TIDMGNS
RNS Number : 9187Z
Genus PLC
06 September 2018
For Immediate Release 6 September 2018
Genus plc
('Genus', the 'Company' or the 'Group')
PRELIMINARY RESULTS FOR THE YEARED 30 JUNE 2018
STRONG STRATEGIC AND FINANCIAL PROGRESS
Genus, a leading global animal genetics company, announces its
preliminary results for the year ended 30 June 2018.
Actual currency Constant
currency
**
Year ended 30 June 2018 2017 Movement Movement
Adjusted results* GBPm GBPm % %
Revenue 470.3 459.1 2 6
Operating profit inc JVs
exc gene editing 68.1 63.6 7 12
Operating profit inc JVs 63.1 60.1 5 10
Profit before tax 58.5 56.4 4 9
Basic earnings per share
(pence) 75.9 69.4 9 15
---------------------------- ------ ------ --------- -------------
Statutory results
Revenue 470.3 459.1 2
Operating profit 8.2 38.2 (79)
Profit before tax 7.8 40.7 (81)
Profit after tax 41.6 34.3 21
Basic earnings per share
(pence) 69.7 53.8 30
Dividend per share (pence) 26.0 23.6 10
* Adjusted results are before net IAS 41 valuation movement on
biological assets, amortisation of acquired intangible assets,
share-based payment expense and exceptional items. Adjusted results
are the alternative performance measures used by the Board to
monitor underlying performance at a Group and operating segment
level. They are consistently applied throughout. See note 1 to
these accounts for further information.
** Constant currency percentage movements are calculated by
restating the results for the year ended 30 June 2018 at the
average exchange rates applied to adjusted operating profit for the
year ended 30 June 2017.
2018 Highlights
-- 2018 was another year of positive financial progress as Genus
continued to execute its strategy successfully
Financial Highlights
-- Revenue of GBP470.3m increased 2% (6% in constant currency)
with strong bovine revenues, up 8% (11% in constant currency),
primarily from strong sexed semen sales, while porcine revenues
were 1% lower (up 3% in constant currency)
-- Adjusted profit before tax up 4% to GBP58.5m (up 9% in
constant currency), with a strong performance in Genus ABS, up 29%
in constant currency, and continued growth of 5% in PIC in constant
currency. Adjusted operating profit including joint ventures
improved 10% in constant currency, or 12% before increased gene
editing spending
-- Record adjusted basic earnings per share up 9% to 75.9p (up 15% in constant currency)
-- Statutory profit before tax down 81% to GBP7.8m, due
principally to a reduction in the non-cash fair value of biological
assets, however, statutory profit after tax increased by 21% to
GBP41.6m as a result of non-cash deferred tax credits related to
biological assets arising from US tax reforms
-- Statutory basic earnings per share up 30% to 69.7p,
reflecting the biological asset reduction and non-cash deferred tax
credits mentioned above
-- Solid free cash flow(1) of GBP24.3m (2017: GBP25.4m),
achieved alongside significant capital investments for long-term
growth, with strong cash conversion(2) of 101% (2017: 84%), while
cash inflows from joint ventures were lower at GBP2.8m (2017:
GBP8.3m) following a very strong prior year
-- Net debt to EBITDA of 1.4x (2017: 1.5x), with net debt at 30
June 2018 of GBP108.5m (2017: GBP111.6m) after acquisitions and
investments of GBP1.8m (2017: GBP30.0m)
-- Reflecting the Board's continuing confidence in the Group's
prospects, it is recommending a final dividend of 17.9p per share,
to give a total dividend of 26.0p per share, up 10% and well
covered by adjusted earnings at 2.9 times (2017: 2.9 times)
Operational Highlights(3)
-- Continued operating profit growth of 5% in PIC on volumes up 8% and royalty revenues up 10%
o Strong profit growth in Europe of almost 50% and Latin America
of 17%
o Achieved encouraging first year results from the Hermitage
acquisition and partnership
o Strong volume growth of 19% in Asia, though profit growth
tempered, as expected, by lower pig prices in China
o Entered into a strategic relationship with Møllevang, a
leading Danish porcine genetics company, on 2 July 2018 to
distribute elite genetics in the important Danish market
-- ABS achieved profit growth of 29%, with revenue and volume
growth in all regions, following the launch of Sexcel(R), ABS's
proprietary, innovative sexed genetics product(4)
o Overall volumes up 5%, with sexed volumes up 25% on strong
demand for Sexcel with sales ahead of expectations
o Beef volumes up 8% with successful launch of proprietary
NuEra(R) beef genetics and increased use of beef genetics in dairy
herds
o IVB continued to grow its presence with large accounts
achieving 20% volumes increase
o Third-party IntelliGen(R) contracts secured in Europe and
India
-- Research and Development investment increased by 13% as
planned as key initiatives in gene editing, biosystems engineering
and genomic selection made significant progress
o Pregnancies established to expand the population of gene
edited pigs from matings of the first batches of founder generation
animals born under the PRRSv development programme(5) . First
patents issued and continued positive regulatory engagement
o IntelliGen technology successfully commercialised globally to
support ABS Sexcel and third-party customers wanting to use a 21st
Century sexing technology
o Achieved a leadership position in the dairy Holstein breed
with 37 of the top 100 genomic bulls in the US$ Net Merit rankings,
driven by the success of De Novo
Commenting, Karim Bitar, Chief Executive said:
"Genus performed strongly in 2018, achieving our financial
objectives and making good strategic progress. ABS growth was
particularly strong, alongside another good year for PIC.
"The successful launch of Sexcel, our innovative proprietary
21st century sexed semen product in September 2017, was a real
highlight after many years of pioneering development. It was very
pleasing to hear from dairy farmers how the product performance is
exceeding their expectations. The commencement of the strategic
partnership with Møllevang in July 2018 will further strengthen and
bring new opportunities to our PIC business.
"In the short term, the external environment for many of our
customers is challenging due to trade disputes and the recent
spread of African Swine Fever to China. Notwithstanding this, we
see continuing opportunities for growth. Reflecting the Board's
continuing confidence in the Group's prospects we are recommending
a 10% increase in the dividend."
An analyst meeting will be held at 8.30am today at Buchanan's
offices (107 Cheapside, London EC2V 6DN).
A live webcast will be available to those unable to attend this
meeting in person. If you would like to connect to the webcast,
please log onto the following web address approximately 10 minutes
before 8.30am:
http://webcasting.buchanan.uk.com/broadcast/5b6c001249f1e90e1690296f
This announcement is available on the Genus website,
www.genusplc.com.
For further information please contact:-
Genus plc Tel: 01256 345970
Karim Bitar, Chief Executive
Stephen Wilson, Group Finance
Director
Buchanan Tel: 0207 466 5000
Charles Ryland/Chris Lane/Sophie
Wills
1 Free cash flow is before debt repayments, acquisitions,
investments and dividends.
(2) Cash conversion is the cash generated by operations GBP58.3m
(2017: GBP46.3m) divided by adjusted operating profit from
continuing operations GBP57.7m (2017: GBP55.1m).
(3) Based on adjusted results including joint venture income,
less non-controlling interest in constant currency.
(4) Sexcel is the ABS brand of sexed genetics produced with its
proprietary 21(st) Century IntelliGen technology.
(5) The PRRSv programme refers to our development-phase gene
editing programme to confer resistance to pigs to Porcine
Reproductive and Respiratory Syndrome virus.
About Genus
Genus creates advances to animal breeding and genetic
improvement by applying biotechnology and sells added value
products for livestock farming and food producers. Its technology
is applicable across livestock species and is currently
commercialised by Genus in the dairy, beef and pork food production
sectors.
Genus's worldwide sales are made in over seventy-five countries
under the trademarks 'ABS' (dairy and beef cattle) and 'PIC' (pigs)
and comprise semen, embryos and breeding animals with superior
genetics to those animals currently in farms. Genus's customers'
animals produce offspring with greater production efficiency, and
quality, and use these to supply the global dairy and meat supply
chains.
The Group's competitive edge has been created from the ownership
and control of proprietary lines of breeding animals, the
biotechnology used to improve them and its global supply chain,
technical service and sales and distribution network.
With headquarters in Basingstoke, United Kingdom, Genus
companies operate in over twenty-five countries on six continents,
with research laboratories located in Madison, Wisconsin, USA.
Chief Executive's Review
2018 was another strong year for Genus, as the Group made
substantial positive progress implementing its strategy and
achieved a good financial performance. The launch of Sexcel, our
innovative and proprietary bovine sexed genetics product, and the
start of sales of our IntelliGen technology to third parties, were
particular highlights of the year.
Group Performance
The Group performed positively, with results in line with our
expectations. Revenue and adjusted profit before tax rose by 6% and
9% respectively, in constant currency terms. Our medium-term target
is to generate double-digit compound growth in adjusted operating
profit, in constant currency and excluding gene editing costs. Our
growth in this key measure was 12% in 2018.
Currency movements presented a modest headwind. Revenue in
actual currency rose by 2% and adjusted profit before tax was 4%
higher.
Genus PIC delivered another robust performance, with adjusted
operating profit including joint ventures increasing by 5% in
constant currency. PIC benefited from growth in Europe, both
organically and through last year's acquisition and partnership
with Hermitage, and higher profits in Latin America. Profits in
Asia were stable, as growth in genetic sales was offset by reduced
farm margins in China, after exceptionally high pig prices in the
prior year. Performance in North America showed modest growth,
despite the impact of PRRSv infections in the second half of the
year at some of the Group's farms, which have now been
eradicated.
Genus ABS rebounded strongly in 2018, following the successful
launch of Sexcel in September 2017 and actions taken last year to
sharpen execution. ABS Dairy had a strong year, while ABS Beef made
encouraging progress in its strategic initiatives. Overall, Genus
ABS increased adjusted operating profits including non-controlling
interest by 29% in constant currency, with growth being strongest
in Europe and Asia while profits in North America reduced, as we
invested in our key account sales force.
As planned we continued to increase Group investment in R&D,
which is delivering strong rates of genetic gain and generating a
robust product pipeline. In total, R&D investment rose by 13%
in constant currency. This included further growth in the gene
editing expense, as we continue to advance the PRRSv resistance
programme.
Strategic Progress
Genus successfully implemented a number of important strategic
developments during the year. In porcine, we formed a strategic
partnership with Møllevang, one of Denmark's leading pig-breeding
companies. This became effective on 2 July 2018 and will see us
combine our complementary supply chains, sales and marketing
infrastructure and genetics. We will strengthen the PIC product
offering by increasing genetic diversity along with offering
customers globally superior genetics and service. Lastly, producers
in Denmark will have access to PIC products and global technical
services team, and will benefit from PIC's leadership in genetic
improvement.
In Dairy, our majority owned De Novo Genetics joint venture
delivered 54% of our Holstein bulls which came into production this
year, up from 23% in 2017, enabling us to create our industry
leading pipeline of young bulls. Sexcel was successfully launched,
with sales ahead of our expectations. Sexcel is delivering a great
on-farm experience, with materially better conception rates than
alternative products. We have also secured third-party technology
licensing and supply deals in Norway and India, under the
IntelliGen brand. We continue to vigorously defend our position in
the US courts against STGenetics ('ST'). We have filed Inter-Partes
Reviews at the US Patent and Trademark Office, seeking to revoke
six patents ST has asserted against us, and have also filed a
Motion to Dismiss and Counterclaims in the Federal Court.
Our PRRSv resistance programme made further progress, with the
first batches of elite gene edited piglets born during the year.
Along with future batches of successfully edited piglets, they will
be the founders of our gene edited herd, which we will monitor and
assess for technical and regulatory purposes. In addition, US and
European patent grants have strengthened our ability to protect our
intellectual property.
We commenced some important investments during the year in the
Group's infrastructure which will position us well for the
long-term. Genus One is a programme to replace our multiple
existing dated business systems over the next three years with a
single global modern enterprise system. In addition, in June 2018
we were able to secure land in Wisconsin to meet our requirements
for long-term bull housing, which will be built out over the next
several years.
People
Genus depends on the skills, talents and dedication of its
people and I want to thank all of my colleagues around the world
for their contribution to another successful year.
Toward the end of 2017, we ran our third global employee
engagement survey, achieving a record response rate. The survey
showed that our people are highly engaged, with a strong
understanding of our vision, strategy, values and our role in
pioneering animal genetic improvement. The survey also helped us
identify a number of areas for continuous improvement in our
communication and people management.
Outlook
The Group's established business model, global market position
and product strength, together with our proven strategy based on
delivering value to customers through innovation, position Genus
well to achieve its medium term growth objective. In the short
term, Genus's customers face a more challenging external
environment due to growing barriers to international trade and the
recent spread of African Swine Fever to China. Notwithstanding this
uncertainty, Genus anticipates further financial and strategic
progress in 2019.
Karim Bitar
Chief Executive
5 September 2018
Financial and Operating Review
Financial Review
In the year ended 30 June 2018, Genus achieved a good financial
performance which was in line with our objectives. Constant
currency revenue growth was 6% (2% in actual currency) and adjusted
operating profit growth including joint ventures was 10% (5% in
actual currency), after increased investment in R&D. Excluding
the growth in gene editing costs, adjusted operating profit
increased by 12% in constant currency. Adjusted profit before tax
and adjusted earnings per share were also up 9% and 15%
respectively (4% and 9% in actual currency).
On a statutory basis, profit before tax was 81% lower, primarily
due to a lower non-cash IAS 41 valuation of our bovine biological
assets. However, statutory earnings per share were 30% higher,
boosted by a GBP32.5m non-cash reduction in Genus's deferred tax
liabilities, following tax reforms in the US. These deferred tax
liabilities primarily relate to the Group's biological assets. We
continue to use adjusted results as our primary measures of
financial performance, as they better reflect our underlying
progress.
The effect of exchange rate movements on the translation of our
overseas profits was to reduce the Group's adjusted profit before
tax for the year by GBP3.0m or 5% compared with 2017. Unless stated
otherwise, the financial and operating reviews quote constant
currency adjusted growth rates.
Actual currency Constant
currency
2018 2017 Movement Movement
Adjusted Profit Before GBPm GBPm % %
Tax*
Genus PIC 94.8 94.8 - 5
Genus ABS 26.1 21.3 23 29
R&D (46.8) (43.8) (7) (13)
Central costs (11.0) (12.2) 10 6
----------- ----------- ------------- ----------
Adjusted operating profit
inc JV 63.1 60.1 5 10
Net finance costs (4.6) (3.7) (24) (24)
----------- ----------- ------------- ----------
Adjusted profit before
tax 58.5 56.4 4 9
=========== =========== ============= ==========
* Includes share of adjusted pre-tax profits of joint ventures
and removes share of adjusted profits of non-controlling
interests.
Revenue
Revenue increased by 2% in actual currency and 6% in constant
currency to GBP470.3m (2017: GBP459.1m). In Genus PIC, revenue
growth of 3% in constant currency (1% down in actual currency) was
supported by strong royalty revenue growth of 10%, with growth in
all regions and Asia up 31% and Europe up 32%, while by-product
revenues were lower as market pig prices reduced in China following
exceptionally high pig prices in the prior year and we exited
certain non-strategic farms. In Genus ABS, revenues grew 11% in
constant currency (8% in actual currency) with all regions making a
positive contribution. This included double-digit growth in Europe,
Asia and IVB, and sexed product revenue growth of 27%, following
strong uptake of Sexcel, our high-fertility sexed genetic product
launched early in the year.
Adjusted Operating Profit Including Joint Ventures
Adjusted operating profit including joint ventures was GBP63.1m
(2017: GBP60.1m), up 5% in actual currency and 10% in constant
currency. Within this, Genus's share of adjusted joint venture
operating profits was lower at GBP6.2m (2017: GBP7.1m) and,
following the acquisition of the remaining 49% of IVB in March
2017, amounts attributable to non-controlling interests reduced to
GBP0.8m (2017: GBP2.1m). Our gene editing investment, which is
focused on creating resistance in pigs against PRRSv, a devastating
disease for the industry, increased to GBP5.0m (2017: GBP3.5m).
Excluding this investment, adjusted operating profit increased by
12% in constant currency.
Genus PIC had another solid year, with adjusted operating profit
including joint ventures up 5%. Volume growth of 8% included double
digit growth in Latin America, Europe and Asia. The European
business transformation is continuing to drive strong results and
the recently completed strategic relationship with Møllevang, one
of Denmark's leading pig-breeding companies, will continue this
momentum.
Genus ABS had a strong year. Adjusted operating profit less
non-controlling interest increased 29%, with volume growth of 5%.
The launch of Sexcel in September 2017 helped to fuel strong sexed
volume growth of 25%, along with higher prices and at lower
production costs than its predecessor. Double-digit growth in
Europe was driven by strong performances in Italy, France and
Ireland and also in our beef-on-dairy offering, where the
differentiated value of our beef genetics supported prices. Asia
also performed strongly, up 36%, with all countries growing. North
American volumes were up 2% and we invested to strengthen the focus
on key account management. IVB also continued to grow, with embryo
volumes up 20%.
R&D costs increased by 13%, as planned, primarily from a 46%
increase in gene editing as we develop our first batches of gene
edited elite pigs. Bovine product development also increased by
18%, with the start of amortisation of previously capitalised
IntelliGen development costs and the continued development of the
platform.
Net Finance Costs
Net finance costs increased to GBP4.6m (2017: GBP3.7m) due to
higher average borrowings and lower interest income following the
investments made in the prior year, including the acquisitions of
Hermitage for GBP15.2m and the remaining 49% of IVB for
GBP11.4m.
Exceptional Items
There was a GBP5.9m net exceptional expense in 2018 (2017:
GBP2.5m), which included GBP5.0m for legal fees related to Genus
ABS's litigation with ST, GBP1.2m for acquisition and integration
related expenses, primarily relating to Møllevang and Hermitage,
and other items totalling a credit of GBP0.3m. The prior year
contained an exceptional credit of GBP5.7m in respect of the
arrangements for National Milk Records plc ('NMR') exiting the Milk
Pension Fund in June 2017.
Statutory Profit Before Tax
The table below reconciles adjusted profit before tax to
statutory profit before tax:
2018 2017
GBPm GBPm
Adjusted Profit Before Tax 58.5 56.4
Operating profit attributable to non-controlling
interest 0.8 2.1
Net IAS 41 valuation movement on biological
assets in JVs and associates (0.5) 0.5
Tax on JVs and associates (1.5) (1.4)
Adjusting items:
Net IAS 41 valuation movement on biological
assets (28.7) (1.1)
Amortisation of acquired intangible assets (9.5) (8.7)
Share-based payment expense (5.4) (4.6)
Exceptional items (5.9) (2.5)
------- ------
Statutory Profit Before Tax 7.8 40.7
======= ======
Our statutory profit before tax was GBP7.8m (2017: GBP40.7m),
with the decline primarily due to a non-cash fair value reduction
of GBP28.7m (2017: GBP1.1m) in the net IAS 41 biological asset
movement. Within this, there was a GBP5.3m (2017: GBP27.4m) uplift
in porcine biological assets offset by a GBP34.0m (2017: GBP28.5m)
reduction in bovine biological assets, due to the continuing trend
towards sales of genomic semen and current estimates of the
proportion of the semen sales price attributable to the biological
asset value. Also impacting statutory profit was amortisation of
acquired intangible assets of GBP9.5m (2017: GBP8.7m) and
share-based payment expense of GBP5.4m (2017: GBP4.6m). These items
tend to be non-cash, can be volatile and do not correlate to the
underlying trading performance in the period.
Taxation
The effective rate of tax for the year, based on adjusted profit
before tax, was 20.5% (2017: 25.0%) benefiting from a GBP2.4m
credit from the reduction of deferred tax liabilities in the US
following the enactment of US tax reforms. Excluding this one-off
credit, the underlying tax rate on adjusted profits would have been
24.6%, reflecting a higher mix of profits in lower tax
jurisdictions compared with the prior year. The effective rate
remains higher than the UK corporate tax rate due to the mix of
overseas profits, particularly the proportion of profits generated
in the US and Latin America, and the impact of withholding taxes on
the repatriation of funds to the UK. These effects are partly
mitigated by the availability of manufacturing relief, R&D
credits and agricultural reliefs in certain jurisdictions.
The tax rate on statutory profits was a credit of 347% (2017:
18.5% charge), reflecting a large non-cash deferred tax credit of
GBP32.5m as a result of US tax reform. This primarily arose on
applying the new US tax rates to the deferred tax liabilities
associated with the fair value uplift under IAS 41 on the Group's
biological assets.
Earnings Per Share
Adjusted basic earnings per share increased by 9% to 75.9 pence
(2017: 69.4 pence) and were up 15% in constant currency. Basic
earnings per share on a statutory basis were 69.7 pence (2017: 53.8
pence), up 30%, with the non-cash fair value accounting reduction
in bovine biological assets more than offset by non-cash deferred
tax credits arising from the US tax reforms.
Biological Assets
A feature of the Group's net assets is its substantial
investment in biological assets, which under IAS 41 are stated at
fair value. At 30 June 2018, the carrying value of biological
assets was GBP363.0m (2017: GBP375.3m), as set out in the table
below:
2018 2017
GBPm GBPm
Non-current assets 305.8 309.3
Current assets 37.0 43.8
Inventory 20.2 22.2
------ ------
363.0 375.3
====== ======
Represented by:
Porcine 238.8 215.6
Dairy and beef 124.2 159.7
------ ------
363.0 375.3
====== ======
The movement in the overall balance sheet carrying value of
biological assets, excluding the effect of exchange rate
translation decreases of GBP8.8m, includes:
-- a GBP27.6m increase in the carrying value of porcine
biological assets, due principally to accounting for the genetics
acquired under the strategic relationship with Møllevang, as all
material conditions for completion of the transaction under the
terms of the subscription agreement were fulfilled at the balance
sheet date; and
-- a GBP31.1m reduction in the bovine biological assets value,
due to the continuing trend towards sales of genomic semen,
resulting in shorter productive lives of bulls, and current
estimates, based on market data, of the proportion of the semen
sales price attributable to the biological asset value.
The historical cost of these assets, less depreciation, was
GBP51.0m at 30 June 2018 (2017: GBP51.5m), which is the basis used
for the adjusted results. The historical cost depreciation of these
assets included in adjusted results was GBP6.4m (2017:
GBP7.0m).
Retirement Benefit Obligations
The Group's retirement benefit obligations at 30 June 2018,
calculated in accordance with IAS 19 and IFRIC 14, were GBP33.9m
(2017: GBP40.9m) before tax and GBP27.9m (2017: GBP32.4m) net of
related deferred tax. The largest element of this liability relates
to the multi-employer Milk Pension Fund, where we account for this
scheme on the basis of Genus being responsible for 86% of the
scheme since the exit of NMR (2017: 85%).
During the year, contributions payable in respect of the Group's
defined benefit schemes amounted to GBP7.3m (2017: GBP7.2m).
Cash Flow
Free cash flow was solid at GBP24.3m (2017: GBP25.4m), driven by
strong cash generated by operations of GBP58.3m (2017: GBP46.3m),
representing conversion of adjusted operating profit of GBP57.7m
(2017: GBP55.1m) into cash of 101% (2017: 84%). Cash inflows from
joint ventures were lower at GBP2.8m (2017: GBP8.3m) following a
very strong prior year.
Capital expenditure cash flows of GBP22.5m (2017: GBP18.9m)
included continued investment in IntelliGen machines as we ramped
up production capacity, an initial payment for the purchase of land
to house future North America production facilities for the ABS
business and the first stage of the Genus One new enterprise
system.
The cash outflow from investments was GBP1.8m, primarily
relating to deferred consideration for previously acquired
businesses. This compares to GBP30.0m in 2017 from the acquisition
of De Novo Genetics, Hermitage Genetics and the purchase of the
remaining 49% of IVB. The total cash inflow for the year after
these investments and dividends was GBP7.6m (2017: outflow
GBP18.1m).
2018 2017
Cash flow (before debt repayments) GBPm GBPm
Cash generated by operations 58.3 46.3
Interest and tax paid (15.1) (11.7)
Capital expenditure (22.5) (18.9)
Cash received from JVs 2.8 8.3
Other 0.8 1.4
------- -------
Free cash flow 24.3 25.4
Acquisitions and investments (1.8) (30.0)
Dividends (14.9) (13.5)
------- -------
Net cash flow 7.6 (18.1)
======= =======
Net Debt
Net debt decreased from GBP111.6m to GBP108.5m at 30 June 2018,
with increased capital investment in the business being more than
offset by strong cash generation. During the year, we exercised an
accordion feature in our credit facilities to increase them by
GBP20.0m, in anticipation of payments to Møllevang in July 2018. At
the end of June 2018, there was substantial headroom of GBP99.3m
under the extended facilities of GBP220.0m.
The Group's financial position and borrowing ratios remain
strong, with interest cover remaining at 25 times (2017: 37 times).
EBITDA as calculated under our financing facilities includes cash
received from joint ventures and historical cost depreciation of
biological assets. The ratio of net debt to EBITDA on this basis
improved to 1.4 times (2017: 1.5 times) with net debt slightly
lower and an increased EBITDA.
Return on Invested Capital
We measure our return on invested capital on the basis of
adjusted operating profit including joint ventures after tax,
divided by the operating net assets of the business, stated on the
basis of historical cost, excluding net debt and pension liability.
This removes the impact of IAS 41 fair value accounting, the
related deferred tax and goodwill. The return on invested capital
increased to 23.9% after tax (2017: 19.9%), reflecting the increase
in adjusted profit and lower tax rate in the year.
Dividend
Reflecting the Board's continuing confidence in the Group's
prospects, it is recommending to shareholders a final dividend of
17.9 pence per ordinary share, resulting in a total dividend for
the year of 26.0 pence per ordinary share, an increase of 10% for
the year. Dividend cover from adjusted earnings remains
consistently strong at 2.9 times (2017: 2.9 times).
It is proposed that the final dividend will be paid on 30
November 2018 to the shareholders on the register at the close of
business on 16 November 2018.
Stephen Wilson
Group Finance Director
5 September 2018
Review of Operations
Genus PIC - Operating Review
Actual currency Constant
currency
2018 2017 Movement Movement
GBPm GBPm % %
Revenue 247.7 249.5 (1) 3
Adjusted operating profit
exc JV 88.7 87.7 1 6
Adjusted operating profit
inc JV 94.8 94.8 - 5
Adjusted operating margin
exc JV 35.8% 35.2% 0.6pts 1.0pts
Market
Sustained global economic growth in the year under review
supported strong demand for pork and expansion of international
trade, with global consumption increasing by 2%. With this positive
backdrop, producers started the year in an expansionary mode in key
markets such as the US, Europe and China. However, over the course
of the year, record pork production along with variable input
costs, trade disruptions, and disease risks resulted in heightened
price volatility and uncertainty.
In response to the expansion of major producers, pig prices in
China declined sharply throughout the year, although over more
recent months a recovery has begun. Meanwhile, in the United
States, pig inventories surpassed 73 million head for the first
time, as new processing facilities were brought on-line. Prices in
the US ended June 2018 5% lower than in the prior year and have
fallen substantially further since then. EU production also grew
due to increasing productivity and a 1.4% increase in its breeding
herd, causing prices to soften 15% through 2018. Brazil was poised
for a comeback after a volatile FY17, but increasing feed costs
eroded margins and a transportation strike temporarily halted
processing at abattoirs.
Political global trade disruptions also added increasing
uncertainty for PIC's customers. Russia imposed an embargo on
Brazilian pork in the autumn of 2017. In 2018, both China and
Mexico enacted tariff schedules for US pork products, in response
to US-imposed steel and aluminium import taxes. This resulted in
significant falls in US pig futures prices, and along with growing
production already in the pipeline, puts US producers in a
situation of significant uncertainty for the coming year. In
addition, African Swine Fever has been detected in China for the
first time in August 2018, which could have substantial effects on
the pig industry there and on global trade if eradication efforts
are not successful.
The porcine genetics market saw significant change, with
Danbred, a top-three global competitor, breaking up into competing
groups of breeders. Following this, PIC announced it had agreed to
enter into a strategic relationship with Møllevang from July
2018.
Performance
Genus PIC achieved another good performance, with operating
profit including joint ventures of GBP94.8m, up 5% in constant
currency. Volumes grew by 8% and revenue was 3% higher, primarily
due to 10% higher royalty revenues, partially offset by lower
slaughter prices in China on by-product animals and the exit from
some non-strategic farms in Europe and Latin America.
In North America, revenue grew 1% in constant currency, driven
by royalty growth of 3%. Health breaks in PIC multiplication farms
and customer farms, along with PIC's continued investments in
expanding the supply chain and upgrading company-owned facilities,
restricted North America's profit growth to 1% during the
period.
Latin American profits improved by 17%, volumes improved 10% and
revenues in constant currency was up 11%, with growth in all
regions. A key contributor to this growth was royalty revenue,
which increased by 15%. Profit performance from PIC's joint venture
in Brazil was up by 14% in constant currency.
Europe achieved impressive growth, with volumes up 15%, royalty
revenues up 32% and constant currency profits up 48%, driven by
customer wins and strategic pricing initiatives. The integration of
the Hermitage key accounts and distribution partnership also
contributed positively to growth in Europe which was in line with
our expectations. The integration of PIC's strategic relationship
with Møllevang and further synergies from the partnership with
Hermitage will contribute to further growth for PIC Europe going
forward.
Asia's profits were 1% higher in constant currency compared with
2017, with strong growth in most countries, driven by volume growth
of 19% and royalty revenue growth of 31% in the region. However,
China experienced weakening market prices for by-product pigs and
biosecurity challenges in the supply chain. This resulted in
China's profits being 15% lower against a strong prior year,
despite growth being achieved in royalties (+29%), volumes (+44%)
and breeding stock profits (+24%). PIC's strategy to focus on key
large-scale customers in emerging markets, while mitigating
operational risks, continues to position PIC in the Asia region for
good long-term prospects.
Overall, PIC delivered good results, despite varying global
market conditions and continued investment to enhance product
supply and differentiation. PIC's long-term global business model
and strategic relationships such as those with Hermitage and
Møllevang, will enable PIC to continue to better serve customers,
mitigate market risks and support future growth through challenging
markets.
Genus ABS - Operating Review
Actual currency Constant
currency
2018 2017 Movement Movement
GBPm GBPm % %
Revenue 210.6 195.9 8 11
Adjusted operating profit 26.2 22.3 17 23
Adjusted operating profit less
non-controlling interest 26.1 21.3 23 29
Adjusted operating margin 12.4% 11.4% 1.0pts 1.2pts
Market
Following robust growth in milk output in the first half of the
year, challenging weather conditions in key exporting countries
caused growth to slow in the second half, which in the US and
Europe, was contrary to market expectations. Increased feed prices
also capped growth in milk volumes. China's dairy market continues
to grow and influence the global demand for dairy products, with
imports increasing in 2018.
Global dairy markets entered the financial year reflecting
optimism as nearly all dairy indices had recovered from the
previous down cycle. Dairy prices remained strong through the early
part of this financial year but fell off as the year progressed,
with the US and EU down 8% and 15% respectively since November
2017. Growing tension around trade and tariffs has increased the
level of uncertainty for farmers particularly in the US. US beef
production continues to be affected by drought conditions in some
areas, forcing animals to be placed into feed lots early and
potentially affecting consistency of supply into the latter part of
2018. In addition, feed cost increases will not encourage producers
to raise heavy animals, which may constrain supply.
Influenced by local market conditions, prices for cattle remain
diverse, being up in Brazil, Europe and China, but down in the US,
Australia and New Zealand. This volatility is likely to remain
affected by seasonality of supply, changing feed prices and the
availability of other sources of protein in markets such as Brazil.
In addition, the impact of tariffs on the global beef trade is
increasing uncertainty for producers.
Continuing consolidation of the global dairy industry and of
high-quality breeding herds has also pushed bovine genetics
suppliers to consolidate, with it being increasingly important for
them to own and control their genetics, as ABS has done through De
Novo.
Performance
Performance was strong with operating profits for ABS increasing
by 29% in constant currency, on a 5% volume increase and an 11%
increase in revenue. Sexed volumes were up 25%, reflecting the
successful launch of Sexcel, and sales of inventory produced under
the contract with ST, which terminated in August 2017. Increased
usage of sexed genetics also led to increased use of beef genetics
in dairy herds, supporting an 8% increase in global beef
volumes.
In Europe, profits were up 12% in constant currency, with
volumes increasing 4% in generally favourable markets for
producers. The trend of dairy customers using sexed genetics,
coupled with beef genetics for a portion of the herd, continued. As
a result, beef volumes increased by 7%, beef selling prices
increased by 9%, due to focus on the value of differentiated beef
genetics, and sexed semen volumes grew 24%, with strong customer
acceptance of Sexcel.
In North America, profits decreased by 17% in constant currency.
Volumes were up by 2%, with sexed volumes up 29%, and revenue grew
by 5%, but this was offset by planned investment to strengthen the
focus on key account management. Beef volumes were up 19% over the
prior year, reflecting stable beef market conditions and the use of
beef genetics on dairy herds, supported by proprietary NuEra
genetics selected for cross-bred beef on dairy performance.
In Latin America, profits were up 4% in constant currency, with
conventional dairy volumes increasing 4% and sexed semen 8%. Beef
volumes were up 5%, despite challenging market conditions and lower
domestic beef consumption in Brazil. NuEra genetics, selected for
cross-bred performance of North American sires with tropical cows,
proved popular with customers.
In Asia, volumes were up 8% and profits up 36%, with growth
across all major countries. Profits were up 242% in Russia, 81% in
Australia and 29% in Japan. Asia also successfully launched Sexcel
from our Brahma stud in India, to provide elite sexed genetics into
the Indian market for the first time, leading to more than 100%
profit growth.
IVB grew embryo volumes by 20% and revenues by 24%, however
investments to establish new laboratories held back profit growth
to 8% including non-controlling interest. IVB was fully integrated
into the regional structure of ABS at the end of the period.
Overall, ABS delivered a much improved performance and, with the
increasing customer adoption of Sexcel and a leading genetic
portfolio, anticipates continued progress.
Research and Development - Operating Review
Actual currency Constant
currency
2018 2017 Movement Movement
GBPm GBPm % %
Porcine product development 17.0 16.6 2 8
Bovine product development 17.2 15.3 12 18
Gene editing 5.0 3.5 43 46
Other research and
development 7.6 8.4 (10) (2)
----- ----- --------- ----------
Net expenditure in
R&D less non-controlling
interest 46.8 43.8 7 13
===== ===== ========= ==========
Performance
As planned, R&D investment increased by 13% in constant
currency to GBP46.8m, primarily due to the launch of IntelliGen and
the development of gene editing initiatives. The Group's R&D
investments are expected to continue to increase in 2019 as we
continue to execute our strategy of delivering proprietary
differentiated products that customers value.
Within porcine product development, the continued implementation
of single-step genomic evaluation across all porcine pure line
populations, crossbred products and traits resulted in further
strong genetic gain. Genus has continued to drive the rate of
genetic gain 35% faster compared with the period before the
implementation began. During the year, Hermitage was transitioned
to PIC genetics and integrated into Genus's programme. The 8%
spending growth was a result of expanding genetic testing and
product validation and investment to identify unique new traits
such as meat tenderness.
Bovine product development expense increased by 18%, primarily
due to the start of amortisation of previously capitalised
IntelliGen development costs and continued development of the
platform. This included work to further increase the performance of
the IntelliGen instruments, refine biological processes and ensure
continuous improvement in processing and cost performance. In
addition, to further expand the IntelliGen footprint globally,
Genus continues to drive business development opportunities in
technology transfer and external customer service.
The dairy product development effort has continued to benefit
from the integration of De Novo Genetics, a majority owned company
created in September 2016 with De-Su Holsteins. As a result, Genus
substantially improved the quality of its industry leading dairy
bull portfolio, while also improving the focus of the operation and
reducing costs. Genus continues to grow its genomic database and
Real World Data collection and is exploring new proprietary traits.
In beef, there was continued investment in building proprietary
differentiated customer products that maximise value in the beef
supply chain, through genetic improvement in Genus's beef nucleus
herd.
Gene editing expenditure increased by 46% in the year, primarily
associated with the porcine PRRSv resistance project and, to a
lesser extent, work on investigating bovine respiratory disease. In
porcine, Genus worked with RenOVAte Biosciences, its co-founded
gene editing company, to produce the first-generation gene edited
pigs in elite purelines. The population size is now being expanded
through matings of these animals, with pregnancies established for
the next generation. Genus also advanced its regulatory engagement
with the FDA and had patents issued in the US and Europe. Gene
editing costs will continue to grow as the number of animals
carrying the edit is increased and initial regulatory submissions
are prepared.
Industry leading research continued in developing genomic
selection approaches to drive genetic improvement and
differentiation even faster, along with investments in intellectual
property ('IP') creation and protection.
Principal Risks and Uncertainties
Genus supplies biological products to agricultural customers and
is exposed to a wide range of risks and uncertainties. Some of
these risks relate to the current business operations in our global
agricultural markets, while others relate to future commercial
exploitation of our leading-edge R&D programmes.
We have identified ten principal risks, which we periodically
evaluate based on an assessment of the likelihood of occurrence and
magnitude of potential impact, together with the effectiveness of
our risk mitigation controls. The table below outlines the
principal risks and uncertainties facing Genus and how we manage
them.
The Directors confirm that they have undertaken a robust
assessment of the principal risks and uncertainties facing the
Group.
Strategic Risks
------------------------------------------------------------ --------------------------- ---------------------------
Risk Description How we manage risk Risk change in 2018
------------------------------------------------------------ --------------------------- ---------------------------
Developing products with competitive advantage
----------------------------------------------------------------------------------------- ---------------------------
Dedicated teams align our Reduced.
* Development programmes fail to produce best genetics product development to No change in porcine
for customers. customer but decreased in bovine,
requirements. We use due to increased access
large-scale to elite dairy genetics
* Increased competition to secure elite genetics. data and advanced genomic through the acquisition
analysis to ensure we meet of De Novo.
our breeding goals. We
frequently
measure our performance
against competitors in
customers'
systems, to ensure the
value
added by our genetics
remains
competitive.
------------------------------------------------------------ --------------------------- ---------------------------
Continuing to successfully develop IntelliGen
technology
----------------------------------------------------------------------------------------- ---------------------------
Our continued development Reduced.
* Failure to manage the technical, production and of the technology and its We successfully launched
financial risks associated with the rapid development deployment to new markets Sexcel produced with
of the IntelliGen business. is supported by dedicated IntelliGen technology
internal resources and and customer acceptance
agreements has been strong. We
* The industry response to the introduction of with external partners and continue to increase
competition into the sexed semen market. suppliers. Further patent IntelliGen's global
infringement proceedings deployment and have
initiated by ST in the US secured third-party
in 2017 are being customers.
vigorously
defended.
------------------------------------------------------------ --------------------------- ---------------------------
Developing and commercialising gene editing
technologies
----------------------------------------------------------------------------------------- ---------------------------
We stay aware of new No change.
* Failure to develop successfully and commercialise technology Key initiatives continue
gene editing technologies due to technical, IP, opportunities through a to progress through
market, regulatory or financial barriers. wide network of academic the R&D life cycle
and industry contacts. Our and we maintain the
R&D Portfolio Management high level of investment
* Competitors secure 'game-changing' technology. Team ('R&D PMT') oversees needed to bring the
our own research, ensures end products to market.
we correctly prioritise
our R&D investments and
assesses the adequacy of
resources and the relevant
IP landscapes. We have
formal
collaboration agreements
with key partners, to
ensure
responsible exploration
and development of
technologies
and the protection of IP.
The Board is updated
regularly
on key development
projects.
------------------------------------------------------------ --------------------------- ---------------------------
Capturing value through acquisitions
----------------------------------------------------------------------------------------- ---------------------------
We have a rigorous No change.
* Failure to identify appropriate investment acquisition The acquisition process
opportunities or to perform sound due diligence. analysis and due diligence continues to provide
process, with the Board valuable and timely
reviewing and signing off access to investment
* Failure to successfully integrate an acquired all material projects. We opportunities. Our
business. also have a structured experiences with
post-acquisition post-acquisition
integration planning and integration provide
execution process. a platform for integrating
newly acquired businesses.
------------------------------------------------------------ --------------------------- ---------------------------
Growing in emerging markets
----------------------------------------------------------------------------------------- ---------------------------
We have a robust Increased.
* Failure to appropriately develop our business in organisation, Financial market volatility
China and other emerging markets. blending local and in certain emerging
expatriate markets is increasing.
executives, supported by In China, trade disputes
the global species teams. with the US and the
This allows us to grow our appearance of African
business in key markets, Swine Fever increase
while managing risks and uncertainty for the
ensuring we comply with pig industry.
our global standards.
------------------------------------------------------------ --------------------------- ---------------------------
Operational Risks
------------------------------------------------------------ --------------------------- ---------------------------
Risk Description How we manage risk Risk change in 2018
------------------------------------------------------------ --------------------------- ---------------------------
Protecting IP
----------------------------------------------------------------------------------------- ---------------------------
We have a global, No change.
* Failure to protect our IP could mean Genus-developed cross-functional
genetic material, methods, systems and technology process to identify and
become freely available to third parties. protect our IP. Our
customer
contracts and our
selection
of multipliers and joint
venture partners include
appropriate measures to
protect our IP. We
maintain
IP landscape watches and
where necessary conduct
robust 'freedom to
operate'
searches to identify
third-party
rights to technology.
------------------------------------------------------------ --------------------------- ---------------------------
Ensuring biosecurity and continuity of supply
----------------------------------------------------------------------------------------- ---------------------------
We have stringent Increased.
* Loss of key livestock, owing to disease outbreak. biosecurity
standards, with We experienced disease
independent outbreak in parts
* Loss of ability to move animals or semen freely reviews throughout the of the PIC supply
(including across borders) due to disease outbreak, year chain in the US in
environmental incident or international trade to ensure compliance and 2018. We continue
sanctions and disputes. investigate biosecurity to strengthen our
incidents, to ensure bio-security measures
learning to further reduce
* Lower demand for our products, due to industry-wide across the organisation. this inherent risk.
disease outbreaks. We regularly review the In addition, risks
geographical diversity of to global trade have
our production facilities, increased compared
to avoid over-reliance on with the prior year.
single sites.
------------------------------------------------------------ --------------------------- ---------------------------
Hiring and retaining talented people
----------------------------------------------------------------------------------------- ---------------------------
We have a robust talent Reduced.
* Failure to attract, recruit, develop and retain the and succession planning
global talent needed to deliver our R&D programmes process, including annual We have been largely
and growth plans in our chosen markets. assessments of our global successful in recruiting
talent pool and active and retaining the
leadership appropriate skills
development programmes. to meet our business
The Group's reward and growth plans.
remuneration
policies are reviewed
regularly,
to ensure their
competitiveness.
We work closely with a
number
of specialist recruitment
agencies to identify
candidates
with the skills we need.
------------------------------------------------------------ --------------------------- ---------------------------
Financial risks
------------------------------------------------------------ --------------------------- ---------------------------
Risk Description How we manage risk Risk change in 2018
------------------------------------------------------------ --------------------------- ---------------------------
Managing agricultural market and commodity prices
volatility
----------------------------------------------------------------------------------------- ---------------------------
We continuously monitor Increased.
* Fluctuations in agricultural markets affect customer markets and seek to
profitability and therefore demand for our products balance Agricultural commodities
and services. our costs and resources are being targeted
in response to market with tariffs in escalating
demand. global trade disputes.
* Increase in our operating costs, due to commodity We actively monitor and This is increasing
pricing volatility. update our hedging price volatility and
strategy uncertainty for our
to manage our exposure. customers in several
Our porcine royalty model markets around the
and extensive use of world.
third-party
multipliers mitigates the
impact of cyclical price
and/or cost changes in pig
production.
------------------------------------------------------------ --------------------------- ---------------------------
Funding pensions
----------------------------------------------------------------------------------------- ---------------------------
We are the principal No change.
* Exposure to costs associated with failure of employer
third-party members of joint and several liabilities for the Milk Pension Fund The triennial 2018
pension scheme. ('MPF') and chair the fund valuation is
group currently in progress.
of participating
* Exposure to costs as a result of external factors employers.
(such as mortality rates, interest rates or The fund is closed to
investment values) affecting the size of the pension future
deficit. service and has an agreed
deficit recovery plan,
based
on the 2015 actuarial
valuation.
In agreement with the
employers,
the trustees implemented
an investment de-risking
strategy and have started
a liability management
exercise.
We also monitor the
strength
of other employers in the
fund and have retained
external
consultants to provide
expert
advice.
------------------------------------------------------------ --------------------------- ---------------------------
Group Income Statement Genus plc
For the year ended 30 June 2018
2018 2017
Note GBPm GBPm
REVENUE 2 470.3 459.1
ADJUSTED OPERATING PROFIT 2 57.7 55.1
Adjusting items:
* Net IAS 41 valuation movement on biological assets 9 (28.7) (1.1)
* Amortisation of acquired intangible assets 8 (9.5) (8.7)
* Share-based payment expense (5.4) (4.6)
(43.6) (14.4)
* Exceptional items: 3
- Litigation (5.0) (5.3)
- Acquisition and integration (1.2) (0.6)
- Other (including restructuring) 0.3 (2.3)
- Pension related - 5.7
Total exceptional items (5.9) (2.5)
Total adjusting items (49.5) (16.9)
OPERATING PROFIT 8.2 38.2
Share of post-tax profit of joint ventures
and associates retained 4.2 6.2
Finance costs 4 (4.8) (4.5)
Finance income 4 0.2 0.8
PROFIT BEFORE TAX 7.8 40.7
Taxation 5 33.8 (6.4)
PROFIT FOR THE YEAR FROM CONTINUING OPERATIONS 41.6 34.3
ATTRIBUTABLE TO:
Owners of the Company 42.7 32.8
Non-controlling interest (1.1) 1.5
41.6 34.3
EARNINGS PER SHARE FROM CONTINUING OPERATIONS 6
Basic earnings per share 69.7p 53.8p
Diluted earnings per share 68.7p 53.0p
ALTERNATIVE MEASURE OF PERFORMANCE
Adjusted operating profit from continuing
operations 57.7 55.1
Adjusted operating profit attributable
to non-controlling interest (0.8) (2.1)
Pre-tax share of profits from joint
ventures and associates excluding net
IAS 41 valuation movement 6.2 7.1
ADJUSTED OPERATING PROFIT INCLUDING JOINT
VENTURES AND ASSOCIATES 63.1 60.1
Net finance costs 4 (4.6) (3.7)
ADJUSTED PROFIT BEFORE TAX FROM CONTINUING
OPERATIONS 58.5 56.4
ADJUSTED EARNINGS PER SHARE FROM CONTINUING
OPERATIONS 6
Basic adjusted earnings per share 75.9p 69.4p
Diluted adjusted earnings per share 74.9p 68.4p
Group Statement of Comprehensive Income Genus plc
For the year ended 30 June 2018
2018 2018 2017 2017
GBPm GBPm GBPm GBPm
PROFIT FOR THE YEAR 41.6 34.3
Items that may be reclassified
subsequently to profit or loss
Foreign exchange translation
differences (22.4) 7.7
Fair value movement on net investment
hedges 1.3 (2.7)
Fair value movement on cash
flow hedges 1.1 2.1
Tax relating to components of
other comprehensive income 2.2 (4.6)
(17.8) 2.5
Items that may not be reclassified
subsequently to profit or loss
Actuarial gain on retirement
benefit obligations 43.4 1.2
Movement on pension asset recognition
restriction (2.5) 0.3
Recognition of additional pension
liability (39.4) (4.3)
Tax relating to components of
other comprehensive income (0.3) 0.4
1.2 (2.4)
------ -----
OTHER COMPREHENSIVE (EXPENSE)/INCOME
FOR THE YEAR (16.6) 0.1
TOTAL COMPREHENSIVE INCOME FOR
THE YEAR 25.0 34.4
ATTRIBUTABLE TO:
Owners of the Company 26.1 33.8
Non-controlling interest (1.1) 0.6
25.0 34.4
Group Statement of Changes in Equity Genus plc
For the year ended 30 June 2018
Called
up Share Trans-lation Non-
share premium Own reserve Hedging Retained controlling Total
Note capital account shares GBPm reserve earnings Total interest equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
BALANCE AT 30 JUNE
2016 6.1 112.3 (0.1) 37.5 (0.6) 219.3 374.5 (6.4) 368.1
Foreign exchange
translation
differences, net
of tax - - - 3.9 - - 3.9 (0.9) 3.0
Fair value movement
on net
investment hedges,
net of tax - - - (2.2) - - (2.2) - (2.2)
Fair value movement
on cash flow hedges,
net of tax - - - - 1.7 - 1.7 - 1.7
Actuarial gain on
retirement
benefit obligations,
net of tax - - - - - 1.0 1.0 - 1.0
Movement on pension
asset recognition
restriction, net
of tax - - - - - 0.3 0.3 - 0.3
Recognition of
additional
pension
liability,
net of tax - - - - - (3.7) (3.7) - (3.7)
Other comprehensive
(expense)/income
for the year - - - 1.7 1.7 (2.4) 1.0 (0.9) 0.1
Profit for the
year - - - - - 32.8 32.8 1.5 34.3
Total comprehensive
income for the year - - - 1.7 1.7 30.4 33.8 0.6 34.4
Recognition of
share-based
payments, net of
tax - - - - - 4.0 4.0 - 4.0
Adjustment arising
from change in
non-controlling
interest and written
put option - - - - - - - 8.6 8.6
Dividends 7 - - - - - (13.5) (13.5) - (13.5)
Issue of
ordinary
shares - 0.5 - - - - 0.5 - 0.5
BALANCE AT 30 JUNE
2017 6.1 112.8 (0.1) 39.2 1.1 240.2 399.3 2.8 402.1
Foreign exchange
translation
differences, net
of tax - - - (19.7) - - (19.7) - (19.7)
Fair value movement
on net
investment hedges,
net of tax - - - 1.0 - - 1.0 - 1.0
Fair value movement
on cash flow hedges,
net of tax - - - - 0.9 - 0.9 - 0.9
Actuarial gain on
retirement
benefit obligations,
net of tax - - - - - 36.0 36.0 - 36.0
Movement on pension
asset recognition
restriction, net
of tax - - - - - (2.1) (2.1) - (2.1)
Recognition of
additional
pension liability,
net of tax - - - - - (32.7) (32.7) - (32.7)
Other comprehensive
(expense)/income
for the year - - - (18.7) 0.9 1.2 (16.6) - (16.6)
Profit/(loss)
for
the year - - - - - 42.7 42.7 (1.1) 41.6
Total comprehensive
(expense)/income
for the year - - - (18.7) 0.9 43.9 26.1 (1.1) 25.0
Recognition of
share-based
payments, net of
tax - - - - - 6.0 6.0 - 6.0
Adjustment arising
from change in
non-controlling
interest - - - - - - - 0.8 0.8
Dividends 7 - - - - - (14.9) (14.9) - (14.9)
Issue of
ordinary
shares 0.1 - - - - - 0.1 - 0.1
BALANCE AT 30 JUNE
2018 6.2 112.8 (0.1) 20.5 2.0 275.2 416.6 2.5 419.1
Group Balance Sheet Genus plc
As at 30 June 2018
2018 2017
Note GBPm GBPm
ASSETS
Goodwill 8 102.0 104.7
Other intangible assets 8 78.7 88.3
Biological assets 9 305.8 309.3
Property, plant and equipment 76.9 67.5
Interests in joint ventures and associates 19.9 22.7
Other investments 5.9 5.5
Derivative financial asset 0.3 0.1
Deferred tax assets 4.3 3.8
TOTAL NON-CURRENT ASSETS 593.8 601.9
Inventories 34.2 33.1
Biological assets 9 37.0 43.8
Trade and other receivables 10 91.0 88.8
Cash and cash equivalents 29.1 26.5
Income tax receivable 1.4 1.9
Derivative financial asset 2.5 1.3
Asset held for sale 0.2 0.3
TOTAL CURRENT ASSETS 195.4 195.7
TOTAL ASSETS 789.2 797.6
LIABILITIES
Trade and other payables (83.7) (76.4)
Interest-bearing loans and borrowings (13.4) (7.7)
Provisions (2.8) (2.7)
Deferred consideration (19.3) -
Obligations under finance leases (1.4) (1.4)
Current tax liabilities (4.4) (5.2)
Derivative financial liabilities (0.3) (0.6)
TOTAL CURRENT LIABILITIES (125.3) (94.0)
Interest-bearing loans and borrowings (120.7) (127.2)
Retirement benefit obligations 11 (33.9) (40.9)
Provisions (4.5) (3.7)
Deferred consideration (4.2) -
Non-current income tax liability (0.9) -
Deferred tax liabilities (74.8) (124.2)
Derivative financial liabilities (3.7) (3.7)
Obligations under finance leases (2.1) (1.8)
TOTAL NON-CURRENT LIABILITIES (244.8) (301.5)
TOTAL LIABILITIES (370.1) (395.5)
NET ASSETS 419.1 402.1
EQUITY
Called up share capital 6.2 6.1
Share premium account 112.8 112.8
Own shares (0.1) (0.1)
Translation reserve 20.5 39.2
Hedging reserve 2.0 1.1
Retained earnings 275.2 240.2
Equity attributable to owners of
the Company 416.6 399.3
Non-controlling interest 5.7 6.1
Put option over non-controlling interest 15 (3.2) (3.3)
Total non-controlling interest 2.5 2.8
Total equity 419.1 402.1
Group Statement of Cash Flows Genus plc
For the year ended 30 June 2018
2018 2017
Note GBPm GBPm
NET CASH FLOW FROM OPERATING ACTIVITIES 12 43.2 34.6
CASH FLOWS FROM INVESTING ACTIVITIES
Dividends received from joint ventures
and associates 2.8 3.8
Joint venture loan repayment - 3.0
Acquisition of subsidiaries, net of
cash acquired - (17.5)
Increase in investment in subsidiaries - (12.0)
Acquisition of investment - (0.3)
Acquisition of investment in joint
venture - (0.2)
Payment of deferred consideration (1.8) -
Disposal of joint venture - 1.5
Purchase of property, plant and equipment (17.8) (13.4)
Purchase of intangible assets (4.7) (5.5)
Proceeds from sale of property, plant
and equipment 0.4 1.4
Proceeds from sale of assets held
for sale 0.3 -
NET CASH OUTFLOW FROM INVESTING ACTIVITIES (20.8) (39.2)
CASH FLOWS FROM FINANCING ACTIVITIES
Drawdown of borrowings 64.4 68.1
Repayment of borrowings (66.5) (55.7)
Payment of finance lease liabilities (2.2) (2.0)
Equity dividends paid (14.9) (13.5)
Dividend to non-controlling interest - (0.1)
Issue of ordinary shares 0.1 0.5
Debt issue costs - (0.4)
NET CASH OUTFLOW FROM FINANCING ACTIVITIES (19.1) (3.1)
NET INCREASE/(DECREASE) IN CASH AND
CASH EQUIVALENTS 3.3 (7.7)
Cash and cash equivalents at start
of the year 26.5 34.0
Net increase/(decrease) in cash and
cash equivalents 3.3 (7.7)
Effect of exchange rate fluctuations
on cash and cash equivalents (0.7) 0.2
TOTAL CASH AND CASH EQUIVALENTS AT
30 JUNE 29.1 26.5
Notes to the Preliminary Results Genus plc
For the year ended 30 June 2018
1. REPORTING ENTITY
Status of audit
The financial information given does not constitute the
Company's statutory accounts for the year ended 30 June 2018 or the
year ended 30 June 2017, but is derived from those accounts.
Statutory accounts for the year ended 30 June 2017 have been
delivered to the Registrar of Companies and those for the year
ended 30 June 2018 will be delivered following the Company's annual
general meeting. The auditors have reported on those accounts;
their reports were unqualified, did not draw attention to any
matters by way of emphasis without qualifying their reports, and
did not contain statements under s. 498(2) or (3) Companies Act
2006.
Basis of preparation
The financial information for the year ended 30 June 2018
together with the comparative year has been computed in accordance
with International Financial Reporting Standards (IFRSs) as adopted
by the European Union.
The Group Financial Statements are presented in Sterling, which
is the Company's functional and presentation currency. All
financial information presented in Sterling has been rounded to the
nearest million at one decimal point.
The principal exchange rates were as follows:
Average Closing
--------------------- -----------------------
2018 2017 2016 2018 2017 2016
US Dollar/GBP 1.35 1.27 1.47 1.32 1.30 1.34
Euro/GBP 1.13 1.16 1.33 1.13 1.14 1.20
Brazilian Real/GBP 4.51 4.11 5.47 5.12 4.30 4.28
Mexican Peso/GBP 25.37 24.61 25.38 26.30 23.51 24.66
While the financial information included in this preliminary
announcement has been computed in accordance with IFRSs, this
announcement does not itself contain sufficient information to
comply with IFRSs. The Company expects to publish full financial
statements that comply with IFRSs in October 2018. These financial
statements have also been prepared in accordance with the
accounting policies set out in the 2017 Annual Report and Financial
Statements, as amended by the following new accounting
standards.
New standards and interpretations
In the current year, the Group has applied a number of
amendments to IFRSs issued by the International Accounting
Standards Board that are mandatorily effective for an accounting
period that begins after 1 January 2017. Their addition has not had
any material impact on the disclosures or the amounts reported in
the Group Financial Statements.
-- Amendments to IAS 7 - 'Disclosure Initiative'
-- Amendments to IAS 12 - 'Recognition of Deferred tax Assets for Unrealised Losses'
-- Annual Improvements to IFRSs 2014 -2016
New standards and interpretations not yet adopted
At the date of the annual report, the following standards and
interpretations which have not been applied in the report were in
issue but not yet effective (and in some cases had not yet been
adopted by the EU).
-- IFRS 9 - Financial Instruments
-- IFRS 15 - Revenue from Contracts with Customers
-- IFRS 16 - Leases
-- Amendments to IFRS 2 - Classification and Measurement of
Share-based Payments Transactions
-- IFRIC 22 - Foreign Currency Transactions and Advance Consideration
-- IFRIC 23 - Uncertainty over Income Tax Treatments
IFRS 15 'Revenue from Contracts with Customers' is effective for
periods beginning on or after 1 January 2018 and therefore will be
effective in the Group financial statements for the year ending 30
June 2019. The standard establishes a principles-based approach for
revenue recognition and is based on the concept of recognising
revenue for performance obligations only when they are satisfied
and the control of goods or services is transferred. In doing so,
the standard applies a five-step approach to the timing of revenue
recognition and applies to all contracts with customers, except
those in the scope of other standards. It replaces the separate
models for goods, services and construction contracts under the
current accounting standards.
The Group has reviewed the impact of IFRS 15 on a sample of the
contracts that it enters into with its customers. Following this
review, we determined that there are no material impacts to the
revenue recognised in the results for the year ended 30 June 2018.
Consequently, no restatement will be made to the comparatives
presented in this report and no adjustment is required to the
reserves.
IFRS 9 'Financial Instruments' replaces IAS 39 'Financial
Instruments: Recognition and Measurement'. The standard is
effective for periods beginning on or after 1 January 2018 and
therefore will be effective in the Group financial statements for
the year ending 30 June 2019.
The standard introduces changes to three key areas:
-- new requirements for the classification and measurement of financial instruments;
-- a new impairment model based on expected credit losses for recognising provisions; and
-- simplified hedge accounting through closer alignment with an
entity's risk management methodology.
The Group has completed an initial assessment of the impact of
IFRS 9 and has concluded that adoption will not have a material
impact on either the Consolidated Income Statement or the
Consolidated Balance Sheet. The Group will apply all aspects of the
new standard at the transition date of 1 July 2018, by adjusting
opening retained earnings in the balance sheet, however a
restatement of the comparative periods is not expected.
IFRS 16 'Leases' is effective for periods beginning on or after
1 January 2019 and therefore will be effective in the Group
financial statements for the year ending 30 June 2020.
The Group will transition to IFRS 16 on 1 June 2019. The
standard introduces a comprehensive model for identifying lease
arrangements and accounting treatments for both lessors and lessees
and will replace the current lease accounting requirements
including IAS 17 Leases and the related interpretations.
For lessees, IFRS 16 removes distinctions between operating
leases and finance leases. These are replaced by a model where a
right of use asset and a corresponding liability are recognised for
all leases except for short-term leases and low value assets. In
contrast to lessee accounting, IFRS 16 substantially carries
forward the lessor accounting requirements in IAS 17, and continues
to require a lessor to classify a lease either as an operating
lease or a finance lease.
From the undiscounted lease commitments, we anticipate that
implementing the new standard will have a significant impact on the
Group's reported assets and liabilities. In addition, the
implementation of the standard will affect the Consolidated Income
Statement and classification of cash flows. A reliable estimate of
the financial impact on the Group's consolidated results depends on
a number of unresolved areas, including; choice of transition
option, approach to determining discount rates, estimates of
lease-term for leases with options to break and renew and
conclusion of data collection. In addition, the financial impact
depends on the facts and circumstances at the time of transition.
For these reasons, it is not yet practicable to determine a
reliable estimate of the financial impact on the Group.
The Group is currently assessing the impact of the other new
pronouncements on its results, financial position and cash flows.
It is not practicable to provide a reasonable estimate of the
effect of these standards until a detailed review has been
completed.
Going concern
After making enquiries, the Directors have a reasonable
expectation that the Group has adequate resources to continue its
operational existence for the foreseeable future and for a period
of at least twelve months from the date of this report.
Accordingly, the Directors continue to adopt and consider
appropriate the going concern basis in preparing the Annual Report
and Accounts.
Alternative performance measures
In reporting nancial information, the Group presents alternative
performance measures, ('APMs'), which are not de ned or speci ed
under the requirements of IFRS.
The Group believes that these APMs, which are not considered to
be a substitute for or superior to IFRS measures, provide
stakeholders with additional helpful information on the performance
of the business. The APMs are consistent with how we plan our
business performance and report on it in our internal management
reporting to the Board and the executive leadership team. Some of
these measures are also used to set remuneration targets.
The key APMs that the Group uses include: adjusted operating
profit, adjusted profit before tax from continuing operations,
adjusted earnings per share, net debt and adjusted EBITDA (as
calculated under our financing facilities and includes cash
received from joint ventures and historical cost depreciation of
biological assets).
The Group reports some nancial measures, on both a reported and
constant currency basis. The constant currency basis, which is an
APM, retranslates the current year's results at the average actual
periodic exchange rates used in the previous nancial year. This
measure eliminates the effects of exchange rate uctuations on the
year-on-year reported results.
The Group makes certain adjustments to the statutory pro t
measures in order to derive many of these APMs. The Group's policy
is to exclude items that is considers to be signi cant in nature
and/or quantum and where treatment as an adjusted item provides
stakeholders with additional useful information to assess the
Group's year-on-year trading performance. On this basis, the
following were included within adjusted items for the year ended 30
June 2018:
-- net IAS 41 valuation movements on biological assets -
movements can be materially volatile and do not directly correlate
to the underlying trading performance in the period. Furthermore,
the movement is non-cash related and many assumptions used in the
valuation model are based on projections rather than current
trading;
-- amortisation of acquired intangible assets - excluding this
improves the comparability between acquired and organically grown
operations, as the latter cannot recognise internally generated
intangible assets. Adjusting for amortisation provides a more
consistent basis for comparison between the two;
-- share based payments - this expense is considered to be
relatively volatile and not fully reflective of the current period
trading, as the performance criteria are based on EPS performance
over a three-year period and include estimates of future
performance; and
-- exceptional items - these are items which due to either their
size or their nature are excluded to improve the understanding of
the Group's underlying performance. See note 3 for further
details.
The reconciliation between operating profit from continuing
operations and adjusted operating profit from continuing operations
is shown on the face of the Group Income Statement. All other
reconciliations are included within the Financial Review
section.
This preliminary announcement was approved by the Board on 5
September 2018.
2. SEGMENTAL INFORMATION
IFRS 8 'Operating Segments' requires operating segments to be
identified on the basis of internal reports about components of the
Group that are regularly reviewed by the Group Chief Executive and
the Board to allocate resources to the segments and to assess their
performance. From 1 July 2017, the Group's operating and reporting
structure has comprised three operating segments: Genus PIC, Genus
ABS and Research and Development. These segments are the basis on
which the Group reports its segmental information. The principal
activities of each segment are as follows:
-- Genus PIC - our global porcine sales business;
-- Genus ABS - our global bovine sales business; and
-- Research and Development - our global spend on research and development.
A segmental analysis of revenue, operating profit, depreciation,
amortisation, non-current asset additions and segment assets and
liabilities is provided below. We do not include our adjusting
items in the segments, as we believe these do not reflect the
underlying progress of the segments. The accounting policies of the
reportable segments are the same as the Group's accounting
policies, as described in the Financial Statements.
Revenue 2018 2017
GBPm GBPm
Genus PIC 247.7 249.5
Genus ABS 210.6 195.9
Research and Development
-------------------------------------- ------------ ------------
Porcine Product Development 9.8 10.7
Bovine Product Development 2.2 3.0
Gene Editing - -
Other Research and Development - -
-------------------------------------- ------------ ------------
12.0 13.7
------------ ------------
470.3 459.1
------------ ------------
Operating profit by segment is set out below and reconciled to
the Group's adjusted operating profit. A reconciliation of adjusted
operating profit to profit for the year is shown on the Group
Income Statement.
Adjusted operating profit 2018 2017
GBPm GBPm
Genus PIC 88.7 87.7
Genus ABS 26.2 22.3
Research and Development
----------------------------------------- ------------- -------------
Porcine Product Development (17.0) (16.6)
Bovine Product Development (16.6) (14.2)
Gene Editing (5.0) (3.5)
Other Research and Development (7.6) (8.4)
----------------------------------------- ------------- -------------
(46.2) (42.7)
------------- -------------
Adjusted segment operating profit 68.7 67.3
Central (11.0) (12.2)
------------- -------------
Adjusted operating profit 57.7 55.1
------------- -------------
Our business is not highly seasonal and our customer base is
diversified, with no individual customer generating more than 2% of
revenue.
Other segment information
Depreciation Amortisation Additions to
non-current assets
2018 2017 2018 2017 2018 2017
GBPm GBPm GBPm GBPm GBPm GBPm
Genus PIC 0.8 0.8 7.0 6.0 2.9 1.1
Genus ABS 2.3 2.1 2.1 2.1 9.7 3.4
Research and Development
----------------------------------------------------- ------- ------- ------- ------- ---------- ----------
Research 0.3 0.3 1.1 0.9 - 2.5
Porcine Product Development 2.0 1.9 - - 0.8 2.6
Bovine Product Development 2.1 1.4 3.6 2.2 8.9 5.6
----------------------------------------------------- ------- ------- ------- ------- ---------- ----------
4.4 3.6 4.7 3.1 9.7 10.7
Segment total 7.5 6.5 13.8 11.2 22.3 15.2
Central 2.9 2.3 - - 5.5 5.0
Total 10.4 8.8 13.8 11.2 27.8 20.2
Segment assets Segment liabilities
2018 2017 2018 2017
GBPm GBPm GBPm GBPm
Genus PIC 235.9 258.3 (48.3) (60.1)
Genus ABS 160.6 132.8 (41.2) (41.1)
Research and Development
----------------------------------------------------- ------- ------- ---------- ---------
Research 12.5 5.9 (1.3) (1.4)
Porcine Product Development 209.5 182.4 (76.5) (72.0)
Bovine Product Development 152.8 202.7 (31.1) (52.6)
----------------------------------------------------- ------- ------- ---------- ---------
374.8 391.0 (108.9) (126.0)
Segment total 771.3 782.1 (198.4) (227.2)
Central 17.9 15.5 (171.7) (168.3)
Total 789.2 797.6 (370.1) (395.5)
In the current year, IntelliGen assets are included within Genus
ABS, however in the prior year these assets were included within
Bovine Product Development as the technology had not yet
commercialised globally.
Exceptional items of GBP5.9m expense (2017: GBP2.5m expense),
relate to Genus ABS (GBP5.0m expense), Genus PIC (GBP0.4m expense)
and our central segment (GBP0.5m expense). Note 3 provides details
of these exceptional items.
We consider share-based payment expenses on a Group-wide basis
and do not allocate them to reportable segments.
Geographical information
The Group's revenue by geographical segment is analysed below.
This analysis is stated on the basis of where the legal entity is
incorporated, which is the country in which the revenue will be
reported.
Revenue
2018 2017
GBPm GBPm
North America 208.6 214.5
Latin America 75.1 71.4
Rest of Europe, Middle East and Africa 51.1 48.5
UK 76.7 70.0
Asia 58.8 54.7
470.3 459.1
------------ -----------------------------
Non-current assets (excluding deferred taxation and financial
instruments)
2018 2017
GBPm GBPm
North America 450.2 440.1
Latin America 37.4 46.4
Rest of Europe, Middle East and Africa 41.7 37.3
UK 41.0 61.0
Asia 18.9 13.2
589.2 598.0
----- -----
Revenue by type
2018 2017
GBPm GBPm
Sale of animals, semen, embryos and associated
products and services 341.1 335.7
Royalties - animal and semen 121.8 116.1
Consulting services 7.4 7.3
470.3 459.1
Interest income (see note 4) 0.2 0.8
470.5 459.9
3. EXCEPTIONAL ITEMS
2018 2017
Operating (expense)/income: GBPm GBPm
Litigation (5.0) (5.3)
Acquisition and integration (1.2) (0.6)
Other (including restructuring) 0.3 (2.3)
Pension related - 5.7
(5.9) (2.5)
Litigation
Litigation includes legal fees of GBP5.0m (2017: GBP5.3m)
related to the actions between ABS Global, Inc. ('ABS') and
Inguran, LLC (aka Sexing Technologies or STGenetics ('ST')).
On 14 July 2014, ABS launched a legal action against ST in the
US District Court for the Western District of Wisconsin alleging,
among other matters, that ST: (i) has a monopoly in the processing
of sexed bovine semen in the US; and (ii) unlawfully maintains this
monopoly through anticompetitive conduct. The legal action aimed to
remove these barriers and allow free and fair competition in the
sexed bovine semen processing market ('ABS Action'). In parallel
with the ABS Action, ABS also filed Inter-Partes Review
applications ('IPR') before the US Patent Office challenging the
validity of several of ST's group patents, which ST later claimed
were infringed by ABS.
On 11 January and 15 April 2016, the Patent Trial and Appeal
Board ('PTAB') ruled that US Patent No. 7,195,920 (the "920
patent') and US Patent No. 7,820,425 (the "425 patent') were
unpatentable. ST appealed these decisions, and the appeal was heard
by a federal court of appeals on 5 December 2017. On 23 May 2018,
the federal court of appeals confirmed that the '920 and '425
patents were unpatentable. On 14 July 2015 and 2 October 2017, PTAB
declined to revoke US Patent No. 8,206,987 (the "987 patent') and
US Patent No. 8,198,092 (the "092 patent') respectively. ABS has
appealed the '092 patent decision and the validity of the '987
patent will be considered as part of the ABS Action appeal.
On 31 March 2017, the Court entered a judgment in the ABS Action
which confirmed: (i) the Company and ABS had proved that ST had
wilfully maintained a monopoly in the market for sexed bovine semen
processing in the US since July 2012, and awarded a permanent
injunction against ST which, among other matters, relieved ABS of
certain research, marketing and other non-compete restrictions
contained in the 2012 semen sorting agreement between the parties;
(ii) ST's '987 and '092 patents were valid and infringed; and (iii)
that ABS had materially breached the confidentiality obligations
under the 2012 semen sorting agreement. The Court also confirmed
that: (i) the Company and ABS should pay ST an up-front amount of
$750,000 and an on-going royalty of $1.25 per straw on
commercialisation of the Genus Sexed Semen technology for the use
of ST's '987 patent in the US; (ii) the Company and ABS should pay
ST an up-front payment of $500,000 and an on-going royalty of $0.50
per straw for the use of ST's '092 patent in the US; (iii) ABS
should pay XY, LLC damages of $750,000 for the use of certain XY
trade secrets; and (iv) ABS had breached the confidentiality
obligations under the 2012 semen sorting agreement.
ABS and the Company appealed the '987 patent and the breach of
contract decisions and the appeal hearing was heard on 20 February
2018. The parties await the Court of Appeal's decision. Damages of
$1,250,000 were paid by ABS to ST shortly after the Court's
decision in the ABS Action, and ABS has subsequently amended its
technology such that it does not infringe the '092 patent claims.
ABS has informed ST that it does not intend to pay the $0.50
royalty going forward. Claims for legal costs (and post judgement
interest) already incurred in connection with the ABS Action have
been filed by both parties. ABS has sought approximately $5.4m in
legal fees and costs already charged to the income statement and ST
has sought approximately $280,000 in legal costs (excluding fees).
Both parties await the Court's decision.
On 7 June 2017, ST, XY LLC and Cytonome/ST, LLC filed
proceedings against ABS, the Company and Premium Genetics (UK)
Limited ('PG') in the United States District Court for the Western
District of Wisconsin ("New Litigation"). The New Litigation
alleges that ABS and the Company infringe seven further patents and
asserts trade secret and breach of contract claims. ABS and the
Company have filed an Answer and Counterclaim confirming that they
do not infringe any valid patent, and alleging among other things
that: (i) ST has breached its 2012 semen sorting agreement with ABS
by failing to produce sorted semen that complies with the
contractual specifications; and (ii) ST has obtained certain
patents through inequitable conduct. In addition, ABS has filed six
IPRs seeking to revoke the additional patents raised in the New
Litigation. PTAB instituted hearings in relation to two IPRs,
refused to institute hearings on two other IPRs, and the parties
await a decision on another IPR. In relation to the final IPR,
relating to U.S. Patent No. 7,208,265 ("265 patent'), ST requested
an adverse judgment. ST has subsequently dismissed its '265 patent
infringement claim from the New Litigation and ABS has also
dismissed its anti-trust and unfair competition counter claims. ABS
filed Motions for Rehearing in relation to the IPRs that were not
instituted.
The hearing date for the New Litigation has been set for 1 April
2019, and the Company and ABS intend to pursue vigorously their
counterclaims and defend the patent infringement and other
claims.
Acquisitions and integration
During the year, GBP1.2m of expenses were incurred, with GBP0.8m
of expenses in relation to acquisitions and integration,
principally of Møllevang.
Other (including restructuring)
Included within 'Other' there is a credit of GBP0.3m which
principally relates to an insurance receipt from a legacy
environmental claim.
Pension related
During the prior year, National Milk Records plc ('NMR')
withdrew from the MPF under a Flexible Apportionment Arrangement
between NMR, Genus and the Trustees of the MPF. In return for the
right to withdraw from the MPF, NMR made a one-off, lump sum cash
payment of GBP10.1m to the MPF, equivalent to the undiscounted
value of all NMR's future payments under the existing MPF recovery
plan, which extends to March 2026. NMR also made a payment to Genus
of GBP4.7m, with GBP1.4m being satisfied by the issue of NMR
shares.
As a result of the NMR withdrawal, Genus recognised in the prior
year GBP5.7m as an exceptional credit in the year ended 30 June
2017, with GBP4.5m (GBP4.7m payment, net of fees) being received
directly from NMR, and GBP1.2m from the MPF pension scheme
reflecting the impact of NMR paying undiscounted amounts into the
scheme.
4. NET FINANCE COSTS
2018 2017
GBPm GBPm
Interest payable on bank loans and overdrafts (3.0) (2.7)
Amortisation of debt issue costs (0.4) (0.4)
Other interest payable (0.2) (0.1)
Net interest cost in respect of pension scheme
liabilities (1.0) (1.2)
Net interest cost on derivative financial
instruments (0.2) (0.1)
Total interest expense (4.8) (4.5)
Interest income on bank deposits 0.2 0.8
Total interest income 0.2 0.8
Net finance costs (4.6) (3.7)
5. INCOME TAX EXPENSE
2018 2017
Income tax expense GBPm GBPm
Current tax expense
Current period 11.7 9.9
Adjustment for prior periods 0.9 0.4
Total current tax expense in the Group Income Statement 12.6 10.3
Deferred tax expense
Origination and reversal of temporary differences (45.3) (2.6)
Adjustment for prior periods (1.1) (1.3)
Total deferred tax credit in the Group Income Statement (46.4) (3.9)
Total income tax (credit)/expense excluding
share of income tax of equity accounted
investees (33.8) 6.4
Share of income tax of equity accounted
investees 1.5 1.4
Total income tax (credit)/expense in the
Group Income Statement (32.3) 7.8
6. EARNINGS PER SHARE
Basic earnings per share is the profit generated for the
financial year attributable to equity shareholders divided by the
weighted average number of shares in issue during the year.
Basic earnings per share from continuing 2018 2017
operations
Basic earnings per share 69.7p 53.8p
The calculation of basic earnings per share from continuing
operations for the year ended 30 June 2018 is based on the net
profit attributable to owners of the Company from continuing
operations of GBP42.7m (2017: GBP32.8m) and a weighted average
number of ordinary shares outstanding of 61,234,000 (2017:
60,944,000), which is calculated as follows:
Weighted average number of ordinary shares (basic)
2018 2017
000s 000s
Issued ordinary shares at the start of the
year 61,162 61,013
Effect of own shares held (180) (163)
Shares issued on exercise of stock options 20 47
Shares issued in relation to Employee Benefit
Trust 232 47
Weighted average number of ordinary shares
in year 61,234 60,944
Diluted earnings per share from continuing 2018 2017
operations
Diluted earnings per share 68.7p 53.0p
The calculation of diluted earnings per share from continuing
operations for the year ended 30 June 2018 is based on the net
profit attributable to owners of the Company from continuing
operations of GBP42.7m (2017: GBP32.8m) and a weighted average
number of ordinary shares outstanding, after adjusting for the
effects of all potential dilutive ordinary shares, of 62,120,000
(2017: 61,833,000), which is calculated as follows:
Weighted average number of ordinary shares (diluted)
2018 2017
000s 000s
Weighted average number of ordinary shares
(basic) 61,234 60,944
Dilutive effect of share options 886 889
Weighted average number of ordinary shares
for the purposes of diluted earnings per
share 62,120 61,833
Adjusted earnings per share from continuing 2018 2017
operations
Adjusted earnings per share 75.9p 69.4p
Diluted adjusted earnings per share 74.9p 68.4p
Adjusted earnings per share is calculated on profit before net
IAS 41 valuation movement on biological assets, amortisation of
acquired intangible assets, share-based payment expense and
exceptional items, after charging taxation associated with those
profits, of GBP46.5m (2017: GBP42.3m), which is calculated as
follows:
2018 2017
GBPm GBPm
Profit before tax from continuing operations 7.8 40.7
Add/(deduct):
Net IAS 41 valuation movement on biological
assets 28.7 1.1
Amortisation of acquired intangible assets 9.5 8.7
Share-based payment expense 5.4 4.6
Exceptional items (see note 3) 5.9 2.5
Net IAS 41 valuation movement on biological
assets in joint ventures 0.5 (0.5)
Tax on joint ventures and associates 1.5 1.4
Attributable to non-controlling interest (0.8) (2.1)
Adjusted profit before tax 58.5 56.4
Adjusted tax charge (12.0) (14.1)
Adjusted profit after tax 46.5 42.3
Effective tax rate on adjusted profit 20.5% 25.0%
7. DIVIDS
Amounts recognised as distributions to equity holders in the
year
2018 2017
GBPm GBPm
Final dividend
Final dividend for the year ended 30 June 2017
of 16.2 pence per share 9.9 -
Final dividend for the year ended 30 June 2016
of 14.7 pence per share - 9.0
Interim dividend
Interim dividend for the year ended 30 June
2018 of 8.1 pence per share 5.0 -
Interim dividend for the year ended 30 June
2017 of 7.4 pence per share - 4.5
14.9 13.5
The Directors have proposed a final dividend of 17.9 pence per
share for 2018. This is subject to shareholders' approval at the
Annual General Meeting and we have therefore not included it as a
liability in these financial statements.
8. INTANGIBLE ASSETS
Separately Software
Brand, identified Including
multiplier acquired Assets Patents,
contracts intangible Under licence
Technology and customer assets Construction and Total Goodwill
relationships IntelliGen other
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Cost
Balance at 1
July
2016 46.6 72.7 119.3 6.9 17.8 2.6 146.6 86.0
Additions - - - 0.9 3.1 1.5 5.5 -
Acquisition 6.7 7.4 14.1 - - - 14.1 16.2
Reclassified
from
tangible
fixed
assets - - - 1.0 - - 1.0 -
Effect of
movements
in exchange
rates 0.1 2.2 2.3 - 0.4 - 2.7 2.5
Balance at 30
June 2017 53.4 82.3 135.7 8.8 21.3 4.1 169.9 104.7
Additions - - - 3.6 1.1 - 4.7 -
Reclassified
from
tangible
fixed
assets - - - 1.9 - - 1.9 -
Transfer
between
classes (1.3) - (1.3) 1.3 - - - -
Disposals - - - - - (0.2) (0.2) -
Effect of
movements
in
exchange
rates (0.4) (1.8) (2.2) (0.2) (0.2) - (2.6) (2.7)
Balance at 30
June 2018 51.7 80.5 132.2 15.4 22.2 3.9 173.7 102.0
Amortisation
and
impairment
losses
Balance at 1
July
2016 22.1 40.9 63.0 5.4 - 0.2 68.6 -
Reclassified
from
tangible
fixed
assets - - - 0.7 - - 0.7 -
Amortisation
for
the year 2.7 6.0 8.7 1.3 0.4 0.8 11.2 -
Effect of
movements
in exchange
rates - 1.0 1.0 0.1 - - 1.1 -
Balance at 30
June 2017 24.8 47.9 72.7 7.5 0.4 1.0 81.6 -
Reclassified
from
tangible
fixed
assets - - - 0.4 - - 0.4 -
Amortisation
for
the year 3.0 6.5 9.5 1.4 2.1 0.8 13.8 -
Effect of
movements
in
exchange
rates (0.1) (0.7) (0.8) - - - (0.8) -
Balance at 30
June 2018 27.7 53.7 81.4 9.3 2.5 1.8 95.0 -
Carrying
amounts
At 30 June
2018 24.0 26.8 50.8 6.1 19.7 2.1 78.7 102.0
At 30 June
2017 28.6 34.4 63.0 1.3 20.9 3.1 88.3 104.7
At 30 June
2016 24.5 31.8 56.3 1.5 17.8 2.4 78.0 86.0
Included within the Software class of assets is GBP3.4m of costs
capitalised in relation to software assets that are in the course
of construction. Of this, GBP2.6m relates to the on-going
development of Genus One, a unified enterprise-wide business
system.
9. BIOLOGICAL ASSETS
Fair value of biological assets Bovine Porcine Total
GBPm GBPm GBPm
Non-current biological assets 146.3 118.3 264.6
Current biological assets - 66.4 66.4
Balance at 30 June 2016 146.3 184.7 331.0
Increases due to purchases 11.9 176.0 187.9
Decreases attributable to sales - (197.8) (197.8)
Decrease due to harvest (40.7) (19.3) (60.0)
Changes in fair value less estimated sale
costs 10.3 66.0 76.3
Acquisition 5.4 - 5.4
Effect of movements in exchange rates 4.3 6.0 10.3
Balance at 30 June 2017 137.5 215.6 353.1
Non-current biological assets 137.5 171.8 309.3
Current biological assets - 43.8 43.8
Balance at 30 June 2017 137.5 215.6 353.1
Increases due to purchases 9.1 117.3 126.4
Decreases attributable to sales - (194.7) (194.7)
Decrease due to harvest (35.5) (20.0) (55.5)
Changes in fair value less estimated sale
costs (4.2) 99.9 95.7
Acquisition (see note 14) - 25.1 25.1
Effect of movements in exchange rates (2.9) (4.4) (7.3)
Balance at 30 June 2018 104.0 238.8 342.8
Non-current biological assets 104.0 201.8 305.8
Current biological assets - 37.0 37.0
Balance at 30 June 2018 104.0 238.8 342.8
Bovine biological assets include GBP6.7m (2017: GBP6.9m)
representing the fair value of bulls owned by third parties but
managed by the Group, net of expected future payments to such third
parties, which are therefore treated as assets held under finance
leases.
There were no movements in the carrying value of the bovine
biological assets in respect of sales or other changes during the
year.
The current market-determined post-tax rate used to discount
expected future net cash flows from the sale of bull semen is the
Group's weighted risk adjusted cost of capital. This has been
assessed as 8.7% (2017: 8.0%).
Decreases due to harvest represent the semen extracted from the
biological assets. Inventories of such semen are shown as
biological asset harvest.
Included in increases due to purchases is the aggregate increase
arising during the year on initial recognition of biological assets
in respect of multiplier purchases, other than parent gilts, of
GBP47.7m (2017: GBP87.0m).
Decreases attributable to sales during the year of GBP194.7m
(2017: GBP197.8m) include GBP71.9m (2017: GBP66.6m) in respect of
the reduction in fair value of the retained interest in the
genetics of animals, other than parent gilts, transferred under
royalty contracts.
Also included is GBP88.2m (2017: GBP111.0m) relating to the fair
value of the retained interest in the genetics in respect of
animals, other than parent gilts, sold to customers under royalty
contracts in the year.
Total revenue in the year, including parent gilts, includes
GBP157.2m (2017: GBP159.5m) in respect of these contracts,
comprising GBP48.9m (2017: GBP54.0m) on initial transfer of animals
to customers and GBP108.3m (2017: GBP105.5m) in respect of
royalties received.
For pure line porcine herds, the net cash flows from the
expected output of the herds are discounted at the Group's required
rate of return, adjusted for the greater risk implicit in including
output from future generations. This adjusted rate has been
assessed as 11.0% (2017: 11.0%). The number of future generations
which have been taken into account is seven (2017: seven) and their
estimated useful lifespan is 1.4 years (2017: 1.4 years).
Year ended 30 June 2018
Bovine Porcine Total
GBPm GBPm GBPm
Net IAS 41 valuation movement on biological
assets*
Changes in fair value of biological assets (4.2) 99.9 95.7
Inventory transferred to cost of sales at
fair value (29.8) (20.0) (49.8)
Biological assets transferred to cost of
sales at fair value - (75.1) (75.1)
(34.0) 4.8 (29.2)
Fair value movement in related financial
derivative - 0.5 0.5
(34.0) 5.3 (28.7)
Year ended 30 June 2017
Bovine Porcine Total
GBPm GBPm GBPm
Net IAS 41 valuation movement on biological
assets*
Changes in fair value of biological assets+ 10.3 66.0 76.3
Inventory transferred to cost of sales at
fair value (38.8) (19.3) (58.1)
Biological assets transferred to cost of
sales at fair value - (18.8) (18.8)
(28.5) 27.9 (0.6)
Fair value movement in related financial
derivative - (0.5) (0.5)
(28.5) 27.4 (1.1)
*This represents the difference between operating profit
prepared under IAS 41 and operating profit prepared under
historical cost accounting, which forms part of the reconciliation
to adjusted operating profit.
+includes GBP2.1m write down in bovine assets.
10. TRADE AND OTHER RECEIVABLES
2018 2017
GBPm GBPm
Trade receivables 73.9 73.7
Other debtors 5.3 5.4
Prepayments and accrued income 10.3 7.8
Other taxes and social security 1.5 1.9
91.0 88.8
Trade receivables
The average credit period our customers take on the sales of
goods is 58 days (2017: 59 days). We do not charge interest on
receivables for the first 30 days from the date of the invoice. We
provide for all receivables based on knowledge of the customer and
historical experience, and estimate irrecoverable amounts by
reference to past default experience.
No customer represents more than 5% of the total balance of
trade receivables (2017: nil).
At 30 June 2018, GBP55.4m (2017: GBP56.4m) of trade receivables
were not yet due for payment.
11. RETIREMENT BENEFIT OBLIGATIONS
The Group operates a number of defined contribution and defined
benefit pension schemes covering many of its employees. The
principal funds are the Milk Pension Fund and Dalgety Pension Fund
in the UK, which are defined benefit schemes. The assets of these
funds are held separately from the assets of the Group and are
administered by trustees and managed professionally. These schemes
are closed to new members.
The financial positions of the defined benefit schemes, as
recorded in accordance with IAS 19 and IFRIC 14, are aggregated for
disclosure purposes. The liability split by principal scheme is set
out below.
2018 2017
GBPm GBPm
The Milk Pension Fund - Genus's share 24.2 30.4
The Dalgety Pension Fund - -
Other retirement benefit obligations and
other unfunded schemes 9.7 10.5
Overall net pension liability 33.9 40.9
Overall, we expect to pay GBP7.5m (2018: GBP7.3m) in
contributions to defined benefit plans in the
2019 financial year.
Summary of movements in Group deficit during the year
2018 2017
GBPm GBPm
Deficit in schemes at the start of
the year (40.9) (44.5)
Administration expenses (0.4) (0.6)
Exceptional gain on NMR withdrawal
from MPF - 1.2
Contributions paid into the plans 7.3 7.2
Net pension finance cost (1.0) (1.2)
Actuarial gain recognised during the
year 43.4 1.2
Movement in restriction of assets (2.5) 0.3
Recognition of additional liability (39.4) (4.3)
Reclassified from accruals (0.5) -
Exchange rate adjustment 0.1 (0.2)
Deficit in schemes at the end of the
year (33.9) (40.9)
The expense/(income) is recognised in the following line items
in the Income Statement
2018 2017
GBPm GBPm
Administrative expenses 0.4 0.6
Exceptional gain on NMR withdrawal from MPF - (1.2)
Net finance charge 1.0 1.2
1.4 0.6
Actuarial assumptions and sensitivity analysis
Principal actuarial assumptions at the reporting date (expressed
as weighted averages):
2018 2017
Discount rate 2.90% 2.65%
Consumer Price Index (CPI) 1.95% 2.05%
Retail Price Index (RPI) 3.05% 3.15%
The mortality assumptions used are consistent with those
recommended by the schemes' actuaries and reflect the latest
available tables, adjusted for the experience of the scheme where
appropriate. For 2018, the mortality tables used are 97% of the
S2NA tables, with birth year and 2017 CMI projections with a
smoothing parameter of Sk = 7.5, subject to a long-term rate of
improvement of 1.25% for males and females (2017: the mortality
tables used are 97% of the S2NA tables, with birth year and 2014
CMI projections, subject to a long-term rate of improvement of
1.25% for males and females).
12. NOTES TO THE CASH FLOW STATEMENT
2018 2017
GBPm GBPm
Profit for the year 41.6 34.3
Adjustment for:
Net IAS 41 valuation movement on biological
assets 28.7 1.1
Amortisation of acquired intangible assets 9.5 8.7
Share-based payment expense 5.4 4.6
Share of profit of joint ventures and associates (4.2) (6.2)
Finance costs (net) 4.6 3.7
Income tax expense (33.8) 6.4
Exceptional items 5.9 2.5
Adjusted operating profit from continuing
operations 57.7 55.1
Depreciation of property, plant and equipment 10.4 8.8
(Profit)/loss on disposal of plant and equipment (0.1) 0.2
Amortisation of intangible assets 4.3 2.5
Adjusted earnings before interest, tax,
depreciation and amortisation 72.3 66.6
Exceptional item cash (4.9) (5.4)
Other movements in biological assets and
harvested produce (1.9) (5.7)
Increase in provisions 1.7 0.1
Additional pension contributions in excess
of pension charge (6.9) (6.6)
Other (2.0) (0.9)
Operating cash flows before movement in
working capital 58.3 48.1
(Increase)/decrease in inventories (4.2) 1.4
Increase in receivables (5.7) (9.0)
Increase in payables 9.9 5.8
Cash generated by operations 58.3 46.3
Interest received 0.2 0.8
Interest and other finance costs paid (3.9) (3.1)
Cash flow from derivative financial instruments 0.2 0.6
Income taxes paid (11.6) (10.0)
Net cash from operating activities 43.2 34.6
Analysis of net debt
At 1 July Net cash Foreign Non-cash At 30 June
2017 flows exchange movements 2018
GBPm GBPm GBPm GBPm GBPm
Cash and cash equivalents 26.5 3.3 (0.7) - 29.1
Interest-bearing loans -
current (7.7) (2.6) 0.1 (3.2) (13.4)
Obligation under finance
leases -
current (1.4) 2.2 - (2.2) (1.4)
(9.1) (0.4) 0.1 (5.4) (14.8)
Interest-bearing loans -
non-current (127.2) 4.7 1.8 - (120.7)
Obligation under finance
lease - non-
current (1.8) - - (0.3) (2.1)
(129.0) 4.7 1.8 (0.3) (122.8)
Net debt (111.6) 7.6 1.2 (5.7) (108.5)
Included within non-cash movements is GBP5.3m in relation to
other unsecured borrowings and new finance leases.
13. CONTINGENCIES AND BANK GUARANTEES
Contingent liabilities are potential future cash outflows, where
the likelihood of payments is considered more than remote but is
not considered probable or cannot be measured reliably.
The retirement benefit obligations referred to in note 11
include obligations relating to the Milk Pension Fund defined
benefit scheme. Genus, together with other participating employers,
is joint and severally liable for the scheme's obligations. Genus
has accounted for its section and its share of any orphan assets
and liabilities, collectively representing approximately 86% (2017:
85%) of the MPF. As a result of the joint and several liability,
Genus has a contingent liability for the scheme's obligations that
it has not accounted for.
The Group's future tax charge and effective tax rate could be
affected by factors such as countries reforming their tax
legislation to implement the OECD's BEPS recommendations and by
European Commission initiatives including state aid
investigations.
At 30 June 2018, we have entered into bank guarantees totalling
GBP1.0m.
14. DEFERRED CONSIDERATION
During the year, we recognised the value of Møllevang Genetics
and made deferred consideration payments totalling GBP1.8m in
respect of our previous acquisitions of De Novo Genetics and
Hermitage Genetics.
Avlscenter Møllevang A/S ('Møllevang')
On 14 November 2017, Genus PIC announced that commencing 2 July
2018, it had entered into a strategic relationship with Møllevang,
a leading independent Danish porcine genetics company. After 2 July
2018, Møllevang became an elite porcine genetics production partner
for PIC in Denmark and will continue to distribute elite genetics
to the Danish market and certain other countries.
As all material conditions for completion of the transaction
with Møllevang under the terms of the subscription agreement were
fulfilled at the balance sheet date, we have recognised the value
of the genetics acquired in biological assets and a related total
deferred consideration of GBP23.5m was recorded in current and
non-current liabilities.
The preliminary amounts recognised in respect of the
identifiable assets acquired, are set out in the table below.
GBPm
Biological assets acquired (see note 9) 25.1
Satisfied by:
Cash consideration 1.6
Deferred consideration - Current 19.3
Deferred consideration - Non-current 4.2
25.1
15. NON-CONTROLLING INTEREST
2018 2017
GBPm GBPm
Non-controlling interest 5.7 6.1
Put option over non-controlling
interest (3.2) (3.3)
Total non-controlling interest 2.5 2.8
Summarised financial information in respect of each of the
Group's subsidiaries that has a material non-controlling interest
is set out below. The summarised financial information below
represents amounts before intra-Group eliminations.
2018 2017
De Novo Genetics GBPm GBPm
Biological assets 10.7 10.2
Current assets 0.7 1.4
Non-current assets 3.1 2.4
Current liabilities (4.2) (2.1)
Net assets 10.3 11.9
Equity attributable to owners
of the Company (5.2) (6.1)
Non-controlling interest for
De Novo Genetics 5.1 5.8
Other non-controlling interest 0.6 0.3
Non-controlling interest 5.7 6.1
No dividends were paid to non-controlling interests (2017:
GBP0.1m).
16. POST BALANCE SHEET EVENTS
On 2 July 2018, Genus PIC and Møllevang, a leading independent
Danish porcine genetics company, signed an exclusive distribution
agreement for Denmark, entered into a sireline nucleus agreement
and Genus PIC purchased 49% of Møllevang. In accordance with the
subscription agreement, Genus PIC paid GBP19.3m on 2 July 2018.
Møllevang will be an elite porcine genetics production partner for
PIC in Denmark and will continue to distribute elite genetics to
the Danish market and certain other countries.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
FR LLFEDATIEIIT
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