Interim Results
Genus PLC
13 March 2007
FOR IMMEDIATE RELEASE 13 March 2007
Genus plc
('Genus' or 'the Company')
Interim Results for the six months ended 31 December 2006
Interim Results
Genus, the world leading animal genetics company, announces its results for the
six months ended 31 December 2006. These results are reported under
International Financial Reporting Standards ('IFRS').
2006 2005
£m £m
Continuing Operations
Turnover 116.3 60.9
Adjusted operating profit* 15.9 6.8
Operating profit 10.6 5.5
Profit before taxation 6.1 5.0
Basic earnings per share 6.9p 8.4p
Adjusted earnings per share** 13.6p 9.7p
Total Operations
Profit after tax 4.4 0.4
Basic earnings per share 8.0p 1.0p
* Operating profit before fair value movements on biological assets,
amortisation of intangible assets, share based payments and exceptional
items.
** Earnings per share based on adjusted earnings (see note 9).
Highlights from Continuing Operations:
• Company
- Adjusted operating profit more than doubled to £15.9m (2005 : £6.8m)
benefiting from full 6 months contribution from the Sygen acquisition.
- Adjusted operating profit would have been £1.0m higher at £16.9m if
exchange rates had remained constant.
- Adjusted earnings per share of 13.6p was 40% higher (2005 : 9.7p)
notwithstanding the issue of 16.9 million new shares to finance part of the
Sygen acquisition.
- Net debt before finance leases of £118m was £4m lower than expected at
the time of the Sygen acquisition.
• Bovine Genetics
- Volume increased by 8% in the USA and prices were 7% higher in Europe.
- Adjusted operating profit in constant currency of £7.1m was £0.4m
higher than the record 2005 result of £6.7m, despite drought affected Australia.
• Porcine Genetics
- Adjusted operating profit in constant currency increased by £2.6m to
£12.9m (2005 pro-forma*** was £10.3m).
- Further progress with de-risking of business:
o 70% of US and Europe business now on royalty model
o 90% of production now sub-contracted
*** Assumes Sygen had been acquired on 1 July 2005
Commenting on prospects Richard Wood, Chief Executive, said:
'We have made excellent progress with the integration of Sygen and have
delivered the results expected, despite the negative impact on profits of the
weak US dollar.
The second half of the year has started strongly. We expect market conditions to
remain unchanged and for the business to continue the strong underlying sales
and profit growth demonstrated in these results.
For further information, please contact:
Genus plc Tel: 01256 347 100
Richard Wood, Chief Executive
David Timmins, Finance Director
Buchanan Communications Tel: 020 7466 5000
Charles Ryland/Suzanne Brocks
CHAIRMAN'S STATEMENT
I have pleasure in being able to report a period of significant development and
strong results for Genus. A key feature in the enhancement of Genus' performance
has been the successful acquisition of Sygen International plc ('Sygen') in
December 2005.
This Interim Report has been prepared in accordance with International Financial
Reporting Standards ('IFRS').
Group Performance
Turnover from continuing operations for the six months period ended 31 December
2006 increased by 91% to £116.3m (2005 : £60.9m). Adjusted operating profit from
continuing operations more than doubled to £15.9m (2005 : £6.8m) and operating
profit from continuing operations increased 93% to £10.6m (2005 : £5.5m). These
results were achieved despite the negative impact of £1m compared to the prior
year in translating US dollar operating profits.
This improvement in performance has been achieved through strong trading in our
main markets and the rapid and smooth integration of Sygen.
A key driver of the Company's performance was the acquisition of Sygen in
December 2005 which contributed a full six months to the current period compared
with only one month last year. The adjusted operating profit of porcine for the
six months ended 31 December 2006 was £11.9m. This was £1.6m higher than the
pro-forma comparative adjusted operating profit of £10.3m, calculated to
indicate the contribution Sygen would have made had it been acquired on 1 July
2005. In constant currency, adjusted operating profit of porcine would have been
a further £1.0m higher (£2.6m in total) compared with the pro-forma comparative
amount.
On this pro-forma basis, adjusted operating profit from continuing operations
for the Company increased by £4.9m (45%) to £15.9m (2005 : pro-forma £11.0m,
which includes a £4.2m contribution from Sygen for the 5 months period
pre-acquisition). The increase of £4.9m reflects a strong trading performance
and cost reductions. Adjusted operating profit from continuing operations in
constant currency would have been a further £0.9m higher (£5.8m in total) than
the pro-forma comparative, but for the weaker US dollar in the current period.
Exceptional expenses for the period of £2.3m (2005: £0.9m) related to the
integration of Sygen to an accelerated timetable in order to secure cost savings
earlier. Work associated with the preparation for a move to the Official List,
principally the IFRS audited restatement of historical financial statements,
cost £0.7m.
Disposal of two surplus pig farms and a residual property in the Animal Health
business generated a profit of £0.7m.
Profit before tax from continuing operations of £6.1m, was 22% or £1.1m higher
than in 2005. Adjusted profit before tax from continuing operations of £11.4m,
was £5.5m (93%) higher than 2005. The effective tax rate on adjusted profit
before tax was 34%, as expected.
Adjusted earnings per share from continuing operations increased by 3.9p (40%)
to 13.6p (2005 : 9.7p) notwithstanding the issue of 16.9m new shares to fund
part of the Sygen acquisition. Basic earnings per share from total operations
were 8.0p (2005 : 1.0p).
Cash, Net Debt & Dividend
Net debt before finance leases increased by only £1.7m to £118.5m in a period
which is cash absorbing in working capital for the Bovine sales season. In
addition, the final dividend of £4.5m was paid within the period. The proceeds
from property disposals of £2.3m, the disposal proceeds of Shrimp Genetics in
Thailand of £1.0m and a cash profit of £1.75m from terminating a cross-currency
swap provided additional cash inflows. A replacement swap was immediately put
into place. The net debt at the end of the period was £4m lower than expected at
the time of the Sygen acquisition.
The Company is pursuing the divestments of the remaining non-core businesses to
hasten further reduction in net debt to leave the Company well placed to pursue
other opportunities for growth as and when they arise.
In line with previous years and our stated dividend policy, the Board does not
recommend an interim dividend due to the high handling costs associated with
distribution to the relatively large number of shareholders. The Board expects
to recommend a final dividend when the results for the year ending 30 June 2007
are known.
Bovine
Turnover increased by £2.2m to £50.9m (2005: £48.7m) with gains in most
territories.
In the Americas, turnover was £2.1m (10%) higher in constant currency driven by
an 8% increase in volume. However, the currency translation reduced this
increase to £0.4m. The benefits of our investment in expanding the US sales
force over recent years increased operating profit in the USA by £0.4m (17%) to
£2.7m (2005: £2.3m) and more in local currency.
In Europe, turnover was up 3.5% driven by a 7% increase in average prices.
Volume was slightly down because of phasing of supplies through distributors.
The adjusted operating profit increase of £0.2m to £6.9m compared with the
record performance last year of £6.7m was achieved despite both the £0.5m
decrease in expected profits from drought affected Australia compared with the
prior period and the negative currency impact of £0.2m. We believe that the
expansion into the Australian retail market made last year will assist recovery
once markets return to more normal levels.
Porcine
Turnover of £65.4m was £6.0m lower than pro-forma 2005 (£71.4m). This was due to
the impact of a weak US dollar on translation to sterling as well as the
strategy of replacing direct animal sales with royalty bearing indirect sales in
order to de-risk the business from volatility in market prices. Approximately
70% of the business in the USA and Europe has now been moved from direct sales
to the royalty model and 90% of production has been outsourced to contract
multipliers, in those territories, again as part of the strategy to de-risk the
business.
Our new approach to European operations increased volume by 3.3%. Prices
improved in developing markets, although the market in China remained depressed.
As the outsourcing strategy progressed, redundant farms in the US and China were
sold. Since the interim period end, on 28 February 2007 a farm in France was
sold for €2.75m (£1.87m).
Discontinued Businesses
The licensed veterinary pharmaceutical business performed to plan. Phasing of
contract wins, following the disruption caused by the temporary office closure
last year, due to the Buncefield oil depot fire, delayed profit for Development
Consulting. The residual shrimp business in Mexico accrued losses in its low
season, but at a much lower rate than expected.
These businesses are being actively marketed and will be sold when an
appropriate price is achieved
Taking into account these businesses, group profit after taxation was £4.4m
(2005 : £0.4m) and earnings per share was 8.0p (2005 : 1.0p).
Research
A review of the acquired research programme has identified those projects with
the highest potential to create commercial advantage, should they be successful.
The identified projects have been consolidated with those already in the Genus
programme and any overlaps have been eliminated to achieve annualised cost
savings of £2m, with no reduction in inventive capability.
Priorities have now been refocused on the two major research platforms of
genomics and sexed semen.
Significant progress is being made with genomics research. Potential benefits
have been quantified and 45 additional markers (78 in total) have been included
in routine genetic evaluations. Looking ahead, our focus is on health and
robustness traits. These are difficult to evaluate using traditional
quantitative science.
The Company's sexed semen product was launched in the USA and became available
in Europe at the end of the reporting period. It was well received by the market
and production is currently sold out. An increase in capacity is being
considered alongside hastening progress with alternative processes being
developed within the R&D programme which are less capacity constrained.
Porcine Product Development
A review of the porcine product development process has concluded that effort
should be concentrated in two nucleus herds. Demand from our largest customers
is for customised genetic lines. To meet this demand, we propose to build a new
larger nucleus facility in the USA and have taken an option on suitable land.
This new facility will replace less efficient facilities in the USA. This
proposed investment will be of sufficient capacity and diversity to achieve
growth and meet projected customer demands for a decade.
Bovine Product Development
The company has achieved consistent long term organic growth in the bovine
sector averaging between four and five percent per annum. This level of growth
is expected to continue. Currently, volume is serviced by approximately 140 top
bulls being collected at six studs. Replacement bulls are selected from a
rolling bull programme evaluating 350 bulls per year. In order to increase
capacity to meet projected demand, we propose to increase the number of bulls at
stud and, accordingly, the test programme will be increased over the next two
years to 400 bulls per year. Only minor investments in facilities will be
required.
Board
Professor Barry Furr joined the Board as a non-executive director in December
2006. Professor Furr, aged 63 years, recently retired as Chief Scientist and
Head of Project Evaluation for AstraZeneca plc. He was awarded an OBE in 2000
for his services to cancer drug discovery and was the inventor of Zolodex and
Casodex, world-leading anti-cancer drugs. Professor Furr will provide guidance
on fundamental science strategy.
Move to Official List and Share Register
At the Annual General Meeting on 16 November 2006, shareholders voted
overwhelmingly in favour of the Board seeking admission to the Official List of
the London Stock Exchange. The Board is expecting the move to take place
following the publication, in September 2007, of the Preliminary Results for the
year ending 30 June 2007.
As part of the Board's strategy of restructuring the share register to continue
the process of improving share liquidity, the Company completed a further
voluntary buyback scheme in December 2006 which was aimed at investors with
shareholdings of 1,000 or fewer shares. The shares sold by these investors were
bundled and placed with institutions, which obviated the need to buy back first
into Treasury. A total of 836,469 shares (1.5% of issued share capital) were
bought back from 1,579 shareholders (7.8% of total number of shareholders) and
placed with institutional investors. The institutional and private client
institutional shareholdings now stand at 72% of the total register.
Outlook
The Board expects agricultural market conditions to be largely unchanged in the
second half year and trading has started strongly.
As a result, the Board expects the strong underlying performance achieved in the
first half to continue and that market expectations will be achieved despite the
anticipated weak US dollar. This implies a further upgrade to underlying
performance.
John Hawkins
Chairman
Consolidated income statement
For the six months ended 31 December 2006
Unaudited Unaudited
2006 2005
Note
£m £m £m £m
Revenue from continuing 1 116.3 60.9
operations
Adjusted operating profit from 15.9 6.8
continuing operations
Fair value movement on 0.3 0.4
biological assets
Amortisation of intangible (2.6) (0.4)
assets
Share based payments (0.7) (0.4)
3 12.9 6.4
Exceptional items
Integration and restructuring (1.6) (0.9)
expenses
Preparation for main market (0.7) -
listing
(2.3) (0.9)
Operating profit from 10.6 5.5
continuing operations
Share of profit/(loss) of joint 0.7 (0.2)
ventures and associates
Other gains and losses - 0.8
Finance costs 4 (5.2) (1.1)
Profit before tax from 6.1 5.0
continuing operations
Taxation 5 (2.3) (1.6)
Profit for the period from 3.8 3.4
continuing operations
Profit/(loss) for the period 2 0.6 (3.0)
from discontinued operations
Profit for the period 4.4 0.4
Earnings per share from 9
continuing operations
Basic earnings per share 6.9p 8.4p
Diluted earnings per share 6.7p 8.2p
Adjusted earnings per share 13.6p 9.7p
Earnings per share from total 9
operations
Basic earnings per share 8.0p 1.0p
Diluted earnings per share 7.8p 1.0p
Consolidated Statement of Changes in Equity
For the six months ended 31 December 2006
Called Share Own Translation Hedging Retained Total
up premium shares reserve reserve earnings
Note share account
capital
£m £m £m £m £m £m £m
Balance at 1 July 2006 5.5 92.2 (0.2) 1.3 0.8 49.6 149.2
Foreign exchange - - - (12.0) - - (12.0)
translation differences
Fair value movement on - - - 0.3 - - 0.3
net investment hedge,
net of tax
Fair value movement on - - - - 0.6 - 0.6
cash flow hedges, net
of tax
Actuarial gains / - - - - - 3.4 3.4
(losses) on defined
employee benefit
schemes, net of tax
Net income and expense - - - (11.7) 0.6 3.4 (7.7)
recognised directly in
equity
Profit for the period - - - - - 4.4 4.4
Total recognised income - - - (11.7) 0.6 7.8 (3.3)
and expense for the
period
Recognition of share - - - - - 0.7 0.7
based payments
Issue of ordinary 0.1 0.4 - - - - 0.5
shares
Dividends 6 - - - - - (4.5) (4.5)
Balance at 31 December 5.6 92.6 (0.2) (10.4) 1.4 53.6 142.6
2006
Consolidated balance sheet
As at 31 December 2006
Unaudited Unaudited Audited
Note
31 31 30 June
ecember December 2006
2006 2005
£m £m £m
Assets
Goodwill 73.6 75.5 74.6
Other intangible assets 86.6 91.6 89.1
Biological assets 7 106.5 123.1 115.1
Property, plant and equipment 27.3 34.8 29.0
Interests in joint ventures and 3.5 3.8 3.2
associates
Deferred tax assets 10.1 12.7 10.8
Total non-current assets 307.6 341.5 321.8
Inventories 16.4 15.2 18.1
Biological assets 7 25.3 19.9 25.7
Income tax receivable 1.3 2.7 1.6
Trade and other receivables 45.2 38.7 42.9
Cash and cash equivalents 26.3 27.6 32.2
Derivative financial assets 2.5 - 3.0
Assets held for sale 2 15.5 25.2 16.9
Total current assets 132.5 129.3 140.4
Total assets 440.1 470.8 462.2
Liabilities
Trade and other payables (35.2) (42.2) (36.8)
Interest-bearing loans and borrowings (25.5) (23.0) (25.5)
Obligations under finance leases (1.7) (2.2) (2.1)
Current tax liabilities (4.9) (5.1) (4.9)
Liabilities held for sale 2 (7.6) (10.1) (8.8)
Total current liabilities (74.9) (82.6) (78.1)
Interest-bearing loans and borrowings (121.5) (128.6) (125.3)
Employee benefits 11 (18.7) (25.1) (22.8)
Obligations under finance leases - (0.1) (0.1)
Provisions (5.8) (5.7) (6.5)
Deferred tax liabilities (76.6) (79.4) (80.2)
Total non-current liabilities (222.6) (238.9) (234.9)
Total liabilities (297.5) (321.5) (313.0)
Net Assets 142.6 149.3 149.2
Equity
Called up share capital 5.6 5.5 5.5
Share premium account 92.6 93.8 92.2
Own shares (0.2) (0.2) (0.2)
Translation reserve (10.4) 10.5 1.3
Hedging reserve 1.4 - 0.8
Retained earnings 53.6 39.7 49.6
Total equity 142.6 149.3 149.2
Consolidated statement of cash flows
For the six months ended 31 December 2006
(comparative period being 6 months ended 31 December 2005)
Note Unaudited Unaudited
2006
2005
£m £m
Net cash flow from operating activities 10 7.3 3.2
Cash flows from investing activities
Interest received 0.3 -
Proceeds from disposal of subsidiaries 1.0 7.1
Acquisition of subsidiaries and businesses (net of cash - (175.7)
acquired of £17.3m)
Acquisition of property, plant and equipment (3.1) (2.5)
Proceeds from sale of property, plant and equipment 2.3 0.5
Net cash inflow/(outflow) from investing activities 0.5 (170.6)
Cash flows from financing activities
(Repayment)/drawdown of borrowings (4.8) 146.5
Debt issue costs - (2.2)
Interest paid (4.3) (1.1)
Payment of finance lease liabilities (0.1) (0.1)
Cashflows from derivative financial instruments 1.7 -
Dividends paid (4.5) (2.8)
New share capital issued 0.5 54.1
Decrease in bank overdrafts (1.7) (8.0)
Net cash (outflow)/inflow from financing activities (13.2) 186.4
Net (decrease) / increase in cash and cash equivalents (5.4) 19.0
Cash and cash equivalents at 1 July 34.0 13.5
Effect of exchange rate fluctuations on cash held (0.1) (1.3)
Total cash and cash equivalents at 31 December 28.5 31.2
Of the cash and cash equivalents of £28.5m at 31 December 2006, £2.2m is
included in assets held for sale in the consolidated balance sheet (31 December
2005: £3.6m).
Of the cash and cash equivalents of £34.0 m at 1 July 2006, £1.8m is included in
assets held for sale in the consolidated balance sheet (1 July 2005: £5.4m).
Notes to the consolidated financial information
Basis of preparation
Genus plc has historically prepared its audited annual accounts and unaudited
interim results in accordance with UK generally accepted accounting practice (UK
GAAP). Following European regulation issued in 2002 and as announced on 5 March
2007, the Group will now present its Annual report and accounts in accordance
with International Financial Reporting Standards (IFRS).
The IFRS information for the 15 month period ended 30 June 2006 is a restatement
of information extracted from the statutory financial statements prepared under
UK GAAP on the historical cost basis. Those statutory financial statements were
filed with the Registrar of Companies. The auditors' report on those accounts
was unqualified and did not contain statements under section 237(2) or 237(3) of
the Companies Act 1985. The restated IFRS information provided for the 15 month
period ended 30 June 2006 does not constitute statutory accounts within the
meaning of section 240 of the Companies Act 1985. However, they are anticipated
to form the comparative period in the statutory accounts for the year ending 30
June 2007, the Group's first Annual Report to be prepared in accordance with
IFRS. The financial information for the six months ended 31 December 2006 has
been the subject of an independent review by the auditors. The financial
information for the six months ended 31 December 2005 is shown as comparative
financial information and has been neither audited nor subject to independent
review by the auditors.
The unaudited interim results for the six months ended 31 December 2005 and 31
December 2006 have been prepared by the Group using its best knowledge of the
expected IFRS and accounting policies that will be applied when the Group
prepares its first set of IFRS financial statements for the year ending 30 June
2007. There is however, a possibility that some changes to these policies will
be necessary when preparing the full annual financial statements as the
unaudited interim results, have been prepared using the expected IFRS that is
anticipated to be applicable and adopted by the EU, which is not known with
certainty at the time of preparing this Interim Financial Information.
Therefore, until such time, the possibility that the opening balance sheet and
the interim IFRS financial information presented may require amendment cannot be
excluded.
IFRS 1 First-time Adoption of International Financial Reporting Standards
permits companies adopting IFRS for the first time to take some exemptions from
the full requirements of IFRS and also certain elections in the transition
period. The exemptions and elections which the Group has taken advantage of are
available on the Group's website www.genus.co.uk together with full details of
the Group's new accounting policies.
This interim report was approved by the Board on 13 March 2007.
1. Segment reporting
Area of activity
Turnover Adjusted operating
profit
2006 2005 2006 2005
Continuing operations £m £m £m £m
Bovine Genetics 50.9 48.7 6.9 6.7
Porcine Genetics 65.4 12.2 11.9 1.9
Unallocated costs - - (2.9) (1.8)
Continuing operations - total 116.3 60.9 15.9 6.8
Discontinued operations
- Shrimp Genetics 0.8 0.3 (0.7) (0.3)
- Development Consulting 9.0 13.4 0.1 0.5
- Animal Health 4.0 27.2 0.8 1.0
Discontinued operations - total 13.8 40.9 0.2 1.2
Total 130.1 101.8 16.1 8.0
Notes to the consolidated financial information
1. Segment reporting (continued)
Area of activity
Operating profit
2006 2005
Continuing operations £m £m
Bovine Genetics 9.4 6.6
Porcine Genetics 5.5 1.1
Unallocated costs:
Other (2.9) (1.8)
Share based payments (0.7) (0.4)
Preparation for main market listing (0.7) -
Continuing operations - total 10.6 5.5
Discontinued operations
- Shrimp Genetics (0.7) (0.3)
- Development Consulting 0.1 0.5
- Animal Health 0.2 (1.2)
Discontinued operations - total (0.4) (1.0)
Total 10.2 4.5
Geographical region of origin
Turnover Adjusted operating
profit
2006 2005 2006 2005
Continuing operations £m £m £m £m
United Kingdom 19.8 16.4 3.4 3.2
Europe 32.7 10.2 4.6 2.3
North America 60.8 31.4 10.5 3.0
Rest of the world 6.5 3.8 0.3 0.1
Unallocated costs - - (2.9) (1.8)
Inter-segmental sales (3.5) (0.9) - -
Continuing operations - total 116.3 60.9 15.9 6.8
Discontinued operations 13.8 40.9 0.2 1.2
Total 130.1 101.8 16.1 8.0
Operating profit
2006 2005
Continuing operations £m £m
United Kingdom 3.7 2.3
Europe 4.1 2.4
North America 7.6 3.5
Rest of the world (0.5) (0.5)
Unallocated costs:
Other (2.9) (1.8)
Share based payments (0.7) (0.4)
Preparation for main market listing (0.7) -
Continuing operations - total 10.6 5.5
Discontinued operations (0.4) (1.0)
Total 10.2 4.5
Notes to the consolidated financial information
2. Non-current assets held for sale and discontinued operation
Discontinued operations
2006 2005
£m £m
Adjusted operating profit/(loss)
Loss in Shrimp Genetics for the period (0.7) (0.3)
Profit in Development Consulting in the period 0.1 0.5
Profit in Animal Health for the period 0.8 1.0
Adjusted operating profit from discontinued operations 0.2 1.2
Winding up of legacy pension scheme (0.6) -
Impairment of goodwill in Animal Health - (2.2)
Operating profit from discontinued operations (0.4) (1.0)
Other gains and losses
Profit arising on sale of Dental products wholesale 0.7 -
division
Loss on sale of Veterinary product wholesale business, a - (2.1)
division of Animal Health
Profit on sale of Thailand operation of Shrimp Genetics 0.2 -
0.9 (2.1)
Profit/(loss) from discontinued operations before tax 0.5 (3.1)
Tax 0.1 0.1
Profit/(loss) from discontinued operations 0.6 (3.0)
The Board decided in May 2006 that the Shrimp Genetics business would be
disposed. Accordingly, the results of this business is shown within discontinued
operations, and its assets and liabilities shown as held for sale at 31 December
2006.
The Board decided to dispose of the group's other non-core operations, the
Animal Health businesses and Development Consulting prior to 31 December 2005.
Accordingly, the results of these entities are shown within discontinued
operations, and their assets and liabilities shown as held for sale at 31
December 2006 and 31 December 2005.
The Shrimp Genetics business in Thailand was sold on 9 October 2006 for £1.0
million cash resulting in a profit on disposal of £0.2 million.
In the period ended 30 June 2006, the Shrimp Genetics business in Brazil was
sold on 7 June 2006, and the Animal Health veterinary product and dental product
wholesale businesses were sold on 28 October 2005 and 22 February 2006,
respectively.
The remaining Mexican Syaqua business, together with the remaining Animal Health
business and Development Consulting continue to be actively marketed.
In addition, at 31 December 2006, two freehold properties are classified as held
for sale.
Notes to the consolidated financial information
2. Non-current assets held for sale and discontinued operation (continued)
Assets held for sale
The major classes of assets & liabilities comprising the operations held for
sale are as follows:
2006 2005
£m £m
Assets
Goodwill and Intangibles 0.5 0.3
Biological assets 1.0 -
Property, plant and equipment 1.0 5.1
Inventories 1.5 1.5
Trade and other receivables 9.3 14.7
Cash and cash equivalents 2.2 3.6
Total assets 15.5 25.2
Liabilities
Trade and other payables (7.6) (10.1)
Total liabilities (7.6) (10.1)
Net assets of disposal groups 7.9 15.1
3. Exceptional items within continuing operations
Exceptional items are as follows:
2006 2005
£m £m
Integration and restructuring expenses (primarily Sygen 1.6 0.9
acquisition related)
Preparation for main market listing 0.7 -
2.3 0.9
Notes to the consolidated financial information
4. Net finance costs
2006 2005
£m £m
Interest payable on bank loans & overdrafts (5.5) (1.1)
Finance charges payable under finance leases and hire (0.1) -
purchase contracts
Amortisation of debt issue costs (0.2) -
Net interest cost in respect of pension schemes (0.2) (0.1)
Total finance costs (6.0) (1.2)
Bank interest receivable 0.5 0.1
Other interest receivable 0.3 -
Total finance income 0.8 0.1
Net finance costs (5.2) (1.1)
5. Income taxes
Continuing Operations:
2006 2005
£m £m
Current tax 3.0 2.1
Deferred tax (0.7) (0.5)
2.3 1.6
The taxation charge for the period is based on the estimated effective tax rate
for the full year of 35% (2005 32.9%).In calculating the effective rate, account
has been taken of differences from the statutory rate arising from tax rates in
foreign jurisdictions, non deductible expenses, tax incentives not recognised in
profit or loss and the effect of movements in the amount of tax losses and other
temporary differences for which a deferred tax credit has not been recognised.
Deferred taxation is recognised in respect of differences between the carrying
amounts of assets and liabilities in the accounts and the corresponding tax
bases. This is subject to deferred tax assets only being recognised if it is
considered probable that there will be suitable profits from which the future
reversal of the temporary differences can be deducted.
There is a deferred tax liability at the period end of £76.6m which mainly
relates to the recognition at fair value of biological assets and intangible
assets arising on acquisition and a deferred tax asset of £10.1m which mainly
relates to future tax deductions in respect of pension scheme liabilities and
share scheme awards.
The total reduction in deferred tax during the period was £2.9m of which £0.7m
was credited to the consolidated income statement and £2.2m was credited to
reserves.
Notes to the consolidated financial information
5. Income taxes (continued)
Discontinued Operations:
2006 2005
£m £m
Current tax (0.1) (0.1)
Deferred tax - -
(0.1) (0.1)
The tax credit on discontinued operations comprises tax of £0.1m on operating
losses of £0.4m.
There is no tax liability on the profit on disposal of £0.9m.
The prior year tax credit of £0.1m comprises a tax credit of £0.5m in respect of
exceptional costs related to the disposal of the veterinary distribution
business less a tax charge of £0.4m on operating profits of £1.2m.
6. Dividends
2006 2005
£m £m
Amounts recognised as distributions to equity holders in
the period
Final dividend for the 12 month period ended 31 March - 2.8
2005 of 7.5p per share
Final dividend for the 15 month period ended 30 June 2006 4.5 -
of 8.25p per share
4.5 2.8
Notes to the consolidated financial information
7. Fair Value of Biological Assets
Bovine Porcine Total
£000s £000s £000s
Balance at 1 July 2006 - continuing operations 70.6 70.2 140.8
- held for sale - 0.9 0.9
70.6 71.1 141.7
Change in fair value less estimated 9.7 - 9.7
point-of-sale costs
Transfers to inventory (7.1) (3.1) (10.2)
Effect of movements in foreign exchange (3.3) (5.1) (8.4)
Balance at 31 December 2006 69.9 62.9 132.8
Non-current 69.9 36.6 106.5
Current - 25.3 25.3
Held for sale - 1.0 1.0
Balance at 31 December 2006 69.9 62.9 132.8
Bovine Porcine Total
£000s £000s £000s
Balance at 1 July 2005 61.6 - 61.6
Change in fair value less estimated 8.2 0.2 8.4
point-of-sale costs
Transfers to inventory (6.5) (0.5) (7.0)
Increases resulting from business combinations - 78.2 78.2
Effect of movements in foreign exchange 2.1 (0.3) 1.8
Balance at 31 December 2005 65.4 77.6 143.0
Non-current 65.4 57.7 123.1
Current - 19.9 19.9
Balance at 31 December 2005 65.4 77.6 143.0
Notes to the consolidated financial information
8. Acquisition of Sygen International plc
On 2 December 2005 the company purchased 100% of the issued share capital of
Sygen International plc for a total cash consideration, including costs, of
£193.2m. The table below summarises the adjustments to the book values of the
assets and liabilities of Sygen International plc required to present the assets
and liabilities on acquisition at fair values in accordance with the group's
IFRS accounting policies.
IFRS Adjustments
As Hindsight Holiday Biological Intangibles Leases Revised
previously Adjustments Pay Assets Fair
reported value
under UK acquired
GAAP net
assets
£m £m £m £m £m £m £m
Non current assets 33.2 (0.2) - 70.1 91.0 0.9 195.0
Current assets 42.6 2.8 - - 45.4
Current liabilities (23.7) 0.2 (0.7) (0.8) (25.0)
Non-current (16.0) (1.7) - (25.5) (30.5) - (73.7)
liabilities
Net assets acquired 36.1 1.1 (0.7) 44.6 60.5 0.1 141.7
Cash consideration 193.2 - - - - - 193.2
Goodwill 157.1 (1.1) 0.7 (44.6) (60.5) (0.1) 51.5
Fair value hindsight adjustments to the estimated fair values of the assets and
liabilities acquired primarily relate to an increase in current assets of £2.8m,
being deferred tax and legal fees recoverable of £1.8m and increases in
non-current liabilities of £1.7m, being the recognition of post retirement
benefit liabilities, and an increase in non-current liabilities relating to
environmental contractual liabilities for past disposals made by Sygen
International plc. All hindsight adjustments were determined within the 12 month
post acquisition hindsight period under IFRS 3 Business Combinations.
IFRS fair value adjustments to the book values of the assets and liabilities of
Sygen International plc for the period ended 31 December 2006 relate to the
adoption of International Financial Reporting Standards, IAS 19 'Employee
Benefits', IAS 41 'Agriculture', IFRS 3 'Business Combinations'', IAS 17
'Leases' and IAS 12 'Income Taxes'.
Notes to the consolidated financial information
9. Earnings per share
Earnings per share from continuing operations 2006 2005
Basic earnings per share 6.9p 8.4p
Diluted earnings per share 6.7p 8.2p
Adjusted earnings per share 13.6p 9.7p
Earnings per share from total operations
Basic earnings per share 8.0p 1.0p
Diluted earnings per share 7.8p 1.0p
Earnings per share measures are calculated on the weighted average number of
ordinary shares in issue during the period. The weighted average number of
shares amounted to 55.2m (six months ended 31 December 2005: 40.3m). Diluted
earnings per share are based on the diluted weighted average number of shares
amounted to 56.8m (six months ended 31 December 2005: 41.4m). As in previous
years, adjusted earnings per share have been shown, since the Directors consider
that this alternative measure gives a more comparable indication of the Group's
underlying trading performance.
Continuing operations
Basic earnings per share from continuing operations is calculated on the profit
for the period of £3.8m (2005: £3.4m)
Adjusted earnings per share is calculated on profit before fair value movements
on biological assets, amortisation of intangible assets, share based payments,
exceptional items and other gains and losses after charging taxation associated
with those profits, of £7.5m (six months ended 31 December 2005 : £3.9m), as
follows:
Adjusted earnings from continuing operations 2006 2005
£m £m
Profit before tax from continuing operations 6.1 5.0
Add/(deduct):
Fair value movement on biological assets (0.3) (0.4)
Amortisation of intangible assets 2.6 0.4
Share based payments 0.7 0.4
Integration and restructuring expenses 1.6 0.9
Preparation for main market listing 0.7 -
Fair value movement on biological assets included in share of - 0.4
profit/(loss) of joint ventures and associates
Other gains and losses - (0.8)
Profit before fair value movement on biological assets, 11.4 5.9
amortisation of intangible assets, share based payments,
exceptional items and other gains and losses
Adjusted tax charge (3.9) (2.0)
Profit before fair value movement on biological assets, 7.5 3.9
amortisation of intangible assets, share based payments,
exceptional items and other gains and losses, after taxation
Notes to the consolidated financial information
9. Earnings per share (continued)
Total operations
Earnings per share for total operations has been calculated as the profit
attributable to ordinary shareholders of £4.4m (six months ended 31 December
2005 £0.4 m) divided by weighted average number of ordinary shares (basic and
diluted) as calculated above.
10. Cashflow from operating activities
2006 2005
£m £m
Profit for the period 4.4 0.4
Adjustments for:
- fair value movements on biological assets (0.3) (0.4)
- amortisation of intangibles 2.6 0.4
- share based payment expense 0.7 0.4
- share of profits of associates (0.7) 0.2
- other gains and losses - (0.8)
- finance costs 5.2 1.1
- income tax expense 2.3 1.6
- (gain) / loss on disposal of discontinued operations (0.6) 3.0
- depreciation of property plant & equipment 2.5 2.1
- Decrease in provisions (0.8) (1.1)
Operating cash flows before movement in working capital 15.3 6.9
Decrease in inventories 0.7 4.8
(Increase) / decrease in receivables (1.7) 1.7
Decrease in payables (5.4) (7.9)
Cash generated by operations 8.9 5.5
Income taxes paid (1.6) (2.3)
Net cash inflow from operating activities 7.3 3.2
Notes to the consolidated financial information
11. Employee benefits
Pension & medical plans
Obligation recognised in the consolidated financial statements
The Group provides employee benefits under various arrangements, including
defined benefit and defined contribution pension plans, the details of which are
disclosed in the most recent annual financial statements. Details of total
obligation recognised for defined benefit obligations are provided below:
December June
2006
2006
£m £m
Present value of unfunded obligations (6.5) (4.8)
Present value of funded obligations (135.8) (140.4)
Fair value of plan assets 123.6 122.4
Gross liability for defined benefit obligations (18.7) (22.8)
Pension plans
A description of the Group's pension plans is set out in the Group's 2006 annual
report. The Company is a participating employer of the Milk Pension Fund, a
defined benefit scheme administered by Milk Pension Fund Trustees. Although
managed on a sectionalised basis the Company, together with other participating
employers, is joint and severally liable for the scheme's obligations.
Expense recognised in the consolidated interim income statement
The expense recognised in the consolidated interim income statement consists of
the current service costs, interest on the obligation for employee benefits and
the expected return on plan assets. For the six months ended 31 December 2006,
the Group recognised an expense of £1.5m (six months ended 31 December 2005:
£0.4m).
The principal actuarial assumptions at the date of the most recent actuarial
valuations (expressed as weighted averages) are:
2006 2005
% %
Discount rate 5.3 5.4
Expected return on plan assets 6.1 5.7
Future salary increases 4.1 4.3
Medical cost trend rate 3.1 2.8
Future pension increases 3.1 2.8
Share-based payments
The fair value of the share award and share option schemes has been established
using a binomial model. The liability is adjusted at each balance sheet date and
at settlement date as the awards contain non market conditions. During the six
months ended 31 December 2006, the Group recognised an expense of £0.7m related
to the fair value of the share awards and options awarded (six months ended 31
December 2005: £0.4m).
Notes to the consolidated financial information
12. Financial instruments
Hedging of fluctuations in interest rates
The Group adopts a policy of ensuring that between 70 and 90 percent of its
exposure to changes in interest rates on borrowings is hedged. An interest rate
swap, denominated in sterling, has been entered into to achieve an appropriate
mix of fixed and floating rate exposure within the Group's policy. At 31
December 2006, approximately 90 percent of borrowings are hedged with a fixed
rate of interest of 4.74%. The swap matures on an amortised basis as the related
borrowings amortise over the next 4 years.
The Group classifies its interest rate swaps as a cash flow hedge. The fair
value of the interest rate swap at 31 December 2006 was £2.0m (31 December 2005:
£nil) which is recognised as a financial asset, with a corresponding credit to
the hedging reserve.
Hedging of fluctuations in foreign currency
The Group is exposed to foreign currency risk on the net assets of overseas
subsidiary entities. To manage this risk a 5 year cross currency swap with a
linked interest rate swap was entered into in January 2006, designated as a
hedge of the spot rate risk arising on the group's net investment in US dollar
denominated subsidiaries.
In September 2006 this instrument was terminated, yielding a gain and cash
proceeds of £1.8m. In accordance with IAS 39 this gain, net of tax, remains
within the foreign exchange reserve. A new swap was put in place and has also
been designated as a hedge of the spot rate risk arising on the group's net
investment in US dollar denominated subsidiaries.
13. Related parties
Transactions with key management personnel
During the period, the Company incurred costs of £0.6m under an agreement with
the Salamander Organization Limited ('Salamander'), a party related to Mr J E
Hawkins, for the provision of professional IT consultancy services. Mr J E
Hawkins is the Chairman of the board of Salamander and he has a financial
interest in that company, but he had no involvement in the commercial
negotiation of the agreement between the Company and Salamander and the
agreement was entered into on an arm's length basis.
INDEPENDENT REVIEW REPORT TO GENUS PLC
Introduction
We have been instructed by the company to review the financial information for
the six months ended 31 December 2006 which comprises the consolidated income
statement, the consolidated statement of changes in equity, the consolidated
balance sheet, the consolidated statement of cash flows, and related notes 1 to
13. 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.
This report is made solely to the company, in accordance with Bulletin 1999/4
issued by the Auditing Practices Board. Our work has been undertaken so that we
might state to the company those matters we are required to state to them in an
independent review report and for no other purpose. To the fullest extent
permitted by law, we do not accept or assume responsibility to anyone other than
the company for our review work, for this report, or for the conclusions we have
formed.
Directors' responsibilities
The interim report, including the financial information contained therein, is
the responsibility of, and has been approved by, the directors. The directors
are also responsible for ensuring that the accounting policies and presentation
applied to the interim figures are consistent with those applied in preparing
the preceding annual accounts except where any changes, and the reasons for
them, are disclosed.
First-time adoption of International Financial Reporting Standards
As disclosed in the basis of preparation, the next annual financial statements
of the group will be prepared in accordance with International Financial
Reporting Standards as adopted by the EU. Accordingly, the interim report has
been prepared in accordance with the recognition and measurement criteria of
IFRS and the disclosure requirements of the Listing Rules that would be
applicable if the company were admitted to the Official List.
The accounting policies are consistent with those that the directors intend to
use in the annual financial statements. There is, however, a possibility that
the directors may determine that some changes to these policies are necessary
when preparing the full annual financial statements for the first time in
accordance with IFRS as adopted by the EU.
Review work performed
We conducted our review in accordance with the 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 International Standards on Auditing (UK and
Ireland) 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 31 December 2006.
Deloitte & Touche LLP
Chartered Accountants
London
13 March 2007
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