarial funding valuationof the Milk Pension Fund was in March 2003, when the actuarial value of theassets was sufficient to cover 96% of the members' accrued benefits. Acquisition In August 2004, the Group acquired the entire issued share capital of Supersires(2004) Limited, an English registered company. The total consideration,including expenses, of £1.5m was financed by a placing for cash of one millionordinary shares at 210p per share. Supersires distributes semen and providesartificial insemination services to cattle farmers in South West England. Adoption of International Financial Reporting Standards (IFRS) The Group will be required to use IFRS to report its consolidated results forthe year ending in 2008, with comparatives recorded under IFRS for the prioryear. Our preliminary review would indicate major differences between ourcurrent accounting practice and IFRS will be in respect of businesscombinations, agricultural assets, proposed dividends, deferred tax, researchand development costs and share-based payments. David Timmins, Group Finance Director AUDITED CONSOLIDATED PROFIT AND LOSS ACCOUNT For the year ended 31 March 2005 Before Exceptional Total Items 2004 Exceptional Total 2005 Items 2004 2004 Notes £000 £000 £000 £000TURNOVERContinuing operations 2 183,249 183,710 - 183,710 Underlying operating profit 2 11,389 10,923 (503) 10,420Amortisation of goodwill (1,747) (1,674) - (1,674)OPERATING PROFIT 2 9,642 9,249 (503) 8,746Of which: Continuing operations 9,642 9,685 (503) 9,182 Discontinued operations - (436) - (436) Continuing operations Profit on disposal of properties 298 - 711 711Interest receivable and similar 17 5 - 5incomeInterest payable and similar charges (1,203) (1,319) - (1,319)PROFIT ON ORDINARY ACTIVITIES BEFORETAXATION 8,754 7,935 208 8,143Tax on profit on ordinary activities - continuing operations (2,390) (3,135) 189 (2,946) - discontinued operations - 150 - 150 (2,390) (2,985) 189 (2,796) PROFIT ON ORDINARY ACTIVITIES AFTER TAXATION 6,364 4,950 397 5,347Minority interests - equity - (74) - (74)PROFIT FOR THE FINANCIAL YEAR 6,364 4,876 397 5,273Dividends on equity shares (2,788) (2,306) - (2,306)RETAINED PROFIT FOR THE YEAR 3,576 2,570 397 2,967 Earnings per share - underlying 3 20.3p 19.5p - 3 17.6p 15.5pbasic - 3 17.3p 15.3pdilutedDividend per share 7.5p 6.5p CONSOLIDATED STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES 2005 2004 £000 £000 Profit for the financial year 6,364 5,273Exchange adjustments (176) (4,165)Total recognised gains and losses relating to the year 6,188 1,108 AUDITED CONSOLIDATED BALANCE SHEETAt 31 March 2005 2005 2004 £000 £000 Fixed assetsIntangible assets 26,062 25,875Tangible assets 16,697 15,876Investments 269 241 ----------- ----------- 43,028 41,992 ----------- ----------- CURRENT ASSETSStocks 17,396 16,233Debtors 36,846 32,456Cash at bank and in hand 7,559 4,330 ----------- ----------- 61,801 53,019 CREDITORS: amounts falling due within one year 48,479 45,020 ----------- -----------NET CURRENT ASSETS 13,322 7,999 ----------- ----------- TOTAL ASSETS LESS CURRENT LIABILITIES 56,350 49,991 CREDITORS: amounts falling due after more than one year 282 605 PROVISIONS FOR LIABILITIES AND CHARGES 923 681 ----------- -----------NET ASSETS 55,145 48,705 ----------- ----------- CAPITAL AND RESERVESCalled up share capital 3,726 3,536Share premium account 39,899 36,975Profit and loss account 11,520 8,194 ----------- -----------EQUITY SHAREHOLDERS' FUNDS 55,145 48,705 ----------- ----------- AUDITED CONSOLIDATED STATEMENT OF CASH FLOWS For the year ended 31 March 2005 2005 2004 Note £000 £000 NET CASH INFLOW FROM OPERATING ACTIVITIES 4 9,403 14,393 Returns on investments and servicing of financeInterest received and similar income 17 5Interest paid and similar charges (1,093) (1,028)Interest element of finance lease and hire purchase rental payments (43) (291) ---------- ----------NET CASH OUTFLOW FROM RETURNS ON INVESTMENTS ANDSERVICING OF FINANCE (1,119) (1,314) ---------- ----------TaxationUK Corporation tax paid (1,382) (1,374)Overseas tax paid (1,441) (1,168) ---------- ---------- (2,823) (2,542) ---------- ----------CAPITAL EXPENDITURE AND FINANCIAL INVESTMENTPayments to acquire intangible fixed assets (117) -Payments to acquire tangible fixed assets (4,725) (3,986)Payments to acquire investments (13) (158)Receipts from sales of tangible fixed assets 759 1,625 ---------- ----------NET CASH OUTFLOW ON CAPITAL EXPENDITURE (4,096) (2,519) ---------- ----------ACQUISITIONS AND DISPOSALSPurchase of subsidiaries and businesses (2,225) (1,234) EQUITY DIVIDENDS PAID (2,298) (1,853) ----- -----NET CASH (OUTFLOW)/INFLOW BEFORE FINANCING (3,158) 4,931 ----------- ---------- AUDITED CONSOLIDATED STATEMENT OF CASH FLOWS (continued) For the year ended 31 March 2005 2005 2004 Note £000 £000 NET CASH (OUTFLOW)/INFLOW BEFORE FINANCING (3,158) 4,931 ------ ------FINANCINGRepayment of loan notes (1,637) (979)New bank loans 437 378Repayment of bank loans (1,395) (6,133)Sale and leaseback 154 160Repayments of capital element of finance leases and hire purchase rental payments (1,103) (997)Share register rationalisation sale of shares 4,015 - purchase of shares (4,126) - associated costs (85) -Issue of new ordinary shares 3,134 2,446 ----------- -----------NET CASH OUTFLOW FROM FINANCING (606) (5,125) ----------- -----------DECREASE IN CASH 5 (3,764) (194) ----------- ----------- ANALYSIS OF CHANGES IN NET DEBT DURING THE YEARReconciliation of net cash flow to movement in net debt: 2005 2004 Note £000 £000 Decrease in cash in year (3,764) (194)Repayment of loan notes 1,637 979New long term loans (437) (378)Repayment of bank loans 1,395 6,133Sale and leaseback (154) (160)Repayment of capital element of finance lease contracts 1,103 997 ---- -----Change in net debt resulting from cash flows (220) 7,377Exchange differences and other non-cash movements 210 (2,639) ---- ----Movement in net debt (10) 4,738Net debt at 1 April (7,458) (12,196) ---- ----Net debt at 31 March 5 (7,468) (7,458) ----------- --------- 1. BASIS OF PREPARATION The financial information set out above does not constitute the company'sstatutory accounts for the years ended 31 March 2005 or 2004 (but is derivedfrom those accounts). Statutory accounts for 2004 have been delivered to theregistrar of companies, and those for 2005 will be delivered following thecompany's Annual General Meeting. The auditors have reported on those accounts;their reports were unqualified and did not contain statements under section 237(2) or (3) of the Companies Act 1985. The Annual Report and Notice of AnnualGeneral Meeting will be posted to the shareholders by the end of July 2005. Thispreliminary announcement was approved by the Board on 24th May 2005. 2. TURNOVER AND SEGMENTAL ANALYSIS Turnover, which is stated net of value added tax and overseas sales taxes,represents amounts invoiced to third parties. Underlying Turnover operating Net assets profit* 2005 2004 2005 2004 2005 2004 £000 £000 £000 £000 £000 £000 Area of activity Bovine Genetics 83,573 80,650 10,719 10,567 46,069 42,648 Consultancy 23,954 22,657 792 764 1,246 127 Animal Health 76,195 80,438 1,926 1,624 19,137 17,770 ------ ------ ------ ------ ------ ------ 183,722 183,745 13,437 12,955 66,452 60,545Inter-segmental sales (475) (43) - - - -Unallocated 2 8 (2,048) (1,596) (11,307) (11,840) ---- ---- ---- --- --- --- 183,249 183,710 11,389 11,359 55,145 48,705 ---- ---- ---- --- --- --- *operating profit from continuing operations, before goodwill amortisation andexceptional items Unallocated net liabilities comprise investments, net borrowings, taxation anddividends in addition to corporate fixed assets, debtors and creditors. Operating profit 2005 2004 £000 £000Area of activity Bovine Genetics 9,727 9,145 Consultancy 761 297 Animal Health 1,202 900 ---- ------ 11,690 10,342Unallocated (2,048) (1,596) ------ ------ 9,642 8,746Non-operating exceptional items Bovine Genetics 298 711Net interest (1,186) (1,314) ---- ---Profit on ordinary activities before taxation 8,754 8,143 ---- ---- 2. TURNOVER AND SEGMENTAL ANALYSIS (CONTINUED)Geographical region of origin Turnover Operating profit Net assets 2005 2004 2005 2004 2005 2004 £000 £000 £000 £000 £000 £000 United Kingdom 137,545 139,354 6,974 5,888 45,857 41,481Europe 5,063 5,593 1,632 1,550 2,172 2,742North America 32,373 30,925 332 785 14,137 13,408Rest of the World 8,266 7,830 2,752 2,119 4,286 2,914 ------ ------ ------ ------ ------ ------ 183,247 183,702 11,690 10,342 66,452 60,545Unallocated 2 8 (2,048) (1,596) (11,307) (11,840) ---- ---- ---- ---- ---- ---- 183,249 183,710 9,642 8,746 55,145 48,705 ---- ---- ---- ---- Non-operating exceptional items 298 711Net interest (1,186) (1,314) ---- ----Profit on ordinary activities before taxation 8,754 8,143 ---- ---- Unallocated costs within operating profit are common corporate costs. Unallocated net liabilities comprise investments, net borrowings, taxation anddividends in addition to corporate fixed assets, debtors and creditors. Results from discontinued operations, all originating in the United Kingdom,were £nil (2004: loss £436,000). Geographical region of destination Turnover 2005 2004 £000 £000 United Kingdom 112,897 116,473Europe 19,652 19,953North America 24,522 22,721Rest of the World 26,178 24,563 ---- ---- 183,249 183,710 ---- ---- 3. EARNINGS PER SHARE The basic earnings per share of 17.6p (2004: 15.5p) is based on the profit forthe financial year of £6,364,000 (2004: £5,273,000) and the weighted average number of ordinary shares in issueof 36,208,931 (2004: 34,051,042). The underlying earnings per share of 20.3p (2004: 19.5p) is based on theearnings of continuing operations before exceptional items, amortisation of goodwill and prior year research anddevelopment tax credits, as set out below: 2005 2004 £000 £000 Profit for the financial year 6,364 5,273Add: Amortisation of goodwill 1,747 1,674 Exceptional operating items - 503 Profit on disposal of properties and businesses (298) (711) Loss on discontinued operations - 436 ------- ------ 7,813 7,175Less: Associated taxation on adjustments (179) (539) Research and development tax credits relating to prior years (300) - ------- ------Underlying earnings 7,334 6,636 --- --- The directors consider that underlying earnings per share as calculated is anappropriate and consistent measure of the Group's performance. The diluted earnings per share of 17.3p (2004: 15.3p) is based on profit for thefinancial year of £6,364,000 (2004: £5,273,000) and on 36,755,735 (2004: 34,488,843) diluted ordinary shares as set out below: 2005 2004 000's 000's Basic weighted average number of shares 36,209 34,051Dilutive potential ordinary shares: Employee share options 547 438 ---- ---- 36,756 34,489 ---- ---- 4. RECONCILIATION OF OPERATING PROFIT TO NET CASH FLOW FROM OPERATING ACTIVITIES 2005 2004 £000 £000 Operating profit 9,642 8,746Depreciation 3,549 3,636Amortisation of milk quota 8 8Amortisation of goodwill 1,747 1,674Loss on disposal of fixed assets 1 183Deferred government grants (2) (2)(Increase)/decrease in stocks (1,262) 1,558Increase in debtors (3,976) (33)Decrease in creditors (304) (1,377) --- ----------Net cash inflow from operating activities 9,403 14,393 ----------- ----------- 5. ANALYSIS OF CHANGES IN NET DEBT DURING THE YEAR Foreign Exchange and other non-cash At 1 April movements At 31 March 2004 £000 £000 2005 Cash flows £000 £000 Cash at bank and in hand 4,330 3,268 (39) 7,559Bank overdrafts (6,240) (7,032) 321 (12,951)Cash (1,910) (3,764) 282 (5,392)Bank loans (2,403) 958 (72) (1,517)Loan notes (1,637) 1,637 - -Obligations under finance leases and hirepurchase contracts (1,508) 949 - (559) (7,458) (220) 210 (7,468) This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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