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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Genus Plc | LSE:GNS | London | Ordinary Share | GB0002074580 | ORD 10P |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 4.00 | 0.24% | 1,704.00 | 1,704.00 | 1,710.00 | 1,714.00 | 1,696.00 | 1,702.00 | 198,396 | 11:33:39 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| Coml Physical, Biologcl Resh | 689.7M | 33.3M | 0.5043 | 33.83 | 1.13B |
TIDMGNS
RNS Number : 2799Y
Genus PLC
08 September 2020
For Immediate Release 8 September 2020
Genus plc
Preliminary results for the year ended 30 June 2020
STRONG PERFORMANCE, RESILIENT OPERATIONS DURING THE COVID-19 PANDEMIC
Hot Features
Premium
Adjusted results [1] Statutory results
-------------------------------
Actual currency Constant Actual currency
currency
change
[2]
---------
Year ended 30 June 2020 2019 Change 2020 2019 Change
----- ----- ------ --------- ------ -----
GBPm GBPm % % GBPm GBPm %
Revenue 551.4 488.5 13 13 551.4 488.5 13
Operating profit exc JVs 65.3 57.7 13 16 47.6 8.7 447
Operating profit inc JVs
exc gene editing 81.2 72.2 12 17 n/a n/a n/a
Profit before tax 71.0 61.0 16 22 51.5 9.9 420
n/m
Free cash flow 35.2 10.0 252 [3]
Basic earnings per share
(pence) 85.4 73.2 17 23 62.4 12.4 403
Dividend per share (pence) 29.1 27.7 5
--------------------------- ----- ----- ------ --------- ------ ----- ------
Strong revenue growth of 13% in actual and constant currency(2)
-- Excellent performance in PIC, our porcine genetics business, with revenue up 17%(2) ; royalty revenues grew 11%(2) with growth in all regions
-- High breeding stock sales and royalties in China drove PIC volume growth of 13%, 6% excluding China
-- Strong revenue growth in ABS, our bovine genetics business, of 9%(2) , driven by Sexcel(R), our sexed product
-- ABS volume growth of 8%, with sexed volumes up 47% and beef up 17%
Very strong adjusted profit before tax ('PBT')(1) , up 22% in constant currency; statutory PBT at GBP51.5m
-- Adjusted operating profit including joint ventures and excluding gene editing(1) up 17%(2)
-- Double digit adjusted operating profit growth(1) in PIC (up 25%(2) ) and ABS (up 12%(2) ); R&D investment increased 17%(2)
-- Statutory PBT includes a GBP15.8m uplift in net IAS 41 biological asset valuation and GBP19.2m of exceptional costs, compared with a reduced asset valuation and higher exceptional costs in the prior year
-- Foreign currency translation impact on adjusted PBT of GBP3.4m primarily reflecting weakness in LATAM currencies
Strong cash generation, earnings and dividends, and new revolving credit facility ('RCF')
-- Strong free cash flow(1) of GBP35.2m, net debt(1) of GBP102.6m (inc GBP24.7m IFRS 16 adoption), net debt to EBITDA(1) of 0.9x
-- New enlarged credit facility completed 24 August 2020; GBP150m multi-currency RCF, a USD125m RCF and a USD20m bond and guarantee facility for a three-year term with two one-year extension options
-- Very strong financial position with high operating cash flows and significant borrowings headroom enables flexibility to invest further in growth
-- Adjusted earnings per share(1) up 23% in constant currency; dividend up 5% with 2.9x adjusted earnings cover(1)
Good strategic progress despite COVID-19
-- During the COVID-19 pandemic Genus has been committed to the health and safety of its people, customers and communities throughout its global markets
-- More than doubled size of PIC China's supply chain to capture opportunity of re-stocking post African Swine Fever ('ASF')
-- PIC's collaboration with Beijing Capital Agribusiness Co. Ltd ('BCA') is progressing well with receipt of the first milestone payment of USD7m (net income GBP3.2m) received in January 2020
-- Expanded sexed product capacity including new sites, and driving performance through continued technology improvements
-- Completed a two year trial of NuEra(R), our beef-on-dairy genetics demonstrating a material value proposition for the beef industry
-- Continued progress as planned with the Porcine Reproductive Respiratory Syndrome virus ('PRRSv') development programme, first Food and Drug Administration ('FDA') filing completed
-- Market leading genetic portfolio across the Group enabling broad based market share gains
Stephen Wilson, Chief Executive, commenting on the performance and outlook said:
"Genus performed strongly and made substantial strategic progress throughout the 2020 fiscal year. In the second half the Group showed its resilience following the outbreak of the COVID-19 pandemic. Our customers experienced challenges due to the unprecedented market price and demand volatility as protein supply chains were disrupted in some markets. I am proud of the way our people responded and supported our customers through this period. We had to adapt in many ways to ensure that we could continue to supply our customers in the face of extraordinary circumstances, but through the ingenuity and determination of our people we have been able to keep operating uninterrupted during the crisis. This has been achieved while continually focusing on protecting our employees, customers and other stakeholders."
"PIC continued to benefit from strong demand for its genetics in China, due to re-stocking, as large customers replenished and grew their herds following the spread of African Swine Fever ('ASF') in 2019. PIC also achieved strong growth in other regions and is clearly gaining market share due to the strength of its genetics."
"ABS continued to grow strongly, driven by a combination of the success of Sexcel and NuEra(R), our proprietary beef genetics. The beef and dairy markets have seen extreme volatility in prices during the COVID-19 pandemic, and engaging with customers and prospects has been challenging at times. Despite this ABS won significant new customers in all the regions."
"COVID-19 has had a significant impact on the world economy and consumer incomes, and the pandemic has also caused operational challenges for elements of the animal protein value chain, most notably meat processors in the US. We expect these challenges to have a continuing impact for our customers in FY21 and greater currency headwinds are anticipated. However, Genus's business model and strategy has again demonstrated its robustness and we anticipate further growth in constant currency across the business in the coming year and to perform in line with our expectations."
Results presentation today
A pre-recorded analysts and bankers briefing to discuss the preliminary results for the year ended 30 June 2020 will be held via a video webcast facility and will be accessible via the following link from 7:01am today: https://webcasting.buchanan.uk.com/broadcast/5f28011c65023062edd7e24a .
This will be followed by a live Q&A session to be held by invitation via Microsoft Teams at 10:30am.
Enquiries:
Genus plc ( Stephen Wilson, Chief Executive Officer / Alison Tel: 01256 345970 Henriksen, Chief Financial Officer) Buchanan ( Charles Ryland / Chris Lane / Charlotte Slater) Tel: 0207 466 5000
About Genus
Genus advances animal breeding and genetic improvement by applying biotechnology and sells added value products for livestock farming and food producers. Its technology is applicable across livestock species and is currently commercialised by Genus in the dairy, beef and pork food production sectors.
Genus's worldwide sales are made in over 80 countries under the trademarks 'ABS' (dairy and beef cattle) and 'PIC' (pigs) and comprise semen, embryos and breeding animals with superior genetics to those animals currently in farms. Genus's customers' animals produce offspring with greater production efficiency and quality, and our customers use them to supply the global dairy and meat supply chains.
Genus's competitive edge comes from the ownership and control of proprietary lines of breeding animals, the biotechnology used to improve them and its global supply chain, technical service and sales and distribution network.
Headquartered in Basingstoke, United Kingdom, Genus companies operate in over 25 countries on six continents, with research laboratories located in Madison, Wisconsin, USA.
Chief Executive's Review
This is my first report to you as the Chief Executive of Genus, having taken up the position in September 2019, after more than six years as Group Finance Director, and it is a true privilege to lead this company. Genus provides a vital service to an essential industry and in doing so plays a key role in helping to nourish the world. We have a fantastic team of talented, expert and passionate people and our portfolio of elite animal genetics is the strongest it has ever been.
Our current position reflects the success of our ongoing strategy over recent years, which is to increase genetic control and product differentiation, deliver value in key markets and segments, and share in the value delivered. Our consistent vision of 'Pioneering animal genetic improvement to help nourish the world' and our strong core values drive all that we do. At the same time, we must continue to adapt to a changing world, so we are placing even greater emphasis on environmental sustainability, both in the way we run the business and in the benefits our genetics deliver in enabling more sustainable production of high-quality animal protein. Innovation is another important area of focus. Genus has always been an innovative company but the biological sciences move quickly and we need to ensure we remain at the forefront of applying new ideas in our industry to the benefit of our customers.
The Group showed its resilience following the outbreak of the COVID-19 pandemic. This disrupted protein supply chains and some of our customers experienced unprecedented market price and demand volatility. I am proud of the way our people responded to the many challenges and we have been able to keep operating essentially uninterrupted throughout the crisis, while continually focusing on protecting the health of our employees and other stakeholders.
Group Performance
Performance in the year was strong, with revenue increasing by 13%, and adjusted profit before tax growing 16% (22% in constant currency), to a record GBP71.0m.
Genus PIC was the major contributor to that growth, as it benefited as expected from strong demand in China as large producers expanded to fill the supply shortfall caused by African Swine Fever in 2019. Europe and Latin America also contributed strong growth, resulting in PIC's adjusted operating profit including joint ventures being 25% higher in constant currency. Strategically important porcine royalty revenue was up 11% in constant currency, with growth in all regions, contributing to total porcine revenue increasing by 17% in constant currency.
Genus ABS achieved volume growth of 8% and adjusted operating profit growth of 12% in constant currency. This was driven mainly by the growth in sexed product, with sexed volumes up 47%, and continued growth in the use of beef genetics in dairy herds, with global beef volumes up 17%. ABS benefited from our investment in sales capability and the shift to long-term partnership accounts, particularly in the US. Performance was also particularly strong in Brazil, Russia, India and China.
R&D is the lifeblood of our business and we increased net investment by 19% (17% in constant currency) as planned, largely driven by increased investment in porcine product development as we look to further strengthen our proprietary genetics and build capacity for future growth. We will continue to increase investment in gene editing and IntelliGen(R) production capacity, as well as further developing our R&D pipeline.
Continued Strategic Progress
Our strategic investments in our proprietary pork, dairy and beef breeding programmes and our leading sexing technology continue to reap rewards and we advanced our strategy on a number of fronts during the year. Our PRRSv resistance programme made progress as planned and we received our first milestone payment from BCA, our collaboration partner on PRRSv in China. Also in China, we were able to more than double PIC's supply chain capacity, primarily by using our customers' systems and joint ventures to multiply our genetics, positioning Genus to provide elite genetics to more large commercial farms in the country. Meanwhile, our porcine R&D is delivering historically high rates of genetic improvement, supporting business growth and market share gains.
In ABS, we opened further production capacity in Wisconsin to support the ongoing growth in sexed semen volumes, which continue to outperform. In addition, we opened further new state of the art barns to house our elite genetics. Our bovine product development is expanding its industry leading position in Holstein dairy genetics and we used a two year long product trial through the commercial beef supply chain to validate the superior growth, feed efficiency and yields provided by our beef genetics programme. The results of this trial showed the significant benefit of our genetics.
The implementation of Genus One, our new enterprise system, is progressing well. We achieved our first major 'go live' in PIC North America and are well progressed on roll outs to further business areas over the coming year. Ultimately when fully implemented we will reap benefits through leveraging one global system in our operations.
People
As announced on 29 June 2020, Bob Lawson will be standing down as Chairman at the AGM in November 2020. On behalf of the Board and all of my Genus colleagues, I want to thank him warmly for his wise counsel and great leadership during his 10 years on the Board. He has played an integral role in Genus's transformation into the world-leading company it is today. I also want to welcome Iain Ferguson, who joined the Board in July 2020 and will become Chairman after the AGM. We are already benefitting from his very relevant experience and counsel.
The other change to the Board of Directors and membership of GELT during the year was the appointment of Alison Henriksen as Chief Financial Officer. Alison joined us in January 2020 and her commercial and financial expertise is already proving highly valuable to us. I also want to thank Janet Duane, our Financial Controller, who very ably stepped up to be acting CFO in the period before Alison joined us. As previously reported, Dr Elena Rice joined us as Chief Scientific Officer and Head of Research and Development in July 2019.
Genus employs more than 3,100 people around the world. I want to thank them all for their contribution to our success this year, particularly so in the environment resulting from COVID-19. We are fortunate that our people could continue to carry out their roles during the pandemic and no government aid for wages was sought. While our business is animal genetic improvement, we only succeed because of the talents and dedication of our people. The global Your Voice survey we conducted in November showed that employee engagement remains high and we continue to nurture our positive and inclusive culture and to attract new talent to support our strategic objectives.
Outlook
The full impact of COVID-19 on the world economy and consumer incomes remains unclear, although economic forecasts suggest that many sectors will be heavily impacted for some time, creating economic recession in many countries. The pandemic has also caused operational challenges for elements of the animal protein value chain, most notably meat processors in the US which are likely to continue for some time, leading to challenging conditions for some of our customers through at least the remainder of 2020. Greater currency headwinds are also anticipated in FY21. However, Genus's business model and strategy has again demonstrated its robustness and we anticipate further growth in constant currency in the business in the coming year and to perform in line with our expectations.
Stephen Wilson
Chief Executive
7 September 2020
Financial and Operating Review
Financial Review
In the year ended 30 June 2020, Genus achieved a strong financial performance whilst operating in unique circumstances during the second half of the financial year caused by the COVID-19 pandemic. The resilience of our operations was reflected in revenue growth of 13% in both constant and actual currency. Adjusted operating profit growth including joint ventures was 22% in constant currency (17% in actual currency). Notably, this was after a significant planned increase in R&D investment of 17% in constant currency (19% in actual currency to GBP65.2m) primarily to fund expansion in our porcine nucleus herds. Excluding gene editing costs, adjusted operating profit including joint ventures increased by 17% in constant currency and adjusted profit before tax was up 22% (16% in actual currency).
On a statutory basis, profit before tax was GBP51.5m (2019: GBP9.9m). The difference between statutory and adjusted profit before tax principally reflected the uplift in the non-cash fair value net IAS 41 biological asset movement versus a decrease last year. Basic earnings per share on a statutory basis were 62.4 pence (2019: 12.4 pence).
Genus continues to report adjusted results as Alternative Performance Measures ('APMs') used by the Board to monitor underlying performance at a Group and operating segment level, which are applied consistently throughout. These APMs should be considered in addition to, and not as a substitute for or as superior to statutory measures. For more information on Genus's APMs, see the Glossary.
The effect of exchange rate movements on the translation of our overseas profits was to reduce the Group's adjusted profit before tax for the year by GBP3.4m compared with 2019, primarily from weakness in Latin American currencies. All growth rates quoted are in constant currency unless otherwise stated. Constant currency percentage movements are calculated by restating the results for the year ended 30 June 2020 at the average exchange rates applied to adjusted operating profit for the year ended 30 June 2019.
Revenue
Revenue increased by 13% in both constant and actual currencies to GBP551.4m (2019: GBP488.5m). PIC achieved strong revenue growth of 17% in constant currency (up 18% in actual currency), underpinned by high breeding stock sales and royalties in China as customers replenished ASF impacted herds. Our strategically important royalty revenue was up 11%, with growth in all regions. In ABS, revenue was up 9% in constant currency (7% in actual currency), with growth in all regions. Sexed product revenue growth of 35% was ahead of our expectations due to continued strong uptake of Sexcel, our high-fertility sexed genetics product.
Adjusted Operating Profit Including JVs
Actual currency Constant
currency
change
---------
Year ended 30 June 2020 2019 Change
------ ------ ------ ---------
Adjusted Profit Before Tax(1) GBPm GBPm % %
Genus PIC 124.3 100.6 24 25
Genus ABS 32.5 29.9 9 12
R&D (65.2) (54.7) (19) (17)
Central costs (15.6) (10.9) (43) (41)
------ ------ ------ ---------
Adjusted operating profit inc
JVs 76.0 64.9 17 22
Net finance costs (5.0) (3.9) (28) (28)
------ ------ ------ ---------
Adjusted profit before tax 71.0 61.0 16 22
====== ====== ====== =========
(1) Includes share of adjusted pre-tax profits of joint ventures and removes share of adjusted profits of non-controlling interests.
Adjusted operating profit including joint ventures was GBP76.0m (2019: GBP64.9m), reflecting a high growth rate of 22% in constant currency as mentioned above. Within this, Genus's share of adjusted joint venture operating profits was higher at GBP11.3m (2019: GBP7.6m), primarily due to strong results in the PIC Agroceres JV in Brazil and our JV in China. Amounts attributable to non-controlling interests remained broadly consistent at GBP0.6m (2019: GBP0.4m). Our gene editing investment, which is primarily focused on creating resistance in pigs against the devastating PRRSv disease, increased GBP1.1m as planned to GBP8.4m, however the net investment reported is GBP5.2m (2019: GBP7.3m) as it includes recognition of net income of GBP3.2m in relation to the first milestone payment received from our BCA collaboration in China. Excluding our gene editing investment, adjusted operating profit including joint ventures increased by 17% in constant currency to GBP81.2m (2019: GBP72.2m), which exceeded our medium-term objective to achieve growth of 10%.
PIC performed very strongly with adjusted operating profit including joint ventures up 25% in constant currency, benefitting from strong demand in China, despite volatile conditions for our customers in some markets, most notably the US. Volumes were up 13% (6% excluding China) with all regions contributing. Brazil had particularly strong growth, whilst Russia has now grown to become our largest European market.
ABS also had a strong year with adjusted operating profit increasing 12%, and volume growth of 8%. Sexcel continued to demonstrate that it is the sexed product of choice for progressive dairy farmers, driving overall sexed volume growth of 47%. Despite the challenging market conditions brought by the COVID-19 pandemic, strong adjusted operating profit growth was achieved in all regions except Europe. Latin America benefitted from innovative digital sales campaigns and in Asia growth was notable in India where our IntelliGen third party production facilities are performing strongly.
Central costs increased by 41% in constant currency reflecting recruitment costs associated with key board and leadership positions, a fall in the value of a listed investment, and increased bonuses following the strong financial performance in the year ended 30 June 2020. The majority of the increase in central costs is not expected to recur annually.
Statutory Profit Before Tax
The table below reconciles adjusted profit before tax to statutory profit before tax:
2020 2019
GBPm GBPm
Adjusted Profit Before Tax 71.0 61.0
Operating profit attributable to non-controlling
interest 0.6 0.4
Net IAS 41 valuation movement on biological
assets in JVs and associates (0.1) (1.1)
Tax on JVs and associates (2.3) (1.4)
Adjusting items:
Net IAS 41 valuation movement on biological
assets 15.8 (14.7)
Amortisation of acquired intangible assets (8.5) (9.5)
Share-based payment expense (5.8) (3.0)
Exceptional items (19.2) (21.8)
------- -------
Statutory Profit Before Tax 51.5 9.9
======= =======
Our statutory profit before tax was GBP51.5m (2019: GBP9.9m), reflecting the increase in the underlying trading performance and the uplift in the non-cash fair value net IAS 41 biological asset movement. Within this, there was a GBP13.2m uplift (2019: GBP1.9m reduction) in porcine biological assets and a GBP2.6m uplift (2019: GBP12.8m reduction) in bovine biological assets, due to certain fair value model estimate changes. Share-based payment expense was GBP5.8m (2019: GBP3.0m). These reconciling items tend to be non-cash, can be volatile and do not correlate to the underlying trading performance in the period.
Exceptional Items
There was a GBP19.2m net exceptional expense in the year (2019: GBP21.8m expense), which included a charge of GBP16.4m (2019: GBP5.0m) reflecting legal fees of GBP5.6m (2019: GBP5.0m) and GBP10.8m for damages and costs in relation to Genus ABS's litigation with STGenetics ('ST'). A provision of GBP10.5m has been recognised in the year ended 30 June 2020 in respect of these damages, see note 3 to the condensed financial statements for more details. Also included are charges of GBP2.1m (2019: GBP0.7m) in relation to acquisition activities and other items which include GBP0.8m of fees relating to our strategic porcine collaboration in China with BCA and an insurance receipt from a legacy environmental claim. In the prior year the majority of the exceptional expense was a net charge of GBP15.2m in respect of legacy pension schemes related to GMP equalisation.
Net Finance Costs
Net finance costs of GBP5.0m (2019: GBP3.9m), included GBP2.9m (2019: GBP3.3m) of interest payable on bank loans and overdrafts. This was favourable to the prior year due to lower average borrowing levels as the share placement in the previous year took place mid-way through that year. Interest rates were broadly comparable at 2.56% (2019: 2.50%). Pension interest was also lower in the year at GBP0.4m (2019: GBP0.9m) due to the decreased pension deficit at 30 June 2019.
These gains were outweighed by GBP1.0m of interest payable on leases mainly as a result of the impact of IFRS 16 adoption and GBP0.5m in relation to the discounting on the Group's put options over the equity of De Novo and PIC Italia, which were originally recognised as financial liabilities on a present value basis.
Taxation
The tax charge on adjusted profits for the period is GBP15.6m (2019: GBP14.8m), which represents an adjusted effective tax rate of 22.0% (2019: 24.3%). The decrease in the rate from prior year reflects a greater weighting of profit from China benefiting from an effective tax rate ('ETR') of 11.7%, which reduced the Group ETR from prior year by c3%. The adjusted effective tax rate of 22.0% is greater than the underlying UK tax rate of 19% mainly due to the application of higher overseas tax rates which uplifts the Group tax rate by 2.9%, net of the benefit from operations in China and also due to higher withholding taxes incurred when dividends are remitted between group companies and higher provision of deferred tax on undistributed earnings. The current year adjusted tax rate also benefits by 1.7% from changes in tax rates during the period reflected in the revaluation of the UK deferred tax assets. The outlook for the Group ETR is in the range of 23%-24% consistent with the current year excluding this one-off change of rate benefit.
The tax charge for the period of GBP12.9m on the statutory profit (2019: GBP4.6m) represents an effective tax rate of 24.0% (2019: 40.7%). The high statutory tax charge in the previous period was a consequence of the exceptional UK pension expense relating to Guaranteed Minimum Pension equalisation and the IAS 41 fair value expense which reduced statutory profit in the prior period by cGBP30m, increasing the effective charge for fixed items such as withholding tax expenses as a percentage (12%) of the remaining profit.
Earnings Per Share
Adjusted basic earnings per share increased by 17% (23% in constant currency) to 85.4 pence (2019: 73.2 pence) as a result of the strong trading performance and lower tax rate. Basic earnings per share on a statutory basis were 62.4 pence (2019: 12.4 pence), reflecting the strong trading performance and an uplift in the non-cash fair value net IAS 41 biological asset movement.
Biological Assets
A feature of the Group's net assets is its substantial investment in biological assets, which under IAS 41 are stated at fair value. At 30 June 2020 the carrying value of biological assets was GBP370.2m (2019: GBP346.2m restated), as set out in the table below:
(restated)
2020 2019
GBPm GBPm
Non-current assets 310.1 287.1
Current assets 39.8 40.1
Inventory 20.3 19.0
------ -----------
370.2 346.2
====== ===========
Represented by:
Porcine 242.7 228.5
Dairy and beef 127.5 117.7
------ -----------
370.2 346.2
====== ===========
The balance sheet comparatives for the years ended 30 June 2019 and 30 June 2018 have been restated by GBP20.5m with no effect on the Group Income Statement or the Group Statement of Cash Flows. Further information is provided in note 1 to the condensed financial statements.
The movement in the overall balance sheet carrying value of biological assets of GBP24.0m includes the effect of exchange rate translation increases of GBP5.4m. Excluding the translation effect there was:
-- a GBP9.3m increase in the carrying value of porcine biological assets, due principally to an increase in the pure-line valuation (driven by an increase in the percentage of animals going for breeding sales and a reduction in the Pure line risk adjusted discount rate); and
-- a GBP9.3m increase in the bovine biological assets carrying value, primarily due to current estimates of projected sales volumes.
The historical cost of these assets, less depreciation, was GBP57.5m at 30 June 2020 (2019: GBP58.2m), which is the basis used for the adjusted results. The historical cost depreciation of these assets included in adjusted results was GBP11.0m (2019: GBP9.4m).
Retirement Benefit Obligations
The Group's retirement benefit obligations at 30 June 2020 were GBP18.1m (2019: GBP24.2m) before tax and GBP14.6m (2019: GBP19.8m) net of related deferred tax. The largest element of this liability relates to the multi-employer Milk Pension Fund, which we account for on the basis of Genus being responsible for 86% of the scheme (2019: 86%).
During the year, contributions payable in respect of the Group's defined benefit schemes amounted to GBP8.4m (2019: GBP7.6m).
Despite the impact of COVID-19 on asset valuations and lower bond yields during the year, robust investment strategies for our two main defined benefit obligation schemes have limited the current financial impact. Both the Dalgety Pension Fund ('DPF') and our share of the Milk Pension Fund ('MPF') reported IAS 19 surpluses, prior to any IFRIC 14 amendments.
Cash Flow
Cash generated by operations of GBP82.9m (2019: GBP48.4m) represented cash conversion of 127% (2019: 84%) of adjusted operating profit excluding joint ventures, or 115% excluding the impact of adopting IFRS 16. The strong conversion of adjusted operating profit to cash is aligned to our medium-term objective to achieve conversion of at least 90%. The increase was primarily due to the strong trading performance and a continued focus on working capital management.
Capital expenditure cash flows of GBP35.4m (2019: GBP28.3m) included higher IntelliGen capital expenditure for the new production locations in Wisconsin as well as investment in state-of-the-art new bull housing and in Genus One, a single global enterprise system, where the rollout is progressing well. Cash inflows from joint ventures were higher at GBP3.7m (2019: GBP3.4m). After interest and tax paid, total free cash flow was GBP35.2m (2019: GBP10.0m).
The cash outflow from investments was GBP0.1m (2019: GBP22.7m), with deferred consideration payments being offset by net return of capital from one of our Chinese joint ventures (Xianyang Yongxiang Agriculture Technology Co. Ltd).
The net cash inflow after investments and dividends was GBP16.9m (2019: GBP37.0m) with the prior year benefiting from a 5% equity placement of 3.1m shares which raised proceeds of GBP66.5m net of fees to provide flexibility to pursue future growth opportunities.
2020 2019
Cash flow (before debt repayments) GBPm GBPm
Cash generated by operations 82.9 48.4
Interest and tax paid (17.1) (15.0)
Capital expenditure (35.4) (28.3)
Cash received from JVs 3.7 3.4
Other 1.1 1.5
------- -------
Free cash flow 35.2 10.0
Acquisitions and investments (0.1) (22.7)
Dividends (18.3) (16.8)
Share placement 0.1 66.5
------- -------
Net cash flow (before debt repayments) 16.9 37.0
======= =======
Net Debt and new Credit Facility
Net debt increased to GBP102.6m at 30 June 2020 (2019: GBP79.6m), primarily due to the GBP24.7m impact of adopting IFRS 16.
At the end of June 2020 there was substantial headroom of GBP125.4m under the Group's credit facilities of GBP228m. Of the Group's facilities as at 30 June 2020, GBP47m was due to expire in February 2021, with the remainder expiring in February 2022.
A new and enlarged credit facility agreement with a syndicate of eight banks was signed post year end on 24 August 2020. The new facility consists of a GBP150m multi-currency RCF, a USD125m RCF and a USD20m bond and guarantee facility. The term of the new facility is for three years with an option to extend the maturity date before the first and second anniversaries of the signing date for a further year. The facility also includes an uncommitted GBP100m accordion option which can be requested on a maximum of three occasions over the lifetime of the facility to fund the Group's business development plans.
The Group's financial position and borrowing ratios remain very strong, with sufficient cash flows available to fund internal investments and debt finance available to pursue external acquisition opportunities. At the end of June 2020 interest cover was at 32 times (2019: 34 times). EBITDA, as calculated under our financing facilities includes cash received from joint ventures and historical cost depreciation of biological assets. The ratio of net debt to EBITDA on this basis improved to 0.9 times (2019: 1.0 times) with both lower net debt on a frozen GAAP basis and an increased EBITDA. This level of leverage is just below our medium-term objective of having a ratio of net debt to EBITDA of between 1.0 - 2.0 times.
The Group has adopted the IFRS 16 'Leases' standard from 1 July 2019 using the modified retrospective approach and has recognised the cumulative effect of applying IFRS 16 at the 1 July 2019 transitional date and the prior period will not be restated.
The impact on the opening balance sheet as at 1 July 2019 was to recognise a right of use asset and corresponding lease liability of GBP26.6m. Profit before tax has not changed materially, however operating profit in FY20 has increased by GBP0.7m (due to the depreciation expense being lower than the operating lease expense it replaces) offset by increased finance charges on the higher liability. IFRS 16 also requires a reclassification of cash outflow from operations of GBP7.6m to net cash used in financing activities, however the overall impact to the Group is cash flow neutral.
Return on Adjusted Invested Capital
We measure the Group's return on adjusted invested capital on the basis of adjusted operating profit including joint ventures after tax, divided by the operating net assets of the business, stated on the basis of historical cost, excluding net debt and pension liability. This removes the impact of IAS 41 fair value accounting, the related deferred tax and goodwill. The return on adjusted invested capital was higher at 21.0% after tax (2019: 18.9%), reflecting the strong profit growth and lower tax rate, partially offset by an increased asset base from the right of use asset adjustment under IFRS 16 mentioned above. Excluding the impact of IFRS 16 adoption the return on adjusted invested capital would have been 22.8%.
Dividend
The Board has recommended a final dividend of 19.7 pence per ordinary share, an increase of 5% over the prior year final dividend. When combined with the interim dividend increase of 6%, this will result in a total dividend for the year of 29.1 pence per ordinary share, an increase of 5% for the year. Dividend cover from adjusted earnings remains strong at 2.9 times (2019: 2.6 times) and is in line with our Board's intention to maintain a progressive dividend within a target adjusted earnings cover range of 2.5 - 3.0 times.
It is proposed that the final dividend will be paid on 11 December 2020 to the shareholders on the register at the close of business on 20 November 2020.
Alison Henriksen
Chief Financial Officer
7 September 2020
Genus PIC - Operating Review
Actual currency Constant
currency
change
---------
Year ended 30 June 2020 2019 Change
----- ----- ------ ---------
GBPm GBPm % %
Revenue 298.8 253.7 18 17
Adjusted operating profit exc
JV 113.3 93.1 22 21
Adjusted operating profit inc
JV 124.3 100.6 24 25
Adjusted operating margin exc
JV 37.9% 36.7% 1.2pts 1.2pts
Market
Throughout FY20 ASF caused volatility and fundamental shifts in global supply and demand for pork and porcine genetics. The occurrence of the COVID-19 pandemic in the second half of the year also significantly disrupted the supply chain dynamics for pork producers, most notably in the US.
In Asia, ASF continued to spread. China had previously housed around half the world's sow herd but ASF reduced China's sow herd by more than 50%, causing a pork supply gap of 17-23 million tons in Asia. In response, China increased pork imports from all major exporting regions and is expected to account for 40% of global imports in 2020 (source: USDA). Local pig and pork prices have risen strongly, with Chinese pig prices more than 3.5 times US prices in May 2020. High prices and government policies incentivized Chinese producers to expand production and re-stock farms. Despite this, Chinese pork production is expected to decline 15-20% in 2020. In Vietnam, the spread of ASF has largely stabilised but pork production is around 19% lower than the prior year. In the Philippines, pork production is estimated to be 9% lower, with ASF spreading within backyard farms.
Increased Chinese demand and US-China trade disputes had made US pork markets volatile before the onset of COVID-19. US meat processing plants emerged as COVID-19 hotspots, with shutdowns sharply reducing pork production. With more pigs than slaughter capacity, US pig prices fell steeply. US producers' responses included sow herd reductions. Although US pork exports have been very strong, with Q1 2020 up 40% versus the prior year, driven by China, political tensions with China over the origin of COVID-19, coupled with a sluggish food-service recovery and higher retail pricing, have depressed overall pork demand and producer margins in Q2. In July 2020 there were 5.8% more market pigs in the US than in the previous year due to the backlog from processing plants not operating at capacity, which suggests that trading conditions for pig farmers will be challenging for at least the remainder of 2020.
In Latin America, Brazil had benefitted from increased exports to China before COVID-19 occurred. In Q2 2020, Brazil saw a high increase of COVID-19 cases and experienced similar meat processing difficulties as the US. However, export demand remains robust, with pork production forecast to increase 4% in 2020 versus 2019.
Europe was an early beneficiary of Chinese demand following ASF, with EU pork exports expected to rise nearly 10% in 2020. However, slaughter plants became COVID-19 hotspots in Q2 2020, leading to higher volatility in the market. ASF is an additional risk and it has been reported in Poland, 10km from the German border. Germany is a top European producer and exporter and if ASF spreads in Germany this could affect neighbouring countries in the instance that exports might be prohibited.
China has seen strong demand for breeding stock as producers repopulate. Many producers have used slaughter pigs to restock, thereby reducing their productivity. This will create a longer term demand for elite genetics. COVID-19 has not led to a major reduction in demand for porcine genetics, but if sow herds in the Americas or Europe do decline this will impact breeding stock demand and royalties.
Performance
Genus PIC delivered very strong results, despite volatile market conditions for its customers in certain markets. Adjusted operating profits including joint ventures were GBP124.3m, up 25% in constant currency. Volumes were up 13%, with all regions contributing. Revenue was 17% higher in constant currency, primarily due to stronger breeding stock sales and royalty revenue.
In North America, adjusted operating profits were flat for the year in constant currency, after recording 5% growth in the first half. The closure of some processing plants during the second half, in response to COVID-19 outbreaks, resulted in a backlog of pigs awaiting slaughter and a moderate reduction in customer investment in breeding herds. Second half adjusted operating profits were also affected by customer credits in relation to an historical issue arising from a few contract farm locations. Royalty revenue saw modest growth during the year of 1% and sireline market share also grew, underpinned by the introduction of the Duroc PIC800, which is demonstrating strong results in customer systems. New damline customer wins in the year will lead to further market share growth in future periods.
Latin American adjusted operating profits improved by 23% in constant currency, with double digit growth in nearly all countries. Growth was particularly strong in Brazil during the period, as a result of market share gains assisted by strong industry exports to China. Royalty revenues and volumes across the region were up 9%.
Adjusted operating profit in Europe was up by 27% and revenues rose by 29% in constant currency. Strong market prices helped fund customer breeding projects and the business has continued to benefit from its proven strategy to focus on key customers and expand royalty sales. The highest growth in the period was in Russia, Spain and Germany, with Russia having now grown into PIC Europe's largest market, led by high share in large key accounts. PIC's partnerships with Hermitage Genetics and Møllevang continue to add significant value to PIC's global business.
Asia's performance improved significantly by 225% in constant currency over the prior year, primarily due to a sharp increase in customer breeding projects in China, with positive conditions in that country as described in the market section above. In addition, royalty revenue grew strongly in China (up 168%) and accounted for 25% of volume there. PIC China substantially increased multiplication capacity during the year and also expanded its supply chain through its joint venture relationship with New Hope, and a new joint venture initiated with Shanxi Xin Daxiang Animal Husbandry Co., Ltd. These investments will aid further growth in the future. Adjusted operating profits in franchises across Asia were up by 43% in constant currency. However, these growth areas were partially offset by an adjusted operating profit decline of 76% in the Philippines, due to the outbreak of ASF in 1H and the impact of COVID-19 in 2H. The swine industry in many parts of the Philippines remains unstable.
Overall, PIC's long-term global strategy of ongoing investments in product supply and differentiation is generating significant competitive advantages, enabling Genus PIC to better serve customers, mitigate global market risks and support future growth.
Genus ABS - Operating Review
Actual currency Constant
currency
change
---------
Year ended 30 June 2020 2019 Change
----- ----- ------ ---------
GBPm GBPm % %
Revenue 237.6 222.6 7 9
Adjusted operating profit 32.5 29.9 9 12
Adjusted operating margin 13.7% 13.4% 0.3pts 0.4pts
Market
Both dairy and beef markets have been affected by government lockdowns around the world, to manage the COVID-19 pandemic. In Europe, dairy prices dropped throughout March and April 2020, although they have started to show signs of recovery as foodservice channels reopen. In North America dairy prices also saw significant volatility, as they fell to around 40% below the July 2019 peak by May 2020, before recovering sharply in June. Global volatility is expected to continue as countries and their economies continue to react to the aftermath of COVID-19 impacts.
Milk production in the U.S., Europe and Australia was slightly above prior year levels in the first quarter of 2020, with output across the seasonal period in New Zealand consistent with the prior year. Output was down moderately in Brazil, as currency fluctuations compressed producer margins.
Despite global economic challenges, the Chinese Government has encouraged all Chinese citizens to consume 300g of dairy products per day, more than triple the current average consumption. However, the country's high inventories of whole milk powder will likely lead to a decline in imports in the immediate future. In India, the unregulated dairy sector was significantly affected by COVID-19, forcing further consolidation. Growth in liquid milk has supported the expansion of packaged dairy products in the regulated sector.
In the U.S., beef processing facilities capacity were affected by COVID-19 shut-downs, increasing prices for beef being processed, but reducing cattle prices. Australian beef production saw an overall reduction in supply, leading to fewer exports and prices that were stable and then rose moderately through Q2 of 2020. Lower beef production in Brazil was mirrored by lower demand.
In Europe, beef prices have fallen moderately since the onset of the global pandemic, underpinned by disruption in trade from export markets such as Ireland and Poland. By the end of June 2020, these prices had largely recovered in line with the prior year as demand of food service and retail normalised.
Consolidation within the bovine genetics segment was less prevalent than in the prior year but an increasing number of partnerships have been developing between dairy genetic companies as growing and progressive profit-focused customers demand access to elite dairy, beef and sexed semen.
Performance
ABS adjusted operating profits increased by 12%, with volumes up 8% and revenues up 9% in constant currency, as customers continued the shift from conventional to sexed and beef genetics. Sexed volumes grew by 47%, reflecting Sexcel's continued success. Increased use of beef genetics in dairy herds supported 17% growth in global beef volumes. Globally, COVID-19 has created dynamic and challenging market conditions for our customers but overall demand for ABS product has been resilient. This has been aided by the salesforce focus on obtaining 100% of customers' business and the introduction of new partnership based contract structures.
In North America, revenue grew by 10% and adjusted operating profit increased by 12% in constant currency. Previous strategic investments to strengthen key account management gained traction, with new customer wins. Volumes were up by 7%, gaining market share, and sexed volumes were up 42% as the high growth of Sexcel continued. Beef volumes rose 20%, supported by proprietary NuEra genetics selected for cross-bred beef-on-dairy performance. Embryo volumes increased slightly, as a new dedicated IVB laboratory for a key customer account became fully operational.
Europe achieved volume growth of 8% and revenue growth of 2%, with adjusted operating profit flat against prior year in constant currency. Business conditions in Italy and France were particularly challenging, as COVID-19 lockdowns reduced salesforce mobility and customer access. Sexed semen volumes grew 42%, with the UK, Ireland and the European distributor business seeing the strongest growth. The trend of dairy customers using sexed genetics, coupled with beef genetics for a portion of the herd, led to beef volumes increasing by 10%.
In Latin America, revenues grew by 20% and adjusted operating profit increased by 35% in constant currency, with Brazil and Argentina particularly strong. In a challenging environment from COVID-19, Brazil achieved good success through innovative digital sales campaigns whilst robust pricing policies and cash collection in Argentina helped to mitigate the impacts of inflation and currency devaluation. Volumes in Latin America overall increased by 12%, as customers embraced digital technologies to engage and transact with ABS' sales team. Sexed volumes increased by 24% and beef volumes by 18%, utilising NuEra genetics, selected for cross-bred performance of North American sires with tropical cows.
In Asia, adjusted operating profit was up 59% and volumes by 5%, with trading activity increasing in China following a period of vertical integration among customers, as dairy processors acquired farms. Sexed volumes were up 98%, with India achieving record results up 133% after a new IntelliGen production facility for the State of Uttar Pradesh started operation, more than offsetting disruption early in the year caused by flooding of the Genus India Brahma facility.
Overall, the increasing customer adoption of Sexcel, along with our leading dairy genetics portfolio and our NuEra proprietary beef offering, mean we anticipate continued positive progress into next year.
Research and Development - Operating Review
Actual currency Constant
currency
change
---------
Year ended 30 June 2020 2019 Change
----- ---- ------ ---------
GBPm GBPm % %
Porcine product development 28.9 18.4 57 55
Bovine product development 20.9 20.0 4 2
Gene editing 5.2 7.3 (29) (30)
Other research and development 10.2 9.0 13 10
----- ---- ------ ---------
Net expenditure in R&D [4] 65.2 54.7 19 17
Performance
Net research and development investment increased by 17% in constant currency, as Genus pursued key strategic initiatives to further strengthen its proprietary differentiated offerings. The Group will continue to increase its investment in the following areas: gene editing, primarily under the PRRSv programme; genome science and specifically scientific data capabilities; biosystems engineering; and reproductive biology, where new initiatives are being taken.
Porcine product development expenditure increased by 55%, as a result of the incremental costs of growing our elite nucleus farm network, costs to address a disease outbreak in a Canada farm and the substantial deterioration of the North American lean hog market, which impacted by-product margins compared to the prior year. The underlying growth was 32% excluding costs of GBP4.4m of a non-repetitive nature. We continue to deliver historically high rates of genetic improvement, as we focus on improving technical processes for genomic evaluation, crossbred performance testing and expanded elite nucleus populations. The integration of germplasm from the Møllevang acquisition continued as planned and the expansion of our nucleus farm network has improved access to elite animals across our global customer base.
Bovine product development expenditure increased by 2%, as Genus continues to produce an industry leading Holstein dairy bull portfolio, driving strong volume growth in ABS. The De Novo joint venture is producing more than 50% of these animals and the strong pipeline of young bulls and pregnancies will help sustain our leadership position. Beef product development further strengthened our portfolio of proprietary NuEra genetics, by enhancing genomic evaluation and increasing testing and validation to demonstrate differentiated value to customers. The initial results of commercial full cycle trials of NuEra genetics are encouraging. The NuEra Genetics programme produced more than 20% of the total global beef units sold. During the period we continued to invest in IntelliGen technology and expanded our Sexcel production manufacturing capacity to meet increasing demand and to provide differentiated genetic offerings globally. We also successfully brought into production our second external customer site in India and further expanded the global IntelliGen footprint, through technology licensing with customers and external customer service. IntelliGen production sites around the world, both Genus's and customer owned, now total eight, compared with six in the prior year.
Net gene editing expenditure decreased by 30% in the period, mainly due to net income of GBP3.2m recognised for a milestone payment received from our Chinese partner, BCA. Excluding BCA income, gene editing expenditures grew by 14% due to investment in the PRRSv resistance project. We internalised our capability for producing gene edited animals, to increase efficiency and timeliness for both the PRRSv resistance programme and other potential future projects. We have been working well with the FDA and completed the first submission in the approval process, and initiated conversations on regulatory and market acceptance in other key global markets. Active communication and planning with BCA has meant we have made progress in the initial steps of working together in China.
Other research and development expenditure remained in line with the prior year. This included work on our bioinformatics platform, genome science, external collaborations and intellectual property protection in a variety of discovery areas. We are planning to increase our investment in discovery areas as well as gene editing as we move closer towards commercialisation.
Principal risks and uncertainties
Genus is exposed to a wide range of risks and uncertainties as it fulfils its purpose of providing farmers with superior genetics to fulfil its vision. Some of these risks relate to the current business operations in our global agricultural markets, while others relate to future commercial exploitation of our leading-edge R&D programmes. We are also exposed to global economic and political risks such as trade restrictions and Brexit. Our assessment is that Brexit is not a principal risk for Genus. Additionally, we also monitor emerging new risks such as changing consumption patterns, environmental sustainability and the emergence of alternative proteins such as lab-based meat.
In considering our risks, we performed a detailed assessment of the impact of the global outbreak of COVID-19 during the second half of our financial year. The assessment covered COVID-19 impact on our people, our customers and our supply chain. We also assessed the short and long term risks associated with the expected global economic disruption affecting our industry and the markets where we operate.
Out of this broad risk universe we have identified ten principal risks, which we periodically evaluate based on an assessment of the likelihood of occurrence and magnitude of potential impact, together with the effectiveness of our risk mitigation controls. The table below outlines these principal risks and uncertainties and how we manage them.
The Directors confirm that they have undertaken a robust assessment of the principal risks and uncertainties facing the Group.
Risk Risk description How we manage Risk change in
risk 2020
Strategic Risks
DEVELOPING Dedicated teams No change.
PRODUCTS WITH * Development programmes fail to produce best genetics align
COMPETITIVE for customers. our product
ADVANTAGE development
to customer
* Increased competition to secure elite genetics. requirements.
We use
large-scale data
and advanced
genomic
analysis to
ensure we
meet our breeding
goals.
We frequently
measure
our performance
against
competitors in
customers'
systems, to
ensure the
value added by
our genetics
remains
competitive.
----------------------------------------------------------- ----------------- ------------------
CONTINUING Our continued No change.
TO SUCCESSFULLY * Failure to manage the technical, production and development We continue to see
DEVELOP INTELLIGEN financial risks associated with the rapid development of the technology strong
TECHNOLOGY of the IntelliGen business. and demand for Sexcel
its deployment to and
new continue to
markets is implement
supported improvements and
by dedicated innovation
internal into our
resources and technology,
agreements improving
with suppliers. fertility
Further patent outcomes and
infringement processing
proceedings efficiency. We
initiated continue
by ST in the US to increase
are being IntelliGen's
vigorously global deployment,
defended. securing
new third-party
customers.
We continue to
experience
patent
infringement
filings as well as
seeing
the progression of
existing
filings during the
year
(see note 3).
----------------------------------------------------------- ----------------- ------------------
DEVELOPING We stay aware of No change.
AND * Failure to develop successfully and commercialise new Key initiatives
COMMERCIALISING gene-editing technologies due to technical, technology continue
GENE EDITING intellectual property ('IP'), market, regulatory or opportunities to progress
AND OTHER NEW financial barriers. through a wide through
TECHNOLOGIES network the R&D life cycle
of academic and and
* Competitors secure 'game-changing' new technology. industry we maintain the
contacts. Our high
Genus Portfolio level of
Steering investment
Committee needed to bring
('GPSC') the
oversees our own end products to
research, market.
ensures we
correctly
prioritise our
R&D investments
and assesses the
adequacy
of resources and
the
relevant IP
landscapes.
We have formal
collaboration
agreements with
key partners,
to ensure
responsible
exploration and
development
of technologies
and the
protection of IP.
The
Board is updated
regularly
on key
development
projects.
----------------------------------------------------------- ----------------- ------------------
CAPTURING VALUE We have a No change.
THROUGH * Failure to identify appropriate investment rigorous We continue to
ACQUISITIONS opportunities or to perform sound due diligence. acquisition work
analysis and due diligently to
diligence identify
* Failure to successfully integrate an acquired process, with the areas of
business. Board opportunity
reviewing and consistent with
signing our
off all material strategic plans
projects. and
We also have a our aim to
structured accelerate
post-acquisition growth and create
integration value
planning and for our
execution shareholders.
process. Our experiences
with
post-acquisition
integration
provide a platform
for
integrating newly
acquired
businesses.
----------------------------------------------------------- ----------------- ------------------
GROWING IN Our organisation, No change.
EMERGING MARKETS * Failure to appropriately develop our business in blends
China and other emerging markets. local and
expatriate
executives,
supported
by the global
species
teams, to allow
us to
grow our business
in
key markets,
while managing
risks and
ensuring we
comply with our
global
standards. We
also establish
local
partnerships
where
appropriate to
increase
market access.
----------------------------------------------------------- ----------------- ------------------
Operational Risks
PROTECTING We have a global, No change.
IP * Failure to protect our IP could mean Genus-developed cross-functional
genetic material, methods, systems and technology process to
become freely available to third parties. identify and
protect our IP.
Our customer
contracts and our
selection
of multipliers
and joint
venture partners
include
appropriate
measures
to protect our
IP. We
maintain IP
landscape
watches and where
necessary
conduct robust
'freedom
to operate'
searches,
to identify
third-party
rights to
technology.
----------------------------------------------------------- ----------------- ------------------
ENSURING We have stringent Increased.
BIOSECURITY * Loss of key livestock, owing to disease outbreak. biosecurity This is due to the
AND CONTINUITY standards, with global
OF SUPPLY independent supply chain
* Loss of ability to move animals or semen freely reviews challenges
(including across borders) due to disease outbreak, throughout the imposed by the
environmental incident or international trade year to ensure COVID-19
sanctions and disputes. compliance. outbreak as well
We investigate as
biosecurity the rising
* Lower demand for our products, due to industry-wide incidents, to geo-political
disease outbreaks. ensure tension and
learning across escalation
the organisation. of trade wars. Our
We regularly geographically
review the diverse production
geographical facilities
diversity and the expert
of our production knowledge
facilities, of our supply
to avoid chain
over-reliance and commercial
on single sites. teams
allowed for a
swift
and comprehensive
response
to these
challenges,
which helped to
reduce
their impact.
----------------------------------------------------------- ----------------- ------------------
HIRING AND We have a robust Reduced.
RETAINING TALENTED * Failure to attract, recruit, develop and retain the talent The Group's
PEOPLE global talent needed to deliver our growth plans and and succession Finance
R&D programmes. planning Director took the
process, role
including annual of the Chief
assessments of Executive
our global in September 2019
talent pool and and
active we appointed our
leadership new
development Chief Financial
programmes. The Officer
Group's in January 2020.
reward and To
remuneration date, we have been
policies are largely
reviewed successful in
regularly, to recruiting
ensure and retaining the
their appropriate
competitiveness. skills at all
We work closely levels
with to meet our
a number of business
specialist growth plans.
recruitment
agencies,
to identify
candidates
with the skills
we need.
----------------------------------------------------------- ----------------- ------------------
Financial Risks
MANAGING We continuously Increased.
AGRICULTURAL * Fluctuations in agricultural markets affect customer monitor The full impact of
MARKET AND profitability and therefore demand for our products markets and seek the
COMMODITY PRICES and services. to balance COVID-19 outbreak
VOLATILITY our costs and on
resources our customers and
* Increase in our operating costs, due to commodity in response to the
pricing volatility. market global economy
demand. We remains
actively monitor to be seen. We
* The COVID-19 outbreak in 2019 increased volatility and update our have
and introduced significant new financial and hedging implemented
operational pressure across agricultural markets. strategy to additional
manage our measures to
exposure. Our strengthen
porcine our monitoring
royalty model and processes
extensive and continue to
use of work
third-party very closely with
multipliers our
mitigates the customers to
impact enhance
of cyclical price our response to
and/or both
cost changes in short and long
pig production. term
impact.
----------------------------------------------------------- ----------------- ------------------
FUNDING PENSIONS We are the Increased.
* Exposure to costs associated with failure of principal The Trustee
third-party members of joint and several liabilities employer for the formalised
pension scheme. Milk an investment
Pension Fund de-risking
('MPF') strategy in line
* Exposure to costs because of external factors (such and chair the with
as GMP equalisation, RPI reform proposals, mortality group of the principles
rates, interest rates or investment values) affecting participating agreed
the size of the pension deficit. employers. in the memorandum
The fund is of
closed to understanding
future service signed
and has with the
an agreed deficit employers'
recovery group in 2019. The
plan, based on COVID-19
the 2018 outbreak impacted
actuarial the
valuation. financial markets
We also monitor and
the strength net adverse impact
of other on
employers in funding levels of
the fund and have recent
retained market movements
external c2.6%
consultants (GBP13m).
to provide expert Developments
advice. in RPI reform are
being
monitored closely
to
assess likely
impacts
but the actual
shape
of the reform is
uncertain
at this point.
----------------------------------------------------------- ----------------- ------------------
Group Income Statement Genus plc
For the year ended 30 June 2020
2020 2019
Note GBPm GBPm
REVENUE 2 551.4 488.5
Adjusted Operating Profit 2 65.3 57.7
Adjusting items:
* Net IAS 41 valuation movement on biological assets 10 15.8 (14.7)
* Amortisation of acquired intangible assets 9 (8.5) (9.5)
* Share-based payment expense (5.8) (3.0)
-------- --------
1.5 (27.2)
* Exceptional items: 3
- Litigation (16.4) (5.0)
- Acquisition and integration (2.1) (0.7)
- Other (0.7) (0.9)
- Pension related - (15.2)
-------- --------
Total exceptional items (19.2) (21.8)
Total adjusting items (17.7) (49.0)
======== ========
OPERATING PROFIT 47.6 8.7
Share of post-tax profit of joint ventures
and associates retained 8.9 5.1
Finance costs 4 (5.3) (4.7)
Finance income 4 0.3 0.8
-------- --------
PROFIT BEFORE TAX 51.5 9.9
Taxation 5 (10.6) (3.2)
-------- --------
PROFIT FOR THE YEAR 40.9 6.7
======== ========
ATTRIBUTABLE TO:
Owners of the Company 40.5 7.8
Non-controlling interest 0.4 (1.1)
-------- --------
40.9 6.7
======== ========
EARNINGS PER SHARE
Basic earnings per share 6 62.4p 12.4p
Diluted earnings per share 6 61.9p 11.9p
======== ========
Alternative Performance Measures
Adjusted operating profit 65.3 57.7
Adjusted operating profit attributable
to non-controlling interest (0.6) (0.4)
Pre-tax share of profits from joint
ventures and associates excluding net
IAS 41 valuation movement 11.3 7.6
Gene editing costs 5.2 7.3
------ ----------
Adjusted operating profit including joint
ventures and associates, excluding gene
editing costs 81.2 72.2
Gene editing costs (5.2) (7.3)
------ ----------
Adjusted operating profit including joint
ventures and associates 76.0 64.9
Net finance costs 4 (5.0) (3.9)
------ ----------
ADJUSTED PROFIT BEFORE TAX 71.0 61.0
====== ==========
ADJUSTED EARNINGS PER SHARE
Basic adjusted earnings per share 6 85.4p 73.2p
Diluted adjusted earnings per share 6 84.7p 70.7p
====== ==========
Adjusted results are the Alternative Performance Measures ('APMs') used by the Board to monitor underlying performance at a Group and operating segment level, which are applied consistently throughout. These APMs should be considered in addition to statutory measures, and not as a substitute for or superior to them. For more information on APMs, see Glossary.
Group Statement of Comprehensive Income Genus plc
For the year ended 30 June 2020
2020 2020 2019 2019
GBPm GBPm GBPm GBPm
PROFIT FOR THE YEAR 40.9 6.7
Items that may be reclassified subsequently
to profit or loss
Foreign exchange translation differences (4.9) 19.7
Fair value movement on net investment
hedges (0.1) (1.6)
Fair value movement on cash flow hedges (0.4) (2.2)
Tax relating to components of other
comprehensive income (1.4) (2.5)
------ -------
(6.8) 13.4
Items that may not be reclassified
subsequently to profit or loss
Actuarial loss on retirement benefit
obligations (16.6) (5.4)
Movement on pension asset recognition
restriction 10.4 (10.1)
Release of additional pension liability 4.7 34.5
Tax relating to components of other
comprehensive expense/(income) 0.8 (3.2)
------ -------
(0.7) 15.8
OTHER COMPREHENSIVE (EXPENSE)/INCOME
FOR THE YEAR (7.5) 29.2
TOTAL COMPREHENSIVE INCOME FOR THE
YEAR 33.4 35.9
======= ======
ATTRIBUTABLE TO:
Owners of the Company 33.1 37.1
Non-controlling interest 0.3 (1.2)
------- ------
33.4 35.9
======= ======
Group Statement of Changes in Equity Genus plc
For the year ended 30 June 2020
Called
up Share Trans-lation Non-
share premium Own reserve Hedging Retained controlling Total
Note capital account shares GBPm reserve earnings Total interest equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
BALANCE AT 30 JUNE
2018 6.2 112.8 (0.1) 20.5 2.0 275.2 416.6 2.5 419.1
(as previously reported)
Prior period restatement - - - - - (15.2) (15.2) - (15.2)
BALANCE AT 30 JUNE
2018 (restated) 6.2 112.8 (0.1) 20.5 2.0 260.0 401.4 2.5 403.9
Foreign exchange
translation
differences, net
of tax - - - 16.6 - - 16.6 (0.1) 16.5
Fair value movement
on net
investment hedges,
net of tax - - - (1.3) - - (1.3) - (1.3)
Fair value movement
on cash flow hedges,
net of tax - - - - (1.8) - (1.8) - (1.8)
Actuarial gain on
retirement
benefit obligations,
net of tax - - - - - (4.6) (4.6) - (4.6)
Movement on pension
asset recognition
restriction, net
of tax - - - - - (8.3) (8.3) - (8.3)
Recognition of additional
pension liability,
net of tax - - - - - 28.7 28.7 - 28.7
------- -------- ------- ------------- -------- --------- -------- ------------ --------
Other comprehensive
(expense)/income
for the year - - - 15.3 (1.8) 15.8 29.3 (0.1) 29.2
Profit for the
year - - - - - 7.8 7.8 (1.1) 6.7
------- -------- ------- ------------- -------- --------- -------- ------------ --------
Total comprehensive
income for the year - - - 15.3 (1.8) 23.6 37.1 (1.2) 35.9
Recognition of share-based
payments, net of
tax - - - - - 0.2 0.2 - 0.2
Adjustment arising
from change in
non-controlling
interest and written
put option - - - - - - - (2.6) (2.6)
Dividends 7 - - - - - (16.8) (16.8) - (16.8)
Issue of ordinary
shares 0.3 66.2 - - - - 66.5 - 66.5
------- -------- ------- ------------- -------- --------- -------- ------------ --------
BALANCE AT 30 JUNE
2019 (restated) 6.5 179.0 (0.1) 35.8 0.2 267.0 488.4 (1.3) 487.1
Foreign exchange
translation
differences, net
of tax - - - (6.4) - - (6.4) (0.1) (6.5)
Fair value movement
on net
investment hedges,
net of tax - - - 0.1 - - 0.1 - 0.1
Fair value movement
on cash flow hedges,
net of tax - - - - (0.4) - (0.4) - (0.4)
Actuarial loss on
retirement
benefit obligations,
net of tax - - - - - (10.4) (10.4) - (10.4)
Movement on pension
asset recognition
restriction, net
of tax - - - - - 6.8 6.8 - 6.8
Release of additional
pension liability,
net of tax - - - - - 2.9 2.9 - 2.9
------- -------- ------- ------------- -------- --------- -------- ------------ --------
Other comprehensive
expense for the year - - - (6.3) (0.4) (0.7) (7.4) (0.1) (7.5)
Profit for the
year - - - - - 40.5 40.5 0.4 40.9
------- -------- ------- ------------- -------- --------- -------- ------------ --------
Total comprehensive
income/(expense)
for the year - - - (6.3) (0.4) 39.8 33.1 0.3 33.4
Recognition of share-based
payments, net of
tax - - - - - 5.5 5.5 - 5.5
Dividends 7 - - - - - (18.3) (18.3) - (18.3)
Issue of ordinary
shares - 0.1 - - - - 0.1 - 0.1
BALANCE AT 30 JUNE
2020 6.5 179.1 (0.1) 29.5 (0.2) 294.0 508.8 (1.0) 507.8
======= ======== ======= ============= ======== ========= ======== ============ ========
Group Balance Sheet Genus plc
As at 30 June 2020
*(restated) *(restated)
2020 2019 2018
Note GBPm GBPm GBPm
ASSETS
Goodwill 8 105.6 106.3 102.0
Other intangible assets 9 76.2 80.1 78.7
Biological assets 10 310.1 287.1 285.3
Property, plant and equipment 11 117.9 86.0 76.9
Interests in joint ventures and associates 22.7 23.6 19.9
Other investments 6.9 7.4 5.9
Derivative financial assets - 0.4 0.3
Other receivables 12 1.8 - -
Deferred tax assets 3.7 3.5 4.3
------- ----------- -----------
TOTAL NON-CURRENT ASSETS 644.9 594.4 573.3
------- ----------- -----------
Inventories 37.4 36.0 34.2
Biological assets 10 39.8 40.1 37.0
Trade and other receivables 12 100.8 98.0 91.0
Cash and cash equivalents 41.3 30.5 29.1
Income tax receivable 3.1 3.3 1.4
Derivative financial assets 1.2 1.1 2.5
Asset held for sale 0.2 0.2 0.2
------- ----------- -----------
TOTAL CURRENT ASSETS 223.8 209.2 195.4
TOTAL ASSETS 868.7 803.6 768.7
======= =========== ===========
LIABILITIES
Trade and other payables (95.0) (87.7) (83.7)
Interest-bearing loans and borrowings (9.2) (2.1) (13.4)
Provisions (4.0) (3.1) (2.8)
Deferred consideration 16 (7.5) (2.0) (19.3)
Obligations under leases (10.0) (2.2) (1.4)
Tax liabilities (4.0) (6.1) (4.4)
Derivative financial liabilities (0.5) (1.0) (0.3)
------- ----------- -----------
TOTAL CURRENT LIABILITIES (130.2) (104.2) (125.3)
------- ----------- -----------
Trade and other payables (3.3) - -
Interest-bearing loans and borrowings (103.6) (101.9) (120.7)
Retirement benefit obligations 13 (18.1) (24.2) (33.9)
Provisions (11.8) (5.7) (4.5)
Deferred consideration 16 (1.2) (4.2) (4.2)
Income tax liability - - (0.9)
Deferred tax liabilities (65.5) (66.7) (69.5)
Derivative financial liabilities (6.1) (5.7) (3.7)
Obligations under leases (21.1) (3.9) (2.1)
------- ------- -------
TOTAL NON-CURRENT LIABILITIES (230.7) (212.3) (239.5)
------- ------- -------
TOTAL LIABILITIES (360.9) (316.5) (364.8)
------- ------- -------
NET ASSETS 507.8 487.1 403.9
======= ======= =======
*(restated) *(restated)
2020 2019 2018
Note GBPm GBPm GBPm
EQUITY
Called up share capital 6.5 6.5 6.2
Share premium account 179.1 179.0 112.8
Own shares (0.1) (0.1) (0.1)
Translation reserve 29.5 35.8 20.5
Hedging reserve (0.2) 0.2 2.0
Retained earnings 294.0 267.0 260.0
----- ----------- -----------
Equity attributable to owners
of the Company 508.8 488.4 401.4
Non-controlling interest 17 4.6 4.2 5.7
Put option over non-controlling
interest 17 (5.6) (5.5) (3.2)
----- ----------- -----------
Total non-controlling interest (1.0) (1.3) 2.5
TOTAL EQUITY 507.8 487.1 403.9
===== =========== ===========
*see note 1 for details of the prior period restatement.
Group Statement of Cash Flows Genus plc
For the year ended 30 June 2020
2020 2019
Note GBPm GBPm
NET CASH FLOW FROM OPERATING ACTIVITIES 14 65.8 33.4
CASH FLOWS FROM INVESTING ACTIVITIES
Dividends received from joint ventures
and associates 2.5 2.7
Joint venture loan repayment 1.2 0.7
Disposal of joint venture 3.8 -
Acquisition of joint venture (2.2) -
Acquisition of trade and assets - (2.0)
Disposal of subsidiary - 0.4
Payment of deferred consideration 16 (1.7) (21.1)
Purchase of property, plant and equipment (24.6) (17.1)
Purchase of intangible assets (10.8) (11.2)
Proceeds from sale of property, plant
and equipment 1.1 1.5
-------- -------
NET CASH OUTFLOW FROM INVESTING ACTIVITIES (30.7) (46.1)
-------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Drawdown of borrowings 80.0 104.8
Repayment of borrowings (73.8) (138.9)
Payment of lease liabilities (11.1) (2.0)
Equity dividends paid (18.3) (16.8)
Issue of ordinary shares 0.1 66.5
-------- -------
NET CASH (OUTFLOW)/INFLOW FROM FINANCING
ACTIVITIES (23.1) 13.6
-------- -------
NET INCREASE IN CASH AND CASH EQUIVALENTS 12.0 0.9
-------- -------
Cash and cash equivalents at start
of the year 30.5 29.1
Net increase in cash and cash equivalents 12.0 0.9
Effect of exchange rate fluctuations
on cash and cash equivalents (1.2) 0.5
-------- -------
TOTAL CASH AND CASH EQUIVALENTS AT
30 JUNE 41.3 30.5
-------- -------
Notes to the Preliminary Results Genus plc
For the year ended 30 June 2020
1. REPORTING ENTITY
Status of audit
The condensed financial information given does not constitute the Group's financial statements for the year ended 30 June 2020 or the year ended 30 June 2019, but is derived from those financial statements. The financial statements for the year ended 30 June 2019 have been delivered to the Registrar of Companies and those for the year ended 30 June 2020 will be delivered following the Company's annual general meeting. The auditors have reported on those financial statements; their reports were unqualified, did not draw attention to any matters by way of emphasis without qualifying their reports, and did not contain statements under s. 498(2) or (3) Companies Act 2006.
Basis of preparation
The condensed financial information for the year ended 30 June 2020 together with the comparative year has been computed in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union.
The Group Financial Statements are presented in Sterling, which is the Company's functional and presentational currency. All financial information presented in Sterling has been rounded to the nearest million at one decimal point.
The principal exchange rates were as follows:
Average Closing
--------------------- -----------------------
2020 2019 2018 2020 2019 2018
US Dollar/GBP 1.26 1.29 1.35 1.24 1.27 1.32
Euro/GBP 1.14 1.13 1.13 1.10 1.12 1.13
Brazilian Real/GBP 5.74 4.99 4.51 6.77 4.89 5.12
Mexican Peso/GBP 26.08 25.04 25.37 28.52 24.40 26.3
Chinese Yuan/GBP 8.89 8.83 8.77 8.75 8.72 8.75
Russian Rouble/GBP 85.17 84.93 79.66 88.19 80.30 82.94
While the condensed financial information included in this preliminary announcement has been computed in accordance with IFRSs, this announcement does not itself contain sufficient information to comply with IFRSs. The Company expects to publish full financial statements that comply with IFRSs in October 2020. These financial statements have also been prepared in accordance with the accounting policies set out in the 2019 Annual Report and Financial Statements, as amended by the following new accounting standards.
Restatement in the 2019 and 2018 balance sheet
During the period, it was discovered that an input used in the valuation of biological assets in preceding periods was not in line with operational data.
Accordingly, the prior period balance sheets at 30 June 2019 and 30 June 2018 have been restated in accordance with IAS 8, and, in accordance with IAS 1 (revised). A balance sheet at 30 June 2018 is also presented together with related notes. The restatements involved are a reduction in Biological assets at 30 June 2019 and 30 June 2018 of GBP20.5m and a reduction in related deferred tax liabilities at 30 June 2019 and 30 June 2018 of GBP5.3m.
Impact on the Group's balance sheet for year ended 30 June 2019
(as reported) Impact of (restated)
restatement
2019 GBPm 2019
GBPm GBPm
Non-current assets
Biological assets 307.6 (20.5) 287.1
Current liabilities
Deferred tax liabilities (72.0) 5.3 (66.7)
Net assets 502.3 (15.2) 487.1
For the year ended 30 June 2019, there has been no material effect on the Group income statement, Group Statement of Comprehensive Income and no impact on the Group statement of cash flows. Therefore, there has been no restatement of the Group income statement and there is no adjustment to earnings per share.
New standards and interpretations
In the current period, the Group has applied a number of amendments to IFRSs issued by the International Accounting Standards Board that are mandatorily effective for an accounting period that begins after 1 January 2019 and have been implemented with effect from 1 July 2019. These are:-
-- IFRIC 23 - 'Uncertainty over Income Tax Treatments'; -- Annual Improvements to IFRS 2015-2017 Cycle; -- Amendments to IAS 28 - 'Long-term Interests in Associates and Joint Ventures'; -- Amendments to IFRS 9 - 'Prepayment Features with Negative Compensation'; and -- Amendments to IAS 19 - 'Plan Amendment, Curtailment or Settlement';
Their addition has not had any material impact on the disclosures, or amounts reported in the Group Financial Statements.
In addition to the above the Group adopted IFRS 16 'Leases' from 1 July 2019.
IFRS 16 'Leases'
The Group has adopted IFRS 16 using the modified retrospective approach with the value of the right of use asset being equal to the lease liability at the date of adoption.
The Group has elected not to recognise right of use assets and lease liabilities for leases of low-value assets (those with a purchase price of less than GBP4,000), and lease payments associated with those assets will be recognised as an expense on a straight-line basis. The Group has made use of the practical expedient available on transition to IFRS 16 not to reassess whether a contract is or contains a lease. Where the contracts have been modified on or after 1 July 2019 have been reassessed to determine if it contains a lease as defined by IFRS 16. The Group has not elected to apply IFRS 16 to contracts where the right-of-use asset would be recognised as an intangible asset.
In addition, the Group has utilised the following practical expedients, permitted by IFRS 16:
-- the right of use asset for each lease has been measured as the present value of the lease liability adjusted for any prepaid or accrued lease payments prior to application;
-- for leases where the remaining term was less than 12 months at 1 July 2019 the group has elected to treat these as short term;
-- for leases that were previously classified as an operating lease under IAS 17 'Leases' the lease liability on 1 July 2019 was calculated as the present value of the remaining lease payments using the incremental borrowing rate as at 1 July 2019;
-- for existing leases that incurred initial direct costs, were excluded from the measurement of the right of use asset as at 1 July 2019;
-- the use of hindsight for existing leases has been applied in determining options to extend or terminate the lease;
-- the Group has not elected to separate lease components from non-lease components; and -- the Group has elected to apply a single discount rate to a portfolio of leases with similar characteristics.
Financial impact of IFRS 16
The impact of adopting IFRS 16 on the Group's income statement, balance sheet and statement of cash flows are presented in the following tables:
Impact on the Group's income statement
In the year the adoption of IFRS 16 has had the following impact of the Group's income statement:
Year Differences Year
between
IFRS 16
and IAS
17
ended ended
30 June 30 June
2020 2020
(as reported) (under IAS
17)
GBPm GBPm GBPm
Operating profit 47.6 (0.7) 46.9
Share of post-tax profit of
joint ventures and associates
retained 8.9 - 8.9
Finance costs (5.3) 0.7 (4.6)
Finance income 0.3 - 0.3
---------------- ------------- -------------
Profit before tax 51.5 - 51.5
---------------- ------------- -------------
Impact on the Group's balance sheet
1 July 2019 Recognised 1 July 2019
prior to adoption on adoption post adoption
of IFRS 16 of IFRS 16 of IFRS 16
(as reported) GBPm GBPm
GBPm
Non-current assets
Property, plant, motor vehicles
and equipment 86.0 26.6 112.6
Current liabilities
Obligations under leases (2.2) (7.5) (9.7)
Non-current liabilities
Obligations under leases (3.9) (19.1) (23.0)
The following table shows a reconciliation between the operating lease obligations reported at 30 June 2019 and the amount recognised on adoption of IFRS 16 using the weighted average incremental borrowing rate of 2.6% at the date of adoption.
GBPm
Operating lease commitments (as at 30 June 2019) 32.7
Leases classified as low value or short term (0.9)
Software licences outside the scope of IFRS 16 (2.3)
-------
Operating lease commitments to be capitalised under
IFRS 16 29.5
Impact of discounting (2.9)
-------
Lease liability (1 July 2019) 26.6
-------
Impact on the Group's statement of cashflows
Year end 30 Reclassification Year end
June 2020 on adoption 30 June 2020
(under IAS
17)
(as reported) of IFRS 16 GBPm
GBPm GBPm
Net cash from operating activities 65.8 (7.6) 58.2
Net cash outflow from investing
activities (30.7) - (30.7)
Net cash outflow from financing
activities (23.1) 7.6 (15.5)
--------------- ----------------- --------------
Net increase in cash and cash
equivalents 12.0 - 12.0
--------------- ----------------- --------------
The reconciliation of the impact on net debt of adopting IFRS 16 can be found in the analysis of the net debt note 14. Following adoption there was no material impact to adjusted earnings per share, earnings per share or taxation.
Leases accounting policy under IFRS 16
In accordance with IFRS 16, we recognise as an expense any payments made in respect of short-term leases (those with a term of less than 12 months) and leases for low-value items on a straight-line basis over the life of the lease.
For all other leases we recognise a right-of-use asset and corresponding liability at the date at which the leased asset is made available for use. Lease liabilities are measured at the present value of the future lease payments, excluding any payments relating to non-lease components. Future lease payments include fixed payments, in-substance fixed payments, and variable lease payments that are based on an index or a rate, less any lease incentives receivable. Lease liabilities also take into account amounts payable under residual value guarantees and payments to exercise options to the extent that it is reasonably certain that such payments will be made. The payments are discounted at the rate implicit in the lease or, where that cannot be measured, at an incremental borrowing rate.
Right-of-use assets are measured initially at cost based on the value of the associated lease liability, adjusted for any payments made before inception, initial direct costs and an estimate of the dismantling, removal and restoration costs required in the terms of the lease. Subsequent to initial recognition, we record an interest charge in respect of the lease liability. The related right-of-use asset is depreciated over the term of the lease or, if shorter, the useful economic life (UEL) of the leased asset. The lease term shall include the period of an extension option where it is reasonably certain that the option will be exercised. Where the lease contains a purchase option the asset is written-off over the useful life of the asset when it is reasonably certain that the purchase option will be exercised.
We re-measure the lease liability (and make a corresponding adjustment to the related right-of-use asset) whenever:-
-- the lease term has changed or there is a change in the assessment of exercise of a purchase option, in which case the lease liability is remeasured by discounting the revised lease payments using a revised discount rate.
-- the lease payments change due to changes in an index or rate or a change in expected payment under a guaranteed residual value, in which cases the lease liability is remeasured by discounting the revised lease payments using the initial discount rate (unless the lease payments change is due to a change in a floating interest rate, in which case a revised discount rate is used).
-- a lease contract is modified and the lease modification is not accounted for as a separate lease, in which case the lease liability is remeasured by discounting the revised lease payments using a revised discount rate. The Group did not make any such adjustments during the periods presented.
New standards and interpretations not yet adopted
At the date of the preliminary statement, the following standards and interpretations which have not been applied in the report were in issue but not yet effective (and in some cases had not yet been adopted by the EU). The Group will continue to assess the impact of these amendments prior to their adoption. These are:-
-- Amendments to IAS 1 and IAS 8 - 'De nition of Material'; -- Amendments to IFRS 3 - 'De nition of a Business'; -- Amendments to IFRS 9, IAS 39 and IFRS 7 - 'Interest Rate Benchmark Reform'; -- Conceptual Framework for Financial Reporting; and -- IFRS 16 'Covid-19 related rent concessions'.
Going concern
As part of the directors' consideration of the appropriateness of adopting the going concern basis in preparing the financial statements, given the uncertainty arising from COVID-19, our cashflow and net debt projections to December 2021 have been overlaid with a number of sensitivities to ensure we capture a severe downside scenario 'a COVID-19 scenario' impact on our profit, headroom and covenants over the going concern period. In addition, we have overlaid these sensitivities with reverse stress tests on both our headroom and banking covenants to ensure the range above and beyond the severe downside scenario is fully assessed.
The COVID-19 scenario sensitivities include 5% reductions in PIC revenue, 10% reduction in ABS volumes, 20% reduction in ABS average selling prices, GBP8m working capital impact and offset by mitigating actions including savings in costs, reduction in dividends and postponing certain capital spend and investments. Our mitigating actions are all within management control and would not impact our ability to serve our customers.
Our headroom under these sensitivities and reverse stress tests, including our mitigating actions, remain adequate. Based on this assessment, the Directors have a reasonable expectation that the Group has adequate resources to continue its operational existence for the foreseeable future and for a period of at least 12 months from the date of this report. Accordingly, the Directors continue to adopt and consider appropriate the going concern basis in preparing the Annual Report.
Alternative performance measures
In reporting nancial information, the Group presents alternative performance measures, ('APMs'), which are not de ned or speci ed under the requirements of IFRS and which are not considered to be a substitute for, or superior to, IFRS measures.
The Group believes that these APMs provide stakeholders with additional helpful information on the performance of the business. The APMs are consistent with how we plan our business performance and report on it in our internal management reporting to the Board and the executive leadership team. Some of these measures are also used for the purpose of setting remuneration targets.
For a full list of all APMs please see Alternative Performance Measures - Glossary.
Approval
This preliminary announcement was approved by the Board on 7 September 2020.
2. SEGMENTAL INFORMATION
IFRS 8 'Operating Segments' requires operating segments to be identified on the basis of internal reports about components of the Group that are regularly reviewed by the Chief Executive and the Board to allocate resources to the segments and to assess their performance. The Group's operating and reporting structure comprises three operating segments: Genus PIC, Genus ABS and Research and Development. These segments are the basis on which the Group reports its segmental information. The principal activities of each segment are as follows:
-- Genus PIC - our global porcine sales business; -- Genus ABS - our global bovine sales business; and -- Research and Development - our global spend on research and development.
A segmental analysis of revenue, operating profit, depreciation, amortisation, non-current asset additions, segment assets and liabilities and geographical information is provided below. We do not include our adjusting items in the segments, as we believe these do not reflect the underlying performance of the segments. The accounting policies of the reportable segments are the same as the Group's accounting policies, as described in the Financial Statements.
Revenue 2020 2019
GBPm GBPm
Genus PIC 298.8 253.7
Genus ABS 237.6 222.6
Research and Development
-------------------------------------- ------------ ------------
Porcine Product Development 11.7 9.4
Bovine Product Development 3.3 2.8
Gene Editing - -
Other Research and Development - -
-------------------------------------- ------------ ------------
15.0 12.2
------------ ------------
551.4 488.5
------------ ------------
Adjusted operating profit by segment is set out below and reconciled to the Group's adjusted operating profit. A reconciliation of adjusted operating profit to profit for the year is shown on face of the Group Income Statement.
Adjusted operating profit 2020 2019
GBPm GBPm
Genus PIC 113.3 93.1
Genus ABS 32.5 29.9
Research and Development
----------------------------------- ------------- -------------
Porcine Product Development (28.9) (18.4)
Bovine Product Development (20.6) (19.7)
Gene Editing (5.2) (7.3)
Other Research and Development (10.2) (9.0)
----------------------------------- ------------- -------------
(64.9) (54.4)
Adjusted segment operating profit 80.9 68.6
Central (15.6) (10.9)
Adjusted operating profit 65.3 57.7
------------- -------------
Our business is not highly seasonal and our customer base is diversified, with no individual customer generating more than 2% of revenue.
Exceptional items of GBP19.2m expense (2019: GBP21.8m expense), relate to Genus ABS (GBP18.4m expense), Genus PIC (GBP0.5m expense) and our central segment (GBP0.3m expense). Note 3 provides details of these exceptional items.
We consider share-based payment expenses on a Group-wide basis and do not allocate them to reportable segments.
Other segment information
Depreciation Amortisation Additions to
non-current assets
2020 2019 2020 2019 2020 2019
GBPm GBPm GBPm GBPm GBPm GBPm
Genus PIC 4.5 0.7 7.6 7.2 2.7 1.3
Genus ABS 11.4 2.3 3.2 2.4 24.7 6.8
Research and Development
------------------------------------ ------- ------- ------- ------- ---------- ----------
Research 0.5 0.5 0.9 1.2 1.5 0.8
Porcine Product Development 2.4 2.3 - - 1.4 3.0
Bovine Product Development 1.5 3.4 0.2 2.9 4.2 11.5
------------------------------------ ------- ------- ------- ------- ---------- ----------
4.4 6.2 1.1 4.1 7.1 15.3
------- ------- ------- ------- ---------- ----------
Segment total 20.3 9.2 11.9 13.7 34.5 23.4
Central 3.7 3.4 1.5 - 10.0 9.4
------- ------- ------- ------- ---------- ----------
Total 24.0 12.6 13.4 13.7 44.5 32.8
======= ======= ======= ======= ========== ==========
Segment assets Segment liabilities
*(restated) *(restated) *(restated) *(restated)
2020 2019 2018 2020 2019 2018
GBPm GBPm GBPm GBPm GBPm GBPm
Genus PIC 247.6 262.1 235.9 (72.6) (51.6) (48.3)
Genus ABS 201.3 157.1 160.6 (52.9) (41.9) (41.2)
Research and Development
---------------------------------- ------ ----------- ----------- -------- ----------- -----------
Research 7.2 7.4 12.5 (3.5) (0.6) (1.3)
Porcine Product Development 226.3 180.0 189.0 (56.3) (50.8) (71.2)
Bovine Product Development 146.5 161.5 152.8 (33.6) (32.8) (31.1)
---------------------------------- ------ ----------- ----------- -------- ----------- -----------
380.0 348.9 354.3 (93.4) (84.2) (103.6)
------ ----------- ----------- -------- ----------- -----------
Segment total 828.9 768.1 750.8 (218.9) (177.7) (193.1)
Central 39.8 35.5 17.9 (142.0) (138.8) (171.7)
------ ----------- ----------- -------- ----------- -----------
Total 868.7 803.6 768.7 (360.9) (316.5) (364.8)
====== =========== =========== ======== =========== ===========
*see note 1 for details of the prior period restatement.
Geographical information
The Group's revenue by geographical segment is analysed below. This analysis is stated on the basis of where the customer is located.
Revenue
2020 2019
GBPm GBPm
North America 226.4 211.8
Latin America 81.8 81.1
UK 94.4 83.7
Rest of Europe, Middle East, Russia and
Africa 78.0 67.7
Asia 70.8 44.2
551.4 488.5
------------ ------------
Non-current assets (excluding deferred taxation and financial instruments)
The Group's non-current assets by geographical segment are analysed below and are stated on the basis of where the assets are located.
*(restated) *(restated)
2020 2019 2018
GBPm GBPm GBPm
North America 454.4 400.2 429.7
Latin America 37.3 45.7 37.4
UK 78.8 70.6 41.0
Rest of Europe, Middle East, Russia
and Africa 41.5 59.3 42.2
Asia 29.2 14.7 18.4
641.2 590.5 568.7
------ ----------- -----------
* see note 1 for details of the prior period restatement.
Revenue by type 2020 2019
GBPm GBPm
Sale of animals, semen, embryos, products and
ancillary services 408.1 358.9
Royalties 136.2 122.0
Consulting services 7.1 7.6
----- -----
551.4 488.5
===== =====
3. EXCEPTIONAL ITEMS
2020 2019
Operating expense: GBPm GBPm
Litigation and damages (16.4) (5.0)
Acquisition and integration (2.1) (0.7)
Other (0.7) (0.9)
Pension related - (15.2)
------ ------
(19.2) (21.8)
====== ======
Litigation
Litigation includes legal fees of GBP5.6m (2019: GBP5.0m) related to the actions between ABS Global, Inc. and certain affiliates ('ABS') and Inguran, LLC and certain affiliates (aka Sexing Technologies ('ST')) and GBP10.8m (2019: GBPnil) for damages and costs related to patent infringement.
In July 2014, ABS launched a legal action against ST in the US District Court for the Western District of Wisconsin and initiated anti-trust proceedings which ultimately enabled the launch of ABS's IntelliGen sexing technology in the US market ('ABS I'). In June 2017, ST filed proceedings against ABS in the same District Court, where ST alleged that ABS infringed seven patents and asserted trade secret and breach of contract claims ('ABS II'). The ABS I and ABS II proceedings in the periods before the year ended 30 June 2020 are more fully described in the Notes to the Financial Statements in previous Annual Reports.
Material litigation activities during the year ended 30 June 2020
In relation to ABS II, a hearing proceeded in September 2019, and on 9 September a jury held that ABS' IntelliGen technology infringed US patents 8,206,987 (the "987 patent'), 7,311,476 (the "476 patent') and 7,611,309 (the "309 patent'), and also found that ST was not in material breach of the 2012 Semen Sorting Agreement. The infringement of the '987 patent confirms ABS' existing obligation from ABS I to pay a royalty of $1.25 for each straw of sexed semen produced in the US and the jury later held that ABS should pay a royalty of $2.60 per straw for infringement of the '476 and '309 patents for 3,295,355 straws sold by ABS up to 30 June 2019. This royalty is retrospective, as ABS had reengineered the IntelliGen technology by incorporating a non-infringing microfluidic chip known as "SSC(B)" prior to the hearing. ST confirmed in court that the SSC(B) chip did not infringe the '476 or '309 patents. ABS has sought judgments as a matter of law ('JMOL') in relation to the invalidity of the '987, '476 and '309 patents, JMOLs in relation to the non-infringement of the '309 and '476 patents, and a reduction in damages awarded by the jury. Once the court has decided on the JMOLs, the parties will consider their options for appeal.
On 29 January 2020, ST filed a new US complaint against ABS ('ABS III'). ST allege infringement of the '987 patent through: (i) the sale, lease or transfer of the IntelliGen technology to third parties; (ii) the importation of sexed semen straws made outside the US using the IntelliGen technology; and (iii) the use of the IntelliGen technology to produce IVF products. ABS has prepared and filed a response to the ABS III complaint, including a motion to dismiss, on the basis that all these issues were fully resolved in either the ABS I or ABS II litigations. The parties await the court's decision.
On March 10, 2020, the USPTO issued patent 10,583,439 (the "439 patent'), and subsequently ST asked the court for permission to file a supplemental complaint in ABS III asserting infringement of the '439 patent. ABS believes that ST's claim for infringement falls short and has filed an opposition to ST's request.
On April 15, 2020, ST filed a new complaint ('ABS IV'), asserting the same claim of infringement of the '439 patent alleged in its supplemental complaint and then moved to consolidate the ABS IV and ABS III litigation. ABS has opposed this action and has filed a motion for summary dismissal.
On 23 June 2020, the USPTO issued patent 10,689,210 (the "210 patent'), and on 6 July 2020, ST sought a second supplement of ABS III by adding a claim of '210 patent infringement. ABS has opposed this action. The parties await the court's decision, and in the meantime, ABS is considering its options for responding to ST's assertion of the '439 and '210 patents.
A provision of GBP10.5m has been recognised in the year ended 30 June 2020 in respect of the royalty per straw for infringement of the '476 and '309 patents claimed by ST through ABS II.
Indian Litigation: In September 2019, ST also filed parallel patent infringement proceedings against ABS in India alleging infringement of the Indian patent 240790 ("790 patent'). The '790 patent is the equivalent of the US '476 patent relating to microfluidic chips. ABS had already sought the revocation of the '790 patent in April 2017 and filed a response and counterclaim seeking the revocation of the '790 patent. This matter is next before the Indian Courts on 8 October 2020 to consider the timetable and the application for a preliminary injunction. All microfluidic chips used by ABS in India are the non-infringing SSC(B) chips.
Acquisitions and integration
During the year, GBP2.1m (2019: GBP0.7m) of expenses were incurred in relation to potential acquisitions that were not completed.
Other
Included within 'Other' are GBP0.8m (2019: GBP1.5m) of expenses which relate to the costs of entering into our strategic porcine collaboration in China. Included within the 2019 balance is an insurance receipt of GBP0.6m from a legacy environmental claim.
Pension related
In the prior year, the High Court handed down judgement in the Lloyds Bank pensions case, requiring pension schemes to equalise Guaranteed Minimum Pensions (GMPs). Genus's legacy pension schemes are affected by this ruling, resulting in an aggregate past service charge of GBP16.1m, partially offset by a settlement gain of GBP0.9m (net of fees).
4. NET FINANCE COSTS
2020 2019
GBPm GBPm
Interest payable on bank loans and
overdrafts (2.9) (3.3)
Amortisation of debt issue costs (0.4) (0.4)
Other interest payable (0.1) -
Unwinding of discount put options (0.5) -
Net interest cost in respect of pension scheme
liabilities (0.4) (0.9)
Interest on lease liabilities (1.0) (0.1)
Total interest expense (5.3) (4.7)
Interest income on bank deposits 0.3 0.2
Net settlement income on derivative
financial instruments - 0.6
----- ------
Total interest income 0.3 0.8
----- ------
Net finance costs (5.0) (3.9)
===== ======
5. INCOME TAX EXPENSE
2020 2019
Income tax expense GBPm GBPm
Current tax expense
Current period 13.8 12.6
Adjustment for prior periods (1.1) (0.9)
----- -----
Total current tax expense in the Group Income Statement 12.7 11.7
----- -----
Deferred tax expense
Origination and reversal of temporary differences (2.6) (7.7)
Adjustment for prior periods 0.5 (0.8)
----- -----
Total deferred tax credit in the Group Income Statement (2.1) (8.5)
----- -----
Total income tax expense excluding share
of income tax of equity accounted investees 10.6 3.2
Share of income tax of equity accounted
investees 2.3 1.4
----- -----
Total income tax expense in the Group Income
Statement 12.9 4.6
===== =====
6. EARN INGS PER SHARE
Basic earnings per share is the profit generated for the financial year attributable to equity shareholders divided by the weighted average number of shares in issue during the year.
2020 2019
Basic earnings per share from continuing (pence) (pence)
operations
Basic earnings per share 62.4 12.4
========= =========
The calculation of basic earnings per share from continuing operations for the year ended 30 June 2020 is based on the net profit attributable to owners of the Company from continuing operations of GBP40.5m (2019: GBP7.8m) and a weighted average number of ordinary shares outstanding of 64,908,000 (2019: 63,141,000), which is calculated as follows:
Weighted average number of ordinary shares (basic)
2020 2019
000s 000s
Issued ordinary shares at the start of the
year 65,055 61,542
Effect of own shares held (168) (405)
Share placement - 1,697
Shares issued on exercise of stock options 21 6
Shares issued in relation to Employee Benefit
Trust - 301
------ ------
Weighted average number of ordinary shares
in year 64,908 63,141
====== ======
2020 2019
Diluted earnings per share from continuing (pence) (pence)
operations
Diluted earnings per share 61.9 11.9
========= =========
The calculation of diluted earnings per share from continuing operations for the year ended 30 June 2020 is based on the net profit attributable to owners of the Company from continuing operations of GBP40.5m (2019: GBP7.8m) and a weighted average number of ordinary shares outstanding, after adjusting for the effects of all potential dilutive ordinary shares, of 65,427,000 (2019: 65,304,000), which is calculated as follows:
Weighted average number of ordinary shares (diluted)
2020 2019
000s 000s
Weighted average number of ordinary shares
(basic) 64,908 63,141
Dilutive effect of share awards and options 519 763
Impact of share placement - 1,400
-------- ------------
Weighted average number of ordinary shares
for the purposes of diluted earnings per
share 65,427 65,304
======== ============
2020 2019
Adjusted earnings per share from continuing (pence) (pence)
operations
Adjusted earnings per share 85.4 73.2
Diluted adjusted earnings per share 84.7 70.7
======== ========
Adjusted earnings per share is calculated on profit before the net IAS 41 valuation movement on biological assets, amortisation of acquired intangible assets, share-based payment expense and exceptional items, after charging taxation associated with those profits, of GBP55.4m (2019: GBP46.2m), which is calculated as follows:
2020 2019
GBPm GBPm
Profit before tax from continuing operations 51.5 9.9
Add/(deduct):
Net IAS 41 valuation movement on biological
assets (15.8) 14.7
Amortisation of acquired intangible assets 8.5 9.5
Share-based payment expense 5.8 3.0
Exceptional items (see note 3) 19.2 21.8
Net IAS 41 valuation movement on biological
assets in joint ventures 0.1 1.1
Tax on joint ventures and associates 2.3 1.4
Attributable to non-controlling interest (0.6) (0.4)
------ ------
Adjusted profit before tax 71.0 61.0
Adjusted tax charge (15.6) (14.8)
------ ------
Adjusted profit after tax 55.4 46.2
====== ======
Effective tax rate on adjusted profit 22.0% 24.3%
===== =====
7. DIVIDS
Amounts recognised as distributions to equity holders in the year
2020 2019
GBPm GBPm
Final dividend
Final dividend for the year ended 30 June 2019
of 18.8 pence per share 12.2 -
Final dividend for the year ended 30 June 2018
of 17.9 pence per share - 11.0
Interim dividend
Interim dividend for the year ended 30 June
2020 of 9.4 pence per share 6.1 -
Interim dividend for the year ended 30 June
2019 of 8.9 pence per share - 5.8
----- ------
18.3 16.8
===== ======
The Directors have proposed a final dividend of 19.7 pence per share for 2020. This is subject to shareholders' approval at the Annual General Meeting and we have therefore not included it as a liability in these financial statements.
8. GOODWILL
Genus Genus
PIC ABS Total
GBPm GBPm GBPm
Cost
Balance at 1 July 2018 70.8 31.2 102.0
Acquisitions - 1.1 1.1
Effect of movements in exchange rates 2.2 1.0 3.2
----- ----- -------
Balance at 30 June 2019 73.0 33.3 106.3
===== ===== =======
Effect of movements in exchange rates 1.1 (1.8) (0.7)
----- ----- -------
Balance at 30 June 2020 74.1 31.5 105.6
===== ===== =======
Amortisation and impairment losses
Balance at 1 July 2018, 30 June 2019 - - -
and 30 June 2020
===== ===== =======
Carrying amounts
At 30 June 2020 74.1 31.5 105.6
===== ===== =======
At 30 June 2019 73.0 33.3 106.3
===== ===== =======
9. INTANGIBLE ASSETS
Brand, Separately
multiplier identified
Porcine contracts acquired Patents,
and bovine and customer intangible Assets licences
genetics relationships assets under and Total
Technology Software construction IntelliGen other
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Cost
Balance at 1
July 2018 51.7 80.5 132.2 12.0 3.4 22.2 3.9 173.7
Additions - - - 1.4 8.8 1.0 0.5 11.7
Acquisitions - 1.8 1.8 - - - - 1.8
Transfers - - - 1.2 (1.2) - - -
Disposals - - - (0.1) - - (0.1) (0.2)
Effect of
movements
in exchange
rates 1.3 2.8 4.1 0.2 - 0.8 0.1 5.2
----------- -------------- ----------- ---------- ------------- ----------- --------- -------
Balance at 30
June 2019 53.0 85.1 138.1 14.7 11.0 24.0 4.4 192.2
=========== ============== =========== ========== ============= =========== ========= =======
Additions - - - 0.1 8.9 1.8 - 10.8
Disposals - - - (0.6) - (1.0) - (1.6)
Transfers - - - 13.6 (13.6) - - -
Effect of
movements
in
exchange
rates (1.0) 0.8 (0.2) 0.1 - 0.6 - 0.5
----------- -------------- ----------- ---------- ------------- ----------- --------- -------
Balance at 30
June 2020 52.0 85.9 137.9 27.9 6.3 25.4 4.4 201.9
=========== ============== =========== ========== ============= =========== ========= =======
Amortisation
and
impairment
losses
Balance at 1
July 2018 27.7 53.7 81.4 9.3 - 2.5 1.8 95.0
Impairment - - - 1.2 - - - 1.2
Disposals - - - (0.1) - - - (0.1)
Amortisation
for the year 2.7 6.8 9.5 1.0 - 2.1 1.1 13.7
Effect of
movements
in exchange
rates 0.4 1.3 1.7 0.2 - 0.4 - 2.3
----------- -------------- ----------- ---------- ------------- ----------- --------- -------
Balance at 30
June 2019 30.8 61.8 92.6 11.6 - 5.0 2.9 112.1
=========== ============== =========== ========== ============= =========== ========= =======
Impairment - - - 0.2 - - - 0.2
Disposals - - - - - (0.4) - (0.4)
Amortisation
for the year 2.9 5.6 8.5 1.6 - 2.3 1.0 13.4
Effect of
movements
in
exchange
rates (0.5) 0.8 0.3 0.1 - - - 0.4
----------- -------------- ----------- ---------- ------------- ----------- --------- -------
Balance at 30
June 2020 33.2 68.2 101.4 13.5 - 6.9 3.9 125.7
=========== ============== =========== ========== ============= =========== ========= =======
Carrying
amounts
At 30 June
2020 18.8 17.7 36.5 14.4 6.3 18.5 0.5 76.2
=========== ============== =========== ========== ============= =========== ========= =======
At 30 June
2019 22.2 23.3 45.5 3.1 11.0 19.0 1.5 80.1
=========== ============== =========== ========== ============= =========== ========= =======
At 30 June
2018 24.0 26.8 50.8 2.7 3.4 19.7 2.1 78.7
=========== ============== =========== ========== ============= =========== ========= =======
Included within the Software class of assets is GBP11.5m and included in assets in the course of construction is GBP5.7m that relate to the on-going development costs of GenusOne, our single global enterprise system.
10. BIOLOGICAL ASSETS
(restated*) (restated*)
Fair value of biological assets Bovine Porcine Total
GBPm GBPm GBPm
Balance at 30 June 2018 (as previously reported) 104.0 238.8 342.8
Prior period adjustment (see note 1) - (20.5) (20.5)
------ ----------- -----------
Balance at 30 June 2018 (restated*) 104.0 218.3 322.3
Non-current biological assets 104.0 181.3 285.3
Current biological assets - 37.0 37.0
------ ----------- -----------
Balance at 30 June 2018 (restated*) 104.0 218.3 322.3
====== =========== ===========
Increases due to purchases 9.2 117.5 126.7
Decreases attributable to sales - (191.5) (191.5)
Decrease due to harvest (25.3) (22.2) (47.5)
Changes in fair value less estimated sale
costs 7.2 97.2 104.4
Effect of movements in exchange rates 3.6 9.2 12.8
------ ----------- -----------
Balance at 30 June 2019 (restated*) 98.7 228.5 327.2
Non-current biological assets 98.7 188.4 287.1
Current biological assets - 40.1 40.1
------ ----------- -----------
Balance at 30 June 2019 (restated*) 98.7 228.5 327.2
====== =========== ===========
Increases due to purchases 17.5 118.7 136.2
Decreases attributable to sales - (217.3) (217.3)
Decrease due to harvest (24.5) (22.7) (47.2)
Changes in fair value less estimated sale
costs 13.5 130.6 144.1
Effect of movements in exchange rates 2.0 4.9 6.9
------ ----------- -----------
Balance at 30 June 2020 107.2 242.7 349.9
Non-current biological assets 107.2 202.9 310.1
Current biological assets - 39.8 39.8
------ ----------- -----------
Balance at 30 June 2020 107.2 242.7 349.9
====== =========== ===========
*see note 1 for details of the prior period restatement
Bovine biological assets include GBP5.5m (2019: GBP3.9m) representing the fair value of bulls owned by third parties but managed by the Group, net of expected future payments to such third parties, which are therefore treated as assets held under finance leases.
There were no movements in the carrying value of the bovine biological assets in respect of sales or other changes during the year.
A risk adjusted rate of 8.8% (2019: 8.8%) has been used to discount future net cash flows from the sale of bull semen.
Decreases due to harvest represent the semen extracted from the biological assets. Inventories of such semen are shown as biological asset harvest.
In porcine, included in increases due to purchases is the aggregate increase arising during the year on initial recognition of biological assets in respect of multiplier purchases, other than parent gilts, of GBP46.3m (2019: GBP36.3m).
Decreases attributable to sales during the year of GBP217.3m (2019: GBP191.5m) include GBP68.1m (2019: GBP71.4m) in respect of the reduction in fair value of the retained interest in the genetics of animals, other than parent gilts, transferred under royalty contracts.
Also included is GBP101.6m (2019: GBP85.4m) relating to the fair value of the retained interest in the genetics in respect of animals, other than parent gilts, sold to customers under royalty contracts in the year.
Total revenue in the year, including parent gilts, includes GBP205.8m (2019: GBP179.6m) in respect of these contracts, comprising GBP69.8m (2019: GBP57.6m) on initial transfer of animals and semen to customers and GBP136.0m (2019: GBP122.0m) in respect of royalties received.
A risk adjusted rate of 9.3% (2019: 11.0%) has been used to discount future net cash flows from the expected output of the pure line porcine herds. The number of future generations which have been taken into account is seven (2019: seven) and their estimated useful lifespan is 1.4 years (2019: 1.4 years).
Year ended 30 June 2020
Bovine Porcine Total
GBPm GBPm GBPm
Net IAS 41 valuation movement on biological
assets*
Changes in fair value of biological assets 13.5 130.6 144.1
Inventory transferred to cost of sales at
fair value (10.9) (22.7) (33.6)
Biological assets transferred to cost of
sales at fair value - (95.1) (95.1)
------ --------- ------
2.6 12.8 15.4
Fair value movement in related financial
derivative - 0.4 0.4
------ --------- ------
2.6 13.2 15.8
------ --------- ------
Year ended 30 June 2019
Bovine Porcine Total
GBPm GBPm GBPm
Net IAS 41 valuation movement on biological
assets*
Changes in fair value of biological assets 7.2 97.2 104.4
Inventory transferred to cost of sales at
fair value (20.0) (22.2) (42.2)
Biological assets transferred to cost of
sales at fair value - (77.2) (77.2)
------ --------- ------
(12.8) (2.2) (15.0)
Fair value movement in related financial
derivative - 0.3 0.3
------ --------- ------
(12.8) (1.9) (14.7)
------ --------- ------
*This represents the difference between operating profit prepared under IAS 41 and operating profit prepared under historical cost accounting, which forms part of the reconciliation to adjusted operating profit.
11. PROPERTY PLANT AND EQUIPMENT
Plant, Plant,
motor motor Total
vehicles Assets Total Land vehicles Right
Land and and under Owned and and of Use
buildings equipment construction Assets Buildings equipment Assets Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Cost or
deemed cost
Balance at 1
July
2018 56.5 78.1 4.0 138.6 - - - 138.6
Additions 1.0 10.1 10.0 21.1 - - - 21.1
Transfers 3.5 6.0 (9.5) - - - - -
Disposals (1.6) (6.0) (0.1) (7.7) - - - (7.7)
Effect of
movements
in exchange
rates 2.7 3.1 0.3 6.1 - - - 6.1
Balance at 30
June
2019 62.1 91.3 4.7 158.1 - - - 158.1
========= ========== ============= ======== ========= ========= ======== =========
Recognised on
the
adoption of
IFRS
16 - - - - 19.7 6.9 26.6 26.6
Transfers on
adoption
of IFRS 16 - (12.2) - (12.2) - 12.2 12.2 -
Additions 0.4 9.4 14.8 24.6 1.9 7.2 9.1 33.7
Transfers 6.6 4.7 (11.3) - - - - -
Disposals (1.6) (5.4) - (7.0) - (2.7) (2.7) (9.7)
Effect of
movements
in exchange
rates 0.4 - - 0.4 0.3 0.4 0.7 1.1
Balance at 30
June
2020 67.9 87.8 8.2 163.9 21.9 24.0 45.9 209.8
========= ========== ============= ======== ========= ========= ======== =========
Depreciation
and
impairment
losses
Balance at 1
July
2018 18.1 43.6 - 61.7 - - - 61.7
Depreciation
for
the year 3.0 9.6 - 12.6 - - - 12.6
Disposals (1.5) (4.7) - (6.2) - - - (6.2)
Effect of
movements
in exchange
rates 1.2 2.8 - 4.0 - - - 4.0
Balance at 30
June
2019 20.8 51.3 - 72.1 - - - 72.1
========= ========== ============= ======== ========= ========= ======== =========
Transfers on
the
adoption of
IFRS
16 - (4.8) - (4.8) - 4.8 4.8 -
Depreciation
for
the year 3.8 9.3 - 13.1 4.4 6.5 10.9 24.0
Disposals (0.7) (2.7) - (3.4) - (1.5) (1.5) (4.9)
Effect of
movements
in exchange
rates 0.4 - - 0.4 - 0.3 0.3 0.7
Balance at 30
June
2020 24.3 53.1 - 77.4 4.4 10.1 14.5 91.9
========= ========== ============= ======== ========= ========= ======== =========
Carrying
amounts
At 30 June
2020 43.6 34.7 8.2 86.5 17.5 13.9 31.4 117.9
========= ========== ============= ======== ========= ========= ======== =========
At 30 June
2019 41.3 40.0 4.7 86.0 - - - 86.0
========= ========== ============= ======== ========= ========= ======== =========
12. TRADE AND OTHER RECEIVABLES
2020 2019
GBPm GBPm
Trade receivables 83.7 85.4
Less expected credit loss allowance (3.4) (2.6)
------- -------
Trade receivables net of impairment 80.3 82.8
Other debtors 6.3 5.1
Prepayments 6.6 5.3
Accrued income 5.1 2.9
Other taxes and social security 2.5 1.9
------- -------
Current trade and other receivables 100.8 98.0
Non- Current other receivables 1.8 -
------- -------
102.6 98.0
======= =======
Trade receivables
The average credit period our customers take on the sales of goods is 53 days (2019: 62 days). We do not charge interest on receivables for the first 30 days from the date of the invoice.
The Group always measures the loss allowance for trade receivables at an amount equal to lifetime expected credit losses ("ECL"). The expected credit losses on trade receivables are estimated using a provision matrix by reference to past default experience of the debtor and an analysis of the debtor's current financial position, adjusted for factors that are specific to the general economic conditions of the industry and country in which the debtors operates and an assessment of both the current and the forecast direction of conditions at the reporting date. The Group writes off a trade receivable when there is information indicating that the debtor is in severe financial difficulty and there is no realistic prospect of recovery, such as when the debtor has been placed under liquidation or has entered into bankruptcy proceedings
No customer represents more than 5% of the total balance of trade receivables (2019: nil).
13. RETIREMENT BENEFIT OBLIGATIONS
The Group operates a number of defined contribution and defined benefit pension schemes covering many of its employees. The principal funds are the Milk Pension Fund and Dalgety Pension Fund in the UK, which are defined benefit schemes. The assets of these funds are held separately from the assets of the Group, are administered by trustees and managed professionally. These schemes are closed to new members.
The financial positions of the defined benefit schemes, as recorded in accordance with IAS 19 and IFRIC 14, are aggregated for disclosure purposes. The liability split by principal scheme is set out below.
2020 2019
GBPm GBPm
The Milk Pension Fund - Genus's share 7.5 14.1
The Dalgety Pension Fund - -
National Pig Development Pension Fund 0.7 0.8
Post-retirement healthcare 0.6 0.6
Other unfunded schemes 9.3 8.7
------- -------
Overall net pension liability 18.1 24.2
======= =======
Overall, we expect to pay GBP8.0m (2020: GBP8.4m) in contributions to defined benefit plans in the 2021 financial year.
Summary of movements in Group deficit during the year
2020 2019
GBPm GBPm
Deficit in schemes at the start of
the year (24.2) (33.9)
Administration expenses (0.5) (0.9)
Exceptional cost of GMP equalisation - (16.1)
Exceptional gain on settlement - 1.1
Contributions paid into the plans 8.4 7.6
Net pension finance cost (0.4) (0.9)
Actuarial losses recognised during
the year (16.6) (5.4)
Movement in restriction of assets 10.4 (10.1)
Release of additional liability 4.7 34.5
Exchange rate adjustment 0.1 (0.1)
------ ------
Deficit in schemes at the end of the
year (18.1) (24.2)
====== ======
The expense/(income) is recognised in the following line items in the Income Statement
2020 2019
GBPm GBPm
Administrative expenses 0.5 0.9
Exceptional cost of GMP equalisation - 16.1
Exceptional gains on settlement and past service - (1.1)
Net finance charge 0.4 0.9
----- -----
0.9 16.8
===== =====
Actuarial assumptions and sensitivity analysis
Principal actuarial assumptions (expressed as weighted averages) are:
2020 2019
Discount rate 1.65% 2.35%
Consumer Price Index (CPI) 2.10% 2.15%
Retail Price Index (RPI) 2.80% 3.15%
The mortality assumptions used are consistent with those recommended by the schemes' actuaries and reflect the latest available tables, adjusted for the experience of the scheme where appropriate. For 2020, the mortality tables used are 97% of the S2NA tables, with birth year and 2019 CMI projections with a smoothing parameter of Sk = 7.0, subject to a long-term rate of improvement of 1.25% for males and females and 2019, the mortality tables used are 97% of the S2NA tables, with birth year and 2017 CMI projections with a smoothing parameter of Sk = 7.5, subject to a long-term rate of improvement of 1.25% for males and females.
14. NOTES TO THE CASH FLOW STATEMENT
2020 2019
GBPm GBPm
Profit for the year 40.9 6.7
Adjustment for:
Net IAS 41valuation movement on biological
assets (15.8) 14.7
Amortisation of acquired intangible assets 8.5 9.5
Share-based payment expense 5.8 3.0
Share of profit of joint ventures and associates (8.9) (5.1)
Finance costs (net) 5.0 3.9
Income tax expense 10.6 3.2
Exceptional items 19.2 21.8
Adjusted operating profit from continuing
operations 65.3 57.7
Depreciation of property, plant and equipment 24.0 12.6
Loss on disposal of plant and equipment 3.7 -
Loss/(profit) on disposal of intangible
assets 1.2 (0.1)
Amortisation and impairment of intangible
assets 5.1 5.4
Adjusted earnings before interest, tax,
depreciation and amortisation 99.3 75.6
Cash impact of exceptional items (5.8) (7.3)
Other movements in biological assets and
harvested produce (2.9) (5.5)
(Decrease)/increase in provisions and release
in deferred consideration (2.2) 1.5
Additional pension contributions in excess
of pension charge (7.9) (6.7)
Other (0.9) (4.1)
Operating cash flows before movement in
working capital 79.6 53.5
Decrease/(increase) in inventories 0.1 (3.2)
Increase in receivables (8.8) (6.6)
Increase in payables 12.0 4.7
Cash generated by operations 82.9 48.4
Interest received 0.3 0.2
Interest and other finance costs paid (3.4) (3.2)
Interest on leased assets (1.0) (0.1)
Cash flow from derivative financial instruments 0.5 0.6
Income taxes paid (13.5) (12.5)
------ ------
Net cash from operating activities 65.8 33.4
====== ======
Analysis of net debt
Total changes in liabilities due to financing activities are as follows:
Adoption Other
At 1 July of IFRS At 1 July Net cash Foreign non-cash At 30 June
2019 16 leases 2019 flows exchange movements 2020
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Cash and cash
equivalents 30.5 - 30.5 12.0 (1.2) - 41.3
----------- ---------- ----------- ---------- ---------- ---------- ------------
Interest-bearing
loans - current (2.1) - (2.1) (6.6) (0.1) (0.4) (9.2)
Lease liabilities
-
Current (2.2) (7.5) (9.7) 11.1 (0.1) (11.3) (10.0)
----------- ---------- ----------- ---------- ---------- ---------- ------------
(4.3) (7.5) (11.8) 4.5 (0.2) (11.7) (19.2)
Interest-bearing
loans - non-current (101.9) - (101.9) 0.4 (2.1) - (103.6)
Lease liabilities
- non- current (3.9) (19.1) (23.0) - (0.3) 2.2 (21.1)
----------- ---------- ----------- ---------- ---------- ---------- ------------
(105.8) (19.1) (124.9) 0.4 (2.4) 2.2 (124.7)
Total debt financing (110.1) (26.6) (136.7) 4.9 (2.6) (9.5) (143.9)
Net debt (79.6) (26.6) (106.2) 16.9 (3.8) (9.5) (102.6)
=========== ========== =========== ========== ========== ========== ============
Included within non-cash movements is GBP9.5m in relation to new finance leases and unwinding of debt issue costs.
15. CONTINGENCIES AND BANK GUARANTEES
Contingent liabilities are potential future cash outflows, where the likelihood of payments is considered more than remote but is not considered probable or cannot be measured reliably. Assessing the amount of liabilities that are not probable is highly judgemental.
The retirement benefit obligations referred to in note 13 include obligations relating to the MPF defined benefit scheme. Genus, together with other participating employers, is joint and severally liable for the scheme's obligations. Genus has accounted for its section and its share of any orphan assets and liabilities, collectively representing approximately 86% (2019: 86%) of the MPF. As a result of the joint and several liability, Genus has a contingent liability for the scheme's obligations that it has not accounted for.
The Group has widespread global operations and is consequently a defendant in many legal, tax and customs proceedings incidental to those operations. In addition, there are contingent liabilities arising in the normal course of business in respect of indemnities, warranties and guarantees. These contingent liabilities are not considered to be unusual in the context of the normal operating activities of the Group. Provisions have been recognised in accordance with the Group accounting policies where required. None of these claims are expected to result in a material gain or loss to the Group.
As described in note 3, the Group is involved in on-going litigation proceedings and investigations with ST that are at various legal stages. The Group makes a provision for amounts to the extent where an outflow of economic benefit is probable and can be reliably estimated. However, there are specific claims identified in the litigation which the Group considers the outcome of the claim is not probable and will not result in the outflow of economic benefit.
The Group's future tax charge and effective tax rate could be affected by factors such as countries reforming their tax legislation to implement the OECD's BEPS recommendations and by European Commission initiatives including state aid investigations.
At 30 June 2020, we had entered into bank guarantees totalling GBP5.9m (2019: GBP4.0m).
16. DEFERRED CONSIDERATION
Contingent
deferred consideration Deferred consideration
GBPm GBPm Total
GBPm
Balance at 1 July 2018 - 19.3 19.3
Additional provision in the year - 6.2 6.2
Payment of consideration - (19.3) (19.3)
----------------------- ------------------------ -------
Balance at 30 June 2019 - 6.2 6.2
Reclassified from provisions 4.5 - 4.5
Payment of consideration (0.6) (1.1) (1.7)
Release of unutilised contingent
consideration (0.4) - (0.4)
Effect of movement in exchange rates 0.1 - 0.1
----------------------- ------------------------ -------
Balance at 30 June 2020 3.6 5.1 8.7
======================= ======================== =======
Current 2.8 4.7 7.5
Non-current 0.8 0.4 1.2
--- --- ---
Balance at 30 June 2020 3.6 5.1 8.7
=== === ===
Current - 2.0 2.0
Non-current - 4.2 4.2
--- --- ---
Balance at 30 June 2019 - 6.2 6.2
=== === ===
The balance at 30 June 2020 relates to the following transactions:
Contingent
Fiscal year deferred Deferred
of transaction consideration consideration Total
GBPm GBPm GBPm
De Novo Genetics LLC 2017 - 0.8 0.8
Hermitage Genetics DAC 2017 2.8 - 2.8
Avlscenter Møllevang
A/S 2018 - 4.3 4.3
Dairy LLC (n/a Bovisync) 2019 0.4 - 0.4
Progenex S.L. 2019 0.4 - 0.4
-------------- --------------- -------
Balance at 30 June 2020 3.6 5.1 8.7
-------------- --------------- -------
17. NON-CONTROLLING INTEREST
2020 2019
GBPm GBPm
Non-controlling interest 4.6 4.2
Put option over non-controlling
interest at inception (5.6) (5.5)
----- -----
Total non-controlling interest (1.0) (1.3)
===== =====
Summarised financial information in respect of each of the Group's subsidiaries that has a material non-controlling interest is set out below before intra-Group eliminations.
De Novo
Genetics PIC Italia
LLC S.r.l 2020
GBPm GBPm GBPm
Revenue 3.7 4.1 7.8
Expenses (3.1) (3.2) (6.3)
Total comprehensive income for the
year 0.6 0.9 1.5
Total comprehensive income attributable
to owners of the company 0.3 0.8 1.1
Total comprehensive income attributable
to the non-controlling interest 0.3 0.1 0.4
========= ========== ======
Biological assets 14.9 - 14.9
Current assets 1.3 1.2 2.5
Other non-current assets 0.8 0.9 1.7
Current liabilities (8.8) (0.6) (9.4)
Net assets 8.2 1.5 9.7
Equity attributable to owners of
the Company (3.8) (1.3) (5.1)
Non-controlling interest 4.4 0.2 4.6
--------- ---------- ------
No dividends were paid to non-controlling interests (2019: GBPnil).
De Novo
Genetics PIC Italia
LLC S.r.l 2019
GBPm GBPm GBPm
Revenue 2.1 2.9 5.0
Expenses (4.6) (2.1) (6.7)
Total comprehensive income/(loss)
for the year (2.5) 0.8 1.7
Total comprehensive (loss)/income
attributable to owners of the company (1.3) 0.7 0.6
Total comprehensive (loss)/income
attributable to the non-controlling
interest (1.2) 0.1 (1.1)
========= ========== =======
Biological assets 11.6 - 11.6
Current assets 1.2 0.8 2.0
Other non-current assets 0.8 1.4 2.2
Current liabilities (6.1) (0.7) (6.8)
Net assets 7.5 1.5 9.0
Equity attributable to owners of
the Company (3.5) (1.3) (4.8)
Non-controlling interest 4.0 0.2 4.2
--------- ---------- -------
18. POST BALANCE SHEET EVENTS
A new credit facility agreement with a syndicate of eight banks was signed post year end on 24 August 2020. The new facility consists of a GBP150m multi-currency RCF, a USD125m RCF and a USD20m bond and guarantee facility. The US dollar bond is being used to provide security in relation to damages claimed under the ABS II litigation relating to the '987 patent royalties (up to 5 June 2020), the '476 and '309 patent royalties (up to 8 June 2020) and includes accrued interest and is subject to the outcome of any appeal.
The term of the new credit facility is for three years with an option to extend the maturity date before the first and second anniversaries of the signing date for a further year. The facility also includes an uncommitted GBP100m accordion option which can be requested on a maximum of three occasions over the lifetime of the facility to fund the Group's business development plans.
Alternative Performance Measures ('APMs) - Glossary
The Group tracks a number of APMs in managing its business, which are not defined or specified under the requirements of IFRS because they exclude amounts that are included in, or include amounts that are excluded from, the most directly comparable measure calculated and presented in accordance with IFRS, or are calculated using financial measures that are not calculated in accordance with IFRS.
The Group believes that these APMs, which are not considered to be a substitute for or superior to IFRS measures, provide stakeholders with additional helpful information on the performance of the business. These APMs are consistent with how the business performance is planned and reported within the internal management reporting to the Board and executive leadership team. Some of these APMs are also used for the purpose of setting remuneration targets.
These APM should be viewed as supplemental to, but not as a substitute for, measures presented in the consolidated financial information relating to the Group, which are prepared in accordance with IFRS. The Group believes that these APMs are useful indicators of its performance. However, they may not be comparable to similarly-titled measures reported by other companies due to differences in the way they are calculated. The key APMs that the Group uses include:
Alternative Performance Measures Calculation methodology and closest Reasons why we believe the APMs are
equivalent IFRS measure (where useful
applicable)
Income statement measures
Adjusted operating profit exc JVs Adjusted operating profit is Allows the comparability of
operating profit with the net IAS 41 underlying financial performance by
valuation movement on biological excluding the impacts of exceptional
assets, amortisation of acquired items and is a performance indicator
intangible assets, share-based against which short-term and
payment expense and exceptional long-term incentive outcomes
items added back and excludes JV and for our senior executives are
associate results. measured.
Closest equivalent IFRS measure:- -- net IAS 41 valuation movements on
Operating profit* biological assets - these movements
See reconciliation below. can be materially
volatile and do not directly
correlate to the underlying trading
performance in the period.
Furthermore, the movement is non-cash
related and many assumptions used in
the valuation model
are based on projections rather than
current trading;
-- amortisation of acquired
intangible assets - excluding this
improves the comparability
between acquired and organically
grown operations, as the latter
cannot recognise internally
generated intangible assets.
Adjusting for amortisation provides a
more consistent basis for
comparison between the two;
-- share based payments - this
expense is considered to be
relatively volatile and not fully
reflective of the current period
trading, as the performance criteria
are based on EPS performance
over a three-year period and include
estimates of future performance; and
-- exceptional items - these are
items which due to either their size
or their nature are
excluded to improve the understanding
of the Group's underlying
performance.
-------------------------------------- --------------------------------------
Adjusted operating profit inc JVs Including adjusted operating profit
from JV and associate results.
See reconciliation below.
-------------------------------------- --------------------------------------
Adjusted operating profit inc JVs exc Including adjusted operating profit
gene editing costs from JV and associate results but
excluding gene editing
costs.
See reconciliation below.
--------------------------------------
Adjusted operating profit inc JVs exc Excludes the impact of IFRS 16 on
impact of IFRS 16 adoption adoption.
See reconciliation below.
--------------------------------------
Adjusted operating profit inc JVs Adjusted operating profit inc JVs
after tax less adjusted effective tax.
See reconciliation below.
--------------------------------------
Adjusted operating profit inc JVs exc Adjusted operating profit before tax,
impact of IFRS 16 adoption after tax exc the impact of IFRS 16 on adoption
less adjusted
effective tax.
See reconciliation below.
--------------------------------------
Adjusted profit inc JVs before tax Adjusted operating profit inc JVs
less net finance costs
See reconciliation below.
--------------------------------------
Adjusted profit inc JVs after tax Adjusted profit inc JVs before tax
less adjusted effective tax.
See reconciliation below.
-------------------------------------- --------------------------------------
Adjusted effective tax rate Total income tax charge for the Group Provides an underlying tax rate to
excluding the tax impact of adjusting allow comparability of underlying
items divided financial performance
the adjusted operating profit by excluding the impacts of net IAS
Closest equivalent IFRS measure:- 41 valuation movement on biological
Effective tax rate assets, amortisation
See reconciliation below. of acquired intangible assets,
share-based payment expense and
exceptional items.
-------------------------------------- --------------------------------------
Adjusted basic earnings per share Adjusted profit after tax divided by On a per share basis, this allows the
the weighted basic average number of comparability of underlying financial
shares performance by
Closest equivalent IFRS measure:- excluding the impacts of adjusting
Earnings per share items.
See calculation below.
-------------------------------------- --------------------------------------
Adjusted diluted earnings per share Underlying attributable profit
divided by the diluted weighted
average number of shares
Closest equivalent IFRS measure:-
Diluted earnings per share
See calculation below.
-------------------------------------- --------------------------------------
Adjusted earnings cover Adjusted earnings per share divided The board dividend policy targets the
by the expected dividend for the adjusted earning cover to be between
year. 2.5 - 3 times
See calculation below.
-------------------------------------- --------------------------------------
Adjusted EBITDA- calculated in This is adjusted operating profit, This APM is presented because it is
accordance with the definitions used adding back cash received from our used in calculating our ratio of net
in our financing facilities joint ventures, depreciation debt to EBITDA and
of property, plant & equipment, our interest cover which we report to
depreciation of the historical cost our banks to ensure compliance with
of biological assets, our bank covenants.
operational amortisation (i.e.
excluding amortisation on acquired
intangibles) and deducting
the amount attributable to minority
interest.
Closest equivalent IFRS measure:-
Operating profit*
See calculation & reconciliation
below.
-------------------------------------- --------------------------------------
Adjusted operating margin Adjusted operating profit (inc JV) Allows for the comparability of
divided by Revenue underlying financial performance by
excluding the impacts
of exceptional items.
-------------------------------------- --------------------------------------
Adjusted operating margin (exc JV) Adjusted operating profit (exc JV)
divided by Revenue
-------------------------------------- --------------------------------------
Constant currency basis The Group reports certain nancial The Group business operates in
measures, on both a reported and multiple worldwide and its trading
constant currency basis results when translated
and retranslates the current year's back into the groups functional
results at the average actual currency of GBP Sterling. This
exchange rates used in the measure eliminates the effects
previous nancial year. of exchange rate uctuations when
comparing the year-on-year reported
results.
-------------------------------------- --------------------------------------
Balance sheet measures
Net debt Net debt is gross debt, made up of This allows the Group to monitor its
unsecured bank loans and overdrafts levels of debt.
and obligations under
finance leases, with a deduction for
cash and cash equivalents.
See reconciliation below.
-------------------------------------- --------------------------------------
Net debt exc the impact of adopting Net debt less the impact of adopting This allows a comparative to prior
IFRS 16 IFRS 16 leases over IAS 17. year.
See reconciliation below.
-------------------------------------- --------------------------------------
Net debt - calculated in accordance Net debt exc the impact of adopting This is a key metric that we report
with the definitions used in our IFRS 16 and adding back guarantees to our banks to ensure compliance
financing facilities and deferred purchase with our bank covenants.
arrangements.
See reconciliation below .
-------------------------------------- --------------------------------------
Cash flow measures
Cash conversion Cash generated by operations as a This is used to measure how much
percentage of adjusted operating operating cash flow we are generating
profit exc JVs. and how efficient we
See calculation below. are at converting our operating
profit into cash.
-------------------------------------- --------------------------------------
Cash conversion exc the impact of Cash generated by operations as a This allows a comparative to prior
adopting IFRS 16 percentage of adjusted operating year.
profit exc joint ventures
exc the impact of adopting IFRS 16.
See calculation below.
-------------------------------------- --------------------------------------
Free cashflow Cash generated by the Group before Shows the cash retained by the group
debt repayments, acquisitions and in the year.
investments, dividends
and proceeds from share issues
Closest equivalent IFRS measure:-
Net cashflow from operating
activities
See reconciliation below
-------------------------------------- --------------------------------------
Other measures
Interest cover The ratio of adjusted net finance This APM is used to understand our
costs, calculated in accordance with ability to meet our interest payments
the definitions used and is also a key
in our financing facilities, is net metric that we report to our banks to
finance costs with a deduction for ensure compliance with our bank
pension interest, interest covenants.
from adopting IFRS 16, unwinding of
discount on put options and
amortisation of refinancing
fees, to Adjusted EBITDA.
Closest equivalent IFRSs components
for the ratio:-
The equivalent IFRS components are
finance costs, finance income and
operating profit
See calculation and reconciliation
below
-------------------------------------- --------------------------------------
Ratio of net debt to Adjusted EBITDA The ratio of net debt, calculated in This APM is used as a measurement of
accordance with the definitions used our leverage and is also a key metric
in our financing that we report
facilities, is gross debt, made up of to our banks to ensure compliance
unsecured bank loans and overdrafts with our bank covenants.
and obligations
under finance leases, with a
deduction for cash and cash
equivalents and adding back amounts
related to guarantees and deferred
purchase arrangements, to EBITDA.
Closest equivalent IFRSs components
for the ratio:-
The equivalent IFRS components are
gross debt, cash and cash equivalents
and operating profit.
See calculation below
-------------------------------------- --------------------------------------
Return on Adjusted Invested Capital The Group's return on adjusted This APM is used to measure our
invested capital is measured on the ability to efficiently invest our
basis of adjusted operating capital and gives us a sense
profit including joint ventures after of how well we are using our
tax, which is operating profit with resources to generate returns.
the pre-tax share
of profits from joint ventures and
associates, net IAS 41 valuation
movement on biological
assets, amortisation of acquired
intangible assets, share-based
payment expense and exceptional
items added back, net of amounts
attributable to non-controlling
interest and tax.
The adjusted operating profit
including joint ventures after tax is
divided by adjusted invested
capital, which is the equity
attributable to owners of the company
adding back net debt, pension
liability net of related deferred tax
and deducting biological assets (less
historical cost)
and goodwill, net of related deferred
tax.
Closest equivalent IFRSs components
for the ratio:-
Return on Invested Capital
See calculation & reconciliation
below.
-------------------------------------- --------------------------------------
Return on Adjusted Invested Capital Excludes the impact of IFRS 16 on This allows a comparative to prior
exc the impact of IFRS 16 adoption adoption. year.
See reconciliation below
-------------------------------------- --------------------------------------
* Operating profit is not defined per IFRS. It is presented in the Group Income Statement and is shown as profit before tax, finance income/costs and share of post-tax profit of joint ventures and associates retained.
The tables below reconcile the closest equivalent IFRS measure to the APM or outline the calculation of the APM.
Income Statement Measures
2020 2019
Adjusted operating profit exc
JVs
Adjusted operating profit inc
JVs
Adjusted operating profit inc
JVs and exc gene editing costs GBPm GBPm GBPm GBPm Reference
-------------------------------------- ------- ------ ----- ------ -------------------------------
Operating Profit 47.6 8.7 Group Income Statement
Add back:
Net IAS 41 valuation movement
on biological assets (15.8) 14.7 Group Income Statement
Amortisation of acquired intangible
assets 8.5 9.5 Group Income Statement
Share-based payment expense 5.8 3.0 Group Income Statement
Exceptional items 19.2 21.8 Group Income Statement
------- -----
Adjusted operating profit exc
JVs 65.3 57.7 Group Income Statement
Less: amounts attributable
to non-controlling interest (0.6) (0.4)
Operating profit from joint
ventures and associates 8.9 5.1 Group Income Statement
Tax on joint ventures and associates 2.3 1.4 Note 5 - Income tax expense
Net IAS 41 valuation movement 0.1 1.1 No direct reference
------- -----
Adjusted operating profit from
joint ventures 11.3 7.6
------ ------
Adjusted operating profit inc
JVs 76.0 64.9
Gene editing costs 5.2 7.3 Note 2 - Segmental information
------ ------
Adjusted operating profit inc
JVs and exc gene editing costs 81.2 72.2
-------------------------------------- ------- ------ ----- ------ ---------------------------------
2020 2019
Adjusted operating profit inc
JVs
exc impact of IFRS 16 adoption GBPm GBPm Reference
--------------------------------- -------------------- --------------------------------- -------------------
Adjusted operating profit inc
JVs 76.0 64.9 See APM
Deduct:
Finance costs on impact of IFRS Note 1 - Reporting
16 adoption (0.7) - Entity
Adjusted operating profit inc
JVs exc impact of IFRS 16
adoption 75.3 64.9
--------------------------------- -------------------- --------------------------------- -------------------
2020 2019
Adjusted operating profit inc JVs after tax GBPm GBPm Reference
------- -------
Adjusted operating profit inc JV 76.0 64.9 See APM
Adjusted tax (16.7) (15.8) At effective tax rate - see note 6
------- -------
Adjusted operating profit inc JV after tax 59.3 49.1
---------------------------------------------- ------- ------- -----------------------------------
Adjusted operating profit inc JVs exc impact of IFRS 16 2020 2019
adoption after tax GBPm GBPm Reference
------- -------
Adjusted operating profit inc JV exc impact of IFRS 16
adoption 75.3 64.9 See APM
Adjusted tax (16.6) (15.8) At effective tax rate - see note 6
------- -------
Adjusted operating profit inc JV exc impact of IFRS 16
adoption after tax 58.7 49.1
--------------------------------------------------------- ------- ------- -----------------------------------
Adjusted profit inc JVs before tax 2020 2019
Adjusted profit inc JVs after tax GBPm GBPm Reference
------- -------
Adjusted operating profit inc JVs 76.0 64.9 See APM
Less net finance costs (5.0) (3.9) Note 4 - Net Finance Costs
------- -------
Adjusted profit inc JVs before tax 71.0 61.0
Adjusted tax (15.6) (14.8) Note 6 - Earnings per share
------- -------
Adjusted profit inc JVs after tax 55.4 46.2
------------------------------------- ------- ------- ----------------------------
2020 2019
Adjusted effective tax GBPm/rate GBPm % GBPm % Reference
------ ------- --- ------ -------
Adjusted effective tax GBPm/rate 15.6 22.0 14.8 24.3 Note 6 - Earnings per share
Exceptional items (4.5) (23.4) (3.9) (17.9)
Share-based payment expense (1.1) (19.0) (0.5) (16.7)
Amortisation of acquired intangible assets (1.8) (21.2) (2.1) (22.1)
Net IAS 41 valuation movement on biological
assets 4.7 29.7 (3.3) (22.4)
Net IAS 41 valuation movement on biological
assets in JVs - - (0.4) (36.4)
------ ------- ------ -------
Effective tax GBPm/rate 12.9 24.0 4.6 40.7 Note 5 - Income tax expense
------------------------------------------------- ------ ------- --- ------ ------- ----------------------------
Adjusted Basic Earnings per share 2020 2019 Reference
------- -------
Adjusted profit after tax (GBPm) 55.4 46.2 See APM
Weighted average number of ordinary shares (m) 64.908 63.141 Note 6 - Earnings per share
Adjusted Earnings per share (pence) 85.4 73.2
------------------------------------------------- ------- ------- ----------------------------
Adjusted Diluted Earnings per share 2020 2019 Reference
------- -------
Adjusted profit inc JVs after tax (GBPm) 55.4 46.2 See APM
Weighted average number of diluted ordinary shares (m) 65.427 65.304 Note 6 - Earnings per share
Adjusted Earnings per share (pence) 84.7 70.7
--------------------------------------------------------- ------- ------- ----------------------------
2020 2019 Reference
Adjusted Earnings cover Pence Times Pence Times
------------------------------ ------------- ------ ------------ ------ -------------------
Adjusted Earnings per share 85.4 73.2 See APM
Dividend for the year 29.1 27.7 Note 7 - Dividends
Adjusted Earnings cover 2.9 2.6
------------------------------ ------------- ------ ------------ ------ -------------------
2020 2019
Adjusted EBITDA - as calculated under our
financing facilities GBPm GBPm GBPm GBPm Reference
------------------------------------------------ ------ ----- ------ ----- --------------------------------------
Adjusted operating profit exc JVs 65.3 57.7 Group Income Statement
Lesser of JV income or cash received from JVs 3.7 3.4 Group Statement of Cash Flows
Depreciation:- Property, plant & equipment
owned assets 13.1 12.6 Note 11 - Property, Plant & Equipment
Depreciation:- historical cost of biological
assets 11.0 9.6 See Financial Review
Amortisation and impairment (excluding
separately identified acquired intangible
assets) 5.1 5.4 Note 9 - Intangible Assets
Less amounts attributable to non-controlling
interest (0.6) (0.4) Group Income Statement
------ ------
Adjusted EBITDA - as calculated under our
financing facilities 97.6 88.3
------------------------------------------------ ------ ----- ------ ----- --------------------------------------
2020 2019
Adjusted EBITDA - as calculated under our
financing facilities GBPm GBPm GBPm GBPm Reference
----------------------------------------------- ------- ----- ------ ----- --------------------------------------
Operating Profit 47.6 8.7 Group Income Statement
Add back:
Net IAS 41 valuation movement on biological
assets (15.8) 14.7 Group Income Statement
Amortisation of acquired intangible assets 8.5 9.5 Group Income Statement
Share-based payment expense 5.8 3.0 Group Income Statement
Exceptional items 19.2 21.8 Group Income Statement
------- ------
Adjusted operating profit exc JVs 65.3 57.7 Group Income Statement
Adjust for:
Cash received from JVs (dividend and loan
repayment) 3.7 3.4 Group Statement of Cash Flows
Depreciation:- Property, plant & equipment
owned assets 13.1 12.6 Note 11 - Property, Plant & Equipment
Depreciation:- historical cost of biological
assets 11.0 9.4 See financial review
Amortisation and impairment (excluding
separately identified acquired intangible
assets) 5.1 5.4 Note 9- Intangible Assets
Less amounts attributable to non-controlling
interest (0.6) (0.4) Group Income Statement
------- ------
Adjusted EBITDA - as calculated under our
financing facilities 97.6 88.1
----------------------------------------------- ------- ----- ------ ----- --------------------------------------
Balance Sheet Measures
Net Debt
Net Debt exc impact of IFRS 16 adoption
Net debt as calculated under our financing 2020 2019
facilities GBPm GBPm Reference
------- -------
Unsecured bank loans and overdrafts 112.8 104.0 Group Balance Sheet
Obligations under finance leases 31.1 6.1 Group Balance Sheet
------- -------
Total debt financing 143.9 110.1 Note 14 - Notes to the cash flow statement
Deduct:-
Cash and cash equivalents (41.3) (30.5) Group Balance Sheet
------- -------
Net Debt 102.6 79.6
Deduct:-
Impact of IFRS 16 adoption (24.7) - No direct reference
------- -------
Net Debt exc impact of IFRS 16 adoption 77.9 79.6
Add back:- Guarantees 5.9 4.0 Note 15 - Contingencies and Bank guarantees
Deferred purchase arrangements 0.2 1.3 No direct reference
------- -------
Net Debt - as calculated under our financing
facilities 84.0 84.9
-------------------------------------------------- ------- ------- --------------------------------------------
Cashflow Measures
2020 2019
Cash conversion GBPm GBPm GBPm GBPm Reference
------- ----- ------ -----
Note 14 - Notes to the cash flow
Cash generated by operations 82.9 48.4 statement
Operating Profit 47.6 8.7 Group Income Statement
Add back:
Net IAS 41 valuation movement on
biological assets (15.8) 14.7 Group Income Statement
Amortisation of acquired intangible
assets 8.5 9.5 Group Income Statement
Share-based payment expense 5.8 3.0 Group Income Statement
Exceptional items 19.2 21.8 Group Income Statement
------- ------
Adjusted operating profit exc JVs 65.3 57.7 Group Income Statement
Cash Conversion (%) 127% 84%
----------------------------------------- ------- ----- ------ ----- ----------------------------------------
2020 2019
Cash conversion exc impact of IFRS 16 adoption GBPm GBPm Reference
------ ------
Cash generated by operations 82.9 48.4 Note 14 - Notes to the cash flow statement
Deduct Impact of IFRS 16 adoption (7.6) - Note 1 - Reporting Entity
------ ------
Cash generated by operations exc impact of IFRS 16
adoption 75.3 48.4
Adjusted operating profit exc JVs 65.3 57.7 Group Income Statement
Cash Conversion exc impact of IFRS 16 adoption (%) 115% 84%
--------------------------------------------------- ------ ------ -------------------------------------------
2020 2019
Free cashflow GBPm GBPm Reference
------- -------
Cash generated by operations 82.9 48.4 Note 14 - Notes to cashflow statement
Interest and tax paid (17.1) (15.0) Note 14 - Notes to cashflow statement
Capital expenditure (35.4) (28.3) Group Statement of Cashflows
Cash received from JV (dividends and loan repayment) 3.7 3.4 Group Statement of Cashflows
Other 1.1 1.5 Group Statement of Cashflows
-------
Free cashflow 35.2 10.0
------------------------------------------------------ ------- ------- --------------------------------------
Other Measures
2020 2019
Interest cover GBPm Times GBPm Times Reference
------ ------ ------ ------
Finance costs 5.3 4.7 Group Income Statement
Finance income (0.3) (0.8) Group Income Statement
------ ------
Net finance costs 5.0 3.9 Note 4 - Net Finance Costs
Deduct:-
Pension interest (0.4) (0.9) Note 4 - Net Finance Costs
Additional interest from adopting IFRS 16 (0.7) - Note 4 - Net Finance Costs
Unwinding of discount on put options (0.5) - Note 4 - Net Finance Costs
Amortisation of refinancing fees (0.4) (0.4) Note 4 - Net Finance Costs
------ ------
Adjusted net finance costs 3.0 2.6
Adjusted EBITDA - as calculated under our financing
facilities 97.6 88.1 See APM
Interest cover 32 34
------------------------------------------------------- ------ ------ ------ ------ ---------------------------
2020 2019
Ratio of net debt to Adjusted EBITDA GBPm Times GBPm Times Reference
------ ------ ------ ------
Net Debt - as calculated under our financing facilities 84.0 84.9 See APM
Adjusted EBITDA - as calculated under our financing facilities 97.6 88.1 See APM
Ratio of net debt to Adjusted EBITDA 0.9 1
---------------------------------------------------------------- ------ ------ ------ ------ ----------
2020 2019
Return on adjusted invested capital GBPm % GBPm % Reference
---------------------------------------- -------- ------ -------- ------ ----------------------------------------
Adjusted operating profit inc. JVs
after tax 59.3 49.1 See APM
Equity attributable to owners of the
company 508.8 488.4 Group Balance Sheet
Add back:
Note 14 - Notes to the cash flow
Net debt 102.6 79.6 statement
Pension liability 18.1 24.2 Group Balance Sheet
Related deferred tax (3.5) (4.4) No direct reference
Deduct:
Biological assets - carrying value (370.2) (346.2) See financial review
Biological assets - historic cost 57.5 58.2 See financial review
Goodwill (105.6) (106.3) Group Balance Sheet
Related deferred tax 74.4 66.6 No direct reference
-------- --------
Adjusted invested capital 282.1 260.1
Return on adjusted invested capital 21.0% 18.9%
---------------------------------------- -------- ------ -------- ------ ----------------------------------------
2020 2019
Return on adjusted invested capital exc impact of IFRS 16
adoption GBPm % GBPm % Reference
----------------------------------------------------------- -------- ------ -------- ------ ---------------------
Adjusted operating profit inc JVs exc impact of IFRS 16
adoption after tax 58.7 49.1
Equity attributable to owners of the company 508.8 488.4 Group Balance Sheet
Add back:
Net debt (excluding IFRS 16 leases) 77.9 79.6
Pension liability 18.1 24.2 Group Balance Sheet
Related deferred tax (3.5) (4.4) No direct reference
Deduct:
Biological assets - carrying value (370.2) (346.2) See financial review
Biological assets - historic cost 57.5 58.2 See financial review
Goodwill (105.6) (106.3) Group Balance Sheet
Related deferred tax 74.4 66.6 No direct reference
-------- --------
Adjusted invested capital 257.4 260.1
Return on adjusted invested capital exc impact of IFRS 16
adoption 22.8% 18.9%
----------------------------------------------------------- -------- ------ -------- ------ ---------------------
2020 2019
Return on adjusted invested capital GBPm % GBPm % Reference
---------------------------------------------- --------- --------- ---------- ------ ----------------------------
Return on adjusted invested capital 21.0% 18.9% See APM
Adjusted operating profit inc JVs after tax 59.3 49.1
Tax rate 16.7 22.0% 15.8 24.3% Note 6 - Earnings Per Share
--------- ----------
Adjusted operating profit including joint
ventures 76.0 64.9 Group Income Statement
Adjusted operating profit attributable to
non-controlling interest 0.6 0.4 Group Income Statement
Pre-tax share of profits from joint ventures
excl net IAS41 valuation movement (11.3) (7.6) Group Income Statement
--------- ----------
Adjusted operating profit exc JVs 65.3 57.7 Group Income Statement
Fair value movement on biological assets 15.8 (14.7) Group Income Statement
Amortisation of acquired intangibles (8.5) (9.5) Group Income Statement
Share-based payment expense (5.8) (3.0) Group Income Statement
Exceptional items (19.2) (21.8) Group Income Statement
Share of post-tax profit of joint venture 8.9 5.1 Group Income Statement
Net Finance costs (5.0) (3.9) Group Income Statement
--------- ----------
Profit before tax 51.5 9.9 Group Income Statement
Tax (10.6) (3.2) Group Income Statement
--------- ----------
Profit 40.9 6.7 Group Income Statement
Equity attributable to owners of the company 508.8 488.4 Group Balance Sheet
Return on Invested Capital 8.0% 1.4%
---------------------------------------------- --------- --------- ---------- ------ ----------------------------
[1] Adjusted results are the Alternative Performance Measures ('APMs') used by the Board to monitor underlying performance at a Group and operating segment level, which are applied consistently throughout. These APMs should be considered in addition to, and not as a substitute for or as superior to statutory measures. For more information on APMs, see APM Glossary.
[2] All growth rates quoted are in constant currency unless otherwise stated. Constant currency percentage movements are calculated by restating the results for the year ended 30 June 2020 at the average exchange rates applied to adjusted operating profit for the year ended 30 June 2019.
[3] n/m = not meaningful
[4] Excluding profit attributable to non-controlling interest
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(END) Dow Jones Newswires
September 08, 2020 02:00 ET (06:00 GMT)
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