26th Feb 2008 07:00
Genus PLC26 February 2008 For immediate release 26 February 2008 Genus plc ('Genus' or 'the Company') Unaudited Interim Results for the six months ended 31 December 2007 Continued Strong Progress Genus, the world leading animal genetics company, announces its results for the six months ended 31 December 2007. These results are reported underInternational Financial Reporting Standards ('IFRS'). Financial Highlights Adjusted results at Statutory results after constant currency+ exceptional itemsSix monthsended 31December 2007 2006 2007 2006 £m £m % £m £m %ContinuingoperationsRevenue 120.4 116.1 +4 120.4 116.3 +4Operatingprofit* 16.9 15.5 +9 10.3 10.6 -3Profitbefore 13.9 10.9 +28 7.3 6.1 +20tax**Basicearnings 16.5p 13.6p +21 8.4p 6.9p +22per share** Results at constant Statutory results currency+TotaloperationsProfit forthe 4.3 3.8 +13 4.3 4.4 -2periodBasicearnings 7.7p 6.9p +12 7.7p 8.0p -4per share * Adjusted operating profit is before fair value movements on biological assets,amortisation of intangible assets, share based payments and exceptional items ** Adjusted profit before tax and adjusted basic earnings per share are beforefair value movements on biological assets, amortisation of intangible assets,share based payments and exceptional items, also excluding other gains andlosses. Both measurements include share of profits of joint ventures andassociates. + The results at constant currency for the 6 month period ended 31 December 2006reflect the rates which applied during the 6 months ended 31 December 2007 Business Highlights Results have been fully in line with expectations with adjusted profit beforetax from continuing operations in constant currency increasing by 28% to £13.9m(2006: £10.9m). Genus' increased diversity and improved efficiency has offset the impact ofexceptionally high global animal feed prices. •Strong contributions from Bovine worldwide •Porcine markets in the Far East buoyant due to growing demand and re-stocking following disease last year •Porcine earnings volatility reduced by increased adoption of indirect royalty model •Benefits accruing in Europe from Porcine restructuring, in spite of challenging market conditions •Non-core asset divestment programme completed (SyAqua Mexico and Development Consulting during the period, Animalcare in January 2008) •Progress achieved with restructuring the share register with a successful institutional share placing raising £19m and a further small shareholder buy-back •Net debt reduced from £111m to £93m in the period •Moved to the main market and inclusion in FTSE 250 from 6 February 2008 Commenting on Genus' interim results, Richard Wood, Chief Executive said:- "Having delivered results that are fully in line with expectations and withadjusted profit before tax up by 28% at this interim stage, we are in a strongposition to meet targets for the full year. We have made substantial progress in trading, notwithstanding the impact oflarge increases in global animal feed prices. The increase in feed prices hasonly currently been reflected in the price of milk and has not yet beenreflected in the prices of pork and beef. Debt has been reduced substantially. We have completed the divestment ofnon-core assets, raised equity and restructured the share register to improveliquidity in our shares. I am also pleased to report that, as a result of our strong progress, we wereincluded in the FTSE 250 index on 6 February." For further information please contact: Genus plc Tel: 01256 345970 Richard Wood, Chief Executive Martin Boden, Finance Director Buchanan Communications Tel: 020 7466 5000 Charles Ryland Suzanne Brocks Christian Goodbody This announcement is available on the Genus website at: www.genusplc.com About Genus Genus creates and sells added value products for livestock farming and foodproducers by creating advances to animal breeding through biotechnology. Itsnon-Genetically Modified Organism (GMO) technology is applicable across alllivestock species but is only commercialised by Genus in the bovine and porcinefarming sectors. Genus' worldwide sales are made in 70 countries under the trade marks "ABS"(dairy and beef cattle) and "PIC" (pigs) and comprise semen and breeding animalswith superior genetics to those animals currently in production. Customers useGenus genetics in their herds to produce offspring with greater productionefficiency, milk and meat output and quality. These offspring are used to supplythe global dairy and meat supply chain. Genus' competitive edge has been created from the ownership and control ofproprietary lines of breeding animals, the biotechnology used to improve themand the Group's global production and distribution network. Headquartered in Basingstoke, England, Genus companies operate in 30 countrieson 6 continents, with research laboratories located in Madison, USA. GROUP PERFORMANCE The Board is pleased to report results that are fully in line with expectations,notwithstanding the presence of challenging market and operating conditionsduring the period. The US dollar remained weak. With more than 50% of the group's sales being in USdollars, this reduced reported sales growth. Also, in some agricultural markets,the dramatic increase in world animal feed prices has not yet been reflected inincreased food prices. As a result, farmer incomes have been temporarily heldback and Genus' operating expenses also rose. The increased diversity of thegroup and the operating cost benefits of efficiency improvements made possibleby the Sygen acquisition in December 2005, helped offset these market challengesand operating cost increases. Revenue from continuing operations rose by 4% to £120m at constant exchangerates (2006: £116m). At constant exchange rates, adjusted profit before tax from continuingoperations, rose by 28% to £13.9m (2006: £10.9m). The exchange translationalimpact of £0.5m reduced the increase to 22%. Before exceptional expenditure, statutory operating profit from continuingoperations was £14.1m, an increase of 9% on last year (2006: £12.9m). Statutoryresults, which are stated after charging exceptional expenditure of £3.8m (2006:£2.3m) show an operating profit from continuing operations of £10.3m which was3% lower than last year (£10.6m). Exceptional expenditure comprised £1.6m relating to the main market listing(2006: £0.7m), £1.4m in Sygen integration costs and £0.8m of uncapitalisedexpense for the Group's new Oracle management information system. These exceptional items and a loss on the disposal of the SyAqua Mexico businesscontributed to a reduction in the statutory total profit after tax for theperiod to £4.3m (2006: £4.4m) and reduced the statutory basic earnings per shareto 7.7p (2006: 8.0p). The effective rate of tax on adjusted profit before tax was 31.1%. Adjustedbasic earnings per share from continuing operations rose by 21% in constantcurrency to 16.5p (2006: 13.6p) and by 15% (2006: 14.3p) at reported exchangerates. The business trading cycle absorbs cash in the first half year in order to fundworking capital. A share placing in November aimed at reducing debt andimproving liquidity in the shares raised £18.9m after expenses. The net effectof the normal trading absorption of working capital at this time of the year,inflows from divestments of non-core assets (£2.8m) and the fund raising,reduced net debt by £18m to £93m by 31 December 2007 (30 June 2007: £111m).Gearing reduced to 53% at 31 December 2007 from 74% at 30 June 2007, withinterest cover at 2.6 times adjusted operating profit from continuing operations(31 December 2006: 2.0 times). The initial proceeds from the sale of Animalcare of £13.4m were received inJanuary 2008 and have been used to reduce net debt further. In line with previous years and the stated group dividend policy, the Board willnot be recommending an interim dividend but expects to recommend a finaldividend, when the results for the year to 30 June 2008 are announced. THE AMERICAS Constant currency 2007 2006 Movement £m £m %Revenue 58.7 55.9 5%Adjusted operating profit 10.7 10.1 6%Adjusted operating margin 18.2% 18.1% In constant currency, revenue increased by 5% to £59m (2006: £56m) and adjustedoperating profit increased by 6% to £11m (2006: £10m). Most of the region'sbusiness is conducted in US dollars. During the period, sterling remained strongbut the exchange rate reduced below the peak reached last year. As a resultexchange translational losses continued but at the reduced level of £0.4m. Bovine genetics had a good first half year with revenue, in constant currency,up 17% to £23m. Dairy semen volume was 5% higher and sexed semen sales werebuoyant as farmers sought to increase output because of strong milk prices andshortages in capacity. High feed costs, not yet reflected in slaughter pig prices, temporarily heldback the potential for growth in pig genetics. This, together with the impact ofthe change in the business model towards indirect royalty business, resulted inrevenue of £34m, in constant currency, reducing by 2%. The strong royalty streamand the acquisition synergies improved margins by 2% of revenue. North America Constant Currency 2007 2006 Movement £m £m %Revenue 46.0 43.9 5%Adjusted operating profit 8.1 7.8 4%Adjusted operating margin 17.6% 17.8% The expansion of the Genus Reproduction Management Service (RMS) helped dairysemen volume rise by 9% in the period. Sexed semen sales trebled as capacityincreased. In the porcine business, the application of the royalty model helped insulatethe business from the short-term impact of increases in feed prices and royaltyincome was 3% higher than last year. In the non-royalty sector, live animalsales were 4% below last year as customers held back orders pending increases inslaughter prices which will remain low until retail prices reflect increasingfeed costs. South AmericaConstant currency 2007 2006 Movement £m £m %Revenue 12.7 11.9 7%Adjusted operating profit 2.6 2.3 13%Adjusted operating margin 20.5% 19.3% Dairy semen volume was 8% higher than last year, with strong performances inArgentina and Uruguay offset by lower volumes in Mexico, where market conditionswere challenging. US exports to the region depressed pig slaughter prices in some countries buttrade in Brazil and Chile remained strong due to a government ban on importsprotecting local farmers from low cost imports. The Xaratanga productionfacility in Mexico was outsourced in August, incurring an exceptional cost of£0.1m. This change will reduce operating costs in the second half year. EUROPE & ASIA Constant Currency 2007 2006 Movement £m £m %Revenue 65.1 63.6 2%Adjusted operating profit 9.8 8.3 18%Adjusted operating margin 15.1% 13.1% In constant currency, revenue increased by 2% to £65m (2006: £64m) and adjustedoperating profit increased by 18% to £10m (2006: £8m). Exchange rates had littleimpact on the reported result. The bovine sector had a very strong first half-year in buoyant marketconditions. Revenue, in constant currency, increased by 14% to £35m. The porcinesector was temporarily depressed because of high feed prices but was morebuoyant in the Far East because of a capacity shortage. The turn-around inAustralia progressed as the weather improved. Europe Constant currency 2007 2006 Movement £m £m %Revenue 56.2 56.0 1%Adjusted operating profit 7.5 7.0 7%Adjusted operating margin 13.3% 12.5% Strong demand for elite bovine semen and a buoyant start from the introductionof sexed semen produced strong bovine profit growth. Dairy semen volume was 5% higher than last year, driven by dairy heifershortages. Growth was particularly strong in the UK where revenues increased by15%. After its introduction to the UK approximately 12 months ago, over 6% of UKcows have now been enrolled into the value adding Genus Reproductive ManagementService. Market conditions were difficult in the European porcine sector. To help farmersdeal with this transitional phase before pork prices increase, the EU isconsidering intervention programmes. Revenue was 13% lower than last year as aresult of these challenging market conditions. The increased use of the royaltybased selling model and the benefits of reduced costs arising from theintegration of Sygen increased profit contribution despite the difficult marketconditions. The small Italian porcine business was divested in January 2008 as part of therestructuring mentioned above. Asia Constant currency 2007 2006 Movement £m £m %Revenue 8.9 7.6 17%Adjusted operating profit 2.3 1.3 77%Adjusted operating margin 25.8% 17.1% Bovine semen volume rose 13% with trading being strong in most markets. Theexception was Japan where milk prices did not follow the trend in othercountries and remained low. Porcine market conditions were buoyant in China, with the market short ofcapacity, following the disease outbreak last year and growing market demand.China is importing pig meat from the USA to help bridge the supply / demandimbalance. Profit contribution improved strongly, despite a revenue investmentof £0.1m to increase multiplication capacity. This investment, coupled with afurther investment in the region intended for the second half of the currentfinancial year, is expected to satisfy increasing demand in this market. RESEARCH & DEVELOPMENT The same increases in feed prices that have temporarily depressed farm income,also increased the cost of operating the Genus studs and nucleus herds. Thisresulted in an increase in the group's expenditure on research and development.Despite hedging forward both feed costs and slaughter values, expenditure of£9.0m was £0.5m higher than last year. We continue to see the successful results of our bovine genetics programme. FourGenus bulls are now in the top seven USA rankings and UK bred Picston Shottle'sranking rose to Number One in the USA as a result of a greater number ofdaughters being classified in the USA. This is an exceptional result, it beingvery rare for bulls bred outside the USA to achieve high ranking. During the period, the Genus stud was again expanded and now comprises 189 bulls(174 bulls as at 30 June 2007), with ten high ranking new bulls entering variousimportant country market listings. Sales of ABS Sexation, the Genus sexed semen brand, increased from £1m to £4m ofsemen revenue for the period as increased capacity was commissioned. The producthas been firmly established as the world market leader. Work is continuing on alternative production methods for sexed semen. These aimto reduce or eliminate the capacity constraint associated with the currenttechnology. Priority is being given to processes able to sort sperm cellscollectively rather than sequentially. Work on identifying the leading gene markers for low heritability porcine traitscontinued to make good progress. More than 200 markers have been included in themodel used to measure genetic merit, alongside the measurements usedhistorically. We believe that this enhancement will increase the rate of geneticimprovement Genus will achieve over the next few years. This should increase thealready strong lead the PIC product range has over its competitors. DISCONTINUED BUSINESSES The Board has continued to progress the strategy of concentrating upon thedevelopment of the bovine and porcine genetics businesses. The non-coreDevelopment Consulting and Mexican shrimp businesses were divested during thefirst half of the year. These businesses were sold for £3.2m and £1.3mrespectively. There was a small net loss on the disposal of the shrimp business.In January 2008, the last remaining non-core business, Animalcare Limited, wassold to Ritchey plc for £14.0m (with £0.6m of the proceeds deferred anddependent on the manufacture of a new product which is under development). Thishas completed the disposal programme. BOARD In January 2008, Nigel Turner joined the Board as senior independentnon-executive director. Nigel was Chairman of Numis Securities Ltd and DeputyChairman of Numis Corporation plc from December 2005 to November 2007.Previously he was Vice-Chairman of ABN AMRO's Wholesale and Investment Bank anda partner of Lazard. Nigel will chair the group's Remuneration Committee andwill be a member of the group's Audit and Nomination Committees. Genus also announced in January 2008 the retirement of Edwin White from theBoard, having been a Board member since Genus became publicly quoted seven yearsago. The Board wishes to record its thanks to Edwin White for his valuableknowledge and contribution to the growth and success of Genus. SHARE REGISTER As part of the Board's strategy to restructure the share register and to improvethe liquidity of its shares, in October 2007 the Company completed a furthervoluntary buyback from shareholders who held fewer than 1,500 shares. The sharessold by these investors were bundled and placed with institutional investors. Atotal of 1,167,813 shares (2% of issued share capital) were acquired from 1,720shareholders (9% of total number of shareholders). The institutional and privateclient institutional shareholdings now stand at approximately 76% of the totalregister. PLACING OF NEW ORDINARY SHARES On 1 November 2007 Genus raised £19.4m, before expenses, through a placing of2,700,000 new Ordinary shares at 720p each. These shares were placed withinstitutional investors by the company's joint broker, Panmure Gordon.Landsbanki Securities acted as NOMAD and financial adviser to Genus in relationto the placing. The proceeds of the placing have been used to reduce the group's net debt andprovide additional financial flexibility for the business. ADMISSION TO THE OFFICIAL LIST AND FTSE250 On 12 November 2007, Genus was admitted to the Official List of the UK ListingAuthority and the London Stock Exchange's main market for listed securities. Thecompany's FTSE classification is Biotechnology. On 6 February 2008, Genus wasincluded in the FTSE250 index. PRINCIPAL RISKS & UNCERTAINTIES The Genus 2007 Annual Report and Prospectus dated 6 November 2007 set out anumber of risks and uncertainties that might impact upon the performance of thegroup. Copies of these documents are available on the Genus website atwww.genusplc.com. Genus operates a structured risk management process thatidentifies, evaluates and prioritises risks and uncertainties and reviewsmitigation activity. There has been no change to the principal risks that mightaffect the group in the second half of the financial year other than thepotential impact on sales growth of increasing feed prices which has beenmitigated to date by cost reductions, by the group's strategy of increasingconcentration on the royalty model in the porcine business and the increasedgeographical diversification of the business. The Board does not consider therecent difficulties in the financial credit markets to have impacted the groupdue to the high quality of its banking syndicate and pension fund investments. OUTLOOK Having delivered results that are fully in line with expectations for the firsthalf of the year, and with January performance also in line with expectations,Genus is in a strong position to meet its targets for the full year. The group is now stronger and more diverse. With the integration of Sygennearing completion, Genus is well placed to continue to deliver the stronggrowth achieved in previous years, particularly as world agriculture continuesto emerge from the difficulties experienced over the last ten years. The successful share placing and reduction in debt place Genus in a strongfinancial position to achieve further growth. Food prices are beginning to rise and farmers are investing in capacity andgenetics to improve feed conversion. Genus is in a unique position to benefitfrom this gradual market change. Condensed consolidated income statement For the six months ended 31 December 2007 Six months ended Six months ended Year ended 31 December 2007 31 December 2006 30 June 2007 Note £m £m £m £m £m £m Revenue fromcontinuing operations 5 120.4 116.3 233.8 Adjusted operatingprofit from continuingoperations 16.9 15.9 28.7 Fair value movement onbiological assets 1.1 0.3 10.9 Amortisation ofintangible assets (2.6) (2.6) (5.1) Share based payments (1.3) (0.7) (1.4) ------- ------- -------Exceptional items: 14.1 12.9 33.1 - Sygen integration and restructuring expenses (2.2) (1.6) (3.0) - Adjustment to goodwill on recognition of tax assets - - (0.7)- Preparation for main market listing (1.6) (0.7) (1.0) ------- ------ ------- (3.8) (2.3) (4.7) Operating profit fromcontinuing operations 5 10.3 10.6 28.4 Share of profit ofjoint ventures andassociates 1.1 0.7 1.3 Other gains and losses - - 0.2 Finance costs 8 (4.1) (5.2) (10.0) ------- ------- ------ ------- ------- -------Profit before tax fromcontinuing operations 7.3 6.1 19.9 Taxation 9 (2.6) (2.3) (7.2) ------- ------- ------ ------- ------- -------Profit for the periodfrom continuingoperations 4.7 3.8 12.7 (Loss)/profit for theperiod fromdiscontinuedoperations 6 (0.4) 0.6 1.9 ------- ------- ------ ------- ------- -------Profit for the period 4.3 4.4 14.6 ------- ------- ------ ------- ------- ------- Earnings per sharefrom continuingoperationsBasic earnings pershare 12 8.4p 6.9p 23.1pDiluted earnings pershare 12 8.2p 6.7p 22.5pBasic adjustedearnings per share 12 16.5p 14.3p 24.6pDiluted adjustedearnings per share 12 16.2p 13.9p 23.9pEarnings per sharefrom total operationsBasic earnings pershare 12 7.7p 8.0p 26.6pDiluted earnings pershare 12 7.5p 7.7p 25.8p Condensed consolidated statement of changes in equity Called Share Own Translation Hedging Retained Total up premium shares reserve reserve earnings account share Note capital £m £m £m £m £m £m £m Balance at1 5.5 92.2 (0.2) (4.9) 0.8 50.6 144.0July 2006 ------ ------ ------ ------- ------- ------ ------Foreignexchangetranslationdifferences - - - (14.7) - - (14.7)Fair valuemovement onnetinvestmenthedge, net - - 0.9 - - 0.9oftaxFair valuemovement oncash flowhedges, netof - - - - 1.6 - 1.6taxActuarialgains ondefinedemployeebenefitschemes,net - - - - - 5.2 5.2of tax ------ ------ ------ ------- ------- ------ ------Net incomeandexpenserecogniseddirectly in - - - (13.8) 1.6 5.2 (7.0)equity Profit forthe - - - - - 14.6 14.6period ------ ------ ------ ------- ------- ------ ------Totalrecognisedincome andexpense forthe period - - - (13.8) 1.6 19.8 7.6Recognitionofshare basedpayments, - - - - - 3.4 3.4netof taxIssue ofordinaryshares 0.1 0.3 - - - - 0.4Dividends 10 - - - - - (4.5) (4.5) ------ ------ ------ ------- ------- ------ ------Balance at30 5.6 92.5 (0.2) (18.7) 2.4 69.3 150.9June 2007 ------ ------ ------ ------- ------- ------ ------Foreignexchangetranslationdifferences - - - 8.2 - - 8.2Fair valuemovement onnetinvestmenthedge, net - - - (0.3) - - (0.3)oftaxFair valuemovement oncash flowhedges, netof - - - - (1.9) - (1.9)taxActuariallosses ondefinedemployeebenefitschemes,net - - - - - (1.5) (1.5)of tax ------ ------ ------ ------- ------- ------ ------Net incomeandexpenserecogniseddirectly in - - - 7.9 (1.9) (1.5) 4.5equity Profit forthe - - - - - 4.3 4.3period ------ ------ ------ ------- ------- ------ ------Totalrecognisedincome andexpense forthe period - - - 7.9 (1.9) 2.8 8.8Recognitionofshare basedpayments, - - - - - 1.8 1.8netof taxIssue ofordinaryshares 0.3 19.2 - 19.5Dividends 10 - - - - - (5.3) (5.3) ------ ------ ------ ------- ------- ------ ------Balance at31 5.9 111.7 (0.2) (10.8) 0.5 68.6 175.7December ------ ------ ------ ------- ------- ------ ------2007 Condensed consolidated statement of changes in equity (continued) Called Share Own Translation Hedging Retained Total up premium shares reserve reserve earnings account share Note capital £m £m £m £m £m £m £m Balance at1 5.5 92.2 (0.2) (4.9) 0.8 50.6 144.0July 2006 ------ ------ ------ ------- ------- ------ ------Foreignexchangetranslationdifferences - - - (12.0) - - (12.0)Fair valuemovement onnetinvestmenthedge, net - - - 0.3 - - 0.3oftaxFair valuemovement oncash flowhedges, netof - - - - 0.6 - 0.6taxActuarialgains ondefinedemployeebenefitschemes,net - - - - - 3.4 3.4of tax ------ ------ ------ ------- ------- ------ ------Net incomeandexpenserecogniseddirectly in - - - (11.7) 0.6 3.4 (7.7)equity Profit forthe - - - - - 4.4 4.4period ------ ------ ------ ------- ------- ------ ------Totalrecognisedincome andexpense forthe period - - - (11.7) 0.6 7.8 (3.3)Recognitionofshare basedpayments, - - - - - 0.7 0.7netof taxIssue ofordinaryshares 0.1 0.4 - - - - 0.5Dividends 10 - - - - - (4.5) (4.5) ------ ------ ------ ------- ------- ------ ------Balance at31 5.6 92.6 (0.2) (16.6) 1.4 54.6 137.4December ------ ------ ------ ------- ------- ------ ------2006 Condensed consolidated balance sheet As at 31 December 2007 31 December 2007 31 December 30 June Note 2006 2007 (restated) £m £m £mAssetsGoodwill 61.7 63.9 60.7Other intangible assets 79.5 83.5 77.4Biological assets 11 120.0 106.5 114.1Property, plant and equipment 26.6 28.7 27.3Interests in joint venturesand associates 4.8 3.7 3.5Available for sale investments 0.5 0.8 0.5Derivative financial assets 1.6 2.5 4.5Deferred tax assets 9.0 10.1 10.4 -------- -------- ---------Total non-current assets 303.7 299.7 298.4 -------- -------- --------- Inventories 19.3 16.4 18.8Biological assets 11 24.2 25.3 25.3Trade and other receivables 53.1 43.9 43.0Cash and cash equivalents 33.7 26.3 26.0Income tax receivable 1.0 1.3 1.4Assets held for sale 6 11.4 21.3 21.9 -------- -------- ---------Total current assets 142.7 134.5 136.4 -------- -------- ---------Total assets 446.4 434.2 434.8 -------- -------- ---------LiabilitiesTrade and other payables (42.0) (35.4) (34.8)Interest-bearing loans andborrowings (33.3) (25.5) (27.2)Provisions (1.7) (2.9) (1.9)Obligations under financeleases (0.8) (1.7) (0.9)Current tax liabilities (3.9) (4.5) (4.3)Liabilities held for sale 6 (3.1) (7.6) (8.3) -------- -------- ---------Total current liabilities (84.8) (77.6) (77.4) -------- -------- --------- Interest-bearing loans andborrowings (91.4) (122.6) (108.9)Employee benefits 15 (15.4) (18.7) (15.9)Provisions (2.1) (1.6) (2.3)Deferred tax liabilities (75.6) (76.3) (78.0)Obligations under financeleases (1.4) - (1.4) -------- -------- ---------Total non-current liabilities (185.9) (219.2) (206.5) -------- -------- ---------Total liabilities (270.7) (296.8) (283.9) -------- -------- --------- -------- -------- ---------Net Assets 175.7 137.4 150.9 -------- -------- --------- EquityCalled up share capital 5.9 5.6 5.6Share premium account 111.7 92.6 92.5Own shares (0.2) (0.2) (0.2)Translation reserve (10.8) (16.6) (18.7)Hedging reserve 0.5 1.4 2.4Retained earnings 68.6 54.6 69.3 -------- -------- ---------Total equity 175.7 137.4 150.9 -------- -------- --------- Condensed consolidated statement of cash flows For the six months ended 31 December 2007 Note Six months Six months Year ended Ended Ended 31 December 31 December 30 June 2007 2006 2007 £m £m £m -------- --------- -------Net cash flow from operatingactivities 14 5.0 7.3 23.8 -------- --------- ------- Cash flows from investing activitiesDividend received from joint ventureand associates - - 1.3Interest received 1.0 0.3 2.1Proceeds from disposal ofsubsidiaries 2.8 1.0 1.0Acquisition of property, plant andequipment and intangible assets (4.3) (3.1) (7.1)Proceeds from sale of property, plantand equipment 0.2 2.3 4.3 -------- --------- -------Net cash (outflow)/inflow frominvesting activities (0.3) 0.5 1.6 -------- --------- ------- Cash flows from financing activitiesRepayment of borrowings (16.1) (4.8) (13.8)Interest paid (5.0) (4.3) (10.9)Payment of capital element of financelease liabilities (0.2) (0.1) (0.9)Cashflow receipt on closing outderivative financial instruments - 1.7 1.7Equity dividends paid - (4.5) (4.5)New share capital issued 19.5 0.5 0.4Increase/(decrease) in bankoverdrafts 4.5 (1.7) (2.0) -------- --------- -------Net cash inflow/(outflow) fromfinancing activities 2.7 (13.2) (30.0) -------- --------- ------- -------- --------- -------Net increase/(decrease) in cash andcash equivalents - continuingoperations 4.2 (6.1) (2.7)Net increase/(decrease) in cash andcash equivalents - discontinuedoperations 3.2 0.7 (1.9) -------- --------- ------- -------- --------- -------Net increase/(decrease) in cash andcash equivalents 7.4 (5.4) (4.6) -------- --------- ------- Cash and cash equivalents atbeginning of period 27.3 34.0 34.0Net increase/(decrease) in cash andcash equivalents 7.4 (5.4) (4.6)Effect of exchange rate fluctuationson cash held (0.4) (0.1) (2.1) -------- --------- -------Total cash and cash equivalents atend of period 34.3 28.5 27.3 -------- --------- ------- Of the £34.3m cash and cash equivalents at 31 December 2007 (31 December 2006:£28.5m), £0.6m is included in assets held for sale in the consolidated balancesheet (31 December 2006: £2.2m). Of the £27.3m cash and cash equivalents at 30 June 2007, £1.3m is included inassets held for sale in the consolidated balance sheet. Analysis of Net Debt At 1 July Cash Foreign Non cash At 31 December 2007 flows exchange movements 2007 £m £m £m £m £mCash andcash 26.0 8.1 (0.4) - 33.7equivalentsCash andcashequivalentswithin 1.3 (0.7) - - 0.6assets --------- ------- -------- --------- --------held forsale 27.3 7.4 (0.4) - 34.3 --------- ------- -------- --------- -------- Interestbearingloans (27.2) (0.1) (0.2) (5.8) (33.3)- currentObligationunderfinanceleases - (0.9) 0.2 - (0.1) (0.8)current --------- ------- -------- --------- -------- (28.1) 0.1 (0.2) (5.9) (34.1) --------- ------- -------- --------- -------- Interestbearingloans (108.9) 11.7 - 5.8 (91.4)- noncurrentObligationunderfinancelease - non (1.4) - - - (1.4)current --------- ------- -------- --------- -------- (110.3) 11.7 - 5.8 (92.8) --------- ------- -------- --------- --------Net Debt (111.1) 19.2 (0.6) (0.1) (92.6) --------- ------- -------- --------- -------- Cash and interest bearing loans current at 31 December 2007 include UK treasurycash-pooling balances of £13.5m which are shown gross (31 December 2006:£11.4m). Cash and interest bearing loans current includes £2.7m at 31 December 2007received from the Development Consulting disposal that was applied as amandatory repayment of loans on 14 January 2008. At 1 July Cash Foreign Non cash At 31 December 2006 flows exchange movements 2006 £m £m £m £m £m Cash andcash 32.2 (5.8) (0.1) - 26.3equivalentsCash andcashequivalentswithin 1.8 0.4 - - 2.2assets --------- ------- -------- --------- --------held forsale 34.0 (5.4) (0.1) - 28.5 --------- ------- -------- --------- -------- Interestbearingloans (25.5) 4.8 - (4.8) (25.5)- currentObligationunderfinanceleases - (2.1) 0.1 - 0.3 (1.7)current --------- ------- -------- --------- -------- (27.6) 4.9 - (4.5) (27.2) --------- ------- -------- --------- -------- Interestbearingloans (126.4) - - 4.9 (121.5)- noncurrentObligationunderfinancelease - non (0.1) - - 0.1 -current --------- ------- -------- --------- -------- (126.5) - - 5.0 (121.5) --------- ------- -------- --------- --------Net Debt (120.1) (0.5) (0.1) 0.5 (120.2) --------- ------- -------- --------- -------- Notes to the condensed set of financial statements 1. General Information Genus plc is a company incorporated in England and Wales with registrationnumber 2972325. Its shares are traded on the London Stock Exchange.Headquartered in Basingstoke, England, Genus companies operate in 30 countrieson six continents, with research laboratories located in Madison, USA. Genus sells added value products for livestock farming and food producers bycreating advances to animal breeding through quantitative genetics andbiotechnology. Its non-Genetically Modified Organism (GMO) technology isapplicable across all livestock species but is only commercialised by Genus inthe bovine and porcine farming sectors. Genus' worldwide sales are made in seventy countries under the trade marks 'ABS'(dairy and beef cattle) and 'PIC' (pigs) and comprise semen and breeding animalswith superior genetics to those animals currently in production. Customers useGenus genetics in their herds to produce offspring with greater productionefficiency, milk and meat output and quality. These offspring are used to supplythe global dairy and meat supply chain. Genus' competitive edge has been created from the ownership and control ofproprietary lines of breeding animals, the biotechnology used to improve themand the Group's global production and distribution network. 2. Basis of preparation The unaudited Condensed set of Financial Statements for the six months ended 31December 2007: • were prepared in accordance with International Accounting Standard 34 'Interim Financial Reporting" ("IAS 34") and thereby International Financial Reporting Standards ("IFRS"), both as issued by the International Accounting Standards Board ("IASB") and as adopted by the European Union ("EU"); • are presented on a condensed basis as permitted by IAS 34 and therefore do not include all disclosures that would otherwise be required in a full set of financial statements; these should be read, therefore, in conjunction with the 2007 Annual Report; • include all adjustments, consisting of normal recurring adjustments, necessary for a fair statement of the results for the periods presented; • do not constitute statutory accounts within the meaning of section 240 of the Companies Act 1985. They were approved by the Board of Directors on 25 February 2008. The information relating to the year ended 30 June 2007 is an extract from thepublished financial statements for that year, which have been delivered to theRegistrar of Companies. The auditors' report on those financial statements wasnot qualified and did not contain statements under section 237(2) or (3) of theCompanies Act 1985. The balance sheet at 31 December 2006 has been restated to adjust goodwill andintangible balances to reflect reclassification of goodwill balances to assetsheld for sale of £5.8m and exchange translational differences on goodwill andintangible assets of £2.8m and £3.1m, respectively. The preparation of the condensed set of financial statements requires managementto make estimates and assumptions that affect the reported amounts of assets andliabilities and disclosure of contingent assets and liabilities at the balancesheet date, and the reported amounts of revenue and expenses during the period.Actual results could vary from these estimates. The estimates and underlyingassumptions are reviewed on an ongoing basis. Revisions to accounting estimatesare recognised in the period in which the estimate is revised if the revisionaffects only that period or in the period of revision and future periods if therevision affects both current and future periods. Notes to the condensed set of financial statements 3. Accounting Policies and non-GAAP measure The condensed set of financial statements has been prepared using accountingpolicies consistent with International Financial Reporting Standards (IFRS) andin accordance with IAS 34 'Interim Financial Reporting'. The same accounting policies, presentation and methods of computation arefollowed in the condensed set of financial statements as applied in the Group'slatest annual audited financial statements, dated 17 September 2007, which areavailable on the Group's website www.genusplc.com. These policies have beenconsistently applied for all periods presented. Change in accounting policies In the current financial year, the Group will adopt International FinancialReporting Standard 7 'Financial Instruments: Disclosures' (IFRS 7) for the firsttime. As IFRS 7 is a disclosure standard, there is no impact of that change inaccounting policy on the half yearly financial report. The additionaldisclosures will be made in the annual report for the year ended 30 June 2008. IFRIC 8 'Scope of IFRS 2', IFRIC 9, 'Re-assessment of embedded derivatives',IFRIC 10, 'Interim Financial Reporting and Impairments' and IFRIC 11, 'IFRS 2 -Group and Treasury Share Transactions' have not had any impact on the Group. At the balance sheet date a number of new standards, amendments andinterpretations were in issue but not yet effective: - The Group has not adopted early IFRS 8,'OperatingSegments', which is effective for annual periods beginning on or after 1 January2009. This standard will result in presentational changes to the group'sreported segment information. - IFRIC 12, 'Service Concession Arrangements' is effectivefor periods beginning on or after 1 January 2008 but will not have any impact onthe Group. - IFRIC 13, 'Customer Loyalty Programmes' is effective forperiods beginning on or after 1 January 2008. The impact of this interpretationon the Group will be fully considered in due course. - IFRIC 14, 'IAS 19 - The limit on a Defined BenefitAsset, Minimum Funding Requirements and their Interaction', although effectivefor periods beginning on or after 1 July 2008, has been adopted early by theGroup. Non-GAAP measure - Adjusted operating profit and adjusted profit before tax Adjusted operating profit from continuing operations is defined as operatingprofit from continuing operations before the fair value movement in biologicalassets, amortisation of intangible assets, share based payment expense andexceptional items. Adjusted profit before tax is before fair value movements on biological assets,amortisation of intangible assets, share based payments and exceptional items,also excluding other gains and losses. These additional non-GAAP measures of operating performance are included as thedirectors believe that they provide a useful alternative measure forshareholders of the trading performance of the Group since they presentoperating profit and profit before tax before the non cash fair value movementin biological assets, non cash amortisation of intangibles, non cash share basedpayment expense and exceptional items. The reconciliation between operatingprofit and adjusted operating profit are shown on the face of the incomestatement. The directors recognise these alternative measures have certainlimitations. Notes to the condensed set of financial statements 4. Foreign currency The principal exchange rates used were as follows: Average Closing ---------------------- ---------------------- Six months Six months Year 31 31 30 June ended 31 ended 31 December December December December 2007 2007 2006 ended 2006 2007 30 June 2007US Dollar 2.04 1.91 1.94 1.99 1.96 2.01Euro 1.43 1.48 1.48 1.36 1.48 1.49 Assets and liabilities of overseas undertakings are translated into sterling atthe rate of exchange ruling at the balance sheet date and the income statementis translated into sterling at average rates of exchange. 5. Segmental information Segmental information is presented in respect of the Group's business andgeographical segments. The primary business segments are based on the Group'smanagement and internal reporting structure. Inter-segment pricing is determinedon an arm's length basis. The Group comprises two main business segments: Bovine Genetics (dairy and beefcattle) and Porcine Genetics (pigs) which provide farmers with geneticallyimproved breeding animals that have better production efficiency and betterproduct quality. The following non-core business segments were classified as discontinuedoperations at 31 December 2007: • Animal Health, a UK based licensed veterinary pharmaceutical distribution business; • Development Consulting, a UK based consulting business supplying services in the areas of natural resource, economic and social infrastructure and development; and • Shrimp Genetics, a division supplying genetically improved breeding animals. Notes to the condensed set of financial statements 5. Segmental information (continued) Area of activity - continuingoperations Six months ended 31 December 2007 Bovine Porcine Unallocated Total Genetics Genetics £m £m £m £m Revenue fromcontinuingoperations 58.3 62.1 - 120.4 -------- -------- -------- -------Adjusted operatingprofit beforeresearch andproduct development 13.6 15.9 (3.6) 25.9Research andproduct development (4.4) (4.6) - (9.0) -------- -------- -------- -------Adjusted operatingprofit fromcontinuingoperations 9.2 11.3 (3.6) 16.9Fair value movementon biologicalassets 2.2 (1.1) - 1.1Amortisation ofintangible assets (0.1) (2.5) - (2.6)Share based payment - - (1.3) (1.3)Exceptional items - Sygen integration, including IT and restructuring expenses - (1.5) (0.7) (2.2) - Preparation for main market listing - - (1.6) (1.6) -------- -------- -------- -------Operating profitfrom continuingoperations 11.3 6.2 (7.2) 10.3 -------- -------- -------- ------- Area of activity - continuingoperations Six months ended 31 December 2006 Bovine Porcine Unallocated Total Genetics Genetics £m £m £m £mRevenue fromcontinuingoperations 50.9 65.4 - 116.3 -------- -------- -------- -------Adjusted operatingprofit beforeresearch andproduct development 11.6 15.8 (2.9) 24.5Research andproduct development (4.1) (4.5) - (8.6) -------- -------- -------- -------Adjusted operatingprofit fromcontinuingoperations 7.5 11.3 (2.9) 15.9Fair value movementon biologicalassets 2.9 (2.6) - 0.3Amortisation ofintangible assets (0.1) (2.5) - (2.6)Share based payment - - (0.7) (0.7)Exceptional items - Sygen integration and restructuring expenses (0.3) (0.8) (0.5) (1.6) - Preparation for main market listing - - (0.7) (0.7) -------- -------- -------- -------Operating profitfrom continuingoperations 10.0 5.4 (4.8) 10.6 -------- -------- -------- ------- Notes to the condensed set of financial statements 5. Segmental information (continued) Area of activity - continuingoperations Year ended 30 June 2007 Bovine Porcine Unallocated Total Genetics Genetics £m £m £m £m Revenue fromcontinuingoperations 102.3 131.5 - 233.8 -------- -------- -------- --------Adjusted operatingprofit beforeresearch andproduct development 20.0 32.8 (6.4) 46.4Research andproduct development (8.3) (9.4) - (17.7) -------- -------- -------- --------Adjusted operatingprofit fromcontinuingoperations 11.7 23.4 (6.4) 28.7Fair value movementon biologicalassets 10.0 0.9 - 10.9Amortisation ofintangible assets (0.1) (5.0) - (5.1)Share based payment (0.4) (0.3) (0.7) (1.4)Exceptional items - Sygen integration, including IT and restructuring expenses (0.4) (2.6) - (3.0) - Adjustment to goodwill on recognition of tax assets - (0.7) - (0.7) -Preparation for main market listing - - (1.0) (1.0) -------- -------- -------- --------Operating profitfrom continuingoperations 20.8 15.7 (8.1) 28.4 -------- -------- -------- -------- Notes to the condensed set of financial statements 5. Segmental information (continued) Geographical segments The bovine and porcine segments are managed on a worldwide basis, but operate ina number of geographical areas. Segment assets are based on the geographicallocation of the assets. Sales revenue by geographical Sales revenue by geographical region region at destination of origin Six months Six months Year Six months Six Year ended 31 ended 31 ended 31 months December December December ended 31 2007 2007 December 2006 ended 2006 ended 30 June 30 June 2007 2007Continuing £m £m £m £m £m £moperationsNorth America 53.2 49.5 111.5 46.0 45.8 94.9South America 10.6 9.2 19.7 12.7 11.3 23.8 --------- --------- --------- -------- -------- -------- 63.8 58.7 131.2 58.7 57.1 118.7 United Kingdom 25.7 19.8 44.3 24.3 22.8 44.9ContinentalEurope 27.5 32.7 55.0 31.9 32.7 63.9Asia 6.8 8.6 10.4 8.9 7.2 13.4 --------- --------- --------- -------- -------- -------- 60.0 61.1 109.7 65.1 62.7 122.2 Inter-segmentalsales (3.4) (3.5) (7.1) (3.4) (3.5) (7.1) --------- --------- --------- -------- -------- --------Continuingoperations -total 120.4 116.3 233.8 120.4 116.3 233.8Discontinuedoperations 10.5 13.8 29.2 10.5 13.8 29.2 --------- --------- --------- -------- -------- -------- Total 130.9 130.1 263.0 130.9 130.1 263.0 --------- --------- --------- -------- -------- -------- Discontinued sales revenue derives from the Development Consulting and AnimalHealth businesses, which originate in the United Kingdom and from the ShrimpGenetics business in Mexico and Thailand. Adjusted operating profit from Operating profit from continuing continuing operations operations Six months Six months Year Six months Six months Year ended 31 ended 31 ended 31 ended 31 December December December December 2007 2007 2006 ended 2006 ended 30 June 30 June 2007 2007Continuing £m £m £m £m £m £moperationsNorth 8.1 8.3 15.1 8.5 5.3 14.9AmericaSouth 2.6 2.2 5.7 1.0 2.2 6.0America --------- --------- --------- --------- --------- -------- 10.7 10.5 20.8 9.5 7.5 20.9 United 5.0 4.9 4.3 3.4 5.1 7.3KingdomContinentalEurope 2.5 1.9 7.1 2.0 1.5 7.1Asia 2.3 1.5 2.9 2.6 0.8 1.2 --------- --------- --------- --------- --------- -------- 9.8 8.3 14.3 8.0 7.4 15.6 Unallocatedcosts (3.6) (2.9) (6.4) (7.2) (4.3) (8.1) --------- --------- --------- --------- --------- -------- Total 16.9 15.9 28.7 10.3 10.6 28.4 --------- --------- --------- --------- --------- -------- Notes to the condensed set of financial statements 5. Segmental information (continued) Business segments Area of activity - discontinued Six months ended 31 December 2007operations Animal Development Shrimp Total Health Genetics Consulting £m £m £m £m Revenue 3.9 6.2 0.4 10.5 ---------- ---------- ---------- ----------Adjusted operatingprofit/(loss) 0.7 0.1 (0.2) 0.6 ---------- ---------- ---------- ----------Operatingprofit/(loss) 0.7 0.1 (0.2) 0.6 ---------- ---------- ---------- ---------- Area of activity - Six months ended 31 December 2006discontinued operations Animal Development Shrimp Total Health Genetics Consulting £m £m £m £m Revenue 4.0 9.0 0.8 13.8 ---------- ---------- ---------- ----------Adjusted operatingprofit/(loss) 0.8 0.1 (0.7) 0.2Winding up of legacypension scheme (0.6) - - (0.6) ---------- ---------- ---------- ----------Operatingprofit/(loss) 0.2 0.1 (0.7) (0.4) ---------- ---------- ---------- ---------- Area of activity - discontinued Year ended 30 June 2007operations Animal Development Shrimp Total Health Genetics Consulting £m £m £m £m Revenue 7.8 18.2 3.2 29.2 ---------- ---------- ---------- ----------Adjusted operatingprofit 1.6 0.8 - 2.4Winding up of legacypension scheme (0.6) - - (0.6)Share based payments - - (0.1) (0.1) ---------- ---------- ---------- ----------Operatingprofit/(loss) 1.0 0.8 (0.1) 1.7 ---------- ---------- ---------- ---------- The segment result from discontinued operations stated above is equal to theoperating profit from discontinued operations disclosed in note 6, whichprovides a reconciliation to the net profit/(loss) from discontinued operations. Notes to the condensed set of financial statements 6. Non-current assets held for sale and discontinued operations Discontinued operations Six months Six months ended Year ended 31 December ended 31 December 2006 30 June 2007 2007 £m £m £m -------- ------- -------Adjusted operating profit/(loss)Loss in Shrimp Genetics for the (0.2) (0.7) -periodProfit in Development Consulting inthe 0.1 0.1 0.8periodProfit in Animal Health for the 0.7 0.8 1.6periodAdjusted operating profit fromdiscontinued operations 0.6 0.2 2.4Winding up of legacy pension scheme - (0.6) (0.6)Share based payments - - (0.1) -------- ------- -------Operating profit/(loss) fromdiscontinued operations 0.6 (0.4) 1.7 Other gains and lossesSale of properties - - 0.7Profit arising on sale of Dentalproducts wholesale division - 0.7 -Profit on sale of Thailand operationof - 0.2 0.2Shrimp GeneticsProfit on sale of Developmentconsulting 0.1 - -Loss on sale of Mexico operation ofShrimp Genetics (0.8) - - -------- ------- ------- (0.7) 0.9 0.9 (Loss)/profit from discontinuedoperations before tax (0.1) 0.5 2.6Tax (0.3) 0.1 (0.7) -------- ------- -------(Loss)/profit from discontinuedoperations (0.4) 0.6 1.9 -------- ------- ------- The Board decided in May 2006 to dispose of the Shrimp Genetics business.Accordingly, the results of this business are shown within discontinuedoperations. The Shrimp Genetics business in Thailand was sold on 9 October 2006for £1.0 million cash resulting in a profit on disposal of £0.2 million; Brazilwas sold on 7 June 2006 for £3.3m resulting in a profit on disposal of £0.6m;and the remaining Mexican Shrimp Genetics business was disposed of on 4 October2007 for an initial consideration of £0.3m and deferred consideration of £1.1m,being a total consideration of £1.4m and a loss on disposal of £0.8m. The Board decided to dispose of the group's other non-core operations, theAnimal Health business 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 2007 and 31 December 2006. The Animal Health veterinary product and dental product wholesale businesseswere sold on 28 October 2005 and 22 February 2006, respectively. The business, assets and liabilities of Development Consulting was sold on 6November 2007 for an initial cash consideration of £2.5m and deferredconsideration of £0.5m, being a total consideration of £3.0m. On 15 January 2008, Animalcare Limited was sold for an initial cashconsideration of £13.4m. A maximum contingent consideration of £0.6m becomespayable by June 2008 in the event that production criteria with regard to amanufacturing contract for a new product are met. Notes to the condensed set of financial statements 6. Non-current assets held for sale and discontinued operation (continued) Assets held for sale At 31 December 2007, Animal Health and PIC Italia Spa were classified as heldfor sale together with one freehold property. (31 December 2006: Animal Health,Development Consulting, Shrimp Genetics and Cazals Genetique SA together withtwo freehold properties). The residual Animal Health business and PIC Italia Spawere divested in January 2008. The major classes of assets and liabilities comprising the operations held forsale are as follows: 31 December 31 December 30 June 2007 2006 2007 (restated) £m £m £mAssetsGoodwill and intangible assets 6.7 6.3 6.3Biological assets 0.4 1.0 0.3Property, plant and equipment 1.3 1.0 2.7Inventories 0.8 1.5 1.3Trade and other receivables 1.6 9.3 10.0Cash and cash equivalents 0.6 2.2 1.3 --------- --------- ---------Total assets 11.4 21.3 21.9 --------- --------- --------- LiabilitiesTrade and other payables (3.1) (7.6) (8.3) --------- --------- ---------Total liabilities (3.1) (7.6) (8.3) --------- --------- --------- --------- --------- ---------Net assets of disposal groups 8.3 13.7 13.6 --------- --------- --------- 7. Exceptional items within continuing operations Exceptional items are as follows: Six Six months Year months ended ended 31 December ended 31 2006 30 June December 2007 2007 £m £m £m Integration and restructuring (primarily Sygenacquisition related) - Integration costs, including IT and restructuring costs 1.8 1.6 3.0 - Irrecoverable Sygen assets 0.3 - - - Impairment of property asset 0.1 - - -------- -------- -------- 2.2 1.6 3.0 Adjustment to goodwill on recognitionof tax assets - - 0.7Preparation for main market listing 1.6 0.7 1.0 -------- -------- -------- 3.8 2.3 4.7 -------- -------- -------- Included within integration and restructuring costs for the period ended 31December 2007 is a provision of £0.5m where damages were awarded against theCompany in November 2007 by a Californian court in relation to an employmentdispute involving a former employee of Sygen International plc (see note 18). Notes to the condensed set of financial statements 8. Net finance costs Six Six Year months months ended ended 31 ended December 31 2006 30 June December 2007 2007 £m £m £m Interest payable on bank loans &overdrafts (4.9) (5.5) (11.0) Finance charges payable under finance leases and hire purchase contracts (0.1) (0.1) - Amortisation of debt issue costs (0.2) (0.2) (0.3) Net interest cost in respect of pension schemes - (0.2) (0.6) Other interest payable (0.1) - (0.2) ------- ------- ------- Total finance costs (5.3) (6.0) (12.1) ------- ------- ------- Interest income on bank deposits 0.2 0.5 1.2 Other interest receivable 0.8 0.3 0.9 Net interest income in respect of pension schemes 0.2 - - ------- ------- ------- Total finance income 1.2 0.8 2.1 ------- ------- ------- ------- ------- ------- Net finance costs (4.1) (5.2) (10.0) ------- ------- ------- Notes to the condensed set of financial statements 9. Income taxes Continuing Operations: Six months Six months ended Year ended 31 December ended 31 December 2006 30 June 2007 2007 £m £m £m Current tax 2.2 3.0 5.2Deferred tax 0.4 (0.7) 2.0 -------- -------- --------- 2.6 2.3 7.2 -------- -------- --------- The taxation charge for the period is based on the estimated effective tax ratefor the full year of 35.1% (2006: 35.0%). In calculating the effective rate,account has been taken of differences from the statutory rate arising from taxrates in foreign jurisdictions, non deductible expenses, tax incentives notrecognised in profit or loss and the effect of movements in the amount of taxlosses and other temporary differences for which a deferred tax credit has notbeen 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 £75.6m (2006: £76.3m)which mainly relates to the recognition at fair value of biological assets andintangible assets arising on acquisition and a deferred tax asset of £9.0m(2006: £10.1m) which mainly relates to future tax deductions in respect ofpension scheme liabilities and share scheme awards. The total reduction in deferred tax during the period was £1.1m (2006: £2.9m) ofwhich £0.4m was debited (2006: £0.7m was credited) to the consolidated incomestatement and £1.5m (2006: £2.2m) was credited to reserves. Discontinued Operations: Six months Six months ended Year ended 31 December ended 31 December 2006 30 June 2007 2007 £m £m £m -------- -------- -------Current tax 0.3 (0.1) 0.6 -------- -------- ------- The tax charge on discontinued operations comprises tax of £0.3m on operatingprofits of £0.5m.There is no tax credit on the loss on disposal of £0.7m. The prior year tax credit comprises a tax credit of £0.1m on operating losses of£0.4m. There was no prior year tax liability on the profit on disposal of £0.9m. Notes to the condensed set of financial statements 10. Dividends Six Six months Year months ended ended 31 December ended 31 2006 30 June December 2007 2007 £m £m £mAmounts recognised as distributions to equityholders in the periodFinal dividend for the 15 month periodended 30 June 2006 of 8.25p per share - 4.5 4.5Final dividend for the 12 month periodended 30 June 2007 of 9.1p per share 5.3 - - -------- -------- -------- 5.3 4.5 4.5 -------- -------- -------- 11. Fair Value of Biological Assets B ovine Porcine Total £m £m £mBalance at 1 July 2007 - continuing operations 73.9 65.5 139.4 - held for sale - 0.3 0.3 ------ ------ ------ 73.9 65.8 139.7Change in fair value less estimated point-of-salecosts 9.6 2.1 11.7Transfers to inventory (6.3) (3.0) (9.3)Effect of movements in foreign exchange 0.7 1.9 2.6 ------ ------ ------Balance at 31 December 2007 77.9 66.8 144.7 ------ ------ ------ Non-current 77.9 42.1 120.0Current - 24.2 24.2 ------ ------ ------Biological assets - continuing operations 77.9 66.3 144.2Biological assets included within assets held for sale - 0.5 0.5 ------ ------ ------Balance at 31 December 2007 77.9 66.8 144.7 ------ ------ ------ Notes to the condensed set of financial statements 11. Fair Value of Biological Assets (continued) Bovine Porcine Total £m £m £mBalance 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 point-of-sale 9.7 - 9.7costsTransfers 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 25.3 ------ ------ ------Biological assets - continuing operations 69.9 61.9 131.8Biological assets included within assets held for sale - 1.0 1.0 ------ ------ ------Balance at 31 December 2006 69.9 62.9 132.8 ------ ------ ------ Bovine Porcine Total £m £m £mBalance 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 point-of-salecosts 27.9 6.3 34.2Transfers to inventory (19.9) (5.9) (25.8)Effect of movements in foreign exchange (4.7) (5.7) (10.4) ------ ------ ------Balance at 30 June 2007 73.9 65.8 139.7 ------ ------ ------ Non-current 73.9 40.2 114.1Current - 25.3 25.3 ------ ------ ------Biological assets - continuing operations 73.9 65.5 139.4Biological assets included within assets held for sale - 0.3 0.3 ------ ------ ------Balance at 30 June 2007 73.9 65.8 139.7 ------ ------ ------ Notes to the condensed set of financial statements 12. Earnings per share Weighted average number of ordinary shares Six months Six months Year(basic) ended ended 31 December ended 31 2006 30 June December 2007 2007 m m m Weighted average number of ordinaryshares (basic) 56.2 55.2 54.9Dilutive effect of share options 1.4 1.6 1.6 -------- ------- ---------Weighted average number of ordinaryshares for the purpose of dilutedearnings per share 57.6 56.8 56.5 -------- ------- --------- Six months Six months ended Year ended 31 December ended 31 December 2006 30 June 2007 2007Earnings per share from continuingoperationsBasic earnings per share 8.4p 6.9p 23.1pDiluted earnings per share 8.2p 6.7p 22.5pAdjusted earnings per share* 16.5p 14.3p 24.6pDiluted adjusted earnings per share* 16.2p 13.9p 23.9p Earnings per share from total operationsBasic earnings per share 7.7p 8.0p 26.6pDiluted earnings per share 7.5p 7.7p 25.8p Earnings per share measures are calculated on the weighted average number ofordinary shares in issue during the period. As in previous years, adjustedearnings per share have been shown, since the Directors consider that thisalternative measure gives a more comparable indication of the Group's underlyingtrading performance. * The basis for calculating adjusted earnings per share has been changed toincorporate the results of the joint venture and associates, excluding fairvalue movements on biological assets. Notes to the condensed set of financial statements 12. Earnings per share (continued) Continuing operations Basic earnings per share from continuing operations is calculated on the profitfor the period of £4.7m (six months ended 31 December 2006: £3.8m; year ended 30June 2007: £12.7m) Adjusted earnings per share is calculated on profit for the period before fairvalue movements on biological assets, amortisation of intangible assets, sharebased payments, exceptional items and other gains and losses after chargingtaxation associated with those profits, of £9.3m (six months ended 31 December2006 : £7.9m; year ended 30 June 2007: £13.5m), as follows: Adjusted earnings from continuing Six months Six months Yearoperations ended ended 31 December ended 31 December 2006 30 June 2007 (restated)* 2007 (restated)* £m £m £mProfit before tax from continuingoperations 7.3 6.1 19.9Add/(deduct):Fair value movement on biologicalassets (1.1) (0.3) (10.9)Amortisation of intangible assets 2.6 2.6 5.1Share based payments 1.3 0.7 1.4Integration and restructuring expenses 2.2 1.6 3.0Preparation for main market listing 1.6 0.7 1.0Adjustment to goodwill on recognitionof tax assets - - 0.7Fair value movement on biologicalassets in joint venture and associates (0.4) - (0.2)Other gains and losses - - (0.2) -------- ------- --------Profit before fair value movement onbiological assets, amortisation ofintangible assets, share basedpayments, exceptional items and othergains and losses 13.5 11.4 19.8Adjusted tax charge (4.2) (3.5) (6.3) -------- ------- --------Profit before fair value movement onbiological assets, amortisation ofintangible assets, share basedpayments, exceptional items and othergains and losses, after taxation 9.3 7.9 13.5 -------- ------- -------- * The basis for calculating adjusted earnings per share has been change toinclude the results of the joint venture and associates, excluding movements ofbiological assets. Total operations Earnings per share for total operations has been calculated as the profitattributable to ordinary shareholders of £4.3m (six months ended 31 December2006 £4.4m; year ended 30 June 2007: £14.6m) divided by weighted average numberof ordinary shares (basic and diluted) as calculated above. Notes to the condensed set of financial statements 13. Disposal of businesses The net assets of the Development Consulting and Mexican Shrimp Geneticsbusinesses at the respective dates of disposal were as follows: 31 December 2007 £m Net assets 4.6Attributable goodwill 0.3Disposal expenses 0.2 --------- 5.1Loss on disposal (0.7) ---------Total consideration 4.4 --------- Satisfied by:Cash 2.8Deferred consideration 1.6 --------- 4.4 --------- The deferred consideration will be settled in cash by the purchasers on orbefore May 2009. 14. Cashflow from operating activities Six months Six months ended Year ended 31 December ended 31 December 2006 30 June 2007 2007 £m £m £m Profit for the period 4.3 4.4 14.6Adjustments for: - Fair value movements on biological assets (1.1) (0.3) (10.9) - Amortisation of intangibles 2.6 2.6 5.1 - Adjustment to goodwill on recognition of tax assets - - 0.7 - Share based payment expense 1.3 0.7 1.5 - Share of profits of associates (1.1) (0.7) (1.3) - Other gains and losses - - (0.2) - Finance costs 4.1 5.2 10.0 - Income tax expense 2.6 2.3 7.8 - Loss/(gain) on disposal of discontinued operations 0.7 (0.6) (0.2) - Depreciation of property plant & equipment 1.8 2.5 4.7 - Decrease in provisions (0.4) (0.8) (0.9) --------- -------- -------Operating cash flows before movement inworking capital 14.8 15.3 30.9 (Increase)/decrease in inventories (1.3) 0.7 1.6Increase in receivables (7.6) (1.7) (1.2)Increase/(decrease) in payables 1.5 (5.4) (4.0) --------- -------- -------Cash generated by operations 7.4 8.9 27.3 Income taxes paid (2.4) (1.6) (3.5) --------- -------- -------Net cash inflow from operatingactivities 5.0 7.3 23.8 --------- -------- ------- Notes to the condensed set of financial statements 15. 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 the totalrecognised defined benefit obligations are provided below: 31 December 31 December 30 June 2007 2006 2007 £m £m £mPresent value of unfunded obligations (6.4) (6.5) (6.5)Present value of funded obligations (138.1) (135.8) (134.2)Fair value of plan assets 129.1 123.6 124.8 ------- ------- -------Gross liability for defined benefitobligations (15.4) (18.7) (15.9) ------- ------- ------- Pension plans Dalgety pension fund A Deed of Agreement was signed on 23 January 2008 by the company and thetrustees of the fund, pursuant to the Heads of Agreement which were agreed on 8November 2007 and which formed the basis of the funding arrangement agreed forthe actuarial valuation of the fund as of 31 March 2006. Under the agreement the Company agreed to make deficit repair contributions of£2.4m to the fund of which £1.8m were made by 31 December 2007 with a further£0.6m in January 2008. The trustees of the fund agreed to transfer an amount of£4.8m into the fund from their trustee share of surplus. £2.1m of this amountwas in respect of known liabilities with an additional £2.7m transferred as areserve against future unknown liabilities materialising. As the economicbenefit to the company of this latter amount is not certain, it is treated as acontingent asset. 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 2007,the Group recognised an expense of £0.5m (six months ended 31 December 2006:£1.5m; year ended 30 June 2007: £2.7m). The principal actuarial assumptions at the date of the most recent actuarialvaluations (expressed as weighted averages) are: 31 December 31 December 30 June 2007 2006 2007 % % %Discount rate 5.7 5.3 5.7Expected return on plan assets 6.3 6.1 6.6Future salary increases 4.3 4.1 4.2Medical cost trend rate 7.2 3.1 7.2Future pension increases 3.3 3.1 3.2 Notes to the condensed set of financial statements 15. Employee benefits Share-based payments The fair value of the share award and share option schemes has been establishedusing a binomial model. During the six months ended 31 December 2007, the Grouprecognised an expense (including National Insurance) of £1.3m related to thefair value of the share awards and options awarded (six months ended 31 December2006: £0.7m; year ended 30 June 2007: £1.5m). 16. Share Capital Share capital at 31 December 2007 amounted to £5.9m. During the period, theGroup issued 3.3m shares of which 2.7m were issued through an institutionalplacing raising £18.8m, applied to reduce the group debt. 17. 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 2007, approximately 86 percent of borrowings were hedged with a fixedrate of interest of 4.74%. The swap matures on an amortised basis as the relatedborrowings amortise over the next 3 years. The Group classifies its interest rate swaps as a cash flow hedge. The fairvalue of the interest rate swap at 31 December 2007 was £1.1m (31 December 2006:£2.0m) and 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 4.5 year cross currency swap wasentered into in September 2006, designated as a hedge of the spot rate riskarising on the group's net investment in US dollar denominated subsidiaries. 18. Other matters Contingencies There have been no material changes to the Group's contingent liabilitiesrelating to performance bonds and credit guarantees totalling £1.0m in the sixmonths ended 31 December 2007, nor the group's ongoing joint and severalliability for the Milk Pension Fund, more fully described in the Annual Report2007. There have been no changes to any legal proceedings involving the Group in thesix months ended 31 December 2007 which are expected to have, or have had, amaterial effect on the financial position or profitability of the Group save inrelation to an employment dispute involving a previous employee of SygenInternational plc where damages of $975,000 were awarded against the Company inNovember 2007 by a Californian court. Whilst this amount has been provided inthe interim results, the Company denies liability and is appealing the decision. Capital commitments At 31 December 2007 no capital commitments have been contracted for. Seasonality The Group has not historically been subject to significant seasonal trends withthe exception of a higher use of working capital in the first half of thefinancial year. Notes to the condensed set of financial statements 19. Related parties Transactions between the company and its subsidiaries, which are relatedparties, have been eliminated on consolidation and are not disclosed in thisnote. Transactions between the group and its joint ventures and associates aredescribed below: Other related party transactions Transaction value Balance outstanding Six Six months Year 31 31 30 June months ended 31 December December ended 31 December 2007 December 2007 2006 ended 2006 2007 30 June 2007Sale of goods to £m £m £m £m £m £m Joint Venturesand associates 4.3 5.1 7.0 0.3 0.1 0.5 All outstanding balances with joint ventures and associates are priced on anarm's length basis and are to be settled in cash within three months of thereporting date. None of the balances are secured. During the period the Company paid fees of £2.0m for IT consultancy services.The Salamander Organization Limited ("Salamander"), a party related to Mr J EHawkins, was paid £0.4m (31 December 2006: £0.1m) for services supplied bySalamander directly and £1.0m (31 December 2006: £0.5m) for services supplied byexternal contractors. Mr Hawkins is chairman of the Salamander board and has a1% shareholding in Salamander. Mr Hawkins had no involvement in the negotiationof the agreement between the Company and Salamander and the agreement wasentered into on an arm's length basis. The external contractors referred toabove were provided by Reed Professional Services Limited with effect from 1November 2007 and were paid £0.6m in the period. The agreement with Salamanderwas terminated on 20 January 2008. During the period the Company disposed of its Development Consulting businessafter a competitive tender process to the management team and a former directorof the Company, Mr David Timmins, who resigned as a director of the Company on 2April 2007. 20. Events after the balance sheet date On 15 January 2008, Animalcare Limited was sold for an initial cashconsideration of £13.4m. A maximum contingent consideration of £0.6m becomespayable by June 2008 in the event that production criteria with regard to amanufacturing contract for a new product are met. Responsibility statement We confirm that to the best of our knowledge: a) the condensed set of financial statements has been prepared inaccordance with IAS 34; b) the interim management report includes a fair review of the informationrequired by DTR 4.4.7R (indication of important events during the first sixmonths and description of principle risks and uncertainties for the remainingsix months of the year; and c) the interim management report includes a fair review of the informationrequired by DTR 4.2.8R (disclosure of related party transactions and chargestherein). Neither the company nor the directors accept any liability to any person inrelation to the half-yearly financial report except to the extent that suchliability could arise under English Law. Accordingly, any liability to a personwho has demonstrated reliance on any untrue or misleading statement or omissionshall be determined in accordance with section 90A of the Financial Services andMarkets Act 2000. By order of the Board Chief Executive Finance Director R K Wood M B Boden 25 February 2008 25 February 2008 Report on Review of Condensed Set of Financial Statements of Genus plc We have been engaged by the company to review the condensed set of financialstatements in the interim financial report for the six months ended 31 December2007 which comprises the Condensed Consolidated Income Statement, the CondensedConsolidated Statement of Changes in Equity, the Condensed Consolidated BalanceSheet, the Condensed Consolidated Statement of Cash Flows, the Analysis of NetDebt and related notes 1 to 20. We have read the other information contained inthe half-yearly financial report and considered whether it contains any apparentmisstatements or material inconsistencies with the information in the condensedset of financial statements. This report is made solely to the company in accordance with InternationalStandard on Review Engagements 2410 issued by the Auditing Practices Board. Ourwork has been undertaken so that we might state to the company those matters weare required to state to them in an independent review report and for no otherpurpose. To the fullest extent permitted by law, we do not accept or assumeresponsibility to anyone other than the company, for our review work, for thisreport, or for the conclusions we have formed. Directors' responsibilities The half-yearly financial report is the responsibility of, and has been approvedby, the directors. The directors are responsible for preparing the half-yearlyfinancial report in accordance with the Disclosure and Transparency Rules of theUnited Kingdoms' Financial Services Authority. As disclosed in note 2, the annual financial statements of the group areprepared in accordance with IFRSs as adopted by the European Union. Thecondensed set of financial statements included in this half-yearly financialreport has been prepared in accordance with International Accounting Standard34, "Interim Financial Reporting," as adopted by the European Union. Our responsibility Our responsibility is to express to the Company a conclusion on the condensedset of financial statements in the half-yearly financial report based on ourreview. Scope of Review We conducted our review in accordance with International Standard on ReviewEngagements (UK and Ireland) 2410, "Review of Interim Financial InformationPerformed by the Independent Auditor of the Entity" issued by the AuditingPractices Board for use in the United Kingdom. A review of interim financialinformation consists of making inquiries, primarily of persons responsible forfinancial and accounting matters, and applying analytical and other reviewprocedures. A review is substantially less in scope than an audit conducted inaccordance with International Standards on Auditing (UK and Ireland) andconsequently does not enable us to obtain assurance that we would become awareof all significant matters that might be identified in an audit. Accordingly, wedo not express an audit opinion. Conclusion Based on our review, nothing has come to our attention that causes us to believethat the condensed set of financial statements in the half-yearly financialreport for the six months ended 31 December 2007 is not prepared, in allmaterial respects, in accordance with International Accounting Standard 34 asadopted by the European Union and the Disclosure and Transparency Rules of theUnited Kingdom's Financial Services Authority. Deloitte & Touche LLP Chartered Accountants and Registered Auditor 25 February 2008 London, UK This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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