13th Mar 2007 07:01
Genus PLC13 March 2007 FOR IMMEDIATE RELEASE 13 March 2007 Genus plc ("Genus" or "the Company") Interim Results for the six months ended 31 December 2006 Interim Results Genus, the world leading animal genetics company, announces its results for thesix months ended 31 December 2006. These results are reported underInternational Financial Reporting Standards ("IFRS"). 2006 2005 £m £m Continuing Operations Turnover 116.3 60.9 Adjusted operating profit* 15.9 6.8 Operating profit 10.6 5.5 Profit before taxation 6.1 5.0 Basic earnings per share 6.9p 8.4p Adjusted earnings per share** 13.6p 9.7p Total Operations Profit after tax 4.4 0.4 Basic earnings per share 8.0p 1.0p * Operating profit before fair value movements on biological assets,amortisation of intangible assets, share based payments and exceptionalitems. ** Earnings per share based on adjusted earnings (see note 9). Highlights from Continuing Operations: • Company - Adjusted operating profit more than doubled to £15.9m (2005 : £6.8m) benefiting from full 6 months contribution from the Sygen acquisition. - Adjusted operating profit would have been £1.0m higher at £16.9m if exchange rates had remained constant. - Adjusted earnings per share of 13.6p was 40% higher (2005 : 9.7p) notwithstanding the issue of 16.9 million new shares to finance part of the Sygen acquisition. - Net debt before finance leases of £118m was £4m lower than expected at the time of the Sygen acquisition. • Bovine Genetics - Volume increased by 8% in the USA and prices were 7% higher in Europe. - Adjusted operating profit in constant currency of £7.1m was £0.4m higher than the record 2005 result of £6.7m, despite drought affected Australia. • Porcine Genetics - Adjusted operating profit in constant currency increased by £2.6m to £12.9m (2005 pro-forma*** was £10.3m). - Further progress with de-risking of business: o 70% of US and Europe business now on royalty model o 90% of production now sub-contracted *** Assumes Sygen had been acquired on 1 July 2005 Commenting on prospects Richard Wood, Chief Executive, said: "We have made excellent progress with the integration of Sygen and havedelivered the results expected, despite the negative impact on profits of theweak US dollar. The second half of the year has started strongly. We expect market conditions toremain unchanged and for the business to continue the strong underlying salesand profit growth demonstrated in these results. For further information, please contact: Genus plc Tel: 01256 347 100 Richard Wood, Chief Executive David Timmins, Finance Director Buchanan Communications Tel: 020 7466 5000 Charles Ryland/Suzanne Brocks CHAIRMAN'S STATEMENT I have pleasure in being able to report a period of significant development andstrong results for Genus. A key feature in the enhancement of Genus' performancehas been the successful acquisition of Sygen International plc ("Sygen") inDecember 2005. This Interim Report has been prepared in accordance with International FinancialReporting Standards ("IFRS"). Group Performance Turnover from continuing operations for the six months period ended 31 December2006 increased by 91% to £116.3m (2005 : £60.9m). Adjusted operating profit fromcontinuing operations more than doubled to £15.9m (2005 : £6.8m) and operatingprofit from continuing operations increased 93% to £10.6m (2005 : £5.5m). Theseresults were achieved despite the negative impact of £1m compared to the prioryear in translating US dollar operating profits. This improvement in performance has been achieved through strong trading in ourmain markets and the rapid and smooth integration of Sygen. A key driver of the Company's performance was the acquisition of Sygen inDecember 2005 which contributed a full six months to the current period comparedwith only one month last year. The adjusted operating profit of porcine for thesix months ended 31 December 2006 was £11.9m. This was £1.6m higher than thepro-forma comparative adjusted operating profit of £10.3m, calculated toindicate the contribution Sygen would have made had it been acquired on 1 July2005. In constant currency, adjusted operating profit of porcine would have beena further £1.0m higher (£2.6m in total) compared with the pro-forma comparativeamount. On this pro-forma basis, adjusted operating profit from continuing operationsfor the Company increased by £4.9m (45%) to £15.9m (2005 : pro-forma £11.0m,which includes a £4.2m contribution from Sygen for the 5 months periodpre-acquisition). The increase of £4.9m reflects a strong trading performanceand cost reductions. Adjusted operating profit from continuing operations inconstant currency would have been a further £0.9m higher (£5.8m in total) thanthe pro-forma comparative, but for the weaker US dollar in the current period. Exceptional expenses for the period of £2.3m (2005: £0.9m) related to theintegration of Sygen to an accelerated timetable in order to secure cost savingsearlier. Work associated with the preparation for a move to the Official List,principally the IFRS audited restatement of historical financial statements,cost £0.7m. Disposal of two surplus pig farms and a residual property in the Animal Healthbusiness generated a profit of £0.7m. Profit before tax from continuing operations of £6.1m, was 22% or £1.1m higherthan in 2005. Adjusted profit before tax from continuing operations of £11.4m,was £5.5m (93%) higher than 2005. The effective tax rate on adjusted profitbefore tax was 34%, as expected. Adjusted earnings per share from continuing operations increased by 3.9p (40%)to 13.6p (2005 : 9.7p) notwithstanding the issue of 16.9m new shares to fundpart of the Sygen acquisition. Basic earnings per share from total operationswere 8.0p (2005 : 1.0p). Cash, Net Debt & Dividend Net debt before finance leases increased by only £1.7m to £118.5m in a periodwhich is cash absorbing in working capital for the Bovine sales season. Inaddition, the final dividend of £4.5m was paid within the period. The proceedsfrom property disposals of £2.3m, the disposal proceeds of Shrimp Genetics inThailand of £1.0m and a cash profit of £1.75m from terminating a cross-currencyswap provided additional cash inflows. A replacement swap was immediately putinto place. The net debt at the end of the period was £4m lower than expected atthe time of the Sygen acquisition. The Company is pursuing the divestments of the remaining non-core businesses tohasten further reduction in net debt to leave the Company well placed to pursueother opportunities for growth as and when they arise. In line with previous years and our stated dividend policy, the Board does notrecommend an interim dividend due to the high handling costs associated withdistribution to the relatively large number of shareholders. The Board expectsto recommend a final dividend when the results for the year ending 30 June 2007are known. Bovine Turnover increased by £2.2m to £50.9m (2005: £48.7m) with gains in mostterritories. In the Americas, turnover was £2.1m (10%) higher in constant currency driven byan 8% increase in volume. However, the currency translation reduced thisincrease to £0.4m. The benefits of our investment in expanding the US salesforce over recent years increased operating profit in the USA by £0.4m (17%) to£2.7m (2005: £2.3m) and more in local currency. In Europe, turnover was up 3.5% driven by a 7% increase in average prices.Volume was slightly down because of phasing of supplies through distributors. The adjusted operating profit increase of £0.2m to £6.9m compared with therecord performance last year of £6.7m was achieved despite both the £0.5mdecrease in expected profits from drought affected Australia compared with theprior period and the negative currency impact of £0.2m. We believe that theexpansion into the Australian retail market made last year will assist recoveryonce markets return to more normal levels. Porcine Turnover of £65.4m was £6.0m lower than pro-forma 2005 (£71.4m). This was due tothe impact of a weak US dollar on translation to sterling as well as thestrategy of replacing direct animal sales with royalty bearing indirect sales inorder to de-risk the business from volatility in market prices. Approximately70% of the business in the USA and Europe has now been moved from direct salesto the royalty model and 90% of production has been outsourced to contractmultipliers, in those territories, again as part of the strategy to de-risk thebusiness. Our new approach to European operations increased volume by 3.3%. Pricesimproved in developing markets, although the market in China remained depressed. As the outsourcing strategy progressed, redundant farms in the US and China weresold. Since the interim period end, on 28 February 2007 a farm in France wassold for €2.75m (£1.87m). Discontinued Businesses The licensed veterinary pharmaceutical business performed to plan. Phasing ofcontract wins, following the disruption caused by the temporary office closurelast year, due to the Buncefield oil depot fire, delayed profit for DevelopmentConsulting. The residual shrimp business in Mexico accrued losses in its lowseason, but at a much lower rate than expected. These businesses are being actively marketed and will be sold when anappropriate price is achieved Taking into account these businesses, group profit after taxation was £4.4m(2005 : £0.4m) and earnings per share was 8.0p (2005 : 1.0p). Research A review of the acquired research programme has identified those projects withthe highest potential to create commercial advantage, should they be successful.The identified projects have been consolidated with those already in the Genusprogramme and any overlaps have been eliminated to achieve annualised costsavings of £2m, with no reduction in inventive capability. Priorities have now been refocused on the two major research platforms ofgenomics and sexed semen. Significant progress is being made with genomics research. Potential benefitshave been quantified and 45 additional markers (78 in total) have been includedin routine genetic evaluations. Looking ahead, our focus is on health androbustness traits. These are difficult to evaluate using traditionalquantitative science. The Company's sexed semen product was launched in the USA and became availablein Europe at the end of the reporting period. It was well received by the marketand production is currently sold out. An increase in capacity is beingconsidered alongside hastening progress with alternative processes beingdeveloped within the R&D programme which are less capacity constrained. Porcine Product Development A review of the porcine product development process has concluded that effortshould be concentrated in two nucleus herds. Demand from our largest customersis for customised genetic lines. To meet this demand, we propose to build a newlarger nucleus facility in the USA and have taken an option on suitable land.This new facility will replace less efficient facilities in the USA. Thisproposed investment will be of sufficient capacity and diversity to achievegrowth and meet projected customer demands for a decade. Bovine Product Development The company has achieved consistent long term organic growth in the bovinesector averaging between four and five percent per annum. This level of growthis expected to continue. Currently, volume is serviced by approximately 140 topbulls being collected at six studs. Replacement bulls are selected from arolling bull programme evaluating 350 bulls per year. In order to increasecapacity to meet projected demand, we propose to increase the number of bulls atstud and, accordingly, the test programme will be increased over the next twoyears to 400 bulls per year. Only minor investments in facilities will berequired. Board Professor Barry Furr joined the Board as a non-executive director in December2006. Professor Furr, aged 63 years, recently retired as Chief Scientist andHead of Project Evaluation for AstraZeneca plc. He was awarded an OBE in 2000for his services to cancer drug discovery and was the inventor of Zolodex andCasodex, world-leading anti-cancer drugs. Professor Furr will provide guidanceon fundamental science strategy. Move to Official List and Share Register At the Annual General Meeting on 16 November 2006, shareholders votedoverwhelmingly in favour of the Board seeking admission to the Official List ofthe London Stock Exchange. The Board is expecting the move to take placefollowing the publication, in September 2007, of the Preliminary Results for theyear ending 30 June 2007. As part of the Board's strategy of restructuring the share register to continuethe process of improving share liquidity, the Company completed a furthervoluntary buyback scheme in December 2006 which was aimed at investors withshareholdings of 1,000 or fewer shares. The shares sold by these investors werebundled and placed with institutions, which obviated the need to buy back firstinto Treasury. A total of 836,469 shares (1.5% of issued share capital) werebought back from 1,579 shareholders (7.8% of total number of shareholders) andplaced with institutional investors. The institutional and private clientinstitutional shareholdings now stand at 72% of the total register. Outlook The Board expects agricultural market conditions to be largely unchanged in thesecond half year and trading has started strongly. As a result, the Board expects the strong underlying performance achieved in thefirst half to continue and that market expectations will be achieved despite theanticipated weak US dollar. This implies a further upgrade to underlyingperformance. John Hawkins Chairman Consolidated income statement For the six months ended 31 December 2006 Unaudited Unaudited 2006 2005 Note £m £m £m £m Revenue from continuing 1 116.3 60.9operations Adjusted operating profit from 15.9 6.8continuing operationsFair value movement on 0.3 0.4biological assetsAmortisation of intangible (2.6) (0.4)assetsShare based payments (0.7) (0.4) 3 12.9 6.4 Exceptional itemsIntegration and restructuring (1.6) (0.9)expensesPreparation for main market (0.7) -listing (2.3) (0.9)Operating profit from 10.6 5.5continuing operations Share of profit/(loss) of joint 0.7 (0.2)ventures and associatesOther gains and losses - 0.8Finance costs 4 (5.2) (1.1)Profit before tax from 6.1 5.0continuing operationsTaxation 5 (2.3) (1.6)Profit for the period from 3.8 3.4continuing operationsProfit/(loss) for the period 2 0.6 (3.0)from discontinued operationsProfit for the period 4.4 0.4 Earnings per share from 9continuing operationsBasic earnings per share 6.9p 8.4pDiluted earnings per share 6.7p 8.2pAdjusted earnings per share 13.6p 9.7pEarnings per share from total 9operationsBasic earnings per share 8.0p 1.0pDiluted earnings per share 7.8p 1.0p Consolidated Statement of Changes in Equity For the six months ended 31 December 2006 Called Share Own Translation Hedging Retained Total up premium shares reserve reserve earnings Note share account capital £m £m £m £m £m £m £m Balance at 1 July 2006 5.5 92.2 (0.2) 1.3 0.8 49.6 149.2Foreign exchange - - - (12.0) - - (12.0)translation differencesFair value movement on - - - 0.3 - - 0.3net investment hedge,net of taxFair value movement on - - - - 0.6 - 0.6cash flow hedges, netof taxActuarial gains / - - - - - 3.4 3.4(losses) on definedemployee benefitschemes, net of taxNet income and expense - - - (11.7) 0.6 3.4 (7.7)recognised directly inequity Profit for the period - - - - - 4.4 4.4Total recognised income - - - (11.7) 0.6 7.8 (3.3)and expense for theperiodRecognition of share - - - - - 0.7 0.7based paymentsIssue of ordinary 0.1 0.4 - - - - 0.5sharesDividends 6 - - - - - (4.5) (4.5)Balance at 31 December 5.6 92.6 (0.2) (10.4) 1.4 53.6 142.62006 Consolidated balance sheet As at 31 December 2006 Unaudited Unaudited Audited Note 31 31 30 June ecember December 2006 2006 2005 £m £m £mAssetsGoodwill 73.6 75.5 74.6Other intangible assets 86.6 91.6 89.1Biological assets 7 106.5 123.1 115.1Property, plant and equipment 27.3 34.8 29.0Interests in joint ventures and 3.5 3.8 3.2associatesDeferred tax assets 10.1 12.7 10.8Total non-current assets 307.6 341.5 321.8 Inventories 16.4 15.2 18.1Biological assets 7 25.3 19.9 25.7Income tax receivable 1.3 2.7 1.6Trade and other receivables 45.2 38.7 42.9Cash and cash equivalents 26.3 27.6 32.2Derivative financial assets 2.5 - 3.0Assets held for sale 2 15.5 25.2 16.9Total current assets 132.5 129.3 140.4Total assets 440.1 470.8 462.2 LiabilitiesTrade and other payables (35.2) (42.2) (36.8)Interest-bearing loans and borrowings (25.5) (23.0) (25.5)Obligations under finance leases (1.7) (2.2) (2.1)Current tax liabilities (4.9) (5.1) (4.9)Liabilities held for sale 2 (7.6) (10.1) (8.8)Total current liabilities (74.9) (82.6) (78.1) Interest-bearing loans and borrowings (121.5) (128.6) (125.3)Employee benefits 11 (18.7) (25.1) (22.8)Obligations under finance leases - (0.1) (0.1)Provisions (5.8) (5.7) (6.5)Deferred tax liabilities (76.6) (79.4) (80.2)Total non-current liabilities (222.6) (238.9) (234.9)Total liabilities (297.5) (321.5) (313.0) Net Assets 142.6 149.3 149.2 EquityCalled up share capital 5.6 5.5 5.5Share premium account 92.6 93.8 92.2Own shares (0.2) (0.2) (0.2)Translation reserve (10.4) 10.5 1.3Hedging reserve 1.4 - 0.8Retained earnings 53.6 39.7 49.6Total equity 142.6 149.3 149.2 Consolidated statement of cash flows For the six months ended 31 December 2006(comparative period being 6 months ended 31 December 2005) Note Unaudited Unaudited 2006 2005 £m £m Net cash flow from operating activities 10 7.3 3.2 Cash flows from investing activitiesInterest received 0.3 -Proceeds from disposal of subsidiaries 1.0 7.1Acquisition of subsidiaries and businesses (net of cash - (175.7)acquired of £17.3m)Acquisition of property, plant and equipment (3.1) (2.5)Proceeds from sale of property, plant and equipment 2.3 0.5Net cash inflow/(outflow) from investing activities 0.5 (170.6) Cash flows from financing activities(Repayment)/drawdown of borrowings (4.8) 146.5Debt issue costs - (2.2)Interest paid (4.3) (1.1)Payment of finance lease liabilities (0.1) (0.1)Cashflows from derivative financial instruments 1.7 -Dividends paid (4.5) (2.8)New share capital issued 0.5 54.1Decrease in bank overdrafts (1.7) (8.0)Net cash (outflow)/inflow from financing activities (13.2) 186.4 Net (decrease) / increase in cash and cash equivalents (5.4) 19.0 Cash and cash equivalents at 1 July 34.0 13.5Effect of exchange rate fluctuations on cash held (0.1) (1.3)Total cash and cash equivalents at 31 December 28.5 31.2 Of the cash and cash equivalents of £28.5m at 31 December 2006, £2.2m isincluded in assets held for sale in the consolidated balance sheet (31 December2005: £3.6m). Of the cash and cash equivalents of £34.0 m at 1 July 2006, £1.8m is included inassets held for sale in the consolidated balance sheet (1 July 2005: £5.4m). Notes to the consolidated financial information Basis of preparation Genus plc has historically prepared its audited annual accounts and unauditedinterim results in accordance with UK generally accepted accounting practice (UKGAAP). Following European regulation issued in 2002 and as announced on 5 March2007, the Group will now present its Annual report and accounts in accordancewith International Financial Reporting Standards (IFRS). The IFRS information for the 15 month period ended 30 June 2006 is a restatementof information extracted from the statutory financial statements prepared underUK GAAP on the historical cost basis. Those statutory financial statements werefiled with the Registrar of Companies. The auditors' report on those accountswas unqualified and did not contain statements under section 237(2) or 237(3) ofthe Companies Act 1985. The restated IFRS information provided for the 15 monthperiod ended 30 June 2006 does not constitute statutory accounts within themeaning of section 240 of the Companies Act 1985. However, they are anticipatedto form the comparative period in the statutory accounts for the year ending 30June 2007, the Group's first Annual Report to be prepared in accordance withIFRS. The financial information for the six months ended 31 December 2006 hasbeen the subject of an independent review by the auditors. The financialinformation for the six months ended 31 December 2005 is shown as comparativefinancial information and has been neither audited nor subject to independentreview by the auditors. The unaudited interim results for the six months ended 31 December 2005 and 31December 2006 have been prepared by the Group using its best knowledge of theexpected IFRS and accounting policies that will be applied when the Groupprepares its first set of IFRS financial statements for the year ending 30 June2007. There is however, a possibility that some changes to these policies willbe necessary when preparing the full annual financial statements as theunaudited interim results, have been prepared using the expected IFRS that isanticipated to be applicable and adopted by the EU, which is not known withcertainty at the time of preparing this Interim Financial Information.Therefore, until such time, the possibility that the opening balance sheet andthe interim IFRS financial information presented may require amendment cannot beexcluded. IFRS 1 First-time Adoption of International Financial Reporting Standardspermits companies adopting IFRS for the first time to take some exemptions fromthe full requirements of IFRS and also certain elections in the transitionperiod. The exemptions and elections which the Group has taken advantage of areavailable on the Group's website www.genus.co.uk together with full details ofthe Group's new accounting policies. This interim report was approved by the Board on 13 March 2007. 1. Segment reporting Area of activity Turnover Adjusted operating profit 2006 2005 2006 2005Continuing operations £m £m £m £mBovine Genetics 50.9 48.7 6.9 6.7Porcine Genetics 65.4 12.2 11.9 1.9Unallocated costs - - (2.9) (1.8)Continuing operations - total 116.3 60.9 15.9 6.8Discontinued operations- Shrimp Genetics 0.8 0.3 (0.7) (0.3)- Development Consulting 9.0 13.4 0.1 0.5- Animal Health 4.0 27.2 0.8 1.0Discontinued operations - total 13.8 40.9 0.2 1.2Total 130.1 101.8 16.1 8.0 Notes to the consolidated financial information 1. Segment reporting (continued) Area of activity Operating profit 2006 2005Continuing operations £m £mBovine Genetics 9.4 6.6Porcine Genetics 5.5 1.1Unallocated costs: Other (2.9) (1.8)Share based payments (0.7) (0.4)Preparation for main market listing (0.7) -Continuing operations - total 10.6 5.5Discontinued operations- Shrimp Genetics (0.7) (0.3)- Development Consulting 0.1 0.5- Animal Health 0.2 (1.2)Discontinued operations - total (0.4) (1.0)Total 10.2 4.5 Geographical region of origin Turnover Adjusted operating profit 2006 2005 2006 2005Continuing operations £m £m £m £mUnited Kingdom 19.8 16.4 3.4 3.2Europe 32.7 10.2 4.6 2.3North America 60.8 31.4 10.5 3.0Rest of the world 6.5 3.8 0.3 0.1Unallocated costs - - (2.9) (1.8)Inter-segmental sales (3.5) (0.9) - -Continuing operations - total 116.3 60.9 15.9 6.8Discontinued operations 13.8 40.9 0.2 1.2Total 130.1 101.8 16.1 8.0 Operating profit 2006 2005Continuing operations £m £mUnited Kingdom 3.7 2.3Europe 4.1 2.4North America 7.6 3.5Rest of the world (0.5) (0.5)Unallocated costs:Other (2.9) (1.8)Share based payments (0.7) (0.4)Preparation for main market listing (0.7) -Continuing operations - total 10.6 5.5Discontinued operations (0.4) (1.0)Total 10.2 4.5 Notes to the consolidated financial information 2. Non-current assets held for sale and discontinued operation Discontinued operations 2006 2005 £m £mAdjusted operating profit/(loss)Loss in Shrimp Genetics for the period (0.7) (0.3)Profit in Development Consulting in the period 0.1 0.5Profit in Animal Health for the period 0.8 1.0Adjusted operating profit from discontinued operations 0.2 1.2Winding up of legacy pension scheme (0.6) -Impairment of goodwill in Animal Health - (2.2)Operating profit from discontinued operations (0.4) (1.0) Other gains and lossesProfit arising on sale of Dental products wholesale 0.7 -divisionLoss on sale of Veterinary product wholesale business, a - (2.1)division of Animal HealthProfit on sale of Thailand operation of Shrimp Genetics 0.2 - 0.9 (2.1) Profit/(loss) from discontinued operations before tax 0.5 (3.1)Tax 0.1 0.1Profit/(loss) from discontinued operations 0.6 (3.0) The Board decided in May 2006 that the Shrimp Genetics business would bedisposed. Accordingly, the results of this business is shown within discontinuedoperations, and its assets and liabilities shown as held for sale at 31 December2006. The Board decided to dispose of the group's other non-core operations, theAnimal Health businesses and Development Consulting prior to 31 December 2005.Accordingly, the results of these entities are shown within discontinuedoperations, and their assets and liabilities shown as held for sale at 31December 2006 and 31 December 2005. The Shrimp Genetics business in Thailand was sold on 9 October 2006 for £1.0million cash resulting in a profit on disposal of £0.2 million. In the period ended 30 June 2006, the Shrimp Genetics business in Brazil wassold on 7 June 2006, and the Animal Health veterinary product and dental productwholesale businesses were sold on 28 October 2005 and 22 February 2006,respectively. The remaining Mexican Syaqua business, together with the remaining Animal Healthbusiness and Development Consulting continue to be actively marketed. In addition, at 31 December 2006, two freehold properties are classified as heldfor sale. Notes to the consolidated financial information 2. Non-current assets held for sale and discontinued operation (continued) Assets held for sale The major classes of assets & liabilities comprising the operations held forsale are as follows: 2006 2005 £m £mAssetsGoodwill and Intangibles 0.5 0.3Biological assets 1.0 -Property, plant and equipment 1.0 5.1Inventories 1.5 1.5Trade and other receivables 9.3 14.7Cash and cash equivalents 2.2 3.6Total assets 15.5 25.2 LiabilitiesTrade and other payables (7.6) (10.1)Total liabilities (7.6) (10.1) Net assets of disposal groups 7.9 15.1 3. Exceptional items within continuing operations Exceptional items are as follows: 2006 2005 £m £mIntegration and restructuring expenses (primarily Sygen 1.6 0.9acquisition related)Preparation for main market listing 0.7 - 2.3 0.9 Notes to the consolidated financial information 4. Net finance costs 2006 2005 £m £m Interest payable on bank loans & overdrafts (5.5) (1.1) Finance charges payable under finance leases and hire (0.1) - purchase contracts Amortisation of debt issue costs (0.2) - Net interest cost in respect of pension schemes (0.2) (0.1) Total finance costs (6.0) (1.2) Bank interest receivable 0.5 0.1 Other interest receivable 0.3 - Total finance income 0.8 0.1 Net finance costs (5.2) (1.1) 5. Income taxes Continuing Operations: 2006 2005 £m £mCurrent tax 3.0 2.1Deferred tax (0.7) (0.5) 2.3 1.6 The taxation charge for the period is based on the estimated effective tax ratefor the full year of 35% (2005 32.9%).In calculating the effective rate, accounthas been taken of differences from the statutory rate arising from tax rates inforeign jurisdictions, non deductible expenses, tax incentives not recognised inprofit or loss and the effect of movements in the amount of tax losses and othertemporary differences for which a deferred tax credit has not been recognised. Deferred taxation is recognised in respect of differences between the carryingamounts of assets and liabilities in the accounts and the corresponding taxbases. This is subject to deferred tax assets only being recognised if it isconsidered probable that there will be suitable profits from which the futurereversal of the temporary differences can be deducted. There is a deferred tax liability at the period end of £76.6m which mainlyrelates to the recognition at fair value of biological assets and intangibleassets arising on acquisition and a deferred tax asset of £10.1m which mainlyrelates to future tax deductions in respect of pension scheme liabilities andshare scheme awards. The total reduction in deferred tax during the period was £2.9m of which £0.7mwas credited to the consolidated income statement and £2.2m was credited toreserves. Notes to the consolidated financial information 5. Income taxes (continued) Discontinued Operations: 2006 2005 £m £mCurrent tax (0.1) (0.1)Deferred tax - - (0.1) (0.1) The tax credit on discontinued operations comprises tax of £0.1m on operatinglosses of £0.4m. There is no tax liability on the profit on disposal of £0.9m. The prior year tax credit of £0.1m comprises a tax credit of £0.5m in respect ofexceptional costs related to the disposal of the veterinary distributionbusiness less a tax charge of £0.4m on operating profits of £1.2m. 6. Dividends 2006 2005 £m £m Amounts recognised as distributions to equity holders inthe period Final dividend for the 12 month period ended 31 March - 2.8 2005 of 7.5p per share Final dividend for the 15 month period ended 30 June 2006 4.5 - of 8.25p per share 4.5 2.8 Notes to the consolidated financial information 7. Fair Value of Biological Assets Bovine Porcine Total £000s £000s £000sBalance at 1 July 2006 - continuing operations 70.6 70.2 140.8- held for sale - 0.9 0.9 70.6 71.1 141.7Change in fair value less estimated 9.7 - 9.7point-of-sale costsTransfers to inventory (7.1) (3.1) (10.2)Effect of movements in foreign exchange (3.3) (5.1) (8.4)Balance at 31 December 2006 69.9 62.9 132.8 Non-current 69.9 36.6 106.5Current - 25.3 25.3Held for sale - 1.0 1.0Balance at 31 December 2006 69.9 62.9 132.8 Bovine Porcine Total £000s £000s £000sBalance at 1 July 2005 61.6 - 61.6Change in fair value less estimated 8.2 0.2 8.4point-of-sale costsTransfers to inventory (6.5) (0.5) (7.0)Increases resulting from business combinations - 78.2 78.2Effect of movements in foreign exchange 2.1 (0.3) 1.8Balance at 31 December 2005 65.4 77.6 143.0 Non-current 65.4 57.7 123.1Current - 19.9 19.9Balance at 31 December 2005 65.4 77.6 143.0 Notes to the consolidated financial information 8. Acquisition of Sygen International plc On 2 December 2005 the company purchased 100% of the issued share capital ofSygen International plc for a total cash consideration, including costs, of£193.2m. The table below summarises the adjustments to the book values of theassets and liabilities of Sygen International plc required to present the assetsand liabilities on acquisition at fair values in accordance with the group'sIFRS accounting policies. IFRS Adjustments As Hindsight Holiday Biological Intangibles Leases Revised previously Adjustments Pay Assets Fair reported value under UK acquired GAAP net assets £m £m £m £m £m £m £m Non current assets 33.2 (0.2) - 70.1 91.0 0.9 195.0Current assets 42.6 2.8 - - 45.4Current liabilities (23.7) 0.2 (0.7) (0.8) (25.0)Non-current (16.0) (1.7) - (25.5) (30.5) - (73.7)liabilitiesNet assets acquired 36.1 1.1 (0.7) 44.6 60.5 0.1 141.7Cash consideration 193.2 - - - - - 193.2Goodwill 157.1 (1.1) 0.7 (44.6) (60.5) (0.1) 51.5 Fair value hindsight adjustments to the estimated fair values of the assets andliabilities acquired primarily relate to an increase in current assets of £2.8m,being deferred tax and legal fees recoverable of £1.8m and increases innon-current liabilities of £1.7m, being the recognition of post retirementbenefit liabilities, and an increase in non-current liabilities relating toenvironmental contractual liabilities for past disposals made by SygenInternational plc. All hindsight adjustments were determined within the 12 monthpost acquisition hindsight period under IFRS 3 Business Combinations. IFRS fair value adjustments to the book values of the assets and liabilities ofSygen International plc for the period ended 31 December 2006 relate to theadoption of International Financial Reporting Standards, IAS 19 'EmployeeBenefits', IAS 41 'Agriculture', IFRS 3 'Business Combinations'', IAS 17'Leases' and IAS 12 'Income Taxes'. Notes to the consolidated financial information 9. Earnings per share Earnings per share from continuing operations 2006 2005 Basic earnings per share 6.9p 8.4pDiluted earnings per share 6.7p 8.2pAdjusted earnings per share 13.6p 9.7pEarnings per share from total operationsBasic earnings per share 8.0p 1.0pDiluted earnings per share 7.8p 1.0p Earnings per share measures are calculated on the weighted average number ofordinary shares in issue during the period. The weighted average number ofshares amounted to 55.2m (six months ended 31 December 2005: 40.3m). Dilutedearnings per share are based on the diluted weighted average number of sharesamounted to 56.8m (six months ended 31 December 2005: 41.4m). As in previousyears, adjusted earnings per share have been shown, since the Directors considerthat this alternative measure gives a more comparable indication of the Group'sunderlying trading performance. Continuing operations Basic earnings per share from continuing operations is calculated on the profitfor the period of £3.8m (2005: £3.4m) Adjusted earnings per share is calculated on profit before fair value movementson biological assets, amortisation of intangible assets, share based payments,exceptional items and other gains and losses after charging taxation associatedwith those profits, of £7.5m (six months ended 31 December 2005 : £3.9m), asfollows: Adjusted earnings from continuing operations 2006 2005 £m £mProfit before tax from continuing operations 6.1 5.0Add/(deduct):Fair value movement on biological assets (0.3) (0.4)Amortisation of intangible assets 2.6 0.4Share based payments 0.7 0.4Integration and restructuring expenses 1.6 0.9Preparation for main market listing 0.7 -Fair value movement on biological assets included in share of - 0.4profit/(loss) of joint ventures and associatesOther gains and losses - (0.8)Profit before fair value movement on biological assets, 11.4 5.9amortisation of intangible assets, share based payments,exceptional items and other gains and lossesAdjusted tax charge (3.9) (2.0)Profit before fair value movement on biological assets, 7.5 3.9amortisation of intangible assets, share based payments,exceptional items and other gains and losses, after taxation Notes to the consolidated financial information 9. Earnings per share (continued) Total operations Earnings per share for total operations has been calculated as the profitattributable to ordinary shareholders of £4.4m (six months ended 31 December2005 £0.4 m) divided by weighted average number of ordinary shares (basic anddiluted) as calculated above. 10. Cashflow from operating activities 2006 2005 £m £m Profit for the period 4.4 0.4Adjustments for:- fair value movements on biological assets (0.3) (0.4)- amortisation of intangibles 2.6 0.4- share based payment expense 0.7 0.4- share of profits of associates (0.7) 0.2- other gains and losses - (0.8)- finance costs 5.2 1.1- income tax expense 2.3 1.6- (gain) / loss on disposal of discontinued operations (0.6) 3.0- depreciation of property plant & equipment 2.5 2.1- Decrease in provisions (0.8) (1.1)Operating cash flows before movement in working capital 15.3 6.9Decrease in inventories 0.7 4.8(Increase) / decrease in receivables (1.7) 1.7Decrease in payables (5.4) (7.9)Cash generated by operations 8.9 5.5 Income taxes paid (1.6) (2.3)Net cash inflow from operating activities 7.3 3.2 Notes to the consolidated financial information 11. Employee benefits Pension & medical plans Obligation recognised in the consolidated financial statements The Group provides employee benefits under various arrangements, includingdefined benefit and defined contribution pension plans, the details of which aredisclosed in the most recent annual financial statements. Details of totalobligation recognised for defined benefit obligations are provided below: December June 2006 2006 £m £mPresent value of unfunded obligations (6.5) (4.8)Present value of funded obligations (135.8) (140.4)Fair value of plan assets 123.6 122.4Gross liability for defined benefit obligations (18.7) (22.8) Pension plans A description of the Group's pension plans is set out in the Group's 2006 annualreport. The Company is a participating employer of the Milk Pension Fund, adefined benefit scheme administered by Milk Pension Fund Trustees. Althoughmanaged on a sectionalised basis the Company, together with other participatingemployers, is joint and severally liable for the scheme's obligations. Expense recognised in the consolidated interim income statement The expense recognised in the consolidated interim income statement consists ofthe current service costs, interest on the obligation for employee benefits andthe expected return on plan assets. For the six months ended 31 December 2006,the Group recognised an expense of £1.5m (six months ended 31 December 2005:£0.4m). The principal actuarial assumptions at the date of the most recent actuarialvaluations (expressed as weighted averages) are: 2006 2005 % % Discount rate 5.3 5.4Expected return on plan assets 6.1 5.7Future salary increases 4.1 4.3Medical cost trend rate 3.1 2.8Future pension increases 3.1 2.8 Share-based payments The fair value of the share award and share option schemes has been establishedusing a binomial model. The liability is adjusted at each balance sheet date andat settlement date as the awards contain non market conditions. During the sixmonths ended 31 December 2006, the Group recognised an expense of £0.7m relatedto the fair value of the share awards and options awarded (six months ended 31December 2005: £0.4m). Notes to the consolidated financial information 12. Financial instruments Hedging of fluctuations in interest rates The Group adopts a policy of ensuring that between 70 and 90 percent of itsexposure to changes in interest rates on borrowings is hedged. An interest rateswap, denominated in sterling, has been entered into to achieve an appropriatemix of fixed and floating rate exposure within the Group's policy. At 31December 2006, approximately 90 percent of borrowings are hedged with a fixedrate of interest of 4.74%. The swap matures on an amortised basis as the relatedborrowings amortise over the next 4 years. The Group classifies its interest rate swaps as a cash flow hedge. The fairvalue of the interest rate swap at 31 December 2006 was £2.0m (31 December 2005:£nil) which is recognised as a financial asset, with a corresponding credit tothe hedging reserve. Hedging of fluctuations in foreign currency The Group is exposed to foreign currency risk on the net assets of overseassubsidiary entities. To manage this risk a 5 year cross currency swap with alinked interest rate swap was entered into in January 2006, designated as ahedge of the spot rate risk arising on the group's net investment in US dollardenominated subsidiaries. In September 2006 this instrument was terminated, yielding a gain and cashproceeds of £1.8m. In accordance with IAS 39 this gain, net of tax, remainswithin the foreign exchange reserve. A new swap was put in place and has alsobeen designated as a hedge of the spot rate risk arising on the group's netinvestment in US dollar denominated subsidiaries. 13. Related parties Transactions with key management personnel During the period, the Company incurred costs of £0.6m under an agreement withthe Salamander Organization Limited ("Salamander"), a party related to Mr J EHawkins, for the provision of professional IT consultancy services. Mr J EHawkins is the Chairman of the board of Salamander and he has a financialinterest in that company, but he had no involvement in the commercialnegotiation of the agreement between the Company and Salamander and theagreement was entered into on an arm's length basis. INDEPENDENT REVIEW REPORT TO GENUS PLC Introduction We have been instructed by the company to review the financial information forthe six months ended 31 December 2006 which comprises the consolidated incomestatement, the consolidated statement of changes in equity, the consolidatedbalance sheet, the consolidated statement of cash flows, and related notes 1 to13. We have read the other information contained in the interim report andconsidered whether it contains any apparent misstatements or materialinconsistencies with the financial information. This report is made solely to the company, in accordance with Bulletin 1999/4issued by the Auditing Practices Board. Our work has been undertaken so that wemight state to the company those matters we are required to state to them in anindependent review report and for no other purpose. To the fullest extentpermitted by law, we do not accept or assume responsibility to anyone other thanthe company for our review work, for this report, or for the conclusions we haveformed. Directors' responsibilities The interim report, including the financial information contained therein, isthe responsibility of, and has been approved by, the directors. The directorsare also responsible for ensuring that the accounting policies and presentationapplied to the interim figures are consistent with those applied in preparingthe preceding annual accounts except where any changes, and the reasons forthem, are disclosed. First-time adoption of International Financial Reporting Standards As disclosed in the basis of preparation, the next annual financial statementsof the group will be prepared in accordance with International FinancialReporting Standards as adopted by the EU. Accordingly, the interim report hasbeen prepared in accordance with the recognition and measurement criteria ofIFRS and the disclosure requirements of the Listing Rules that would beapplicable if the company were admitted to the Official List. The accounting policies are consistent with those that the directors intend touse in the annual financial statements. There is, however, a possibility thatthe directors may determine that some changes to these policies are necessarywhen preparing the full annual financial statements for the first time inaccordance with IFRS as adopted by the EU. Review work performed We conducted our review in accordance with the guidance contained in Bulletin1999/4 issued by the Auditing Practices Board for use in the United Kingdom. Areview consists principally of making enquiries of group management and applyinganalytical procedures to the financial information and underlying financial dataand, based thereon, assessing whether the accounting policies and presentationhave been consistently applied unless otherwise disclosed. A review excludesaudit procedures such as tests of controls and verification of assets,liabilities and transactions. It is substantially less in scope than an auditperformed in accordance with International Standards on Auditing (UK andIreland) and therefore provides a lower level of assurance than an audit.Accordingly, we do not express an audit opinion on the financial information. Review conclusion On the basis of our review we are not aware of any material modifications thatshould be made to the financial information as presented for the six monthsended 31 December 2006. Deloitte & Touche LLP Chartered Accountants London 13 March 2007 This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Genus