Interim Results

Genus PLC 21 November 2000 FOR IMMEDIATE RELEASE 21 November 2000 GENUS PLC INTERIM RESULTS FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2000 Highlights * Turnover up 57% to £81.3m including acquisitions made last year. * Underlying pre-tax profit before charging acquisition costs and goodwill, up by 14% to £3.3m. * Breeding division ahead of expectations. * Consultancy division progressing to plan, with business heavily weighted to the second half of the year. * Distribution division suffered reduced turnover and profit contribution due to reduced service levels after a change in business processes within Genusxpress in the second quarter of the year. The Genusxpress management has been changed and strengthened. * Profit profile of the business is seasonally tilted towards the second half of the year. Underlying pre-tax profits for the second half should be greater than in the first half of the financial year. Six months to Six months to 30 September 2000 30 September 1999 £m £m Turnover 81.3 51.9 Underlying operating profit 4.6 3.1 Underlying pre-tax profit 3.3 2.9 Pre-tax profit 2.0 2.9 Normalised earnings per share 6.5p 8.1p Commenting on the prospects Richard Wood, Chief Executive said: 'Your board is confident that the new management in Distribution can rectify the problems encountered in that division. Indeed, it has already begun to do so. In consequence we expect the division's performance gradually to improve. The Consultancy division is performing in line with our targets. Following the successful integration of the ABS acquisition, our international Breeding business is performing ahead of expectations.' 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 /Nicola How Chairman's Statement Genus has made strong progress in its international cattle breeding business, despite the UK agricultural recession. The consultancy business is on target, but management problems in the veterinary distribution business Genus acquired last year have led to disappointing results from that division. We are satisfied that following a management change the distribution business problems will be rectified. Turnover increased by 57% to £81.3m (1999: £51.9m) augmented by the annualisation of sales in last year's two acquisitions, VDC and ABS. Both businesses have now been integrated into the group divisional structure. Underlying operating profit increased by 51% to £4.6m (1999: £3.1m). After net interest of £1.3m (1999: £0.2m), incurred following the financing of the acquisitions, this reduced the improvement in underlying pre-tax profit (before exceptionals and goodwill) to 14% or £3.3m. The reduction in property sales this year has meant that exceptional costs associated with flotation on the Alternative Investment Market ('AiM') and the post acquisition re-organisation had no offsetting income. There was a net charge in this half-year of £0.4m compared with a contribution of £0.3m last year. This, together with £0.6m increased amortisation of goodwill has led to the reduction of pre-tax profit to £2.0m, compared with £2.9m in 1999. Genus' increasingly international business is seasonally biased so that there should be a stronger underlying pre-tax profit stream in the second half of the financial year than the first half. With the equity base of the company having been extended by the fundraising necessary to acquire ABS and the fund raising on flotation, normalised earnings per share, calculated before charging amortisation of goodwill and one off costs, reduced by 20% to 6.5p (1999: 8.1p) in the seasonally lower profit earning first half of the year. Genus does not recommend an interim dividend due to the high cost of distribution to the relatively large number of shareholders. The board expects to recommend a final dividend on the basis of the anticipated full year's result. As shareholders will know, the company's shares were successfully floated on the Alternative Investment Market in July 2000. At the time of flotation, the company raised £1.8m in new equity, net of costs, to continue with its strategic expansion, to become a leading international services business. Breeding Division Turnover Operating Profit 2000 1999 2000 1999 £34.5m £16.7m £3.3m £1.9m Breeding Division Performance The company's leading position in cattle breeding technology and its new international diversity are providing a strong competitive edge in the breeding division. ABS, acquired in 1999, is performing ahead of plan and is significantly augmenting the original UK operations. The acquisition has enabled us to substitute purchased product with in-house ABS product, allowing us to offer superior quality products from a lower cost structure. This has helped us to maintain margins despite reduced market prices. In the North American market, sales volumes have been maintained, although margins have reduced slightly in response to the poor economic conditions and the increased competition which has evolved as a result of those conditions. The Latin American operations have progressed strongly and offer significant growth potential for the future. Synergies from the acquisition of ABS have been realised in line with expectations and the positive impact is expected to continue into the second half. Distribution Division This division operates throughout the UK in two complementary businesses: Animalcare and Genusxpress. Turnover Operating Profit 2000 1999 2000 1999 £32.0m £21.0m £0.4m £0.6m Distribution Division Performance Animalcare, which markets veterinary products to vets, made strong progress. Its primary product, Identichip, is the clear market leader in the increasingly competitive animal identification market. Animalcare launched an internet database for all pets registered with Identichips, of which there are now over 800,000 dogs, cats and horses registered. A number of initiatives have been taken to enhance pet-owner benefits from database membership including offering direct access to the RSPCA and pet insurance. Amongst other products marketed by Animalcare is a range of licensed and own brand veterinary pharmaceuticals. These are strong profit generators and will be extended soon when a number of product licence applications are granted. The Genusxpress business is a wholesale distributor of veterinary products supplying veterinary practices, pharmacies and dental surgeons nationwide. Following the installation of new systems and a reorganisation to cut costs to match its competitors, the business experienced problems in the quality of its service. This fell below acceptable standards and led to a loss of customers in the second quarter, so that the extent of the impact of these problems on the trading results of Genusxpress has only recently become fully apparent. A new management team was installed in September, which has stablised the business and is working hard to win back lost accounts. However, this is likely to take some time to achieve. To assist in this respect, the business has recruited a high calibre, professional and dedicated team of account managers, with the aim of taking the positive message which Genusxpress now has to offer to new customers. Early indications show that this new approach is having a positive effect and some new accounts have been won. However, the synergies expected following the acquisition of the business will be slower to realise than originally planned. Amongst the many enhancements to service shortly to be offered to customers will be a new 'state of the art' hand held electronic ordering system and on-line batch traceability for pharmaceuticals. The dental distribution operations have been moved into a modern distribution facility, which has reduced operating costs and opened opportunities to diversify and grow the business. Consulting Division Turnover Operating Profit 2000 1999 2000 1999 £14.9m £14.1m £0.5m £0.7m Consulting Division Performance The launch of the new single business under the brand name Promar International was successfully completed in the first half of the year. The consultancy business is now more internationally biased and much less reliant on the original UK farm consultancy, having diversified the business throughout the food chain. The business is very second half weighted, in profit terms, and is expected to meet its targets for the full year. Real year-on-year growth is being achieved in the market research, analytical and development consulting business units and this is offsetting the recessionary decline in the UK farm consultancy and a slow start in US strategic consultancy. Market research is pursuing its global expansion with vigor and in the first half of the year has launched a new agri-chemical research panel in both Australia and in the large and growing Chinese market. In addition, the business is the first to launch an electronic Customer Relationship Management System (eCRM) to the Agri-industry. Marketed under the brand name QADM.com, the new product has been very well received following its launch in September and new revenue streams will flow in the second half-year. Development consulting is performing ahead of last year and has won major new UK Government contracts in Latin America, Africa and Eastern Europe. We expect this to provide an excellent medium-term pipeline for the business over the next 2-3 years. The analytical division is now fully operational in its improved facilities near Rotherham. In this first half of the year, the laboratories achieved UKASTA accreditation for key analytical services. Some major new contracts have been secured with MAFF, which is funding consultancy support to help UK farmers and other corporate institutions. We are confident this business will provide growth for the division during the second half of this year and next. Promar International is now on a solid trading platform with the staff from its many recently acquired businesses working successfully within the established Genus culture. Conclusion Your board is confident that the new management in Distribution can rectify the problems encountered in that division. Indeed, it has already begun to do so and the business was stabilised in October. In consequence we expect the division's performance gradually to improve. The Consultancy division is performing in line with our targets. Following the successful integration of the ABS acquisition, our international Breeding business is performing ahead of expectations. SUMMARISED GROUP PROFIT AND LOSS ACCOUNT Six months ended 30 September 2000 Six months ended Year ended 30 September 31 March 2000 1999 2000 £'000 £'000 £'000 Turnover (note 4) 81,331 51,864 133,734 Underlying operating profit 4,611 3,063 7,305 Acquisition and float costs (372) (153) (685) Amortisation of goodwill (891) (271) (985) Operating profit (note 4) 3,348 2,639 5,635 Profit on disposal of properties (6) 437 849 Interest receivable and similar income 32 166 236 Interest payable and similar charges (1,327) (363) (1,610) Profit on ordinary activities before 2,047 2,879 5,110 taxation Tax on profit on ordinary activities (1,050) (841) (1,705) (note 5) Profit on ordinary activities after 997 2,038 3,405 taxation Minority interests - equity (67) (5) 27 Profit for the financial period 930 2,033 3,432 Dividend (note 6) (119) - (1,354) Retained profit for the financial 811 2,033 2,078 period Earnings per share - normalised (note 6.5p 8.1p 15.1p 7) - 2.9p 8.4p 13.0p basic - 2.9p 8.2p 12.3p diluted Dividend per share - - 4.5p STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES Six months Year ended ended 30 September 31 March 2000 1999 2000 £'000 £'000 £'000 Profit for the financial period 930 2,033 3,432 Exchange difference on the re-translation of net assets of subsidiary undertakings 2,094 - 149 Exchange difference on loan 339 - - Tax on exchange differences (519) - - Total recognised gains and losses relating to the 2,844 2,033 3,581 period SUMMARISED GROUP BALANCE SHEET At 30 September 2000 At At 30 31 March September 2000 1999 2000 £'000 £'000 £'000 Fixed assets Intangible assets 34,106 18,341 33,485 Tangible assets 19,843 17,588 19,979 Investments 1,804 528 678 55,753 36,457 54,142 Current assets Stocks 16,586 8,238 14,542 Debtors 34,250 26,727 32,281 Cash at bank and in hand 2,051 4,618 2,375 52,887 39,583 49,198 Creditors: Amounts falling due within one year 47,743 25,429 46,751 Net current assets 5,144 14,154 2,447 Total assets less current liabilities 60,897 50,611 56,589 Creditors: Amounts falling due after more than one year 11,879 16,640 12,788 Provisions for liabilities and charges 200 53 62 Accruals and deferred income 35 71 36 Equity minority interests 138 60 65 Net assets 48,645 33,787 43,638 Capital and reserves Called up share capital 3,273 2,463 3,060 Share premium account 33,869 22,276 31,698 Profit and loss account 11,503 9,048 8,880 Equity shareholders' funds 48,645 33,787 43,638 SUMMARISED CASH FLOW STATEMENT Six months ended 30 September 2000 Six months Six months Year ended ended ended 30 30 31March September September 1999 2000 2000 £'000 £'000 £'000 Net cash flow from operating activities 1,280 2,242 13,600 (note 8) Returns on investments and servicing of (1,259) (197) (1,822) finance Taxation (1,188) 67 (2,126) Capital expenditure and financial (3,180) (380) (267) investments Acquisitions - (22,720) (50,165) Equity dividends paid (1,473) (972) (972) Management of liquid resources 780 4,367 4,220 Net cash flow before financing (5,040) (17,593) (37,532) Financing (333) 16,332 30,743 (Decrease) in cash (5,373) (1,261) (6,789) RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET DEBT Six months Six months Year ended ended ended 30 September 30 September 1999 31 March 2000 2000 £'000 £'000 £'000 (Decrease) in cash (5,373) (1,261) (6,789) Cash (out) flow from short-term (780) (4,367) (4,220) deposits (6,153) (5,628) (11,009) Issue of loan notes - (6,200) (6,247) Repayment of loan notes 754 - 199 New bank loans (950) (10,631) (21,250) Repayment of long term loans 2,629 100 5,189 Issue cost on new long term loans - - 425 New finance leases (270) (371) (404) Repayment of capital element of 452 774 1,431 finance lease Acquisitions - bank loans - (1,200) (3,589) Change in net funds result from cash (3,538) (23,156) (35,255) flows Exchange differences (86) - (319) Other (36) - (25) (3,660) (23,156) (35,599) Net (debt)/funds at 1 April (27,395) 8,204 8,204 Net (debt) at 30 September/31 March (31,055) (14,952) (27,395) Notes to the Report 1 Accounting policies The interim results, which are unaudited, have been prepared on a historical cost basis consistent with the accounting policies adopted for the year ended 31 March 2000. 2 Basis of consolidation The group's interim result consolidates the results of the company and its subsidiary companies made up to 30 September. 3 Basis of preparation The financial information does not constitute statutory accounts as defined in section 240 of the Companies Act 1985. The financial information for the full preceding year is based on the statutory accounts for the financial year ended 31 March 2000. Those accounts, upon which the auditors issued an unqualified opinion, have been delivered to the Registrar of Companies. 4 Turnover and segmental analysis Turnover and operating profit are for ongoing continuing operations of the group. Turnover, which is stated net of value added tax, represents amounts invoiced to third parties. Turnover Turnover Turnover Six months Six months Year ended ended ended 30 September 30 September 31 March 2000 1999 2000 £000 £000 £000 Area of activity Breeding 34,465 16,743 47,642 Consultancy 14,930 14,132 30,415 Distribution 31,950 20,989 55,751 81,345 51,864 133,808 Inter-segmental (14) - (74) sales Unallocated - - - 81,331 51,864 133,734 Operating profit Operating profit Operating profit Six months Six months Year ended ended ended 30 September 30 September 31 March 2000 1999 2000 £000 £000 £000 Area of activity Breeding 3,266 1,913 4,103 Consultancy 504 667 1,348 Distribution 364 552 1,188 4,134 3,132 6,639 Inter-segmental - sales Unallocated (786) (493) (1,004) 3,348 2,639 5,635 4 Turnover and segmental analysis continued Turnover Turnover Turnover Six months Six months Year ended ended ended 30 September 30 September 31 March 2000 1999 2000 £000 £000 £000 Geographical region of origin United Kingdom 60,448 51,068 116,395 Europe 3,126 223 2,458 North America 18,830 493 12,593 Rest of the world 3,539 80 2,288 85,943 51,864 133,734 Inter-segmental (4,612) - - sales Unallocated - - - 81,331 51,864 133,734 Operating profit Operating Operating profit profit Six months Six months Year ended ended ended 30 September 30 September 31 March 2000 1999 2000 £000 £000 £000 Geographical region of origin United Kingdom 1,867 3,187 5,166 Europe 552 (37) (146) North America 1,669 (18) 1,648 Rest of the world 46 - (29) 4,134 3,132 6,639 Inter-segmental - - - sales Unallocated (786) (493) (1,004) 3,348 2,639 5,635 Turnover Turnover Turnover Six months ended Six months ended Year 30 September 30 September ended 2000 1999 31 March 2000 £000 £000 £000 Geographical region of destination United Kingdom 52,448 43,681 99,685 Europe 6,738 2,933 11,460 North America 11,874 1,076 11,272 Rest of the world 10,271 4,174 11,317 81,331 51,864 133,734 5 Taxation The taxation charge for the period is based on the anticipated rate for the full year and is made up as follows: Six months Six months Year ended ended ended 30 September 30 September 1999 31 March 2000 2000 £'000 £'000 £'000 Corporation tax 637 886 1,128 Deferred tax 193 (45) (328) Overseas taxation 220 - 1,187 1,050 841 1,987 Tax over provided in previous years - - (282) 1,050 841 1,705 6 Dividends The dividend charged in the period of £119,000 (1999: £nil) represents the final dividend for the year ended 31 March 2000 on new shares issues subsequent to the year end. 7 Earnings per share The basic earnings per share is based on profit for the period of £930,000 (1999: £2,033,000) and the weighted average number of ordinary shares in issue of 31,579,000 (1999: 24,305,000). The normalised earnings per share is after adjusting for amortisation of goodwill £891,000 (1999: £271,000), loss on property sales of £6,000 (1999: £437,000 profit) and acquisition and float costs of £372,000 (1999: £153,000) and associated taxation of £144,000 (1999: £48,000) to give normalised earnings of £2,055,000 (1999: £1,972,000). The diluted earnings per share is based on profit for the period of £930,000 (1999: £2,033,000) and on 32,057,000 (1999: 24,911,000) ordinary shares, calculated as follows: Six months ended Six months ended 30 September 30 September 2000 1999 000's 000's Basic weighted average number of shares 31,579 24,305 Dilutive potential ordinary shares - - Employee share options 478 606 32,057 24,911 8 Reconciliation of operating profit to net cash flow from operating activities Six months Six months Year ended ended ended 30 September 30 September 31 March 1999 2000 2000 £'000 £'000 £'000 Operating profit 3,348 2,639 5,635 Depreciation 2,200 1,733 3,759 Amortisation of milk quota 3 12 22 Amortisation of goodwill 891 271 985 Profit on disposal of fixed assets (83) (151) (369) Deferred government grants (1) (2) (3) (Increase)/decrease in stock (1,718) 632 657 (Increase)/decrease in debtor (1,084) (47) 3,293 (Decrease) in credito (2,276) (2,845) (379) 1,280 2,242 13,600 END d IR ILFERLSLIFII

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