7th Jun 2006 07:01
Genus PLC07 June 2006 FOR IMMEDIATE RELEASE 7 June 2006 GENUS plc Interim Results for the twelve months ended 31 March 2006 Genus plc, the world leading animal genetics company, which has changed its yearend to 30 June, announces interim results for the twelve months to 31 March2006. 2006 2005 Restated for FRS17 (see note 11)Highlights (Adjusted)Operating profit* from Continuing £16.9m £10.4mOperationsProfit before tax from Continuing £13.4m £7.5mOperations (note 2)Earnings (note 8) £9.0m £6.9mBasic EPS (note 8) 20.8p 19.0p Highlights (Statutory)Group turnover £219.4m £183.2mOperating profit £6.3m £9.2mExceptional items, goodwill £13.1m £1.7mamortisation and discontinuedoperations lossesProfit before tax £1.1m £8.1mBasic EPS (4.3)p 16.3p • Group - Operating profit from Continuing Operations* was up £6.5m (63%) to £16.9m (2005: £10.4m) o Operating profit* for the historical Genus businesses, before unallocated costs, was up £3.2m (25%) to £16.1m (2005: £12.9m) o Operating profit of £6.7m* from the Sygen business (acquired in December 2005), before unallocated costs, was ahead of plan - Sygen acquisition synergies exceeding original expectations - Adjusted basic EPS of 20.8p was up 9% (2005: 19.0p) - Net debt of £124m was better than plan - Non-core and low margin veterinary and dental wholesaling operations divested for £8.1m in cash. *before exceptional items and goodwill amortisation Bovine Genetics Division - Sales of £96.9m were up 16% (2005: £83.6m), reflecting 11% volume growth and improvements in price mix - Record operating profit before goodwill amortisation and exceptional items of £13.1m, was up 22.4% (2005: £10.7m) - Three new high ranking bulls were added to the stud, including the top ranked bull in USA - £2.8m has been invested in four acquisitions in Australia, in line with the strategy to expand in semen retailing - market share now 45% Porcine Genetics Division - Operating profit before goodwill amortisation and exceptional items for four months post-acquisition period was £7.3m compared with £4.6m in the equivalent prior year period - Strong post-acquisition operating cash generation - £1m investment in nucleus farm in Russia was sanctioned Other businesses - Animal Health and Development Consulting increased operating profit, before goodwill amortisation and exceptional items, by 43% to £3.0m (2005: £2.1m) - Loss-making Shrimp business to be sold. Agreement reached in principle to sell Brazilian shrimp business to an MBO team Commenting on prospects Richard Wood, Chief Executive, said: "Since our last results statement, we have achieved a momentous change forGenus. The successful acquisition of Sygen in December 2005 has positioned Genusas the world's leading animal genetics company, adding research opportunitiesacross the existing Group and across more species. We have concentrated on theintegration of Sygen and synergies of the acquisition since December and arepleased to report these have exceeded our initial expectations. "Additionally, the original Genus businesses have reported record results. Wehave increased operating profit across Bovine Genetics, Animal Health andDevelopment Consulting in spite of variable conditions across internationalmarkets and we have sold off two, non - core operations." "Overall, we view Group prospects positively and we look forward to the yearahead with the many opportunities for the enlarged Group." Contact: Richard Wood, Chief Executive Tel: 01256 347101David Timmins, Finance Director Tel: 01256 347102 Charles Ryland/Suzanne BrocksBuchanan Communications Limited Tel: 020 7466 5000 CHAIRMAN'S STATEMENT Overview I am very pleased to report, in this second interim results statement coveringthe 12 months to 31 March 2006, that the acquisition of Sygen International plc("Sygen") has been most successful and that the historical businesses of Genushad a record year. Sygen International plc, the porcine and shrimp geneticscompany, was acquired on 2 December 2005 for a consideration, excluding fees, of£189m. This acquisition has positioned Genus as the world's leading animalgenetics company and enables research and development expenditure to be spreadthroughout the Group and across more species. I am also very pleased to reportthat the integration of the acquired businesses is progressing well and that thesynergy savings estimated at the time of acquisition are now expected to beexceeded. The acquisition was financed by a placing of 16.9 million new ordinaryshares at 325p per share, the company receiving net proceeds of £53m, and newbank borrowing facilities of £180m. During the reporting period, in line with our stated strategy, we divested twonon-core businesses in order to release cash and to focus management resource onthe integration of the Sygen businesses. In addition, as already reported, weclosed a small non-core consulting business to enable Development Consulting tobecome a fully stand-alone business. Results For the 12 month period ended 31 March 2006, Group turnover increased by 19.8%to £219.4m (2005: £183.2m). Group turnover for Continuing Operations increasedby £64.0m to £177.9m (2005: £113.9m) after reflecting both the Sygen acquisitionand the disposals in the reported period. Of this increase, £48.5m was fromSygen. Bovine Genetics' turnover increased by 15.9% to £96.9m (2005: £83.6m). Turnoverin the continuing operation of Animal Health, primarily the licensed veterinarypharmaceutical business, increased by 14.7% to £7.8m (£6.8m) and DevelopmentConsulting increased its turnover by 3% to £24.7m (£24.0m). Operating profit from Continuing Operations was £16.9m (before exceptional itemsand goodwill amortisation) and increased by £6.5m (62.5%) over the previous year(2005: £10.4m). Sygen contributed £5.3m. Bovine Genetics delivered a recordoperating profit of £13.1m (before exceptional items and goodwill amortisation),an increase of £2.4m (22.4%) over the previous year (2005: £10.7m). The effective rate of tax on adjusted earnings was 33% (2005: 30%). Thisincrease mainly reflects the expected higher tax rate of the acquired business. Adjusted earnings (note 8), increased by £2.1m (30%) to £9.0m (2005: £6.9m).Adjusted earnings per share increased by 1.8p (9%) to 20.8p (2005: 19.0p). Thisincrease was achieved after the first time adoption of FRS17, which reducedafter tax earnings by £0.6m (2005 restated: £0.4m) equivalent to 1.4p per share(2005 restated: 1.3p per share). Adjusted earnings is also stated after thenon-cash expense for the Long Term Incentive Plan ("LTIP"), which has increasedby £0.7m to £0.8m (2005: £0.1m) to reflect the more favourable outlook of theGroup following the successful Sygen acquisition. Exceptional items totalling £1.7m within operating profit, principally comprised£0.7m relating to the integration and restructuring of Sygen and, as alreadyreported, £0.9m relating to the restructuring of the UK bovine operation and theclosure of non-core consulting operations. As part of our objective to divest non-core businesses, we sold the Group'snon-core veterinary wholesaling business on 28 October 2005 for £7.1m in cash.Prior to disposal, we recorded a goodwill impairment charge of £2.2m in the 6month results to 30 September 2005. The loss recorded on disposal was £1.9m. On22 February 2006, the Group's non-core dental wholesaling business was sold for£1m cash. The profit on disposal of £0.2m was offset by a £0.7m goodwillwrite-off to produce a loss of £0.5m and is also recorded after operatingprofit, giving a total loss on disposal of discontinued business of £2.4m. After a thorough review, the Board has decided to divest the loss-making shrimpbusiness to concentrate resources and investment on the much larger bovine andporcine businesses. In accordance with accounting standards, the net tangibleassets of the shrimp business were valued on acquisition on the basis ofexisting use. However, following the decision to divest, an asset impairmentcharge of £2.3m has been made in the period. The exceptional costs, loss on discontinued operations, asset impairment in theshrimp business and goodwill amortisation, reduced the Group's operating profitfrom Continuing Operations by £10.6m (of which approximately £9.4m was non-cash)from £16.9m to £6.3m (2005: £9.2m). Profit before tax was £1.1m (2005: £8.1m)reflecting the loss on sale of non-core discontinued operations and the higherinterest charge resulting from the acquisition debt financing. Basic loss pershare was 4.3p (2005: profit 16.3p). During the year, a one-off profit of £755,000 was realised, principally from thedisposal of two properties in the Bovine division. Cash & Net Debt A strong second half performance from Bovine Genetics and from Porcine Geneticssince acquisition, increased cash flow from operating activities for the twelvemonths ended 31 March 2006. After adjusting for £5.7m payments made in respectof fair value adjustments, cashflow from operating activities was £12.6m (2005:£9.4m). On 26 October 2005, the Company secured credit facilities from Barclays Banktotalling £180m. These comprised a £110m term loan and a £70m multi-currencyrevolving credit facility. Disposal proceeds of £8.1m from the two non-coredivestments in Animal Health reduced debt. Two residual properties from Animal Health have since been sold after the periodend for £1.5m, realising a profit of £0.8m, which will be recognised in theperiod to 30 June 2006. Prior to the period end, £10m had been repaid to the bank, so reducing the termloan. Net debt reduced from a peak of £130m to £124m by the period end, whichwas better than plan. Dividend In line with previous years and our stated dividend strategy, the Board does notrecommend an interim dividend due to the high cost of distribution to therelatively large number of shareholders. As previously reported, the Company haschanged its accounting reference date to 30 June. The Board currently expects torecommend a final dividend when the results of the fifteen month period to 30June 2006 are known. World Agricultural Markets Market conditions have been stable in the USA for both bovines and porcines.Milk production was up by 5% on last year as cow numbers rose. Beef prices fellas farmers put surplus animals to market early in order to protect againstincreasing feed prices. US pig prices were 15% lower than last year but, with prices still between $40and $50/cwt, most producers remained profitable. Conditions remained favourable in Latin America for milk producers but theextensive outbreak of foot and mouth disease in Brazil has severely curtailedbeef and pig exports so that prices fell sharply. There was some pricing"over-spill" into Argentina. In Europe, farmer concern over the EU price support mechanism, introduced in2005, remains but response has been less acute and markets have returned to morenormal levels. However, the change in price support and the established patternof lower milk prices, prevailing for the last few years, is driving farmers toincrease their operations or opt out of the business. As a result, cow numbersare falling as smaller farmers leave the industry. The larger farmers are, ofcourse, the most important for the future of Genus. Following the announcementof the lifting of the export ban on UK animals, prices for calves are risingsteeply. Many Far Eastern markets have been depressed in the porcine sector, particularlythe large Chinese market. The world market for shrimps has continued to be depressed, despite theimbalance in supply and demand, because of the various outbreaks of disease lastyear. Progress with the integration of Sygen Following completion of the acquisition on 2 December 2005, the Sygen Board leftthe business. We undertook an extensive communication exercise with all staffand established a new, integrated, geographical business structure. We havesince undertaken a careful review of all business sectors. No materialinformation about the business was discovered that had not been identifiedduring the comprehensive due diligence process. As a result of the reviews, we are concentrating on four main areas:- 1. Research & Development • Reset priorities using commercial targeting. • Overlapping infrastructures being combined to create a fundamental research facility of excellence in Wisconsin whilst reducing cost. 2. Synergy Cost Savings • Begun to merge back offices in the USA with other regions to follow. • Announced the closure of the Sygen operations in Kentucky and the move of sales and sales support staff for porcines to offices close to Nashville, Tennessee. • Closed the Sygen offices in Oxford, transferring most of the UK operating staff to the Genus offices in Nantwich, Cheshire. Continuing head office staff have been transferred to the Genus head office in Basingstoke. 3. Investment in Core Business • Investing £1m in a nucleus porcine herd and operations in Russia. 4. SyAqua Strategy • Announced the divestment of the SyAqua shrimp business. • Secured intellectual property and potentially saleable parent lines. Bovine Genetics - 44% of Group Turnover In stable market conditions the increases to the sales force in the USA, Canadaand Europe, both this year and last year, drove up sales volume by 11% to 10.5million doses. The new high ranking bulls added to the stud from theincreasingly successful R&D programme helped increased average prices, rising by12% in the beef sector and by 10% in dairy. Operating margins increased to 13.5%from 12.8% in the prior year as a result of higher average selling prices andefficiency improvements, which more than offset the impact of sales growthoccurring in lower priced markets. Operating profit before exceptional items andgoodwill amortisation of £13.1m was up 22.4% (2005: £10.7m). We have made further progress in developing our retail business in Australia byadding four more small acquisitions to the one completed in 2004/5. As a result,we increased our market share from 33% to 45% and placed the business in a goodposition to take advantage of the new selling season which is just beginning. Notable amongst a number of successes in Europe has been the growth of sales andprofits in Italy. Last year the business introduced the contract "ReproductiveManagement Service" successfully pioneered with large farmers in the USA,whereby customers sign-up for a contract mating service for their cows. Computerbased mating programmes are used and the service binds the customer to use Genusbulls and insemination services in order to achieve measurable improvements infertility for the herd. In its first year of operation in Italy, more than10,000 cows have been contracted for the service and this has increased sales by18% to £3.9m. (2005: £3.3m). In Latin America, operating profit was flat because of foot and mouth disease inBrazil but the Mexican business remained strong and the new Argentinianoperation made a small profit in its first year. Porcine Genetics - 21% of Group Turnover (4 Months Only) In the four months since Genus acquired this business it has performed ahead ofboth budget and the same period last year. The main drivers have been higherroyalty income in the USA and reduced operating costs in all regions. These havemore than offset a softening of pig meat prices in the USA and very low pricesin the Far East. Operating profit before exceptional items and goodwillamortisation for the period since acquisition was £7.3m. The European business has also benefited strongly from lower operating costs andhas been profitable throughout the period. We are considering furtherreorganisation aimed at improving profitability commencing with the Spanishoperations. We will be making these changes in the new financial year. Withsales at a similar level to the USA, Europe had been loss-making for severalyears because of the fragmented nature of the market. In the growing Latin American market, an outbreak of foot and mouth disease hastemporarily reduced the contribution from the joint venture in Brazil but theMexican and Chilean businesses remained strong. Far Eastern markets have been depressed all year, suffering from diseaseoutbreaks, over-supply and resultant low pig meat prices. However, thebusinesses remained profitable. Both the subsidiary and joint venture in Chinasuffered reversals. Although profitable overall, they were substantially down onlast year. Nevertheless, the Far East is the area with the highest growthpotential in the long-term because of population density, the increasing levelof protein consumption and the massive number of pigs farmed. However, most ofthe farms are small and inefficient and it will take time before the industryconsolidates into the large units similar to those which are the principalcustomers for porcines in the USA and Europe. The other area of high growth potential is Eastern Europe. In this market newmoney is being diverted into large intensive pig units and we believe thatopportunities exist to grow with that change by investing selectively incountries as new farms are established. In this regard, we have recentlysanctioned an investment of £1m to set up a nucleus farm in Russia adjacent to anewly established farm customer. The investment will protect our intellectualproperty and reduce transport costs from alternative supply sources in Polandand the Czech Republic. Shrimp Genetics - 1% of Group Turnover (4 Months Only) Despite moving quickly to reduce costs, the shrimp business has accrued lossesin its first four months of Genus ownership before coming into the main sellingseason. However, we believe it is unlikely that profits from the selling seasonwill be sufficient to offset losses in the full year to June 2006. The operatingloss before exceptional items and goodwill amortisation for the period sinceacquisition was £0.7m. Having reviewed the prospects for the business carefully, we have decided thatour efforts and investments are better directed at achieving the growth andsynergies available in the larger bovine and porcine businesses. The shrimpmarket is volatile and customers are not yet prepared to pay for the added-valuepotential from expensive research, all of which is of a long-term nature in anyevent. Accordingly, we have decided that the business should be divested at theearliest opportunity. Indeed, we have already secured agreement, in principle,to sell the Brazilian shrimp business to an MBO team. We are actively exploringoffers for the other shrimp businesses. Research & Development On an historical basis, Genus & Sygen together have spent £16.4m per year on R&D. The majority of expenditure, in both cases, has been on the development ofelite animals by traditional selection processes. This has produced a successfuland competitive product range in both bovines and porcines. In this regard, Boar 380 is making strong in-roads into world markets and willmaintain porcine's competitive edge over the next few years. For Europe and theFar East, it will be important that new lines are selected from the extensiveporcine nucleus programmes for development to meet the niches in the Europeanamalgamation of these very varying product markets. The increasing success of the bull selection programme has been reported overthe last two years, following changes to the process made in 2000/1. Thesechanges have resulted in a significant strengthening of the stud this year. (Ittakes 5 years to develop and test a new bull.) In particular, we are pleased toannounce that a new bull, called Bolton, entered the US ranking as number one.Bolton is very highly rated in terms of the production and lifespan potential ofhis daughters and is likely to sell well at high prices worldwide. The newly amalgamated R&D programme will continue to invest most of itsexpenditure on traditional selection programmes. In the fundamental research which augments this selection process, Sygenconcentrated most expenditure on genomics whilst Genus spread its investmentacross a number of projects, including sexed semen, health, fertility and, mostimportantly, semen physiology. The new combined programme will maintain the same target list but the proportionof expenditure will be more evenly split and overlap reduced so that costproductivity will be improved and all projects will target both porcine andbovine sectors. We are in the process of creating a new centre of excellence for this researchin the extensive Genus laboratories in Wisconsin, USA. Animal Health - 23% of Group Turnover This division had a most successful year achieving an operating profit fromcontinuing operations, before goodwill amortisation, of £1.9m, some 35% higherthan last year, despite having divested the low margin veterinary wholesalingbusiness for £7.1m in cash on 28 October 2005. The property assets not sold withthe business are now being divested. All but one have recently been sold and the£1.5m proceeds and £0.8m book profit will be recorded in our 15 month results to30 June 2006. The residual licensed pharmaceutical business increased its year on year salesby 6% to £7.0m and its operating profit of £1.9m was 12% higher than last year(2005: £1.7m). Both sales and profit growth have arisen from the successfullaunch of a number of small new products together with a stalwart defence ofestablished products against aggressive competition. Development Consulting - 11% of Group Turnover The business had a good year, generating an operating profit of £1.1m, 38%higher than last year (2005: £0.8m), despite the disruption arising from thenearby Buncefield Oil Depot explosion on 11 December 2005. The team proved its expertise in project management for which it earns itsoverseas consultancy contracts, by operating a virtual office for a few weeksand then by relocating to new temporary offices, while, at the same time,winning both new contracts and contract extensions. As announced in November, we closed all non-core consultancy offices during thefirst half year. As a result, the Development Consulting business is now fullystand-alone and can be divested at the appropriate time. Employees I am pleased to have the opportunity of welcoming all the Sygen staff as newmembers of the Genus team and am looking forward to working with them to achievean even more substantial future for the enhanced Group. During the process of the acquisition, existing Genus staff performed well,achieving record results. I would like to thank them for their efforts duringthis period of great change and much opportunity for the Company. Outlook We are confident that the enlarged group will meet market expectations in theperiod to June 2006. For the year ahead, our new bulls, continued strength of the porcine lines andthe savings made in operating expenses, should support strong profit growth,despite softening markets limiting volume growth. We believe the new emphasis on research targeting will hasten and broaden thechance of a commercial breakthrough. The areas of likely savings anticipatedfrom the integration of Sygen have been confirmed and implementation is ahead ofboth plan both in time and quantum. As a result, the group will be materiallystronger and more competitive than either business could have been alone. Summarised Group Profit and Loss AccountYear ended 31 March 2006 Continuing Operations Discontinued Unaudited Audited Before Exceptional Operations Year Year exceptional items and (note 4) ended ended items and goodwill 31/3/06 31/3/05 goodwill amortisation Restated amortisation for FRS 17 (note 11) £000 £000 £000 £000 £000 TurnoverContinuing operations 129,346 - - 129,346 113,904Acquisitions (note 12) 52,727 52,727 - ---------- ---------- -------- --------- --------- 182,073 - - 182,073 113,904Discontinued operations(note 4) - - 41,477 41,477 69,345 ---------- ---------- -------- --------- ---------Group and share of joint ventures 182,073 - 41,477 223,550 183,249Less share of joint ventures (4,197) - - (4,197) - ---------- ---------- -------- --------- ---------Group Turnover 177,876 - 41,477 219,353 183,249 ---------- ---------- -------- --------- --------- ---------- ---------- -------- --------- ---------Adjusted operatingprofit (note 11) 16,944 - (32) 16,912 10,931 Amortisation of goodwill - (4,189) (166) (4,355) (1,747)Exceptional impairment of goodwill - - (2,239) (2,239) -Exceptional impairment of net assets (note 3) - (2,342) - (2,342) -Other exceptional items (note 3) - (1,663) - (1,663) - ---------- ---------- -------- --------- ---------Operating profit(note 2) 16,944 (8,194) (2,437) 6,313 9,184 Of which; - Continuing operations 11,616 (2,491) - 9,125 8,850 - Acquisitions 5,328 (5,703) - (375) - ---------- ---------- -------- --------- --------- 16,944 (8,194) - 8,750 8,850 - Discontinued operations (note 4) - - (2,437) (2,437) 334 ---------- ---------- -------- --------- ---------Group operatingprofit 16,944 (8,194) (2,437) 6,313 9,184Share of operatingprofit of joint ventures 350 - - 350 -Total operating profit: 17,294 (8,194) (2,437) 6,663 9,184Group and share of joint venturesLoss on sale ofdiscontinued operations(note 4) (2,427) -Profit on disposal offixed assets 755 298Net interest payable andsimilar charges (note 5) (3,924) (1,386) --------- ---------Profit on ordinaryactivities beforetaxation 1,067 8,096 Tax on profit on ordinary activities(note 6) (2,936) (2,193) --------- ---------(Loss) / profit onordinary activitiesafter taxation (1,869) 5,903Dividend (note 7) (23) (2,788) --------- ---------Retained (loss) / profit for the financial period (1,892) 3,115 ========= ========= (Loss)/earnings per share - adjusted basic (note 8) 20.8p 19.0p - adjusted diluted (note 8) 20.4p 18.7p - basic (note 8) (4.3)p 16.3p - diluted (note 8) (4.3)p 16.1pDividend per share - 7.5p SUMMARISED GROUP BALANCE SHEETAt 31 March 2006 Unaudited at Audited 31 March at 31 March 2006 2005 Restated for FRS 17 (note 11) £000 £000Fixed assetsIntangible assets 177,958 26,062Tangible assets 39,324 16,697Investments: - Joint ventures 3,772 - - Other 1,195 269 --------- -------- 222,249 43,028 --------- --------Current assetsStocks 21,487 17,396Debtors 53,448 36,846Cash at bank and in hand 19,692 7,559 --------- -------- 94,627 61,801Creditors: Amounts falling due within oneyear (63,660) (48,479) --------- --------Net current assets 30,967 13,322 --------- --------Total assets less current liabilities 253,216 56,350 Creditors: Amounts falling due after morethan one year (128,032) (282)Provisions for liabilities and charges (7,734) (923) --------- --------Net assets excluding pension liabilities 117,450 55,145 Pension liabilities (16,019) (6,643) --------- --------Net assets 101,431 48,502 --------- --------Capital and reservesCalled up share capital 5,522 3,726Share premium account 92,136 39,899Treasury shares (186) (128)Profit and loss account 3,959 5,005 --------- --------Equity shareholders' funds (note 10) 101,431 48,502 --------- -------- SUMMARISED GROUP CASH FLOW STATEMENTYear ended 31 March 2006 Unaudited Audited Year Year ended ended 31/3/06 31/3/05 £000 £000Net cash inflow from operating activities (note 9) 6,897 9,403Returns on investments and servicing of finance (3,658) (1,119)Taxation (3,139) (2,823)Capital expenditure and financial investments 1,726 (4,096)Acquisitions (196,034) (2,225)Disposals 6,152 -Equity dividends paid (2,859) (2,298) ------------ -----------Net cash outflow before management of liquidresources and financing (190,915) (3,158) Issue of ordinary share capital 56,832 2,938Capital element of finance lease payments (494) (949)Increase / (decrease) in borrowings 132,530 (2,595) ------------ -----------Net cash inflow / (outflow) from financing 188,868 (606) ------------ -----------Decrease in cash in the period (2,047) (3,764) ============ =========== RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET DEBT Unaudited Audited Year Year ended ended 31/3/06 31/3/05 £000 £000 Decrease in cash in the period (2,047) (3,764)Repayment of loan notes - 1,637New long term loans (133,890) (437)Repayment of bank loans 1,360 1,395New finance leases (71) (154)Cash balances acquired with subsidiaries 17,380 -Repayment of capital element of finance lease contracts 565 1,103 ------------ -----------Change in net debt resulting from cash flows (116,703) (220)Exchange differences and other non-cash movements 99 210 ------------ -----------Movement in net debt in the period (116,604) (10)Net debt at 1 April (7,468) (7,458) ------------ -----------Net debt at 31 March (124,072) (7,468) ------------ ----------- STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES Unaudited Audited Year Year ended 31/3/06 ended 31/3/05 Restated for FRS 17 £000 £000 (Loss)/Profit for the period (1,892) 5,903Exchange adjustments 3,161 (176)FRS 17 actuarial loss, net of deferred tax (3,094) (982) -------- -------- --------Total recognised gains and losses relating to theperiod (1,825) 4,745Prior year adjustment - Impact of FRS17 adoption(note 11) (6,643) - -------- --------Total recognised gains and losses since last annualreport (8,468) 4,745 ======== ======== Notes to the interim results 1 Basis of preparation The interim results, which are unaudited, have been prepared on the basis of theaccounting policies set out in the Group's statutory accounts for the year ended31 March 2005, except for the first time adoption of Financial ReportingStandard (FRS) 17, "Accounting for Retirement Benefits" which the companyadopted on 1 April 2005. The adoption of FRS 17 gives rise to a prior periodadjustment, details of which are given in note 11. The interim results are unaudited and do not constitute statutory accounts asdefined in section 240 of the Companies Act 1985. The financial informationrelating to the year ended 31 March 2005 is derived from the statutory accountswhich have been delivered to the Registrar of Companies. The report of theauditors on those accounts was unqualified and did not contain a statement undersection 237 (2) or 237 (3) of the Companies Act 1985. The interim results were approved by the Board of Directors on 7 June 2006. 2 Segmental analysis Turnover Operating profit before goodwill amortisation and exceptional items Unaudited Audited Unaudited Audited Year Year Year Year ended ended ended ended 31/3/06 31/3/05 31/3/06 31/3/05 Restated Restated for FRS 17 for FRS 17 (note 11) (note 11) £000 £000 £000 £000Area of activity Group and share ofjoint ventures: Bovine Genetics 96,934 83,575 13,095 10,719 PorcineGenetics 50,730 - 7,340 - DevelopmentConsulting 24,658 23,954 1,088 792 Animal Health 7,840 6,850 1,937 1,354 Unallocatedcosts - - (5,845) (2,506) Less: Share ofjoint ventures(PorcineGenetics) (4,197) - - - --------- --------- --------- ---------Continuingoperationsbefore ShrimpGenetics 175,965 114,379 17,615 10,359 Shrimp Genetics 1,997 - (671) - --------- --------- --------- ---------Continuingoperations 177,962 114,379 16,944 10,359 Inter-segmental sales (86) (475) - - Discontinuedoperations 41,477 69,345 (32) 572 --------- --------- --------- ---------Total 219,353 183,249 16,912 10,931 --------- --------- --------- --------- 2 Turnover and segmental analysis continued Operating Profit Unaudited Audited Year Year ended ended 31/3/06 31/3/05 Restated for FRS 17 (note 11) £000 £000Area of activityGroup and share of joint ventures:Bovine Genetics 11,073 9,727Porcine Genetics 4,362 -Development Consulting 1,056 761Animal Health 1,500 868Unallocated Costs (5,845) (2,506)Less: Share of joint ventures (Porcine Genetics) (350) - --------- ----------Continuing operations before Shrimp Genetics 11,796 8,850 Shrimp Genetics (3,046) - --------- ----------Continuing operations 8,750 8,850 Discontinued (2,437) 334 --------- ----------Total 6,313 9,184 --------- ---------- Turnover Operating Profit Unaudited Audited Unaudited Audited Year Year Year Year ended ended Ended ended 31/3/06 31/3/05 31/3/06 31/3/05 Restated Restated for FRS 17 for FRS 17 (note 11) (note 11)Geographical region of origin £000 £000 £000 £000Group and share of joint ventures: United Kingdom 72,430 68,675 5,912 6,640 Europe 20,823 5,063 1,663 1,632 North America 63,104 32,373 5,492 332 Rest of the world 25,802 8,266 1,878 2,752 Unallocated costs - 2 (5,845) (2,506) Less: Share of joint ventures(Porcine Genetics) (4,197) - (350) - --------- --------- --------- ---------Continuing operations 177,962 114,379 8,750 8,850 Inter-segmental sales (86) (475) - - Discontinued 41,477 69,345 (2,437) 334 --------- --------- --------- ---------Total 219,353 183,249 6,313 9,184 --------- --------- --------- --------- Porcine Genetics. United Kingdom includes £2.2m of turnover and £(0.4)m ofoperating profit, the Europe region includes £15.4m of turnover and £0.1m ofoperating profit, the North America region includes £21.7m of turnover and £2.9mof operating profit, the Rest of the world region includes £11.4m of turnoverand £1.8m of operating profit, all relating to the acquisition of SygenInternational plc during the period (see note 12). Shrimp Genetics. The Rest of the World region includes £2.0m of turnover and £(3.0)m of operating loss, relating to Shrimp Genetics acquired with theacquisition of Sygen International plc during the period (see note 12). 2 Turnover and segmental analysis continued Discontinued turnover and operating profit derives from the veterinary productand dental wholesale distribution businesses (formerly part of the Animal Healthdivision) and originating in the United Kingdom. Turnover Unaudited Audited Year Year ended ended 31/3/06 31/3/05 Restated for FRS 17 (note 11) £000 £000Geographical region of destination United Kingdom 46,576 43,552 Europe 37,332 19,652 North America 52,481 24,522 Rest of the world 41,487 26,178 --------- ---------Continuing operations 177,876 113,904 Discontinued 41,477 69,345 --------- ---------Total 219,353 183,249 --------- --------- Discontinued turnover was made to customers in the United Kingdom. Unaudited Audited Year Year ended ended 31/3/06 31/3/05 Restated for FRS 17 (note 11) £000 £000Analysis of continuing operationsTurnover 177,876 113,904 -------- -------- Operating profit: Group and share of joint ventures 17,294 8,850 Net interest payable and similar charges (3,924) (1,386) -------- --------Profit before taxation on continuing operations beforeexceptional items and goodwill amortisation 13,370 7,464 -------- -------- 3 Other exceptional items Other exceptional items of £1,663,000 in the year to March 2006 comprise£704,000 relating to the integration and restructuring of the Porcine Geneticsbusiness, £456,000 relating to costs associated with the closure of theStrategic Consulting business, £470,000 relating to the restructuring of theGroup's UK Bovine operation and £33,000 relating to integration of ShrimpGenetics. Following the decision to divest the SyAqua Shrimp Genetics business, anexceptional impairment of net assets charge of £2,342,000 has been recognised inoperating profit in the period, to write down the carrying value of the netassets of this business segment to its estimated recoverable amount, excludingany future operating losses and costs of disposal. 4 Discontinued Operations On 28 October 2005 the Group completed the divestment of its non-core veterinaryproduct wholesale business for a total of £7.1 million in cash. For the yearended 31 March 2005 the business employed 125 staff and generated turnover of£66 million and an operating profit of £0.4 million before allocation of centralcosts, on net assets of £6 million. On 22 February 2006 the Group completed the divestment of its non-core dentalproduct wholesale business for a total of £1m in cash. For the year ended 31March 2005 the business employed 16 staff and generated turnover ofapproximately £3.0m and an operating profit of £0.1m before allocation ofcentral costs, on net assets of £0.8m. 5 Net interest payable and similar charges Unaudited Audited Year Year ended ended 31/3/06 31/3/05 £000 £000 Interest payable on bank loans and overdrafts 3,760 1,036Interest payable on loan notes - 39Finance charges payable under finance lease and hirepurchase contracts 12 43Amortisation of debt issue costs 181 72Net interest cost in respect of pension schemes 141 183Other similar charges 19 13 --------- ---------Total interest and similar charges payable 4,113 1,386 Bank interest receivable (181) -Other interest receivable (8) - --------- ---------Total interest receivable (189) - --------- ---------Net interest payable 3,924 1,386 --------- --------- 6 Taxation The taxation charge for the period is based on the estimated effective tax ratefor the full year of 32.9% (2005: 30%). The total tax charge for the period hasbeen reduced by a credit of £690,000 in respect of prior years, and a credit of£531,000 in respect of exceptional items. 7 Dividends The dividend charged in the period ended 31 March 2006 of £23,000 represents thefinal dividend for the year ended 31 March 2005 on new shares issued subsequentto the year end. 8 Earnings per share The basic earnings per share is based on a loss after tax for the period of£1,869,000 (31/3/2005: profit: £5,903,000) and the weighted average number ofordinary shares in issue of 43,034,326 (31/3/2005: 36,208,931). The adjusted earnings per share of 20.8p (31/3/2005: 19.0p) is based on adjustedearnings as set out below and the weighted average number of ordinary shares inissue. Unaudited Audited Year Year ended ended 31/3/06 31/3/05 Restated for FRS 17 £000 £000 Profit before tax 1,067 8,096 Add: Impairment of goodwill 2,239 - Impairment of SyAqua assets 2,342 - Operating exceptional items 1,663 - Goodwill amortisation 4,355 1,747 Loss on sale of discontinued operations 2,427 - (Profit)/loss on disposal of properties (755) (298) Less: taxation (2,936) (2,193) --------- -------- 10,402 7,352 Less: Associated taxation on adjustments (747) (179) Tax credits relating to prior years (690) (300) --------- --------Adjusted earnings 8,965 6,873 --------- -------- The diluted earnings per share is based on a loss for the period of £1,869,000(31/3/2005: profit: £5,903,000) and on 44,025,615 (31/3/2005: 36,755,735)diluted weighted average ordinary shares, calculated as follows: Unaudited Audited Year Year ended ended 31/3/06 31/3/05 000's 000's Basic weighted average number of shares 43,034 36,209Dilutive potential ordinary shares:Employee share options 992 547 ---------- ---------- 44,026 36,756 ---------- ---------- 9 Reconciliation of operating profit to net cash flow from operating activities Unaudited Audited Year Year ended ended 31/3/06 31/3/05 Restated for FRS 17 £000 £000 Operating profit 6,313 9,184Long term incentive plan expense 779 102Depreciation 4,544 3,549Amortisation of milk quota 7 8Amortisation of goodwill 4,355 1,747Exceptional impairment of goodwill 2,239 -Exceptional impairment of net assets 2,342 -Difference between pension charge and cash (880) -contributionsIncrease in stocks (1,671) (1,262)Decrease/(increase) in debtors 5,042 (3,520)(Decrease) in creditors (16,173) (405) ------------- -----------Net cash inflow from operating activities 6,897 9,403 ------------- ----------- 10 Reconciliation of Group shareholders' funds Unaudited Audited Year Year ended ended 31/3/06 31/3/05 Restated for FRS 17 £000 £000(Loss)/profit for the period (1,869) 5,903Dividends (23) (2,788) --------- ---------- (1,892) 3,115 Other recognised gains and losses relating to the period(net) 67 (1,158)Movements in share capital 53,975 2,9382004 Performance share plan 779 102 --------- ----------Net additions to shareholders' funds 52,929 4,997 Opening shareholders' funds (originally £55,145,000before 48,502 43,505deducting prior year adjustment of £6,643,000) --------- ----------Closing shareholders' funds 101,431 48,502 --------- ---------- 11 Adoption of Financial Reporting Standard (FRS) 17, "Accounting for RetirementBenefits". The Company has made a prior period adjustment as a result of its adoption inthe period of Financial Reporting Standard (FRS) 17, "Accounting for RetirementBenefits". The adjustment to opening profit and loss account reserves amounts to £5,200,000at 31 March 2004, representing the FRS 17 net pension liability at that date. Inaccordance with the transitional arrangements of FRS 17, full disclosure of thescheme deficit, the assumptions used in the valuation of the scheme and theimpact its full adoption would have on the Group's profit and loss account,balance sheet and statement of total recognised gains and losses has been madein the Company's report and accounts for the year ended 31 March 2005. For information purposes additional information on the impact on certain profitand loss account items of adopting FRS 17 has been given below. Unaudited Audited Year Year ended ended 31/3/06 31/3/05 £000 £000Adjusted operating profitBefore FRS 17 17,684 11,389Impact of FRS 17 (740) (458) ----------- -----------As reported / restated 16,944 10,931 ----------- ----------- Interest chargeBefore FRS 17 (3,972) (1,203)Impact of FRS 17 (141) (183) ----------- -----------As reported / restated (4,113) (1,386) ----------- ----------- Adjusted EPSBefore FRS 17 22.2p 20.3pImpact of FRS 17 (1.4)p (1.3p) ----------- -----------As reported / restated 20.8p 19.0p ----------- ----------- 12 Acquisitions On 2 December 2005 the company purchased 100% of the issued share capital ofSygen International plc for a total cash consideration of £192.4m. The totalprovisional adjustments required to the book values of the assets andliabilities of Sygen International plc in order to present the net assets atfair values in accordance with group accounting principles were £18.3m, detailsof which are set out below, together with the resultant amount of goodwillarising. The purchase has been accounted for as an acquisition. From the date of acquisition to 31 March 2006 Sygen International plccontributed £48.5m to turnover, £5.7m to profit before interest and goodwillamortisation, and £5.8m to profit before goodwill amortisation, but afterinterest. Sygen International contributed £1m to the group's net operating cashflows, paid £0.3m in respect of interest and £0.4m in respect of taxation. 12 Acquisitions continued In the last financial year to June 2005, Sygen International plc made a profitafter tax and minority interests of £3.2m. The summarised profit and lossaccount for the period from 1 July 2005 to 2 December 2005 shown on the basis ofthe accounting policies of Sygen International plc prior to the acquisition areas follows: £000Turnover 60,855Operating Profit before exceptional items 3,688Exceptional items (8,124) -------Operating loss (4,436) -------Loss before taxation (4,265)Taxation (1,300) -------Loss attributable to shareholders (5,711)Exchange adjustments 4,178 -------Total recognised losses for the period (1,533) ------- Exceptional items include £6.2m in respect of advisors fees incurred by Sygen onsale of their business to Genus and £1.2m in respect of fees relating to anaborted acquisition. Fair value table Sygen International Book Revaluations Accounting Other Provisionalplc acquisition value policy fair value alignment £000 £000 £000 £000 £000 Fixed assetsIntangiblefixed assets 9,474 (9,474) -Tangible fixedassets 28,346 (157) 28,189Investments injoint ventures 4,662 4,662Current assetsStock 7,835 (857) (16) 6,962Debtors 18,201 133 18,334Cash 17,380 17,380 -------- --------- --------- ------ ----------Total assets 85,898 (10,488) - 117 75,527 -------- --------- --------- ------ ----------CreditorsCreditors (16,871) (689) (7,288) (24,848)Provisions - Surplus property (2,826) (246) (3,072)- Postretirementbenefitliabilities (5,174) (3,921) (9,095)- Sale of businesses (2,007) (2,007) Restructuring (690) (690) Taxation - Current/prepaid (2,615) 420 (2,195)- Deferred (2,031) 3,842 1,811Loans (473) (473) Total creditors (32,687) (246) (4,610) (3,026) (40,569) -------- --------- --------- ------ ----------Net assets 53,211 (10,734) (4,610) (2,909) 34,958 Goodwill 157,441 ---------- 192,399 ---------- ----------Considerationsatisfied by: 192,399Cash (including acquisition cost of£3,566,000) ---------- 12 Acquisitions continued The book value of the assets and liabilities have been taken from the managementaccounts of Sygen International plc at 2 December 2005 (the date of acquisition)at actual exchange rates on that date. The fair value adjustments areprovisional and will be finalised in the 2007 financial statements when thedetailed acquisition investigation has been completed. INDEPENDENT REVIEW REPORT TO GENUS plc Introduction We have been instructed by the company to review the financial information forthe twelve months ended 31 March 2006 which comprises the Summarised GroupProfit and Loss Account, Group Statement of Total Recognised Gains and Losses,Summarised Group Balance Sheet, Summarised Group Cash Flow Statement,Reconciliation of Net Cash Flow to Movement in Net Debt and the related notes 1to 12. 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 having regard to guidance contained inBulletin 1999/4 issued by the Auditing Practices Board. Our work has beenundertaken so that we might state to the company those matters we are requiredto state to them in an independent review report and for no other purpose. Tothe fullest extent permitted by the law, we do not accept or assumeresponsibility to anyone other than the company, for our work, for this report,or for the conclusions we have formed. 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. 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 financialdata, and based thereon, assessing whether the accounting policies andpresentation have been consistently applied, unless otherwise disclosed. Areview excludes audit procedures such as tests of controls and verification ofassets, liabilities and transactions. It is substantially less in scope than anaudit performed in accordance with United Kingdom Auditing Standards andtherefore provides a lower level of assurance than an audit. Accordingly we donot 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 year ended 31March 2006. Deloitte & Touche LLP London 7 June 2006 Financial Calendar Financial period end 30 June 2006 Announcement of preliminary results September 2006 Annual General Meeting November 2006 Full and final dividend payment November 2006 This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Genus