Final Results

Genus PLC 25 May 2001 25 May 2001 Genus plc Preliminary Results for the Year ended 31 March 2001 Genus plc, ('Genus') the international agriculture and technology specialists trading in 63 countries, announces preliminary results for the year ended 31 March 2001. Key Points * Final five weeks of the period under review impacted by foot and mouth disease (FMD) in the UK. * Turnover up 22% to £163 million (£134 million) * Underlying* operating profit up 18% to £8.6 million (£7.3 million) * Underlying* pre-tax profit increased to £6.1 million (£5.9 million) * Underlying* earnings per share before estimated impact of FMD 14.7 pence (15.1 pence) but reduced to 12.2 pence after including the effect of FMD * Strong cash generation reduced Group debt by £7m and gearing reduced to 42%, ahead of an expectation of 50% * Dividend maintained at 4.5 pence per share, marking the confidence the Board has in business returning to normality in the coming year. * International diversity and reputation of Breeding Division minimised detrimental effect of FMD, and produced an underlying* operating profit up 69% to £7.8 million. * UK Consulting Division restricted by FMD but major contracts won by international consulting division in Nigeria, Bangladesh and Guyana. * New management team appointed to Distribution Division and new systems now commissioned. New customers being actively pursued in a competitive market, no longer growing as in previous years. * An analysis of our estimation £ of the effect of FMD is shown below:- 2001 2001 2000 Before FMD After FMD £m £m £m Sales 164.7 162.9 133.7 Underlying* operating profit 9.8 8.6 7.3 Interest charges (2.5) (2.5) (1.4) Underlying* pre-tax profit 7.3 6.1 5.9 Amortisation of goodwill Exceptional charges (1.9) (1.9) (1.0) (0.9) (0.9) (0.7) Property gains - - 0.9 Pre-tax profit 4.5 3.3 5.1 Underlying EPS 14.7p 12.2p 15.1p John Beckett, Chairman of Genus, commenting on the results and prospects said: 'During the last four years, the world agricultural recession has continued and the UK market has suffered a temporary reversal because of FMD. This has led to many of the competitors in the UK breeding and consultancy sectors becoming severely loss making. Despite this, Genus has remained profitable and, indeed, we believe its core Breeding Division is now one of the most profitable cattle breeding businesses in the world, with an underlying* operating return on sales of 11% and a return on capital employed of 18%.' 'Against this background, the Board is confident that it will be able to drive an improvement to shareholder value once the FMD crisis is over and more normal market conditions have returned.' * Before exceptionals and amortisation of goodwill £ The impact is estimated by comparison of previous expectations with actual results and imputing an effective tax rate. For further information: Genus Tel: + 44 (0)1270 536 500 Richard Wood, Chief Executive Philip Acton, Finance Director Buchanan Communications Tel: + 44 (0)20 7466 5000 Charles Ryland / Catherine Miles Business Performance Breeding Division The international diversity and quality of the Company's core Breeding Division produced growth in both turnover, up 50% to £71 million, and underlying operating profit, up 69% to £7.8 million, despite the impact of FMD. This includes estimated losses equivalent to £0.7 million from FMD. The US company ABS Global Inc., acquired for £26.7 million in November 1999, continued to be highly successful and its integration has provided operating economies, as well as an enhancement to Genus' technology and international diversity. However, approximately half the Breeding Division's turnover is sold direct to UK farmers. While semen sales in the UK have continued to farmers in areas unaffected by FMD, sales and income generated from the nationwide insemination service have been severely constrained since the outbreak began, with no business at all in restricted areas. We mitigated profit reduction from lost turnover by reducing UK staff salaries by 20% in March, from the Board downwards. We also subcontracted surplus agricultural technicians and veterinary staff to MAFF to assist with the efforts to control foot and mouth disease. Consulting Division The Consulting Division has approximately half its turnover either directly or indirectly derived from UK agriculture or agriculture related businesses. Unsurprisingly, it has been even more heavily hit by FMD, as clients have understandably felt that consultancy visits to farms should be postponed in the interests of improving the bio-security of their farms. Business with corporate clients supplying the agricultural sector has similarly been postponed in order to mitigate their own losses in the sector. On a more positive note, International Consulting, about one third of this Division's turnover, has been particularly buoyant this year. The Division has won major new contracts in Nigeria, Bangladesh and Guyana, resulting in operating profit nearly doubling in the year to £450,000. However, this Government aid related business is at a relatively low margin. Overall, consultancy sales increased by 7% and underlying operating profit was depressed to £1.1 million, down 28% on last year, after including estimated FMD losses of £0.4 million. Distribution Division During the year, we announced that there had been a temporary setback in the performance of the veterinary wholesaling business, Genusxpress, which used to generate about half the operating profits of the Distribution Division. This occurred in August and September 2000 when approximately 10% of the business' customers were lost as a result of technical and managerial problems which reduced customer service at a time when the business was commissioning a new computer system. Rapid remedial action was taken and a new management team was installed in October. It has arrested the business decline, commissioned the computer system, returned customer service to the previous high level and has begun the quest for winning back lost customers and attracting new ones. However, in a veterinary market already affected by the agricultural recession and, more recently by FMD, the decline in turnover in large animal practices is now more than offsetting any growth in small animal business. As a consequence, the restoration of Genusxpress' business will be slow to achieve and the previous growth potential of the marketing business, Animalcare, has been reduced by the same market effect. Overall, Distribution Division sales increased by 6% but underlying operating profit reduced by 68% to £0.7 million (£2.1 million), largely through the impact of the problems at Genusxpress which began at the end of the first half of the year. The reduced profitability thus occurred in the second half, during which the business carried some temporary additional costs while problems were rectified. The impact of FMD was estimated at £0.1 million, as vets diverted away from normal business into FMD diagnosis. Summary The overall corporate impact of FMD occurred during the last five weeks of the year and reduced pre-tax profit by an estimated £1.2 million. This, together with the increased equity base, due to the fund raising of £2 million during the flotation on the Alternative Investment Market (AiM) in July 2000, has resulted in underlying EPS reducing to 12.2 pence (15.1 pence). However, without the impact of FMD, underlying EPS would have been similar to last year at 14.7 pence. Gearing Despite the temporary restrictions on growth in the Group's underlying operating profit this year, actions taken to enhance cash generation have reduced Group debt by £7 million. This has reduced gearing to 42%, well ahead of our expectations. Dividend Because of the confidence the Board has in the potential for recovery in the business once the FMD epidemic is behind us, we will be recommending maintenance of the dividend at 4.5 pence per share, to be paid on 7 September 2001 to shareholders on the register at the close of business on 10 August 2001 with an ex-dividend date of 8 August 2001. The Market Outlook The agricultural market in Latin America is continuing to grow strongly as is the Far East. Other world agricultural markets will remain flat. The decline in cow numbers in the UK experienced during the last four years will continue the overall UK market decline in the short-term and the UK agricultural market will remain very challenging throughout the first quarter of the new financial year. Despite taking appropriate measures to mitigate the impact of FMD in the UK, Group profit will continue to be depressed by up to £1 million a month, until UK farming returns to a more normal level. Thereafter, the Board believes that UK milk and livestock prices will harden, creating optimism and increased demand for both consultancy advice and genetics from Genus semen to restore culled herds and expand others. This should ensure that the business improves in a generally more buoyant agricultural economy. The Board believes that the Government will be using the impact of the FMD outbreak to hasten the consolidation and restructuring of UK farming. However, the Board believes the supply and demand for milk products in the UK will remain stable, so this will have no adverse impact on the UK potential of Genus' business. With the Company's new international strength, we expect to be able to achieve a modest increase in market share in the UK, and elsewhere in the world, during the current year which will help offset some of the short-term downside from FMD in the UK. In Distribution, winning new customer accounts has been achieved with 14 customers having been won during the period from January to March 2001. This followed the stabilisation of the business and a period of consolidation between October and December to demonstrate to potential customers that customer service had returned to normal. However, with the current flat veterinary pharmaceutical market, all growth must come from increased market share and this is difficult to achieve without reducing margins. Several new initiatives to promote the business have been launched. All the ingredients are now in place to effect a regeneration, however, progress will be relatively slow until some measure of market growth returns. In the smaller but higher margin Animalcare business, applications for six new veterinary pharmaceutical licences were made during 2000, with the first expected to be granted during the first quarter of the new financial year. The potential from this increasing range should ensure strong growth in both profit and sales in the coming and subsequent years. Conclusion In the last two years, the Board has improved profitability by diversifying the Company to reduce the proportion of profits originating from recessionary prone CAP agriculture and has cut costs to improve productivity. We have globalised the core Breeding business with the aim of being better able to afford the £9 million per year investment currently necessary to test around 300 bulls a year. The Board judges this to be the minimum size of programme capable of maintaining world class competitiveness. During the last four years, the world agricultural recession has continued and the UK market has suffered an additional temporary reversal because of FMD. This has led to many of the competitors in the UK breeding and consultancy sectors becoming severely loss making. Despite this, Genus has remained profitable and, indeed, we believe its core Breeding Division is now one of the most profitable cattle breeding businesses in the world, with an underlying operating return on sales of 11% and a return on capital employed of 18%. As the world-wide breeding industry has considerable excess capacity and is mainly supplied by non-profit making co-ops with restrictive trade practices and with European countries particularly favouring those co-operative suppliers, profitable growth from increasing market share is difficult to achieve. However, there is considerable potential for breeding industry rationalisation and a potential to increase profits significantly from eliminating duplicated R&D and other costs, in the way Genus has gained from the synergies achieved by the ABS Global Inc. acquisition. Funding such a major rationalisation would be impractical at this time, because of the Group's relatively high gearing and low share price. However, the Board believes that the Group's performance and share price has been adversely affected by FMD which has reduced the results in all Divisions. The dramatic impact of FMD and the reversals in the Genus Distribution Division are both considered to be temporary. Against this background, the Board is confident that it will be able to drive an improvement to shareholder value once the FMD crisis is over and more normal market conditions have returned. CONSOLIDATED PROFIT AND LOSS ACCOUNT for the year ended 31 March 2001 2001 2000 £000 £000 TURNOVER Continuing operations 160,347 130,891 Discontinued operations 2,527 2,843 162,874 133,734 Underlying operating profit 8,587 7,305 Amortisation of goodwill (1,927) (985) Acquisition and new business start up costs (445) (685) Flotation costs (124) - OPERATING PROFIT 6,091 5,635 Of which: Continuing operations 6,184 5,461 Discontinued operations (93) 174 Loss on disposal of business (322) - (Loss)/profit on disposal of properties (7) 849 Interest receivable and similar income 97 236 Interest payable and similar charges (2,600) (1,610) PROFIT ON ORDINARY ACTIVITIES BEFORE TAXATION 3,259 5,110 Tax on profit on ordinary activities (1,683) (1,705) PROFIT ON ORDINARY ACTIVITIES AFTER TAXATION 1,576 3,405 Minority interests - equity (78) 27 PROFIT FOR THE FINANCIAL YEAR 1,498 3,432 Dividends on equity shares (1,596) (1,354) RETAINED (LOSS)/PROFIT FOR THE YEAR (98) 2,078 Earnings per share - underlying 12.2p 15.1p - basic 4.7p 13.0p - diluted 4.5p 12.3p Dividend per share 4.5p 4.5p STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES 2001 2000 £000 £000 Profit for the financial year 1,498 3,432 Exchange difference on the re-translation of net assets of subsidiary undertakings 3,188 149 Tax on exchange differences (813) - Total recognised gains and losses relating to the year 3,873 3,581 CONSOLIDATED BALANCE SHEET At 31 March 2001 2001 2000 £000 £000 FIXED ASSETS Intangible assets 33,318 33,485 Tangible assets 18,904 19,979 Investments 1,828 678 54,050 54,142 CURRENT ASSETS Stocks 14,191 14,542 Debtors 30,679 32,281 Cash at bank and in hand 5,085 2,375 49,955 49,198 CREDITORS: amounts falling due within one year 43,452 46,751 NET CURRENT ASSETS 6,503 2,447 TOTAL ASSETS LESS CURRENT LIABILITIES 60,553 56,589 CREDITORS: amounts falling due after more than one year 11,161 12,788 PROVISIONS FOR LIABILITIES AND CHARGES 988 62 ACCRUALS AND DEFERRED INCOME 34 36 EQUITY MINORITY INTERESTS 155 65 NET ASSETS 48,215 43,638 CAPITAL AND RESERVES Called up share capital 3,281 3,060 Share premium account 33,881 31,698 Profit and loss account 11,053 8,880 EQUITY SHAREHOLDERS' FUNDS 48,215 43,638 CONSOLIDATED STATEMENT OF CASH FLOWS for the year ended 31 March 2001 2001 2000 £000 £000 NET CASH INFLOW FROM OPERATING ACTIVITIES 15,150 13,600 RETURNS ON INVESTMENTS AND SERVICING OF FINANCE Interest received and similar income 97 236 Interest paid (2,431) (1,444) Issue costs on new long term loans - (425) Interest element of finance lease and hire purchase rental payments (96) (141) Dividends paid to minority interests - (48) NET CASH OUTFLOW FROM RETURNS ON INVESTMENTS AND SERVICING OF FINANCE (2,430) (1,822) TAXATION Corporation tax paid (1,134) (1,485) Overseas tax paid (1,625) (641) (2,759) (2,126) CAPITAL EXPENDITURE AND FINANCIAL INVESTMENT Payments to acquire intangible fixed assets (14) (4) Payments to acquire tangible fixed assets (3,900) (3,632) Payments to acquire investments (1,184) (534) Receipts from sales of intangible fixed assets - 529 Receipts from sales of tangible fixed assets 839 3,374 NET CASH OUTFLOW ON CAPITAL EXPENDITURE (4,259) (267) ACQUISITIONS AND DISPOSALS Purchase of subsidiaries and businesses (413) (53,763) Net cash and bank overdrafts acquired - 3,598 Receipts from sale of business 346 - (67) (50,165) EQUITY DIVIDENDS PAID (1,473) (972) NET CASH IN/(OUT) FLOW BEFORE MANAGEMENT OF LIQUID RESOURCES AND FINANCING 4,162 (41,752) CONSOLIDATED STATEMENT OF CASH FLOWS for the year ended 31 March 2001 2001 2000 £000 £000 NET CASH IN(OUT)/FLOW BEFORE MANAGEMENT OF LIQUID RESOURCES AND FINANCING 4,162 (41,752) MANAGEMENT OF LIQUID RESOURCES Decrease in short-term deposits 80 4,220 4,242 (37,532) FINANCING Issue of loan notes - 6,247 Repayment of loan notes (1,608) (199) New bank loans 1,845 21,250 Repayment of bank loans (6,959) (5,189) Finance leases 713 404 Repayments of capital element of finance lease and hire purchase rental payments (832) (1,431) Issue of ordinary share capital 2,300 9,661 NET CASH (OUT)/INFLOW FROM FINANCING (4,541) 30,743 DECREASE IN CASH (299) (6,789) ANALYSIS OF CHANGES IN NET (DEBT)/FUNDS DURING THE YEAR Reconciliation of net cash flow to movement in net (debt)/funds: 2001 2000 £000 £000 Decrease in cash in year (299) (6,789) Cash inflow from short term deposits (80) (4,220) (379) (11,009) Issue of loan notes - (6,247) Repayment of loan notes 1,608 199 New bank loans (1,845) (21,250) Repayment of bank loans 6,959 5,189 Issue costs on new long term loans - 425 New finance leases (713) (404) Repayment of capital element of finance lease 832 1,431 contracts Acquisitions - bank loans - (3,589) Change in net debt resulting from cash flows 6,462 (35,255) Exchange differences 570 (319) Other (73) (25) Movement in net debt 6,959 (35,599) Net (debt)/ funds at 1 April (27,395) 8,204 Net debt at 31 March (20,436) (27,395) NOTES 1 TURNOVER AND SEGMENTAL ANALYSIS Turnover, which is stated net of value added tax and overseas sales taxes, represents amounts invoiced to third parties. Underlying Turnover operating profit Net assets 2001 2000 2001 2000 2001 2000 £000 £000 £000 £000 £000 £000 Area of Activity Breeding 71,317 47,642 7,811 4,618 42,664 43,322 Consultancy 32,708 30,415 1,111 1,543 8,469 8,785 Distribution 58,877 55,751 686 2,148 19,196 21,752 162,902 133,808 9,608 8,309 70,329 73,859 Inter-segmental sales (28) (74) - - - - Unallocated - - (1,021) (1,004) (22,114) (30,221) 162,874 133,734 8,587 7,305 48,215 43,638 Unallocated costs within operating profit are common corporate costs Operating profit 2001 2000 £000 £000 Area of Activity Breeding 6,611 4,103 Consultancy 905 1,348 Distribution (188) 1,188 7,328 6,639 Inter-segmental sales - - Unallocated (1,237) (1,004) 6,091 5,635 Geographical region of origin Turnover Operating profit Net assets 2001 2000 2001 2000 2001 2000 £000 £000 £000 £000 £000 £000 United Kingdom 119,271 116,395 2,281 5,166 58,063 61,552 Europe 6,363 2,458 515 (146) 955 (1,803) North America 29,845 12,593 4,107 1,648 7,646 11,433 Rest of the World 7,395 2,288 425 (29) 3,665 2,677 162,874 133,734 7,328 6,639 70,329 73,859 Unallocated - - (1,237) (1,004) (22,114) (30,221) 162,874 133,734 6,091 5,635 48,215 43,638 TURNOVER AND SEGMENTAL ANALYSIS (continued) Geographical region of destination Turnover 2001 2000 £000 £000 United Kingdom 98,346 99,685 Europe 14,111 11,460 North America 25,361 11,272 Rest of the World 25,056 11,317 162,874 133,734 The segmental analysis includes the following results from the disposal of the human pharmaceutical business within Distribution made during the year: Geographical region of origin Region of destination Turnover Operating profit Turnover 2001 2000 2001 2000 2001 2000 £000 £000 £000 £000 £000 £000 United Kingdom 2,527 2,843 (93) 174 2,527 2,843 2 RECONCILIATION OF OPERATING PROFIT TO NET CASH FLOW OPERATING ACTIVITIES 2001 2000 £000 £000 Operating profit 6,091 5,635 Depreciation 4,459 3,759 Amortisation of milk quota 7 22 Amortisation of goodwill 1,927 985 Profit on disposal of fixed assets (20) (369) Deferred government grants (2) (3) Decrease in stocks 424 657 Decrease in debtors 2,053 3,293 Increase/(decrease) in creditors 211 (379) 15,150 13,600 3 ANALYSIS OF CHANGES IN NET DEBT DURING THE YEAR At At 31 1 April Cash March 2000 flows Other 2001 £000 £000 £000 £000 Cash at bank and in hand 1,595 4,385 Bank overdrafts (3,447) (5,920) Cash (1,852) (299) 616 (1,535) Liquid resources (*) 780 (80) - 700 Bank loans (19,250) 5,114 (108) (14,244) Loan notes (6,048) 1,608 - (4,440) Obligations under finance leases and hire purchase contracts (1,025) 119 (11) (917) (27,395) 6,462 497 (20,436) * Liquid resources include short term deposits of less than one year and are included within cash at bank and in hand in the balance sheet. 4 EARNINGS PER SHARE The basic earnings per share is based on profit for the financial year of £ 1,498,000 (2000: £3,432,000) and the weighted average number of ordinary shares in issue of 32,140,000 (2000: 26,454,000). The underlying earnings per share is based on the underlying earnings as set out below: 2001 2000 £000 £000 Profit for the financial year 1,498 3,432 Add: Amortisation of goodwill 1,927 985 Acquisition and new business start up costs 445 685 Flotation costs 124 - Less: Loss/(profit) on disposal of properties and business 329 (849) 4,323 4,253 Less: Associated taxation on adjustments (393) (255) Underlying earnings 3,930 3,998 The diluted earnings per share is based on profit for the financial year of £1,498,000 (2000: £3,432,000) and on 32,930,000 (2000: 27,862,000) diluted ordinary shares as set out below: 2001 2000 000's 000's Basic weighted average number of shares 32,140 26,454 Dilutive potential ordinary shares: Employee share options 790 1,408 32,930 27,862 5 FINANCIAL STATEMENTS This preliminary statement of results was approved by the Board on 24 May 2001. The figures for the year ended 31 March 2001 are unaudited and do not constitute full accounts within the meaning of Section 240 of the Companies Act 1985. The figures for the year ended 31 March 2000 have been extracted from the accounts for 2000, which have been delivered to the Registrar of Companies. The auditors have reported on those accounts; their report was unqualified and did not contain statements under section 237(2) or (3) of the Companies Act 1985. Statutory accounts 2001 will be delivered to the Registrar of Companies following the Annual General Meeting. The preliminary statement of results complies with relevant accounting standards and should be read in conjunction with the Annual Report 2000. It has been prepared using accounting standards set out in that report, as modified in order to comply with the requirements of Financial Reporting Standard 19 'Deferred Taxation' and has therefore provided for deferred taxation in full. The impact of adopting the standard on the 2001 results amounted to an increase of £199,000 on the tax charge for the year due to deferred tax. There is no effect on the results of previous periods. The policies are in accordance with accounting principles generally accepted in the United Kingdom and have been applied on a basis consistent with that applied in 2000. 6 The Annual Report and Notice of Annual General Meeting will be posted to shareholders during July 2001.

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