Final Results
Genus PLC
23 May 2002
FOR IMMEDIATE RELEASE 23 MAY 2002
GENUS plc
Preliminary Results for the year ended 31 March 2002
Genus plc, the international agri-technology Group, announces strong trading
results for the year ended 31 March 2002.
Highlights
2002 2001
Group turnover £160.2m £159.5m
(continuing operations)
Underlying* profit before tax £7.6m £6.4m up 19%
(continuing operations)
Pre-tax profit £5.7m £3.9m up 46%
(continuing operations)
Underlying* EPS 14.8p 12.9p up 15%
(continuing operations)
Final dividend 4.75p 4.50p up 6%
Net debt £15.4m £20.4m down 25%
Gearing 32% 42%
* Before exceptional items, amortisation of goodwill and acquisition and float
costs.
• Breeding - 47% of turnover
- 35% organic profit growth achieved.
- Market share increased in our primary markets of USA and UK.
- 'Machoman', a Genus Holstein Friesian bull, acclaimed in February
2002 number one in world by US Dept of Agriculture.
• Consulting - 20% of turnover
- Many UK farm consultants were unable to visit clients due to Foot &
Mouth Disease (FMD) until February 2002.
- Recovery following FMD now underway.
- New contracts won with DTI, DFID, DEFRA and WDA.
• Distribution - 33% of turnover
- Recovery evident when compared with second half of last year.
- Profit contribution up 17% over 2001.
- Cost cutting reorganisation to assist further recovery next year.
Commenting on prospects Richard Wood, Chief Executive, said:
'The Breeding business' market leadership will ensure it remains strong,
although the conditions for profit growth during the last year were exceptional.
We confidently expect to report further good progress next year with a
recovery in Consulting and more progress with Distribution.'
Richard Wood, Chief Executive
Philip Acton, Finance Director
Genus plc Tel: 01270 536501
Charles Ryland/Nicola How
Buchanan Communications Ltd Tel: 020 7466 5000
Results Overview
Group turnover from continuing operations in the year to 31 March 2002 increased
by 0.4% to £160.2 million from £159.5 million in 2001, despite the impact of
Foot & Mouth Disease (FMD) and a slow recovery in the Distribution Division.
However, turnover in the core Breeding Division increased by 4.5% to £74.5
million.
Underlying operating profit from continuing operations increased by 5.6% from
£8.9 million to £9.4 million due mainly to the strong contribution from
Breeding, up 35% to £10.6 million and the beginnings of a recovery in
Distribution, up 17% to £0.8 million. These improvements were offset by losses
of £1.0 million from Consulting after charging £300,000 of re-organisation and
one-off costs aimed at assisting recovery in 2002/3. As announced with the
interim results, the first stage of the Consulting Division re-organisation was
the divestment of a loss making subsidiary which included the write-back and
write-off of £1.0 million of goodwill. Group overheads were reduced to £0.9
million compared with £1.0 million in both 2000 and 2001.
The strong cash flow of the Group, supported by controls placed on capital
spending to offset the reduced performance from Consulting, decreased net debt
by 25% to £15.4 million. This, together with the lower prevailing interest
rates, reduced net interest charges by 27% from £2.5 million to £1.8 million.
This boosted Group underlying pre-tax profit from continuing operations which
increased by 19% to £7.6 million from £6.4 million in 2001.
Non-trading exceptional items comprised gains on property sales of £0.5 million
and, as announced on 10 October 2001 following the closure of Gensel, the
investment of £1.8 million in Gensel shares was written off.
The net result was that pre-tax profit from continuing operations increased by
46% to £5.7 million from £3.9 million in 2001. Underlying EPS increased by 15%
to 14.8 pence. The above mentioned write-offs were disallowable for tax
purposes and the Group profit generation has, this year, tilted towards higher
charging tax regimes resulting in a 1% increase in the underlying tax rate to
35%.
On the basis of these good results, the Board will be recommending an increase
in dividend by 6% resulting in a full year dividend of 4.75 pence per share
(2001:4.5 pence) to be paid on 9 September 2002 to shareholders on the register
at the close of business on 9 August 2002 with an ex-dividend date of 7 August
2002.
Breeding Division
This international Division is the world's leading bovine genetics business. It
spent over £8 million during the year on research and development using
laboratory techniques to enhance genetic improvement of cattle. It sells this
improvement in the semen it supplies to farmers.
During the year, the Division emerged strongly from the potential threat to its
business from FMD in the UK.
Worldwide sales of £74.5m were 4.5% higher than last year. The international
strength of the business enabled it to increase its market share in its largest
markets, the USA and the UK. Prices and margins improved so that underlying
operating profit increased by 35% from £7.8 million to £10.6 million.
Immediate and decisive management action was taken in the UK to mitigate the
effects of FMD. The UK operations were temporarily re-structured so that a full
insemination service could be offered in areas unaffected by FMD while semen
deliveries were maintained in infected areas. Under-utilised staff were
subcontracted to the Government to assist with the management of the outbreak.
Despite Genus' herds being completely unaffected by FMD, additional biosecurity
controls restricted the collection and distribution of semen from the UK stud.
To continue to provide service to customers, increased quantities of semen from
Genus owned bulls in the USA and Canada were made available to UK farmers.
The Division's international position and quality of its stud strengthened
trading elsewhere in the world.
In Brazil, operations were refocused in the second half of the year to emphasize
high margin product imported from the USA to offset the falling contribution
from the local stud following the 30% currency devaluation in the first half of
the year. As a result, profit contribution was held at last year's level
despite the consequent fall in sales volume in the second half year. Strong
results were also achieved in Italy, Saudi Arabia, and the Far East.
The high quality of the Division's research was further demonstrated when, in
February 2002, the Holstein Friesian bull, 'Machoman', was acclaimed, by the US
Department of Agriculture (USDA), number one in the world.
On 11 October 2001, following the closure of Gensel, the Group wrote off the
investment of £1.8 million in Gensel stock. The failure of Gensel to raise
funds to sustain its research programme has stopped the potential of an
invention by Gensel to enable bulk quantities of semen to be sexed. Instead,
the Division's research is now focusing on production of high fertility semen to
improve pregnancy rates.
Outlook - Breeding
The unrivalled research and market leading strength of this business is expected
to drive continued profitable growth. However, this year's result had a net
benefit from some positive exceptional trading events that will not recur next
year. Depressed milk prices in the UK may slow the domestic dairy farming
recovery, although international prospects remain good.
Consulting Division
This international Division offers business and market consultancy to UK
farmers, multi-nationals, food processors, food retailers and international
Governments. Some of its international work is funded by overseas aid funds.
In the UK, many of the farm business consultants were unable to visit their
clients for much of the year, with a complete return to business not possible
before February 2002, when the country was finally declared free of FMD. A
downturn also occurred in the Market Consultancy sector as multi-national
clients delayed work following the events of 11 September. This had a
particular impact in the Washington DC and Newbury offices.
The global aid related consultancy business remained strong throughout the year
and maintained its profit contribution.
A major re-structuring of Divisional operations began in the first half of the
year with the divestment of a loss making subsidiary. This was followed, in the
second half, by a cost cutting re-organisation. Non-recurring costs totalling
£300,000 will help re-position the Division for recovery.
This recovery is already well underway in the farming sector with full farm
service now re-established, albeit in a somewhat depleted market. Fee
generation has been enhanced by winning a number of DTI, DEFRA and Welsh
Development Agency (WDA) contracts aimed at helping farmers to recover.
In Market Consultancy, recent new contracts with a Swiss food producer and a UK
supermarket chain have heralded a return to more normal trading with
multi-nationals. This sector of the business remains depressed, although the
launch of some updated versions of the Division's annual market research
appraisals should aid recovery.
Outlook - Consulting
Some recovery was evident in the second half year with a reduced loss from
continuing business, before one-off and re-organisation costs. The lower
operational costs since the re-organisation will encourage a strong recovery in
all depressed sectors during 2002/3.
Distribution Division
This UK Division wholesales veterinary pharmaceuticals as well as marketing
licensed pharmaceuticals and other products to the veterinary profession.
This year, the Division made a slow recovery from the acute business reversal
which occurred in the second half of 2001. Then, Division profitability reduced
from £737,000 in the first half of 2001 to near breakeven in the second half.
Throughout the 2002 financial year, the strong market growth of previous years
has slowed considerably. This resulted in increased competition and limited the
potential for recovery. During the first half year, the business was
stabilised, new accounts were won, but, some counter-balancing account losses
continued during this transition period.
Against this background and the potentially longer duration before a full
business recovery could be achieved, a cost cutting re-organisation was included
in the second half year. The one-off costs of the re-organisation depressed
profits by approximately £40,000 this year.
By December, the customer base had accepted the new strength of the Division's
trading position and, since then, there have been no further customer losses and
a net gain of 14 accounts, which have an annualised sales potential approaching
£1.0 million.
In the marketing business, the newly licensed anaesthetic, 'Isocare', gained
market ground and sales of the market leading 'idENTICHIP', used to identify
companion animals, increased by 12.6% in a market now serviced by nine
competitive products.
After including the cost of the re-organisation, year end Divisional profits
were increased by 17% over 2000/1 to £805,000.
Outlook - Distribution
The recent Office of Fair Trading enquiry into veterinary medicines found that
the market leader and competitor to Genus, NVS, a subsidiary of Dechra
Pharmaceuticals plc, had a scale monopoly. It has yet to decide whether this
monopoly operates against the public interest. Should this be the case, it
would benefit Genusxpress.
More generally, market growth is expected to continue at the new lower base
established this year. The business environment will, therefore, remain
strongly competitive. Against this tough background, the Division expects to
continue its recovery, benefiting from the cost savings introduced towards the
end of the second half of the reporting year.
The marketing business remains strong and is expected to continue its profit
growth. This will be enhanced by a further new licensed anaesthetic, to be
launched at the end of this month.
Share Capital
Since moving to AiM in July 2000, the Company has become increasingly aware of
the unusual nature and diversity of its register of approximately 27,000
shareholders, many of whom are customer shareholders who were allocated a small
quantity of shares when the Company was formed. This diversity has created
great volatility in the share price. Supply and demand for shares has been
regularly out of balance and the average size of share transactions has been
very small.
In an effort to create more stability, we will attempt, this year, to initiate
changes aimed at achieving a more balanced share register with an increased
number of large shareholders. As an initial phase of this endeavour, the
Company will, when circumstances are appropriate, enter the market to buy back
small share holdings as they become available. The objective will be to issue
new shares, in blocks of sufficient size to enable institutional investors to
achieve their desired quotas. The Board believes that this will provide those
shareholders who wish to sell shares with an additional source of demand and
thereby increase liquidity, whilst enabling other shareholders to avoid the
dilution that an issue of new equity would otherwise create.
The overall objective of this, and any subsequent initiatives necessary, will be
to increase the proportion of institutional shareholding in Genus, which
currently represents slightly less than 25%.
In order to give the Board flexibility to issue new shares efficiently and cost
effectively when opportunities arise, shareholders will be asked at the next
Annual General Meeting to agree to the disapplication of pre-emption rights for
issues of up to 10% of the current equity base. Further details on the above
initiative will be included in the Report and Accounts which will propose
resolutions to renew and extend the existing shareholder authorities for
consideration at the AGM.
Group Prospects
The Group has demonstrated that decisive management and the strength of its
business portfolio can mitigate against severe adverse market conditions. The
Breeding business' market leadership will ensure it remains strong, although the
conditions for profit growth during the last year were exceptional. Against
this background, we confidently expect to report further progress next year with
a recovery in Consulting and more progress with Distribution.
CONSOLIDATED PROFIT AND LOSS ACCOUNT
for the year ended 31 March 2002
Continuing Operations Discontinued Total Total
Before Exceptional Operations 2002 2001
Exceptional
Items Items
£000 £000 £000 £000 £000
TURNOVER
Continuing operations 160,197 - - 160,197 159,519
Discontinued operations - - 224 224 3,355
160,197 - 224 160,421 162,874
Underlying operating profit/(loss) 9,390 - (192) 9,198 8,587
Amortisation of goodwill (1,894) - - (1,894) (1,927)
Acquisition and float costs - - - - (569)
OPERATING PROFIT/(LOSS) 7,496 - (192) 7,304 6,091
Of which:
Continuing operations 7,496 - - 7,496 6,384
Discontinued operations - - (192) (192) (293)
Loss on disposal of discontinued - - (1,181) (1,181) (322)
operations
Profit/(loss) on disposal of properties - 458 - 458 (7)
Write down of investment - (1,809) - (1,809) -
Interest receivable and similar income 66 - - 66 97
Interest payable and similar charges (1,890) - - (1,890) (2,600)
PROFIT/(LOSS) ON ORDINARY ACTIVITIES BEFORE
TAXATION
5,672 (1,351) (1,373) 2,948 3,259
Tax on profit on ordinary activities (2,394) - 45 (2,349) (1,683)
profit/(LOSS) on ordinary activities after
taxation
3,278 (1,351) (1,328) 599 1,576
Minority interests - equity (34) - - (34) (78)
PROFIT/(LOSS) FOR THE FINANCIAL YEAR 3,244 (1,351) (1,328) 565 1,498
Dividends on equity shares (1,580) (1,596)
RETAINED LOSS FOR THE YEAR (1,015) (98)
Earnings per share - underlying 14.8p 12.9p
- basic 1.7p 4.7p
- diluted 1.7p 4.5p
Dividend per share 4.75p 4.5p
STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES
2002 2001
£000 £000
Profit for the financial year 565 1,498
Exchange difference on the re-translation of net assets
of subsidiary undertakings (164) 3,188
Tax on exchange differences 101 (813)
------ ------
Total recognised gains and losses relating to the year 502 3,873
CONSOLIDATED BALANCE SHEET
At 31 March 2002
2002 2001
£000 £000
FIXED ASSETS
Intangible assets 31,298 33,318
Tangible assets 16,602 18,904
Investments 76 1,828
47,976 54,050
CURRENT ASSETS
Stocks 14,726 14,191
Debtors 29,511 30,679
Cash at bank and in hand 2,703 5,085
46,940 49,955
CREDITORS: amounts falling due within one year 37,620 43,452
NET CURRENT ASSETS 9,320 6,503
TOTAL ASSETS LESS CURRENT LIABILITIES 57,296 60,553
CREDITORS: amounts falling due after more than one year 8,026 11,161
PROVISIONS FOR LIABILITIES AND CHARGES 711 988
ACCRUALS AND DEFERRED INCOME 33 34
EQUITY MINORITY INTERESTS 194 155
NET ASSETS 48,332 48,215
CAPITAL AND RESERVES
Called up share capital 3,325 3,281
Share premium account 34,138 33,881
Profit and loss account 10,869 11,053
EQUITY SHAREHOLDERS' FUNDS 48,332 48,215
CONSOLIDATED STATEMENT OF CASH FLOWS
for the year ended 31 March 2002
2002 2001
£000 £000
NET CASH INFLOW FROM OPERATING ACTIVITIES 12,099 15,150
RETURNS ON INVESTMENTS AND SERVICING OF FINANCE
Interest received and similar income 66 97
Interest paid (1,686) (2,431)
Interest element of finance lease and hire purchase rental payments (131) (96)
Dividends received from investments 47 -
NET CASH OUTFLOW FROM RETURNS ON INVESTMENTS AND SERVICING OF FINANCE (1,704) (2,430)
TAXATION
Corporation tax paid (568) (1,134)
Overseas tax paid (1,147) (1,625)
(1,715) (2,759)
CAPITAL EXPENDITURE AND FINANCIAL INVESTMENT
Payments to acquire intangible fixed assets - (14)
Payments to acquire tangible fixed assets (3,445) (3,900)
Payments to acquire investments (120) (1,184)
Receipts from sales of tangible fixed assets 1,185 839
NET CASH OUTFLOW ON CAPITAL EXPENDITURE (2,380) (4,259)
ACQUISITIONS AND DISPOSALS
Purchase of subsidiaries and businesses (19) (413)
Receipts from sale of subsidiaries 167 -
Net cash and bank overdrafts disposed of 13 346
161 (67)
EQUITY DIVIDENDS PAID (1,481) (1,473)
NET CASH INFLOW BEFORE MANAGEMENT OF LIQUID RESOURCES AND FINANCING 4,980 4,162
2002 2001
£000 £000
NET CASH INFLOW BEFORE MANAGEMENT OF LIQUID RESOURCES AND FINANCING 4,980 4,162
MANAGEMENT OF LIQUID RESOURCES
Decrease in short-term deposits 700 80
5,680 4,242
FINANCING
Repayment of loan notes (989) (1,608)
New bank loans - 1,845
Repayment of bank loans (2,545) (6,959)
Finance leases 297 713
Repayments of capital element of finance lease and hire purchase
rental payments
(630) (832)
Issue of ordinary share capital 173 2,300
NET CASH OUTFLOW FROM FINANCING (3,694) (4,541)
INCREASE/(DECREASE) IN CASH 1,986 (299)
ANALYSIS OF CHANGES IN NET DEBT DURING THE YEAR
Reconciliation of net cash flow to movement in net debt:
2002 2001
£000 £000
Increase/(decrease) in cash in year 1,986 (299)
Cash inflow from short term deposits (700) (80)
1,286 (379)
Repayment of loan notes 989 1,608
New bank loans - (1,845)
Repayment of bank loans 2,545 6,959
New finance leases (297) (713)
Repayment of capital element of finance lease contracts 630 832
Change in net debt resulting from cash flows 5,153 6,462
Exchange differences (71) 570
Other (73) (73)
Movement in net debt 5,009 6,959
Net debt at 1 April (20,436) (27,395)
Net debt at 31 March (15,427) (20,436)
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
2002 2001 2002 2001 2002 2001
£000 £000 £000 £000 £000 £000
Area of activity
Breeding 74,518 71,317 10,551 7,811 39,301 42,664
Consultancy 32,708 32,708 (1,212) 1,111 7,982 8,469
Distribution 53,218 58,877 805 686 20,118 19,196
160,444 162,902 10,144 9,608 67,401 70,329
Inter-segmental sales (23) (28) - - - -
Unallocated - - (946) (1,021) (19,069) (22,114)
160,421 162,874 9,198 8,587 48,332 48,215
Unallocated costs within operating profit are common corporate costs.
Operating profit
2002 2001
£000 £000
Area of activity
Breeding 9,581 6,611
Consultancy (1,412) 905
Distribution 81 (188)
8,250 7,328
Unallocated (946) (1,237)
Group operating profit 7,304 6,091
Geographical region of origin
Turnover Operating profit Net assets
2002 2001 2002 2001 2002 2001
£000 £000 £000 £000 £000 £000
United Kingdom 116,542 119,271 2,626 2,281 52,442 58,063
Europe 6,063 6,363 992 515 2,195 955
North America 30,799 29,845 4,079 4,107 9,567 7,646
Rest of the World 7,017 7,395 553 425 3,197 3,665
160,421 162,874 8,250 7,328 67,401 70,329
Unallocated - - (946) (1,237) (19,069) (22,114)
160,421 162,874 7,304 6,091 48,332 48,215
Geographical region of destination
Turnover
2002 2001
£000 £000
United Kingdom 96,637 98,346
Europe 14,496 14,111
North America 26,438 25,361
Rest of the World 22,850 25,056
160,421 162,874
1 TURNOVER AND SEGMENTAL ANALYSIS (continued)
The segmental analysis includes the following results from discontinued
activities all of which are in the United Kingdom
Turnover Operating loss
2002 2001 2002 2001
£000 £000 £000 £000
Consultancy 224 828 (192) (200)
Distribution - 2,527 - (93)
224 3,355 (192) (293)
2 RECONCILIATION OF OPERATING PROFIT TO NET CASH FLOW FROM OPERATING
ACTIVITIES
2002 2001
£000 £000
Operating profit 7,304 6,091
Depreciation 3,984 4,459
Amortisation of milk quota 8 7
Amortisation of goodwill 1,894 1,927
Loss/(profit) on disposal of fixed assets 222 (20)
Deferred government grants (1) (2)
(Increase)/decrease in stocks (298) 424
Decrease in debtors 558 2,053
(Decrease)/increase in creditors (1,572) 211
12,099 15,150
3 ANALYSIS OF CHANGES IN NET DEBT DURING THE YEAR
At At
1 April Cash 31 March
2001 flows Other 2002
£000 £000 £000 £000
Cash at bank and in hand 4,385 2,703
Bank overdrafts (5,920) (2,396)
Cash (1,535) 1,986 (144) 307
Liquid resources (*) 700 (700) - -
Bank loans (14,244) 2,545 - (11,699)
Loan notes (4,440) 989 - (3,451)
Obligations under finance leases and
hire purchase contracts (917) 333 - (584)
(20,436) 5,153 (144) (15,427)
* 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
£565,000 (2001: £1,498,000) and the weighted average number of ordinary shares
in issue of 32,894,000 (2001: 32,140,000).
The underlying earnings per share is based on the underlying earnings as set out
below:
2002 2001
£000 £000
Profit for the financial year 565 1,498
Add: Amortisation of goodwill 1,894 1,927
Acquisition and float costs - 569
Write down of investments 1,809 -
Loss on disposal of properties and business 723 329
Loss on discontinued operations 192 293
5,183 4,616
Less: Associated taxation on adjustments (301) (481)
Underlying earnings 4,882 4,135
The diluted earnings per share is based on profit for the financial year of
£565,000 (2001: £1,498,000) and on 33,170,000 (2001: 32,930,000) diluted
ordinary shares as set out below:
2002 2001
000's 000's
Basic weighted average number of shares 32,894 32,140
Dilutive potential ordinary shares:
Employee share options 276 790
33,170 32,930
5 FINANCIAL STATEMENTS
This preliminary statement of results was approved by the Board on 22 May 2002.
The figures for the year ended 31 March 2002 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 2001 have been extracted from the accounts
for 2001, 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 for the year ending 31 March 2002 will be delivered to the
Registrar of Companies following the Annual General Meeting.
The preliminary statement of results should be read in conjunction with the
Annual Report 2001. It has been prepared on the basis of accounting policies
which are in accordance with accounting principles generally accepted in the
United Kingdom and have been applied on a basis consistent with those applied in
2001.
6 The Annual Report and Notice of Annual General Meeting will be posted
to shareholders during July 2002.
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