Final Results

Genus PLC 24 May 2005 FOR IMMEDIATE RELEASE 24 May 2005 GENUS plc Preliminary Results for the year ended 31st March 2005 Record Profits Genus plc, (AIM:GNS) the world leading bovine genetics company, announces record Group profits for the year ended 31st March 2005. Financial Highlights 2005 2004 % Change Group turnover £183.2m £183.7m - Profit before tax £8.8m £8.1m +9% Profit after tax £6.4m £5.3m +21% Basic EPS 17.6p 15.5p +14% Final dividend per share 7.5p 6.5p +15% Operational Highlights • Group - Profit before tax up 9% to £8.8m; (£8.1m in 2004) - Profit after tax up 21% to £6.4m; (£5.3m in 2004) - Basic EPS up 14% - Research related tax incentives reduced the effective ongoing tax rate by 2% - 1.7m shares issued and placed with institutions to improve the liquidity in the Company's shares • Bovine Genetics - Sales up 6% to £85.7m (£80.7m in 2004) at constant exchange rates. (Translation impact was a negative £2.1m). - Sales volume up 3.2% to 9.5m doses (2004: 9.2m); prices up in many markets - Strong results to December 2004 were tempered by a slow down in the fourth quarter as UK and European markets temporarily adjusted to the introduction of new agricultural support mechanisms - Underlying operating profit of £11.0m at constant exchange rates was up 4%; (£10.6m in 2004). Translation impact was a negative £0.3m - Small UK acquisition mid-year has increased market share in South West England • Other businesses - Planned reduction in low margin bulk trading in Animal Health reduced sales by £4.2m but improved margins - Animal Health underlying operating profit up 19% to £1.9m (£1.6m in 2004) - Development Consulting underlying operating profit up 4% to £0.79m (£0.76m in 2004) Commenting on prospects Richard Wood, Chief Executive, said: 'We are pleased to report record results with another strong improvement in Group profits'. 'In Bovine Genetics, we expect the UK and European markets to return to a more normal trend. Early signs are already evident'. 'Internationally, the competitiveness of the stud has again improved dramatically with the addition of six new high ranking bulls. This increase, together with further investment in the sales force in the USA, will hasten our activity in that market. Operating productivity improvements resulting from the global reorganisation should offset inflationary pressures'. 'We expect both Animal Health and Development Consultancy to continue to grow at historical rates. New product introductions to the range of exclusively marketed veterinary pharmaceuticals should underpin profitable growth in Animal Health, despite extreme price competition in Veterinary Wholesaling.' 'Overall, we view Group prospects positively'. Contacts: Richard Wood Chief Executive 01256 347101 David Timmins Group Finance Director 01256 347102 Genus plc Charles Ryland/Suzanne Brocks 020 7466 5000 Buchanan Communications - ends - About Genus: Genus is the world's leading Bovine Genetics company. At the core of its business lies an approximately £9m per year research and development programme. Laboratory bioscience is used to target and augment traditional mating and selection programmes testing 400 new bulls each year. The rolling five year programme aims continuously to improve the genetic make-up of the successive generations of the bulls created. Semen from the bulls selected from this programme for stud is sold for use on customers' herds, to improve the output and stature of their offspring. Genus distributes beef and dairy semen, both for tropical and temperate agricultures, from its six studs located in four continents to farmers in seventy countries. It operates an unrivalled network of overseas selling offices and exclusive agents. In some countries it also offers insemination services and the sale of supporting products. In the UK, Genus Animalcare markets licensed veterinary pharmaceuticals and Genusxpress wholesales a range of other companies' veterinary pharmaceuticals and products. Genus also operates an overseas consultancy practice which manages projects funded by aid agencies for less developed countries. Genus offers unrivalled expertise in its sector of modern agricultural technology. Chairman's Statement In this, my first year as Chairman of Genus plc, I am pleased to be able to report yet another year of record profits. Group turnover was £183.2m (£183.7m in 2004). At constant exchange rates (applying 2003/2004 exchange rates to 2004/2005 results), Group turnover was £185.3m, an increase of 1% on prior year. Bovine Genetics was up 6% at constant exchange rates and Development Consulting was up 6%. Animal Health turnover was down £4.2m to £76.2m (£80.4m in 2004) due to a deliberate policy of exiting some very low margin bulk trade in wholesaling. Group underlying operating profit before non-recurring charges, was up 4% to £11.8m (£11.4m in 2004). Non-recurring charges in the current year totalling £0.4m related to securing the Research & Development tax credits and consultancy and redundancy costs regarding the global re-organisation for Bovine Genetics referred to in the Chief Executive's report. The Bovine Genetics contribution to Group underlying operating profit of £11.0m (£10.6m in 2004), was up 4% at constant exchange rates, but was reduced by £0.3m to £10.7m due to the impact of the weak US dollar. By December 2004, Bovine Genetics was well ahead of last year's underlying operating profit. However, a stronger performance for the full year was held back, in the final quarter, because of temporary market uncertainties in the UK and Europe prior to the recent implementation of a new European Union agricultural subsidy regime. In the other businesses, underlying operating profit together increased by 12% to £2.7m; (£2.4m in 2004). Animal Health's underlying operating profit contribution was up 19% to £1.9m (£1.6m in 2004), despite the competitive veterinary wholesale market. Development Consulting's underlying operating profit of £0.79m, was up 4% (£0.76m in 2004) despite having absorbed the cost of opening a new office in Pakistan. Operating profit before exceptional and non-recurring charges and goodwill amortisation was up 8% to £11.8m (£10.9m in 2004). The net result was a 9% increase in profit before tax to £8.8m (£8.1m in 2004). The reduced tax rate resulting from current and retrospective tax rebates on R&D expenditure, largely in the USA, further improved profit after tax which rose by 21% to £6.4m (£5.3m in 2004). Basic earnings per share increased by 14% to 17.6 pence (15.5 pence in 2004), despite the Group having issued and placed with institutions 1.7m new shares, partly to fund a small UK acquisition for Bovine Genetics, and thereby improving liquidity in the company's shares. Share Capital The Board made considerable progress with its strategy for restructuring the share register to improve liquidity. A voluntary buyback scheme was implemented in November 2004. This procedure reduced the number of small shareholders by 3,500, or 19% (13% of total number of shareholders), by acquiring 1,589,974 shares into treasury. These shares, together with 699,470 shares issued as a result of the exercise of executive options, were then placed with new and existing institutional investors. As a result, the percentage of issued shares now held by institutions has increased from 37% to 45%. The Board will continue to keep under review options for further restructuring of the share register to improve the liquidity of the Company's shares. I am pleased to be able to inform shareholders that Genus plc shares have been included in the new FTSE AIM 50 Index of top companies launched on 16th May 2005. Dividend Because of the continued confidence the Board has in the long-term strategy for growth, it is recommending a record dividend of 7.5 pence (6.5 pence in 2004). This dividend will be 2.7 times covered by underlying earnings. Subject to shareholder approval at the Company's AGM, this dividend will be paid on 30th August 2005 to shareholders on the register at the close of business on 5th August 2005 with an ex-dividend date of 3rd August 2005. Board Changes I succeeded John Beckett as Chairman of the Board upon his retirement at the Annual General Meeting held on 12th August 2004. I would like to thank John for his considerable contribution to the success of Genus as the inaugural Chairman. During his stewardship, Genus has evolved from being a small UK private company to become a public company which is world leader in its sector. John Worby was appointed to the Board on 1st September 2004 and replaced me as Chairman of the Audit Committee. His strong financial background means he is well qualified for this role. New Accounting Reference Date The Board has been considering for some time the desirability of changing the accounting reference date from 31st March to 30th June. The seasonal nature of the Bovine Genetics business means that peak selling seasons straddle both the interim and final reporting dates. Also, the Board is aware that for comparative purposes it would be useful to align with the accounting reference dates of public companies in our sector. Accordingly, the Board proposes to effect a change to 30th June 2006 by issuing interim reports for the six months ending 30th September 2005, for the twelve months ending 31st March 2006 and then Group Report & Accounts for the fifteen month period ending 30th June 2006. Outlook We view the Group's future positively. We are confident of the improving prospects and long term potential for Bovine Genetics. We expect the UK and Europe to return to a more normal trend, with farmers adjusting to the new support mechanisms. Indeed, early signs are already evident. Internationally, the competitiveness of the stud has again improved dramatically with the addition of six new high ranking bulls. Also, an extension to the sales force in the USA will hasten our activity in that market. Operating productivity improvements resulting from the re-organisation should offset inflationary pressures. The decision to maintain the location of a large part of the cost base in the USA rather than the UK, should provide a natural hedge against some of the profit impact of any adverse Dollar exchange movements. We expect both Animal Health and Development Consultancy to continue to grow at historical rates. New product introductions to the range of exclusively marketed veterinary pharmaceuticals should underpin profitable growth in Animal Health, despite extreme price competition in veterinary wholesaling. John Hawkins, Chairman 24 May 2005 Chief Executive's Review Group Strategy At the beginning of the financial year, the Board met to review group strategy and the five year business plan. The strategy for development involves:- • Concentration on Bovine Genetics over the long term. • Increasing the level of intellectual property, directly owned or exclusively licensed, in both Bovine Genetics and Animal Health. • Driving underlying sales and achieving profit growth from improved margins and increased productivity in all businesses, pending achievement of a step change through: - a product differentiating R&D invention in Bovine Genetics and/or; - synergy through major international acquisition in the Bovine Genetics or related sectors. • Continuing to improve the liquidity of the company's shares by initiating buybacks, placings and issuing shares in preference to other types of funding for small as well as large acquisitions, but balancing earnings dilution. Operating Progress This year, all three businesses improved their market penetration. To reduce costs and improve productivity in the core Bovine Genetics business, we began to re-organise distribution operations worldwide. Bovine Genetics now sells to 70 countries from six studs on four continents. Until recently, effort has been concentrated on improving the R&D investment, maximising global product availability and reducing the overlap within the studs. This year we began a two year project aimed at harmonising country operations and removing superfluous costs by beginning to operate as one worldwide business, rather than an amalgamation of independent country businesses. In the USA, the retail sales force was extended by a further twenty six people as part of a plan aimed at reducing dependency on distribution agents. We expect this investment in the future to hasten penetration of the large US market. We have also extended distribution strength in the UK by acquiring the Supersires insemination business from the French co-operative competitor. In Animal Health we began to extend intellectual property by applying for a product licence for a new veterinary pharmaceutical therapeutic. Details of the operating results for the three businesses are set out below:- Bovine Genetics - 45% of Group Turnover This international business uses bio-technology to drive genetic change in beef and dairy cattle. This year it sold 9.5m doses of semen (9.2m doses in 2004) sourced from the Group's six bull studs on four continents to farmers in 70 countries. Sales increased by £5m, up 6%, to £85.7m (£80.7m in 2004) at constant exchange rates but the weakening of the US Dollar reduced the increase on translation by £2.1m to £83.6m. The business had a good year until the final quarter when a change in the EU agricultural price support mechanism temporarily changed farmers' buying patterns in the UK and Continental Europe. By the end of the third quarter, underlying operating profit was well ahead of the same period last year but then slowed to achieve a 4% underlying increase to £11.0m (£10.6m in 2004) for the year as a whole at constant exchange rates, before the translation impact of £0.3m relating to the weak US dollar. Throughout the year in the UK and Europe, farmers faced the most major change to their subsidy regime for a decade but few industry changes were noticeable until close to the first phase implementation dates in February and March 2005. At that stage, farmers were forced into making lifestyle decisions as the subsidies changed in some markets from being output related to being based on the acreage and historical receipts. The less efficient farmers needed to consider whether to retire over the next few years or continue. In anticipation of selling their herds, some farmers stopped buying Holstein semen to impregnate their animals in favour of cheaper beef semen, which achieves a milk producing pregnancy, but without producing a replacement calf for the herd. We judge this change to be of a temporary nature pending quotas being released by exiting farmers to the more efficient farmers who are ultimately Genus' best customers. Even against this background, sales volume in the UK was up by 2.7% and UK insemination numbers increased by 3%, despite cow numbers being down, as they have been in each of the last ten years because of industry consolidation. Elsewhere in the world business was strong, particularly in the large US market, Canada, Mexico and Latin America. Prices for Holstein semen were steady and beef semen prices increased. In the USA, milk prices were buoyant and this provided a 'feel good' factor for farmers. With the Canadian border remaining closed because of BSE, US farmers were unable to buy-in replacements for their herds from Canada and so used more higher priced dairy semen to breed their own replacements. Dairy semen prices increased, beef semen volume improved and the sale of support products increased. Sales in Canada were also strong, primarily due to a strengthened product range that had specific appeal to pedigree breeders. This was possible despite a challenging market environment due to continuing cases of BSE and the closed export border with the USA. Mexico had an exceptional year locally with sales up 15%. However, the translation impact of its weak currency negated much of the profit benefit. In Brazil, sales were up by 18% on 2004 in local currency and drove through a strong profit uplift underpinned by cost savings initiated last year. The new business in Chile, acquired from the Genus agent in March 2004, developed sales and profits strongly. Volume was up 40% on last year as the sales team concentrated business development in the cow-dense area of Southern Chile. Taking advantage of the improved economic stability in Latin America, towards the end of the financial year, we re-opened operations in the massive Argentinian market and trade has recommenced after the extended closure caused by of the economic uncertainties of the past. Australia proved more of a difficult market, with farming still depressed in the aftermath of the drought eighteen months ago. As a result, the agricultural support industry experienced financial difficulties with many wholesalers and distributors being forced to liquidate or amalgamate. This has made Genus' route to market more challenging, as Australia is the only major market in the world in which we do not have ultimate control of our own distribution. Accordingly, we have begun to set up a Genus owned distribution network and have already made one small acquisition upon which to base this new network. Finally, we had a most successful year in Japan with sales volume up 47%. We were able to raise prices because of the strength of our product portfolio. Research & Development Genus' biotechnology strategy aims selectively to concentrate on projects which will differentiate its products in addition to improving the hit rate in the core genetic selection process. Indeed, Genus' application of short-term bioscience advances to those established processes has already made it the most successful Bovine Genetics company in the industry. As it takes five years from the inclusion of a bull in the development programme to produce commercial test results, we believe that the identification of the traits likely to be important in the market in five years time to be as important as the hit rate in selecting the right bull. Genus used its extensive knowledge of world agriculture to predict in 1999 and 2000 that longevity traits would increase in importance and this has proved to be a correct analysis. Also, we decided to restrict further investment in gene marking technology to that of a watching brief in a science we believe to be of a very long-term nature. Instead, we will be increasing our investment in projects related to improving the fertility of our customers' herds, judged to be a most important trait for the future. This year, in February, Genus introduced six new bulls to the world top ranking league table while all its competitors added none. The additional traits available from the new bulls introduced this year will enable farmers to breed progeny with special longevity characteristics. The semen now beginning to be sold from these new stud bulls will achieve premium prices. Last year, the bio-technology programmes developed a particle separation process to be used in separating male and female sperm. Independently, a flow system has since been constructed, capable of handling multi-dose volumes of semen. The immediate challenge is to bring these two technologies together. An alternative sexed semen project, which enhances the proportion of females in standard semen doses, is now moving to preliminary field trials. The pregnancy ratios achieved by co-operator farmers in their herds in many disparate locations will be used to establish whether the invention provides sufficient added value to achieve a beneficial marketable effect. Animal Health - 42% of Group Turnover This year the focus was on expanding the higher margin licensed pharmaceutical business whilst exiting, as planned, some very low margin bulk trade in wholesaling. The latter reduced sales by £4.2m but improved the average margin in the business. Sales and profit growth in the licensed pharmaceutical business contributed to a 19% increase in overall divisional underlying operating profit to £1.9m. Like-for-like sales in Veterinary Wholesaling remained level in the face of increased competitor activity. After some account losses in the early part of the year, marketing and selling initiatives secured recent account gains which increased fourth quarter sales by 3% compared with the prior year. The Wholesaling business continued to invest in improving the service offered to customers and to achieve operational efficiency improvements. The latest project involves a £300,000 investment in '2D' data matrix bar coding which will improve order picking accuracy and reduce waste. '2D' bar coding also makes it easier for veterinary practices to trace their stock through batch numbers and expiry dates. In the licensed pharmaceutical business, there were notable advances in all products but particularly from the idENTICHIP, especially the innovative idENTICHIP with Bio-Thermo, from the Aqupharm range of IV fluids and from database related products and services. In the course of the year, we concluded an international licence and supply agreement with a major supplier of human generic pharmaceuticals. This will lead shortly to the submission for registration in the UK of the product for veterinary use. It is a generic version of a widely used companion animal pharmaceutical. The UK submission will be followed by regulatory submissions in other major European markets. We are also in the final stages of negotiations with two other multinational companies concerning the development and acquisition of international rights to intellectual property which should see the submission of two more regulatory dossiers in the new financial year. These investments in new pharmaceutical products and intellectual property are in line with the strategic decision by the Group to maximise the potential of this sector of the veterinary business. Development Consulting 13% of Group Turnover Based in the UK, Development Consulting increased its turnover by 6% to £24.0m (£22.7m in 2004). This business provides programme management and consulting services to the UK Government, the EU and overseas aid agencies. Most projects are in less developed countries. In response to changing client requirements, the business began a process of establishing offices in key overseas regions. The first was opened in Pakistan during 2004. The aim is to benefit from the flow of international development funds to Afghanistan and other Asian markets. Amongst notable projects in progress at the year end were: 1. Kyrgyzstan Republic - Support to the Village Investment Programmes. This continues the successful four-year programme previously reported. 2. Vietnam - Support for the small and medium Enterprise Development Funds. 3. Georgia - Financial management for the Ministry of Agriculture and Food. 4. UK/Ireland - Project for the EC's LIFE Environment programme. Africa has become a strategic new market for Development Consulting. The very large UK government funded State and Local Government Programme in Nigeria continued to be a focus of the company's work. At the year end, Genus was named preferred bidder for a project to establish a Policy and Knowledge Facility in the same country. The business also won contracts in South Africa and Uganda. Governments and international development agencies have increased sharply their commitments to Africa, for example through the Prime Minister's initiative, the Commission for Africa. The Development Consultancy Division has had 50 years experience in the region and operates with a strong team of specialists with African experience. It will be well placed to participate in the expanded programmes that are planned. Richard Wood, Chief Executive 24 May 2005 Finance Director's Review Operating Results Group operating profit before goodwill amortisation increased by £1.0m (10%) to £11.4m (2004: £10.4m) with all divisions achieving increases over the prior year. At constant exchange rates, group operating profit before goodwill amortisation would have been £0.3m higher at £11.7m, an increase of 13% over the prior year. In the face of challenging conditions in some of the Bovine Genetics markets, and the highly competitive Veterinary Wholesale market, Group focus has been on improving margin. This has been achieved for all divisions for the reporting year. Group operating margin, before goodwill amortisation, increased from 5.7% to 6.2% of sales. A one-off consultancy expense for £0.2m and a £0.1m redundancy cost have been incurred in the year in respect of a globalisation strategy in Bovine Genetics to improve operating efficiencies and achieve cost savings, the main benefits of which will accrue over the next two years. A further one-off cost for £0.1m was for specialist tax advice. This related to current and retrospective claims for Research & Development expenditure in the USA and the UK. A charge of £0.1m has been accrued with respect to first time application of UITF 17, regarding the Executive Performance Share Plan. As part of the global re-organisation for Bovine Genetics, we are integrating operations in the UK regarding bull rearing and lay-off. As a result, one major agricultural facility is being closed in phases and sold in lots. The first major lot was sold during the year and realised £0.3m cash and generated a profit of £0.3m. Further lots are expected to be sold in the new financial year. Interest Charge The interest expense reduced by £0.1m to £1.2m from £1.3m, despite higher interest rates, due to lower average debt levels than the prior year. Interest was covered 9.7 times (2004: 7.9 times) by operating profit before goodwill amortisation. Taxation The tax credits expected from the Research & Development claim amount to £0.5m, of which £0.2m and £0.3m relates to current year and prior years respectively. These credits have reduced the effective rate of tax to 27.3% (2004: 34.3%). On an ongoing basis, the effective rate of tax is expected to be approximately 31%. Earnings Per Share & Dividend Basic earnings per share has increased by 14% to 17.6p (2004: 15.5p). On a like-for-like basis, earnings per share based on profit before goodwill amortisation and exceptional items and excluding the retrospective tax credit, increased by 0.8p (4.1%) to 20.3p (2004: 19.5p). The Board has recommended a 15% increase in the dividend to 7.5 pence per share (2004: 6.5 pence per share). This dividend is covered 2.7 times by underlying earnings (2004: 2.9 times). Financing & Cash Flow Operating cash inflow for the year was £9.4m (2004: £14.4m) after a working capital increase in the year of £5.6m which was due mainly to temporary timing differences at the end and beginning of the year. Net debt of £7.5m was in line with the previous year end. Balance Sheet & Shareholder Funds Shareholder funds increased to £55.1m during the year (2004: £48.7m) reflecting the retained profit of £3.6m and new issue of approximately 1.9 million new shares (one million as an institutional placing at £2.10 per share and approximately 900,000 shares in respect of share option exercises). Gearing at 31st March 2005 was 14% (2004: 15%). Treasury The Group has a centralised treasury function to manage foreign exchange and interest rate risk following guidelines laid down by the Board. Derivative instruments are used solely to mitigate these risks. The Group's borrowings at the end of the year were of two principal types: • Bank borrowings, provided by Barclays Bank PLC • Finance Leases and Hire Purchase contracts, which are used to finance the acquisition of certain fixed assets The main risks arising from the Group's financial instruments are interest rate risk, liquidity risk and foreign currency risk. The Board reviews and agrees policies for managing each of these risks and these policies are summarised below. • Interest Rate Risk The Group borrows principally in Sterling, US Dollars and Australian Dollars (AUD). Interest rate swaps may be used to generate the desired interest profile and to manage exposure to interest rate fluctuations. At the year end, the company had fixed interest loans of AUD 6.95m. • Liquidity Risk The Group's objective is to maintain a balance between continuity of funding and flexibility through the use of overdrafts, bank loans and finance leases. At the year end, 90% of the Group's borrowings excluding overdrafts were due to mature within one year and 10% between one and two years. During the year, the balance of the loan notes of £1.6m was repaid in full. Short-term flexibility is achieved through overdraft facilities, a bank multi-option facility to cover bank guarantees, borrowings and other items totalling £15m and a bank revolving credit facility of £10m which is available until 30th September 2005. At 31st March 2005, the Group had drawn down £1m on the revolving credit facility. • Foreign Currency Risk The Group is exposed to two principal types of foreign currency risk: - transaction risk and translation risk. Transactional exposures arise from operating units selling and/or purchasing goods and services in currencies other than their reporting currency. Where these exposures are large or other than short-term, they are typically hedged by the use of forward contracts. The Group operates a policy to settle trading inter-company balances on a monthly basis to minimise foreign currency exposure. Translational exposure arises on the re-translation of overseas subsidiary companies' profits and net assets into Sterling for financial reporting purposes. Overseas trading is mainly US Dollar linked. The company's decision to maintain the location of a large part of the Bovine Genetics' cost base in the USA rather than in the UK, provides a natural hedge against translation exposure of overseas profits. Translation of overseas net assets may be hedged by borrowings in the currency of those net assets where the exposure is perceived to be material to the Group's net assets. At the year end, the Group had borrowings in Australian Dollars which largely hedged the translation of its net investment in that currency. Pensions Genus' largest pension scheme is the Milk Pension Fund, a UK based defined benefit scheme which has a number of participating employers. Milk Marque Limited, the principal employer, has recently revoked its notice of intended withdrawal from the Milk Pension Fund and has confirmed its continuing active participation. There is agreement between all parties involved to sectionalise the fund for each employer, but progress is currently awaiting the impact of the recent legislative changes. Under FRS 17, the value of the scheme's assets and liabilities at 31st March 2005 showed the Genus section of the scheme as having a market value of £99.1m representing 91% of accrued benefits. The last full actuarial funding valuation of the Milk Pension Fund was in March 2003, when the actuarial value of the assets was sufficient to cover 96% of the members' accrued benefits. Acquisition In August 2004, the Group acquired the entire issued share capital of Supersires (2004) Limited, an English registered company. The total consideration, including expenses, of £1.5m was financed by a placing for cash of one million ordinary shares at 210p per share. Supersires distributes semen and provides artificial insemination services to cattle farmers in South West England. Adoption of International Financial Reporting Standards (IFRS) The Group will be required to use IFRS to report its consolidated results for the year ending in 2008, with comparatives recorded under IFRS for the prior year. Our preliminary review would indicate major differences between our current accounting practice and IFRS will be in respect of business combinations, agricultural assets, proposed dividends, deferred tax, research and development costs and share-based payments. David Timmins, Group Finance Director AUDITED CONSOLIDATED PROFIT AND LOSS ACCOUNT For the year ended 31 March 2005 Before Exceptional Total Items 2004 Exceptional Total 2005 Items 2004 2004 Notes £000 £000 £000 £000 TURNOVER Continuing operations 2 183,249 183,710 - 183,710 Underlying operating profit 2 11,389 10,923 (503) 10,420 Amortisation of goodwill (1,747) (1,674) - (1,674) OPERATING PROFIT 2 9,642 9,249 (503) 8,746 Of which: Continuing operations 9,642 9,685 (503) 9,182 Discontinued operations - (436) - (436) Continuing operations Profit on disposal of properties 298 - 711 711 Interest receivable and similar 17 5 - 5 income Interest payable and similar charges (1,203) (1,319) - (1,319) PROFIT ON ORDINARY ACTIVITIES BEFORE TAXATION 8,754 7,935 208 8,143 Tax on profit on ordinary activities - continuing operations (2,390) (3,135) 189 (2,946) - discontinued operations - 150 - 150 (2,390) (2,985) 189 (2,796) PROFIT ON ORDINARY ACTIVITIES AFTER TAXATION 6,364 4,950 397 5,347 Minority interests - equity - (74) - (74) PROFIT FOR THE FINANCIAL YEAR 6,364 4,876 397 5,273 Dividends on equity shares (2,788) (2,306) - (2,306) RETAINED PROFIT FOR THE YEAR 3,576 2,570 397 2,967 Earnings per share - underlying 3 20.3p 19.5p - 3 17.6p 15.5p basic - 3 17.3p 15.3p diluted Dividend per share 7.5p 6.5p CONSOLIDATED STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES 2005 2004 £000 £000 Profit for the financial year 6,364 5,273 Exchange adjustments (176) (4,165) Total recognised gains and losses relating to the year 6,188 1,108 AUDITED CONSOLIDATED BALANCE SHEET At 31 March 2005 2005 2004 £000 £000 Fixed assets Intangible assets 26,062 25,875 Tangible assets 16,697 15,876 Investments 269 241 ----------- ----------- 43,028 41,992 ----------- ----------- CURRENT ASSETS Stocks 17,396 16,233 Debtors 36,846 32,456 Cash at bank and in hand 7,559 4,330 ----------- ----------- 61,801 53,019 CREDITORS: amounts falling due within one year 48,479 45,020 ----------- ----------- NET CURRENT ASSETS 13,322 7,999 ----------- ----------- TOTAL ASSETS LESS CURRENT LIABILITIES 56,350 49,991 CREDITORS: amounts falling due after more than one year 282 605 PROVISIONS FOR LIABILITIES AND CHARGES 923 681 ----------- ----------- NET ASSETS 55,145 48,705 ----------- ----------- CAPITAL AND RESERVES Called up share capital 3,726 3,536 Share premium account 39,899 36,975 Profit and loss account 11,520 8,194 ----------- ----------- EQUITY SHAREHOLDERS' FUNDS 55,145 48,705 ----------- ----------- AUDITED CONSOLIDATED STATEMENT OF CASH FLOWS For the year ended 31 March 2005 2005 2004 Note £000 £000 NET CASH INFLOW FROM OPERATING ACTIVITIES 4 9,403 14,393 Returns on investments and servicing of finance Interest received and similar income 17 5 Interest paid and similar charges (1,093) (1,028) Interest element of finance lease and hire purchase rental payments (43) (291) ---------- ---------- NET CASH OUTFLOW FROM RETURNS ON INVESTMENTS AND SERVICING OF FINANCE (1,119) (1,314) ---------- ---------- Taxation UK Corporation tax paid (1,382) (1,374) Overseas tax paid (1,441) (1,168) ---------- ---------- (2,823) (2,542) ---------- ---------- CAPITAL EXPENDITURE AND FINANCIAL INVESTMENT Payments to acquire intangible fixed assets (117) - Payments to acquire tangible fixed assets (4,725) (3,986) Payments to acquire investments (13) (158) Receipts from sales of tangible fixed assets 759 1,625 ---------- ---------- NET CASH OUTFLOW ON CAPITAL EXPENDITURE (4,096) (2,519) ---------- ---------- ACQUISITIONS AND DISPOSALS Purchase of subsidiaries and businesses (2,225) (1,234) EQUITY DIVIDENDS PAID (2,298) (1,853) ----- ----- NET CASH (OUTFLOW)/INFLOW BEFORE FINANCING (3,158) 4,931 ----------- ---------- AUDITED CONSOLIDATED STATEMENT OF CASH FLOWS (continued) For the year ended 31 March 2005 2005 2004 Note £000 £000 NET CASH (OUTFLOW)/INFLOW BEFORE FINANCING (3,158) 4,931 ------ ------ FINANCING Repayment of loan notes (1,637) (979) New bank loans 437 378 Repayment of bank loans (1,395) (6,133) Sale and leaseback 154 160 Repayments of capital element of finance leases and hire purchase rental payments (1,103) (997) Share register rationalisation sale of shares 4,015 - purchase of shares (4,126) - associated costs (85) - Issue of new ordinary shares 3,134 2,446 ----------- ----------- NET CASH OUTFLOW FROM FINANCING (606) (5,125) ----------- ----------- DECREASE IN CASH 5 (3,764) (194) ----------- ----------- ANALYSIS OF CHANGES IN NET DEBT DURING THE YEAR Reconciliation of net cash flow to movement in net debt: 2005 2004 Note £000 £000 Decrease in cash in year (3,764) (194) Repayment of loan notes 1,637 979 New long term loans (437) (378) Repayment of bank loans 1,395 6,133 Sale and leaseback (154) (160) Repayment of capital element of finance lease contracts 1,103 997 ---- ----- Change in net debt resulting from cash flows (220) 7,377 Exchange differences and other non-cash movements 210 (2,639) ---- ---- Movement in net debt (10) 4,738 Net debt at 1 April (7,458) (12,196) ---- ---- Net debt at 31 March 5 (7,468) (7,458) ----------- --------- 1. BASIS OF PREPARATION The financial information set out above does not constitute the company's statutory accounts for the years ended 31 March 2005 or 2004 (but is derived from those accounts). Statutory accounts for 2004 have been delivered to the registrar of companies, and those for 2005 will be delivered following the company's Annual General Meeting. The auditors have reported on those accounts; their reports were unqualified and did not contain statements under section 237 (2) or (3) of the Companies Act 1985. The Annual Report and Notice of Annual General Meeting will be posted to the shareholders by the end of July 2005. This preliminary announcement was approved by the Board on 24th May 2005. 2. 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 Net assets profit* 2005 2004 2005 2004 2005 2004 £000 £000 £000 £000 £000 £000 Area of activity Bovine Genetics 83,573 80,650 10,719 10,567 46,069 42,648 Consultancy 23,954 22,657 792 764 1,246 127 Animal Health 76,195 80,438 1,926 1,624 19,137 17,770 ------ ------ ------ ------ ------ ------ 183,722 183,745 13,437 12,955 66,452 60,545 Inter-segmental sales (475) (43) - - - - Unallocated 2 8 (2,048) (1,596) (11,307) (11,840) ---- ---- ---- --- --- --- 183,249 183,710 11,389 11,359 55,145 48,705 ---- ---- ---- --- --- --- *operating profit from continuing operations, before goodwill amortisation and exceptional items Unallocated net liabilities comprise investments, net borrowings, taxation and dividends in addition to corporate fixed assets, debtors and creditors. Operating profit 2005 2004 £000 £000 Area of activity Bovine Genetics 9,727 9,145 Consultancy 761 297 Animal Health 1,202 900 ---- ------ 11,690 10,342 Unallocated (2,048) (1,596) ------ ------ 9,642 8,746 Non-operating exceptional items Bovine Genetics 298 711 Net interest (1,186) (1,314) ---- --- Profit on ordinary activities before taxation 8,754 8,143 ---- ---- 2. TURNOVER AND SEGMENTAL ANALYSIS (CONTINUED) Geographical region of origin Turnover Operating profit Net assets 2005 2004 2005 2004 2005 2004 £000 £000 £000 £000 £000 £000 United Kingdom 137,545 139,354 6,974 5,888 45,857 41,481 Europe 5,063 5,593 1,632 1,550 2,172 2,742 North America 32,373 30,925 332 785 14,137 13,408 Rest of the World 8,266 7,830 2,752 2,119 4,286 2,914 ------ ------ ------ ------ ------ ------ 183,247 183,702 11,690 10,342 66,452 60,545 Unallocated 2 8 (2,048) (1,596) (11,307) (11,840) ---- ---- ---- ---- ---- ---- 183,249 183,710 9,642 8,746 55,145 48,705 ---- ---- ---- ---- Non-operating exceptional items 298 711 Net interest (1,186) (1,314) ---- ---- Profit on ordinary activities before taxation 8,754 8,143 ---- ---- Unallocated costs within operating profit are common corporate costs. Unallocated net liabilities comprise investments, net borrowings, taxation and dividends in addition to corporate fixed assets, debtors and creditors. Results from discontinued operations, all originating in the United Kingdom, were £nil (2004: loss £436,000). Geographical region of destination Turnover 2005 2004 £000 £000 United Kingdom 112,897 116,473 Europe 19,652 19,953 North America 24,522 22,721 Rest of the World 26,178 24,563 ---- ---- 183,249 183,710 ---- ---- 3. EARNINGS PER SHARE The basic earnings per share of 17.6p (2004: 15.5p) is based on the profit for the financial year of £6,364,000 (2004: £5,273,000) and the weighted average number of ordinary shares in issue of 36,208,931 (2004: 34,051,042). The underlying earnings per share of 20.3p (2004: 19.5p) is based on the earnings of continuing operations before exceptional items, amortisation of goodwill and prior year research and development tax credits, as set out below: 2005 2004 £000 £000 Profit for the financial year 6,364 5,273 Add: Amortisation of goodwill 1,747 1,674 Exceptional operating items - 503 Profit on disposal of properties and businesses (298) (711) Loss on discontinued operations - 436 ------- ------ 7,813 7,175 Less: Associated taxation on adjustments (179) (539) Research and development tax credits relating to prior years (300) - ------- ------ Underlying earnings 7,334 6,636 --- --- The directors consider that underlying earnings per share as calculated is an appropriate and consistent measure of the Group's performance. The diluted earnings per share of 17.3p (2004: 15.3p) is based on profit for the financial year of £6,364,000 (2004: £5,273,000) and on 36,755,735 (2004: 34,488,843) diluted ordinary shares as set out below: 2005 2004 000's 000's Basic weighted average number of shares 36,209 34,051 Dilutive potential ordinary shares: Employee share options 547 438 ---- ---- 36,756 34,489 ---- ---- 4. RECONCILIATION OF OPERATING PROFIT TO NET CASH FLOW FROM OPERATING ACTIVITIES 2005 2004 £000 £000 Operating profit 9,642 8,746 Depreciation 3,549 3,636 Amortisation of milk quota 8 8 Amortisation of goodwill 1,747 1,674 Loss on disposal of fixed assets 1 183 Deferred government grants (2) (2) (Increase)/decrease in stocks (1,262) 1,558 Increase in debtors (3,976) (33) Decrease in creditors (304) (1,377) --- ---------- Net cash inflow from operating activities 9,403 14,393 ----------- ----------- 5. ANALYSIS OF CHANGES IN NET DEBT DURING THE YEAR Foreign Exchange and other non-cash At 1 April movements At 31 March 2004 £000 £000 2005 Cash flows £000 £000 Cash at bank and in hand 4,330 3,268 (39) 7,559 Bank overdrafts (6,240) (7,032) 321 (12,951) Cash (1,910) (3,764) 282 (5,392) Bank loans (2,403) 958 (72) (1,517) Loan notes (1,637) 1,637 - - Obligations under finance leases and hire purchase contracts (1,508) 949 - (559) (7,458) (220) 210 (7,468) This information is provided by RNS The company news service from the London Stock Exchange

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