REG - Genus - Interim Results <Origin Href="QuoteRef">GNS.L</Origin> - Part 2
28/02/2018 07:05
- Part 2: For the preceding part double click ID:nRSb1530Ga
(3.5) 2.8
Total equity 423.2 396.0 402.1
GENUS PLC
GROUP STATEMENT OF CASH FLOWS
For the six months ended 31 December 2017
Notes Six months Six months Year
ended ended ended
31 December 31 December 30 June
2017 2016 2017
£m £m £m
Net cash flow from operating activities 14 14.3 8.3 34.6
Cash flows from investing activities
Dividends received from joint ventures and associates - - 3.8
Joint venture loan repayment - 1.7 3.0
Acquisition of subsidiaries, net of cash acquired - (2.9) (17.5)
Deferred consideration paid (1.6) - -
Increase investment in subsidiaries - - (12.0)
Acquisition of investment - (0.3) (0.3)
Acquisition of investment in joint venture - - (0.2)
Disposal of joint venture - - 1.5
Purchase of property, plant and equipment (5.5) (6.5) (13.4)
Purchase of intangible assets (1.6) (3.7) (5.5)
Proceeds from sale of property, plant and equipment 0.3 1.0 1.4
Net cash outflow from investing activities (8.4) (10.7) (39.2)
Cash flows from financing activities
Drawdown of borrowings 28.5 35.2 68.1
Repayment of borrowings (18.0) (17.8) (55.7)
Payment of finance lease liabilities (1.0) (1.0) (2.0)
Equity dividends paid (9.9) (9.0) (13.5)
Dividend to non-controlling interest - - (0.1)
Issue of ordinary shares - 0.1 0.5
Debt issue costs - - (0.4)
Decrease in bank overdrafts (4.0) (3.5) -
Net cash (outflow) / inflow from financing activities (4.4) 4.0 (3.1)
Net increase/(decrease) in cash and cash equivalents 1.5 1.6 (7.7)
Cash and cash equivalents at beginning of period 26.5 34.0 34.0
Net increase / (decrease) in cash and cash equivalents 1.5 1.6 (7.7)
Effect of exchange rate fluctuations on cash and cash equivalents
(0.3) 1.4 0.2
Total cash and cash equivalents at end of period 27.7 37.0 26.5
GENUS PLC
ANALYSIS OF NET DEBT
For the six months ended 31 December 2017
Net cash flows
At 31 December 2017
At 1 July 2017 Foreign exchange Non-cash movement
£m £m £m £m £m
Cash and cash equivalents 26.5 1.5 (0.3) - 27.7
Interest-bearing loans - current (7.7) (6.1) 0.2 (0.2) (13.8)
Obligation under finance leases - current
(1.4) 1.0 - (1.2) (1.6)
(9.1) (5.1) 0.2 (1.4) (15.4)
Interest-bearing loans - non-current
(127.2) (0.4) 4.0 - (123.6)
Obligation under finance lease - non-current
(1.8) - 0.1 (0.4) (2.1)
(129.0) (0.4) 4.1 (0.4) (125.7)
Net debt (111.6) (4.0) 4.0 (1.8) (113.4)
At 31 December 2016
At 1 July 2016 Net cash flows Foreign exchange Non-cash movement
£m £m £m £m £m
Cash and cash equivalents 34.0 1.6 1.4 - 37.0
Interest-bearing loans - current (4.6) 2.8 (0.4) (0.2) (2.4)
Obligation under finance leases - current
(1.1) 1.0 (0.1) (1.8) (2.0)
(5.7) 3.8 (0.5) (2.0) (4.4)
Interest-bearing loans - non-current
(115.3) (16.7) (8.0) - (140.0)
Obligation under finance lease - non-current
(2.7) - (0.2) 1.3 (1.6)
(118.0) (16.7) (8.2) 1.3 (141.6)
Net debt (89.7) (11.3) (7.3) (0.7) (109.0)
Net debt is defined as the total of cash and cash equivalents,
interest-bearing loans, unamortised debt issue costs and obligation under
finance leases.
GENUS PLC
NOTES TO THE CONDENSED SET OF FINANCIAL STATEMENTS
For the six months ended 31 December 2017
1. Basis of preparation
The unaudited Condensed Set of Financial Statements for the six months ended
31 December 2017:
· were prepared in accordance with International Accounting Standard
34 'Interim Financial Reporting' ('IAS 34') and thereby International
Financial Reporting Standards ('IFRSs'), both as issued by the International
Accounting Standards Board ('IASB') and as adopted by the European Union
('EU');
· are presented on a condensed basis as permitted by IAS 34 and
therefore do not include all disclosures that would otherwise be required in a
full set of financial statements; these should be read, therefore, in
conjunction with the Genus plc Annual Report 2017;
· includes all adjustments, consisting of normal recurring
adjustments, necessary for a fair statement of the results for the periods
presented;
· do not constitute statutory accounts within the meaning of section
435 of the Companies Act 2006; and
· were approved by the Board of Directors on 27 February
2018.
The information relating to the year ended 30 June 2017 is an extract from the
published financial statements for that year, which have been delivered to the
Registrar of Companies. The auditor's report on those financial statements was
not qualified and did not contain statements under section 498(2) or (3) of
the Companies Act 2006.
The unaudited Condensed Set of Financial Statements for the six months ended
31 December 2017 has not been reviewed by our Auditor.
The Genus plc Annual Report 2017 (a copy of which is available on the Genus
plc website at www.genusplc.com
(file:///C:/Users/lucyl/Desktop/www.genusplc.com) ) sets out on pages 12-13 a
number of risks and uncertainties that might impact upon the performance of
the Group. There has been no material change to the principal risks that might
affect the performance of the Group in the current financial year. Having
considered these risks and uncertainties, and in the current economic
environment, the Directors have a reasonable expectation that the Company has
adequate resources to continue in operational existence for the foreseeable
future. Therefore they continue to adopt the going concern basis in preparing
the half-yearly report and the Condensed Set of Financial Statements.
The preparation of the Condensed Set of Financial Statements requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities
at the balance sheet date, and the reported amounts of revenue and expenses
during the period. Actual results could vary from these estimates. The
estimates and underlying assumptions are reviewed on an ongoing basis.
Revisions to accounting estimates are recognised in the period in which the
estimate is revised if the revision affects only that period or in the period
of revision and future periods if the revision affects both current and future
periods.
In Note 4 we have reclassified the comparative periods to reflect the change
in allocation of costs within the sub analysis of Research and Development
segment, to conform to the current period definition.
2. Accounting policies and non-GAAP measures
In the current year, the Group has applied a number of amendments to IFRSs
issued by the International Accounting Standards Board (IASB) that are
mandatorily effective for an accounting period that begins after 1 January
2017. Their addition has not had any material impact on the disclosures or the
amounts reported in the Interim Financial Statements.
• Amendments to IAS 7 - Disclosure Initiative
• Amendments to IAS 12 - Recognition of Deferred tax
Assets for Unrealised Losses
• Annual Improvements to IFRSs 2014 -2016
At the date of the interim report, 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).
• IFRS 9 - Financial Instruments
• IFRS 15 - Revenue from contracts with Customers
• IFRS 16 - Leases
• Amendments to IFRS 2 - Classification and Measurement of
Share-based Payments Transactions
• IFRIC 22 - Foreign Currency Transactions and Advance
Consideration
• IFRIC 23 - Uncertainty over Income Tax Treatments
The Group is currently assessing the impact of the new pronouncements on its
results, financial position and cash flows.
Alternative performance measures ('APMs')
In reporting financial information, the Group presents alternative
performance measures, ('APMs'), which are not defined or specified under the
requirements of 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. The APMs
are consistent with how the business performance is planned and reported
within the internal management reporting to the Board and the executive
leadership committee. Some of these measures are also used for the purpose of
setting remuneration targets.
The key APMs that the Group uses include: adjusted operating profit, adjusted
profit before tax from continuing operations, adjusted earnings per share,
adjusted EBITDA and net debt.
The Group reports some financial measures, on both a reported and constant
currency basis. The constant currency basis, which is an APM, retranslates the
previous year results at the average actual periodic exchange rates used in
the current financial year. This measure is presented as a means of
eliminating the effects of exchange rate fluctuations on the year-on-year
reported results.
The Group makes certain adjustments to the statutory profit measures in order
to derive many of these APMs. The Group's policy is to exclude items that are
considered to be significant in nature and/or quantum and where treatment as
an adjusted item provides stakeholders with additional useful information to
assess the year-on-year trading performance of the Group. On this basis, the
following were included within adjusted items for the 6 months ended 31
December 2017:
• net IAS 41 valuation movements on biological assets - movements 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 future projections
rather than current trading;
• amortisation of acquired intangible assets - by excluding it helps
the comparability between acquired operations and organically grown
operations, as the latter are not able to 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 is 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 period performance; and
• exceptional items - are items which either due to their size or their
nature are excluded to improve the understanding of the Company's underlying
performance, see note 5 for further details.
The reconciliation between operating profit from continuing operations and
adjusted operating profit from continuing operations is shown on the face of
the Group Income Statement. For adjusted earnings per share, the
reconciliation between profit before tax and adjusted profit after tax is
shown in note 13. For adjusted EBITDA, the reconciliation between profit after
tax and adjusted EBITDA is shown in note 14. A reconciliation of net debt is
provided after the Group Statement of Cash Flows.
3. Foreign currencies
The principal exchange rates used were as follows:
Average Closing
Six months ended 31 December 2017 Six months ended 31 December Year 31 December 2017 31 December 30
2016 ended 2016 June
30 June 2017
2017
US Dollar/£ 1.33 1.27 1.27 1.35 1.24 1.30
Euro/£ 1.12 1.16 1.16 1.13 1.17 1.14
Brazilian Real/£ 4.28 4.14 4.11 4.48 4.01 4.30
Mexican Peso/£ 24.68 24.79 24.61 26.58 25.46 23.51
The assets and liabilities of foreign operations, including goodwill arising
on consolidation, are translated into Sterling at the prevailing exchange
rates at the balance sheet date. We translate these operations' revenues and
expenses using an average rate for the period.
4. 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 Group Chief Executive and the Board to allocate resources to
the segments and to assess their performance.
The Group's operating and reporting structure comprises of 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 segment analysis of revenue, operating profit and segment assets and
liabilities are detailed below. We do not include our adjusting items in the
segments as we believe these do not reflect the underlying progress 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.
Our business is not highly seasonal and our customer base is diversified, with
no individual customer generating more than 2% of revenue.
Revenue
Six months ended Six months Year
31 December ended ended
2017 31 December 30 June
2016 2017
£m £m £m
Genus PIC 126.4 122.5 249.5
Genus ABS 105.6 93.4 195.9
Research and Development
Porcine Product Development 5.6 5.4 10.7
Bovine Product Development 1.0 0.8 3.0
Gene Editing - - -
Other Research and Development - - -
6.6 6.2 13.7
238.6 222.1 459.1
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 period is shown on the Condensed Consolidated Income Statement.
Operating profit
Six months Six months Year
ended ended ended
31 December 31 December 30 June
2017 2016 2017
(Restated) (Restated)
£m £m £m
Genus PIC 44.1 42.8 87.7
Genus ABS 11.7 9.0 22.3
Research and Development
Porcine Product Development (8.4) (8.2) (16.6)
Bovine Product Development (7.5) (7.9) (14.2)
Gene Editing (2.1) (1.5) (3.5)
Other Research and Development (3.8) (4.0) (8.4)
(21.8) (21.6) (42.7)
Segment operating profit 34.0 30.2 67.3
Central (5.7) (5.7) (12.2)
Adjusted operating profit 28.3 24.5 55.1
Segment assets Segment liabilities
31 31 December 30 31 December 31 December 30
December 2016 June 2017 2017 2016 June
2017 £m £m £m £m 2017
£m £m
Genus PIC 250.4 253.2 258.3 (52.0) (55.4) (60.1)
Genus ABS 141.2 145.7 132.8 (36.1) (43.5) (41.1)
Research and Development
Porcine Product Development 170.7 172.5 182.4 (52.7) (68.3) (72.0)
Bovine Product Development 188.2 219.5 202.7 (39.8) (61.5) (52.6)
Gene Editing 5.1 5.1 5.1 (1.4) (0.2) (1.4)
Other Research and Development - -
0.4 4.9 0.8 -
364.4 402.0 391.0 (93.9) (130.0) (126.0)
Segment total 756.0 800.9 782.1 (182.0) (228.9) (227.2)
Central 19.0 10.1 15.5 (169.8) (186.1) (168.3)
Total 775.0 811.0 797.6 (351.8) (415.0) (395.5)
Exceptional items of £2.4m expense (2016: £4.2m expense), relate to Genus
ABS (£2.3m expense), Genus PIC (£0.4m credit) and our central segment
(£0.5m expense). Note 5 provides the details of these exceptional items.
We consider share-based payment expenses on a Group-wide basis and do not
allocate them to reportable segments.
Revenue is split by product
Six months ended Six months ended Year
31 December 2017 31 December 2016 ended
£m £m 30 June
2017
£m
Sale of animals, semen, embryos and associated products and services 175.1 161.4
335.7
Royalties - animal and semen 60.0 57.3 116.1
Consulting services 3.5 3.4 7.3
238.6 222.1 459.1
Interest income (see note 6) 0.1 0.5 0.8
238.7 222.6 459.9
5. Exceptional items
Six months Six months ended Year
ended 31 December ended
31 December 2016 30
2017 June
2017
Operating (expenses)/income: £m £m £m
Litigation (2.2) (2.9) (5.3)
Acquisition and integration (0.6) (0.3) (0.6)
Other (including restructuring) 0.4 (1.0) (2.3)
Pension related - - 5.7
(2.4) (4.2) (2.5)
Litigation
Litigation includes legal fees of £2.4m (2016: £4.2m) related to the action
by ABS Global, Inc. ('ABS') against Inguran, LLC (aka Sexing Technologies
('ST')).
On 14 July 2014, ABS launched a legal action against ST in the US District
Court for the Western District of Wisconsin alleging, among other matters,
that ST: (i) has a monopoly in the processing of sexed bovine semen in the US;
and (ii) unlawfully maintains this monopoly through anticompetitive conduct.
The legal action aimed to remove these barriers and allow free and fair
competition in the sexed bovine semen processing market ('ABS Action'). In
parallel with the ABS Action, ABS also filed Inter-Partes Review applications
('IPR') before the US Patent Office challenging the validity of several of
ST's group patents, which ST later claimed were infringed by ABS.
On 11 January and 15 April 2016, the PTAB ruled that US Patent No. 7,195,920
(the ''920 patent') and US Patent No. 7,820,425 (the ''425 patent') were
unpatentable. ST has appealed these decisions, and the appeal was heard by a
federal court of appeals on 5 December 2017. The parties await the Federal
Circuit's decision. On 14 July 2015 and 2 October 2017, PTAB declined to
revoke US Patent No. 8,206,987 (the ''987 patent') and US Patent No. 8,198,092
(the ''092 patent') respectively. ABS has appealed the '092 patent decision
and the validity of the '987 patent will be considered as part of the ABS
Action appeal.
On 31 March 2017, the Court entered a judgment in the ABS Action which
confirmed: (i) the Company and ABS had proved that ST had wilfully maintained
a monopoly in the market for sexed bovine semen processing in the US since
July 2012, and awarded a permanent injunction against ST which, among other
matters, relieved ABS of certain research, marketing and other non-compete
restrictions contained in the 2012 semen sorting agreement between the
parties; (ii) ST's '987 and '092 patents were valid and infringed; and (iii)
that ABS had materially breached the confidentiality obligations under the
2012 semen sorting agreement. The Court also confirmed that: (i) the Company
and ABS should pay ST an up-front amount of $750,000 and an on-going royalty
of $1.25 per straw on commercialisation of the Genus Sexed Semen technology
for the use of ST's '987 patent in the US; (ii) the Company and ABS should pay
ST an up-front payment of $500,000 and an on-going royalty of $0.50 per straw
for the use of ST's '092 patent in the US; (iii) ABS should pay XY, LLC
damages of $750,000 for the use of certain XY trade secrets; and (iv) ABS had
breached the confidentiality obligations under the 2012 semen sorting
agreement.
ABS and the Company appealed the '987 patent and the breach of contract
decisions and the appeal hearing was heard on 20 February 2018. The parties
await the Court of Appeal's decision. Damages of $1,250,000 were paid by ABS
to ST shortly after the Court's decision in the ABS Action, and ABS has
subsequently amended its technology such that it does not infringe the '092
patent claims. ABS has informed ST that it does not intend to pay the $0.50
royalty going forward. Claims for legal costs (and post judgement interest)
already incurred in connection with the ABS Action have been filed by both
parties. ABS has sought approximately $5.4m in legal fees and costs already
charged to the income statement and ST has sought approximately $280,000 in
legal costs (excluding fees). Both parties await the Court's decision.
On 7 June 2017, ST, XY LLC and Cytonome/ST, LLC filed proceedings against ABS,
the Company and Premium Genetics (UK) Limited ('PG') in the United States
District Court for the Western District of Wisconsin ("New Litigation"). The
New Litigation alleges that ABS and the Company infringe seven further patents
and asserts trade secret and breach of contract claims. ABS and the Company
have filed an Answer and Counterclaim confirming that they do not infringe any
valid patent, and alleging among other things that: (i) ST is again in breach
of anti-trust legislation; (ii) ST has breached its 2012 semen sorting
agreement with ABS by failing to produce sorted semen that complies with the
contractual specifications; and (iii) ST has obtained certain patents through
inequitable conduct. In addition, ABS has filed five IPRs seeking to revoke
the additional patents raised in the New Litigation. The Company and ABS
intend to pursue vigorously their counterclaims and defend the patent
infringement and other claims.
Acquisition and integration
During the period, £0.6m of expenses were incurred in relation to
acquisitions and integration.
Other (including restructuring)
Included within 'other' are costs principally relating to an insurance receipt
from a legacy environmental claim.
6. Net finance costs
Six months Six months ended Year
ended 31 December ended
31 December 2016 30
2017 June
2017
£m £m £m
Interest payable on bank loans and overdrafts (1.7) (1.3) (2.7)
Amortisation of debt issue costs (0.2) (0.2) (0.4)
Other interest payable (0.1) - (0.1)
Net interest cost in respect of pension scheme liabilities (0.5) (0.6) (1.2)
Net interest cost on derivative financial instruments (0.1) (0.1) (0.1)
Total interest expense (2.6) (2.2) (4.5)
Interest income on bank deposits 0.1 0.5 0.8
Total interest income 0.1 0.5 0.8
Net finance costs (2.5) (1.7) (3.7)
7. Taxation
Six months Six months ended Year
ended 31 December ended
31 2016 30
December June
2017 2017
£m £m £m
Current tax 5.6 4.0 10.3
Deferred tax (33.9) (1.4) (3.9)
Income tax (credit) / expense (28.3) 2.6 6.4
The tax credit for the period of £28.3m on statutory profit (2016: tax charge
of £2.6m) represents an effective tax rate of -198%. The tax credit for the
period has been materially impacted by the passage into law of the Tax Cuts
and Jobs Act in the US, resulting in the revaluation of the Group's net
deferred tax liability in the US from Federal tax rates of 35% to the lower
Federal tax rate of 28% for reversals in the year to 30 June 2018 and 21% for
reversals thereafter. The total deferred tax credit recognised as at 31
December 2017 in respect of this revaluation of the Group's net deferred tax
liabilities was £32.0m. Absent the revaluation of these deferred tax
liabilities the statutory effective tax rate would have been a charge of 25.9%
(2016: 22.8%). Other aspects of US tax reform are broadly neutral in the
period.
The tax charge on adjusted profits for the period is £4.0m (2016: £6.5m),
which represents a tax rate on adjusted profits of 13.8%. The tax charge on
adjusted profits for the period is also impacted by tax credits from the
restatement of US deferred tax liabilities totalling £3.7m. In the absence of
this one-off credit, the underlying tax rate on adjusted profits would have
been 26.6% (2016: 25.9%). Other aspects of US tax reform on the adjusted tax
charge for the period are broadly neutral.
There is a deferred tax liability at the period end of £85.2m (2016:
£132.5m) which mainly relates to the recognition at fair value of biological
assets and intangible assets arising on acquisition and a deferred tax asset
of £3.9m (2016: £5.5m) which mainly relates to future tax deductions in
respect of pension scheme liabilities, share scheme awards and financial
instruments.
8. Dividends
Six months Six months ended Year
ended 31 December ended
31 December 2016 30
2017 June
2017
Amounts recognised as distributions to equity holders in the period: £m £m £m
Final dividend
Final dividend for the year ended 30 June 2017 of 16.2 pence per share
9.9 - -
Final dividend for the year ended 30 June 2016 of 14.7 pence per share
- 9.0 9.0
Interim dividend
Interim dividend for the year ended 30 June 2017 of 7.4 pence per share
- - 4.5
9.9 9.0 13.5
The final dividend for the year ended 30 June 2017 was approved at the Company
Annual General Meeting on 16 November 2017 and paid on 1 December 2017. On 27
February 2018, the Directors proposed an interim dividend of 8.1 pence per
share payable on 4 April 2018.
9. Intangible assets
Technology Goodwill
Separately identified acquired intangible assets
Brand, multiplier contracts and customer relationships Software Genus Sexed Semen
Patents, licence and other Total
£m £m £m £m £m £m £m £m
Cost
Balance at 1 46.6 72.7 119.3 6.9 17.8 2.6 146.6 86.0
July 2016
Additions - - - 0.9 3.1 1.5 5.5 -
Acquisition 6.7 7.4 14.1 - - - 14.1 16.2
Reclassified from tangible assets -
- - 1.0 - - 1.0 -
Effect of
movements 0.1 2.2 2.3 - 0.4 - 2.7 2.5
in exchange
rates
Balance at 53.4 82.3 135.7 8.8 21.3 4.1 169.9 104.7
30 June 2017
Additions - - - 0.9 0.8 - 1.7 -
Transfers (1.0) - (1.0) 1.0 - - - -
Reclassified from tangible assets - - - 1.1 - - 1.1 -
Disposals - - - (0.1) - (0.2) (0.3) -
Effect of movements in exchange rates 0.1 (2.9) (2.8) (0.2) (0.8) 0.1 (3.7) (2.8)
Balance at 31 December 2017 52.5 79.4 131.9 11.5 21.3 4.0 168.7 101.9
Amortisation and impairment losses
Balance at 1 July 2016 22.1 40.9 63.0 5.4 - 0.2 68.6 -
Amortisation for the year 2.7 6.0 8.7 1.3 0.4 0.8 11.2 -
Reclassified from tangible assets - - 0.7 - -
- - 0.7
Effect of movements in exchange rates - 1.0 0.1 - -
1.0 - 1.1
Balance at 30 June 2017 24.8 47.9 72.7 7.5 0.4 1.0 81.6 -
Amortisation for the period 1.8 3.2 5.0 0.6 1.1 0.5 7.2 -
Transfers (0.2) - (0.2) 0.2 - - -
Reclassified from tangible assets
- - - 0.4 - - 0.4 -
Disposals - - - - - (0.1) (0.1) -
Effect of movements in exchange rates - (1.8) (1.8) (0.1) - - (1.9) -
Balance at 31 December 2017 26.4 49.3 75.7 8.6 1.5 1.4 87.2 -
Carrying amounts
At 31 December 2017 26.1 30.1 56.2 2.9 19.8 2.6 81.5 101.9
At 30 June 2017 28.6 34.4 63.0 1.3 20.9 3.1 88.3 104.7
Included within the carrying amount of Software is £0.8m relating to
internally generated software assets in the course of construction.
10. Biological assets
Fair value of biological assets Bovine Porcine Total
£m £m £m
Balance at 1 July 2017 137.5 215.6 353.1
Increases due to purchases 5.9 62.8 68.7
Decreases attributable to sales - (89.7) (89.7)
Decrease due to harvest (14.4) (10.3) (24.7)
Changes in fair value less estimated sale costs 11.5 31.9 43.4
Effect of movements in exchange rates (4.9) (7.9) (12.8)
Balance at 31 December 2017 135.6 202.4 338.0
Non-current biological assets 135.6 132.3 267.9
Current biological assets - 70.1 70.1
Balance at 31 December 2017 135.6 202.4 338.0
Balance at 1 July 2016 146.3 184.7 331.0
Increases due to purchases 6.7 80.2 86.9
Acquisition 5.4 - 5.4
Decreases attributable to sales - (95.2) (95.2)
Decrease due to harvest (17.6) (9.9) (27.5)
Changes in fair value less estimated sale costs 1.4 32.8 34.2
Effect of movements in exchange rates 11.0 14.5 25.5
Balance at 31 December 2016 153.2 207.1 360.3
Non-current biological assets 153.2 136.5 289.7
Current biological assets - 70.6 70.6
Balance at 31 December 2016 153.2 207.1 360.3
Balance at 1 July 2016 146.3 184.7 331.0
Increases due to purchases 11.9 176.0 187.9
Acquisition 5.4 - 5.4
Decreases attributable to sales - (197.8) (197.8)
Decrease due to harvest (40.7) (19.3) (60.0)
Changes in fair value less estimated sale costs 10.3 66.0 76.3
Effect of movements in exchange rates 4.3 6.0 10.3
Balance at 30 June 2017 137.5 215.6 353.1
Non-current biological assets 137.5 141.7 279.2
Current biological assets - 73.9 73.9
Balance at 30 June 2017 137.5 215.6 353.1
Bovine
Bovine biological assets include £7.4m (2016: £7.7m) representing the fair
value of bulls owned by third parties but managed by the Group, net of
expected future payments to such third parties and are therefore treated as
assets held under finance leases. There are no movements in the carrying value
of the bovine biological assets in respect of sales or other changes during
the period.
The current market determined post-tax rate used to discount expected future
net cash flows from the sale of bull semen has been assessed as 9.0% (2016:
8.0%).
Decreases due to harvest represent the semen extracted from the biological
assets. Inventories of such semen are shown as biological asset harvest.
Porcine
Included in increases due to purchases is the aggregate increase arising
during the period on initial recognition of biological assets in respect of
multiplier purchases, other than parent gilts, of £23.6m (2016: £46.9m).
Decreases attributable to sales during the period of £89.7m (2016: £95.2m)
include £27.6m (2016: £31.5m) 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 £46.8m (2016: £54.3m) 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 period.
Total revenue in the period, including parent gilts, includes £81.7m (2016:
£77.8m) in respect of these contracts, comprising £28.3m (2016: £26.0m) on
initial transfer of animals to customers and £53.5m (2016: £51.8m) in
respect of royalties received.
For pure line porcine herds, the net cash flows from the expected output of
the herds are discounted at the Group's required rate of return, adjusted for
the greater risk implicit in including output from future generations. This
adjusted rate has been assessed as 11.0% (2016: 11.0%). The number of future
generations which have been taken into account is seven (2016: seven) and
their estimated useful lifespan is 1.4 years (2016: 1.4 years).
Six months ended 31 December 2017 Bovine Porcine Total
£m £m £m
Net valuation movement on biological assets*
Changes in fair value of biological assets 11.5 31.9 43.4
Inventory transferred to cost of sales at fair value (11.3) (10.3) (21.6)
Biological assets transferred to cost of sales at fair value - (25.2) (25.2)
0.2 (3.6) (3.4)
Fair value movements in related financial derivative - (0.2) (0.2)
0.2 (3.8) (3.6)
Bovine Total
Six months ended 31 December 2016 Porcine
£m £m £m
Net valuation movement on biological assets*
Changes in fair value of biological assets 1.4 32.8 34.2
Inventory transferred to cost of sales at fair value (15.8) (9.9) (25.7)
Biological assets transferred to cost of sales at fair value - (13.1) (13.1)
(14.4) 9.8 (4.6)
Fair value movements in related financial derivative - (0.4) (0.4)
(14.4) 9.4 (5.0)
Year ended 30 June 2017 Bovine Porcine Total
£m £m £m
Net valuation movement on biological assets*
Changes in fair value of biological assets 10.3 66.0 76.3
Inventory transferred to cost of sales at fair value (38.8) (19.3) (58.1)
Biological assets transferred to cost of sales at fair value - (18.8) (18.8)
(28.5) 27.9 (0.6)
Fair value movements in related financial derivative - (0.5) (0.5)
(28.5) 27.4 (1.1)
* This represents the difference between operating profit
including fair value movement on biological assets under IAS 41 and related
financial derivative and operating profit prepared under historical cost
accounting, which forms part of the reconciliation to adjusted operating
profit.
11. Equity accounted investees
The Group's share of profit after tax in its equity accounted investees for
the six months ended 31 December 2017 was £2.5m (2016: £3.1m).
31 31
December 2017 December 2016
£m £m
Balance at 1 July 22.7 24.3
Share of post-tax retained profits of joint ventures and associates 2.5 3.1
Shareholder loan repayment - (1.7)
Effect of other movements including exchange rates (1.4) 1.1
Balance at 31 December 23.8 26.8
Summary financial information for equity accounted investees, adjusted for the
percentage ownership held by the Group:
Revenue Net IAS 41 valuation movement Expenses Taxation Profit after tax
on biological assets
Income statement £m £m £m £m £m
Six months ended 31 December 2017 13.6 (0.1) (10.0) (1.0) 2.5
Six months ended 31 December 2016 14.9 0.5 (11.6) (0.7) 3.1
Year ended 30 June 2017 28.4 0.5 (21.3) (1.4) 6.2
12. Related parties
Transactions between the Company and its subsidiaries, which are related
parties, have been eliminated on consolidation and are not disclosed in this
note. Transactions between the Group and its joint ventures and associates are
described below:
Other related party transactions
Transaction value Balance outstanding
Six months ended 31 December 2017 Six months ended 31 December 2016
Year ended 30 June 2017 31 December 2017 31 December 2016 30
June
2017
£m £m £m £m £m £m
Purchase of goods and services to joint ventures and associates
1.3 2.3 3.7 (0.7) (0.1) (0.3)
All outstanding balances with joint ventures and associates are priced on an
arm's length basis and are to be settled in cash within six months of the
reporting date. None of the balances are secured.
13. Earnings per share
Six months Six months ended Year
ended 31 ended
31 December 30
December 2016 June
2017 2017
m m m
Weighted average number of ordinary shares (basic) 61.1 60.9 60.9
Dilutive effect of share options 1.0 0.7 0.9
Weighted average number of ordinary shares for the purpose of diluted earnings 62.1 61.6 61.8
per share
Six months Six months ended Year
ended 31 December ended
31 December 2016 30
2017 June
2017
Earnings per share from continuing operations
Basic earnings per share 69.0p 13.3p 53.8p
Diluted earnings per share 67.8p 13.1p 53.0p
Adjusted earnings per share from continuing operations
Adjusted earnings per share 40.9p 30.5p 69.4p
Diluted adjusted earnings per share 40.3p 30.2p 68.4p
Earnings per share measures are calculated on the weighted average number of
ordinary shares in issue during the period. As in previous periods, adjusted
earnings per share have been shown, since the Directors consider that this
alternative measure gives a more comparable indication of the Group's
underlying trading performance.
Continuing operations
Basic earnings per share from continuing operations is based on the net profit
attributable to owners of the Company for the period of £42.1m (six months
ended 31 December 2016: £8.1m; year ended 30 June 2017: £32.8m) divided by
weighted average number of ordinary shares (basic and diluted) as calculated
above.
Adjusted earnings per share is calculated on profit for the period before 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 £25.0m (six months ended
31 December 2016: £18.6m; year ended 30 June 2017: £42.3m), which is
calculated as follows:
Adjusted earnings from continuing operations
Six months Six months Year
ended ended ended
- More to follow, for following part double click ID:nRSb1530Gc 8 - - - - - (9.0) (9.0) - (9.0)
Issue of ordinary shares - 0.1 - - - - 0.1 - 0.1
BALANCE AT 31 DECEMBER 2016 6.1 112.4 (0.1) 60.8 1.3 219.0 399.5 (3.5) 396.0
GENUS PLC
CONDENSED CONSOLIDATED BALANCE SHEET
As at 31 December 2017
Notes 31 December 31 December 30 June
2017 2016 2017
£m £m £m
Assets
Goodwill 9 101.9 96.7 104.7
Other intangible assets 9 81.5 87.0 88.3
Biological assets 10 267.9 289.7 279.2
Property, plant and equipment 66.4 67.4 67.5
Interests in joint ventures and associates 11 23.8 26.8 22.7
Other investments 5.5 3.9 5.5
Derivative financial assets 16 1.8 1.6 0.1
Deferred tax assets 3.9 5.5 3.8
Total non-current assets 552.7 578.6 571.8
Inventories 32.9 39.8 33.1
Biological assets 10 70.1 70.6 73.9
Trade and other receivables 89.3 83.2 88.8
Cash and cash equivalents 27.7 37.0 26.5
Income tax receivable 2.0 1.2 1.9
Derivative financial assets 16 - 0.3 1.3
Asset held for sale 0.3 0.3 0.3
Total current assets 222.3 232.4 225.8
Total assets 775.0 811.0 797.6
Liabilities
Trade and other payables (72.9) (71.5) (76.4)
Interest-bearing loans and borrowings (13.8) (2.4) (7.7)
Provisions (1.9) (0.9) (2.7)
Obligations under finance leases (1.6) (2.0) (1.4)
Current tax liabilities (4.2) (5.2) (5.2)
Derivative financial liabilities 16 (0.8) (0.4) (0.6)
Total current liabilities (95.2) (82.4) (94.0)
Notes 31 December 31 December 30 June
2017 2016 2017
£m £m £m
Interest-bearing loans and borrowings (123.6) (140.0) (127.2)
Retirement benefit obligations 15 (38.1) (43.3) (40.9)
Provisions (3.7) - (3.7)
Deferred tax liabilities (85.2) (132.5) (124.2)
Derivative financial liabilities 16 (3.9) (15.2) (3.7)
Obligations under finance leases (2.1) (1.6) (1.8)
Total non-current liabilities (256.6) (332.6) (301.5)
Total liabilities (351.8) (415.0) (395.5)
Net assets 423.2 396.0 402.1
Equity
Called up share capital 6.1 6.1 6.1
Share premium account 112.8 112.4 112.8
Own shares (0.1) (0.1) (0.1)
Translation reserve 23.7 60.8 39.2
Hedging reserve 1.5 1.3 1.1
Retained earnings 275.1 219.0 240.2
Equity attributable to owners of the Company 419.1 399.5 399.3
Non-controlling interest 7.2 11.7 6.1
Put option over non-controlling interest (3.1) (15.2) (3.3)
Total non-controlling interest 4.1 (3.5) 2.8
Total equity 423.2 396.0 402.1
GENUS PLC
GROUP STATEMENT OF CASH FLOWS
For the six months ended 31 December 2017
Notes Six monthsended31 December2017 Six months ended31 December2016 Yearended30 June2017
£m £m £m
Net cash flow from operating activities 14 14.3 8.3 34.6
Cash flows from investing activities
Dividends received from joint ventures and associates - - 3.8
Joint venture loan repayment - 1.7 3.0
Acquisition of subsidiaries, net of cash acquired - (2.9) (17.5)
Deferred consideration paid (1.6) - -
Increase investment in subsidiaries - - (12.0)
Acquisition of investment - (0.3) (0.3)
Acquisition of investment in joint venture - - (0.2)
Disposal of joint venture - - 1.5
Purchase of property, plant and equipment (5.5) (6.5) (13.4)
Purchase of intangible assets (1.6) (3.7) (5.5)
Proceeds from sale of property, plant and equipment 0.3 1.0 1.4
Net cash outflow from investing activities (8.4) (10.7) (39.2)
Cash flows from financing activities
Drawdown of borrowings 28.5 35.2 68.1
Repayment of borrowings (18.0) (17.8) (55.7)
Payment of finance lease liabilities (1.0) (1.0) (2.0)
Equity dividends paid (9.9) (9.0) (13.5)
Dividend to non-controlling interest - - (0.1)
Issue of ordinary shares - 0.1 0.5
Debt issue costs - - (0.4)
Decrease in bank overdrafts (4.0) (3.5) -
Net cash (outflow) / inflow from financing activities (4.4) 4.0 (3.1)
Net increase/(decrease) in cash and cash equivalents 1.5 1.6 (7.7)
Cash and cash equivalents at beginning of period 26.5 34.0 34.0
Net increase / (decrease) in cash and cash equivalents 1.5 1.6 (7.7)
Effect of exchange rate fluctuations on cash and cash equivalents (0.3) 1.4 0.2
Total cash and cash equivalents at end of period 27.7 37.0 26.5
GENUS PLC
ANALYSIS OF NET DEBT
For the six months ended 31 December 2017
At 1 July 2017 Net cash flows Foreign exchange Non-cash movement At 31 December 2017
£m £m £m £m £m
Cash and cash equivalents 26.5 1.5 (0.3) - 27.7
Interest-bearing loans - current (7.7) (6.1) 0.2 (0.2) (13.8)
Obligation under finance leases - current (1.4) 1.0 - (1.2) (1.6)
(9.1) (5.1) 0.2 (1.4) (15.4)
Interest-bearing loans - non-current (127.2) (0.4) 4.0 - (123.6)
Obligation under finance lease - non-current (1.8) - 0.1 (0.4) (2.1)
(129.0) (0.4) 4.1 (0.4) (125.7)
Net debt (111.6) (4.0) 4.0 (1.8) (113.4)
At 1 July 2016 Net cash flows Foreign exchange Non-cash movement At 31 December 2016
£m £m £m £m £m
Cash and cash equivalents 34.0 1.6 1.4 - 37.0
Interest-bearing loans - current (4.6) 2.8 (0.4) (0.2) (2.4)
Obligation under finance leases - current (1.1) 1.0 (0.1) (1.8) (2.0)
(5.7) 3.8 (0.5) (2.0) (4.4)
Interest-bearing loans - non-current (115.3) (16.7) (8.0) - (140.0)
Obligation under finance lease - non-current (2.7) - (0.2) 1.3 (1.6)
(118.0) (16.7) (8.2) 1.3 (141.6)
Net debt (89.7) (11.3) (7.3) (0.7) (109.0)
Net debt is defined as the total of cash and cash equivalents, interest-bearing loans, unamortised debt issue costs and
obligation under finance leases.
GENUS PLC
NOTES TO THE CONDENSED SET OF FINANCIAL STATEMENTS
For the six months ended 31 December 2017
1. Basis of preparation
The unaudited Condensed Set of Financial Statements for the six months ended 31 December 2017:
· were prepared in accordance with International Accounting Standard 34 'Interim Financial Reporting' ('IAS 34') and
thereby International Financial Reporting Standards ('IFRSs'), both as issued by the International Accounting Standards
Board ('IASB') and as adopted by the European Union ('EU');
· are presented on a condensed basis as permitted by IAS 34 and therefore do not include all disclosures that would
otherwise be required in a full set of financial statements; these should be read, therefore, in conjunction with the Genus
plc Annual Report 2017;
· includes all adjustments, consisting of normal recurring adjustments, necessary for a fair statement of the results
for the periods presented;
· do not constitute statutory accounts within the meaning of section 435 of the Companies Act 2006; and
· were approved by the Board of Directors on 27 February 2018.
The information relating to the year ended 30 June 2017 is an extract from the published financial statements for that
year, which have been delivered to the Registrar of Companies. The auditor's report on those financial statements was not
qualified and did not contain statements under section 498(2) or (3) of the Companies Act 2006.
The unaudited Condensed Set of Financial Statements for the six months ended 31 December 2017 has not been reviewed by our
Auditor.
The Genus plc Annual Report 2017 (a copy of which is available on the Genus plc website at www.genusplc.com) sets out on
pages 12-13 a number of risks and uncertainties that might impact upon the performance of the Group. There has been no
material change to the principal risks that might affect the performance of the Group in the current financial year. Having
considered these risks and uncertainties, and in the current economic environment, the Directors have a reasonable
expectation that the Company has adequate resources to continue in operational existence for the foreseeable future.
Therefore they continue to adopt the going concern basis in preparing the half-yearly report and the Condensed Set of
Financial Statements.
The preparation of the Condensed Set of Financial Statements requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the balance
sheet date, and the reported amounts of revenue and expenses during the period. Actual results could vary from these
estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are
recognised in the period in which the estimate is revised if the revision affects only that period or in the period of
revision and future periods if the revision affects both current and future periods.
In Note 4 we have reclassified the comparative periods to reflect the change in allocation of costs within the sub analysis
of Research and Development segment, to conform to the current period definition.
2. Accounting policies and non-GAAP measures
In the current year, the Group has applied a number of amendments to IFRSs issued by the International Accounting Standards
Board (IASB) that are mandatorily effective for an accounting period that begins after 1 January 2017. Their addition has
not had any material impact on the disclosures or the amounts reported in the Interim Financial Statements.
• Amendments to IAS 7 - Disclosure Initiative
• Amendments to IAS 12 - Recognition of Deferred tax Assets for Unrealised Losses
• Annual Improvements to IFRSs 2014 -2016
At the date of the interim report, 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).
• IFRS 9 - Financial Instruments
• IFRS 15 - Revenue from contracts with Customers
• IFRS 16 - Leases
• Amendments to IFRS 2 - Classification and Measurement of Share-based Payments Transactions
• IFRIC 22 - Foreign Currency Transactions and Advance Consideration
• IFRIC 23 - Uncertainty over Income Tax Treatments
The Group is currently assessing the impact of the new pronouncements on its results, financial position and cash flows.
Alternative performance measures ('APMs')
In reporting financial information, the Group presents alternative performance measures, ('APMs'), which are not defined or
specified under the requirements of 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. The APMs are consistent with how the
business performance is planned and reported within the internal management reporting to the Board and the executive
leadership committee. Some of these measures are also used for the purpose of setting remuneration targets.
The key APMs that the Group uses include: adjusted operating profit, adjusted profit before tax from continuing operations,
adjusted earnings per share, adjusted EBITDA and net debt.
The Group reports some financial measures, on both a reported and constant currency basis. The constant currency basis,
which is an APM, retranslates the previous year results at the average actual periodic exchange rates used in the current
financial year. This measure is presented as a means of eliminating the effects of exchange rate fluctuations on the
year-on-year reported results.
The Group makes certain adjustments to the statutory profit measures in order to derive many of these APMs. The Group's
policy is to exclude items that are considered to be significant in nature and/or quantum and where treatment as an adjusted
item provides stakeholders with additional useful information to assess the year-on-year trading performance of the Group.
On this basis, the following were included within adjusted items for the 6 months ended 31 December 2017:
• net IAS 41 valuation movements on biological assets - movements 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 future projections rather than current trading;
• amortisation of acquired intangible assets - by excluding it helps the comparability between acquired operations and
organically grown operations, as the latter are not able to 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 is 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 period performance; and
• exceptional items - are items which either due to their size or their nature are excluded to improve the understanding
of the Company's underlying performance, see note 5 for further details.
The reconciliation between operating profit from continuing operations and adjusted operating profit from continuing
operations is shown on the face of the Group Income Statement. For adjusted earnings per share, the reconciliation between
profit before tax and adjusted profit after tax is shown in note 13. For adjusted EBITDA, the reconciliation between profit
after tax and adjusted EBITDA is shown in note 14. A reconciliation of net debt is provided after the Group Statement of
Cash Flows.
3. Foreign currencies
The principal exchange rates used were as follows:
Average Closing
Six months ended 31 December 2017 Six months ended 31 December2016 Yearended30 June2017 31 December 2017 31 December2016 30 June2017
US Dollar/£ 1.33 1.27 1.27 1.35 1.24 1.30
Euro/£ 1.12 1.16 1.16 1.13 1.17 1.14
Brazilian Real/£ 4.28 4.14 4.11 4.48 4.01 4.30
Mexican Peso/£ 24.68 24.79 24.61 26.58 25.46 23.51
The assets and liabilities of foreign operations, including goodwill arising on consolidation, are translated into Sterling
at the prevailing exchange rates at the balance sheet date. We translate these operations' revenues and expenses using an
average rate for the period.
4. 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 Group Chief Executive and the Board to allocate resources to the segments
and to assess their performance.
The Group's operating and reporting structure comprises of 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 segment analysis of revenue, operating profit and segment assets and liabilities are detailed below. We do not include
our adjusting items in the segments as we believe these do not reflect the underlying progress 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.
Our business is not highly seasonal and our customer base is diversified, with no individual customer generating more than
2% of revenue.
Revenue
Six months ended 31 December2017 Six months ended31 December2016 Yearended30 June2017
£m £m £m
Genus PIC 126.4 122.5 249.5
Genus ABS 105.6 93.4 195.9
Research and Development
Porcine Product Development 5.6 5.4 10.7
Bovine Product Development 1.0 0.8 3.0
Gene Editing - - -
Other Research and Development - - -
6.6 6.2 13.7
238.6 222.1 459.1
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 period is shown on the Condensed Consolidated Income Statement.
Operating profit
Six monthsended 31 December2017 Six months ended31 December2016 Yearended30 June2017
(Restated) (Restated)
£m £m £m
Genus PIC 44.1 42.8 87.7
Genus ABS 11.7 9.0 22.3
Research and Development
Porcine Product Development (8.4) (8.2) (16.6)
Bovine Product Development (7.5) (7.9) (14.2)
Gene Editing (2.1) (1.5) (3.5)
Other Research and Development (3.8) (4.0) (8.4)
(21.8) (21.6) (42.7)
Segment operating profit 34.0 30.2 67.3
Central (5.7) (5.7) (12.2)
Adjusted operating profit 28.3 24.5 55.1
Segment assets Segment liabilities
31December2017£m 31 December2016£m 30 June 2017£m 31 December2017£m 31 December2016£m 30 June 2017£m
Genus PIC 250.4 253.2 258.3 (52.0) (55.4) (60.1)
Genus ABS 141.2 145.7 132.8 (36.1) (43.5) (41.1)
Research and Development
Porcine Product Development 170.7 172.5 182.4 (52.7) (68.3) (72.0)
Bovine Product Development 188.2 219.5 202.7 (39.8) (61.5) (52.6)
Gene Editing 5.1 5.1 5.1 (1.4) (0.2) (1.4)
Other Research and Development 0.4 4.9 0.8 - - -
364.4 402.0 391.0 (93.9) (130.0) (126.0)
Segment total 756.0 800.9 782.1 (182.0) (228.9) (227.2)
Central 19.0 10.1 15.5 (169.8) (186.1) (168.3)
Total 775.0 811.0 797.6 (351.8) (415.0) (395.5)
Exceptional items of £2.4m expense (2016: £4.2m expense), relate to Genus ABS (£2.3m expense), Genus PIC (£0.4m credit) and
our central segment (£0.5m expense). Note 5 provides the details of these exceptional items.
We consider share-based payment expenses on a Group-wide basis and do not allocate them to reportable segments.
Revenue is split by product
Six months ended 31 December 2017£m Six months ended31 December 2016£m Year ended 30 June 2017£m
Sale of animals, semen, embryos and associated products and services 175.1 161.4 335.7
Royalties - animal and semen 60.0 57.3 116.1
Consulting services 3.5 3.4 7.3
238.6 222.1 459.1
Interest income (see note 6) 0.1 0.5 0.8
238.7 222.6 459.9
5. Exceptional items
Six monthsended31 December2017 Six months ended31 December2016 Yearended30 June2017
Operating (expenses)/income: £m £m £m
Litigation (2.2) (2.9) (5.3)
Acquisition and integration (0.6) (0.3) (0.6)
Other (including restructuring) 0.4 (1.0) (2.3)
Pension related - - 5.7
(2.4) (4.2) (2.5)
Litigation
Litigation includes legal fees of £2.4m (2016: £4.2m) related to the action by ABS Global, Inc. ('ABS') against Inguran,
LLC (aka Sexing Technologies ('ST')).
On 14 July 2014, ABS launched a legal action against ST in the US District Court for the Western District of Wisconsin
alleging, among other matters, that ST: (i) has a monopoly in the processing of sexed bovine semen in the US; and (ii)
unlawfully maintains this monopoly through anticompetitive conduct. The legal action aimed to remove these barriers and
allow free and fair competition in the sexed bovine semen processing market ('ABS Action'). In parallel with the ABS
Action, ABS also filed Inter-Partes Review applications ('IPR') before the US Patent Office challenging the validity of
several of ST's group patents, which ST later claimed were infringed by ABS.
On 11 January and 15 April 2016, the PTAB ruled that US Patent No. 7,195,920 (the ''920 patent') and US Patent No.
7,820,425 (the ''425 patent') were unpatentable. ST has appealed these decisions, and the appeal was heard by a federal
court of appeals on 5 December 2017. The parties await the Federal Circuit's decision. On 14 July 2015 and 2 October 2017,
PTAB declined to revoke US Patent No. 8,206,987 (the ''987 patent') and US Patent No. 8,198,092 (the ''092 patent')
respectively. ABS has appealed the '092 patent decision and the validity of the '987 patent will be considered as part of
the ABS Action appeal.
On 31 March 2017, the Court entered a judgment in the ABS Action which confirmed: (i) the Company and ABS had proved that
ST had wilfully maintained a monopoly in the market for sexed bovine semen processing in the US since July 2012, and
awarded a permanent injunction against ST which, among other matters, relieved ABS of certain research, marketing and other
non-compete restrictions contained in the 2012 semen sorting agreement between the parties; (ii) ST's '987 and '092 patents
were valid and infringed; and (iii) that ABS had materially breached the confidentiality obligations under the 2012 semen
sorting agreement. The Court also confirmed that: (i) the Company and ABS should pay ST an up-front amount of $750,000 and
an on-going royalty of $1.25 per straw on commercialisation of the Genus Sexed Semen technology for the use of ST's '987
patent in the US; (ii) the Company and ABS should pay ST an up-front payment of $500,000 and an on-going royalty of $0.50
per straw for the use of ST's '092 patent in the US; (iii) ABS should pay XY, LLC damages of $750,000 for the use of
certain XY trade secrets; and (iv) ABS had breached the confidentiality obligations under the 2012 semen sorting
agreement.
ABS and the Company appealed the '987 patent and the breach of contract decisions and the appeal hearing was heard on 20
February 2018. The parties await the Court of Appeal's decision. Damages of $1,250,000 were paid by ABS to ST shortly
after the Court's decision in the ABS Action, and ABS has subsequently amended its technology such that it does not
infringe the '092 patent claims. ABS has informed ST that it does not intend to pay the $0.50 royalty going forward.
Claims for legal costs (and post judgement interest) already incurred in connection with the ABS Action have been filed by
both parties. ABS has sought approximately $5.4m in legal fees and costs already charged to the income statement and ST has
sought approximately $280,000 in legal costs (excluding fees). Both parties await the Court's decision.
On 7 June 2017, ST, XY LLC and Cytonome/ST, LLC filed proceedings against ABS, the Company and Premium Genetics (UK)
Limited ('PG') in the United States District Court for the Western District of Wisconsin ("New Litigation"). The New
Litigation alleges that ABS and the Company infringe seven further patents and asserts trade secret and breach of contract
claims. ABS and the Company have filed an Answer and Counterclaim confirming that they do not infringe any valid patent,
and alleging among other things that: (i) ST is again in breach of anti-trust legislation; (ii) ST has breached its 2012
semen sorting agreement with ABS by failing to produce sorted semen that complies with the contractual specifications; and
(iii) ST has obtained certain patents through inequitable conduct. In addition, ABS has filed five IPRs seeking to revoke
the additional patents raised in the New Litigation. The Company and ABS intend to pursue vigorously their counterclaims
and defend the patent infringement and other claims.
Acquisition and integration
During the period, £0.6m of expenses were incurred in relation to acquisitions and integration.
Other (including restructuring)
Included within 'other' are costs principally relating to an insurance receipt from a legacy environmental claim.
6. Net finance costs
Six monthsended31 December2017 Six months ended31 December2016 Yearended30 June2017
£m £m £m
Interest payable on bank loans and overdrafts (1.7) (1.3) (2.7)
Amortisation of debt issue costs (0.2) (0.2) (0.4)
Other interest payable (0.1) - (0.1)
Net interest cost in respect of pension scheme liabilities (0.5) (0.6) (1.2)
Net interest cost on derivative financial instruments (0.1) (0.1) (0.1)
Total interest expense (2.6) (2.2) (4.5)
Interest income on bank deposits 0.1 0.5 0.8
Total interest income 0.1 0.5 0.8
Net finance costs (2.5) (1.7) (3.7)
7. Taxation
Six monthsended31 December2017 Six months ended31 December2016 Yearended30 June2017
£m £m £m
Current tax 5.6 4.0 10.3
Deferred tax (33.9) (1.4) (3.9)
Income tax (credit) / expense (28.3) 2.6 6.4
The tax credit for the period of £28.3m on statutory profit (2016: tax charge of £2.6m) represents an effective tax rate of
-198%. The tax credit for the period has been materially impacted by the passage into law of the Tax Cuts and Jobs Act in
the US, resulting in the revaluation of the Group's net deferred tax liability in the US from Federal tax rates of 35% to
the lower Federal tax rate of 28% for reversals in the year to 30 June 2018 and 21% for reversals thereafter. The total
deferred tax credit
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