Interim Results
Genus PLC
20 November 2001
For immediate release 20 November 2001
GENUS plc
INTERIM RESULTS FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2001
Highlights
* Group profit before tax and exceptional charges for continuing
operations up 6% to £3.5m, strongly ahead of market expectations.
* Mitigation reduced the impact of Foot and Mouth Disease (FMD) in the
Breeding division.
* Core Breeding division increased market share:
- Sales up by 5% to £36.2m
- Underlying operating profit up 34% to £5.0m
* Recovery of Distribution division has continued and is evident through
the return to profitability.
* Consulting division affected by FMD and the slow down of the world
economy.
* As announced on 23 August 2001, a small loss-making non-core
consultancy software business was divested. The loss on disposal was
mainly the write-back and write-off of £1.1m of goodwill.
* As announced on 11 October 2001, the £1.8m investment in Gensel was
written-off following its closure after the failure of a fund raising.
* The second half is expected to benefit from some recovery in
Consulting now that FMD is under control.
6 Months to 6 Months
30 September to 30
2001 September
Continuing Operations 2000
£m £m
Turnover 78.1 81.3
Underlying pre-tax profit** 3.5 3.3
Amortisation of goodwill (1.0) (0.9)
Acquisition and float costs - (0.4)
Pre tax profit before exceptionals 2.5 2.0
Underlying EPS 6.7p 6.5p
**Before acquisition and float costs, amortisation of goodwill and
exceptionals.
Contact:
Richard Wood, Chief Executive
Philip Acton, Finance Director
Genus plc Tel: 01270 536501
Charles Ryland/Nicola How
Buchanan Communications Ltd Tel: 020 7466 5000
'Through the mitigating actions taken and the strong international reputation
of our largest division, Breeding, we were able to reduce the impact of FMD on
Group performance. In contrast, Consulting was rendered loss-making by the
combination of a depressed world economy and the FMD problem in the UK. The
first signs of a recovery in the Distribution division have been confirmed.'
CHAIRMAN'S STATEMENT
Turnover was 4% lower when compared with the first half of last year largely
because of the business lost in the Distribution division in the second half
of last year. Mitigating actions taken by the Breeding division, together
with its international strength and diversity, increased its turnover by 5%,
despite FMD.
Now that the acquisition of ABS, the US cattle breeding company, has been
fully integrated with Genus' existing operations, the Breeding division has
benefited additionally from full operating synergies made possible by the
take-over. Underlying operating profit was up 34% on last year to £5.0m.
Consulting division profits were reduced notably by FMD, with little or no
opportunity to mitigate primarily owing to the deferral of consultants' fee
earning visits to UK farms whilst still having to maintain support services.
A loss-making software business was sold for slightly below book value. This
will improve underlying profits in the second half year but, as announced on
23 August, the loss on disposal of £1.2m includes a write-back and write-off
of £1.1m of goodwill. Despite this action and a strong performance from
Development Consulting, the division produced an underlying operating loss of
£0.6m.
I am pleased to be able to report that the gradual recovery in Distribution I
announced at the AGM, has continued. New customers have been won and,
together with operating improvements and cost cutting, this has resulted in an
underlying operating profit of £0.4m. This compares with a small loss in the
second half of last year, although still only some 50% of the profit made in
the period before the problems began.
The pre-tax profit generated by the Group's continuing operations, excluding
exceptional items, rose 24% to £2.5m. This is a particularly good operating
result, during a period when FMD was at its peak. It bodes well for the
business' potential during the second half of the financial year, now that the
FMD outbreak is under control.
We announced the unfortunate failure of Gensel on 11 October. The company is
in the process of being closed. The intention is for the intellectual
property to remain in the company and owned by its shareholders.
Genus R&D expenditure will be redirected to programmes currently on fertility
and freezing technology, whilst looking for alternative bulk quantity semen
sexing technology. Following the announcement we made on 23 August, the
write-off of the £1.8m invested in Gensel had been provided for on 30
September 2001.
This write-off, together with the write-off of the unamortised goodwill
associated with the software company divestment, has offset the strong profit
flow from operations to produce an approximately break-even position before
tax.
Gearing and Dividend
Careful cash management reduced net debt by £8.2m compared with the same
period last year. However, debt was some £2.5m higher than at the year end
position in March 2001, mainly as a result of the usual stock build up prior
to the peak breeding season which began in September. Interest cover from
operating profit has been increased from 2.6 times to 3.6 times, (3.6 to 4.5
times pre-amortisation and acquisition and float costs).
The Board 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 results.
DIVISIONAL ANALYSIS
Breeding Division
This division is the World's leading cattle semen company. Its research and
development identifies improved cattle genetics which are sold to farmers
world-wide in the form of bull semen.
Following an initial and dramatic downturn last February and March, the
mitigating actions taken by management almost eliminated the FMD impact on UK
Breeding operations in this trading period. During the same period, many UK
competitors temporarily ceased trading whilst Genus continued to offer a full
insemination service in unaffected areas and semen deliveries elsewhere.
Spare insemination technicians were sub-contracted to the Government to assist
with the management of the outbreak. Although bio-security controls prevented
the collection and distribution of semen from the UK stud, increased
quantities of semen from studs in the USA and Canada were made available to UK
farmers. No Genus animals have been infected by FMD
Elsewhere in the world, trading was good. The division's leading
international position and the quality of its studs enabled it to hold prices
while increasing market share in the USA, despite strong competitive pressure.
Market share was also increased in the large Brazilian market but this advance
was negated by a 30% devaluation of the Brazilian currency. A cost cutting
re-organisation of operations has been made to help offset this and hence
benefit the business in the second half-year.
The failure of Gensel to raise funds to sustain its research programme and its
subsequent closure at the end of October has halted the potential of an
invention to enable bulk quantities of semen to be sexed. As there are no
competitive technologies immediately available, the division's research will
now concentrate on producing high fertility semen blends to improve pregnancy
rates. Work has also begun on new semen freezing and dilution technologies,
again aimed at improving conception rates.
Outlook
The output from the division's £8m per year research and development
expenditure has advanced. Of the many bulls graduating from our programme
eight new bulls have entered the independent rankings. From this group of new
bulls one has moved straight to the number one position in Italy and another
to the number one position in the UK and six have entered the USA top 20 to
sit alongside those Genus bulls already achieving high rankings.
Against this background the forward potential for world-wide profitable growth
is good. Whilst there will be a strong recovery in the UK, it will be to a
depleted market, as some farmers have decided to withdraw from farming rather
than restock their farms.
Consulting Division
This division trades under the name of Promar International. It offers market
and operational consultancy services to the food chain. Clients range from
farmers and Government agencies to multinational suppliers to agriculture as
well as to food producers and retailers.
It has been important to maintain a full consultancy advice service to UK
farmers during the FMD epidemic, even though fee earning farm visits have been
severely restricted. Consultancy manpower utilisation thus fell dramatically
and has resulted in large losses being made by that sector of the business.
The new internet-enabled agricultural customer relations management database,
QAdm, developed by the market research business, is proving to be a powerful
tool for a number of the division's multi-national clients and some UK banks.
It is attracting new customers to the company. However, the slow down in
world trade has reduced the potential with multinational clients for market
research and strategic marketing consultancy.
The international Development Consulting business continued to perform well
and has already won more than half the business targeted for the full year,
which includes 45 contracts worth approximately £5m in aggregate. Development
Consulting has again been short-listed for the prestigious award of British
Consultant of the Year.
In an endeavour to limit the reduction in performance of the division, a small
loss-making software operation was divested and an operational re-organisation
has been implemented to reduce costs and increase the focus of operations.
Outlook
Now that the FMD epidemic appears to have been brought under control, UK
operations are beginning to return to normal. The division has recently won a
number of Government contracts aimed at helping farmers to recover and other
contracts, suspended during the epidemic, have been resurrected. As a result,
we expect the division's business gradually to return to normal over the next
twelve months.
Distribution Division
This division operates throughout the UK in two complementary businesses,
Animalcare which markets exclusively licensed veterinary pharmaceuticals and
support products and Genusxpress, which is a full range wholesaler of
veterinary pharmaceuticals and support products.
Genusxpress began the difficult task of rebuilding the customer base back to
the levels prior to the reduction in service levels which occurred during the
implementation of new computer based systems occurred in August and September
of last year. This reversal had resulted in the division making a small loss
during the second half of the trading year.
The new systems are now working well. Service levels have been consistently
high for ten months and the business has introduced a new hand-held automatic
electronic ordering device, based upon a 'Palm Pilot', which also assists vets
to manage drug stocks and to batch trace important products.
The veterinary marketing business, Animalcare, has launched a new licensed
inhalable anaesthetic called Isocare and has made an application to the
registration authorities for an injectable anaesthetic. We hope to see the
launch of this new product in the coming year.
Outlook
The veterinary pharmaceutical market remains relatively flat with periods of
spasmodic growth. Average growth is expected to fall to one or two per cent
per annum.
The division's prognosis for the second half-year is for a continuation of the
gradual improvement in the Genusxpress business supported by profitable growth
from Animalcare's new product, Isocare.
GROUP PROSPECTS
Now that FMD appears to be under control in the UK, the first signs of a
return to normal business have become apparent in all the UK agricultural
sectors. However, the impact on the world economy of the events in America on
11 September will continue to impact Consulting. Many of the Consulting
division's multinational and US-based clients are suffering reversals to their
businesses and may compensate by cutting back on market research expenditure.
Notwithstanding the above caution, the international strength of the Breeding
division and its proven abilities to circumvent dramatic events, like FMD,
give me great confidence in the future of the Company.
SUMMARISED GROUP PROFIT AND LOSS ACCOUNT
Six months ended 30 September 2001
Continuing Operations Discontinued Total Total Year
Six Six
Before Exceptional Operations Months Months ended
Exceptional Items
Items 30/9/01 30/9/00 31/3/01
£000 £000 £000 £000 £000 £000
Turnover (note 4) 78,056 - 224 78,280 81,331 162,874
Underlying 4,476 - (192) 4,284 4,611 8,587
operating profit/
(loss) (note 4)
Acquisition and - - - - (372) (569)
float costs
Amortisation of (960) - - (960) (891) (1,927)
goodwill
Operating profit/ 3,516 - (192) 3,324 3,348 6,091
(loss) (note 4)
Loss on disposal - - (1,165) (1,165) - (322)
of discontinued
operations
Profit/(loss) on - 558 - 558 (6) (7)
disposal of
properties
Write-down of - (1,809) - (1,809) - -
investment
Net interest (986) - - (986) (1,295) (2,503)
payable and
similar charges
Profit/(loss) on 2,530 (1,251) (1,357) (78) 2,047 3,259
ordinary
activities before
taxation
Tax on profit/ (992) - 45 (947) (1,050) (1,683)
(loss) on
ordinary
activities (note
5)
Profit/(loss) on 1,538 (1,251) (1,312) (1,025) 997 1,576
ordinary
activities after
taxation
Minority (26) - - (26) (67) (78)
interests -
equity
Profit/(loss) for 1,512 (1,251) (1,312) (1,051) 930 1,498
the financial
period
Dividends (note (4) (119) (1,596)
6)
Retained (loss)/ (1,055) 811 (98)
profit for the
financial period
Earnings/(loss)
per share - underlying (note 7) 6.7p 6.5p 12.2p
- basic (note 7) (3.2p) 2.9p 4.7p
- diluted (note 7) (3.2p) 2.9p 4.5p
Dividends per - - 4.5p
share
STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES
Total Six Total Six Months Year
Months 30/9/01 30/9/00 ended
31/3/01
£000 £000 £000
Profit for the financial period (1,051) 930 1,498
Exchange difference on the
re-translation (1,207) 2,433 3,188
of net assets of subsidiary
undertakings
Tax on exchange differences 137 (519) (813)
Total recognised gains and (2,121) 2,844 3,873
losses relating to the period
SUMMARISED GROUP BALANCE SHEET
At 30 September 2001
At At
30 31 March
September
2001 2000 2001
£000 £000 £000
Fixed assets
Intangible assets 31,690 34,106 33,318
Tangible assets 17,528 19,843 18,904
Investments 33 1,804 1,828
49,251 55,753 54,050
Current assets
Stocks 13,774 16,586 14,191
Debtors 32,651 34,250 30,679
Cash at bank and in hand 5,315 2,051 5,085
51,740 52,887 49,955
Creditors: Amounts falling due within one year 43,688 47,743 43,452
Net current assets 8,052 5,144 6,503
Total assets less current liabilities 57,303 60,897 60,553
Creditors: Amounts falling due after more than 9,402 11,879 11,161
one year
Provisions for liabilities and charges 567 200 988
Accruals and deferred income 33 35 34
Equity minority interests 148 138 155
Net assets 47,153 48,645 48,215
Capital and reserves
Called up share capital 3,289 3,273 3,281
Share premium account 33,915 33,869 33,881
Profit and loss account 9,949 11,503 11,053
Equity shareholders' funds 47,153 48,645 48,215
SUMMARISED GROUP CASH FLOW STATEMENT
Six months ended 30 September 2001
Six Six Year
months months
ended ended ended
30/9/01 30/9/00 31/3/01
£000 £000 £000
Net cash flow from operating activities (note 8) 1,451 1,280 15,150
Returns on investments and servicing of finance (951) (1,259) (2,430)
Taxation (1,209) (1,188) (2,759)
Capital expenditure and financial investments (721) (3,180) (4,259)
Acquisitions and disposals 102 - (67)
Equity dividends paid (1,481) (1,473) (1,473)
Net cash flow before management of liquid resources
and financing (2,809) (5,820) 4,162
Management of liquid resources 700 780 80
Financing (1,669) (333) (4,541)
Decrease in cash (3,778) (5,373) (299)
RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET DEBT
Six months Six Year
ended months ended
ended
30/9/01 30/09/00 31/3/01
£000 £000 £000
Decrease in cash (3,778) (5,373) (299)
Cash inflow from short-term deposits (700) (780) (80)
(4,478) (6,153) (379)
Repayment of loan notes 522 754 1,608
New bank loans (522) (950) (1,845)
Repayment of long term loans 1,518 2,629 6,959
New finance leases (129) (270) (713)
Repayment of capital element of finance lease 322 452 832
Change in net debt resulting from cash flows (2,767) (3,538) 6,462
Exchange differences 340 (86) 570
Other (35) (36) (73)
(2,462) (3,660) 6,959
Net debt at 1 April (20,436) (27,395) (27,395)
Net debt at 30 September/31 March (22,898) (31,055) (20,436)
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 2001.
2 Basis of consolidation
The group's interim result consolidates the results of the company
and its subsidiary companies made up to 30 September 2001.
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 2001. Those accounts, upon which the auditors
issued an unqualified opinion, have been delivered to the Registrar of
Companies.
The interim results were approved by the Board of Directors on 19
November 2001.
4 Turnover and segmental analysis
Turnover, which is stated net of value added tax, represents amounts invoiced
to third parties.
Turnover Underlying Operating Profit
Six Six months Year Six Six months Year
months months
ended ended ended ended ended ended
30/9/01 30/9/00 31/3/01 30/9/01 30/9/00 31/3/01
£000 £000 £000 £000 £000 £000
Area of activity
Breeding 36,233 34,465 71,317 5,021 3,748 7,811
Consulting 15,734 14,930 32,708 (639) 618 1,111
Distribution 26,326 31,950 58,877 370 737 686
78,293 81,345 162,902 4,752 5,103 9,608
Inter-segmental (13) (14) (28) - - -
sales
Unallocated costs - - - (468) (492) (1,021)
78,280 81,331 162,874 4,284 4,611 8,587
Operating Profit
Six months Six months Year
ended ended ended
30/9/01 30/9/00 31/3/01
£000 £000 £000
Area of activity
Breeding 4,533 3,266 6,611
Consulting (749) 504 905
Distribution 8 364 (188)
3,792 4,134 7,328
Unallocated costs (468) (786) (1,237)
3,324 3,348 6,091
4 Turnover and segmental analysis continued
Turnover Operating Profit
Six months Six Year Six Six Year
months months months
ended ended ended ended ended ended
30/9/01 30/9/00 31/3/01 30/9/ 31/3/01
30/9/00 01 30/9/00
£000 £000 £000 £000 £000 £000
Geographical region
of origin
United Kingdom 57,051 60,448 119,271 1,100 1,867 2,281
Europe 3,538 3,126 6,363 270 552 515
North America 18,412 18,830 29,845 2,074 1,669 4,107
Rest of the world 3,476 3,539 7,395 348 46 425
82,477 85,943 162,874 3,792 4,134 7,328
Inter-segmental sales (4,197) (4,612) - - - -
Unallocated costs - - - (468) (786) (1,237)
78,280 81,331 162,874 3,324 3,348 6,091
Turnover
Six months Six months Year
ended ended ended
30/9/01 30/9/00 31/3/01
£000 £000 £000
Geographical region of
destination
United Kingdom 47,351 52,448 98,346
Europe 6,888 6,738 14,111
North America 11,969 11,874 25,361
Rest of the world 12,072 10,271 25,056
78,280 81,331 162,874
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
30/9/01 30/9/00 31/3/01
£000 £000 £000
UK corporation tax 339 637 628
Deferred tax 60 193 512
Overseas taxation 681 220 600
1,080 1,050 1,740
Tax over provided in previous periods (133) - (57)
947 1,050 1,683
6. Dividends
The dividend charged in the period of £4,000 (2000: £119,000)
represents the final dividend for the year ended 31 March 2001 on new shares
issued subsequent to the year end.
7 Earnings per share
The basic earnings per share is based on a loss for the period of £1,051,000,
(2000: a profit of £930,000) and the weighted average number of ordinary
shares in issue of 32,847,000 (2000: 31,579,000).
The underlying earnings per share is based on the underlying earnings as set
out below:
Six months Six months
ended ended
30/9/01 30/9/00
£000 £000
(Loss)/profit for the period (1,051) 930
Add: amortisation of goodwill 960 891
acquisition and float costs - 372
loss on disposal of discontinued operations 1,165 -
write-down of investments 1,809 -
Less: (profit)/loss on disposal of properties (558) 6
2,325 2,199
Less: associated tax on adjustments (110) (144)
2,215 2,055
The diluted earnings per share is based on a loss for the period of £1,051,000
(2000: a profit of £930,000) and on 33,131,000 (2000: 32,057,000) diluted
ordinary shares, calculated as follows:
Six months ended Six months ended
30/9/01 30/9/00
000's 000's
Basic weighted average number of shares 32,847 31,579
Dilutive potential ordinary shares:
Employee share options 284 478
33,131 32,057
8 Reconciliation of operating profit to net cash flow from operating
activities
Six months Six months Year
ended ended ended
30/9/01 30/9/00 31/3/01
£000 £000 £000
Operating profit 3,324 3,348 6,091
Depreciation 2,077 2,200 4,459
Amortisation of milk quota 4 3 7
Amortisation of goodwill 960 891 1,927
(Loss)/profit on disposal of fixed assets 84 (83) (20)
Deferred government grants (1) (1) (2)
(Increase)/decrease in stocks 4 (1,718) 424
(Increase)/decrease in debtors (2,562) (1,084) 2,053
(Decrease)/increase in creditors (2,439) (2,276) 211
1,451 1,280 15,150
9 Reconciliation of shareholders' funds
Six months Six months Year
ended ended ended
30/9/01 30/9/00 31/3/01
£000 £000 £000
Total recognised gains and losses (2,121) 2,844 3,873
Dividends (4) (119) (1,596)
Movements in respect of share issues 42 2,282 2,300
Goodwill reinstated on sale of subsidiary 1,021 - -
Total movements during the period (1,062) 5,007 4,577
Shareholders' funds at 1 April 48,215 43,638 43,638
Shareholders' funds at 30 September/31 March 47,153 48,645 48,215
INDEPENDENT REVIEW REPORT TO GENUS plc
Introduction
We have been instructed by the company to review the financial information set
out on pages 6 to 12 and we have read the other information contained in the
interim report and considered whether it contains any apparent misstatements
or material inconsistencies with the financial information.
Directors' responsibilities
The interim report, including the financial information contained therein, is
the responsibility of, and has been approved by the directors. The Listing
Rules of the Financial Services Authority require that the accounting policies
and presentation applied to the interim figures should be consistent with
those applied in preparing the preceding annual accounts except where any
changes, and the reasons for them, are disclosed.
Review work performed
We conducted our review in accordance with guidance contained in Bulletin 1999
/4 issued by the Auditing Practices Board for use in the United Kingdom. A
review consists principally of making enquiries of group management and
applying analytical procedures to the financial information and underlying
financial data and based thereon, assessing whether the accounting policies
and presentation have been consistently applied unless otherwise disclosed. A
review excludes audit procedures such as tests of controls and verification of
assets, liabilities and transactions. It is substantially less in scope than
an audit performed in accordance with United Kingdom Auditing Standards and
therefore provides a lower level of assurance than an audit. Accordingly we
do not express an audit opinion on the financial information.
Review conclusion
On the basis of our review we are not aware of any material modifications that
should be made to the financial information as presented for the six months
ended 30 September 2001.
Ernst & Young LLP, Manchester
November 2001
Financial Calendar
Financial year end 31 March 2002
Announcement of final results May 2002
Annual General Meeting August 2002
Full and final dividend payment September 2002
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