Genus plc. Annual Report 2012

FY2012 Annual Report · Genus plc.

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Genus plc Annual Report 2012

our vision
Pioneering animal
genetic improvement
to help nourish the world.

Genus is a world leader in creating advances to
animal breeding and genetic improvement by applying
biotechnology. We sell added value products for
livestock farming and food producers. Our technology
is applicable across all livestock species and is currently
commercialised by Genus in the dairy, beef and pork
food production sectors.

our values
Five principles and attributes guide
everything we do. They are integral
to our role as a company that
helps to meet a basic human
requirement: nourishment.

We play a key role in the world’s agricultural economy.
We do this by providing innovative solutions to our
global farmer and food producer customers to meet the
challenge of growing global demand for milk, pork and
beef from an increasing world population when there
are decreasing resources available for food production.

Genus’ worldwide sales are made in 70 countries under
the trademarks ‘ABS’ (dairy and beef cattle) and ‘PIC’
(pigs) and comprise semen and breeding animals
with superior genetics to those animals currently in
production. Genus’ customers’ animals produce
offspring with greater production efficiency, and
quality, and use these to supply the global dairy
and meat supply chain.

The Group’s competitive edge has been created
from the ownership and control of proprietary lines of
breeding animals and the biotechnology used to improve
them. We combine this with a global supply chain,
technical service and sales and distribution network.

With headquarters in Basingstoke, UK, Genus
companies operate in 30 countries on six continents,
with research laboratories located in Madison,
Wisconsin, USA.

customer-centric

results-driven

pioneering

people-focused

responsible

see paGe 10 for more on our values

Company overview
> 02 2012 Highlights
> 04 Genus at a Glance
> 06 Chairman’s Statement
> 08
> 10 Our Values
> 12 Our Business Model
> 14 Our Strategy
> 16 Our Strategy in Practice

Chief Executive’s Report

Key
performance
indicators
page 22

REVENUE (£MILLION)
2 012 PERFORMAN CE: £341.8m

RETURN ON CAPITAL
EMPLOYED
2 012 PERFORMAN CE: 18%

8
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1
4
3

9
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9
0
3

4
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0
8
2

3
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5
8
2

350
300
250
200
150
100
50
0

0
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8
1

0
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7
1

4
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6
1

5
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1

09 10 11

Busines s r e vie w
> 20 Market Overview
> 22
Key Performance
Indicators
Financial and
Operational Review
Principal Risks
and Uncertainties

> 32

> 24

> 34 Our People
> 36

Corporate Social
Responsibility

Corporate GovernanCe
> 38 Board of Directors
> 40
Genus Executive
Leadership Team
> 42 Directors’ Report
> 47

Corporate Governance
Statement
Audit Committee Report
Directors’
Remuneration Report
Directors’
Responsibilities Statement

> 52
> 54

> 67

FinanCial statements
> 68

Independent Auditors’
Report – Group Financial
Statements
Group Income Statement
Group Statement of
Comprehensive Income
Group Statement of
Changes in Equity
Group Balance Sheet
Group Statement
of Cash Flows
Notes to the Group
Financial Statements
Independent Auditors’
Report – Parent Company
Financial Statements
Parent Company
Financial Statements
Balance Sheet
Notes to the Parent
Company Financial
Statements
Five Year Record –
Consolidated Results
Notice of Annual
General Meeting

> 69
> 70

> 71

> 72
> 73

> 74

> 113

> 114

> 115

> 123

> 124

our Business model page 12

World demand for
improved farming
productivity

Developing
differentiated
products

Global
sales and
distributio

Chief
executive’s
report
page 08

Financial and
operational
review
page 24

our people
page 34

our strategy
page 14

For more information visit:
www.genusplc.com

Genus plc Annual Report 2012 01

company overviewbusiness reviewcorporate governancefinancial statements2012 Highlights

RE VENUE
(£MILLION)

8
.
1
4
3

9
.
9
0
3

4
.
0
8
2

3
.
5
8
2

350
300
250
200
150
100
50
0

09 10 11

£341.8m

ADJUSTED OPERATING
PROFIT
( £ M I L L I O N )

5
4

2
4

8
3

9
3

10 11

£45.8m

ADJUSTED OPERATING
PROFIT INCLUDING JVs
( £ M I L L I O N )

8
4

5
4

2
4

0
4

10 11

£48.6m

Business
}} Record results with strong growth in revenue and adjusted profits;

}} Adjusted operating profit including joint ventures up 7% to £48.6m

– Bovine volumes up 8% and porcine volumes up 7%
– Strong performances in Asia, North America and Latin America
– Continued investment in research and development; up 13% to £28.7m;
}} Adjusted profit before tax up 19% to £46.5m and earnings per share up

19% to 53.5 pence;

}} Statutory profit before tax up 33% to £54.4m, benefiting additionally
from a higher increase in the net IAS 41 valuation movement of
biological assets;

}} Strong cash generation: £14.5m cash inflow reduced net debt to

£56.4m; and

}} Significant strategic progress achieved under new CEO

– New strategy for growth developed
– Organisation structure aligned to new strategy
– Progress on strategy execution, including announcement of first

porcine joint venture in China.

02 Genus plc Annual Report 2012

ADJUSTED PROFIT
BEFORE TAX
( £ M I L L I O N )

5
.
6
0 4

.
9
9 3
.
2
3

0
.
2
3

10 11

£46.5m

ADJUSTED BASIC EPS
(PENCE)

3
8 5
4
7 4
6
3

10
0

6
3

FinanCial

adjusted results
year ended 30 June

Revenue
Operating profit*
Operating profit inc JVs*
Profit before tax*
Basic earnings per share (p)*

statutory results
year ended 30 June

Revenue
Operating profit
Profit before tax
Earnings per share (p)
Dividend per share (p)

actual currency

Constant
currency**

2011
£m

Movement
%

12
10
9
22
22

309.9
42.2
45.3
39.0
44.8

2011
£m

309.9
44.8
40.8
49.0
13.3

10
9
7
19
19

10
21
33
34
10

2012
£m

341.8
45.8
48.6
46.5
53.5

2012
£m

341.8
54.2
54.4
65.9
14.6

* Adjusted operating profit, adjusted profit before tax and adjusted basic earnings per share are before net IAS 41 valuation movement
on biological assets, amortisation of acquired intangible assets, share-based payment expense and exceptional items. These are the
measures used by the Board to monitor underlying performance.

** Constant currency percentage movements are calculated by restating 2012 results at the exchange rates applied in 2011.

09 10 11

53.5p

DIVIDEND PER SHARE
(PENCE)

4
1

3
1

2
1

1
1

09 10 11

14.6p

“In this, my first year as CEO at Genus, I am pleased to report very good
progress both in financial and strategic terms.

Once again, the Group achieved record results, with operating profits up
7% and pre-tax profits up 19%.

In addition, we have developed a new vision and strategy. With the
investments we are making in R & D, the BRIC countries and core
competencies, we believe this strategy will enable Genus to continue
to make progress in the year ahead and will see an improving rate of
growth from 2014 onwards.”

Karim Bitar
CHieF exeCutive

Genus plc Annual Report 2012 03

company overviewbusiness reviewcorporate governancefinancial statementsGenus at a Glance

Genus applies biotechnology to advance the science of animal breeding.
as the world leader in improving porcine and bovine stock, we play a crucial
role in the global agricultural economy. the progeny of our robust and
highly productive pigs and cattle enable Genus customers – farmers and
food producers in 70 countries – to meet growing demand for meat and milk
despite tightening constraints on resources available for food production.

We sell and distribute
our products and
services in over
70 countries.

researCH and development
Continuing market leadership depends
on innovation and investment. Genus is
committed to both; and both are driven by
customer needs.

Our research programme is aimed at
developing proprietary technologies in areas
such as gender skew, sexed semen and
disease resilience that ultimately help to
increase our customers’ efficiency whether
their business focus is in milk, beef or pork
production. Equally important is our work
on leveraging and accelerating the use of
genomics, leading to valuable genetic
improvements. The output of our
programme leads to better quality
product for our customers.

Central to our research and development
(‘R & D’) programme is a dedicated team of over
50 scientists and skilled technicians (over half of
whom have PhDs). Genus also has a successful
track record of working in partnership with
universities, consortia and others.

produCts
Genus breeds the world’s best pigs and
bulls. This involves scientifically selecting
livestock that will produce offspring aimed
at increasing value for our global farmer and
food producer customers.

In the porcine market, it means selling
disease-resistant boars and sows that will
produce quality and efficient offspring.

In the dairy and artificial insemination (‘AI’)
beef markets, our primary product is bull
semen. Artificial insemination from semen
straws produces high quality cattle; enabling
our customers to improve their herds and so
become more efficient.

marKets
Genus is the leader in each of its three
markets of porcine, dairy and beef and animal
genetics. In the porcine market, we have a
25% share, more than double our nearest
competitor. Genus has a leading position of
8% of global sales in dairy and 25% of the
market in artificial insemination for beef.

Our regional sales and distribution network
extends to 30 countries. Our products and
services are sold to customers in 70 countries
across six continents. Throughout, we are
strengthening our market focus and, where
necessary, tailoring the Company’s business
model to better serve specific markets
and segments.

04 Genus plc Annual Report 2012

Genus global sales and operationsworKinG witH our Customers to Create value

} Building long-term relationships

} our competitive environment

We develop strategic partnerships with our
customers by aligning our objectives with
theirs. For example, in Genus PIC, one of the
focuses of our porcine genetics is improving
the economics of pork production for our
customers. Our royalty model then enables
us to share in the value we have helped
to create.

} Focus on excellent service

To maximise the potential of our genetics
offering, we support our customers with
technical services in important areas like
nutrition, reproduction, health management
and genetics. In dairy, our global Genetic
Management System (‘GMS’) programme
helps customers through sire selection
to get the progeny that matches their
herd aspirations.

} increasing demand for our products

and growth potential
We are extending our global leadership by
increasing business with existing customers,
exploring new geographies and gaining
market share from competitors. The
opportunities are immense, since the
current use of advanced genetics in pigs,
dairy cattle and beef cattle is currently at
levels of approximately 40%, 60% and
10% respectively.

Unlike the majority of Genus competitors,
many of which operate under traditional
cooperative systems, Genus as a listed
company, is unique. Our business model and
multi-species approach enables us to commit
higher levels of resources to delivering value
to customers and shareholders alike.

} r & d focus

R & D is one of the main pillars of our
business strategy. Genus continues to
pioneer the most advanced technologies in
order to accelerate genetic improvement and
deliver continuous value to customers.

} product lines

Customer needs determine the wide
range of Genus products. For example,
in dairy our breeding programmes take
into account differing market requirements
for milk and cheese production. Similarly
in pig production, systems vary across
markets to suit the tastes and preferences
of consumers around the world. Genus’
genetic improvement programmes provide
products and services that suit them all.

} markets served

Genus has direct presence in 30 countries
and we sell to customers in 40 more through
agents. North America and Europe account
for 70% of our profits. The remainder come
from our fast growing businesses in Latin
America and Asia; over the next five years
we expect these businesses will contribute
close to 40% of Genus profits.

Genus plc Annual Report 2012 05

company overviewbusiness reviewcorporate governancefinancial statements Genus global sales and operationsChairman’s statement
Bob lawson

the last year has been one of enormous progress
on a number of fronts, with one of the highlights
being the successful transition to a new leadership
team and structure.

significant

I am pleased to report a year of significant
progress for the Group.

In my Chairman’s Statement last year,
I reported on the appointment of Karim Bitar
as the Group’s new Chief Executive from
30 September 2011. Nearly a year on, Karim
has brought a new energy to Genus. He and
his management team have made excellent
progress in refreshing the Group strategy and
putting in place the necessary building blocks
to ensure its achievement. At the same time,
the Group’s performance has also been fully
in line with the Board’s expectations, with
growth in adjusted pre-tax profits for the
year of 19%.

results
Genus’ results for the year ended 30 June
2012 show record profits. On revenues up
10%, adjusted operating profit rose 9% to
£45.8m, with improved profits in all four key
geographies. There were particularly strong
performances in Asia and across the Americas.
Adjusted profit before tax increased by 19%
to £46.5m and earnings per share by 19% to
53.5p, benefiting from the growth in operating
profits and significantly lower interest costs.

As discussed in the Financial and Operating
Review on page 24, the statutory results show
a significantly higher operating profit of £54.2m,
an increase of 21% on last year. Similarly, the
statutory profit before tax of £54.4m is 33%
up on last year. These results are struck after
non-recurring exceptional items and certain
non-cash items, particularly the net IAS 41
valuation movement in biological assets. In this
respect, in the year, we reported a small net
credit of £0.9m in respect of exceptional items.
This includes a credit in relation to the carrying
value of our pure line porcine animals following
a revision to the basis of valuation, and an
increase in the provision relating to the Milk
Pension Fund in which we are a participating
employer. Also the credit reported under IAS 41
was significantly higher this year compared to
the previous year. The nature and volatility
of these items do not reflect the underlying
performance of the business. It is for
this reason that we report externally
and use internally adjusted profits to
measure performance.

Along with the improved profits, we have also
once again demonstrated the cash generative
nature of the Group’s operations. The cash
inflow for the year was £14.5m and net debt
consequently reduced to £56.4m.

Genus’ results for the
year ended 30 June
2012 show record
profits.

06 Genus plc Annual Report 2012

The Board is
recommending a
final dividend of
10.1 pence per share.
This, together with
the interim dividend
of 4.5 pence per share,
would result in a
dividend for the full
year of 14.6 pence
per share, an increase
of 10% over last
year’s dividend.

dividend
During the year, the Board introduced for the
first time an interim dividend that was paid in
March 2012. The Board is recommending a
final dividend of 10.1 pence per share. This,
together with the interim dividend of 4.5 pence
per share, would result in a dividend for the
full year of 14.6 pence per share, an increase
of 10% over last year’s dividend.

With this in mind, at the beginning of July
2012 we implemented a new organisational
structure which aligns with the new strategy.
At the highest level, each sector of our
business will be addressed by a global team
with R & D providing innovation and support.
Further details of our new organisational
structure are contained in Karim’s review
in this report.

people
In a group that spans operations in 30
countries and sells into over 70, it is inevitable
that our people are the driving force behind
our success. During the last year I have had
the opportunity to visit Genus’ businesses
from the USA to China and meet many of
these people. I have been impressed by the
enthusiasm and professionalism of the teams
that I have met. On behalf of the Board and
you, our shareholders, I would like to thank all
of Genus’ employees for their hard work and
support over the last year in helping deliver yet
another record year of profits for the Group.

in summary
The last year has been one of enormous
progress on a number of fronts, with one of
the highlights being the successful transition
to a new leadership team and structure under
Karim. The Board and I are confident that the
right foundations are in place for the Group to
continue to take advantage of the long-term
growth opportunities available in the global
animal genetics market.

BoB lawson
CHairman
3 SEPTEMBER 2012

Subject to approval at the Company’s Annual
General Meeting, to be held on 8 November
2012, the final dividend will be paid on
23 November 2012 to shareholders on
the register at the close of business on
9 November 2012.

strateGy
World population growth and increasing
urbanisation continue apace and demand
for animal protein is growing. As a result,
pressure for improved agricultural efficiencies
is continuing to increase. This is creating
enormous opportunities for Genus. Inevitably,
the challenge for Karim, as our new Chief
Executive, has been to review and decide
how we should take advantage of
these opportunities.

On his arrival last September, Karim initiated a
thorough strategic review. We announced the
outcome of this process – a new vision and a
new Group strategy – at the beginning of
May 2012.

The vision is to focus with absolute clarity
on our core activity of improving animal
genetics on a global basis. The new strategy
has reconfirmed the significant growth
opportunities available in our chosen sectors
of dairy, porcine and beef animal genetics
markets, particularly in the BRIC countries
(Brazil, Russia, India and China). We have
developed thorough plans to capture these
growth opportunities for Genus. An in-depth
review of the new strategy is set out in the
Chief Executive’s Review and on pages 14 to
19 of this report. Here, I would particularly
highlight three key elements of the new
strategy. Firstly, Genus will increase focus on
the needs of its customers and adopt a more
effective marketplace orientation. Secondly,
our R & D programme will become even more
tightly concentrated on key projects aligned to
meeting these customer needs. Finally, we will
increase our emphasis on ensuring that Genus
has the right resources and competencies,
from people through to supply chain, in place
to deliver on the strategy.

Genus plc Annual Report 2012 07

company overviewbusiness reviewcorporate governancefinancial statementsChief executive’s report
Karim Bitar

with a new vision, strategy and organisational
structure now in place, we have made good progress
in defining how Genus will seize the opportunity.

seizing the

We believe strongly
in the philosophy
of delivery through
people.

This is my first Chief Executive’s Report since
I joined Genus last September. One of the key
factors that attracted me to the Company
was my belief that there was a significant
opportunity for Genus in the world of animal
genetic improvement. A year into the role, I am
as convinced as ever. In fact, the scale of the
opportunity is larger and more exciting than
I first thought.

More importantly, with a new vision, strategy
and organisational structure now in place,
we have made good progress in defining how
Genus will seize the opportunity. We have
also created a set of values that guide the
Company in how we will operate in delivering
on the new strategy.

At the same time, we have been conscious
of the need to continue driving operational
performance in line with expectations.
Record results for the year to 30 June 2012
demonstrate that we have achieved this.

Group perFormanCe
In a year in which market conditions were
generally favourable for Genus’ customers,
revenue for the year ended 30 June 2012 of
£341.8m was up 10%. Growth in volumes was
the primary driver. Porcine volumes were up
7% and bovine volumes up 8%. Growth was
particularly strong in Asia, Latin America and
the porcine business in North America.

Adjusted operating profit increased by 9% to
£45.8m. We achieved double digit growth in
profits in North America, Latin America and in
Asia. In North America, the porcine business
performed particularly well, with royalty income
up 10%. Latin America benefited from good
volume growth in both bovine and porcine.
Volumes also grew strongly in Asia. This,

together with a buoyant market in the first
half of the year, resulted in a 41% increase in
Asian profits.

strateGy
During the past year, we undertook a
thorough review of the Group’s strategy. This
involved an extensive analysis of our business;
examining the scale of the opportunity for
Genus and developing the strategy to seize
that opportunity and the way in which we
should be structured to deliver it. Over 60
senior managers in the Group were actively
involved in this process.

As part of the process, we established a new
vision for the Group: ‘Pioneering animal
genetic improvement to help nourish the
world’. The vision confirms our intention to
focus on our core strengths in animal genetic
improvement on a global basis.

The strategy we developed to deliver on this
vision is designed to take advantage of the very
significant growth opportunities in the animal
genetics markets; particularly in our existing
dairy, porcine and beef animal genetics
markets, and especially in the BRIC countries
(Brazil, Russia, India and China). To seize these
opportunities, Genus will increasingly focus on
the needs of its customers and adopt a
stronger marketplace orientation.

Important drivers in this strategy will be:

}} Accelerating Genus’ product lead

over competitors:
}– The R & D team now reports directly to
me and will focus on quickening the
pace of genetic improvement and
ensuring that products meet specific
customer requirements.

08 Genus plc Annual Report 2012

}} Targeting key markets and segments:
}– We will place particular emphasis

on continuing to grow in those large
markets and key segments in which the
Group currently operates, as well as in
newer markets offering strong growth
potential such as the BRIC countries.

}} Tailoring the business model:

}– We will ensure that our product and
service offering meets the specific
requirements of the target market/
segment and that we implement best
practice in areas such as value capture
across the Group.

}} Strengthening core competencies:

}– We will place renewed emphasis on
strengthening core competencies
including marketing, key account
management, product development,
supply chain and technical services.

Our prime focus will be on our existing
markets of porcine, dairy and beef animal
genetics but we will also continue to explore
opportunities in other species where we
believe we can add value.

As part of the strategy, we have also reviewed
the way Genus is structured. As a result, we
implemented changes to the organisational
structure at the beginning of July 2012 to align
the business with our customers and increase
our marketplace orientation.

The new structure involves three business
units; Genus PIC, Genus ABS and Genus
Asia (covering the porcine and dairy/AI beef
business in that region). All three units report
directly to me. Genus PIC and Genus ABS
will focus on meeting the unique needs of our
pork customers and our dairy and AI beef
customers respectively and ensure consistent
implementation of best practices. Genus Asia
is a separate business unit which will drive
growth in this fast-growing and increasingly
important region. In achieving this, Genus Asia
will collaborate closely with Genus PIC and
Genus ABS, especially with their global supply
chain, marketing and technical service teams.

In addition, R & D will continue to report to me
to ensure continued high focus on this critical
area. Working with me, the heads of these
business units and the head of R & D together
with the heads of the key support functions
– Finance, HR and Legal/Company Secretariat
– will now form the Genus Executive
Leadership Team (‘GELT’). Its task is to lead
the business and implement the strategy
going forward.

Finally, as part of the strategy review, we have
redefined the values by which we will operate
as a business. More details of the values and
strategy are set out on pages 10 to 11 and 14
to 19 respectively in this report.

The Group will amend its segmental analysis of
results in the year ahead to align it to the new
organisation structure. Details of the results for
the year to 30 June 2012 in this new format are
available on the Genus website.

Having established the new strategy, we are
now focused on its execution. A key part of
the strategy is to take advantage of the strong
growth opportunities in the BRIC countries. In
the porcine market in China we envisage the
creation of joint ventures with leading integrated
pork producers, who will utilise a significant
proportion of the breeding animals produced
by the joint venture to build their own pig
production system. We announced in July
2012 the first such joint venture with BeSun, a
leading integrated pork producer in the Shaanxi
Province. We are also in discussions with other
potential partners for such joint ventures.

our people
We believe strongly in the philosophy of
delivery through people. As a result, during
the year we established a new global human
resources function and appointed Catherine
Glickman as Group Human Resources (‘HR’)
Director. Catherine joined us from a 20-year
career at Tesco, one of the five largest global
retailers with over 500,000 employees in 14
countries, where she was the Head of HR.
Under her direction, we now have an
extensive programme under way to ensure
we have the right people in place to deliver
on our ambitions.

outlooK
Market conditions remained generally
favourable for Genus and its customers in the
year just ended. However, towards the end of
the period, markets became more challenging.
This was in large part due to increased feed
costs in North America caused by drought
conditions and by weakening global commodity
dairy prices. These conditions are likely to
impact a number of our customers in the year
ahead. Although this may lead to some slowing
in demand, we believe the strength of Genus’
business model will enable the Group to
continue to make progress in the year ahead.

Furthermore, with the new strategy and
investments in R & D, the BRIC countries and
core competencies to support delivery of the
strategy, we believe this strategy will enable
Genus to continue to make progress in the
year ahead and will see an improving rate
of growth from 2014 onwards.

Karim Bitar
CHieF exeCutive
3 SEPTEMBER 2012

Genus plc Annual Report 2012 09

company overviewbusiness reviewcorporate governancefinancial statementsour values

Five principles and attributes guide
everything we do. our values are integral to
our role as a company that helps to meet a
basic human requirement: nourishment.

customer-centric

results-driven

We are one team, dedicated
to helping customers thrive.
We anticipate their needs
and help them seize
opportunities, acting as
partners to improve quality,
efficiency and output. If we’re
not adding value to our
customers, we stop and
think again.

We are proactive,
determined to be the
best we can and exceed
expectations. We redefine
standards for ourselves,
our customers and our
industry. Every one of us
takes pride in delivering the
highest level of performance.
If something can be improved,
we find a simpler, better way
to do it.

We held 40 focus
groups around the
world with Genus
staff at all levels
that consistently
confirmed the five
values that guide
everything that we do.

Karim Bitar
CHieF exeCutive

10 Genus plc Annual Report 2012

pioneering

people-focused

responsible

We are an innovative,
forward-thinking company.
We have the courage and
confidence to explore new
ideas and the energy and
enthusiasm to deliver them.
We are creative, tenacious
and resourceful in every
area of our work.

We are a business rooted in
science but built around our
people. We inspire, challenge
and support everyone
to perform, develop and
grow. We treat others with
respect and we invite views
and feedback to help
us improve.

We are ethical to our
core. We feel a deep
sense of responsibility to
our customers, colleagues,
animals, communities and
shareholders. We are
honest, reliable and
trustworthy. We mean
what we say and do
what we say.

Genus plc Annual Report 2012 11

company overviewbusiness reviewcorporate governancefinancial statementsour Business model

Genus is a world leader in the application of biotechnology to achieve animal genetic
improvement, thereby improving dairy, beef and pork quality and affordability. a strong
focus on customers is at our core; be it in the r & d programme that develops and
enhances our market leading products; our global sales and distribution network; or
our technical services that ensure customers have the right products and support to
enable them to capture the full value potential of the products supplied.

value CHain

World demand for
improved farming
productivity

Developing
differentiated
products

Global
sales and
distribution

Technical
services

By making it our
business to understand
customer needs, Genus
consistently strives to
provide outstanding
products and services
that improve milk,
pork and beef
production.

world demand For improved
FarminG produCtivity
The world population is growing and
urbanisation is accelerating in most developing
countries, especially in Brazil, Russia, India and
China (‘BRIC’). This is leading to increased
demand for food such as milk, pork and beef.
Meeting this demand with limited resources
requires improved farming productivity.
Genetics play a key role in achieving the
necessary productivity improvements. Genus’
world leading position means that it is well
placed to improve the quality, safety and
affordability of milk, beef and pork.

developinG diFFerentiated produCts
Successful R & D starts from the customer’s
perspective. By making it our business to
understand customer needs, Genus
consistently strives to provide outstanding
products and services that improve milk,
pork and beef production.

In porcine, we base our core genetic
improvement in two nucleus farms, located in
Canada and the US. We combine quantitative
sciences with leading edge biotechnology,
whilst at the same time adopting a no walls
approach to considering and introducing
external genes where they can add to our
portfolio and meet the needs of our customers.

Our dairy and beef product development
programme is designed to create elite bulls
whose characteristics meet our customers’
needs. Our world-class bulls derive from a
range of progeny-testing and young-sire
programmes that Genus conducts in the US,
UK, Brazil, Australia and Italy.

In the beef artificial insemination (‘AI’) sector,
the main imperative is to coordinate the
different elements of the beef value chain.
There is enormous scope for driving value in
this way by reducing the high level of variation
in the cost of production, mainly driven by feed
efficiency. At Genus, we are therefore adapting
our genetic selection programme to capture
this opportunity and deliver a higher value to
the beef chain.

GloBal sales and distriBution
Genus sells and distributes most of its
products through 30 subsidiary companies
across the globe. In a number of other
countries, sales are made through distributors.

In porcine genetics, Genus PIC is the most
recognised brand in delivering pigs that
combine economical production costs with
the best carcass value. In order to capitalise on
the value our animals create for our customers,
whilst minimising the impact of volatility in pig

12 Genus plc Annual Report 2012

the strong customer orientation, geographic
spread of our business activities and the
application of our royalty model in porcine all
contribute to a robustness of performance even
when our customers experience more difficult
agricultural markets.

} Improved

productivity

} Shareholder

return

prices that we experience, we outsource the
multiplication of animals either to third party
pig producers or customers. In addition, much
of our business is under royalty contracts. In
such contracts, breeding animals are sold to
customers at or close to our cost to produce.
In return, customers commit to pay a royalty
fee on each of the offspring produced. This
use of third party multipliers and customers’
own multiplication under royalty contracts
to disseminate genetics reduces volatility in
performance and therefore produces a more
robust and consistent profit stream and
mitigates the impact on Genus of cycles during
which profitability is tested by price reductions
or increases in input cost. Over 99% of the
Group’s multiplication requirements are
outsourced and 44% of porcine sales are
made under royalty contract.

By leveraging our third party multipliers in
local markets, we are able to distribute our
improved genes into our customers’ systems
in more than 70 countries.

In dairy and beef, Genus ABS leverages both
its sales and distribution networks directly
with in-house employees, independent
representatives or distributors to efficiently
reach and serve our customers. We take care
to ensure we understand what our customer
expects and that we deliver a product and
service that meets these expectations. For
example, traditional dairy farmers rely on
Genus products that provide consistent
results in an industry where high conception
rates are critical for success.

In the developing countries there is an
increased demand for milk that is accelerating
the degree of technology used in dairy farming.
In these markets, the products we supply have
to meet two main goals: to enhance cow herd
productivity, with more milk per animal per
year, and to expand the cow inventory.

teCHniCal serviCes
Our sales and distribution efforts are supported
by our experienced technical service teams.
Ensuring our products meet the expectations
of our customers is critical for success. Our
global technical services teams not only ensure
the product is right but also assist and advise
our customers how to achieve the best results.
This creates a winning situation for both us and
our customers and serves to enhance
customer loyalty.

Genus Core CompetenCies

Key enablers that set us apart:

} marketing and sales

Speed to market with fresh, relevant
products enables Genus to meet, and
anticipate, customer needs. Our ability to
learn and adapt keeps us in the vanguard.
So does a distinctive sales, distribution and
technical service infrastructure managed by
a skilled and motivated workforce. Strong
customer segmentation and adherence to
global best practice strengthens our offering.

} research and development

Genus R & D is closely aligned to current and
future customer requirements. The result:
leadership in next-generation proprietary
technology platforms based on in-depth
in-house research as well as fruitful
collaborations with leading external
technology partners. All of this is driven by
the Genus R & D philosophy of ‘discovery
without walls’.

} supply chain

Genus understands the importance of
accelerating genetic improvement by
increasing the pace of transferring the best
genes to our customers’ systems. Our
efficient processes ensure seamless and
cost-appropriate product delivery.

} technical services

Genus carefully tailors service and staffing
levels to each of our customer segments to
best meet its needs in maximising sustainable
milk, pork or beef production. Our highly
skilled global technical services team help our
customers to achieve best results with our
products. This involves working closely with
customers on areas that include genetics,
production, health, nutrition services and
farm management.

} people development

With a team of talented people who are
passionate about their work, at Genus
we are committed to making a positive
difference for customers. This means
ongoing skills development and strengthening
compensation and recognition schemes to
attract and retain the right people for our
business. We strive to create a meritocratic
and performance driven culture where
people leadership is highly valued.

Genus plc Annual Report 2012 13

company overviewbusiness reviewcorporate governancefinancial statementsour strategy

Genus has developed a robust strategy to capture the very significant
growth opportunities in the animal genetics market, particularly in the BriC
countries. to achieve this, Genus will increasingly focus on customer needs
and adopt a stronger market place orientation. the detailed strategies to
support this call for continuing commitment to r & d and focus on key
markets and segments while strengthening key competencies.

We have developed
a robust strategy
built around a
stronger market
place orientation to
ensure we capture the
opportunities in global
animal genetics.

Genus’ new strategy focuses on 4 key elements

1. increasing genetic control and product differentiation
Increasing our control over genetics to help us create differentiated
products for customers

2. targeting key markets and segments
Expanding into emerging markets and targeted customer groups,
whilst strengthening our position in core markets

3. tailoring the business model
Shaping our product and service around the needs of specific markets and
customer segments. Delivering the right product, right level of service, at the
right time

4. strengthening the core competencies
Making sure we have the right skills and systems in place across critical
areas of our business

strateGiC FrameworK
We have built our vision for Genus on a
firm foundation.

Our strategy provides the collective
actions that determine how we will capture
these opportunities.

We are focused on providing animal genetic
improvement on a global basis and we already
have leading global market shares in each of
our three current business sectors, pork,
dairy and beef. There are very significant
opportunities to grow in these three areas
and beyond.

Guiding everything we do are our values; the
fundamental beliefs that enable people to
make the right choices when faced with
difficult decisions.

The result is a vision, strategy and values
that are unique to Genus; ones that will
continue to set the Company apart from the
competition and maintain our leadership in the
years ahead.

14 Genus plc Annual Report 2012

Increasing genetic control
and product differentiation

Tailoring the business
model

A top Genus priority is increasing control
over the genetics we market and ensuring
our products maintain a lead over those of
our competitors through increased product
differentiation. The starting point is an
obsessive focus on establishing our customers’
requirements and then building a R & D
programme and supply chain. This ensures
our rapid ability to bring to market products
and services that meet or exceed
customer expectations.

To achieve this, we will explore through
universities and external research organisations
the latest developments in our chosen fields
and will invest in proprietary technologies,
where relevant. This includes the ability to
breed resilience against the diseases that can
impact commercial viability and productivity.

Equally important are our efforts to leverage
and accelerate the use of genomics in our
porcine and bovine breeding programmes.
Such technologies are widening the gap
between Genus and our competitors and
emphasising differentiation. Through this
process, our technological advances are
producing animals that have increased value
for our customers in terms of factors such as
prolificacy and feed conversion.

In addition, under the gender skew element
of our research programme we are actively
pursuing sexed semen R & D to deliver an
improved and more efficient product offering.

Targeting key markets
and segments

The success of Genus rests, in large part, on
the Company’s ability to target the right key
markets and segments.

In the porcine part of our business, we are
focusing on two links in the value chain:
integrators, who produce, slaughter and
brand their products; and the farrow-to-finish
segment, which delivers stock to third parties
for further processing. We are ensuring that
we have the right products for each of these
segments in each of the critical geographies.

In the dairy and AI beef business, we recognise
and target the growth that is occurring in larger
dairy customers who focus more on the scale
economics of farming. We also seek continuing
growth in the fast-expanding BRIC economies,
while retaining strong links with reliable
customers in places such as the US and
Europe. There, steady business will help
fund our expansion elsewhere.

As we focus on target markets and segments,
we recognise that every geographic market or
customer segment has its differences – and
Genus remains sensitive to them.

For example, in the US, emphasis is on pigs
that produce good bacon, while Spain and
France prefer leaner meat. For the Chinese,
good flavour prevails. Through our porcine
development programme, we have the ability to
tailor our product offering and better meet the
specific requirements of these differing markets.

Our emphasis extends beyond the products
we offer to factors such as the level and type of
service we provide. We are establishing global
technical service teams both in our porcine
and in our dairy and AI beef businesses.
These teams will ensure we offer the right
service at the right time to ensure we exceed
customer expectations.

In our porcine business we evaluate carefully
when is the right time to use the royalty model
and when to continue with direct sales. And in
dairy and AI beef, we will continue to evaluate
when to operate an owned business and
when to use distributors.

4 Strengthening core

competencies

To implement our strategy, we are
strengthening each of the five following
core competencies that set Genus apart:
(i) marketing and sales (ii) product &
development (iii) supply chain (iv) technical
services and (v) people development.

This involves gearing up our key account
management on a global basis to offer
the improved service our large enterprise
customers expect. We are also sharpening
our focus on product development through
proprietary technologies.

The strengthening of our world-class supply
chain in our porcine and dairy and AI beef
businesses is also a major priority. On the
technical side, we are increasingly providing
the sort of service that allows customers to
extract the full potential of our products. To
ensure we achieve this consistently throughout
our business, we are establishing global
technical service teams.

And, throughout Genus, we are enhancing the
skills and expertise of our people through
training and recruitment. We are also using
our global presence to transfer people and
skills well established in developed markets
into the teams we are building in the
developing markets.

tHe result
Our strategy envisages a higher level of capital investment to support the planned growth;
however, we expect such investment to remain modest in the context of the Group as a
whole. We are also planning increased investment in our core competencies and people to
ensure we are well placed to execute on our growth plans.

As a result of the planned investment, we expect the delivery of our plans to enable the
Group to achieve an improving rate of growth from 2014 onwards.

Genus plc Annual Report 2012 15

company overviewbusiness reviewcorporate governancefinancial statementsour strategy in practice
porcine

at Genus piC we are expanding our presence with
the world’s largest integrated pork producers. this
involves a full understanding of varying customer
needs and a passionate commitment to delivering
the best products to meet them.

To succeed on a global basis, we are making
every effort to attract the most talented team.

The porcine business, like any other, has
cycles during which profitability, particularly
for our customers, is tested by a reduction
of prices or increase on input cost. At such
times, it is imperative to drive better results
through more resilient business models.

Genus PIC understands customer economics
and uses genetics to deliver better, more
efficient pigs with greater carcass value.

Increasing genetic control
and product differentiation

Tailoring the
business model

wHat we plan to do in 2013
}} We will continue investing in proprietary

technologies that accelerate genetic progress and
increase the value we deliver to our customers.

}}

Imputation in genomics will be used to further
improve our product differentiation. Our
genomics work to date shows impressive
results in economically relevant traits, with
accuracy of breeding values increasing by
71% for litter size, and by 58% for pig mortality.

wHat we plan to do in 2013
}}

Improving our understanding of the different
needs of our customer segments will enable us
to continuously tailor our products and services
and exceed customer expectations.

}} We are establishing a global technical service
team that will assist in ensuring we deliver the
best product and service tailored to specific
customers and markets. This will include our
fast growing business in China.

}} We will start a two-year global programme to

}} Large integrated customers have

reduce the dissemination lag (the time it takes to
get the latest genetics to the market) in the most
relevant markets and at our customers’ systems
worldwide. Our target is to reduce the lag by
one full year.

enthusiastically adopted our royalty model for
cost effectively improving the performance of
their pig production systems. We will continue
expanding this model, already well established
throughout our customer base in North
America, by extending it to other geographies
to the benefit of customers and Genus alike.

Targeting key markets
and segments

Strengthening core
competencies

wHat we plan to do in 2013
}} With presence in more than 30 countries, we
will continue solidifying our leading position in
most markets across the Americas, especially
the US. We will expand our presence in Brazil,
Russia, Germany, Spain and China.

}} Leveraging Genus’ strengths in the Americas
will enable us to build success in the world’s
largest integrated and production systems.

wHat we plan to do in 2013
}} Our technical service group will continue to
realise the full potential of our genetics.

}} Genus PIC will continue to attract and retain

the best talent in the industry.

We are establishing
a global technical
service team that
will assist in ensuring
we deliver the best
product and service
tailored to specific
customers and
markets.

Bill CHristianson
CHieF oper atinG
oFFiCer , Genus piC

16 Genus plc Annual Report 2012

dairy and ai Beef

Genus aBs leads the world in dairy and ai beef
semen genetics. the Company has a strong and
successful development programme and unrivalled
global coverage.

By acting locally, Genus ABS leverages
strengths in people and technology with the
highest standards of innovation and service
that transcend national borders.

In some countries, we are seeing an
accelerated growth in the scale of dairy
farming. This offers exciting opportunities to
achieve efficiency gains as well as the benefits
of specialisation.

Increasing genetic control
and product differentiation

Tailoring the
business model

wHat we plan to do in 2013
}} We are fully committed to deliver the best

wHat we plan to do in 2013
}} We acknowledge the differences among

genetics of the industry. The application of our
new technologies will drive a step change in our
customers’ farms.

}} We expect to sustain the leadership of

our product line and to continue meeting
demand for the highest ranked bulls in
the industry.

We are fully
committed to deliver
the best genetics of
the industry.

riCardo Campos
CHieF operatinG
oFFiCer, Genus aBs

customer segments and will tailor our product
offers accordingly. This will involve ongoing
refinement of our range as well as timely
deliveries in required volumes.

}} We will establish a global technical service team,

leveraging off our successful experience in
markets such as Mexico, to bring a better all
round offering to key customers.

}} We will establish a global marketing team that will
facilitate further improved coordination between
customer needs and product development.

}} We will seize the opportunity to support the

coordination of the supply chain with ever-better
products and people dedicated to making a
positive change in what remains a very
traditional industry.

Targeting key markets
and segments

Strengthening core
competencies

wHat we plan to do in 2013
}} We are putting increasing emphasis on further
developing skills in key account management,
technical service, product development and the
supply chain.

wHat we plan to do in 2013
}} Genus ABS will expand presence in developing

markets, with the BRIC economies and Argentina
offering the most promising opportunities.

}} At the same time we will sustain our successes
in very competitive countries such as Mexico,
Italy, France and the UK.

}} We will continue to recognise and accommodate
the differing needs of traditional farmers and
large dairy systems, with a particular focus on
ensuring we capture the growth in the latter
through targeted product and service offerings.

}}

In North America, we will focus our efforts in the
large enterprise segment.

Genus plc Annual Report 2012 17

company overviewbusiness reviewcorporate governancefinancial statementsour strategy in practice
asia

the world’s largest continent, extending across
30% of the globe’s land mass is home to 3.9 billion
people, or 60% of the world’s population. and that
population is growing, as are incomes and appetites.
For Genus, the opportunities are unrivalled.

China alone accounts for almost 50% of the
pigs in the world. India has 15% of the dairy
cows. And Russia, which spans Europe and
Asia, is one of the globe’s largest importers
of all animal protein.

Food availability, safety and quality are critical
objectives for each of these countries, with
self-sufficiency in animal protein production
featuring as an important element of their
national plans. Genus Asia is becoming an
increasingly significant feature in those plans,
building our business in pork, dairy and beef.

Case study –
GrowinG our porCine Business in CHina

In China’s pork business, we are looking
into joint ventures with large food
companies that are vertically integrating
upstream. We are also considering
alliances with feed companies that are
moving downstream into production and
later bringing their pork to the market.

Our recently-signed joint venture (‘JV’)
agreement with BeSun, a leading company
in the Chinese pork market, expands Genus’
porcine business in China and is in line with
our new corporate strategy. Genus will
become a 49% partner in the JV through a
cash investment of approximately £8.7m. The
JV will own a recently completed state-of-the-
art nucleus farm. We will provide, over the
next nine months, pure line porcine stock
from Genus PIC’s global high-health
pyramid and we will manage the farm. This
arrangement will safeguard the Company’s
intellectual property and form a framework for
a royalty revenue model similar to those in
operation in other key porcine geographies.

The JV will produce grandparent sows,
with the output from the farm being used
proportionally by the JV partners. Once in full
operation, the herd will underpin production
of 10 million slaughter pigs per year.

We are well
established but will
continue to pursue
growth in a number of
Asian markets.

Jerry tHompson
CHieF operatinG
oFFiCer, Genus asia

Increasing genetic control
and product differentiation

Tailoring the
business model

wHat we plan to do in 2013
}} We will work to develop a differentiated product
pipeline for key countries such as Russia, India
and China. In porcine, this will be through our
global product development programme. In dairy,
we will ensure the product from our local studs is
tailored to the individual market requirements.

}} We will work to ensure that the latest genetics
are available in specific markets, through more
rapid dissemination.

wHat we plan to do in 2013
}}

In China, we will continue to pursue joint venture
opportunities with large food companies that are
integrating vertically in pork production, such as
the recently agreed joint venture with BeSun.

}}

In dairy, we will expand our distribution
in countries such as China to target large
accounts. In India we will continue the
development of production and distribution
channels to serve this more fragmented market.

}} Our focus on large customers will be leveraged
through the targeted use of specialist technical
services, calling on the global team where
appropriate to ensure we bring our world
leading expertise to our key customers in Asia.

Targeting key markets
and segments

Strengthening core
competencies

wHat we plan to do in 2013
}} We are well established but will continue

to pursue growth in a number of Asian markets.
Genus is placing particular emphasis on China,
Russia and India.

wHat we plan to do in 2013
}} We will leverage the knowledge and experience
of the Genus Group global teams, including
internal staff transfer and assignments.

}} We are rapidly building our teams in China,

Russia and India to ensure we have the right
resources in place to support our ambitious
growth plans. This includes putting emphasis
on further developing skills in key account
management and technical service.

18 Genus plc Annual Report 2012

research and development

For Genus, r & d is crucial for growing our
businesses and honing the Company’s competitive
edge. the focus is on meeting, and anticipating,
customer needs and aligning technical advances
to business strategy in the areas of porcine,
dairy and beef.

The quality of Genus
science is one of the
Company’s great
differentiators.

dr denny FunK
CHieF sCientiFiC oFFiCer

Just as Genus today is reaping the benefits
of technologies developed a decade ago, in
five to ten years’ time, today’s R & D efforts
will enable us to maintain Genus’ leadership
in every aspect of our operations. We will
continue to accelerate speed to market
through close involvement with Genus
marketing, sales and technical service
groups and, of course, our customers.

Our research programme is focused on three
core platforms:

Genus produCt advantaGe
The quality of Genus science is one of the
Company’s great differentiators. To determine
precisely how R & D sets us apart from the
competition, we regularly benchmark our
performance. For example, in porcine, feed
costs represent about 75% of the cost of
production. At Genus, we regularly collect
feed efficiency differences from head-to-head
trials in the marketplace. Genus PIC’s
products consistently rank first compared
to competitor products.

Disease resilience

We continuously benchmark our value against
our competitors.

}} We understand the impact of major disease
outbreaks in the animal world, including foot
and mouth, BSE, swine fever and Porcine
Reproductive and Respiratory Syndrome.
Genus is working on research projects to
deliver animals that are more robust or less
affected by diseases of this kind.

Gender skewing

}} There is an already established market

for sexed semen that relies on third party
technology. We are actively pursuing sexed
semen R & D to deliver an improved and more
efficient product offering.

}} Sexed semen offers even greater potential value
in countries like India. There, demand for milk is
growing at 4% per year. Our aim is to double the
number of heifers available for replacement or
herd expansion, while minimising the number
of male calf births.

FEED CONVERSION RATIO

3.0

2.8

2.6

2.4

2.2

2.0

PIC A

PIC B

PIC C

PIC D

PIC E

C o m petitor 4
C o m petitor 3
PIC F
C o m petitor 5
C o m petitor 2
C o m petitor 1

Source: Genus 2010 product validation summary

Similarly, in dairy, Genus ABS has the most
bulls at the top of the US TPI rankings. And
while the number of Genus top bulls is a sign
of success, so is ‘strike rate’. Ours is the best
in the industry.

In dairy we have delivered product leadership.

3 Genomic selection

}} One of the most important tools in our core genetic
improvement programme, genomic selection,
enables the identification of genetic markers, that
can lead to significant breed improvements. This
results in an increase in the frequency of identifying
elite individuals to use in breeding programmes.

}} Over a decade of development in this area has

reduced costs and widened application to a much
bigger proportion of the breeding population.

TOP 10 0 HOLSTEIN BULLS FOR
TOTAL PERFORMANCE INDE X ( ‘ TPI’),
APRIL 2012

A B S

C RI

S elect

Accel

Alta

S e m ex

Others

Genus plc Annual Report 2012 19

company overviewbusiness reviewcorporate governancefinancial statementsmarket overview

Growth in demand is greatest in developing
countries, with China, amongst other developing
countries, at an inflection point in pork and milk
consumption and production. the demand is
primarily driven by an increase in urbanisation
and economic growth.

Income growth is
fastest in countries
with large populations,
and this is driving
demand growth
for food.

GloBal trends
Demand for animal protein is outstripping
supply and the world has shifted from an era
of structural surplus to structural shortage of
grain to sustain the growth in animal protein.
This is leading to a period of higher meat
prices. With limited and more expensive input
resources, animal production has to increase
yield by a better and higher use of genetics
and other key technologies.

Within these macro trends, milk, beef
and dairy prices and feed costs fluctuate
according to short-term demand and other
factors such as weather.

meetinG inCreasinG demand
Whilst grain prices have been volatile due
to weather fluctuations from year to year,
the underlying trend in recent years has
been for grain prices to rise because of higher
demand and the additional use of grain as
an energy source to help reduce reliance on
hydrocarbons. Ethanol now demands about
40% of the US corn production – which is one
third of the world’s total. Before the year 2000,
ethanol demanded less than 10% of the US
corn production. Since then, corn prices
have more than doubled from a range of
$2.50–$4.00 per bushel to a new level
of $5.00–$8.00.

Given such market constraints, one of the
key solutions is to increase yield through
technologies such as improved genetics.
There is enormous scope for this, with
variations of more than 100% in productivity
when comparing pork or milk yield across
different countries. Other factors that
contribute to productivity rises include
access to greater use of advanced nutrition
and better production practices.

CHINA’S URBAN GROWTH
1970–2020 (estimated)

51%

40%

60%

49%

80%

67%

33%

20%

82%

80%

Rural

Urban

20%

18%

1970

1980

1990

2000

2010

2020

Source: Data is from National Bureau of Statistics
and Ministry of Public Security

MILK PRODUCED PER COW/ YE AR
(KG)

10,000

8,000

6,000

4,000

2,000

U S

N etherlands

Great Britain
Argentina
Japan

C hina

N e w Zealand
R ussia

Brazil

India

Source: Genus 2010

Inevitably, countries with local access to large
volume of grains and/or grass will continue
leading the cost of production and capture
the export opportunity in milk, pork and beef.
Therefore, the US and Brazil are likely to
continue to lead in pork and beef exports.
New Zealand, the US, Argentina and selected
countries in EU will lead in whole milk powder,
butter and cheese.

Income growth is fastest in countries with
large populations, and this is driving demand
growth for food. For instance China has the
desire to be self-sufficient in the production of
pork. The nation already accounts for almost
50% of the pigs in the world. This aim will
generate a higher demand for grains, putting
higher pressure on prices. Within the other
factors that contribute to efficiency in animal
production, genetics plays the most significant
role in driving cheaper cost of production
and better quality of proteins. Genus will
have a significant role in helping to redress
this imbalance.

porCine
Pork consumption is growing annually in a
range of 1.5–2.5% and China accounts for
80–90% of that growth in the last decade.
The US accounts for over 35% of the world’s
exports, and keeps growing, with competitive
production cost unsurpassed. As a result there
is a correlation between China and US market
prices. We had higher prices in the first half of
our fiscal year but during the second half
(Jan–June), pork prices fell back in most
export and import markets.

20 Genus plc Annual Report 2012

The promotion of
vertically integrated
food systems is likely
to continue and is
driving strong demand
for porcine genetics.

This trend was attributable to an increase
in production in China, the US and Brazil.
The exception was the EU. It was particularly
noticeable in China, where production is less
efficient and pork prices are high and volatile
due to disease-related supply disruptions.

INTERNATIONAL PORK PRICES
PIG CARCAS S (£ PER KG)

3.00
3.0
2.50
2.5

2.00
2.0

1.50
1.5

1.00
1.0
0.50
0.5
0
0.0

Jul 09

Jul 10

Jul 11

Jul 12

– Brazil – USA – China – EU

Source: China Swine, CIRCA, CME and IEA

October 2009. Over-production has cut prices
of commodity dairy products including cheese,
butter and whole milk powder.

The decline in China has been less dramatic,
since the country is still importing large
product volumes to fill growing demand
for milk and its derivatives.

Within the EU, new standards in sow housing
are likely to cause a market readjustment.
While some countries, including the UK,
Denmark and the Netherlands, already
comply with the new regulations, in others,
such as Spain and Poland, the transformation
is more expensive. This is likely to mean a
decline in pork production of as much as 5%.

As occurs with other commodities, lower
prices and higher input cost are driving supply
adjustments of milk production in the short
term. Global milk prices are expected to recover
during 2013 and continue the upward trend
seen over the last four years that is primarily
explained by an increased demand from
importing countries like China and Russia.

More significant is the transformation in
China, which represents about half of world
pork production and consumption. There,
with urbanisation up to 50% that translates into
higher disposable income, demand for pork is
growing; pork is the preferred protein source.
To encourage increased supply to meet
demand, the government is supporting the
development of large integrated pork producers
to replace traditional small farmsteads. Large
scale pig producers now account for 37%
of pigs to market; three years ago they
represented only 25% of the total market.
The promotion of vertically integrated food
systems is likely to continue and is driving
strong demand for porcine genetics.

dairy and ai BeeF
International dairy prices have risen over recent
years from the lows experienced in 2008 and
remained at relatively high but stable levels over
much of 2011 and into early 2012. Much of the
strength in the global dairy markets is attributed
to a combination of strong demand in the
Russian Federation and South East Asia, and
constrained supplies from New Zealand and
Australia. Imports of milk powders to China
have soared, fuelled by rising income but also
food safety concerns, in the aftermath of the
milk adulteration incidents. The global dairy
sector is entering a decade of relatively high
prices, continuing strong demand, but also
higher production costs and possibly
continued market variability.

During 2012, dairy prices have declined
over the last six months to a level last seen in

INTERNATIONAL DAIRY PRICES
(PENCE PER LITRE)

40
40
35
35
30
30
25
25
20
20
15
15
10
10
5
5
0
0

Jul 09

Jul 10

Jul 11

Jul 12

–

Brazil – USA – China – Russia – EU Av
Source: CEPEA, China MOA, CME, Dairy Co and Russian Ministry of Agriculture

Cattle prices have declined in Brazil over the
last six months, a trend likely to change by
late 2012 when Brazil’s short-term production
increase comes to an end. Prices in the US
are expected to remain firm, supported by
the impact of the hot weather and drought
conditions in much of the US.

INTERNATIONAL CATTLE PRICES
LIVE CATTLE (£ PER KG)

2.0
2.0
1.8
1.8
1.6
1.6
1.4
1.4
1.2
1.2
1.0
1.0
0.8
0.8
0.6
0.6
0.4
0.4
0.2
0.2
0
0.0

Jul 09

Jul 10

Jul 11

Jul 12

– Brazil – USA

Source: CEPEA and CME

Genus plc Annual Report 2012 21

company overviewbusiness reviewcorporate governancefinancial statementsKey performance indicators

our clear objectives are
to deliver organic growth
in both our species, to drive
operating profitability
from that growth and to
generate cash. we apply
key performance indicators
to monitor and measure
our progress against each
of these objectives.

perFormanCe measures

BOVINE SALES
VOLUME GROWTH
2 012 PERFORMANCE : 8%

1
1

09 10 11

PORCINE SALES
VOLUME GROWTH
2 012 PERFORMANCE : 7%

8
7
6
5
4
3
2
1
0

09 10 11

we measure our business
by reference to indicators
in two main areas:

wHy we measure
To track the underlying performance of the
business by reference to a common unit of
measure used consistently around the world.

deFinition
The change in the volume of dairy, beef and
sorted units of semen delivered in the year.

perFormanCe
Volumes grew 8% to 15.7m doses. The driver
for this was strong growth in volumes in Latin
America and Asia, with particular expansion
in China. The growth includes semen
produced locally from production facilities
that we established in India and China last
year. Semen volumes supplied from global
studs increased by 4%.

deFinition
The change in the volume of animals on which
we receive revenue, whether through direct
sales or royalty contracts. In order to ensure
we have a consistent unit of measurement the
volume is based on market pig equivalents i.e.
slaughter animals that contain our genetics.

perFormanCe
After last year’s return to growth that followed
the agricultural recession, volume growth
has continued into FY12 with growth of 7%.
Customer confidence was apparent throughout
the year with strong evidence of royalty
customers updating their genetics regularly,
particularly in North America. Performance in
Asia, and especially China, continued the
strong growth seen throughout last year.

OPERATING PROFIT
PER DOSE OF SEMEN
2 012 PERFORMANCE : £1.32

OPERATING PROFIT PER
MARKET PIG EQUIVALENT (‘MPE’)
2 012 PERFORMANCE : £0.42

3
4

2
4

5
3

2
3

1.5

1.2

0.9

0.6

0.3

2
4

5
3

6
3

0.5

0.4

0.3

0.2

0.1

09 10 11

wHy we measure
To monitor the profitability of the business
by species unit.

wHy we measure
To monitor the net, fully allocated profitability
of the business by species unit.

deFinition
Net operating profit of dairy and AI beef
expressed per dose of semen delivered.

deFinition
Net porcine operating profit expressed
per MPE.

perFormanCe
FY12 saw a small reduction in unit
profitability. Average selling prices fell overall
on prior year due to the stronger growth in
volumes of the lower cost, locally sourced
product in Russia, India and China. In
addition, product development costs
associated with expanded bull development
programme were higher.

perFormanCe
Profit per MPE increased on FY11 as product
improvements, additional value programmes
such as CBVPlus and CBVMax, and the
continued switch to the more robust royalty
model increased porcine profitability.

}} performance; and
}} financial strength.

22 Genus plc Annual Report 2012

perFormanCe measures

REVENUE (£MILLION)
2 012 PERFORMANCE : £341.8m

8
.
1
4
3

9
.
9
0
3

4
.
0
8
2

3
.
5
8
2

350
300
250
200
150
100
50
0

PORCINE REVENUE:
% ROYALTY
2 012 PERFORMANCE : 44%

4
0 4

8 4

6 3
3

FinanCial strenGtH measure

NET DEBT TO EBITDA
2 012 PERFORMANCE : 1.1

9
.
1

7
.
1

4
.
1

1
.
1

2.0

1.5

1.0

0.5

09 10 11

wHy we measure
To track the underlying performance of the
business geographically.

deFinition
Sales of products and services analysed by
region. The change in revenues is also shown
on an underlying constant basis, to indicate
underlying sales trends.

perFormanCe
Revenues grew by 10% in actual currency
and 12% in constant currency, with strong
growth in the developing markets. In Asia
sales were up 36%, with growth of 12% in
Latin America, balancing the adverse
impact of exchange experienced during the
last quarter. Mature North American markets
had respectable growth levels, especially
in porcine.

wHy we measure
To monitor the success of the fundamental
strategy to transition porcine customers to
the royalty model.

wHy we measure
To ensure an appropriate level of financial
gearing and generation of sufficient cash
profits to service debts.

deFinition
The proportion of revenue stemming from royalty
arrangements expressed as a percentage of total
porcine revenue. This is a key indicator of Genus’
success in converting porcine customers from
direct sales to the more robust royalty model.

perFormanCe
The proportion of porcine revenue contributed
by the royalty model grew to 44% in FY12.
This was a significant increase on the prior
year and demonstrates the traction in
converting customers in the developing
markets to the royalty model. Also, customer
confidence in the developed markets returned,
with increased genetic uptake into royalty
contracts in North America.

deFinition
The ratio of net debt (being gross debt
including finance lease obligations less cash
held), to earnings (excluding JV income) before
interest, tax, depreciation and amortisation.

perFormanCe
The ratio reduced during the year from
1.4 to 1.1, reflecting the business’ improved
profitability, focus on cash generation and the
reduction in net debt from £67.9m to £56.4m.

CASH CONVERSION
2 012 PERFORMANCE : 96%

RETURN ON CAPITAL
EMPLOYED
2 012 PERFORMANCE : 18%

1
0
1

6
2 9
9

4
7

120

100

8
1

7
1

6
1

5
1

09 10 11

wHy we measure
To monitor the Group’s performance at
converting profits into cash through working
capital management disciplines.

wHy we measure
To ensure we invest wisely and achieve rates
of return for the Group in excess of our cost
of capital.

deFinition
Cash generated from operations before
interest and taxes, expressed as a
percentage of adjusted operating profit.

perFormanCe
The business continued to target reduction
in net debt through disciplined working capital
management and cash conversion improved in
spite of ongoing investment. FY12 experienced
continued investment in the bull programme, to
meet future demands identified in the strategy
review, and investment in production and
product development facilities. Genus is also
required to pay deficit repair contributions into
its defined benefit pension schemes.

deFinition
Return on capital employed (‘ROCE’)
is defined as adjusted operating profit
expressed as a percentage of historical
(non IAS 41 adjusted) gross assets.

perFormanCe
ROCE increased from 17% last year to 18%
for the year to 30 June 2012. The historical
cost asset base stabilised after the significant
investments made two years ago, with more
modest investment in infrastructure being
made this year. Investment in the bull
programme and development spend was
offset by lower levels of inventory holdings
and amortisation of intangible assets.

Genus plc Annual Report 2012 23

company overviewbusiness reviewcorporate governancefinancial statementsFinancial and operational review
Financial review

we achieved record results with revenues up 10%
to £341.8m and adjusted profit before tax up 19%
to £46.5m.

Adjusted basic
earnings per share
rose by 19% to
53.5 pence (2011: 44.8
pence). The increase
was in line with the
improvement in profit
before tax.

JoHn worBy
Group FinanCe direCtor

adJusted perFormanCe

Adjusted operating profit
Share of JV profits*
Adjusted operating profit inc JV
Net finance costs
Adjusted profit before tax

* Excludes net IAS 41 valuation movement in biological assets and taxation.

actual currency

2012
£m
45.8
2.8
48.6
(2.1)
46.5

2011
£m
42.2
3.1
45.3
(6.3)
39.0

Constant
currency
Movement
%
10

Movement
%
9

The results for the year ended 30 June 2012
show that Genus has continued to make good
progress. We achieved record results with
revenues up 10% to £341.8m and adjusted
profit before tax up 19% to £46.5m. As in
previous years, we continue to use adjusted
operating profit and adjusted profit before tax
as the prime measures of financial
performance, particularly in monitoring
underlying performance.

The following non-cash or non-recurring items
are excluded from adjusted operating profit:
}} net IAS 41 valuation movement in biological

assets;

}} amortisation of acquired intangible assets;
}} share-based payment expense; and
}} exceptional items.

revenue
Revenue increased by 10% from £309.9m to
£341.8m. Revenue grew across the Group’s
activities, with porcine revenues up 14% and
dairy and AI beef revenues up 6%. Growth
was particularly strong in developing markets
with Latin America revenues up 12% and Asia
up over 30%.

adJusted proFit BeFore tax
Adjusted operating profit, including
joint ventures, increased by 7% to £48.6m
(2011: £45.3m) and adjusted profit before tax
increased by 19% to £46.5m (2011: £39.0m).
The percentage improvement in operating
profit and profit before tax, at constant
exchange rates, was 9% and 22% respectively.

Operating profits increased in all four regions.
Profit growth was strongest in Asia, where
significant volume growth and a buoyant
market in porcine, especially in China, led to
a 41% increase in profits to £10.4m. In North
America, profits increased by 12% to £39.5m,
driven by increased volumes in porcine and
higher margins in both porcine and dairy and
AI beef. Latin American profits also increased
by 20% to £16.2m. In the more mature
European market, profits improved to
£18.9m, an increase of 3%.

R & D costs were 13% higher including
increased investment in research activities,
particularly in relation to genomic evaluation
work. Central costs were also higher, reflecting
investment in the establishment of an enhanced
Group HR function and a dedicated strategy
unit in support of the new Genus strategy.

A more detailed review of operating profit
performance by region is set out on pages
28 to 30.

It is also relevant to look at the Group’s
performance by species, particularly in light
of the change in structure introduced in July
2012 to align the organisational structure with
the new strategy.

In this respect, both porcine and dairy and AI
beef increased revenues and profits. Porcine
revenues grew by 14%, with royalty income
up 10% to £57.6m. Underlying volumes were
up 7%. Margins improved as a result of
initiatives such as the CBVPlus and CBVMax
programmes in North America whereby we
deliver improved value to our customers
through using higher quality boars. The
increased volumes and improved margins
led to a 19% increase in porcine profits.

24 Genus plc Annual Report 2012

perFormanCe By speCies

revenue
Dairy & AI beef
Porcine
Research & development

adJusted operatinG proFit inC Jv
Dairy & AI beef
Porcine
Central costs & research

Dairy and AI beef revenues increased by
6%. Volumes increased by 8%, with growth
strongest in China, India and Russia. In these
countries, we saw a benefit from increased
sales of lower priced locally produced semen
as well as continuing growth in sales of imported
semen. Sales volumes of semen from our global
studs, which represent over 82% of semen
sales, increased by 4% and average selling
prices improved by 3%. The resultant
improvement in margins was partly offset by the
higher costs of the increased bull development
programme to support future volume growth.
Overall, profits increased by 6%.

exCHanGe rates
The Group’s products and services are sold
to customers in 70 countries across six
continents. Consequently, our results are
subject to variation based on the translation
of profits at different exchange rates. As in
previous years, we have shown changes in
performance on a constant exchange rate basis
to illustrate underlying business performance.

actual currency

2012
£m

2011
£m

Movement
%

Constant
currency
Movement
%

165.1
165.5
11.2
341.8

155.1
145.7
9.1
309.9

20.8
43.6
(15.8)
48.6

19.7
36.6
(11.0)
45.3

6
14

6
19

7
15

8
20

In the year ended 30 June 2012, the
Group’s adjusted operating profits were
reduced by £0.9m. This was due to a modest
strengthening of Sterling against currencies
such as the Brazilian Real and Mexican Peso in
the last quarter of the year. This had the impact
of reducing the growth in adjusted operating
profits for the Group from 9% to 7%.

The key average and year-end exchange rates
used to translate the results for the year were:

average

Closing

2011
1.61
US Dollar/£
1.11
Euro/£
2.51
Brazilian Real/£
Mexican Peso/£ 20.90 19.47 21.06 18.83

2012
1.57
1.24
3.17

2012
1.59
1.19
2.86

2011
1.60
1.16
2.65

Genus plc Annual Report 2012 25

company overviewbusiness reviewcorporate governancefinancial statementsFinancial and operational review
Financial review continued

ADJUSTED BASIC EPS
(PENCE)

10
0

5
.
3
8 5
.
4
7 4
.
6
3

1
.
6
3

09 10 11

STATUTORY BASIC
EPS ( PENCE)

80
70
60
50
40
30
20
10
0

9
.

5
6

6
4

9
4

0
3

09 10 11

DIVIDEND PER SHARE
(PENCE)

4
1

3
1

2
1

1
1

09 10 11

profit before tax showed growth of 19%. The
Board believes these adjusted profit measures
provide a better measure of the Group’s
underlying performance.

taxation
The effective rate of tax for the year, based
on adjusted profit before tax, was virtually
unchanged at 31.0% (2011: 31.5%).

The effective rate remains higher than the UK
corporate tax rate. This is due to the mix of
overseas profits, particularly the proportion of
profits generated in North America, where the
tax rate is approximately 39%.

earninGs per sHare
Adjusted basic earnings per share rose by
19% to 53.5 pence (2011: 44.8 pence). The
increase was in line with the improvement in
profit before tax.

Basic earnings per share on a statutory basis
were 65.9 pence per share (2011: 49.0 pence).

dividend
The Board is recommending to shareholders
a final dividend of 10.1 pence per ordinary
share. Taking into account the interim dividend
of 4.5 pence per share paid in March 2012,
this will result in a total dividend for the year
of 14.6 pence per ordinary share, representing
an increase of 10% for the year as a whole.
Subject to shareholder approval at Genus’
forthcoming Annual General Meeting, this
dividend will be paid on 23 November 2012
to shareholders on the register at the close
of business on 9 November 2012.

Dividend cover remains strong, with the
dividend covered 3.7 times by adjusted
earnings (2011: 3.4 times).

BioloGiCal assets
A feature of the Group’s net assets is a
substantial investment in biological assets,
which are required by IAS 41 to be held at fair
value. At 30 June 2012, the carrying value of
biological assets was £282.2m (2011:
£238.8m) as set out in the table below:

Non-current assets
Current assets
Inventory

Represented by:
Porcine
Dairy & AI beef

2012
£m
223.0
36.8
22.4
282.2

107.6
174.6
282.2

2011
£m
187.0
27.3
24.5
238.8

74.6
164.2
238.8

FinanCe Costs
Net finance costs reduced by £4.2m to £2.1m
(2011: £6.3m). Approximately £2.0m of this
reduction arose from the benefits of the
Group’s refinancing in March 2011. The
remainder was due to a combination of
reduced net borrowings, lower interest on
pension liabilities and a reduced average
interest rate; the latter was due to the fixed
rate swaps entered into at the time of the
Sygen acquisition maturing.

Following the increased pension deficit at
30 June 2012, including the additional one-off
pension provision made, the interest cost
on pension liabilities will be higher in the
year ahead.

exCeptional items
There was a £0.9m (2011: £1.2m) net
exceptional credit this year. This comprises
three elements:
1. A restructuring charge of £2.0m principally
relating to refocusing the European porcine
business on larger integrated customers;
2. A provision of £20.1m (2011: £nil) for potential
additional pension costs in respect of the
multi-employer Milk Pension Fund (‘MPF’).
The triennial valuation of the MPF at March
2012 is expected to show an increased deficit
particularly following recent reductions in gilt
yields. In light of this, and the difficulty certain
other employers may experience in fulfilling
their obligations to the scheme, the Group
concluded that it was necessary to make a
provision for its potential joint and several
obligations in connection with the MPF
scheme. The provision relates to potential
future cash payments that may arise over a
number of years as a result of the possibility
of certain employers in the MPF being unable
to meet increased deficit repair contributions.
These potential costs are additional to the
pension liabilities in respect of Genus’ past
and present employees in the now closed
MPF. They arise because of Genus’ joint and
several liability with the other employers for
the obligations of the MPF; and

3. An exceptional credit of £23.0m as a result
of a change in the basis of calculating the
value of the Group’s porcine pure line
breeding animals under IAS 41. This
change has increased the carrying value of
biological assets under IAS 41 but has no
cash impact. Further details are given in
note 15 to the Financial Statements.

statutory proFit BeFore tax
Operating profit on a statutory basis was
£54.2m compared with £44.8m last year. The
statutory profit before tax was £54.4m (2011:
£40.8m). These statutory results benefit from
the impact of the exceptional items discussed
above combined with a higher underlying net
fair value credit on biological assets under
IAS 41 of £15.8m (2011: £9.8m). As noted
above, the performance as measured by
adjusted operating profit including joint
ventures showed growth of 7%, and adjusted

26 Genus plc Annual Report 2012

The Group had a
strong cash flow
performance with a
£14.5m cash inflow
despite increased
capital investment.

The increase in the overall carrying value of
biological assets includes a £33.0m increase
in the carrying value of porcine biological
assets; £23.0m of this increase relates to a
reassessment in the method of calculation of
the value of pure line animals in the Group’s two
nucleus farms, valuing the herds as entities and
using discounted cash flows from the herds’
saleable product. This better reflects the true
value of these animals. The remaining increase
is due principally to the higher number of
animals held in the Group’s farms, particularly
those in China, to meet customer needs. The
carrying value of biological assets related to
dairy and AI beef has increased by £10.4m
mainly due to an increase in the value of the
bulls in the development programme.

CasH Flow and net deBt

Cash generated by

operations

Interest, tax and dividends
Capital investments
Other
Net cash inflow before swap

settlement

US Dollar swap settlement

2012
£m

2011
£m

43.9
(22.0)
(9.1)
1.7

14.5
–
14.5

39.2
(18.3)
(4.8)
0.9

17.0
(7.0)
10.0

The Group had a strong cash flow
performance, with a net cash inflow for the
year of £14.5m (2011: £10.0m). This was
notwithstanding increased capital investment
and higher tax payments as a result of the
Group’s growing profits.

Capital investment in the year increased to
£9.1m (2011: £4.8m). This includes expenditure
in expanding the Group’s dairy and AI beef
production facilities in Canada and additional
spend in porcine on product development
facilities in North America and a production
farm in China.

We reduced net debt from £67.9m to £56.4m
at 30 June 2012.

The Group’s financial position and ratios
remained strong and there is substantial
headroom under our £132m borrowing
facilities. Interest cover, based on net interest
excluding interest on pension liabilities,
improved to 17.7 times (2011: 7.9 times) and the
ratio of net debt to EBITDA as calculated under
our financing facilities reduced from 1.4 to 1.1.

retirement BeneFit oBliGations
The Group’s retirement benefit obligations at
30 June 2012, calculated in accordance with
IAS 39, were £67.3m (2011: £23.6m) before
tax and £51.0m (2011: £17.5m) net of related
deferred tax. The significant increase in
obligations in the year arose from an increase
in the deficit in the MPF, a multi-employer
defined benefit scheme, together with an
additional provision of £20.1m. The total deficit
of the MPF scheme, calculated in accordance
with IAS 19 at 30 June 2012, increased from
£39m to £102m. This was due to the impact
of lower bond yields and only modest
investment returns in the year. Genus’
estimated share of this deficit increased from
£14.3m to £57.2m. This is after taking into
account the £20.1m exceptional provision
made in connection with the Group’s potential
joint and several liabilities under the scheme.
We consider this exceptional provision to be
necessary in light of the higher underlying
deficit and the likely difficulty of certain other
employers in the MPF being able to meet
their obligations.

During the year, annual deficit contributions
payable in respect of the Group’s defined
benefit scheme amounted to £1.9m. A triennial
actuarial valuation of the MPF as at 31 March
2012 is under way. We expect this valuation to
result in higher deficit contributions in the future.

Genus plc Annual Report 2012 27

company overviewbusiness reviewcorporate governancefinancial statementsFinancial and operational review
review of operations continued

market conditions provided reasonable
profitability for Genus customers throughout
most of the year.

Our North American
porcine production
multiplication
network was
expanded by 9%.

nortH ameriCa

Revenue
Adjusted operating profit
Adjusted operating margin

Revenues rose by 6% to £121.5m and
operating profit increased by 12%. The
porcine business performed strongly, with
more modest progress in dairy and AI beef.

Market conditions provided reasonable
profitability for Genus customers throughout
most of the year. During the last quarter,
however, market conditions became more
difficult for some customers due to increased
feed costs and declining milk prices.

In porcine, we continued to gain market
share, which improved to 36% as volumes
grew by 4%. Sales of animals under royalty
contracts were also higher. This will lead to
further increases in royalty income in the years
ahead. In addition, we continued to implement
successfully our CBVPlus and CBVMax
programmes whereby we deliver improved
value to our customers through using boars
of higher genetic merit. This, along with price
increases, has enabled us to improve margins
whilst at the same time providing better service
to customers. Our North American porcine
production multiplication network was
expanded by 9%. This will provide the

actual currency

2012
£m
121.5
39.5
33%

2011
£m
114.5
35.3
31%

Movement
%
6
12

Constant
currency
Movement
%
5
11

necessary supply to continue the expansion
of our business in North America and provide
an increased number of animals for export
to Genus customers in other countries. In
particular, this supported our growth in the
Latin America and Asian regions.

In May 2012, Genus PIC celebrated its 50th
anniversary in conjunction with the annual
PIC Symposium. Over 500 key customers
representing 22 countries were in attendance.

The dairy and AI beef business had a more
difficult year; hot weather at the beginning of the
year and lower milk prices towards year-end
had an impact on the demand for dairy semen.
This was most notable in the large dairy
enterprise sector. Beef sales were more
encouraging and rose modestly. Overall,
however, volumes were down 2%. More
effective sales management enabled a small
improvement in average selling prices. This,
together with continuing tight management of
costs, resulted in a small improvement in dairy
and AI profits.

28 Genus plc Annual Report 2012

The performance
across Latin
America benefited
from improved
customer services.

Volumes grew by
6%, aided by an
increased emphasis in
a number of markets
on our reproductive
management services.

latin ameriCa

Revenue
Adjusted operating profit exc JV
Adjusted operating profit inc JV
Adjusted operating margin exc JV

Latin America achieved another year of strong
growth. Revenue increased 12% to £52.5m and
operating profit (excluding joint ventures) grew
20% to £16.2m. A disappointing performance in
our Brazilian joint venture caused by weak pig
prices in Brazil held back growth in operating
profit including joint ventures to 12%.

Volumes in porcine grew by 16%. We
continued to focus on converting customers
to royalty contracts. Consequently, royalty
income grew 34%. Our business in Chile
performed well, benefiting from increased
volumes and improved margins due to the
superior performance of our animals in
customers’ herds.

Our joint venture in Brazil had a difficult year,
with lower pig prices caused by the temporary
closure of the export market to Russia. As a
result, our share of profits was lower.

europe

Revenue
Adjusted operating profit
Adjusted operating margin

Revenue in Europe increased by 4% and
operating profits increased by 3%.

Our porcine business in Europe continued to
improve in a difficult market. Market conditions
for European pig farmers remained challenging.
Short-term profitability for farmers has improved
as a result of higher pig prices. However, with
the likely need for many producers to invest in
order to comply with the European welfare
legislation that becomes effective in 2013,
demand has been weak. Consequently,
volumes in the porcine business in Europe
were down 3%. Firmer pig prices together with
cost reductions helped to improve margins.

During the year, we commenced the
implementation of a restructuring of the
European porcine business to sharpen the
focus on larger integrated pork producers
and to reduce our exposure to directly owned
farming activities. We implemented cost
reductions in Germany, the benefits of which
started to become apparent in business
performance towards the end of the year.
Another milestone was the recent appointment
of a new senior executive with considerable
industry experience to lead our European
porcine operations.

actual currency

2012
£m
52.5
16.2
18.2
31%

2011
£m
47.0
13.5
16.3
29%

Movement
%
12
20
12

Constant
currency
Movement
%
23
26
18

Progress continues in converting
more Brazilian customers towards the
royalty model.

In dairy and AI beef, volumes grew by 11% in
markets that generally remained favourable.
Mexico was the exception, due to weak milk
prices. Chile and Argentina had a particularly
good year, with strong volume growth and
improved prices. The new business in
Colombia, that opened in February 2011,
has made good progress.

The performance across Latin America
benefited from improved customer services.
In beef, the fixed AI programme continued
to grow. In dairy, customer support services
were enhanced through an increased level
of dairy technical services support made
available to our key customers.

actual currency

2012
£m
117.3
18.9
16%

2011
£m
113.3
18.4
16%

Movement
%
4
3

Constant
currency
Movement
%
4
4

Demand for dairy and beef semen has been
reasonable, with European milk prices higher
than the comparable prior period for most of
the year albeit there was a modest fall towards
year-end. Volumes grew by 6%, aided by an
increased emphasis in a number of markets on
our reproductive management services (‘RMS’).

In the important UK market, we increased
market share. We contained the impact of
cost increases in fuel and other areas by
replacing a large proportion of the fleet with
more fuel efficient and lower CO2 emitting
vehicles. We also implemented the latest fuel
efficiency monitoring technology. In Italy, we
achieved benefits through an improved local
bull line up and increased emphasis on RMS.
During the year, we acquired our small Polish
distributor, which will enable us to accelerate
expansion of our presence in the large Polish
dairy market. Elsewhere in our distributor
markets, we saw good volume progress in
Hungary and Saudi Arabia. However, volumes
in Turkey were affected by a difficult market.
Promar, our agricultural consulting business,
continued to perform well, winning new
contracts in the year.

Genus plc Annual Report 2012 29

company overviewbusiness reviewcorporate governancefinancial statementsFinancial and operational review
review of operations continued

The Asian region
achieved an excellent
performance, with
strong growth broadly
across the region and
in both the porcine
and dairy and AI beef
businesses.

asia

Revenue
Adjusted operating profit exc JV
Adjusted operating profit inc JV
Adjusted operating margin exc JV

actual currency

2012
£m
48.9
10.4
11.1
21%

2011
£m
35.9
7.4
7.7
21%

Movement
%
36
41
44

Constant
currency
Movement
%
40
39
43

The Asian region achieved an excellent
performance, with strong growth broadly
across the region and in both the porcine
and dairy and AI beef businesses. Revenues
increased by 36% and operating profits
(including joint ventures) by over 40% to £11.1m.

of breeding animals. We announced the first
such joint venture, involving a large 4,250-sow
nucleus farm with an existing customer, BeSun,
shortly after the year-end. We are also
progressing discussions regarding potential
joint ventures with other integrated producers.

In porcine, volumes grew strongly by 33%. In
Russia, we strengthened further our position in
a number of key accounts with new stockings.
This included a number of animals provided
directly from our US operations. Similarly,
volumes grew in the Philippines, despite more
difficult market conditions there for part of the
year. In both countries, we have continued to
convert customers to the royalty model,
which now accounts for over 40% and 20%
respectively of volumes in these two countries.
In China, where to date we have not operated
the royalty model, direct sales grew. Profitability
in China also benefited from buoyant market
conditions in the first half of the year. We also
achieved higher volumes elsewhere, including
a large multiplication and nucleus farm stocking
in South Korea.

During the year, milk prices were stable in China
and steadily increased in most of our other key
dairy markets in Asia. This, combined with
growing demand, resulted in the volume of
semen sold by our dairy and AI beef business
increasing by 24%. Semen produced locally
from studs in China, India and Russia (which
started production in August 2011) was the
key driver of the high level of growth. Increased
volumes of imported semen from Genus global
studs supplemented this growth. During the
year, we received approval to open a warehouse
for imported semen in India. This will enable us
to improve further availability and service to our
customers. Our business in Australia performed
well, with volumes up 8% and firmer prices as
farms recovered from the drought of the
previous year.

In China, we are realigning our production
to be more in line with the new strategy that
focuses on large integrated pork producers.
This strategy envisages entering into joint
ventures with such customers and less reliance
on direct sales from our own local production

Across our business in Asia, and particularly
in China, we have strengthened the
management and supporting technical
service teams. This will ensure the business
is well placed to achieve our planned growth
in the years ahead.

30 Genus plc Annual Report 2012

Genus continues to
invest ahead of the
rate of inflation in
R & D to ensure that
our products meet
customer needs and
put us ahead of our
competitors.

researCH and development

Research & development costs

actual currency

2012
£m
28.7

2011
£m
25.3

Movement
%
13

Constant
currency
Movement
%
14

Genus continues to invest ahead of the rate of
inflation in R & D to ensure that our products
meet customer needs and put us ahead of our
competitors. During the year, the costs of our
R & D increased by 13% to £28.7m. Porcine
product development costs rose principally as
a result of higher feed costs, net of increased
slaughter revenue, as part of running the two
nucleus farms in North America. Dairy and beef
product development costs were higher due to
the additional costs associated with the
increased size of the bull development
programme, which is crucial to providing
capacity for anticipated growth. We also
invested more heavily on research activities
targeted on programmes devoted to genomic
evaluation, gender skew and disease resistance.

porCine produCt development
During the year, we completed the
implementation of genome wide selection
in our breeding programme using our
extensive proprietary database of over 14
million performance records and genomics
software developed in house. We now have
a database of over 20,000 animals that have
been genotyped for 60,000 genomic regions
across all chromosomes of the pig. In addition,
we have completed the development of
imputation programmes that will allow us to
use this information to genotype an even larger
number of animals going forward at a much
lower cost per animal. This will allow us to
increase the accuracy of selection based
on estimated breeding values within
our programme.

As feed costs continue to rise, feed efficiency
remains an important trait. With programmes
such as our cross-bred trials and the increased
use of specialist feeders to record feed usage,
PIC continues to deliver the most feed-efficient
animals in the industry.

dairy and ai BeeF produCt development
Throughout the past year, ABS bulls
continued to perform well in the national
rankings of the countries where we progeny-
test bulls. In the US, ABS averaged 30 bulls
in the internationally important top 100 TPI
rankings across all three sire summaries in
the year. The UK had similar results while Italy
contributed with some key bulls during the
year that drove additional volume and
improved prices.

We continued to supply differentiated genetics
into Russia, China, and India. Bulls shipped to
our new stud in Russia produced their first
saleable units in September 2011. During the
year, we shipped a total of 29 dairy and six
beef bulls to our partners in China, where we
now have a population of 64 dairy bulls and
14 beef bulls. In India, we shipped embryos
produced in Canada from elite Holstein
pedigrees to our partner’s stud. We expect
the first calves from these imported embryos
will be born in the Autumn of 2012.

researCH and development
We refocused and enhanced Genus research
activities during the year to place increased
emphasis on our three key research
programmes: genomic evaluation, gender
skew and disease resistance. We continue to
make progress in these areas, although our
initiative to develop a proprietary sexed semen
product is progressing but taking longer than
originally anticipated. We have extended key
sexed semen supply contracts to ensure
continuity of supply in this growing segment
of our dairy and AI beef business.

Genus plc Annual Report 2012 31

company overviewbusiness reviewcorporate governancefinancial statementsprincipal risks and uncertainties

Genus operates a structured and embedded risk
management system that identifies, evaluates and
prioritises risks and uncertainties and actively
reviews control and mitigation activities.

wHat we did in 2012
During 2012, following consultation
with the Genus Executive Leadership
Team and the Audit Committee, we
reviewed our risk management
system. Key elements now include:
}} oversight by the Head of Internal

}}

Audit and Risk;
regular meetings and workshops to
identify and discuss key risks and
mitigations with senior Group
management;

}}

three times a year review of the
corporate risk register in terms of
completeness and accuracy at a
meeting of the Genus Executive
Leadership Team;

}} Audit Committee discussion of
the latest corporate risk register
and the risk management system
at each of its regular meetings, with
subsequent reports to the Board;
and
targeted Board review of selected
specific risks contained in the
corporate risk register.

}}

wHat we plan to do in 2013
During 2013, we intend to continue to
operate the improved risk management
system as agreed with the Genus
Executive Leadership Team and the
Audit Committee. Further refinements
will include:
}} Group-wide reviews of selected
specific risks identified on the
corporate risk register; and
}} presentations to the Audit

Committee or Board by senior
operational and financial
management covering specific
risk areas.

risK manaGement FrameworK

}} Has overall responsibility
for the Group’s risk
management and internal
control systems

}} Sets strategic objectives

tHe Board

}} Monitors the nature and
extent of risk exposure
against risk appetite for
our principal risks

}} Provides direction on
the importance of risk
management and risk
management culture

Genus exeCutive leadersHip
team
}}

Identifies, addresses and mitigates
risks Group-wide

}} Monitors risk management process

and internal controls

audit Committee
}} Supports the Board in monitoring
risk exposure against risk appetite

}} Reviews the effectiveness of our

risk management system

internal audit
}} Oversees the risk management
process and provides guidance
on risk management matters

}} Engages with senior management to
review risks and mitigating actions

risK

marKets

Intellectual property
protection

risK desCription

mitiGatinG aCtions

}} Genus-developed porcine
genetic material could
become freely available to
third parties

}} Strict contractual restrictions imposed on counterparties

to limit use of genetic material within pure lines

}} Careful selection of multipliers and joint venture partners
(including in emerging markets) to ensure trustworthiness
}} Ability to undertake genetic testing of animals to determine

genetic origin

Agricultural recession
and commodity
pricing

}}

Impact of fluctuations in
agricultural markets on
customer profitability
and demand
Increase in operating
costs owing to commodity
pricing volatility

}} Geographic diversity of businesses
}} Use of the porcine royalty model
}} Hedging transactions to fix pricing of inputs and outputs

where appropriate

Emerging markets

}} Fail to appropriately
develop business in
emerging markets

}} Experienced management team blending local and

expatriate executives

}} Asia established as a separate business unit reporting

directly to CEO

}} High level of Board oversight
}} Dedicated development, technical services and veterinary

staff within emerging markets

}} Adoption of joint venture business model in appropriate regions

32 Genus plc Annual Report 2012

risK

risK desCription

mitiGatinG aCtions

disease and environment

Bio-security

Continuity of supply

Environmental
pollution incident

Business continuity

Human resources

researCH and development

Product development
and competitive edge

}} Loss of key livestock

owing to disease outbreak

}} Formal bio-security standards featuring movement controls,
veterinary inspection, and independent bio-security reviews
}} No over-reliance on single production sites with key facilities

placed in different countries

}} Loss of ability to move
animals and semen or
semen freely (including
across borders) owing to,
for example, disease
outbreak, environmental
incident, or international
trade sanctions

}} Environmental incident

on porcine development
facility

}} Unavailability of key

research, production
or administrative site
}} Failure of IT system

}} Formal bio-security standards featuring movement controls,
veterinary inspection, and independent bio-security reviews
}} Care taken to avoid over-reliance on single production sites

with key facilities placed in different countries

}} High standards of facility development and operation
Independent assessment of operational compliance
}}

}} Business Continuity Plans in place for key locations
}} Testing programme established
}} Care taken to avoid over-reliance on single production
sites with key facilities placed in different countries

}} Formal IT Disaster Recovery Plans in place with

testing programme

}} Property Damage and Business Interruption insurance cover

}} Fail to attract or retain
skills and experience
within executive,
management and
employee cohorts

}} Executive pay levels recently reviewed by external consultants
}} Regular scrutiny of senior management performance and

remuneration at Remuneration Committee

}} Recent appointment of dedicated experienced Group-wide

HR Director

}} Development of people and talent plans

}} Development programme

}} Formal communication process to ensure development is

}}

fails to produce best
genetics for customers
Increased competition in
developed and emerging
markets drives down
market share and margins

aligned with customer requirements
}} Dedicated product development team
}} Focus on key account management
}} Use of porcine royalty model
}} Offering technical services and support to customers
}} Benchmarking of performance
}} High density of bulls in Top 100 listings

Commercialisation
of research

}} Fail to focus research

initiatives on commercially
important areas

}} Regular oversight of research by R & D Portfolio
Management Team and executive management

}} Continuing appropriate budget allocated to research

}} Fail to lead on future
‘game-changing’
technology

and development

FinanCe

Pensions

}} Exposure to costs

}} Agreement of appropriate actuarial valuations and deficit

associated with failure
of third party member of
joint and several pension
scheme

}} Exposure to costs as a
result of external factors
impacting size of pension
deficit (e.g. mortality rates,
investment values etc.)

recovery plans with pension fund trustees

}} Review of investment strategy
}} Closure of pension funds to future service
}} Monitoring of joint and several liability in the Milk

Pension Fund

}} Third-party review of pension arrangements undertaken

Genus plc Annual Report 2012 33

company overviewbusiness reviewcorporate governancefinancial statementsour people

we are creating high-calibre teams dedicated
to every aspect of our business. as a company
rooted in science but built around people, we
are able to deliver on our strategy and maintain
our leading market position around the world.

Our focus in 2012 has
been on establishing
an enhanced Group
HR function.

Ca tHe rine GliCKman
Group Human
resourCes direCtor

our people
Our values, developed by our people,
demonstrate how unique our people are.

strivinG For exCellenCe
A high performance culture starts at the
top. In the last year, we have focused on
developing a compelling vision, based on
values that capture the spirit of the business.
These delineate a clear strategy, in which
every one of the 2,400 staff can see the part
that he or she plays. All of this has created a
true global team.

This high performance culture, dedicated to
innovation and customer service, is self-
perpetuating. It attracts, rewards and retains
teams who delight in creating products that
exceed customer expectations and delivering
profitable and sustainable growth.

perFormanCe manaGement –
investment in people
A refreshed and consistent approach to
performance management is uniting the
top 500 managers, underpinned with a new
online resource. The approach focuses on
metrics that measure customer loyalty,
people development, product and service
improvements and financial performance.
We timed its launch in July, so we can set
high quality objectives for the financial year
ahead. GELT has set the example, with their
objectives published to the business, and
each of the 500 will now set their objectives
based on the cascade.

Work on behaviours and two core
competencies – key account management
and technical service, together with talent
development, will be a major focus in 2013.

KeepinG in ContaCt
In January 2012 we launched a new Group
intranet site ‘Helix’, our internal communications
tool. Named by Genus employees, Helix is
already succeeding in communicating Group
strategy, spreading best practice and updating
our people on business progress. In addition
to serving as central location for storing key
documents, training sessions and annual
conference presentations, Helix supports the
‘one team’ principle that is helping to shape
our future.

Helix is increasingly seen as the source of
information on Genus, and is becoming a key
tool to network knowledge around the Group.

developinG and reCruitinG talent
Genus is committed to recognising,
developing and recruiting new talent across
the businesses. This is strengthening our
teams and providing the high levels of support
and innovation that our customers have come
to expect.

Our focus in 2012 has been on establishing an
enhanced Group HR function, with a remit to
specifically focus on developing and recruiting
the talent to support the growth envisaged in
the strategy. To achieve this we recruited
Catherine Glickman, who became Group HR
Director in January. From our own talent pool
we appointed Ricardo Campos to head up
Genus ABS, drawing on his vast experience
in the cattle industry and knowledge of Latin
America. We also promoted Dr Denny Funk,
a world-class geneticist, to serve as Head
of Research & Development. We have
strengthened the Group with high quality
recruits into our PIC product development
teams and key account teams, as well as into
our developing businesses in China and India.

developinG tHe pioneers oF tHe Future
Creating the environment in which innovation
is recognised and rewarded is integral to our
future success as the pioneer of animal genetic
improvement. Research in the last year has
shown that personal development and growth
are very important to staff that value learning
and are highly qualified. Genus University, our
online training and development centre, is
becoming increasingly important in training the
current and future staff throughout the Group.
We know that it helps to retain, motivate and
develop staff at every level. Last year, 1,378 of
our people benefited from Genus University
training, taking a total of over 4,000 courses.

34 Genus plc Annual Report 2012

Creating the
environment in
which innovation
is recognised and
rewarded is integral to
our future success as
the pioneer of animal
genetic improvement.

Seizing the Opportunity

To bring life and immediacy
to our new vision, values
and strategy, Genus
brought together the top 60
managers for the Group’s
first Global Leadership
Conference in June 2012.
The theme was ‘seizing the
opportunity’ and the venue
was, appropriately, one of our
most exciting markets: China.

The three-day meeting
outside Beijing provided
an opportunity for Genus

leaders to shape the future
of the Company. In addition
to an agenda that focused
on strategic alignment,
marketplace orientation and
the importance of people
leadership, the conference
provided a new level of
support for the Genus
in-country team. It also
enabled participants to
develop a deeper
understanding of local
customer needs.

Conference feedback
confirms that Genus
leaders understand and are
committed to delivering the
strategy in their businesses.
They recognise that
execution will be key in
realising Genus’ potential.
Participants are now
sharing and cascading
the messages to their
teams, aligning every part
of the business behind
our strategy.

The curriculum is very broad, including
customer-focused genomics, cross-breeding
management systems, fertility fundamentals,
one-to-one customer services success,
communication across cultures and change
management for employees.

Other programmes are also progressing, with
emphasis on graduates in Genus Asia. In the
Philippines, for example, we launched an
enhanced six-month management training
module in September 2011. It is helping to
equip participants with swine production
knowledge and skills, update them on best
practice and prepare them for leadership roles.
Based on the success of this endeavour, we
have now launched a specially adapted version
of the course in China, with nine graduates with
higher degrees as the first participants.

PIC – 50th Birthday

}} Founded in 1962 at the White Hart pub
in Wallingford, UK, PIC has grown from
a small group of pig farmers to an
international leader in porcine genetics.
}} Through the decades, PIC has worked
diligently to bring the advantages of
superior swine health, genetics and
production efficiency to countries
around the globe.

}} With our 50 years of experience in pig
improvement, PIC is ready, willing and
able to help pork producers everywhere
make the most of their operations.

Genus plc Annual Report 2012 35

company overviewbusiness reviewcorporate governancefinancial statementsCorporate social responsibility

Genus does essential work, advancing the frontiers
of biotechnology. it is equally essential that we work
responsibly, wherever we do business.

We are committed to
the highest standards
of corporate and
individual behaviour.

ian Farrelly
Group Company
seCretary & General
Counsel

sustainaBility in world aGriCulture
Genus plays a key role in the world’s
agricultural economy. Our unique position in
the supply of superior natural animal genetics
enables farmers and food producers on six
continents to ensure the supply of quality
products with increasing output at improved
production efficiencies. With an ever-increasing
world population and decreasing resources
available for food production, Genus meets a
social and economic need in the efficient
production of quality foods.

In doing so, we are committed to the
highest standards of corporate and individual
behaviour. This involves careful thought about
the economic, social and environmental
impacts of the Group’s activities, wherever
Genus operates. By acting with the highest
standards of business conduct, Genus earns
the trust of customers, shareholders,
colleagues, suppliers, regulators and the
communities in which we operate. Maintaining
these standards is vital to the continued
success and development of the Group.

All companies in the Genus Group follow
procedures that comply with local laws and
regulations. In many cases, our procedures
and practices exceed local requirements.
The Genus Board has overall responsibility for
corporate responsibility, regularly assessing
the needs of Genus’ stakeholders and
delegating day-to-day management of
corporate responsibility issues to GELT in
conjunction with regional management.

The Genus approach to corporate
responsibility covers the following key areas:
the environment, our employees, health and
safety, our stakeholder relationships and our
community. The Genus principles of corporate
responsibility apply to all our employees and
set the minimum standard for their behaviour.

tHe environment
Concern for the environment is an essential
part of our business operations. Therefore
we minimise environmental risk by effectively
managing the Group’s activities. Genus is
committed to conducting business in ways
that are sensitive to the environmental needs
of the communities in which we operate. Our
locations integrate environmental management
into their operational systems and procedures.
Monitoring and reporting on environmental
performance is an integral part of the Group’s
operations and a key element of the Group’s
risk management programme.

36 Genus plc Annual Report 2012

Genus operates an active policy of
environmental compliance. This involves
assessing environmental risks associated
with existing and new facilities and establishing
controls to ensure that any risks remain at an
acceptable level. Employees at our facilities
receive a high level of training in environmental
compliance matters. Comprehensive
environmental protocols are in operation
at our facilities that are subject to
independent checks.

our employees
Genus places considerable value on
employee involvement and commitment.
Our staff play a vital role in building a
sustainable business and their skills, qualities
and well-being underpin the Company’s
success. Details of the Genus approach to its
employees can be found in the Our People
section of this report on pages 34 to 35.

HealtH and saFety
Genus is committed to providing safe working
environments wherever we operate. We also
proactively monitor compliance with local
regulations. This commitment is supported by a
comprehensive training regime for the Group’s
employees. Genus has developed best practice
farm and animal handling protocols that we
deploy at all farm locations. These deal with the
potential dangers of working with livestock and
operating equipment and the provision of a safe
working environment.

The monitoring and reporting on the Group’s
health and safety performance are an integral
part of the Group’s operations and key to the
Group’s risk management programme.

Maintaining a consistently safe and healthy
workplace for our people requires effective
management. Under the supervision of the
Global Health & Safety Officer and regional
health and safety teams, Genus operates a
proactive network of health and safety
personnel in our global facilities that share
knowledge and experience with the aim of
cross-fertilising best practice and ensuring
consistently high standards of safety across
the Group. The Global Health & Safety Officer
is responsible for monitoring and reporting
adherence by the Company to the Group’s
health and safety protocols and global health
and safety staff regularly inspect the
Company’s sites.

Good Corporate CitizensHip

nourishing the world

animal welfare

Genus has developed
best practice farm
and animal handling
protocols that we
deploy at all farm
locations.

Between 1950 and 2012, the world’s
population grew from 2.6 billion to over
7 billion, 82% of whom live in developing
economies. More people will accelerate the
growth of urbanisation to encompass 70%
of the population. Increasing demand for
high-quality food, coupled with finite land,
water and energy resources, is forcing
farmers to seek new ways of improving their
productivity. Genus plays an increasingly
important social and economic role in this
crowded new world, enabling our global
customers to produce quality foods efficiently
and to meet the increasing demands of
sustainable agriculture.

Our animals are our business. Genus is
committed to providing the highest level of
care and treatment for our herds, which rely
on us for a safe and comfortable environment.
Therefore, we make certain that Genus
employees responsible for animal handling
are appropriately trained and qualified. Our
facilities are designed and are maintained to
ensure best practice in animal husbandry.
Fully qualified inspectors provide regular health
assessments. All of this is in line with the
Genus Animal Welfare Code of Conduct.

Using a recently introduced global Health
& Safety Management System, the Group
has been able to track, monitor and evaluate
health and safety incidences and trends
worldwide and to communicate learnings
from any incidences at a particular location
to all facilities via the global health and safety
network. Adopting an increasingly standardised
approach to health and safety management
has meant the Group’s total recordable case
incidence rate has decreased by 1.5 cases to
0.65 cases per 100 full-time workers in the
2012 financial year as compared to the 2011
financial year and a 4% reduction in the
number of incidents in the year compared
to the prior year.

our staKeHolder relationsHips
Customers
Genus aims to provide products and
services of the highest quality and technical
standards appropriate to our customers’
own requirements. At all times, we take all
reasonable steps to ensure the safety and
quality of the products and services that
Genus provides, including compliance with
all applicable regulatory requirements.

suppliers
Genus is committed to working with suppliers
in mutually beneficial ways, and, so far as is
practicable, requires that suppliers and
contractors act in accordance with Genus’
values and policies.

our Community
As a responsible member of the communities in
which we operate, Genus actively encourages
the Group’s operating companies to engage
positively with the local community in
their areas.

Genus plc Annual Report 2012 37

company overviewbusiness reviewcorporate governancefinancial statementsBoard of directors

Top row, left to right:

Bob Lawson
John Worby
Mike Buzzacott
Ian Farrelly

Bottom row, left to right:

Karim Bitar
Nigel Turner
Professor Barry Furr

BoB lawson (67)
non-exeCutive CHairman
Appointed to the Board: November 2010

JoHn worBy (61)
Group FinanCe direCtor
Appointed to the Board: September 2004

Experience: Bob Lawson was appointed
Chairman of the Board and the Nomination
Committee in November 2010. He is Non-
Executive Chairman of Barratt Developments
plc. He is also a Director of The Federation of
Groundwork Trusts. His career has spanned
several UK and continental groups including, ten
years as Chief Executive of Electrocomponents
plc leading its successful expansion into new
international markets, and three years as
Managing Director of Vitec Group plc.

Experience: John Worby joined the Board
in September 2004 and was Chairman of the
Audit Committee until he became Group Finance
Director in February 2009. He is a Non-Executive
Director of Cranswick plc and Smiths News plc,
and was previously Deputy Chairman and
Finance Director of Uniq plc (formerly Unigate plc),
having been Finance Director of Wincanton Ltd.
He is a member of the Financial Reporting
Review Panel.

Committee memberships: Chairman of the
Nomination Committee and member of the
Remuneration Committee.

niGel turner (63)
senior non-exeCutive direCtor
Appointed to the Board: January 2008

Karim Bitar (47)
CHieF exeCutive
Appointed to the Board: September 2011

Experience: Karim Bitar joined the Board in
September 2011. He worked for over 15 years
with Eli Lilly and Company and was President of
Lilly Europe, Canada and Australia before joining
Genus. An ex-McKinsey & Company consultant,
who worked across Asia and in Europe, he has
also held management roles at Johnson &
Johnson and the Dow Chemical Company.

Committee memberships:
Member of the Nomination Committee.

Experience: Nigel Turner joined the Board
in January 2008 and is Chairman of the
Remuneration Committee. He was the Chairman
of Numis Securities Ltd and Deputy Chairman of
Numis Corporation plc from December 2005 to
November 2007. He is currently a Non-Executive
Director of Croda plc. Previously he was Vice
Chairman of ABN AMRO’s Wholesale and
Investment Bank in which he had specific
responsibility for the Global Corporate Finance
and Equity businesses. He joined the Dutch
bank in 2000 from Lazard, where he was a
partner for 15 years and also sat on its
Supervisory Board.

Committee memberships: Chairman of the
Remuneration Committee and member of the
Audit and Nomination Committees.

38 Genus plc Annual Report 2012

ian Farrelly (43)
Group Company seCretary & General Counsel
Appointed: June 2006

Experience: Ian Farrelly is a solicitor and joined
Genus in June 2006 from Microgen plc where he
was Group General Counsel. Previously he was
Group Solicitor & Company Secretary of Diagonal
plc and Solicitor to Hays plc.

miKe BuzzaCott (64)
non-exeCutive direCtor
Appointed to the Board: May 2009

Experience: Mike Buzzacott is a qualified
accountant. He joined the Board in May 2009
and is Chairman of the Audit Committee. He
spent 34 years at BP prior to his retirement in
2004, holding a number of international roles
including Finance & Control Director Asia Pacific,
CFO BP Nutrition and Group Vice President
Petrochemicals. He is currently a Non-Executive
Director of Scapa Plc. He retired as a Non-
Executive Director of Croda plc in August 2011
and was formerly a Non-Executive Director of
Rexam plc and Chairman of Biofuels plc.

Committee memberships: Chairman of
the Audit Committee and member of the
Remuneration and Nomination Committees.

proFessor Barry Furr (68)
non-exeCutive direCtor
Appointed to the Board: December 2006

Experience: Professor Furr retired as Chief
Scientist and Head of Project Evaluation for
AstraZeneca plc in 2005 after 34 years of service.
He is a Non-Executive Director of the Medicines
and Healthcare Products Regulatory Agency and
the American Pharmaceutical company GTx Inc.
He was awarded an OBE in 2000 for his services
to cancer drug discovery. He joined the Board in
December 2006 and acts as Scientific Advisor
to Genus’ Research & Development Portfolio
Management Team, which replaced the Science
Committee with effect from 1 July 2012. He is the
author of more than 160 papers on reproductive
endocrinology and antihormones.

Committee memberships: Member of the Audit,
Remuneration and Nomination Committees.

Genus plc Annual Report 2012 39

company overviewbusiness reviewcorporate governancefinancial statementsGenus executive leadership team

Left to right:

Ian Farrelly
Dr Denny Funk
Jerry Thompson
John Worby
Karim Bitar
Catherine Glickman
Ricardo Campos
Bill Christianson

Following the appointment of Karim Bitar in september 2011,
members of the Genus executive leadership team (‘Gelt’) have been
specially chosen for their individual and collective strengths, expertise
and experience. Gelt exists to help deliver the Genus strategy and
reinforce the Company values that underpin our business.

Gelt responsiBilities
GELT’s first task was to determine the
Company’s vision and values, described in
the Company Overview.

An ongoing role is to ensure organisational
alignment, engagement and efficient execution
throughout the Group. Inevitably, this also
involves making crucial personnel, operational
and commercial decisions. Equally important is
GELT’s stewardship of the Genus reputation.

More widely, GELT is ensuring that Genus
delivers on several fronts:
}} corporate strategy – primary responsibility

for developing and implementing the
Company’s strategy alongside operational
excellence, through embedding and
strengthening key capabilities;

}} people – promoting and ensuring talent
management and people development
throughout the organisation; and
resources – including corporate
procurement and investments.

}}

divisional struCture
The new structure based on business units
rather than the previous geographical split,
with focus on our developing markets in Asia,
provides for the best delivery of the following
key elements:
}}
}} strategic marketing;
}} strong product development;
}} sales and technical services;
}} optimised supply chain; and
}} developing markets.

insight-driven research;

}} operations management – driving

Members of GELT are as follows:

organisational profits and results; ensuring
core processes are reliable and efficient;
annually reviewing R & D plans; managing
risk, including risk mitigation; managing the
Genus balanced scorecard, including
customer equity metrics;

Karim Bitar
CHieF exeCutive

JoHn worBy
Group FinanCe direCtor

ian Farrelly
Group Company seCretary & General Counsel
See pages 38 to 39 for Karim’s, John’s and
Ian’s biographies.

40 Genus plc Annual Report 2012

dr denny FunK
CHieF sCientiFiC oFFiCer
Denny has a strong genetics background,
with a PhD in animal breeding from Iowa State
University. He joined Genus in 1995 and prior to
his role as Chief Scientific Officer, held various
positions in research, product development and
production. Prior to joining Genus, he was an
Associate Professor with tenure at the University
of Wisconsin, Madison for seven years following
five years with the US Holstein Association.

Jerry tHompson
CHieF operatinG oFFiCer, Genus asia
Jerry graduated with a BSc Hons in Agriculture
from Seale Hayne College, Devon and has
worked for PIC and subsequently Genus for
almost 20 years. After two years in the UK
business he moved to Eastern Europe where he
has held a number of roles including Key
Account Manager in Siberia, Managing Director
for PIC Romania and for the Central and Eastern
European PIC business. In 2008, Jerry moved
to the position of Regional Director for PIC
Europe. He became Regional Director for the
Russia and Asia Pacific Region based in
Shanghai in 2010 before being appointed into
his current role on 1 July 2012.

Bill CHristianson
CHieF operatinG oFFiCer, Genus piC
Bill has doctorates in Veterinary Medicine and
in Philosophy from the University of Minnesota.
He joined Genus in 1993. Before his current
appointment in July of this year, he held various
operational roles within Genus, including serving
as General Manager of the PIC North America
business in 2007 and as Chief Operating Officer
of the Americas from March 2010.

riCardo Campos
CHieF operatinG oFFiCer, Genus aBs
Ricardo has degrees in Business
Administration, Agribusiness Administration
and Management from the SNA Agribusiness
School, Santiago, Chile. Having joined Genus
in 2004 from an ABS distributor that was
purchased by the Group, he was instrumental
in establishing ABS businesses in Chile,
Argentina, Uruguay and Colombia – all of
which enabled the Latin America business
to achieve double-digit growth. Subsequent
roles included leadership of the genetic
business in the Caribbean and Marketing
Specialist for non-genetic products and
Genus Latin America Managing Director.
Ricardo was appointed to his present
position on 1 July 2012.

CatHerine GliCKman
Group Human resourCes direCtor
Catherine joined Genus in January 2012 in the
newly created role of Group HR Director. For
the previous 20 years, she worked for Tesco
plc in a variety of positions. For the last four
years she was Group HR Director, where she
focused on talent development, succession
and leadership development. She held HR
Director roles supporting the international
rollout of Tesco into Asia, Central Europe and
the States, and led HR for the UK Stores
during a period of major expansion. Prior to
Tesco, she worked in HR for Somerfield plc
and Boots plc. Catherine holds a degree in
English Language and Literature from Durham
University and is a member of the Institute of
Personnel and Development.

Genus plc Annual Report 2012 41

company overviewbusiness reviewcorporate governancefinancial statementsDirectors’ Report

The Directors present their annual report on the affairs of the Group, together with the Financial
Statements and Auditors’ Report, for the year ended 30 June 2012.

PRinciPal activities
The principal activities of the Group comprise the global application of quantitative genetics and
biotechnology to animal breeding in porcine and dairy/artificial insemination (‘AI’) beef sectors.

The principal subsidiary and associated undertakings are listed in note 36 to the
Financial Statements.

Business Review
A review of the business of the Group during the financial year ended 30 June 2012, the position
of the Group at the end of the year and a description of the principal risks and uncertainties
facing the Group can be found within the Company Overview and Business Review on pages
2 to 37.

The Company Overview and Business Review also includes details of expected future
developments in the business of the Group, an indication of its activities in the field of research
and development and details of the key performance indicators used by management, together
with details of the Company’s approach to corporate responsibility. The Company Overview and
Business Review also contain a description of treasury policies and financial instruments used
by the Group, which should be read in conjunction with note 25 to the Financial Statements.

DiviDenDs
The Directors recommend an increase in the final dividend for the year ended 30 June 2012 of
10% to 10.1 pence per ordinary share.

Subject to shareholder approval at the Company’s Annual General Meeting to be held on
8 November 2012, this dividend will be paid on 23 November 2012 to ordinary shareholders
on the register on 9 November 2012 and, together with the interim dividend of 4.5 pence paid
on 30 March 2012, makes a total dividend of 14.6 pence for the year (2011: 13.3 pence).

DiRectoRs
The Directors, who served throughout the year and to the date of signing of this report were
as follows:

Bob Lawson
Karim Bitar
John Worby
Nigel Turner
Mike Buzzacott – Non-Executive Director
– Non-Executive Director
Barry Furr

– Non-Executive Chairman
– Chief Executive (appointed 1 September 2011)*
– Group Finance Director
– Senior Non-Executive Director

* On 25 May 2011, the Company announced the retirement of Richard Wood with effect from 30 September 2011 and the appointment

of Karim Bitar as a Director with effect from 1 September 2011 and as Chief Executive of the Company with effect from
30 September 2011.

In compliance with the UK Corporate Governance Code, all Directors will offer themselves for
annual re-election at the next Annual General Meeting.

The Board considers that all Directors make an effective and valuable contribution to the Board
and demonstrate commitment to their respective roles. Biographical details on the Directors of
the Company can be found on pages 38 and 39.

With regard to the appointment and replacement of Directors, the Company is governed by its
Articles of Association, the UK Corporate Governance Code, the Companies Acts and related
legislation. The articles themselves may be amended by special resolution of the shareholders.
The powers of Directors are described in the Matters Reserved for the Board, copies of which
are available on request, and the Corporate Governance Statement on pages 47 to 51.

42 Genus plc Annual Report 2012

DiRectoRs’ inteRests
The Directors who held office at 30 June 2012 had the following interests in the shares of
the Company:

Bob Lawson
Karim Bitar
John Worby
Nigel Turner
Mike Buzzacott
Barry Furr

total

number

5,150
17,551
10,000
15,000
3,000
8,000
58,701

Number

5,150
–
10,000
15,000
3,000
8,000
41,150

at 30 June
2012

At 30 June
2011

No changes took place in the interests of Directors between 30 June 2012 and the date of
this report.

DiRectoRs’ shaRe oPtions anD shaRe awaRDs
Details of Directors’ share options and share awards are provided in the Directors’
Remuneration Report on pages 64 to 66.

suPPlieR Payment Policy
The Company’s policy is to settle terms of payment with suppliers when agreeing the terms of
each transaction, ensure that suppliers are made aware of the terms of payment and ensure
that the Company abides by the terms of payment. Trade creditors of the Group at 30 June
2012 were equivalent to 26 days’ purchases (2011: 25 days), based on the average daily amount
invoiced by suppliers during the year.

chaRitaBle anD Political contRiButions
During the year, the Group made no charitable donations (2011: £6,150).

caPital stRuctuRe
Details of the Company’s authorised and issued share capital, together with details of the
movements in the Company’s issued share capital during the year are shown in note 30. The
Company has one class of ordinary share. Each share carries the right to one vote at general
meetings of the Company. There are no specific restrictions either on the size of a holding or on
the transfer of shares, which are both governed by the provisions of the Company’s Articles of
Association and prevailing legislation. Details of the Company’s employee share schemes are
set out in note 29. In connection with these schemes, the Genus plc Employee Benefit Trust
holds shares in the Company from time to time and abstains from voting in respect of any such
shares held. No person has any special rights of control over the Company’s share capital and
all issued shares are fully paid.

suBstantial shaReholDings
As at 30 August 2012, the following material interests in the Company’s issued ordinary share
capital were held: Lansdowne Partners 12.67%, NFU Mutual 7.80%, Baillie Gifford & Co 7.21%,
Standard Life Investments 5.48%, M&G Investments 5.37% and Legal & General Investment
Management 3.83%. No other person has notified an interest in the ordinary shares of the
Company which is required to be disclosed to the Company.

authoRity to acquiRe the comPany’s own shaRes
At the end of the year, the Directors had authority, under the shareholders’ resolutions of
10 November 2011, until the earlier of 18 months after the passing of such resolutions or the
conclusion of the Company’s next Annual General Meeting, to buy back shares on the open
market to a limit of £599,330 in nominal value, representing 10% of the Company’s issued share
capital as at the date of the resolution at a price between 10 pence (exclusive of expenses) and
105% of the average of the middle market quotation for ordinary shares in the Company for the
five business days prior to the date of purchase (exclusive of expenses). No shares were bought
back by the Company in the period since 11 November 2011 and the date of this report.

Genus plc Annual Report 2012 43

business reviewfinancial statementscompany overviewcorporate governanceDirectors’ Report continued

coRPoRate goveRnance
The Company’s Corporate Governance Statement is set out on pages 47 to 51 and forms part
of this Directors’ Report.

coRPoRate social ResPonsiBility
Details of the Company’s approach to corporate social responsibility are contained in the
Corporate Social Responsibility section of the Business Review on page 36.

oRDinaRy anD sPecial Business at the annual geneRal meeting
At the Annual General Meeting to be held on 8 November 2012 resolutions 1 to 11 are
termed ordinary business, while resolutions 12 to 15 will be special business. The ordinary
business includes:
}} approval of the Company’s audited Financial Statements and Directors’ and Auditors’

Reports for the year ended 30 June 2012 (resolution 1)

}} approval of the Directors’ Remuneration Report for the year ended 30 June 2012 (resolution 2)
}} declaration of a final dividend of 10.1 pence per ordinary share (resolution 3)
}}

re-election of Directors in compliance with the UK Corporate Governance Code
(resolutions 4 to 9)
re-appointment of the Company’s auditors and the agreement of their remuneration
(resolution 10)

}}

}} grant of authority to the Directors to allot authorised and unissued ordinary shares up to
an aggregate nominal amount of £1,569,374 without having to obtain prior approval from
shareholders on each occasion (resolution 11)

The special business covers the following matters:
}} an amendment to the rules of the Genus plc 2004 Performance Share Plan (the ‘PSP’)

(resolution 12)

}} partial disapplication of pre-emption rights attaching to the Company’s shares (resolution 13)
}}
}}

renewal of the Company’s authority to buy back the Company’s shares (resolution 14)
the ability to convene general meetings (other than Annual General Meetings) on 14 days’
notice (resolution 15)

The resolutions are set out in the Notice of Annual General Meeting on pages 124 to 127.

The passing of resolution 11, as an ordinary resolution, will permit the Directors for a period
expiring at the conclusion of the Company’s next Annual General Meeting to allot shares up
to a maximum aggregate nominal amount of £1,569,374 being 15,693,749 ordinary shares
of 10 pence each representing 26% of the issued ordinary share capital of the Company
as at 30 June 2012. The Directors do not have an intention to exercise this authority at the
present time. The Company currently holds no shares in treasury.

The passing of resolution 12, as an ordinary resolution, will enable the Company to provide the
Directors with the opportunity to earn an upper quartile total remuneration quantum, subject to the
delivery of very demanding performance targets. The performance targets have been set in light of
the Company’s above-market, long-term growth aspirations which were identified as part of the
comprehensive strategic review undertaken by the Company. Specifically, the Remuneration
Committee of the Company is proposing to amend the PSP to increase the aggregate market
value of shares over which an individual may receive an award of shares in any one financial year
from 125% of salary to 200% of salary. All other aspects of the PSP will remain unchanged.

The Remuneration Committee has consulted with the Company’s major shareholders on the
proposed amendment to the PSP.

The following information is intended to provide further background for shareholders but is not
subject to shareholder approval. Further details in respect of the award policy that is anticipated
to operate in the current financial year for the Executive Directors are set out on pages 60 and 61.

With regard to the 2012–13 financial year, the Company intends to grant awards under the PSP
with a market value of 125% of salary to the Chief Executive Officer and 100% of salary to the
Group Finance Director, subject to the adjusted earnings per share growth targets described
below, measured over three financial years ending 30 June 2015. This range of targets is
consistent with those that operated for the awards granted during the year under review.

44 Genus plc Annual Report 2012

Per annum growth
in adjusted ePs*

% of additional
award vesting**

Per annum growth
in adjusted ePs*

% of additional
award vesting**