18th Sep 2007 07:02
Genus PLC18 September 2007 For immediate release 18 September 2007 Genus plc Preliminary Results for the twelve months ended 30 June 2007 Genus plc ("Genus"), a world leading animal genetics company, announces itspreliminary results for the year to 30 June 2007. These results are reportedunder International Financial Reporting Standards ('IFRS'). Un-audited Pro-forma(*) 2007 2006 2006 (12 mths) (12 mths) (12 mths) Actual Constant Actual Rates Rates Rates £m £m % £mTotal Operations Profit for the period 14.6 5.9 +147 7.7Basic EPS 26.6p 10.8p +146 14.1p Continuing Operations Revenue 233.8 225.2 +4 236.7Adjusted Operating Profit 28.7 21.6 +33 23.6Operating Profit 28.4 21.7 +31 24.1Basic EPS 23.1p 20.9p +11 24.1pBasic adjusted EPS 22.6p 16.0p +41 18.4p Audited Statutory Results 2007 2006 (12 mths) (15 mths) £m £m %Total Operations Profit for the period 14.6 7.8 +87Basic EPS 26.6p 17.2p +55 Continuing Operations Revenue 233.8 201.2 +16Adjusted Operating Profit 28.7 19.8 +45Operating Profit 28.4 20.1 +41Basic EPS 23.1p 24.5p -6Basic adjusted EPS 22.6p 19.7p +15 (*) Results for the 15 months to 30 June 2006 included Sygen International plc("Sygen") from 1 December 2005. Un-audited pro-forma 12 month comparatives to 30June 2006 have been prepared on a constant currency basis as if the Sygenacquisition and related financing had taken place at 1 July 2005. Areconciliation from actual reported results to pro-forma results, together withdetails of the underlying assumptions, is set out in the Appendix. Highlights from Continuing Operations (comparisons based on un-audited pro-forma results*) Group • Revenue increased by 4% to £234m (2006: £225m) • Bovine volume up 7% to 11.3m doses. Reduced porcine revenue compensated by a margin increase of 2% to 37% of sales following accelerated adoption of new business model • Adjusted operating profit# increased by 33% to £28.7m • Basic adjusted earnings per share increased by 41% to 22.6p • Net debt reduced by a further £9m to £111m • Disposal strategy progressed with disposal of SyAqua Thailand • Board recommending dividend increase of 10% to 9.1p per share The Americas • Revenue increased by 4% to £119m (2006: £114m) • Bovine volume up 11% to 7.6m doses and porcine margin improved from 47% to 50% of sales • Bovine market share increased • Adjusted operating profit rose by 22% to £20.8m (2006: £17.1m) • £1.7m of foreign exchange translation losses absorbed Europe & Asia • Revenue increased by 3% to £122m, (2006: £118m) • Bovine volume 3.7m doses (Australia drought -15%). Porcine margin improved from 21% to 23% of sales • Adjusted operating profit rose by 24% to £14.3m (2006: £11.5m) • £0.3m of foreign exchange translation losses absorbed Commenting on these results Genus' Chief Executive, Richard Wood, said: "While driving business growth and generating further synergy benefits fromintegrating the porcine business, we have continued to deliver strong underlyingfinancial results and excellent EPS growth. With an improving global agricultural climate and a more robust and diversebusiness, the Board is confident that Genus will continue to deliver strongoperational progress and solid long term growth." # Operating profit before fair value movements on biological assets,amortisation of intangible assets, share based payments and exceptional items. For further information please contact: Genus plc Tel. 01256 345970Richard Wood, Chief ExecutiveMartin Boden, Finance Director Buchanan Communications Tel. 020 7466 5000Charles RylandSuzanne BrocksChristian Goodbody Landsbanki Securities (UK) Ltd Tel: 020 7003 3000Shaun DobsonFred Ward Panmure Gordon Tel: 020 7459 3600Mark LanderDominic Morley This announcement is available on the Genus website, www.genusplc.com Notes to Editors: Pro-forma information Because of the complexity of these results, un-audited pro-forma results for the12 months to June 2006 have also been provided. Statutory results for the 12months to 30 June 2007 are compared with the 15 month period to 30 June 2006,because of the change in the Group's year end. Part way through the comparativeperiod, the acquisition of Sygen was made. There was also a significant currencymovement arising on translation of the results of overseas entities. The un-audited pro-forma comparatives have been prepared on both actual and aconstant currency basis, as if the Sygen acquisition and related financing hadtaken place at 1 July 2005. The Financial Review included in the preliminaryresults, sets out the reported audited statutory IFRS results. Details of theassumptions underlying the pro-forma results, and a reconciliation of pro-formato actual results are set out in the notes and in the appendix to the accounts. 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 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. Customersproduce offspring with greater production efficiency, milk and meat output andquality and use these to supply the 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 five continents, with research laboratories located in Madison, USA. CHAIRMAN'S STATEMENT Genus has made excellent progress this year. Trading was strong in all sectorsand territories, with the exception of Australia that had a major drought. The acquired PIC business has now been successfully integrated, with synergiescontributing to the strong financial results achieved. Strong EPS growth has been achieved even after foreign exchange losses. Group Performance The results for the financial year to 30 June 2007 compare with a fifteen monthextended period to 30 June 2006 as a result of the Group's change in thefinancial year end. Statutory Results For the Group as a whole, profit and basic earnings per share for the periodwere £14.6m (2006 15 months: £7.8m) and 26.6p (2006 15 months: 17.2p)respectively. Operating profit was £28.4m (2006 15 months: £20.1m). Revenue for the period increased by 16% to £234m (15 months to 30 June 2006:£201m). Adjusted operating profit for the period of £28.7m was 45% ahead of theresult for the 15 months to 30 June 2006 (£19.8m). Whilst these figures show strong improvements, the implication of Genus' changein year end last year to June, acquisition of Sygen International plc ("Sygen")part way through last year and losses on translation of overseas earnings maskthe truly impressive strength of the underlying performance. In order todemonstrate this underlying performance, we have shown the remaining comparisonsin this statement, and in the business review which follows by reference toun-audited pro-forma results for the year to June 2006. These pro-formacomparatives are reconciled to actual reported results in the appendix to thisannouncement, including details of the assumptions. The financial reviewdiscusses the results on a statutory basis. Un-audited Pro-forma Results At constant exchange rates, revenue for the period was 4% higher, despite therevenue reduction implicit in the strategy for reducing the impact of marketvolatility on porcine profits. Adjusted operating profit was 33% higher atconstant exchange rates, with the increase being 22% at reported exchange rates.Adjusted earnings per share show equally strong growth, up 41% on a constantcurrency basis. Dividend To reflect the Board's continuing confidence in its long-term strategy forgrowth, it is again recommending a 10% increase in the dividend to 9.1 pence perordinary share. Subject to shareholder approval at Genus' AGM to be held on 15November 2007, this dividend will be paid on 4 January 2008 to shareholders onthe register at the close of business on 7 December 2007. Employees Genus' continued success is a result of our talented employees across the Group.I would like to pay tribute to all Genus employees for their efforts, enthusiasmand dedication during a period of considerable change. Board Professor Barry Furr joined the Board as a non-executive director in December2006. Professor Furr, aged 63 years, was previously Chief Scientist and Head ofProject Evaluation for AstraZeneca plc. He was awarded an OBE in 2000 for hisservices to cancer drug discovery and was the inventor of Zolodex and Casodex,world-leading anti-cancer drugs. Martin Boden joined the Board on 2 April 2007 as Group Finance Director. Martinjoined Genus from GUS plc, a FTSE 100 retail and business services group, wherehe was Group Financial Controller. He succeeds David Timmins whom the Boardwould like to thank for his contribution to the success of the Group. As announced in March 2007, Richard Wood, the Company's Chief Executive, is tocontinue with the Group until 31 March 2009, during its next stage ofdevelopment, including the intended move to the Official List. Move from AIM to the Official List It remains the Company's intention to move its listing from AIM to the OfficialList of the London Stock Exchange. The Board expects to make a formalannouncement in the near future concerning this move and will post a circular toshareholders giving full details of the move in due course. The Board is aware that a number of small shareholders hold AIM listed stock forInheritance Tax purposes and we intend to offer these investors an opportunityto exit from their investment at minimum cost, should they so wish. This will beaccomplished by offering a low cost dealing facility under which Genus shareswill be bought in and placed with institutional shareholders. We will also be asking our brokers to help manage the transition for the largerIHT motivated shareholders who wish to sell their shares as a result of the moveto the Official List. Non - Core Businesses The Board has progressed its strategy to concentrate on the bovine and porcinegenetics businesses and has accordingly disposed of SyAqua Thailand for £1m inthe period and progressed the divestment of the non-core businesses AnimalcareLimited, Development Consulting and the Mexican shrimp business. Trading in Animalcare Limited, the principal non-core veterinary pharmaceuticalbusiness, has been profitable and to plan, as has trading in the non-coredevelopment consultancy business. A recovery has been achieved in our Mexicanshrimp business. Outlook The new financial year has started well. Genus is in an unique position tobenefit from changing world agricultural markets and to deliver solid long-termgrowth. This will arise from organic growth in the market and productivityimprovements as further country markets are integrated. BUSINESS OVERVIEW 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 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. Customersproduce offspring with greater production efficiency, milk and meat output andquality and use these to supply the global dairy and meat supply chain. The Group's competitive edge has been created from the ownership and control ofproprietary lines of breeding animals, the biotechnology used to improve themand its global production and distribution network. Genus' research and product development expenditure for the 12 months to June2007 was £17.7m. Approximately 20% was spent on research and 40% each on bovineand porcine product development. Genus operates bovine studs in five countries. More than 170 world leading beefand dairy animals of the commercial breeds are in production in these studs,with around 2,000 in various stages of product development. The breedingselection programme was recently expanded to test 400 dairy bulls per year in arolling five year programme which includes creating and measuring the output of40,000 daughters. The commercially active stud has a replacement rate of 25-35%per annum. Approximately 12 million doses of semen are collected from these studs eachyear. The semen is frozen in tanks containing liquid nitrogen so that it can bekept indefinitely and can be transferred and sold in any country of the world. Genus is unique amongst its competitors in that it operates a globalinsemination service through a network of employees and self-employed exclusiveagents who operate under the "ABS" trademark. The Genus porcine business sells breeding males, females and semen. The companyowns nine pure-bred pig lines which it is continuing to develop in its twonucleus herds, located in the USA and Canada. These animals are crossed and thenmultiplied in around 1,000 predominantly sub-contracted multiplication unitslocated in all our markets around the world. More than 100 million slaughter pigs produced each year contain Genus geneticsand we believe that these pigs are those with the highest value and can beproduced with the lowest production cost of any of our competitors supplyinglarge integrated pig production units. Headquartered in Basingstoke, England, Genus companies operate in 30 countrieson five continents, with laboratories located in Madison, USA. Corporate Objectives & Strategy The principal objectives for the year under review have been to drive underlyinggrowth in the bovine and porcine businesses while integrating the acquired PICbusiness in order to drive the potential for productivity improvement in futureyears. To do this, we have re-organised operations using a territorial matrix under tworegional Chief Operating Officers (the Americas region, headed by Ian Biggs andthe Europe & Asia region, headed by Philip Acton), supported by consolidatedglobal Research, Development and Production facilities under a third globalChief Operating Officer, Steve Amies. In this way, barriers to change have been reduced and synergies at an annualisedrate of approximately £6m per year have been driven out of non-sales relatedfunctions. For example, the Americas organisation now comprises:- • Bovine semen sales under the trademark, ABS; • Porcine breeding sales under the trademark, PIC; and • Regional services provided centrally in one location. Due to the relatively fragmented nature of the European and Asian businesses,full consolidation into an equivalent structure in these businesses has yet tobe completed. Additionally, the regional management has concentrated upon aturn-round of the historically loss-making porcine operations in Europe and anexpansion in the Far East. The Company plans to seek further productivity improvements and achieveadditional administrative function savings from consolidating worldwide businesssystems using the Oracle platform already being used by the acquired business.This complex project has been progressed with the help of external consultantsand is likely to create potential for further productivity improvement. There will also be some potential for productivity improvements from continuingintegration of country businesses. The Board continues to believe that it should concentrate the Group's efforts ongrowing the animal genetics business while driving down debt. In this respect,we have actively pursued the divestment of the remaining non-core businesses,while ensuring that such sales will realise good shareholder value. BUSINESS REVIEW Group Performance As noted in the Chairman's statement, the comparisons in this review have beenmade for continuing operations against un-audited pro-forma figures, on aconstant currency basis, for the twelve months to 30 June 2006. The performanceagainst IFRS reported statutory figures is summarised in the financial reviewbelow. Revenue for the year to 30 June 2007 increased by 4% to £234m despite the impactof changes to the porcine business model, as discussed in the Business Reviewbelow. The weakening of the US dollar lowered this increase by £10m whentranslated into actual exchange rates with the result that revenue was 1% lowerthan in 2006. Bovine sales volume increased by 7% with prices remaining firm. However, theGroup's strategy for de-risking pig operations from the volatility of the "hogcycle", by increasing the proportion of business using the indirect royaltymodel lowered porcine sales as expected when compared with 2006, whilstimproving margins from 35% to 37% of sales. The Board believes that adjusted operating profit provides an informativemeasure of the underlying performance for the business. This measure is definedas operating profit before exceptional items and a number of non cash items: •fair value movement of biological assets; •amortisation of intangible assets; and •share based payments. Adjusted operating profit increased by 33%, at constant exchange rates, to£28.7m (2006: £21.6m). A £2.0m exchange impact lowered this increase to 22%.Operating profit increased by 31%, at constant exchange rates, and by 18% to£28.4m (2006: £24.1m) at actual exchange rates. Exceptional expenditure of £4.7m (2006: £2.7m) related to the integration of theporcine and bovine businesses, to an adjustment to goodwill required as a resultof recognition of pre-acquisition tax assets, and to work associated withpreparation for the move to the Official List, principally the work carried outto complete the IFRS restatement. The Board believes the integration expenditurewill deliver continuing operating expense benefits. The effective rate of tax on adjusted profit before tax was 34% as expected. Adjusted earnings per share increased by 41% at constant currency to 22.6p(2006: 16.0p) and by 23% from 18.4p at actual exchange rates. Basic earnings per share for the Group as a whole were 26.6p, an increase of146% over the pro-forma period. Net debt was reduced by £9m to £111m at 30 June 2007 (2006: £120m). It isintended to use any proceeds from divestments of the remaining non-corebusinesses to reduce net debt further to leave the Group well placed to pursueother opportunities for growth, as and when they arise. World Agricultural Markets There was a general improvement in market conditions towards the end of theyear, although two growth markets, Brazil and Australia, remained depressed.This was largely due to an outbreak of Foot & Mouth Disease (FMD) in Brazil andthe harsh drought in Australia. Foot & Mouth Disease (FMD) in Brazil prevented farmers from selling meat intheir export markets. This reduced farm profitability and the potential for thesale of semen and breeding pigs. However, there was a partially compensatingupside in that other producers, the USA in particular, experienced a morebuoyant export market. In Australia, the extended drought caused the previously strong and growingmarket to contract. In this depressed market situation the company nonethelessincreased its market share and cemented its new position in the retail sector.This bodes well for the future especially now that the rainfall has returned andfarming has begun the long haul to recovery. During the latter part of the year, the dynamics of the general agriculturalmarkets improved. The long term pattern of supply and demand moved strongly fromsurpluses to deficits. As a result, milk prices hardened strongly in the USA inthe latter part of the year and have started to rise in the UK and moregenerally in Europe. The demand for milk and meat products in the Far East hasaccelerated and the shortfall in world capacity is improving farmer sentiment sothat the dairy semen market, in particular, should improve further in the newfinancial year. The export growth for US producers offset the expected cyclical downturn in hogprices. Elsewhere, prices remained generally flat, although shortages of supplyincreased prices in the Far East to the level at which farmers began tore-invest in extending capacity. Market commentators are predicting structural rather than cyclical increases inagricultural commodity prices in the future. This change is being driven byincreased demand for milk and meat products, particularly in the Far East. Inaddition, agricultural crops are increasingly being used to produce ethanol, arenewable fuel source. A visible indication of the change is the disappearanceof the highly controversial EU food mountain. These changes are being accelerated by an ever increasing world population,whilst droughts and flash floods caused by climate change are adverselyaffecting yields. Together, these changes will mean that food prices are likely to rise andfarmers and governments will increasingly seek to increase farming productivity.Improved animal genetics will be a key ingredient in this quest. Genus'scientific and marketing leadership will ensure that the company is well placedto take advantage of this positive change in market growth. We view the markets, particularly in dairy, as being favourable for the comingyear. Genus Products The current bovine product strength, led by Shottle, Bolton and Boliver, threeof the highest regarded bulls in the world, contributed to sales volume growthof 10% in the year to 30 June 2007. A particularly encouraging aspect was thatthis growth was achieved across the world, with increases in 12 of Genus' 13owned semen sales subsidiaries, the exception being in Australia that wasaffected by the harsh drought. We have also made progress with the sexed semen project. During the reportingyear, we started selling sexed semen under the trademark ABS Sexation, in arange of markets, including the large US market. From a standing start, sexedsemen sales revenue rose to an annualised 5% of dairy semen revenue. We arecurrently in the process of increasing capacity on the expectation that saleswill more than double in the new financial year. In response to the changing market conditions over the last few years, we havedeveloped two value added services, to support semen sales. The first is acomputer assisted Genetic Mating Service (GMS) and the second is a comprehensiveReproductive Management Service (RMS). Already a key component for the USbusiness these services are now being introduced to other markets, with greatsuccess. The services have been developed particularly for use by larger farms,where improving management control is important for financial success. One ofthe benefits of the farmers contracting to use the service is that they alsoenter into a semen supply contract that provides Genus with a stronger forwardorder book. In our porcine business, we have been hastening the de-risking strategy begun byPIC to reduce the sensitivity of business profit to movements in the marketprice of pigs ("the hog cycle"). To achieve this change, PIC had begun tosubcontract pig multiplication to third parties, thereby reducing the proportionof sales of live animals from in-house production. Approximately 90% ofmultiplication in the USA, Western Europe and a number of other large countrymarkets has now been subcontracted. Another change we have accelerated in many developed agricultural markets hasbeen to move away from selling breeding animals on an outright basis. Instead wenow sell on an indirect model whereby breeding animals are sold for a lowerprice but with a royalty attached to any progeny they produce. This change inbusiness practice has substantially been made in North America, Western Europeand a few other markets, but will not be applied in less developed markets inorder to protect our intellectual property. The impact of the implemented changes has been to lower headline sales in theyear of introduction, even though market share may have increased. Marginsimprove from the accumulation of royalties and for the longer term, sales accruethroughout the breeding life of the animals sold. In addition, this indirectroyalty model smooths cash flow. During the year, we extended and refreshed our product range of elite parents byadding a new dam line, called C29. This parent female is as prolific as theCompany's world renowned breeding dam line, the Camborough, but is cheaper tomaintain. This latter trait will be increasingly important for pig producers nowthat the average cost of feed is increasing. The C29 product was launched in its first market, the USA, during the 2007financial year and should add growth and market share to the business in the newfinancial year. An increased uptake of the Company's new products is expected, particularly forbovine sexed semen and porcine female lines. The Americas Region Nature of the Business Trading in the North and South American continents takes place through whollyowned subsidiaries in the six largest markets in the region and through agentsin the smaller markets. Growth Drivers In the developed agricultural markets of the USA and Canada, customers continueto expand and consolidate in all sectors. In the developing markets of Latin America, primarily Mexico, Brazil, Argentinaand Chile, growth came from the underlying expansion of the markets, driven by:- • Increased demand to address an expanding and wealthier population; • Growth in exports as the region took advantage of its inherently lower agricultural cost base; and • Greater use of advances in agricultural techniques. Competitive Position Most competitors are co-operatives, particularly in the bovine sector. Genus' market share grew throughout the region. In North America, strong growthin bovine volume saw market share increase. The porcine business' market sharealso grew. In Latin America, Genus is the clear market leader in both bovine dairy andporcine genetics in the large and growing markets of Mexico, Brazil, and Chile. Trading Progress In constant currency, revenue increased by 4% to £119m (2006: £114m) andadjusted operating profit increased by 22% to £20.8m (2006: £17.1m). Most of the region's business is conducted in US Dollars. Even with the strongoperational improvement, the large change in the US Dollar to Sterling exchangeled to the absorption of translational losses equivalent to £10m for revenue and£1.7m for operating profit. Growth has been achieved in the Americas region by recognising the changingneeds of the larger and increasingly integrated customers and by responding tothem more quickly than our competitors have done. The development of the RMS andGMS services added value for customers, while helping to add predictability toGenus' business as more revenue came from forward orders and repeat business. Despite prices being relatively soft for most of the year in the bovine sector,revenue rose in constant currency by 13% to £44m, because of volume increasesand a mix improvement following the introduction of sexed semen, which isrelatively highly priced. Sexed semen had been trialled in South America overthe past two years. The launch in North America, under the trademark "ABSSexation", was a great success and the product is selling at a price some threetimes higher than the equivalent un-sexed semen. North America The bovine business saw strong growth in volume. This lifted market share to22%, the highest in over ten years. The porcine business, now largely convertedinto a less volatile royalty operating model, saw its market share rise by threepercentage points to 45%; such royalties now comprise over 90% of gross profitin the region. During the year, PIC's successful line in male products was complemented by thelaunch of the C29 female and other supporting products. Additional resourceswere directed at technical support for the customer base to attempt to translateas far as possible into customer profits the full benefit of the geneticpotential of the PIC products. South America Bovine volume grew by 14%, despite difficult trading conditions for most of theyear. This confirmed Genus' leadership in dairy genetics in Brazil, Chile andMexico. Bovine sales moved ahead strongly with revenues up 20% to £12m, largely becauseof the volume increase which arose from the expansion of RMS and GMS. Theseservices were introduced over the last two years and have been particularlysuccessful in Mexico. The porcine business is in the early stages of converting to the indirectroyalty model and this, combined with difficult market conditions and supplyproblems, saw volumes fall slightly. The porcine market was relatively soft and supply disruption caused a slow startto the year. Performance in the second half outstripped expectations and doubledthe performance achieved in the first half. Business Integration North American administrative functions have been integrated into a centralshared services unit based in Wisconsin, USA. This enabled the porcine businessto move into smaller offices in Nashville, Tennessee. These changes have enabled the four key regional businesses to concentrate oncustomer needs, while the region has achieved cost efficiencies in centralservices. The region has also opened a joint office for the bovine and porcine business inSantiago, Chile as the first stage of a programme for increasing productivity inSouth America. The Europe & Asia Region Nature of the Business Trading in the Europe & Asia region takes place through wholly ownedsubsidiaries in the four primary markets and through agents in 15 secondarycountry markets. In Europe, Genus has particularly strong businesses in the UK,France, Germany, Italy and several other Eastern European countries. In Asia,the business is particularly strong in China, Japan and the Philippines. Growth Drivers The market for pork and dairy products is growing throughout the region withgrowth particularly strong in the Far East (especially China) and EasternEurope. The agricultural industry continued to consolidate in Western Europe asproduction subsidies reduced. The privatisation process of Eastern Europe hascreated many new large and highly productive farming units that, over time, willbegin to replace less efficient units in Western Europe. The Government of China is supporting investment in "state of the art" farmingin order to feed its fast increasing population. Regional milk prices began to rise towards the end of the period as demandoutstripped supply and Far East pig meat prices rose to a level that allowedfarmers to become profitable again. In Russia, demand for high quality pig breeding stock and dairy semen ran atrecord levels as the nation's herd is being rebuilt after years of decline underprevious Governments. Competitive Position Genus is the overall market leader in the Europe & Asia region in both theporcine and bovine sectors. Although competitors generally hold high marketshares in their home markets they export very little. European bovine competitors are generally co-operatives and in the porcinesector industry consolidation has reduced the number of competitors. Trading Progress Unlike in the Americas region, currency movements during the year were small,creating a translational loss of just £0.3m. Regional revenue from continuing operations, increased by 3% to £122m. Inbovine, the volume of conventional semen was flat (Australia drought -15%) whileprices increased by 7%. Porcine revenues reduced from the introduction of theindirect royalty model which we began to introduce in some markets. Adjustedoperating profit grew by 24% to £14.3m (2006: £11.5m). All country businesses recorded profit improvements on the previous 12 monthswith the bovine contribution increasing by 10% and the porcine by a record 89%. Europe In the United Kingdom bovine revenue growth of 6% was achieved. RMS customersaccounted for 10% of sales in the UK with the service contracted to farms with atotal of 65,000 cows by the year end. In Italy, bovine revenue grew by 15% from increased sales of the RMS serviceachieving a market share of 14%. In France, where the business traditionally occupied an elite breeder niche,revenue increased by 16% from a change in mix which included a greaterproportion of higher priced semen together with the contribution from a largersales force. New breeding laws that will free up competition are expected tocome into force early in 2008. This will create an opportunity for Genus toincrease its market share over time. European distributors increased revenues by 9% with notable successes in Spainand Turkey. In the porcine sector, new boar products were introduced and product mix for thegilts was improved. A review of the acquired operations, aimed at reducing the vulnerability of thebusiness to reverses in the hog cycle and to cut losses in difficult or belowcore sized markets, resulted in:- 1. The sale of the Cazals Genetic Nucleus farm in France for £2.0m and animprovement of £0.5m per year in profitability. 2. Closure of the loss-making business in Denmark. 3. A re-organisation in Spain produced a year on year improvement. 4. Administrative function re-organisation and consolidation produced anoperating expense saving of £0.6m per year. Despite the above closures, business volume and revenue rose by 3%, particularlyfrom Russia and some countries in Western Europe. Asia The Asian Bovine business increased revenue by 5%, with particularly goodresults being recorded in Japan. In the face of the extensive drought throughout Australia much of agricultureretrenched. Genus adapted to these conditions by consolidating the recent retailacquisitions to improve productivity. The sales force has been re-trained andwas repositioned to concentrate on those areas where the effects of the droughthave begun to reduce. As a result, the negative profit impact of the drought wasconstrained to £0.6m. The Philippines porcine business had its best ever year. Key account volumeswere strong and parent boar sales were significantly higher than last year. Business in China improved as the market recovered from the low prices of lastyear. As part of the first phase of an expansion plan, we sold one farm andappointed a new general manager to lead change, including the appointment offurther contract multipliers. Also, we have invested in pure lines to meetincreasing demand for production in the region. Research & Product Development Product development continues to be a key driver in the success of Genus'business, producing a continuous stream of genetically superior bulls and pigs.This is augmented by carefully targeted research, aimed at producingbreakthroughs that will change the business model to Genus' competitiveadvantage. In total, research and development expenditure in the reported period was£17.7m. On a like for like basis, this represents a saving of £1.8m on theprevious year's pro-forma expenditure of the separate Genus and Sygen researchand development which total £18.1m (at actual exchange rates, the 2006expenditure was £19.3m). These savings were made in the areas of fundamentalresearch and administration, in line with the Company's objective ofconcentrating selectively on commercial targets while eliminating more academicresearch and any overlapping activities. Research now accounts for approximately20% of total R&D expenditure, with bovine and porcine product developmentaccounting for around 40% each. Bovine Product Development Due to the five year lead time associated with the bovine genetic inventiveprocess, Genus, in commercially targeting its research, looks five years aheadto estimate the likely requirements of agriculture in the future. Thus, theproducts currently being sold have been based upon development decisions made in2002. At that time, the company was projecting that farmers would require sementhat selectively increased the robustness of their herd and improved animalwelfare, at reasonable outputs, rather than the previous prime target ofincreased output. This has proved to be correct and has resulted in an increasein the competitiveness of the Genus stud. We have been able to compare the genetic merit of the Genus stud with that ofcompetitor bulls. Of the bulls that will become available for commercial salebetween 2008 and 2011, the prospects are most encouraging: • Throughout the period, the bulls in the test programme are very strong in the newly measured traits associated with longevity (productive life, somatic cell count, daughter pregnancy rate); • We have improved our position and are now very strong in the traditional longevity associated traits of legs, feet & udders. These traits are also very important for the 'breeder' sector of the market; • We have also moved to the top in quantity of butterfat, a trait to which we had probably given insufficient emphasis in the recent past; and • The aggregate of these traits in terms of net merit confirms Genus is ahead of its competitors and the lead is improving. In general, our major competitors have retained their historical and traditionalselection objectives, being variously strong on type (looks) and production, butweak on the longevity traits. With continuing growth anticipated, we are in the process of increasing by 35%the number of bulls evaluated in the large US based testing programme andinvesting the £2 million required to house these extra bulls. We have also made some exciting developments to address opportunities in thebeef business. Historically, the beef industry has been reluctant to use artificialinsemination (AI). One of the reasons is that in the fragmented production chainit is impossible for a breeder of genetically superior calves to realise apremium price when they are slaughtered. The increasing demand for meatconsistency and tenderness has created the potential for a change in this sectorof the food chain. Building on experience gained by PIC, Genus is leading thischange and is seeking early wins in both the US and UK. In this respect, we areworking with household names like Tesco and McDonalds. Porcine product development For pigs, the inventive lead-time at approximately three years is shorter thanfor bovines. This enables a more rapid response to changes in the agriculturalenvironment. Since the acquisition of PIC, we have carefully reviewed itsdevelopment programme and we have satisfied ourselves that the product selectioncriteria set up three years ago will continue to produce commerciallycompetitive animals ideally suited to current market conditions. We have,however, made small changes to the weighting of selection traits to ensure thatthe strong competitive advantage currently demonstrated in the side-by-sidetrials against competitor products is maintained, as longevity traits becomemore important in the pig sector. In this respect, the selection programme will benefit from the strong progresswe have made with the fundamental science programme in genetic markers. The main platform of the acquired science programme was the identification ofgenetic markers for yield and feed conversion in animals. During the ten yearperiod during which this objective was pursued, the technology available toscientists evolved considerably. As a result, the early pioneering work quicklybecame overtaken as modern techniques became available from contractors. Since acquisition, Genus has transferred the remaining genotyping work tocontractors using the new and faster technology. As a result, we have progressedmuch more rapidly in the complex identification programme for markers for theevolving commercially important traits in future agriculture. We have evaluatedthe increase in rate of genetic progress from incorporating marker data intoconventional genetic analysis. The results show that: 1) Nearly all traits of commercial importance are controlled by many genes asopposed to single genes. 2) The incorporation of marker information has limited benefit if a trait iseasily measured directly e.g. daily weight gain. 3) The incorporation of marker information conveys significant benefit if atrait is more difficult to measure accurately by direct means e.g. mortality. 4) We now incorporate 100 markers into routine genetic evaluations, as comparedwith 10 two years ago. 5) These 100 markers are influencing the selection of the next generations ofanimals in our breeding programme and should benefit the Company's competitiveposition from 2010. In anticipation of, and to support, future sales growth, the Board hassanctioned the building of an enhanced nucleus herd facility in South Dakota,USA, at a cost of £9 million over the coming two years. This facility willprovide an additional benefit of being of sufficient size and diversity todevelop customised lines for key additional customers, giving us a significantcompetitive advantage. In addition, new facilities will enhance health andenvironmental standards and lower operating costs. FINANCIAL REVIEW This is the first year that the Group has reported under International FinancialReporting Standards. Details of the Group's accounting policies and adjustmentsarising on the transition to IFRS can be found on the Company's websitewww.genusplc.com As indicated at the time of publishing the Transition Document, the Boardindicated that additional volatility would be introduced into the Group'sresults principally arising from the fair value movement in biological assets asrequired under IAS 41. As a result, the income statement shows separately thefair value adjustments and adjusted operating profits, defined as operatingprofit from continuing operations before the fair value movement arising onbiological assets, amortisation of intangibles, share based payments andexceptional items. In addition, given the difficulty in comparing the results for the 12 months to30 June 2007 to the 15 month period to 30 June 2006, arising from the change inthe Group's year end, the acquisition of Sygen part way through the comparativeperiod, and the significant currency movements arising on translation of theresults of overseas entities, the Chairman's Statement and Business Reviewdiscusses the performance of the business compared to un-audited pro-formaresults for the 12 months to June 2006 and the Financial Review sets out areview of the reported audited statutory IFRS results. Revenue Revenue from continuing operations grew by 16% from £201m to £234m. Profit Adjusted operating profit increased by 45% to £28.7m (2006: £19.8m). Adjusted profit for the Group (including the share of profit/(loss) from jointventures and associates and adjusted operating profit from discontinuedoperations), net of finance costs was £22.4m for the year (15 month period ended30 June 2006: £17.6m). Finance costs Net finance costs increased from £6.7m to £10.0m, reflecting higher net debtcosts resulting from the acquisition of Sygen. Interest payable, excludingamortisation of debt issue costs, the net interest cost in respect of pensionscheme liabilities and other interest payable, amounted to £11.0m and was 2.6times covered by adjusted operating profit from continuing operations (15 monthperiod ended 30 June 2006: 3.2 times). Taxation The effective rate of tax for the year, based on adjusted operating profit, was33.7% compared with 32.0% during the last period. The tax rate depends upon themix of profits by country, particularly upon the high level of profits generatedin North America, where the tax rate is around 40%, and the ability of the groupto recognise deferred tax assets in respect of losses in some of the group'ssmaller territories. Earnings per share Basic earnings per share were 26.6p in the year ended 30 June 2007 compared with17.2p for the 15 month period ended 30 June 2006. Adjusted earnings per sharefrom continuing operations of 22.6p for the year ended 30 June 2007 were 15%higher than for the 15 month period ended 30 June 2006. Share Price and Shareholder Funds The Genus share price ranged from a low of 427p to a high of 705.0p during thefinancial year. On 29 June 2007 (the last trading day of the financial year),the mid-market price was 700p, giving a market capitalisation of £392m at thatdate. At 30 June 2007, shareholder funds amount to £150.9m, an increase of £6.9m inthe year. This is equivalent to 270p per share and compares with 261p at theprior period end. Dividend The Board has proposed a 10% increase in the dividend to 9.1p per share (2006:8.25p). The dividend will be covered 2.5 times from adjusted earnings (2006: 2.4 times)and the cost of the proposed dividend will amount to £5.1m (2006: £4.5m). Financing and cash flow The Company's secured bank credit facilities comprise a term loan of £20m whichexpires in October 2008, a £60m amortising term loan expiring in 2010, and a£70m multi-currency revolving credit facility expiring in 2010. In less than twoyears the term loans have been reduced by £20m and net debt, has reduced from£120.1m at 30 June 2006 to £111.1m at 30 June 2007. Two further repayments ofthe term loans will be made in October 2007 and April 2008 of £5.0m and £7.5mrespectively. Gearing at 30 June 2007 was 47% compared with 51% at 30 June 2006. The Group's operating cash inflow for the year to 30 June 2007 amounted to£23.8m (15 month period ended 30 June 2006: outflow £12.7m) as a result ofincreased profits and tighter focus on working capital. The net cash outflow forthe year was £4.6m (15 month period ended 30 June 2006: inflow £15.2m) arisingprincipally from debt servicing and repayments. Exceptional items The exceptional items during the period totalled £4.7m (15 month to 30 June2006: £2.7m) of which £3.0m (15 month period ended 30 June 2006: £2.7m) relatedto the integration and restructuring expenses of the Sygen business and theimplementation of the global Oracle management information system, £0.7m relatedto an adjustment to goodwill on recognition of tax assets (15 month period ended30 June 2006: nil) and £1.0m (15 month period ended 30 June 2006: nil) relatedto the move to the Official List. There will be further integration andrestructuring costs and further Oracle implementation costs during 2008. Thecosts incurred during 2007 relating to the move to the Official List were mainlyfor the conversion to IFRS. In the 2008 financial year, there will be sponsors,brokers, lawyers and accountants fees associated with the move. By the end of the 2008 financial year the Sygen business should have been fullyintegrated. Biological Assets In accordance with IAS 41 the Group shows the carrying value of biologicalassets in the balance sheet with the fair value movement shown in the incomestatement. Bovine biological assets represent the fair value of proven bulls and bulls ontest, based on expected net cash flows from the sale of semen. The significantassumptions determining the fair values are the expected future demand forsemen, estimated production value, the life of each bull and, for bulls on test,the percentage expected to be actively marketed. Porcine biological assets represent the fair value of breeding pigs which arecalculated using the average slaughter value of the animals plus a premium forgenetic characteristics determined by average achieved sales prices. Thesignificant assumptions determining fair values are the expected life of thebreeding herds, the percentage of production animals expected to be saleable asbreeding pigs and expected sales prices. Breeding animal semen is transferred to inventory at fair value at point ofharvest, at which point it becomes agricultural produce valued at deemed cost. At 30 June 2007, the fair value of bovine biological assets was £73.9m (2006:£70.6m) and the fair value of porcine biological assets was £65.8m (2006:£71.1.m), with the total value on the Group balance sheet being £139.7m (2006:£141.7m). The fair value movement in the income statement amounted to £10.9m (2006: £7.0m)with this favourable increase being broadly offset by the effect of the weakerUS dollar in arriving at the balance sheet IAS 41 valuation. Group income statement For the year ended 30 June 2007 Note 2007 2006(comparative for the 15 month period to 30 June 2006) £m £m Revenue from continuing operations 2 233.8 201.2 Adjusted operating profit from continuing operations 2 28.7 19.8Fair value movement on biological assets 9 10.9 7.0Amortisation of intangible assets (5.1) (3.0)Share based payments (1.4) (1.0) 33.1 22.8Exceptional itemsIntegration and restructuring expenses (3.0) (2.7)Adjustment to goodwill on recognition of tax assets (0.7) -Preparation for main market listing (1.0) - 5 (4.7) (2.7)Operating profit from continuing operations 2 28.4 20.1 Share of post tax profit/(loss) of joint ventures and 1.3 (0.2)associatesOther gains and losses 0.2 1.9Finance costs 6 (10.0) (6.7)Profit before tax from continuing operations 19.9 15.1 Taxation 7 (7.2) (4.0)Profit for the period from continuing operations 12.7 11.1Profit/(loss) for the period from discontinued operations 3 1.9 (3.3) Profit for the period 14.6 7.8 Earnings per share from continuing operations 10Basic earnings per share 23.1p 24.5pDiluted earnings per share 22.5p 23.9pBasic adjusted earnings per share 22.6p 19.7pDiluted adjusted earnings per share 21.9p 19.2pEarnings per share from total operations 10Basic earnings per share 26.6p 17.2pDiluted earnings per share 25.8p 16.8p Group statement of changes in equity Called up Share Own shares Translation Hedging Retained Total share premium reserve reserve earnings capital account £m £m £m £m £m £m £m Balance at 1 3.7 40.0 (0.1) - - 46.5 90.1April 2005Foreignexchangetranslation differences,net of tax - - - (6.2) - - (6.2)Fair valuemovement onnet investmenthedge, netof tax - - - 1.3 - - 1.3Fair valuemovement oncash flow hedges, netof tax - - - - 0.8 - 0.8Actuariallosses onretirement benefitobligations,net of tax - - - - - (2.2) (2.2)Net incomeand expenserecognised directly inequity - - - (4.9) 0.8 (2.2) (6.3) Profit for the period - - - - - 7.8 7.8Totalrecognisedincome and expense forthe period - - - (4.9) 0.8 5.6 1.5Recognitionof sharebased payments,net of tax - - - - - 1.3 1.3Adjustmentin respectof employee share schemes - - (0.1) - - - (0.1)Issue of ordinary shares 1.8 52.2 - - - - 54.0Dividends - - - - - (2.8) (2.8)Balance at 30 June 2006 5.5 92.2 (0.2) (4.9) 0.8 50.6 144.0 Balance at 1 July 2006 5.5 92.2 (0.2) (4.9) 0.8 50.6 144.0Foreignexchangetranslation differences,net of tax - - - (14.7) - - (14.7)Fair valuemovement onnet investmenthedge, netof tax - - - 0.9 - - 0.9Fair valuemovement oncash flow hedges, netof tax - - - - 1.6 - 1.6Actuarialgains on defined employee benefitschemes, netof tax - - - - - 5.2 5.2Net incomeand expenserecognised directly inequity - - - (13.8) 1.6 5.2 (7.0) Profit for the year - - - - - 14.6 14.6Totalrecognisedincome and expense forthe period - - - (13.8) 1.6 19.8 7.6Recognitionof sharebased payments,net of tax - - - - - 3.4 3.4Issue of ordinary shares 0.1 0.3 - - - - 0.4Dividends - - - - - (4.5) (4.5)Balance at 30 June 2007 5.6 92.5 (0.2) (18.7) 2.4 69.3 150.9 Group balance sheetAs at 30 June 2007 Note 30 June 2007 30 June 2006 £m £mAssetsGoodwill 60.7 64.9Other intangible assets 77.4 86.0Biological assets 9 114.1 115.1Property, plant and equipment 27.3 30.4Interests in joint ventures and associates 3.5 3.4Available for sale investments 0.5 0.8Derivative financial assets 4.5 3.0Deferred tax assets 10.4 10.8Total non-current assets 298.4 314.4 Inventories 18.8 18.1Biological assets 9 25.3 25.7Trade and other receivables 43.0 41.6Cash and cash equivalents 12 26.0 32.2Assets held for sale 4 21.9 22.7Income tax receivable 1.4 1.6Total current assets 136.4 141.9 Total assets 434.8 456.3 LiabilitiesTrade and other payables (34.8) (37.0)Interest-bearing loans and borrowings 12 (27.2) (25.5)Provisions (1.9) (2.9)Obligations under finance leases 12 (0.9) (2.1)Current tax liabilities (4.3) (4.5)Liabilities held for sale 4 (8.3) (8.8)Total current liabilities (77.4) (80.8) Interest-bearing loans and borrowings 12 (108.9) (126.4)Retirement benefit obligations (15.9) (22.8)Provisions (2.3) (2.3)Deferred tax liabilities (78.0) (79.9)Obligations under finance leases 12 (1.4) (0.1)Total non-current liabilities (206.5) (231.5) Total liabilities (283.9) (312.3) Net Assets 150.9 144.0 EquityCalled up share capital 5.6 5.5Share premium account 92.5 92.2Own shares (0.2) (0.2)Translation reserve (18.7) (4.9)Hedging reserve 2.4 0.8Retained earnings 69.3 50.6Total equity 150.9 144.0 Group statement of cash flows For the year ended 30 June 2007 Note 2007 2006(comparative for the 15 month period to 30 June 2006) £m £m Net cash flow from operating activities 11 23.8 (12.7) Cash flows from investing activitiesDividends received from joint ventures and associates 1.3 2.2Interest received 2.1 0.3Proceeds from disposal of subsidiaries 1.0 9.1Acquisition of subsidiaries and businesses (net of cash - (181.1)acquired of £17.3m)Purchase of property, plant and equipment (7.1) (6.4)Proceeds from sale of property, plant and equipment 4.3 13.8Net cash inflow / (outflow) from investing activities 1.6 (162.1) Cash flows from financing activities(Repayment) / drawdown of borrowings (13.8) 146.3Debt issue costs - (2.2)Interest paid (10.9) (5.2)Payment of finance lease liabilities (0.9) (1.5)Cashflows from derivative financial instruments 1.7 -Equity dividends paid (4.5) (2.8)Issue of ordinary shares 0.4 54.1(Decrease) / increase in bank overdrafts (2.0) 1.3Net cash (outflow) / inflow from financing activities (30.0) 190.0 Net (decrease) / increase in cash and cash equivalents - (2.7) 17.2continuing operations Net decrease in cash and cash equivalents - discontinued (1.9) (2.0)operations Net (decrease) / increase in cash and cash equivalents (4.6) 15.2 Cash and cash equivalents at start of period 34.0 18.2Net (decrease) / increase in cash and cash equivalents (4.6) 15.2Effect of exchange rate fluctuations on cash held (2.1) 0.6Total cash and cash equivalents at 30 June 27.3 34.0 Of the cash and cash equivalents of £27.3m at 30 June 2007, £1.3m is included inassets held for sale in the Group balance sheet (30 June 2006: £1.8m). Notes to the preliminary financial informationfor the year ended 30 June 2007 1. Basis of preparation Status of audit The financial information set out below does not constitute the company'sstatutory accounts for the year ended 30 June 2007 or the fifteen month periodended 30 June 2006, but is derived from those accounts. Statutory accounts forthe fifteen month period ended 30 June 2006 have been delivered to the Registrarof Companies and those for the year ended 30 June 2007 will be deliveredfollowing the company's annual general meeting. The auditors have reported onthose accounts; their reports were unqualified and did not contain statementsunder s. 237(2) or (3) Companies Act 1985. IFRS adoption The financial information for the year ended 30 June 2007 has been computed inaccordance with International Financial Reporting Standards (IFRSs). This isthe first financial period for which IFRSs have applied. Comparative financialinformation for the fifteen month period ended 30 June 2006 has been restatedaccordingly. Whilst the financial information included in this preliminary announcement hasbeen computed in accordance with IFRSs, this announcement does not itself contain sufficient information tocomply with IFRSs. The company expects to publish full financial statementsthat comply with IFRSs later in September 2007. IFRS 1 First-time adoptionpermits companies adopting IFRS for the first time to take some exemptions fromthe full requirements of IFRS and also make certain elections in the transitionperiod. The exemptions and elections adopted by the Group are disclosed in theGroup's IFRS transition document, which is available on the Group's websitewww.genusplc.com together with full details of the Group's IFRS accountingpolicies. This preliminary announcement was approved by the Board on 17 September 2007. Notes to the preliminary financial informationfor the year ended 30 June 2007 2. Segmental information Segment information is presented in respect of the Group's business andgeographical segments. The primary format, business segments, is based on theGroup's management and internal reporting structure. Area of activity - continuing operations Year ended 30 June 2007 Bovine Porcine Unallocated Genetics Genetics Total £m £m £m £m Revenue from continuing operations 102.3 131.5 - 233.8 Adjusted operating profit before 20.0 32.8 (6.4) 46.4research and product developmentResearch and product development (8.3) (9.4) - (17.7)before amortisation of intangible assetsAdjusted operating profit from 11.7 23.4 (6.4) 28.7continuing operationsFair value movement on 10.0 0.9 - 10.9biological assetsAmortisation of intangible (0.1) (5.0) - (5.1)assetsShare based payments (0.4) (0.3) (0.7) (1.4)Exceptional items-Integration and restructuring (0.4) (2.6) - (3.0)expenses-Preparation for main market - - (1.0) (1.0)listing- Adjustment to goodwill onrecognition of tax asset - (0.7) - (0.7)Operating profit from continuing 20.8 15.7 (8.1) 28.4operations Share of profit of jointventures and associates - gross 1.5Taxation (0.2)Share of profit of jointventures and associates - net oftaxation 1.3Other gains and losses 0.2Finance costs (10.0)Profit before tax fromcontinuing operations 19.9Taxation (7.2)Profit for the period fromcontinuing operations 12.7Profit for the period fromdiscontinued operations 1.9Profit for the period 14.6 Notes to the preliminary financial informationfor the year ended 30 June 2007 2. Segmental information (continued) Area of activity - continuing operations 15 month period ended 30 June 2006 Bovine Porcine Unallocated Genetics Genetics Total £m £m £m £m Revenue from continuing 120.0 81.2 - 201.2operations Adjusted operating profit before 23.6 18.0 (5.4) 36.2Research and product developmentResearch and product development (10.2) (6.2) - (16.4)before amortisation ofintangible assetsAdjusted operating profit from 13.4 11.8 (5.4) 19.8continuing operationsFair value movement on 9.2 (2.2) - 7.0biological assetsAmortisation of intangible (0.1) (2.9) - (3.0)assetsShare based payments (0.3) (0.2) (0.5) (1.0)Exceptional items- Integration and restructuring (0.9) (1.8) - (2.7)expensesOperating profit from continuing 21.3 4.7 (5.9) 20.1operations Share of loss of joint ventures (0.1)and associates - grossTaxation (0.1)Share of loss of joint ventures (0.2)and associates - net of taxationOther gains and losses 1.9Finance costs (6.7)Profit before tax from 15.1continuing operationsTaxation (4.0)Profit for the period from 11.1continuing operationsLoss for the period from (3.3)discontinued operationsProfit for the period 7.8 Notes to the preliminary financial informationfor the year ended 30 June 2007 2. Segmental information (continued) Geographical segments The bovine and porcine segments are managed on a worldwide basis, but operate ina number of geographical areas. Sales revenue by Sales revenue by geographical region of geographical region at origin destination Year ended 15 month Year ended 15 month period ended period ended 30 June 30 June 30 June 30 June 2007 2006 2007 2006Continuing operations £m £m £m £m United Kingdom 44.3 50.5 44.9 48.6Continental Europe 55.0 36.3 63.9 43.3North America 111.5 78.1 94.9 78.8Latin America 19.7 22.0 23.8 22.1Rest of the world 10.4 19.0 13.4 13.1Inter-segmental sales (7.1) (4.7) (7.1) (4.7)Continuing operations - total 233.8 201.2 233.8 201.2Discontinued operations 29.2 86.0 29.2 86.0Total 263.0 287.2 263.0 287.2 Discontinued sales revenue derives from the Development Consulting and AnimalHealth businesses, which originates in the United Kingdom and from the ShrimpGenetics business in Latin America and Thailand. Adjusted operating profit Operating profit from from continuing operations continuing operations Year ended 15 month Year ended 15 month period ended period ended 30 June 30 June 30 June 30 June 2007 2006 2007 2006Continuing operations £m £m £m £m United Kingdom 4.3 5.1 7.3 3.9Continental Europe 7.1 2.8 7.1 3.1North America 15.1 10.9 14.9 11.2Latin America 5.7 1.5 6.0 2.0Rest of the world 2.9 4.9 1.2 5.8Unallocated (6.4) (5.4) (8.1) (5.9)Total 28.7 19.8 28.4 20.1 Notes to the preliminary financial informationfor the year ended 30 June 2007 2. Segmental information (continued) Discontinued operations Area of activity - discontinued Year ended 30 June 2007operations Animal Development Shrimp Total Health Consulting Genetics £m £m £m £m Revenue 7.8 18.2 3.2 29.2Adjusted operating profit 1.6 0.8 - 2.4Winding up of legacy pension scheme (0.6) - - (0.6)Share based payments (0.1) - - (0.1)Operating profit 0.9 0.8 - 1.7 Area of activity - discontinued 15 month period to 30 June 2006operations Animal Development Shrimp Total Health Consulting Genetics £m £m £m £m Revenue 51.3 29.5 5.2 86.0Adjusted operating profit 2.3 1.1 0.4 3.8Impairment of goodwill in Animal (2.3) - - (2.3)HealthImpairment of non-current andcurrent assets in Shrimp Genetics - - (2.4) (2.4)Operating profit / (loss) - 1.1 (2.0) (0.9) Notes to the preliminary financial informationfor the year ended 30 June 2007 3. Discontinued operations The Board decided prior to 30 June 2006 that the Shrimp Genetics business andthe Group's other non-core operations, the Animal Health businesses andDevelopment Consulting would be sold. Accordingly, the results these businessesare shown within discontinued operations, and their assets and liabilities shownas held for sale at 30 June 2007 and 30 June 2006. The Shrimp Genetics business in Thailand was sold on 9 October 2006 for £1.0million cash resulting in a profit on disposal of £0.2 million. In the period ended 30 June 2006, the Animal Health Veterinary product andDental product wholesale businesses were sold on 28 October 2005 and 22 February2006, respectively and the Shrimp Genetics business in Brazil was sold on 7 June2006. The remaining Mexican Shrimp Genetics business, together with the remainingAnimal Health business and Development Consulting continue to be activelymarketed. The directors expect these to be completed by the end of 2007. Profits / (losses) attributable to the discontinued operations were as follows: Year ended 15 month 30 June period ended 30 June 2007 2006 £m £mAdjusted operating profit / (loss) from discontinuedoperations comprises:Profit in Animal Health for the period 1.6 2.3Profit in Development Consulting in the period 0.8 1.1Profit in Shrimp Genetics for the period - 0.4Adjusted operating profit from discontinued operations 2.4 3.8Share based payments (0.1) -Winding up of legacy pension scheme (0.6) -Impairment of net assets in Shrimp Genetics - (2.4)Impairment of goodwill in Animal Health - (2.3)Operating profit / (loss) from discontinued operations 1.7 (0.9) Other gains and lossesSale of properties 0.7 -Loss arising on sale of Dental products wholesale - (0.5)division, a division of Animal HealthLoss on sale of Veterinary product wholesale business, - (2.1)a division of Animal HealthProfit on sale of Brazil operation of Shrimp Genetics - 0.6Profit on sale of Thailand operation of Shrimp 0.2 -Genetics Profit / (loss) from discontinued operations before 2.6 (2.9)taxTax (0.7) (0.4)Profit / (loss) from discontinued operations 1.9 (3.3) Earnings per share from discontinued operations:Basic earnings / (loss) per share 3.5p (7.3p)Diluted earnings per share 3.4p (7.3p) An exceptional impairment of net assets in Shrimp Genetics of £2.4m and anexceptional impairment of goodwill in Animal Health of £2.3m were recognised inoperating profit for the 15 months ended 30 June 2006 to write down the carryingvalue of net assets and goodwill to their recoverable amounts. Notes to the preliminary financial informationfor the year ended 30 June 2007 4. Non-current assets held for sale At 30 June 2007, Animal Health, Development Consulting, Shrimp Genetics and PICItalia Spa were classified as held for sale together with one freehold property(2006: Animal Health, Development Consulting, Shrimp Genetics and CazalsGenetique SA together with two freehold properties). The major classes of assets & liabilities comprising the operations held forsale are as follows: 30 June 30 June 2007 2006 £m £mAssetsGoodwill and Intangibles 6.3 6.1Biological assets 0.3 0.9Property, plant and equipment 2.7 2.0Inventories 1.3 1.7Trade and other receivables 10.0 10.2Cash and cash equivalents 1.3 1.8Total assets 21.9 22.7 LiabilitiesTrade and other payables (8.3) (8.8)Total liabilities (8.3) (8.8) Net assets of disposal groups 13.6 13.9 5. Exceptional items Exceptional items comprise: Year 15 month ended period 30 June ended 30 June 2007 2006 £m £m Integration and restructuring expenses 3.0 2.7Adjustment to goodwill on recognition of tax assets 0.7 -Preparation for main market listing, including IFRS 1.0 -adoption 4.7 2.7 Integration and restructuring expenses of £3.0m (2006:£2.7m) comprise £2.6m(2006: £1.8m) in respect of the Porcine Genetics business, £nil (2006:£0.9m) inrespect of the Bovine genetics business and £0.4m (2006:£nil) in respect of project management fees for new systems. The Group has acquired certain of the Sygen businesses with tax losses. Thesewere recognised in the Group Balance sheet on acquisition to the extent thatthey were expected to be realised based on information at the acquisition dateand to the end of the hindsight period. The Group has subsequently been able touse tax losses to a greater extent than anticipated thereby reducing the valueof goodwill. In order to comply with the requirements of IAS 12 "Income Taxes",a charge for the reduction in goodwill is reported to the extent of any furtherrecognition of tax losses that arose pre-acquisition. Preparation for main market listing expense primarily relates to professionalfees in relation to the early adoption of International Financial ReportingStandards. Notes to the preliminary financial informationfor the year ended 30 June 2007 6. Finance costs Year 15 ended month 30 June period ended 30 June 2007 2006 £m £m Interest payable on bank loans and overdrafts (11.0) (6.2)Amortisation of debt issue costs (0.3) (0.3)Net interest cost in respect of pension scheme (0.6) (0.4)liabilitiesOther interest payable (0.2) (0.2)Interest expenses (12.1) (7.1) Interest income on bank deposits 1.2 0.3Other interest receivable 0.9 0.1Interest income 2.1 0.4 Net finance costs (10.0) (6.7) 7. Income tax expense in the income statement Year 15 ended month 30 June period ended 30 June 2007 2006 £m £m Current tax expenseCurrent period 7.5 6.1Adjustment for prior periods (1.7) (0.7)Total current tax expense in the Group income statement 5.8 5.4 Deferred tax expenseOrigination and reversal of temporary differences 1.5 0.1Adjustment for prior period 0.9 (0.4)Reduction in tax rate (0.4) -Total deferred tax expense in the Group income statement 2.0 (0.3) Income tax expense from continuing operations 7.2 4.0Income tax expense from discontinued operations 0.6 1.1(excluding gain on sale)Total income tax expense excluding tax on sale ofdiscontinued operations and share of income tax of equityaccounted investees 7.8 5.1 Income tax on gain on sale of discontinued operations 0.1 (0.7)Share of income tax of equity accounted investees 0.2 -Total income tax expense in the Group income statement 8.1 4.4 Notes to the preliminary financial informationfor the year ended 30 June 2007 8. Dividends Amounts recognised as distributions to equity holders in the period: Year 15 month ended 30 period June ended 30 June 2007 2006 £m £mFinal dividend for the 15 month period ended 30 June 2006of 8.25p (2006: 7.5p) per share 4.5 2.8 A dividend of 9.1p per share has been proposed by the directors for 2007. Thedividend cost of £5.1m (2006:£4.5m) has not been provided for in these financialstatements. 9. Biological assets Bovine Porcine TotalFair value of biological assets £m £m £mBalance at 1 April 2005- continuing operations 61.2 - 61.2 Acquired through business combination - 78.2 78.2Transfers to inventory (18.5) (3.8) (22.3)Changes in fair value less estimated sale costs 27.3 0.3 27.6Effect of movements in exchange rates 0.6 (3.6) (3.0)Balance at 30 June 2006 70.6 71.1 141.7 Non current biological assets 70.6 44.5 115.1Current biological assets - 25.7 25.7Biological assets - continuing operations 70.6 70.2 140.8Biological assets included within assets held for - 0.9 0.9saleBalance at 30 June 2006 70.6 71.1 141.7 Balance at 1 July 2006 70.6 71.1 141.7Transfers to inventory (19.9) (5.9) (25.8)Changes in fair value less estimated sale costs 27.9 6.3 34.2Effect of movements in exchange rates (4.7) (5.7) (10.4)Balance at 30 June 2007 73.9 65.8 139.7 Non current biological assets 73.9 40.2 114.1Current biological assets - 25.3 25.3Biological assets - continuing operations 73.9 65.5 139.4Biological assets included within assets held for - 0.3 0.3saleBalance at 30 June 2007 73.9 65.8 139.7 Notes to the preliminary financial informationfor the year ended 30 June 2007 9. Biological assets (continued) Bovine Porcine Total £m £m £mYear ended 30 June 2007 Fair value movement on biological assets Changes in fair value of biological assets 27.9 6.3 34.2Inventory transferred to cost of sales at fair value (17.9) (5.9) (23.8)Cost of sale already reflected in adjusted operating - 0.5 0.5profit 10.0 0.9 10.9 15 month period to 30 June 2006 Fair value movement on biological assets Change in fair value of biological assets 27.3 0.3 27.6Inventory transferred to cost of sales at fair value (15.4) (3.8) (19.2)Cost of sale already reflected in adjusted operating (2.7) 1.3 (1.4)profit 9.2 (2.2) 7.0 Notes to the preliminary financial informationfor the year ended 30 June 2007 10. Earnings per share Basic earnings per share from continuing operations The calculation of basic earnings per share from continuing operations at 30June 2007 is based on the profit attributable to ordinary shareholders of £12.7m(2006: £11.1m) and a weighted average number of ordinary shares outstanding of54,890,931 (2006: 45,331,452), calculated as follows: Weighted average number of ordinary shares (basic) Year ended 15 month period 30 June ended 30 JuneIn thousands of shares 2007 2006 Issued ordinary shares at start of the period 55,239 37,261Effect of own shares held (956) (564)Shares issued on exercise of stock options 608 804Shares issued in December 2005 in relation to - 7,830Sygen acquisitionWeighted average number of ordinary shares in 54,891 45,331period Diluted earnings per share from continuing operations The calculation of diluted earnings per share at 30 June 2007 is based on profitattributable to ordinary shareholders of £12.7m (2006: £11.1m) and a weightedaverage number of ordinary shares outstanding after adjustment for the effectsof all dilutive potential ordinary shares of 56,528,031 (2006: 46,415,578),calculated as follows: Weighted average number of ordinary shares (diluted) In thousands of shares Year ended 15 month 30 June period ended 30 June 2007 2006 Weighted average number of ordinary shares (basic) 54,891 45,331Dilutive effect of share options 1,637 1,085Weighted average number of ordinary shares for thepurposes of diluted earnings per share 56,528 46,416 Adjusted earnings per share is calculated on profit before fair value movementson biological assets, amortisation of intangible assets, share based payments,exceptional items and other gains and losses after charging taxation associatedwith those profits, of £12.4m (15 months ended 30 June 2006 £8.9m), as follows: Notes to the preliminary financial informationfor the year ended 30 June 2007 10. Earnings per share (continued) Year 15 month ended 30 period June ended 30 JuneAdjusted earnings from continuing operations: 2007 2006 £m £mProfit before tax from continuing operations 19.9 15.1Add/(deduct):Fair value movement on biological assets (10.9) (7.0)Amortisation of intangible assets 5.1 3.0Share based payments 1.4 1.0Integration and restructuring expenses 3.0 2.7Preparation for main market listing 1.0 -Adjustment to goodwill on recognition of tax assets 0.7 -Share of post tax (profit) / loss of joint ventures and associate (1.3) 0.2Other gains and losses (0.2) (1.9)Profit before fair value movement on biological assets, 18.7 13.1amortisation of intangible assets, share based payments,exceptional items and other gains and lossesAdjusted tax charge (6.3) (4.2)Profit before fair value movement on biological assets, 12.4 8.9amortisation of intangible assets, share based payments,exceptional items and other gains and losses, after taxation Total operations Earnings per share for total operations has been calculated as the profitattributable to ordinary shareholders of £14.6m (15 months ended 30 June 2006 £7.8m) divided by weighted average number of ordinary shares (basic and diluted)as calculated above. Notes to the preliminary financial information for the year ended 30 June 2007 11. Notes to the cash flow statement Year ended 15 month 30 June period ended 30 June 2007 2006 £m £m Profit for the period 14.6 7.8 Adjustment for:Fair value movement on biological assets (10.9) (7.0)Amortisation of intangible assets 5.1 3.0Adjustment to goodwill on recognition of tax assets 0.7 -Share based payment expense 1.5 1.0Share of (profit) / loss of joint ventures and associates (1.3) 0.2Other gains and losses (0.2) (1.9)Finance costs 10.0 6.7Income tax expense 7.8 4.0(Gain)/loss on disposal of discontinued operations (0.2) 3.3Depreciation of property, plant and equipment 4.7 4.5Gain on disposal of property, plant and equipment - (6.0)Decrease in provisions (0.9) (1.4) Operating cash flows before movement in working capital 30.9 14.2 Decrease / (increase) in inventories 1.6 (2.3)Increase in receivables (1.2) (4.7)Decrease in payables (4.0) (15.4) Cash generated / (used) by operations 27.3 (8.2)Income taxes paid (3.5) (4.5)Net cash from operating activities 23.8 (12.7) 12. Net debt 30 June 30 June 2007 2006 £m £m Cash and cash equivalents 26.0 32.2Cash and cash equivalents within assets held for sale 1.3 1.8Interest bearing loans due within one year (27.2) (25.5)Obligations under finance leases - within one year (0.9) (2.1)Net current (debt) / funds (0.8) 6.4 Interest bearing loans - non current (108.9) (126.4)Obligation under finance leases - non current (1.4) (0.1)Net debt (111.1) (120.1) Appendix Pro forma un-audited results for the 12 months ended 30 June 2006 Last year, Genus changed its financial year-end to 30 June. As a result thecomparative information to be included in the 2007 Annual Report and FinancialStatements will be for the 15 month period to 30 June 2006. To assist withanalysis and comparison, summary un-audited pro forma results for the twelvemonths to 30 June 2006 are provided below: Financial results Audited Un-audited Un-audited 15 month period 30 Year ended 30 June Year ended 30 June June 2006 2006 2006 Actual exchange Constant exchange rate rateContinuing operations: £m £m £m Revenue from continuing 201.2 236.7 225.2operations Adjusted operating profit 19.8 23.6* 21.6 Continuing operating profit 20.1 24.1 21.7 Finance costs 6.7 8.9 8.9 Adjusted profit after taxation 8.9 10.0 8.7 Profit after tax 11.1 13.2 11.4 Adjusted EPS 19.7 pence 18.4 pence 16.0 pence Basic EPS - continuing 24.5 pence 24.1 pence 20.9 pence Total operations: Profit after tax 7.8 7.7 5.9 Basic EPS 17.2 pence 14.1 pence 10.8 pence Weighted average number of 45,331,452 54,450,570 54,450,570shares (see note 8) * Amended from 18 July 2007 press release figure of £25.3m to exclude adiscontinued operation included in error. Segmental revenue by destination Audited Un-audited Un-audited 15 month period 30 Year ended 30 June Year ended 30 June June 2006 2006 2006 Actual exchange Constant exchange rate rate £m £m £mPorcine 81.2 139.7 133.0Bovine 120.0 97.0 92.2Total 201.2 236.7 225.2 United Kingdom 48.6 41.8 41.8Continental Europe 43.3 62.5 61.7North America 78.8 100.7 92.1Latin America 22.1 24.4 22.4Rest of the world 13.1 15.4 14.6Inter-segmental sales (4.7) (8.1) (7.4)Total 201.2 236.7 225.2 Reconciliation of financial results Audited Un-audited Un-audited Un-audited Un-audited As per Continuing Adjustments Pro forma Group operations to get to at statutory Adjustments pro forma constant constant accounts to get to year ended exchange exchange 12 months rate 15 months ended 30 June Year ended ended 30 Note 2006 (Note 9) June 2006 30 June 30 June 2006 2006 £m £m £m £m £m Revenue from continuing 201.2 35.5 1 236.7 (11.5) 225.2operations Adjusted operating profitfrom continuing operations 19.8 3.8 1 23.6 (2.0) 21.6Fair value movement on 7.0 2.1 2 9.1 (0.6) 8.5biological assetsAmortisation of intangible (3.0) (2.1) 3 (5.1) 0.2 (4.9)assetsShare based payments (1.0) 0.2 4 (0.8) - (0.8)Exceptional items (2.7) - 5 (2.7) - (2.7) Operating profit fromcontinuing operations 20.1 4.0 24.1 (2.4) 21.7 Share of post tax (loss) /profit of joint venturesand associates (0.2) 1.0 2 0.8 - 0.8Other gains and losses 1.9 - 5 1.9 - 1.9Finance costs (6.7) (2.2) 6 (8.9) - (8.9)Profit before tax fromcontinuing operations 15.1 2.8 17.9 (2.4) 15.5 Taxation (4.0) (0.7) 7 (4.7) 0.6 (4.1)Profit for the period fromcontinuing operations 11.1 2.1 13.2 (1.8) 11.4 Loss for the period fromdiscontinued operations (3.3) (2.2) 2 (5.5) - (5.5) Profit / (loss) for the 7.8 (0.1) 7.7 (1.8) 5.9period Notes 1. Numbers extracted from the Group's management accounts. Included inthe results are pre-acquisition profits of Sygen for the five months ended 30November 2005. 2. For Porcine five month Biological movement obtained from themanagement accounts of Sygen for the period from 1 July 2005 to 30 November2005, other seven months is already reflected in the statutory result. ForBovine the 15 month movement was adjusted on a pro-rata basis over time to be 12months. 3. This charge related to the Sygen acquisition and is thus grossed upfrom seven months in the statutory result to a full 12 months. 4. Pro-rata over time the 15 month charge in the statutory accounts tobe 12 months. 5. These items all occurred in the year ended 30 June 2006. 6. The finance charge assumes the borrowing in place post theacquisition of Sygen had been in place throughout the year ended 30 June 2006,therefore the 7 months additional borrowing cost in the statutory result isadjusted to a full year basis. 7. The gross adjustments are tax affected at the rate applying for the15 months ended 30 June 2006. 8. Weighted average number of shares adjusted to reflect the share issuemade on the 2 December 2005, in respect of the Sygen acquisition, having insteadoccurred at the start of the year. 9. The average exchange rates which applied for the 15 month periodended 30 June 2006 have been adjusted to reflect the rates which applied to theyear ended 30 June 2007. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Genus