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Annual Report 2013
Helping customers
thrive
A World-Leading Growth Business Global demand for meat and milk continues to rise, driven by urbanisation, expanding populations and rising incomes. Our products and services enable farmers and food producers to meet that demand, and to cope with fewer resources available for food production. We are world leaders in our markets, with exceptional technology and a deep understanding of our customers’ needs. vision
Pioneering animal genetic
improvement to help nourish
the world.
who we are
Genus is a world leader in
advancing the science of
animal breeding and genetic
improvement. We breed the
world’s best pigs and bulls,
scientifically selecting livestock
whose offspring will increase value
for customers around the world.
In the porcine market, we
provide customers with access to
continuous genetic improvement,
through our genetically superior
boar and sow product lines. In
the dairy and beef markets, our
primary product is bull semen. All
our products enable customers to
achieve desirable characteristics in
their herds, such as higher carcass
value, feed-efficient growth,
leaner meat or higher milk yield.
We combine our product and
scientific excellence with a global
supply chain, technical services
and sales network, ensuring we
can meet our customers’ needs
and help them to maximise their
benefits from our products. This
approach has given us market-
leading positions and the ability
to create value for customers
and shareholders alike.
For more information visit:
www.genusplc.com
e r s
h i p i n A nimal Genetic Im
R o b u st Genetic
I m p rovement
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strateGic review
02 2013 Highlights
04 Genus at a Glance
06 Our Values
08 Chairman’s Statement
12 Chief Executive’s Report
16 Market Overview
18 Strategic Framework
22 Strategic Progress
30 Key Performance
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Improved productivity.
Shareholder return.
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Indicators
32 Financial and
Operational Review
40 Principal Risks and
Uncertainties
44 Our People
48 Corporate Responsibility
cOrP Or ate GOverNaNce
50 Board of Directors &
Company Secretary
52 Genus Executive
Leadership Team
54 Corporance Governance
Letter from the Chairman
55 Corporate Governance
Statement
59 Audit Committee Report
61 Directors’ Remuneration
Report
74 Nomination Committee
Report
75 Other Statutory Disclosures
76 Directors’ Responsibilities
Statement
FiNaNc iaL stateMeNts
77
Independent Auditor’s
Report – Group Financial
Statements
78 Group Income Statement
79 Group Statement of
Comprehensive Income
80 Group Statement of
Changes in Equity
81 Group Balance Sheet
82 Group Statement of
Cash Flows
83 Notes to the Group
Financial Statements
123 Independent Auditor’s
Report – Parent Company
Financial Statements
124 Parent Company Balance
Sheet
125 Notes to the Parent
Company Financial
Statements
134 Five Year Record –
Consolidated Results
135 Notice of Annual General
Meeting
IBC Advisors
Genus at a Glance p04
chief executive’s
report p12
strategic Framework p18
Financial and
Operational review p32
Our People p44
Genus plc Annual Report 2013 | 01
2013 hiGhLiGhts
Group Revenue
£m
400
8
.
1
4
3
.
3
5
4
3
.
9
9
0
3
.
3
5
8
2
350
300
250
200
150
100
50
0
Adjusted
Operating Profit
£m
Adjusted Operating
Profit inc JVs
£m
.
8
5
4
.
9
5
4
.
2
2
4
.
9
9
3
50
40
30
20
10
0
.
6
8
4
1
.
9
4
.
3
5
4
.
2
2
4
50
40
30
20
10
0
2010
2011
2012
2013
2010
2011
2012
2013
2010
2011
2012
2013
£345.3m £45.9m £49.1m
Business highlights
• Adjusted profit before tax up 2% to £47.2m and earnings
per share up 3% to 55 pence, surpassing last year’s record
results, despite challenging agricultural markets
• Statutory profit before tax lower by 30% at £38.1m,
reflecting a decrease in the net IAS 41 valuation movement
in biological assets, while the prior year benefited from an
IAS 41 exceptional credit
• Revenue up 1% led by growth in Asia of 15%, whilst in
Genus PIC a mix shift towards higher margin business
reduced revenues by 3%
• Adjusted operating profit including joint ventures up 1%
(2% in constant currency) to £49.1m
– Bovine volumes up 5% and porcine volumes up 6%
– Strong performance in Asia, with growth of 14%
– Genus PIC growth of 4%, led by Latin America
– Genus ABS profit reduced by 5% (3% at constant
currency) in challenging markets
– Continued investment in research and development,
up 12% to £28.0m
• Cash inflow of £8.1m reduced net debt to £52.9m
• Strong progress with implementing new strategy
– Organisation structure aligned to new strategy,
operating effectively through the year
– Pace of genetic improvement and dissemination
accelerating
– Joint ventures in China: announced porcine joint
venture with Shennong and made strong operational
progress in joint venture with Besun
– Core competencies strengthened to support
growth strategy
02 | Genus plc Annual Report 2013
Adjusted Operating
Profit Before Tax
£m
Adjusted Basic EPS
Pence
Dividend per Share
Pence
.
5
6
4
.
2
7
4
.
0
9
3
.
9
2
3
50
40
30
20
10
0
.
5
3
5
.
0
5
5
.
8
4
4
.
7
6
3
60
50
40
30
20
10
0
1
.
6
1
.
6
4
1
.
3
3
1
20
15
10
1
.
2
1
5
0
2010
2011
2012
2013
2010
2011
2012
2013
2010
2011
2012
2013
£47.2m 55.0p
16.1p
Financial highlights
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**
2012
£m
Movement
%
Movement
%
1
–
2
2
3
341.8
45.8
48.6
46.5
53.5
2012
£m
341.8
54.2
54.4
65.9
14.6
1
–
1
2
3
%
1
(31)
(30)
(32)
10
2013
£m
345.3
45.9
49.1
47.2
55.0
2013
£m
345.3
37.2
38.1
44.7
16.1
* 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. Adjusted measures
are used by the Board to monitor underlying performance.
** Constant currency percentage movements are calculated by restating 2013 results at the
exchange rates applied in 2012.
“ Genus has improved on last year’s record results, with
adjusted pre-tax profits up 2% in market conditions
made challenging by high feed costs during the year.
We have done this while also increasing our investment
in key markets, accelerating our research and product
development and strengthening our core competencies.
Genus has made substantial progress in implementing
the strategy set out last year. We expect to make further
progress in the year ahead and anticipate an improving
rate of growth from the second half of 2014 fiscal year
onwards. As a sign of our continuing confidence in the
Group’s prospects, we are recommending an increase
in the full-year dividend of 10%.”
Karim Bitar
chief executive
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Genus plc Annual Report 2013 | 03
GeNus at a GLaNce
A WORLD-LEADING
BUSINESS
Genus plays an important role in
the world’s agricultural economy.
Our products enable our
customers to meet the growing
demand for pork, beef and milk,
driven by urbanisation and rising
populations and incomes, and to
cope with tightening limits on the
land and water resources available
for food production.
Our Vision
Pioneering animal genetic
improvement to help nourish
the world.
Genus’s Competitive Advantage
Our competitive edge comes from owning and controlling proprietary
lines of breeding animals and using biotechnology to continuously improve
them. We combine this product and scientific excellence with a global
supply chain, technical service, and distribution and sales network,
ensuring we can meet our customers’ needs and help them to maximise
their benefits from our products.
The majority of our competitors are traditional co-operatives, making
Genus unique as a listed company. Our business model and multi-species
approach allow us to continually strengthen and leverage our technology
platform more broadly, thereby delivering value to customers and
shareholders alike.
Our success has given us market-leading positions. We have 25% of
the porcine market, more than double our nearest competitor, as well
as 25% in beef and 8% of global dairy sales. We sell under well-known
trademarks, ‘PIC’ for pigs and ‘ABS’ for dairy and beef cattle, in more
than 70 countries worldwide.
What We Do
How We Operate
Genus is a world leader in applying
biotechnology to advance the
science of animal breeding
and genetic improvement.
Our technology is applicable
to all livestock species and we
currently commercialise it in the
dairy, beef and pork sectors.
To do this, we breed the world’s best
pigs and bulls, scientifically selecting
livestock whose offspring will
increase value for farmers and food
producers around the world, with
the ultimate goal of making pork,
beef and milk more affordable, better
quality and safer for consumers.
In the porcine market, we offer
genetically superior boars and
sows that produce high-quality
and efficient offspring, with
higher carcass value and desirable
characteristics such as feed-
efficient growth or leaner meat.
In the dairy and beef markets, our
primary product is bull semen,
which we produce in-house in
five locations worldwide. Artificial
insemination from semen straws
produces high-quality cattle,
enabling our customers to improve
their herds and their efficiency.
04 | Genus plc Annual Report 2013
With headquarters in Basingstoke, UK, Genus companies operate in 30
countries on six continents, with research laboratories located in Madison,
Wisconsin, USA. We also sell to customers in another 40 countries through
distribution channels.
Genus operates through three business units:
• Genus PIC services porcine customers in North America, Latin America
and Europe
• Genus ABS services dairy and beef customers in North America, Latin
America and Europe
• Genus Asia focuses on the fast-growing Asian market, in both the porcine
and bovine segments
A shared research and development function supports our operating divisions.
Genus global sales and operations
Our Business Model
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Improved productivity.
Shareholder return.
Global Le a d
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robust Genetic improvement
Generating robust and continuous
genetic improvement is at the
heart of our business model.
We are leveraging genomics
to accelerate our delivery of
valuable genetic improvements.
In porcine, we base our core genetic
improvement programme in two
nucleus farms, in Canada and the US.
We combine quantitative sciences
with leading-edge biotechnology,
while adopting a ‘discovery without
walls’ approach to external genes,
where they can add to our portfolio
and meet customer needs.
Our dairy and beef product
development creates elite bulls
from a range of progeny-testing
and young-sire programmes. We
are adapting our genetic selection
programme to focus on traits
of high economic importance
to our customers and to gain
greater control over the genes.
These development programmes
are supported by our research
division, which aims to develop
proprietary technologies in areas
such as gender skew and disease
resistance, which help to increase
the affordability and quality of pork,
beef and milk. We employ more than
100 scientists and skilled technicians,
and have a track record of working
successfully in partnership with
universities, consortia and others.
realised Product Differentiation
Consumers around the world have
different preferences and our
genetic improvement programmes
deliver a wide range of products
and services tailored to them.
Successful product development
therefore starts from our customers’
perspective. Understanding
their needs helps us to develop
outstanding and differentiated
products and services, and we aim to
get our products to market quickly,
so we can rapidly transfer the best
genes to our customers’ systems.
Global supply chain
In our porcine business, we
outsource more than 95% of our
pig multiplication requirements
to third-party producers or
customers. Our network of
multiplication partners is a
significant strength, allowing us
to meet demand for our genetics
while reducing our exposure to
farming and commodity risk.
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In dairy and beef, Genus ABS
leverages both its distribution and
sales networks directly with in-
house employees, independent
representatives or distributors, to
efficiently reach our customers
and build brand loyalty.
technical support services
Ensuring our products meet
customers’ expectations is critical,
so experienced technical service
teams support our distribution
and sales efforts. These teams
ensure the product is right and
help our customers to achieve the
best results. This creates a winning
situation for us and our customers,
enhancing customer loyalty.
We support our customers with
technical services in important areas
such as nutrition, reproduction,
health management and genetics.
For example, in dairy, our global
Genetic Management System
helps customers through sire
selection, to create the progeny
that will develop their herd in the
way they wish. Our Reproductive
Management System team also
helps customers to improve
reproduction, a critical contributor
to their profitability. In porcine, we
provide performance comparisons
across our customers, so they
can benchmark their operational
performance and the impact of
genetics against industry peers.
Key account Management
In porcine, we are increasingly
working in long-term relationships
with our customers, under multi-
year royalty contracts. This aligns
our goals with our customers’
key performance metrics, as
they pay Genus based on the
performance and value we deliver.
It also reduces volatility in our
results, by mitigating the impact
of cyclical price reductions or
cost increases in pig production.
In 2013, 74% of porcine volumes
were under royalty contracts.
In bovine, we sell the majority of
our semen on a per dose basis and
use our service offerings to create
longer-lasting relationships. Our
customer segmentation and focus
on account management allows
us to increasingly focus on the
customers who place the highest
value on these relationships.
Genus plc Annual Report 2013 | 05
Our vaLues
GUIDING
EVERYTHING
WE DO
“ Our values are integral
to our role as a
company that helps to
meet a basic human
need: nourishment.”
Genus is:
Customer Centric
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 for
our customers, we stop and think again.
Results Driven
We are proactive, determined to be the best we
can be and to 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.
Pioneering
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.
People Focused
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.
Responsible
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.
06 | Genus plc Annual Report 2013
Genus plc Annual Report 2013 | 07
chairMaN’s stateMeNt
BOB LawsON
A YEAR OF
GOOD STRATEGIC
PROGRESS
I am pleased to report a year of good
progress, as we implemented the
Group strategy that we introduced
in 2012. Following last year’s record
results, financial progress was more
limited, against a backdrop of very
challenging market conditions for
the Group’s customers. Despite these
tough conditions, Genus continued
to invest in the capabilities it needs
to capture the significant long-term
growth opportunity for genetics.
The strategy and organisational
changes arising from Karim’s
strategic review gave Genus a
sharp focus in 2013. Aligning the
business around species and key
customers has given the Group a
clarity of purpose and energy that
has been very evident to the Board.
results
Genus’s results for the year to 30
June 2013 showed modest growth
on last year’s record performance.
Revenues and adjusted operating
profit were at similar levels to the
prior year, while adjusted profit
before tax rose 2% to £47.2m.
Once again, Asia led the way, with
profits rising by 14%. However,
high feed costs and low output
prices for our customers held
back performance in the rest of
the Group. In addition, we made
planned investments in resources to
strengthen our business. Adjusted
earnings per share grew 3% to 55p,
benefiting from a 1% lower tax rate.
On a statutory basis, profit before
tax was lower than the previous year,
due to a reduction in the fair value
calculation of our bovine biological
assets under IAS 41, as we anticipate
a shift towards more genomic sales.
The prior year had benefited from
an IAS 41 exceptional credit. As we
have consistently said, the nature
and volatility of this non-cash
accounting item does not reflect our
underlying business performance.
We therefore use adjusted profits
to report externally and to measure
our performance internally.
During the year, we reduced net
debt to £52.9m, which is below
one times EBITDA. This gives
the Group substantial financial
flexibility to pursue its plans.
Dividend
The Board is recommending a final
dividend of 11.1 pence per share,
which together with the interim
dividend of 5 pence per share,
would result in a dividend for the
year of 16.1 pence per share, an
increase of 10% over last year’s
dividend. This continues our
progressive dividend policy and
reflects the Board’s confidence in
Genus’s future. It is proposed that
the final dividend will be paid on
6 December 2013, to shareholders
on the register at the close of
business on 22 November 2013.
strategy
Following his appointment in
September 2011, Karim initiated
a thorough strategic review. We
announced the outcome of this
process in May 2012. Our focus in
2013 has been to implement this
strategy and to invest, so that Genus
can seize the significant opportunities
presented by the growing use of
genetics to make animal protein
more affordable and sustainable,
to feed a growing world population.
As I reported last year, the
strategy started by focusing on
our customers’ needs. To serve
them better, we introduced a
new organisation that aligned our
resources around species and key
growth areas, with a particular focus
on Asia. This has enabled us to
focus on disseminating best practice
around the world, whilst adapting our
business to meet the unique needs
of the major developing nations.
Second, we renewed our emphasis
on leading through innovation in
research and development. The early
results of this investment have been
encouraging, such as the single-
step genomic evaluation process
described on page 28. This is just one
of several initiatives Genus is pursuing.
Finally, we said that we would ensure
that Genus had the right resources
and competencies in key functions,
such as supply chain, technical
services and marketing, to deliver our
strategy. The Group has made strong
progress in bringing highly talented
individuals into the organisation,
to strengthen these areas.
A fuller discussion of our substantial
progress with implementing our
strategy can be found in Karim’s
Chief Executive’s Report report and
throughout the rest of this document.
People
In March 2013, John Worby, our
Group Finance Director since 2009,
08 | Genus plc Annual Report 2013
“ The Group has made strong
progress in bringing highly
talented individuals into
the organisation.”
took a well-deserved retirement.
John served Genus as both a Non-
Executive and an Executive Director
over eight years and contributed
enormously to the Group’s progress
over this time, through his energy,
wisdom and skill. He leaves us
with our deeply felt thanks and
very best wishes for the future.
The Board was pleased to
recruit Stephen Wilson as the
new Group Finance Director.
He is already making a valued
contribution as an Executive
Director and Board member. In
addition, we have welcomed Tom
Kilroy as our new Group General
Counsel & Company Secretary.
He brings a wealth of commercial,
intellectual property, legal and
executive experience to the Group.
In addition to Tom and Stephen,
the Genus Executive Leadership
Team has been strengthened by the
appointment of Saskia Korink Romani
as Chief Marketing Officer. In July,
Saskia took on the role of acting
Chief Operating Officer, Genus ABS.
Of course, so much of the driving
force behind our business comes
from the skills and capabilities of
our people, who operate in more
than 30 countries worldwide. I have
had the opportunity to meet many
of them this year and I continue to
be impressed by their enthusiasm
and professionalism. On behalf of
the Board and our shareholders,
I would like to thank all of Genus’s
employees for their dedication
and commitment to achieving
so much progress in 2013.
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in summary
2013 was undoubtedly a difficult
year for the global agricultural
industry, which was severely
affected by drought in the US
and poor harvests in Europe.
Throughout this tough period,
Genus continued to deliver growth
on top of last year’s record results
and made significant progress in
fundamentally transforming its
business and investing for growth.
The Board and I are confident that
the business has never had stronger
foundations to take advantage
of the opportunities in the global
market for animal genetics.
Bob Lawson
chairman
2 September 2013
Genus plc Annual Report 2013 | 09
18%
Average herd pregnancy rate for
UK and Ireland RMS customers
(14% national average)
10 | Genus plc Annual Report 2013
Transforming Our Customers’ Herd Fertility PerformanceWe know that efficiently producing high genetic quality pregnancies drives herd profitability, and that customers’ goals and production systems vary. Our Reproductive Management System (‘RMS’) team therefore optimises customers’ herd pregnancies by providing tailored solutions based on sound science, training and vast field experience. In the UK and Ireland, RMS has grown rapidly to service 686 farms, with nearly 170,000 cows or 10% of the national herd. The service is provided by 131 technicians, nine leaders and eight RMS trainers, supported by a technical services team.Our unique combination of skilled people, accurate data and standardised working has transformed fertility performance. The average pregnancy rate for UK and Ireland RMS customers’ herds is 18%, well above the national average of 14%. RMS has also hugely influenced herd expansion and our customers’ businesses. For example we have worked with Bowe Dairy Farming Company as a breeding company and farm consultants since 1998. Since then the business has grown from 80 to 600 cows. RMS has been an integral support to the business since 2007, helping the company achieve a pregnancy rate of 24%. Our vaLues
CustOMeR
CentRiC
Genus plc Annual Report 2013 | 11
chieF executive’s rePOrt
KariM Bitar
LAYING THE
FOUNDATIONS
FOR GROWTH
Last year, I set out our new vision,
strategy and organisation. In 2013,
we made substantial progress
implementing the strategy and
laying the foundations for growth.
Aligning the organisation by species,
giving more focus to research
and development and Asia, and
strengthening our core capabilities
have been very well received by
both customers and employees.
I am encouraged by the energy and
pace of change. The opportunity for
Genus is large and we are now better
placed to capture a growing share.
We made these changes in a
challenging year for the global
agriculture industry, with record
feed costs holding back customer
demand. Despite this, Genus was able
to fund its investment plans while
surpassing last year’s record results.
Group Performance
Revenue was 1% higher than in 2012,
at £345.3m. Porcine volumes grew by
6%, with strong increases in Asia and
particularly in China. Bovine volumes
rose 5%, driven by semen produced
in India at lower price points. Sales of
our globally produced semen grew
1%, held back by poor conditions
in Latin America in the first half.
Adjusted operating profit including
joint ventures increased by 1% to
£49.1m. Higher porcine volumes
drove double-digit profit growth
in Asia. Genus PIC grew 4%, with
positive contributions from all
regions and particular strength in
Latin America, where we continue
to transition customers to our
royalty model. In Genus ABS,
trading was challenging and profit
declined by 5%. Drought affected
key markets including Brazil and
North America, leading to subdued
demand. Research and development
costs increased by 12%, as we
invested in key research projects
and were affected by high feed
costs in our genetic nucleus farms.
strategy
The strategy we defined in 2012
is designed to deliver our vision
of ‘Pioneering animal genetic
improvement to help nourish the
world’. Our focus in 2013 has been
on implementing this strategy.
increasing Genetic control
and Product Differentiation
In 2013, we became the first
company to implement single-
step genomic evaluation across
a full range of animal traits in our
porcine business. The early results
are very encouraging, with the
much higher accuracy in breeding
programmes more than doubling
the rate of genetic improvement
in key traits such as litter size.
In dairy product development,
we have established a very
large animal database, enabling
us to produce proprietary and
economically focused indices
of bull merit, specific to our
customers’ needs. In North
America, we launched Real World
DataTM, a genetic index focused
on economic traits such as milk
production, fertility and lifetime
feed efficiency. We initiated an elite
female programme to gain greater
genetic control and increased the
proportion of genomic young sires
in our dairy product portfolio.
Our research programmes focus on
areas that can produce step changes
in product differentiation, including
genomic evaluations, disease
resistance and gender skew. Our
‘discovery without walls’ approach
has continued to bring the best
genetics into Genus from wherever
we find them.
targeting Key Markets and segments
Over half the world’s porcine market
is in China. To build a business
to address it effectively, we have
invested in high-health production
capacity and strengthening
customer relationships. In 2013,
we opened a new porcine nucleus
farm, Chun Hua, stocked with the
latest North American genetics,
to reduce the genetic lag of our
Chinese product offering. We
recruited a general manager for
our porcine business in China and
significantly grew the team’s size
and capability across all disciplines.
We also announced two joint
ventures with customers, to provide
multiplication capacity and to serve
these growing integrated pork
producers. The first, Besun, is now
operational and delivering very
good performance. The second, with
Shennong, is on track to establish
operations in a new farm in 2014. We
continue to have active discussions
with other customers and partners.
Genus also made good progress
in a wide range of other growth
markets in 2013, including the
Philippines, Russia and Mexico, while
in the important North American
market our performance was solid
in both porcine and bovine.
In dairy, we are focusing on ten key
markets and targeting the rapidly
growing large commercial and
enterprise farms. This segment
requires profit-focused indices
and high-touch technical services.
We are steadily introducing this
model in the US, with plans to
expand it in other key markets.
tailoring the Business Model
Our focus here is to ensure our
products meet the needs of our
target markets and to implement best
12 | Genus plc Annual Report 2013
“ Our strategic initiatives better
position Genus to capture the
significant growth potential in
the animal genetics market.”
practices to maximise value capture.
For example, to provide differentiated
high-merit genetics in the large
Indian dairy market, we imported
embryos from North America and
now have four young bulls and a
pipeline of further pregnancies.
In porcine in Europe, we have
moved away from direct sales of
parent gilts and rebuilt our team to
create the skills and structure for
an indirect, royalty-based business,
similar to our successful Americas
porcine business. We are making
clear progress and this transition
will gather momentum over time.
strengthening core competencies
We have implemented globally
consistent organisations
and practices in key account
management, technical services
and supply chain. This has enabled
us to spread best practice to
customers around the world. We
have strengthened these teams with
targeted hiring and international
assignments. In addition, we created
a marketing organisation to improve
product branding and pricing.
Lastly, we introduced a consistent
performance management process
across geographies and functions, to
ensure we embed our values and to
strengthen our performance culture.
Our People
In March 2013, John Worby
retired from Genus. I would like
to pay tribute to his outstanding
contribution and to thank him for
helping my induction to the Company
and for assisting Stephen Wilson, our
new Group Finance Director, with his
seamless transition into the role. John
was a source of great knowledge
and wisdom and we wish him well.
The Genus Executive Leadership
Team (‘GELT’) welcomed three
new members during the year. In
addition to Stephen, Saskia Korink
Romani joined us as Chief Marketing
Officer and Tom Kilroy is our new
Group General Counsel & Company
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Secretary. Each brings a wealth
of experience and talent and I am
delighted with the way that they
have integrated with the team. In
July 2013, Ricardo Campos, the
Chief Operating Officer, Genus ABS,
decided for personal reasons to step
down from GELT and refocus on
the important Latin America ABS
business. His passion and energy will
continue to be valuable to Genus.
Saskia Korink Romani has assumed
the role of acting Chief Operating
Officer, Genus ABS, to provide
leadership to our bovine business.
Over the course of the year, we
introduced new Company-wide
performance, development and
talent processes. We also added
strength and depth by recruiting
many talented individuals. I would
like to thank all employees for
their commitment to our new
strategic direction and for delivering
results in challenging markets.
Outlook
Good harvests are predicted in the
northern hemisphere which should
result in lower input costs and an
improvement in profitability in the
dairy, beef and porcine industries.
We expect this to lead to a gradual
improvement in market conditions
for our customers and demand for
our products. We therefore expect
the second half of this fiscal year
to be stronger than the first.
Our strategic initiatives better
position Genus to capture the
significant growth potential in
the animal genetics market. I am
confident that 2014 will be a year
of accelerating progress, both
operationally and financially.
Karim Bitar
chief executive
2 September 2013
Genus plc Annual Report 2013 | 13
Our vaLues
Results
DRiVen
14 | Genus plc Annual Report 2013
Helping Customers to Benefit from Our Genetic ImprovementsGenus PIC’s Genetic Services team works with more than 150 customers around the world. It ensures customers understand the value that genetic improvement brings, helps them to optimise their use of our genetics, and encourages them to multiply our genetics quickly, so they can rapidly realise the benefits. Finally, the team manages on-farm implementation of our genetic programme in our customers’ herds.Our commitment to delivering results for customers is evident in Genetic Services’s approach to hiring and training its people. In the last two years alone, the team has added five highly talented PhD geneticists from Asia, Europe, North America and Latin America. This focus on quality helps Genetic Services achieve notable results, with the rate of genetic improvement in North American boar studs doubling in 2013, compared with the three previous years. 150+
Genetic Services
customers worldwide
Genus plc Annual Report 2013 | 15
MarKet Overview
CHALLENGING CONDITIONS
IN 2013; FAVOURABLE
LONG-TERM GROWTH
DRIVERS
The Food and Agriculture
Organization of the United
Nations (‘FAO’) predicts that
global demand for animal protein
will double by 2050, driven by
population and income growth
in developing countries, as well
as urbanisation and changing
consumption patterns. China, India
and Russia are also striving to
become self-sufficient in protein,
making protein production a
growth industry in these countries.
2013 Global trends
Despite this favourable long-term
backdrop, market conditions in 2013
were especially challenging for our
customers. The US drought and
poor harvests in other countries
contributed to a worldwide surge
in input cereal prices. During the
first half of our financial year, wheat
prices increased by 21%, soybean
prices went up by 29% and US
corn prices rose by 18% compared
with the previous six months.
Porcine
The global pork sector has
experienced one of its most turbulent
years in history, with dramatically
contrasting price movements among
the pork producing regions. During
the first half of our financial year,
large price drops occurred in the US,
Canada and South Korea, due to a
relatively large seasonal supply boost
and the beginning of herd liquidation,
as hog farmers looked to limit their
losses as a result of high feed costs.
3-Year Corn Prices – Key Markets
(£ per tonne)
3-Year International Pork Markets
(£ per Kg)
At the same time, protein demand
in developed countries is generally
subdued, as a result of ageing and
slowly growing populations, together
with policy changes in areas such as
animal welfare. On the supply side,
high feed grain prices have reduced
livestock producers’ margins, and
livestock inventories have fallen in
some of the major meat-producing
countries, such as the US.
Tight margins in both bovine and
porcine production are accelerating
the trend for industry consolidation.
The need for production yield
increases is also pushing the
industry towards larger production
units and more sophistication and
professionalism, increasing the need
for enhanced farming systems,
nutrition, bio-security and more
efficient farming practices in general.
These trends create favourable
long-term growth opportunities
for our value-added genetics.
300
250
200
150
100
50
0
3.03.00
2.5
2.50
2.0
2.00
1.5
1.50
1.0
1.00
0.50
0.5
0
0.0
Aug 10
Aug 11
Aug 12
Aug 13
Aug 10
Aug 11
Aug 12
Aug 13
– Brazil – USA – China
– EU
– Brazil – USA – China – EU
Source: China Swine, CIRCA, CME and IEA
During the second half of our
financial year, grain and soybean
prices started to ease and most
returned to the levels seen at the
start of the year. This should bring
some relief to the livestock industry,
although profit margins are not all
positive yet. Over the next harvest
season, we expect ending stocks to
recover in the northern hemisphere,
which should mitigate some of the
volatility experienced over the last
five years. As a result, the outlook
for input prices is better for our
customers in the year to come.
In contrast, prices strengthened in
Brazil and the EU. In Brazil, prices
increased due to supply reductions
following herd liquidation, combined
with normal seasonality. In the EU,
poor profitability in recent years
and new regulations banning
crate gestation, which became
effective on 1 January 2013, have
driven heavy herd liquidation, with
the sow population down 3.5%.
In China, hog prices were below
last year’s record levels. A price
rally towards the Chinese New Year
16 | Genus plc Annual Report 2013
“ Tight margins in both bovine
and porcine production are
accelerating the trend for
industry consolidation.”
festival was short-lived and the
government intervened in the
market to stabilise prices
in late spring.
Demand for pork continues
to grow, with global consumption
rising by 2% per annum. The
OECD-FAO Agricultural Outlook
2013-2022 report shows that in
2022, China will overtake the
EU as the largest per capita
consumer of pig meat, at 34kg
per person. The Chinese
government continues to use
subsidies to accelerate local
production of more competitive
and food-safe pork, although
environmental policy on reducing
ammonia and nitrogen emissions
from animal husbandry will make
pig production more costly. In these
conditions, larger farming systems
are expanding and the outlook
for pork prices seems stable
to positive.
Dairy and Beef
At the start of our financial year, dairy
farmers were left between break-
even and loss-making, depending
on the region and their exposure to
feed. This was a result of low milk
prices and high feed costs. Global
dairy commodity prices saw a strong
recovery during the course of our
financial year. The Fonterra auction
price, for example, peaked at 83%
above June 2012 price levels. In all
markets, reduced supply was the main
cause of rising prices, with drought
in New Zealand – the largest milk
exporter – a particular contributor.
Milk production is expected to return
to modest growth in most regions,
given higher farmgate milk prices
compared to twelve months ago and
lower feed costs. Demand will recover
to 0% to 2% growth, depending on
the region, led by emerging markets
and the US. In the EU, demand
will be subdued given higher dairy
prices and sluggish economies.
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3-Year International Dairy Markets
(Pence per litre)
40
30
20
10
0
Aug 10
Aug 11
Aug 12
Aug 13
– Brazil – USA – China – EU – Russia
In the beef market, the Rabobank
Global Cattle Price Index was down
6% relative to Q1 2013 after a period
of some stability. This was the
result of a worldwide downtrend
in cattle prices, particularly in two
important export countries, Australia
and Brazil. Worldwide, industry
performance has been mixed, with
some companies in Brazil and other
Latin American countries achieving
reasonable margins due to relatively
strong exports to China on the back
of a weakening Real. In the US, high
feed cost reduced performance
and supply decreased, driven by
drought-induced herd liquidations.
European demand for real beef was
boosted by the ‘horse-gate’ scandal.
In China, beef demand is strong,
pulling in imports from countries like
Uruguay, Australia and New Zealand.
However, the broader picture for
demand still points to tempered
consumer appetite, as beef prices
have risen relative to chicken
and pork, while increases in
disposable income worldwide
appear to be slowing.
Genus plc Annual Report 2013 | 17
strateGic FraMewOrK
A STRATEGY
FOR GROWTH
Genus has a robust
strategy to capture
the very significant
growth opportunities
in the animal genetics
market, particularly in
the BRIC countries.
Our strategy for
growth has four
elements:
Increasing
Genetic Control
and Product
Differentiation
Targeting Key
Markets and
Segments
Tailoring the
Strengthening
Business Model
Core
Competencies
Aim: to maintain our
products’ lead over
our competitors.
Aim: to make sure we
have the right offer for
the right customers.
Aim: to adapt our approach
Aim: to have the core
to suit different markets
and customer segments.
competencies we need to
implement our strategy.
We do this by:
We do this by:
We do this by:
We do this by:
• understanding our
customers’ requirements
and building an R&D
programme and supply
chain to support them;
• enhancing our use of
•
genomics in our breeding
programmes, to strongly
accelerate the rate of
genetic improvement;
investing in proprietary
technologies, with a focus
on disease resistance and
gender skew, to boost
commercial viability
and productivity; and
• collaborating with
universities, research
institutes and biotechnology
companies, to explore
the latest developments
in quantitative and
molecular genetics.
• ensuring we have the right
products, in the critical
geographies, to meet
the needs of our target
customers, typically:
– integrated pork producers
and farrow-to-finish
pig producers
– enterprise and large
commercial dairies
• aligning our products and
services to key customer
segments, which value our
genetics and value-added
technical services; and
• seeking further growth
in the BRIC economies,
while strengthening our
position with customers in
more mature markets such
as the US and Europe.
• developing products that
• developing our
meet each market’s specific
marketing capability and
requirements, such as a
need for leaner meat or
better flavour in porcine, or
increased milk yields in dairy;
• ensuring we have the right
commercial model, notably:
– evaluating carefully when
to transition from direct
sales to royalties in our
porcine business; and
– adjusting our dairy and
beef customer interface,
based on cost to serve and
customer segmentation
• working with joint venture
partners to access or
create capacity to serve
new markets such as
porcine in China.
strengthening our key
account management;
• strengthening our supply
chain allowing us to be
more cost effective and able
to deploy genetics more
efficiently to our customers;
• stepping up our technical
support to customers; and
• enhancing our people
through performance and
talent management, and
by transferring people and
skills to key target markets.
18 | Genus plc Annual Report 2013
Increasing
Targeting Key
Genetic Control
Markets and
and Product
Differentiation
Segments
Tailoring the
Business Model
Strengthening
Core
Competencies
Aim: to maintain our
products’ lead over
our competitors.
Aim: to make sure we
have the right offer for
the right customers.
Aim: to adapt our approach
to suit different markets
and customer segments.
Aim: to have the core
competencies we need to
implement our strategy.
We do this by:
We do this by:
We do this by:
We do this by:
• understanding our
• ensuring we have the right
• developing products that
• developing our
• enhancing our use of
– integrated pork producers
customers’ requirements
and building an R&D
programme and supply
chain to support them;
genomics in our breeding
programmes, to strongly
accelerate the rate of
genetic improvement;
•
investing in proprietary
technologies, with a focus
on disease resistance and
gender skew, to boost
commercial viability
and productivity; and
• collaborating with
universities, research
institutes and biotechnology
companies, to explore
the latest developments
in quantitative and
molecular genetics.
products, in the critical
geographies, to meet
the needs of our target
customers, typically:
and farrow-to-finish
pig producers
– enterprise and large
commercial dairies
• aligning our products and
services to key customer
segments, which value our
genetics and value-added
technical services; and
• seeking further growth
in the BRIC economies,
while strengthening our
position with customers in
more mature markets such
as the US and Europe.
meet each market’s specific
requirements, such as a
need for leaner meat or
better flavour in porcine, or
increased milk yields in dairy;
• ensuring we have the right
commercial model, notably:
– evaluating carefully when
to transition from direct
sales to royalties in our
porcine business; and
– adjusting our dairy and
beef customer interface,
based on cost to serve and
customer segmentation
• working with joint venture
partners to access or
create capacity to serve
new markets such as
porcine in China.
marketing capability and
strengthening our key
account management;
• strengthening our supply
chain allowing us to be
more cost effective and able
to deploy genetics more
efficiently to our customers;
• stepping up our technical
support to customers; and
• enhancing our people
through performance and
talent management, and
by transferring people and
skills to key target markets.
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Find Out More
Market Overview
Our strategy takes account of the
long-term drivers of our markets.
See pages 16 and 17.
strategic Progress
Each of our divisions and our
R&D function has strategic
priorities that support our Group
strategy. See pages 22 to 29.
Performance
Our key performance indicators
measure how well we are
implementing our strategy.
See pages 30 and 31.
Risk
We look to understand and
mitigate the risks to achieving
our strategic goals. See pages
40 and 41.
Remuneration
Our management’s
remunerations reflects the
success of our strategy.
See pages 61 to 73.
Genus plc Annual Report 2013 | 19
BG Chitale facility
Using Genus’s expertise, Chitale’s animal
semen has increased from 200,000 to
1.8 million
units
20 | Genus plc Annual Report 2013
Pioneering Improved Genetics in IndiaBG Chitale is the largest dairy processor in the Maharashtra region of India, which has a population of 112 million. The company has a passion for making Indian dairy farmers more productive, through technology and the best genetics. “The US achieves 10,000 litres of milk per cow but India is at about 2,000 litres,” explains Vishvas Chitale, CEO, BG Chitale. “We have around 50,000 farmers supplying us with milk. If we can reduce the number of animals they need, they will remain in business and get better returns. And fewer cows means lower greenhouse gas emissions and a greener world.”To do this, BG Chitale is focused on improving genetics and operates one of India’s few private artificial insemination studs. For the last three years, it has worked with Genus to increase annual semen production from 200,000 to 1.8 million units. “We need a partner who can help us improve animal productivity through the best genetics,” says Vishvas. “It was a natural choice to go with the best in the field.”Our strategy is to deliver value-added and differentiated products for India. We have created a pipeline of new bulls by importing embryos from North America, with the first bull (‘Pioneer’) born in August 2012. We have also genomically tested several young bulls – a first for the Indian dairy industry. Our vaLues
PiOneeRinG
Genus plc Annual Report 2013 | 21
strateGic PrOGress
GeNus Pic
ExTENDING OUR
LEADERSHIP
The porcine industry’s globalisation continues to create significant
opportunities for Genus PIC to deliver added value to the leading
producers of today and tomorrow.
Although 2013 was a very challenging
year, with record feed input costs
causing many producers to lose
money, we continued to invest in
product development and technical
services initiatives required to
help our growing global customer
base become stronger and more
differentiated in their regions.
Despite the difficult economic
environment for many of our
customers, Genus PIC grew its
profit by 4% on volume growth of
3% in the year. We also made strong
progress against our strategic
objectives, as detailed below.
Bill christianson
Chief Operating Officer, Genus PIC
Increasing Genetic Control
and Product Differentiation
Targeting Key Markets
and Segments
Tailoring the Business
Model
Strengthening
Core Competencies
Progress against 2013 Objectives
Progress against 2013 Objectives
Progress against 2013 Objectives
Progress against 2013 Objectives
we aimed to:
• invest in proprietary technologies to accelerate genetic
progress; use imputation in genomics to differentiate
our products; and reduce the time to get our genetics
to market (genetic lag).
During the year, we:
• were the first in the world to implement single step
genomic evaluation, delivering the highest rates of
genetic improvement in our history, for example more
than doubling the rate of improvement in sow
prolificacy in the year; and
• implemented our genetic dissemination plan, reducing
the genetic lag by 0.6 years to 3.9 years, with Russia,
China, Spain, Chile and Germany achieving the
largest reductions.
we aimed to:
• reinforce our leading position in key markets across the
Americas, especially the US; and expand our presence
in Brazil, Russia, Germany, Spain and China.
During the year, we:
• sustained our US market position and grew share in
Brazil, China, Russia, Germany and Spain; and
• leveraged our new organisational structure and global
functions to implement best practices in key markets.
we aimed to:
we aimed to:
• improve our understanding of customer needs and
• use our technical service group to realise our genetics’
tailor our offering to them; establish a global technical
full potential; and continue to attract and retain the
service team; and expand our royalty model outside
industry’s best talent.
North America.
During the year, we:
• established a global technical service team, which
is delivering the best product and service to key
customers and markets;
• expanded our royalty model in key markets in Latin
America, Europe and Asia, with 74% of our volumes
now under royalty contracts, compared with 69%
last year; and
• restructured our European business, to better align
it with global best practice.
During the year, we:
• improved pigs per sow per year by over 3%, compared
with more than 600,000 sows that we have measured
historically; and
• bolstered our team with 18 new hires, with a focus on
Europe, technical services and product development.
2014 Priorities
2014 Priorities
we will:
• further reduce genetic lag by tightly integrating our
dissemination plan with our global supply chain;
• aggressively implement imputation and develop tools
to maximise the robustness of our diverse global
evaluations; and
• develop new terminal sire products, which will continue
to lead the industry to higher levels of robust and
efficient growth.
we will:
• further develop key account plans for our strategic
global customers, allowing us to tailor delivery of
products and services maximising customer by
customer success; and
• support the expansion of genetic production and gilt
supply that will allow us to provide high merit animals
in targeted growth markets, such as the US, Russia
and China.
2014 Priorities
we will:
2014 Priorities
we will:
• capitalise on growth opportunities for terminal sires by
• leverage our product validation process and
developing consistent product offerings, aligning supply
infrastructure across Europe and Asia, enabling us to
chain capacity and applying value-based business
demonstrate the increasing value of our genetic
models;
• continue to expand the royalty model; and
• develop targeted combinations of products and
services that allow us to further grow our business
and expand our value proposition with the largest
production companies around the globe.
products in key growth markets;
• expand our ability to effectively work with key accounts
and identify and deliver on opportunities to increase
customer success; and
• build on our talent management process, to strengthen
the team further and develop staff.
22 | Genus plc Annual Report 2013
Family Farms averaged the
equivalent of 31 pigs weaned
per sow per year, 3.5 higher
than 2010. The farm is on
track to market more than
8,000lbs of pork per sow,
up 10% on three years ago.
“Over 21 years ago I chose
to start using PIC genetics
on our farm,” said Pat
Hord. “This team gives
us the opportunity to be
the best in the world.”
Case studies
adding value for
hord Family Farms
Ohio-based Hord Family
Farms has around 17,500
PIC females, allowing it to
market more than 500,000
pigs each year. Our genetics
help it achieve outstanding
performance. In the first
five months of 2013, Hord
supporting Our
european Growth
Since 2000, Frank
Tiggemann has produced
breeding stock animals
for us in Podelzig, eastern
Germany. His farm has
grown to hold 1,850 pure
line PIC sows and become
known for excellence in
implementing our breeding
programme. Podelzig is
now one of Europe’s key
production nucleus multiplier
units, allowing us to serve
customers in the main
European markets. Steady
production improvements
mean Frank is now achieving
an impressive 29.2 weaned
pigs per sow per year. As he
states, “We made absolutely
the right decision to partner
with PIC. We have achieved
our goals and are convinced
we will continue to do so.”
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Increasing Genetic Control
and Product Differentiation
Targeting Key Markets
and Segments
Tailoring the Business
Model
Strengthening
Core Competencies
Progress against 2013 Objectives
Progress against 2013 Objectives
Progress against 2013 Objectives
Progress against 2013 Objectives
we aimed to:
we aimed to:
• invest in proprietary technologies to accelerate genetic
• reinforce our leading position in key markets across the
progress; use imputation in genomics to differentiate
our products; and reduce the time to get our genetics
Americas, especially the US; and expand our presence
in Brazil, Russia, Germany, Spain and China.
to market (genetic lag).
During the year, we:
• were the first in the world to implement single step
genomic evaluation, delivering the highest rates of
• sustained our US market position and grew share in
Brazil, China, Russia, Germany and Spain; and
• leveraged our new organisational structure and global
genetic improvement in our history, for example more
functions to implement best practices in key markets.
During the year, we:
than doubling the rate of improvement in sow
prolificacy in the year; and
• implemented our genetic dissemination plan, reducing
the genetic lag by 0.6 years to 3.9 years, with Russia,
China, Spain, Chile and Germany achieving the
largest reductions.
2014 Priorities
we will:
2014 Priorities
we will:
• further reduce genetic lag by tightly integrating our
• further develop key account plans for our strategic
dissemination plan with our global supply chain;
global customers, allowing us to tailor delivery of
• aggressively implement imputation and develop tools
products and services maximising customer by
to maximise the robustness of our diverse global
customer success; and
• develop new terminal sire products, which will continue
supply that will allow us to provide high merit animals
to lead the industry to higher levels of robust and
in targeted growth markets, such as the US, Russia
• support the expansion of genetic production and gilt
evaluations; and
efficient growth.
and China.
we aimed to:
• improve our understanding of customer needs and
tailor our offering to them; establish a global technical
service team; and expand our royalty model outside
North America.
During the year, we:
• established a global technical service team, which
is delivering the best product and service to key
customers and markets;
• expanded our royalty model in key markets in Latin
America, Europe and Asia, with 74% of our volumes
now under royalty contracts, compared with 69%
last year; and
• restructured our European business, to better align
it with global best practice.
we aimed to:
• use our technical service group to realise our genetics’
full potential; and continue to attract and retain the
industry’s best talent.
During the year, we:
• improved pigs per sow per year by over 3%, compared
with more than 600,000 sows that we have measured
historically; and
• bolstered our team with 18 new hires, with a focus on
Europe, technical services and product development.
2014 Priorities
2014 Priorities
we will:
• capitalise on growth opportunities for terminal sires by
we will:
• leverage our product validation process and
developing consistent product offerings, aligning supply
chain capacity and applying value-based business
models;
infrastructure across Europe and Asia, enabling us to
demonstrate the increasing value of our genetic
products in key growth markets;
• continue to expand the royalty model; and
• develop targeted combinations of products and
services that allow us to further grow our business
and expand our value proposition with the largest
production companies around the globe.
• expand our ability to effectively work with key accounts
and identify and deliver on opportunities to increase
customer success; and
• build on our talent management process, to strengthen
the team further and develop staff.
Genus plc Annual Report 2013 | 23
strateGic PrOGress
GeNus aBs
STRENGTHENING OUR
CORE CAPABILITIES
Genus ABS leads the world in dairy and beef semen genetics. We have
a strong development programme and unrivalled global coverage.
By acting locally, we make the most
of our strengths in people and
technology, delivering the highest
standards of innovation and service.
We are seeing continuous customer
consolidation in most of our markets,
which offers exciting opportunities
for growth as our customers continue
to professionalise and become better
positioned to recognise the benefit
and value of improved genetics
in their herds. Despite adverse
weather and market conditions,
particularly in Latin America,
we have strengthened our core
capabilities in technical services,
marketing and supply chain to take
advantage of these opportunities.
During the year, profit in Genus
ABS declined by 3% in constant
currency, on 1% lower volumes.
saskia Korink romani
Acting Chief Operating Officer,
Genus ABS
Increasing Genetic Control
and Product Differentiation
Targeting Key Markets
and Segments
Tailoring the Business
Model
Strengthening
Core Competencies
Progress against 2013 Objectives
Progress against 2013 Objectives
Progress against 2013 Objectives
Progress against 2013 Objectives
we aimed to:
• deliver the industry’s best genetics; sustain our product
leadership; and continue to meet demand for the
industry’s highest-ranked bulls.
we aimed to:
• expand in developing markets; sustain our successes in
competitive countries; and accommodate the differing
needs of traditional farmers and large dairy systems.
we aimed to:
• tailor our product offering to customer segments;
establish a global technical service team; establish a
global marketing team; and support the co-ordination
During the year, we:
• launched a proprietary Real World Data™ (‘RWD’) index,
focused on sire fertility;
• initiated an elite female programme, to increase genetic
control and improve selection tailored to the future
needs of our customers; and
• sustained product leadership for proven bulls and
constructed a new globally qualified facilities barn,
to support global demand for genomic young sires.
During the year, we:
• conducted extensive market research in 11 key markets,
to deepen our understanding of our customers’ buying
behaviours and identify target customer segments;
• leveraged our Jersey line-up and expertise to increase
trading by 25% in the competitive North American
market; and
• despite adverse conditions, we gained market share
in our key Latin American markets.
2014 Priorities
2014 Priorities
we will:
• expand the RWD platform by developing additional
indexes tailored to our target customers’ economic
needs and breeding objectives;
• further strengthen both the male and female genetic
platforms; and
• strengthen our proven bull portfolio and enhance our
genomic bull offering, tailored to the needs of our
customers.
we will:
• pilot a new business model with selected target
customer segments in two key countries, and prepare
for further deployment;
• position ourselves better with dairy processors in
North America, through increased understanding
of their needs regarding the quality and composition
of milk; and
• implement our global customer segmentation in the
remaining target markets.
24 | Genus plc Annual Report 2013
we aimed to:
• develop skills in key account management, technical
service, product development and the supply chain.
During the year, we:
• developed core competencies globally in technical
services, supply chain and marketing, by appointing
of the supply chain.
During the year, we:
• designed business models to be implemented in our
talent to key leadership positions and putting resources
key markets, by leveraging local knowledge in our
subsidiaries around the world and applying best
in place;
practices globally;
• utilised our Mexican operating model and experience
• improved the flexibility and speed of product
distribution, by integrating product forecasting
with production and inventory management; and
to establish technical services across ABS globally; and
• established a global Technical Services training
• leveraged our UK Beef on Dairy (In-Focus) model in
North America, to create premium dairy beef while
helping dairy producers maximise their profit.
facility, by partnering with a dairy farm with more
than 12,000 cows.
2014 Priorities
we will:
needs of each segment;
• develop a differentiated approach for our target
• develop a globally aligned approach to key account
customer segments, enabling us to meet the specific
management and implement the capability in our
• implement best practices in customer interfacing teams,
• continue to develop and implement systems to improve
to increase efficiency and effectiveness and to better
supply-chain effectiveness and better integrate product
align with respective customer needs; and
development into the ABS organisation; and
• focus on value creation as one of the future drivers of
• continue to roll out technical services and tools across
our business growth.
the BRIC countries.
2014 Priorities
we will:
key markets;
Case studies
helping cOMPaL to
achieve its Business
Objectives
Our beef genetics have
helped COMPAL S.A.
of Argentina to achieve
significant improvements in
its beef production. COMPAL
has increased its average
weaning weight by 20kg per
head since 2008, improved
calving ease on young heifers
without compromising
feedlot performance, and
reached daily liveweight
gains of more than 400
grams per head, compared
with calves from other
genetic sources. A higher
carcass yield and superior
beef quality have also
allowed COMPAL to succeed
in the highly competitive
elite restaurant market. As
COMPAL’s Pedro Gatti says,
“By using ABS genetics, we
have reached our production
and distribution objectives.”
enhancing Farm
Profitability for
azienda saPar
When parmesan cheese
producer Azienda SAPAR
needed to increase its farm
profitability, our value-
added services were key to
it choosing our Reproductive
Management Service. We
immediately helped improve
on-farm processes, which
halved cow containment
times, increased daily
milk production by two
litres per cow per day and
generated an extra £175,000
of annual revenue. Over
several months, Azienda
SAPAR’s pregnancy rate
rose from 13% to 16%, which
will offer further production
improvements. As herd
manager Franco Pittalis
commented, “Genus ABS’s
commitment to tailor a
solution to the specific goals
of my farm separates them
from the other options.”
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Increasing Genetic Control
and Product Differentiation
Targeting Key Markets
and Segments
Tailoring the Business
Model
Strengthening
Core Competencies
Progress against 2013 Objectives
Progress against 2013 Objectives
Progress against 2013 Objectives
Progress against 2013 Objectives
we aimed to:
we aimed to:
• deliver the industry’s best genetics; sustain our product
• expand in developing markets; sustain our successes in
leadership; and continue to meet demand for the
industry’s highest-ranked bulls.
competitive countries; and accommodate the differing
needs of traditional farmers and large dairy systems.
During the year, we:
focused on sire fertility;
• launched a proprietary Real World Data™ (‘RWD’) index,
• conducted extensive market research in 11 key markets,
to deepen our understanding of our customers’ buying
• initiated an elite female programme, to increase genetic
behaviours and identify target customer segments;
control and improve selection tailored to the future
• leveraged our Jersey line-up and expertise to increase
needs of our customers; and
trading by 25% in the competitive North American
• sustained product leadership for proven bulls and
market; and
constructed a new globally qualified facilities barn,
to support global demand for genomic young sires.
• despite adverse conditions, we gained market share
in our key Latin American markets.
During the year, we:
2014 Priorities
we will:
2014 Priorities
we will:
• expand the RWD platform by developing additional
• pilot a new business model with selected target
indexes tailored to our target customers’ economic
customer segments in two key countries, and prepare
needs and breeding objectives;
for further deployment;
• further strengthen both the male and female genetic
• position ourselves better with dairy processors in
• strengthen our proven bull portfolio and enhance our
of their needs regarding the quality and composition
genomic bull offering, tailored to the needs of our
of milk; and
North America, through increased understanding
platforms; and
customers.
remaining target markets.
we aimed to:
• tailor our product offering to customer segments;
establish a global technical service team; establish a
global marketing team; and support the co-ordination
of the supply chain.
During the year, we:
• designed business models to be implemented in our
key markets, by leveraging local knowledge in our
subsidiaries around the world and applying best
practices globally;
• utilised our Mexican operating model and experience
to establish technical services across ABS globally; and
• leveraged our UK Beef on Dairy (In-Focus) model in
North America, to create premium dairy beef while
helping dairy producers maximise their profit.
we aimed to:
• develop skills in key account management, technical
service, product development and the supply chain.
During the year, we:
• developed core competencies globally in technical
services, supply chain and marketing, by appointing
talent to key leadership positions and putting resources
in place;
• improved the flexibility and speed of product
distribution, by integrating product forecasting
with production and inventory management; and
• established a global Technical Services training
facility, by partnering with a dairy farm with more
than 12,000 cows.
2014 Priorities
2014 Priorities
we will:
• develop a differentiated approach for our target
customer segments, enabling us to meet the specific
needs of each segment;
we will:
• develop a globally aligned approach to key account
management and implement the capability in our
key markets;
• implement best practices in customer interfacing teams,
to increase efficiency and effectiveness and to better
align with respective customer needs; and
• continue to develop and implement systems to improve
supply-chain effectiveness and better integrate product
development into the ABS organisation; and
• focus on value creation as one of the future drivers of
• continue to roll out technical services and tools across
• implement our global customer segmentation in the
our business growth.
the BRIC countries.
Genus plc Annual Report 2013 | 25
strateGic PrOGress
GeNus asia
SEIzING THE
OPPORTUNITY
Asia covers 30% of the world’s land mass and is home to 4.2 billion
people, or 60% of the global population. That population is growing, as
are incomes and appetites, creating unrivalled opportunities for Genus.
China alone accounts for almost
50% of the world’s pigs, while India
has 15% of the global dairy cow
population. Russia, which spans
Europe and Asia, is still one of the
largest animal-protein importers
globally. Food availability, food
safety and food quality are critical
to each of these countries, with
self-sufficiency in animal protein
being an important part of their
national plans. Genus Asia is
becoming an increasingly significant
feature in those plans, building our
business in pork, dairy and beef.
In 2013, Genus Asia grew profits
by 14%, despite challenging market
conditions and while investing heavily
in both people and supply chain
initiatives, to increase our ability to
seize this long-term opportunity.
Jerry thompson
Chief Operating Officer, Genus Asia
Increasing Genetic Control
and Product Differentiation
Targeting Key Markets
and Segments
Tailoring the Business
Model
Strengthening
Core Competencies
Progress against 2013 Objectives
Progress against 2013 Objectives
Progress against 2013 Objectives
Progress against 2013 Objectives
we aimed to:
• develop a differentiated product pipeline for key
countries and ensure the latest genetics are available
to our customers through rapid dissemination.
During the year, we:
• produced the first of a series of bulls from imported
embryos in India, made history by becoming the first
company to have bulls genomically tested, and
implanted a further pipeline of embryos for bull
production in India, as well as in Australia for export
to China;
we aimed to:
• increase our focus on our key Asian markets of China,
Russia and India.
During the year, we:
• continued to grow in each of these key markets,
achieving record sales volumes and revenues, and
growing our business with the leading integrated
producers in Russia and China;
• developed two strategic joint ventures and increased
supply capacity in China; and
we aimed to:
• pursue joint ventures in China; expand our dairy
distribution by targeting large accounts; develop
production and distribution in India; and roll out
specialist technical services.
During the year, we:
we aimed to:
• leverage the knowledge of Genus’s global teams; and
ensure we have the right resources to support our
growth plans in Russia, India and China.
During the year, we:
• filled key leadership roles across the region and
• announced a new porcine joint venture with Shennong
strengthened the teams in key markets, including
and made strong operational progress in our joint
venture with Besun;
employing expatriates to head the health and technical
services teams in China and to work together to train a
• continued to successfully implement our dairy
strong local team;
• achieved growth in the Philippines of over 100%, by
strategies, selling record semen volumes across Russia,
• developed strong links with the Genus PIC and Genus
• populated a new nucleus farm in China by importing
remodelling the business around a key account strategy.
India and China; and
ABS global technical teams, enabling us to provide
pigs, which will produce tailored dam and sire lines and
update the genetics at our other breeding farms; and
• flew pigs into Russia, the Philippines, Japan and Korea,
to provide genetic updates and populate customer
farms, as well as populating the new PIC breeding
herds of our partner in Vietnam, GREENFEED.
2014 Priorities
2014 Priorities
we will:
• expand our portfolio of tailored bulls in India and import
bulls into Russia and China to strengthen our line up of
locally produced semen;
• make porcine genetic updates in Russia, China and
other key Asian markets through live boar imports; and
we will:
• leverage our strong positions in Russia, India and China.
To do this, we have clearly segmented the markets and
our team is focused on developing our business with
key accounts across the region, with a continuously
improving range of products and services.
• consider options for dedicated sire line nucleus units
in Russia, China and the Philippines, to increase the
availability of differentiated boar products.
26 | Genus plc Annual Report 2013
• continued to develop our technical service offering and
outstanding technical services through local and
capability for key accounts.
• implemented performance management consistently
international experts; and
across all operating units.
2014 Priorities
we will:
2014 Priorities
we will:
• continue to pursue further joint ventures in China and
• build on the sound platform established in our key
expand our semen production capacity in India, to meet
markets. This will include strengthening our teams, with
a focus on training and developing the necessary key
• implement our new strategy in the Philippines, following
account and technical service skills.
increased demand;
the reorganisation; and
• continue to simplify our operations and focus on
growth, through our key account strategy.
Case studies
unique Partnership to
help Feed a Growing
Population
Our partnership with Bank
of the Philippine Islands
(‘BPI’) reflects our leadership
in pig genetics and BPI’s
position as a major national
bank. Together, we provide
agricultural entrepreneurs
with the funding, animals and
technical support they need
to upgrade, expand or build
a new world-class pig farm.
Genus supplies genetically
improved breeding stock,
specifies suppliers, buildings
and equipment, helps to
design the farm and provides
the borrower with training
and advice, to maximise the
herd’s performance. The
partnership is proceeding
well and by the end of
June 2013, we had held
three regional launches,
attended by farmers and
investors nationwide.
a strong start for
Our Joint venture
In July 2012, we announced
a joint venture with Shaanxi
Yangling BeSun Agricultural
Group Co. to operate a
nucleus farm in China. The
venture has made rapid
progress. Having recruited
and trained a team of 32
people, the first batch of
breeding animals arrived in
August 2012, with the first
piglets in February 2013.
By the end of June 2013,
we had sold nearly 1,200
breeding gilts and more
than 4,300 weaned piglets,
and the sow inventory
was at its capacity of
4,250. Performance has
been excellent, with pigs
weaned per sow per year
of 25.9, well above the
industry average of 18.
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Increasing Genetic Control
and Product Differentiation
Targeting Key Markets
and Segments
Tailoring the Business
Model
Strengthening
Core Competencies
Progress against 2013 Objectives
Progress against 2013 Objectives
Progress against 2013 Objectives
Progress against 2013 Objectives
we aimed to:
we aimed to:
• develop a differentiated product pipeline for key
• increase our focus on our key Asian markets of China,
countries and ensure the latest genetics are available
Russia and India.
to our customers through rapid dissemination.
During the year, we:
During the year, we:
• produced the first of a series of bulls from imported
embryos in India, made history by becoming the first
company to have bulls genomically tested, and
implanted a further pipeline of embryos for bull
• continued to grow in each of these key markets,
achieving record sales volumes and revenues, and
growing our business with the leading integrated
producers in Russia and China;
• developed two strategic joint ventures and increased
production in India, as well as in Australia for export
supply capacity in China; and
to China;
• achieved growth in the Philippines of over 100%, by
• populated a new nucleus farm in China by importing
remodelling the business around a key account strategy.
pigs, which will produce tailored dam and sire lines and
update the genetics at our other breeding farms; and
• flew pigs into Russia, the Philippines, Japan and Korea,
to provide genetic updates and populate customer
farms, as well as populating the new PIC breeding
herds of our partner in Vietnam, GREENFEED.
we aimed to:
• pursue joint ventures in China; expand our dairy
distribution by targeting large accounts; develop
production and distribution in India; and roll out
specialist technical services.
During the year, we:
• announced a new porcine joint venture with Shennong
and made strong operational progress in our joint
venture with Besun;
• continued to successfully implement our dairy
strategies, selling record semen volumes across Russia,
India and China; and
• continued to develop our technical service offering and
capability for key accounts.
we aimed to:
• leverage the knowledge of Genus’s global teams; and
ensure we have the right resources to support our
growth plans in Russia, India and China.
During the year, we:
• filled key leadership roles across the region and
strengthened the teams in key markets, including
employing expatriates to head the health and technical
services teams in China and to work together to train a
strong local team;
• developed strong links with the Genus PIC and Genus
ABS global technical teams, enabling us to provide
outstanding technical services through local and
international experts; and
• implemented performance management consistently
across all operating units.
2014 Priorities
we will:
2014 Priorities
we will:
• expand our portfolio of tailored bulls in India and import
• leverage our strong positions in Russia, India and China.
bulls into Russia and China to strengthen our line up of
To do this, we have clearly segmented the markets and
locally produced semen;
• make porcine genetic updates in Russia, China and
our team is focused on developing our business with
key accounts across the region, with a continuously
other key Asian markets through live boar imports; and
improving range of products and services.
• consider options for dedicated sire line nucleus units
in Russia, China and the Philippines, to increase the
availability of differentiated boar products.
2014 Priorities
2014 Priorities
we will:
• continue to pursue further joint ventures in China and
we will:
• build on the sound platform established in our key
expand our semen production capacity in India, to meet
increased demand;
• implement our new strategy in the Philippines, following
markets. This will include strengthening our teams, with
a focus on training and developing the necessary key
account and technical service skills.
the reorganisation; and
• continue to simplify our operations and focus on
growth, through our key account strategy.
Genus plc Annual Report 2013 | 27
strateGic PrOGress
GeNus r&D
MEETING CUSTOMERS’ NEEDS,
TODAY AND TOMORROW
Genus is passionate about exceeding customers’ expectations. We
incorporate cutting-edge technology into our R&D, so our porcine,
dairy and beef customers always have the industry’s best products
and services.
R&D is a team effort. We work
closely with our customers, as well
as marketing, sales and technical
services, to advance our R&D
programme. To maintain our
competitive edge and leadership
position, we anticipate our
customers’ needs over the next
five to ten years, while making sure
that we are aligned with Genus’s
long-term business strategies.
Our focused research programme
is centred on three core platforms:
Dr Denny Funk
Chief Scientific Officer, Genus R&D
Disease
Resilience
Gender
Skewing
Genomic
Selection
Genus and The Roslin
Institute, University
of Edinburgh, have
embarked on a multi-year
collaborative research
agreement, focusing on
genetic improvement in
resilience to disease.
Genus is actively pursuing
sexed semen R&D to
deliver an improved and
more efficient bovine
product offering, as well
as enabling a practical
method for producing
sexed porcine semen.
We are working on research projects
to deliver animals that are more
robust or less affected by diseases
such as porcine reproductive and
respiratory syndrome (‘PRRS’), porcine
influenza and African swine fever.
Sexed semen has great potential
value in countries like India, where
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.
Genomic selection
uses genetic markers,
called single-nucleotide
polymorphisms, to increase
the frequency with which we
identify elite individuals to
use in breeding programmes.
We genotype tens of thousands of
animals each year, combining genetic
markers with traditional performance
and pedigree information in state-of-
the-art genetic evaluation programmes,
called single-step genomic evaluations.
These sophisticated computer
programs accurately rank individual
animals’ genetic merit for traits of high
economic value to our customers,
such as prolificacy and robustness.
28 | Genus plc Annual Report 2013
Case studies
the Power of single-step
Genomic evaluations
Genomics helps us to
estimate an animal’s genetic
merit more accurately, so we
can drive improvement. We
consider more than 35,000
genetic markers, creating
billions of data points
across tens of thousands
of animals. Combining all
the data is complex but it
has increased the accuracy
of estimates for traits such
as pig litter size by 68%.
Dr Selma Forni is one
of the scientists leading
our single-step genomic
evaluations. “I was
challenged to transform
complex genome data into
a simple tool, to deliver
value to our customers.
It is a great example
of Genus transforming
scientific knowledge into
real-world solutions.”
Top 10% 2–3% points
above average fertility
20%
40% Average fertility
20%
Bottom 10% 2–3% points
below average fertility
using Data to increase
customers’ Profitability
Genus ABS launched the
first Genus Real World
Data™ (‘RWD’) Bull Fertility
rankings in December 2012,
utilising our proprietary
database of more than
12 million insemination
records. RWD provides
rankings for both Holstein
and Jersey bulls, the two
primary dairy breeds
that we market. We are
continuing to build a global
database of management
and performance RWD from
our customers around the
world, which we will use in
developing customised and
proprietary management
tools, to help increase our
customers’ profitability. We
are also developing further
proprietary indices, which
will be unique to Genus.
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the Genus Product advantage
Our research is all about turning
science into differentiated and value-
added products for our customers.
We frequently benchmark ourselves
against our competitors, to ensure we
are delivering the product advantages
our customers expect from us.
For example, when we compare
the economic advantages from
weaning through carcass value, PIC’s
genetics consistently outperform
our competitors, generating
more profit for our customers.
Dairy customers also look to ABS
for the best and most reliable
genetics in the industry. ABS has
more high-ranking daughter proven
bulls than any of our competitors.
Margin Above Feed and
Housing Costs
US$
Top 100 Net Merit Rankings
(Daughter Proven)
Number of bulls
5
2
.
1
2
5
8
9
1
.
0
0
9
1
.
2
2
8
1
.
9
9
7
1
.
5
8
6
1
.
8
8
5
1
.
2
5
2
1
.
25
20
15
10
5
0
8
2
30
25
20
15
10
5
0
0
2
7
1
5
1
3
1
PIC A
PIC B
PIC C
PIC D
C o m p etitor 1
C o m p etitor 2
C o m p etitor 3
C o m p etitor 4
A B S
C o m p etitor 1
C o m p etitor 2
C o m p etitor 3
C o m p etitor 4
Genus plc Annual Report 2013 | 29
Key PerFOrMaNce iNDicatOrs
We have a clear strategy to be the world leader in creating genetic improvements, by applying
biotechnology in the dairy, beef and pork food sectors. We focus on demonstrating genetic advances
and delivering revenue growth in those species, to drive operating profitability and generate cash.
We monitor and measure our strategic progress by reference to two types of indicators:
• Performance Measures
• Financial Strength Measures
Performance Measures
Porcine Volume Growth
why we Measure
To track the business’s underlying
performance, by reference to a
common unit of measurement used
around the world.
Definition
The change in volume of both direct and
royalty animals on which we receive
revenue, measured in market pig
equivalents (‘MPEs’), a unit which
standardises the slaughter animals that
contain our genetics.
Performance
FY13 has seen growth of 6%, with
particularly strong increases in China
and Latin America. In North America,
growth was modest due to customers
deferring their genetic updates and
expansion plans through the year, in
difficult market conditions.
Dairy and Beef Volume Growth
2013 Performance: +6%
%
7
6
6
8
7
6
5
4
3
2
1
0
3
10
11
12
13
2013 Performance: +5%
%
why we Measure
To track our underlying performance,
by reference to a common unit of
measurement used around the world.
Definition
The change in volume of dairy, beef
and sorted units of semen, delivered
to customers in the year.
Performance
Volumes grew 5% to 16.5m doses, driven
by strong growth in Asia, especially
India, where volumes grew by 81%. The
growth includes semen produced locally
from facilities which were established
previously in India and China. Semen
volumes supplied from global studs
increased by 1%.
12
10
8
6
4
2
0
1
1
8
7
5
10
11
12
13
Porcine Genetic Improvement Index
why we Measure
To monitor and measure the genetic
gain Genus achieves in the porcine
genetic merit of animals developed. The
assessment is derived from statistical
genetic evaluation of economically
important traits, to predict the increased
profitability potential for customers of
an animal if utilised as a parent of the
next generation.
Definition
The genetic value improvement index
measures the Estimated Breeding Value
(‘EBV’) and marginal economic value
improvement in customers’ profitability,
per commercial pig per year on a rolling
three-year average basis.
Performance
During the year, the genetic
improvement index increased from 2.10
to 2.25, a growth of 7%. This is a direct
result of progress in single step genomic
evaluation over larger herd populations.
2013 Performance: 2.3
Index
2.5
.
3
2
1
.
2
2.0
1.5
7
.
1
6
.
1
1.0
0.5
0.0
10
11
12
13
Net Merit Rankings (Daughter-Proven Bulls)
2013 Performance: 28
Number
why we Measure
To monitor our ability to pioneer animal
genetic traits that are sought after in the
market, developing bulls that are highly
ranked by virtue of their genetic
performance and economic merit. Our
target is to improve the number of bulls
in the top quartile of accredited rankings
of proven animals.
Definition
The number of Genus bulls listed in
the top 100 Net Merit $ rankings for
progeny tested sires.
Performance
During the year, the number of bulls in
the top 100 Net Merit Index remained
constant at 28, demonstrating the
strength of the product line and
continuing to place Genus ahead of its
competitors (the next closest having
20). Currently, more than 80% of
Genus’s sales come from proven bulls.
40
30
20
10
0
0
3
9
2
8
2
8
2
10
11
12
13
30 | Genus plc Annual Report 2013
Adjusted Operating Profit Including Joint Ventures 2013 Performance: £49.1m
why we Measure
To track the underlying profit generation
of the business, attributable to the
shareholders.
Definition
Operating profit including share of joint
ventures adjusted to exclude IAS 41
valuation movement on biological
assets, amortisation of acquired
intangible assets, share-based payments
and exceptional items.
Performance
The Group’s adjusted operating profit
increased by 1% on last year, with double
digit growth in Asia and a solid
performance in Genus PIC. Genus ABS
had a challenging year, down 5% in
profit on a 1% volume decline.
£m
50
40
30
20
10
0
.
6
8
4
1
.
9
4
.
3
5
4
.
2
2
4
10
11
12
13
Operating Profit per Market Pig Equivalent (‘MPE’) 2013 Performance: £0.41
£
why we Measure
To monitor the net, fully allocated
profitability of the business by
species unit.
Definition
Net porcine operating profit expressed
per MPE.
Performance
Profit per MPE has reduced slightly after
the increases achieved during FY12 due
to the strong volume growth in China.
The benefits of continued product
development investments in the
additional value programmes (CBVMax)
and business model improvements in
Europe and Latin America offset the
higher running costs of the genetic
nucleus herds.
0.5
0.4
0.3
0.2
0.1
0.0
2
4
0
.
1
4
0
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6
3
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6
3
0
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Operating Profit per Dose of Semen
Performance
FY13 saw a decrease in average unit
profit, as a result of the challenging
bovine markets during the year. Selling
prices have marginally increased, but low
volume growth and investment in core
competencies reduced unit profitability.
Performance
The conversion ratio was affected this
year by an increase in working capital
associated with stocking the Besun farm
and higher seasonality in the profile of
trade through the last quarter of 2013.
We have continued to invest in research
and development activities for both
species. Genus is also required to pay
deficit repair contributions into its
defined benefit pension schemes.
cash held), to earnings (excluding
JV income) before interest, tax,
depreciation and amortisation.
2013 Performance: £1.19
£
1.5
1.2
0.9
0.6
0.3
0.0
7
2
.
1
5
2
.
1
6
2
.
1
9
1
.
1
10
11
12
13
2013 Performance: 77%
%
100
1
0
1
2
9
6
9
7
7
80
60
40
20
0
10
11
12
13
2013 Performance: 0.95
Ratio
2.0
1.5
0
7
.
1
why we Measure
To monitor the net, fully allocated
profitability of the business by
species unit.
Definition
Net dairy and beef operating profit,
expressed per dose of semen delivered.
These excluded India, as this market has
substantially different characteristics to
the rest of our bovine business.
Financial strength Measures
Cash Conversion
why we Measure
To monitor the Group’s performance at
converting profits into cash, through
working capital management.
Definition
Cash generated from operations before
interest and taxes, expressed as a
percentage of adjusted operating profit.
Net debt: EBITDA
why we Measure
To ensure we have the appropriate
level of financial gearing and that we
generate sufficient cash profits to
service our debts.
Definition
The ratio of net debt (being gross debt
including finance lease obligations less
Performance
The ratio has reduced from 1.10 to 0.95,
reflecting the business’s focus on cash.
Net debt has reduced from £56.4m to
£52.9m.
1.0
0.5
0.0
0
4
.
1
0
1
.
1
5
9
0
.
10
11
12
13
Genus plc Annual Report 2013 | 31
FiNaNciaL aND OPeratiNG review
stePheN wiLsON
SOLID PERFORMANCE
WHILE INVESTING IN
STRATEGY
FiNaNciaL review
adjusted Performance
In the year ended 30 June 2013,
Genus delivered a solid performance
which surpassed last year’s
strong results, while investing in
implementing its new strategy.
Revenue was 1% ahead of last year
at £345.3m and adjusted profit
before tax was up 2% to £47.2m. We
continue to use adjusted operating
profit and adjusted profit before tax
as the prime measures of financial
performance and to monitor
underlying performance. Adjusted
profits exclude the following non-
cash or non-recurring items:
• net IAS 41 valuation movement in
biological assets;
• amortisation of acquired intangible
assets;
• share-based payment expense; and
• exceptional items.
revenue
Revenue rose 1%, from £341.8m
to £345.3m. Revenue growth was
particularly strong in Asia, with a
15% increase, more than offsetting
lower revenues in Genus PIC in
Latin America and Europe, which
were due to an increased mix of
royalty business and the planned
exit from the European parent gilt
market, as part of our strategy to
focus on higher value business.
adjusted Profit Before tax
Adjusted operating profit, including
joint ventures, increased by 1%
(2% in constant currency) to
£49.1m (2012: £48.6m). Adjusted
profit before tax increased by
2% to £47.2m (2012: £46.5m).
Profit growth was strongest in Asia
as a result of significant porcine
volume growth, especially from
new stockings in China, leading to
a 14% increase in profits to £12.3m.
In Genus PIC, profits increased by
4% to £48.2m. This was driven by
strong double digit growth in Latin
America, as a result of a higher mix
of royalty business. In Genus ABS,
profits fell 5% to £22.8m, reflecting
difficult market conditions, caused
by higher feed costs and low milk
prices in key markets such as the
US and parts of Latin America, and
the severe weather conditions which
affected the beef season in Brazil.
Research and development
costs were 12% higher, including
increased investment in research
activities, particularly in relation to
genomic evaluation work. Product
development costs in porcine were
higher due to increased costs of
running the genetic nucleus farms.
Central costs were 10% lower than
the prior year, which included
the Genus strategy review.
adjusted Profit Before tax
Genus PIC
Genus ABS
Genus Asia
Research and development
Central costs
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.
32 | Genus plc Annual Report 2013
Actual currency
2013
£m
48.2
22.8
12.3
(28.0)
(9.4)
45.9
3.2
49.1
(1.9)
47.2
2012
£m
46.5
24.1
10.8
(25.1)
(10.5)
45.8
2.8
48.6
(2.1)
46.5
Constant
currency
Movement
%
Movement
%
4
(5)
14
(12)
10
–
1
2
3
(3)
13
(12)
10
–
2
2
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Performance by species
Genus also monitors its global
performance by species, after
allocating product development
costs specific to each species.
Dairy and beef revenues grew 1%
against the previous year. Total
volumes increased by 5%, with
growth strongest in Asia, and
particularly India and Russia, where
we benefited from increased sales
of lower-priced locally produced
semen, as well as continuing growth
in sales of imported semen. Sales
of semen from our global studs,
which represent 79% of semen sales
by volume, increased by 1%. Profits
decreased by 5% on last year (3%
in constant currency), primarily due
to lower sales in Latin America and
increased investment in technical
services and supply chain.
Porcine revenues grew by 2%, with
royalty income up 8% to £62.4m,
while volumes were up 6%. Margins
were stable as the impact of feed
cost increases in the genetic nucleus
herds was offset by the benefits
of increased royalty mix in Latin
America and higher margins in
Asia. Throughout the Group, and
particularly in China, there has been
significant investment in technical
service teams to strengthen core
competencies. Overall, there was
a 2% increase in porcine profits.
Performance by species
Revenue
Dairy and beef
Porcine
Research and development
Adjusted operating profit inc JV
Dairy and beef
Porcine
Central costs and research
Actual currency
2012
£m
Movement
%
Constant
currency
Movement
%
165.1
165.5
11.2
341.8
18.7
42.6
(12.7)
48.6
1
2
(14)
1
(5)
2
5
1
2
1
(14)
1
(3)
2
6
2
2013
£m
167.2
168.6
9.5
345.3
17.7
43.5
(12.1)
49.1
exchange rates
The Group sells products and
services to customers in more than
70 countries, across six continents.
Consequently, our results are
subject to the effects of translating
revenue and 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.
In the year ended 30 June 2013, the
Group’s adjusted operating profits
were reduced by £0.2m when
reflected in actual currencies. This was
due to modest net changes in Sterling,
relative to the key currencies detailed
below. This had little impact on the
growth in adjusted operating profits.
The key average and year-end
exchange rates used to translate
the results for the year were:
US Dollar/£
Euro/£
Brazilian Real/£
Mexican Peso/£
Average
Closing
2013
1.57
1.21
3.22
20.16
2012
1.59
1.19
2.86
20.90
2013
1.52
1.17
3.35
19.76
2012
1.57
1.24
3.17
21.06
Genus plc Annual Report 2013 | 33
FiNaNciaL aND OPeratiNG review
FiNaNciaL review cONtiNueD
Finance costs
Net finance costs reduced by
£0.2m to £1.9m (2012: £2.1m). The
reduction reflected the combination
of lower net borrowings and a
reduced average interest rate.
Next year, a change in accounting
standard (IAS 19 revised) will lead
to a significantly higher non-cash
pension interest charge, with an
offsetting gain in the Statement
of Comprehensive Income. As a
result, we expect an increase in
finance costs of approximately £4m
in 2014 and a restatement of prior
year results on the same basis.
exceptional items
There was a £4.2m (2012: £0.9m)
net exceptional credit this year.
This comprises two elements:
1. a restructuring charge of £2.8m,
principally relating to the
restructuring of our European
porcine business, to implement our
strategy of focusing on larger
integrated customers and exiting
the parent gilt business; and
2. during the year, the multi-employer
Milk Pension Fund (‘MPF’) triennial
valuation as at 31 March 2012 was
completed and a new funding
agreement between the employers
was agreed. In addition, two
participating employers exited the
scheme and made cash payments
of £31m. These changes gave rise
to an exceptional credit of £7m.
This credit reflects Genus’s share of
deficit repair contributions agreed
in the valuation and the effect of
the two employers’ exits, compared
with the pension provision of
£20.1m made in the previous year
to recognise the risk that some
employers could be unable to
meet their share of the deficit.
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
2013, the carrying value of biological
assets was £289.0m (2012: £282.2m),
as set out in the table below:
Non-current
assets
Current assets
Inventory
Represented by:
Porcine
Dairy and beef
2013
£m
2012
£m
224.0
40.5
24.5
289.0
117.5
171.5
289.0
223.0
36.8
22.4
282.2
107.6
174.6
282.2
The movement in the overall
carrying value of biological assets
excluding the effect of exchange
rate translation changes includes a
£4.4m increase in the carrying value
of porcine biological assets and a
£9.3m decrease in dairy and beef
biological assets. In porcine, the
increase is due principally to higher
value animals, particularly boars, in
the pure line herds. The decrease
related to dairy and beef is mainly
due to an expected increase in sales
of genomic young sires over time,
meaning that less of Genus’s future
forecast semen sales are represented
by bulls currently in our studs.
statutory Profit Before tax
Operating profit on a statutory basis
was £37.2m, compared with £54.2m
last year. The statutory profit before
tax was £38.1m (2012: £54.4m). These
statutory results reflect the impact
of the exceptional items discussed
above and the net fair value debit
on biological assets under IAS 41
of £4.9m (2012: credit including
exceptional item £38.8m), as
explained above. The Board believes
the volatile non-cash nature of these
items is not representative of the
Group’s underlying performance.
The performance as measured by
adjusted operating profit including
joint ventures showed growth
of 1%, and adjusted profit before
tax showed growth of 2%.
taxation
The effective rate of tax for the
year, based on adjusted profit
before tax, was 30% (2012: 31%),
with the decrease primarily due
to higher R&D tax credits and
lower UK statutory rates.
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 statutory
tax rate is approximately 39%.
earnings Per share
Adjusted basic earnings per
share rose by 3% to 55.0 pence
(2012: 53.5 pence) reflecting
the increase in profit before
tax and the lower tax rate.
Basic earnings per share on a
statutory basis were 44.7 pence
(2012: 65.9 pence), and were affected
by the exceptional items and IAS 41
fair value movements noted above.
34 | Genus plc Annual Report 2013
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Adjusted Basic EPS
Pence
60
50
40
30
20
10
0
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5
3
5
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0
5
5
.
8
4
4
.
7
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3
2010
2011
2012
2013
“ Adjusted basic earnings per share rose
by 3% to 55.0 pence (2012: 53.5
pence) reflecting the increase in profit
before tax and the lower tax rate.”
Dividend
The Board is recommending to
shareholders a final dividend of
11.1 pence per ordinary share. Taking
into account the interim dividend
of 5.0 pence per share paid in April
2013, this will result in a total dividend
for the year of 16.1 pence per ordinary
share, representing an increase
of 10% for the year as a whole.
Subject to shareholder approval at
Genus’s forthcoming Annual General
Meeting, this dividend will be paid
on 6 December 2013 to shareholders
on the register at the close of
business on 22 November 2013.
Dividend cover remains strong, with
the dividend covered 3.4 times by
adjusted earnings (2012: 3.7 times).
cash Flow and Net Debt
The Group recorded a cash inflow
for the year of £8.1m (2012: £14.5m).
Cash generated by operations
reduced to £34.9m (2012: £43.9m).
Working capital at the end of the
year included a receivable balance
from the stocking of the Besun farm
in China, which will form part of
our investment in the Besun joint
venture in the first half of 2014.
In addition there was higher
seasonality in working capital,
and investment in stocking the
Chun Hua porcine nucleus farm.
Interest, tax and dividends reduced
to £20.0m (2012: £22.0m) primarily
as a result of the introduction of an
interim dividend in the prior year.
Net debt reduced from £56.4m
to £52.9m at 30 June 2013.
The Group’s financial position
remains strong and there is
substantial headroom under our
borrowing facilities of £137m, which
we renegotiated in August 2013
and extended to September 2017
on improved terms. Additionally,
Genus’s covenant ratios are strong,
Cash generated by operations
Interest, tax and dividends
Capital investments
Other
Net cash inflow
2013
£m
34.9
(20.0)
(8.6)
1.8
8.1
2012
£m
43.9
(22.0)
(9.1)
1.7
14.5
with interest cover, based on net
interest excluding interest on
pension liabilities, improved to
21.7 times (2012: 17.7 times) and
the ratio of net debt to EBITDA,
as calculated under our financing
facilities, reduced from 1.1 to 0.95.
retirement Benefit Obligations
The Group’s retirement benefit
obligations at 30 June 2013,
calculated in accordance with IAS19,
were £65.0m (2012: £67.3m) before
tax and £49.9m (2012: £51.0m)
net of related deferred tax.
During the year, contributions
payable in respect of the Group’s
defined benefit scheme amounted
to £2.9m. The triennial actuarial
valuations of the MPF and Dalgety
Pension Fund as at 31 March 2012
were completed during the year.
Under the recovery plans resulting
from these valuations, approximately
£6m is expected to be paid in 2014.
As a result of the completion of
the MPF triennial valuation, a
new funding agreement has been
reached between the participating
employers and the scheme’s
trustees. Genus’s estimated share
of the MPF’s total deficit, calculated
in accordance with IAS 19, is
£55.7m or approximately 75%.
Genus plc Annual Report 2013 | 35
FiNaNciaL aND OPeratiNG review
review OF OPeratiONs
Genus Pic
Revenue
Adjusted operating profit exc JV
Adjusted operating profit inc JV
Adjusted operating margin
Actual currency
2012
£m
Movement
%
137.2
46.5
48.6
34%
(3)
4
4
2013
£m
133.5
48.2
50.6
36%
“ In Latin America,
volumes grew by
10%, with significant
progress on
conversions to
royalty contracts”
Constant
currency
Movement
%
(3)
3
4
Genus PIC comprises the Group’s
porcine business in North America,
Latin America and Europe. It also
includes the technical services and
supply chain functions supporting
the porcine business globally.
Market
Market conditions during 2013
were very challenging in North
America, with high feed prices and
low slaughter prices pushing the
industry into losses. As a result,
customers put expansion plans on
hold and delayed genetic updates
within royalty contracts. In Latin
America, conditions were more
favourable, with pig prices higher
than historical averages. In Europe,
the impact of higher feed costs
was reduced by rising pig prices,
as industry capacity reduced as
sow stalls were phased out.
Performance
Volumes grew by 3%, with
particularly strong growth in Latin
America. However, revenue fell
by 3% to £133.5m due to limited
customer expansions, the continuing
move to royalty contracts and the
exit from low-margin parent gilt
sales. Operating profit increased by
4% and operating margin improved
by two percentage points to 36%
as our business model continued
its favourable shift to a royalty
basis. In addition, we successfully
pursued the CBVPlus and CBVMax
programmes to produce boars of
high genetic merit, delivering margin
improvements while providing a
better quality product to customers.
North American profits were up
3% on a 2% increase in volumes.
Royalty income was 4% higher than
the previous year, compensating
for lower animal sales, which were
suppressed by a lack of expansion
activity in a tough market.
In Latin America, volumes grew
by 10%, with significant progress
on conversions to royalty
contracts, pushing profits up
21% and substantially improving
margins across the region.
Our joint venture in Brazil had
a successful year and progress
continues with converting more
customers to the royalty model.
As a result, profits increased by 14%.
The planned restructure of the
European business, to target the
larger integrated pork producers and
reduce exposure to directly owned
operations, continued apace and
is expected to yield further profit
improvements in 2014. During the
year, the owned farm in the Czech
Republic was franchised and several
other cost-saving initiatives were
undertaken. Despite the reduction in
volumes from the Czech operation,
volumes were up 2% for the region,
driven by increases in Germany
and Spain. The restructuring
activities have reduced revenue but
improved profits and margins.
36 | Genus plc Annual Report 2013
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Genus aBs
Revenue
Adjusted operating profit
Adjusted operating margin
Actual currency
2012
£m
Movement
%
145.4
24.1
17%
1
(5)
2013
£m
146.8
22.8
16%
Constant
currency
Movement
%
2
(3)
“ Profits in Genus ABS
were down 5% on last
year as it invested in
core competancies.”
Genus ABS comprises the Group’s
dairy and beef business in North
America, Latin America and Europe.
It also includes the technical services,
marketing, production and supply
chain functions supporting the
dairy and beef business globally.
Market
High feed costs and low milk prices
in all the key markets created difficult
conditions, with many customers
trending towards breakeven through
the year. While there was a recovery
in prices in the second half of the
fiscal year, customer confidence
was slow to return. Certain markets
such as Brazil were substantially
affected by unusual weather, which
disrupted normal breeding seasons.
Performance
The dairy and beef business had
a difficult year, experiencing a
combination of adverse weather
conditions, particularly in Latin
America, and lower milk prices,
affecting the demand for dairy
semen. Overall, volumes for Genus
ABS were down 1%, principally driven
by Brazil, but partially offset by
improvement in Europe. Effective
sales management enabled a small
improvement in average selling
prices across the Group, with average
sales prices up 2% overall, leading
to an increase in revenue of 1%.
In North America, profits were up
5% on volumes and blends which
were essentially flat on last year,
due to a strong focus on increasing
efficiencies and cost management.
In Europe, 4% growth in volumes
was achieved with modest blend
increases driven by France and Italy.
Profits were 2% up on last year.
Across Latin America, extreme
weather conditions affected
customers and volumes were down
6% in the region. This decline was
driven by Brazil, where the beef
breeding season was affected and
total volumes were down 10%. In spite
of this, average sales prices increased
on last year and market share
remained stable. Profits declined 13%
(down 6% in constant currency).
Reflecting the above, and whilst
there was a continued focus
on cost management, profits in
Genus ABS were down 5% on last
year (3% in constant currency) as
it invested in technical services
and marketing, and revamped its
global supply chain function.
Genus plc Annual Report 2013 | 37
FiNaNciaL aND OPeratiNG review
review OF OPeratiONs cONtiNueD
Genus asia
Revenue
Adjusted operating profit exc JV
Adjusted operating profit inc JV
Adjusted operating margin
Actual currency
2013
£m
55.5
12.3
13.1
22%
Movement
%
15
14
14
2012
£m
48.2
10.8
11.5
22%
Constant
currency
Movement
%
14
13
13
“ Asia achieved
strong growth
across the region”
Genus Asia includes the porcine
and bovine businesses across the
region. In addition to the businesses
in China, the Philippines and India,
the region also includes the Group’s
operations in Russia and Australia.
Market
In China, pork prices were low
through the year after the record
highs enjoyed last year and it is
estimated that a majority of farms
were loss making in the spring. The
government’s inventory purchase
scheme in April and May firmed
prices and stabilised the market.
Elsewhere, the Russian pig industry
experienced a difficult year as
import barriers were removed.
Slaughter prices dropped by 30%
before rallying in May and June, and
high feed prices reduced producer
profitability. In the Philippines,
live pig prices increased by 13%
as a result of supply shortfalls,
keeping farmers profitable.
Australian milk prices were
low through the year, with
many producers struggling.
As a consequence, there has
been less spend on breeding
programmes. Milk prices
in China, India and Russia
were stable.
Performance
The division achieved strong growth
across the region in the porcine
and dairy and beef businesses.
Revenues increased by 15% and
operating profits (including joint
ventures) by 14% to £13.1m. This was
in spite of substantial investment
in key skills and infrastructure, to
support future growth. We have
strengthened the management and
supporting functions in the areas
of business development, supply
chain and technical services.
Volumes grew by 24% in porcine
and by 29% in dairy and beef.
The porcine volume growth reflects
particularly strong growth in upfront
animal sales in China, including
the animals transferred to Besun
as part of the initial stocking of
this 4,250-sow nucleus farm, and
in the Philippines, where volumes
grew by 54%, as we pursued
the policy of converting more
customers to the royalty model.
In China, operating profits were
up 38% on last year, after bearing
the initial start-up costs on the
new Chun Hua genetic nucleus
farm, which has been established
to bring Genus’s latest genetics
into the Chinese market.
Milk prices were stable in China, India
and Russia, and steadily increased
in most of our other key dairy
markets in Asia, with the exception
of Australia. This, combined with
growing demand, resulted in the
volume of semen sold by our dairy
and beef business increasing by 29%.
Semen produced locally from studs
in China, India and Russia was the key
driver of this growth, supplemented
by higher volumes of imported
semen from Genus’s global studs.
Our Australian business struggled
against the backdrop of low milk
prices and volumes were down 9%.
Considerable strategic progress
was made in the region during the
year and Genus continues to pursue
joint venture opportunities in China,
to maximise the opportunities
presented by this expanding market.
38 | Genus plc Annual Report 2013
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Genus research and Development
Research
Porcine product development
Bovine product development
Actual currency
2013
£m
2.7
14.7
10.6
28.0
2012
£m
2.2
12.1
10.8
25.1
Constant
currency
Movement
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Movement
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23
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(2)
12
23
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1
12
“ Investment in
research and product
development for the
year increased by 12%
to £28.0m.”
competitiveness of the core bull
programme. ABS bulls continued to
perform well in the national rankings
of the countries where we progeny-
test. In the US, ABS achieved 28 bulls
(2012: 28) in the internationally
important top 100 Net Merit rankings
in the most recent sire summary.
The UK had similar results, while
Italy contributed with some key bulls
that drove additional volume and
improved prices. In China, Genus
leads the rankings of imported bulls
based on overall genetic merit.
Genus also introduced more genomic
young sires into its portfolio,
initiated an elite female programme
to gain greater genetic control
and invested in additional facilities
to support these programmes.
Investment in research and product
development for the year increased
by 12% to £28.0m. This reflected
higher research expenditure, as well
as further investment in product
development to ensure our products
meet customer needs and keep
us ahead of our competitors.
Genus’s research activities during the
year were focused on the following
key programmes: genomic evaluation
and selection, gender skew and
disease resistance. We continue to
make progress in all these areas.
Porcine Product Development
Porcine product development
costs rose principally as a result
of higher feed costs, net of
decreased slaughter revenue,
as part of the running of the two
nucleus farms in North America,
and increased investment in
additional product validation
trials, focused on demonstrating
our product differentiation.
Leveraging our extensive
proprietary database of over 14
million performance records, we
have achieved progress in single-
step genomic evaluation in our
breeding programme, which is
improving selection accuracy and
speeding up the rate of genetic
progress. 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.
Bovine Product Development
In dairy product development, we
successfully launched proprietary
customer-tailored indexes (Real
World Data™) for our enterprise
and large commercial customers
in the US, and have since
expanded to incorporate data
from Mexico, Chile, Argentina,
Brazil and UK. This will provide
a platform to tailor differentiated
customer-centric products.
Throughout the year, we were
committed to increasing the
Genus plc Annual Report 2013 | 39
PriNciPaL risKs aND uNcertaiNties
Our risk management system identifies and prioritises risks and threats to
the achievement of our strategic objectives. We respond to these risks
through well-defined mitigation activities, which we regularly assess.
Progress against 2013 Objectives
Last year, we committed to
continuing to improve our risk
management system. In particular,
we planned to:
• implement Group-wide reviews of
selected risks identified on the
corporate risk register; and
• arrange for senior operational and
financial management to present to
the Audit Committee or Board on
the risk areas they own.
risk Management Framework
In 2013, we delivered on these
commitments by:
• improving the process of
identifying and evaluating risks, by
implementing both top-down and
bottom-up methods;
• embedding risk management into
our major projects and change
initiatives, to ensure we respond
to changes in our operating
environment;
• simplifying our internal risk-
reporting process and further
aligning it to our decision-making
process; and
• providing regular updates to the
Audit Committee and Board by
risk owners.
the Board
Our Priorities in 2014
In 2014, we will continue to review,
refine and enhance our risk
management system. In particular,
we plan to:
• further embed risk management
into our day-to-day decision-
making process; and
• test many of our risk mitigation
activities as we deliver our risk-
based FY14 internal audit plan, to
provide assurance that these are
operating effectively.
• Has overall responsibility
• Sets strategic objectives
for the Group’s risk
management and internal
control systems
• 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
audit committee
• Identifies, addresses and mitigates
risks Group-wide
• Monitors our risk management
process and internal controls
• Supports the Board in monitoring
risk exposure against risk appetite
• Reviews the effectiveness of our
risk management and internal
control system
risk Management and
internal audit Function
• Oversees the risk management
process and provides guidance on
risk management
• Engages with senior management
to review risks and their mitigation
strategic risks
risk Description
Product Development and Competitive Edge
• Development programme fails to produce best genetics for
customers
• Increased competition in developed and emerging markets
drives down market share and margins
Commercialisation of Research
• Failure to focus research initiatives on commercially
important areas
• Failure to lead on ‘game-changing’ technology or to
bring new initiatives to commercial viability
Mitigation
• Formal communication process, to ensure development is
aligned with customer requirements
• Dedicated product development team, with clear objectives
and measurable targets
• Technical services and support for customers, to enable them
to make best use of our products
• Frequent benchmarking of performance against competitors
in customers’ systems
• Regular oversight of research by R&D Portfolio Management
Team and executive management
• Allocation of appropriate budget to research and development
• Regular Board updates on key development projects
Capturing Value Through Acquisitions
• Failure to identify appropriate investment opportunities or
perform sound due diligence
• Failure to successfully integrate an acquired business
• Board review of all investment opportunities and approval
of transactions
• Rigorous due diligence process
• Structured post-acquisition integration planning and execution
40 | Genus plc Annual Report 2013
strategic risks continued
risk Description
Emerging Markets
• Failure to appropriately develop business in China
and emerging markets
Operational risks
risk Description
Intellectual Property Protection
• Genus-developed genetic material, methods and technology
could become freely available to third parties
Mitigation
• Experienced management team, blending local and
expatriate executives
• Separate Asia business unit, reporting directly to CEO,
ensures appropriate focus on region
• High level of Board oversight
• Dedicated development, technical services and veterinary
staff within emerging markets
• Adoption of joint venture business model in appropriate
regions, with a robust process in place for selecting joint
venture partners
• Global species team supports the growth initiatives and
ensures compliance with global standards
Mitigation
• Global cross-functional process, to identify and protect
intellectual property
• 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 genetically test animals, to determine genetic origin
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Bio-security and Continuity of Supply
• Loss of key livestock, owing to disease outbreak
• Loss of ability to move animals or semen freely (including across
borders) owing to, for example, disease outbreak, environmental
incident or international trade sanctions
• Formal bio-security standards, featuring movement controls,
veterinary inspection and independent bio-security reviews
• Independent reviews of bio-security measures, to assess
standards and ensure compliance
• Products sourced from increasing number of facilities in different
countries, to avoid over-reliance on single production site
Human Resources
• Failure to attract or retain skills and experience within executive,
management and employee cohorts
Business Continuity
• Unavailability of key research, production or administrative site
• Failure of IT system
• Comprehensive talent and people plans, covering recruitment,
performance management, reward, organisation design, talent,
communication and engagement
• Regular review of senior management performance and
remuneration at Remuneration Committee, with external
advice where appropriate
• Business Continuity Plans in place for key locations
• Testing programme established, to ensure continuity plans
are effective
• 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
in place
Financial risks
risk Description
Mitigation
Agricultural Market and Commodity Prices Volatility
• Fluctuations in agricultural markets affect customer
profitability and demand for our products and services
• Increase in our operating costs, owing to commodity
pricing volatility
• Global footprint balances our exposure across different markets
• Porcine royalty model mitigates impact of cyclical price
reductions or cost increases in hog production
• Hedging transactions fix pricing of inputs and outputs, where
appropriate
Pensions
• Exposure to costs associated with failure of third party member
of joint and several pension scheme
• Exposure to costs as a result of external factors affecting size
of pension deficit (e.g. mortality rates, investment values etc.)
• Actuarial valuations performed as at March 2012 and deficit
recovery plans agreed with pension fund trustees
• Review of investment strategy, to ensure appropriate risk/
reward profile
• Closure of pension funds to future service
• Monitoring of joint and several liability in the Milk Pension Fund
• Appointed principal employer for the Milk Pension Fund in
2012 and chair of the group of participating employers
Genus plc Annual Report 2013 | 41
Our vaLues
PeOPle
FOCuseD
40%
Female workforce at Apex
42 | Genus plc Annual Report 2013
Apex team
Genus plc Annual Report 2013 | 43
Developing Skilled and Capable PeopleApex is our newest porcine genetic nucleus facility, located in South Dakota, USA. Construction began in 2008 and Apex produced its first litter the following year. The team now includes 55 full-time employees, making us the largest employer in an area where jobs are highly valued. Around 40% of the team are female.At such an important facility, it is essential that we have well-trained and capable people. Training begins immediately, with new staff completing eight hours of orientation in their first two days. This covers health and safety, bio-security, animal welfare and a full site tour. Staff then spend their first month shadowing colleagues, so they can learn the processes and become proficient. During this time, they complete a further three hours of orientation, covering areas such as our Genus University and other online resources. Our successful approach has allowed us to fill all our departmental head positions with local people, who joined us with limited industry experience and who we have developed to take on management roles. The team has built up deep expertise in running this centre of elite porcine genetics, setting world-class standards that are the pride of the business and the industry. Our PeOPLe
Canada
CREATING THE
FOUNDATIONS
FOR GROWTH
In 2013, we aligned the business
behind our strategy and recruited
high-calibre people to lay the
foundations for growth.
aligning the Business Behind
the strategy
We briefed our 2,400 staff on
our vision, values and strategy,
so they are clear and confident
about our future and their part in
it. Our new structure, aligned to
our customers and species, has set
and networked global standards
in Genus PIC and Genus ABS,
and has been a key contributor to
Genus Asia’s accelerated growth.
PIC Genetic Services, which works
with all our PIC businesses, is
recognised as an internal beacon
of best practice, setting standards
and delivering training, so we
continually raise performance.
We introduced performance
management for our leaders,
setting stretching objectives and
having high quality performance
conversations and performance
ratings, to help employees calibrate
their achievements. This has
ensured that leaders are clear on
their accountabilities and goals.
Changes to remuneration for the
Genus Executive Leadership Team
(‘GELT’) have been cascaded
to managers’ rewards, aligning
them with strategic delivery.
We have also defined and shared
the competencies we need in
two vital areas, key account
management and technical service,
and are using them for recruitment,
performance and development.
resourcing for Growth
Genus is committed to recognising,
developing and recruiting new talent.
During the year, we strengthened
GELT with high-quality recruits.
Stephen Wilson replaced John
Worby, who retired as Group Finance
Director. Saskia Korink Romani joined
44 | Genus plc Annual Report 2013
to develop our marketing function
across species and subsequently
took on the role of acting Chief
Operating Officer, Genus ABS.
Tom Kilroy, our new Group General
Counsel & Company Secretary,
brings intellectual property
expertise and global experience.
We also recruited talent across
the global teams, strengthening
our supply chain function in Genus
ABS and our European leadership
and product development in
Genus PIC. In Asia, we invested
significantly in the China team. We
recruited local heads for operations
in China dairy and porcine, and
in Genus ABS India, as well as a
new finance director for Asia.
Towards the end of the financial
year, we completed our first talent
plan, focusing on our top 100 leaders
and their successors. Our talent
plan takes into account diversity
of gender and backgrounds.
Our Priorities for 2014
We will continue to resource for
growth, extending the talent and
succession plan to around half
our employees and focusing on
individuals with potential, to deliver
on our commitment to develop more
leaders from within the business. Our
online performance management
tool has also been extended, and
will cover more than 2,000 staff
this year. We will continue to
recruit, with investment in product
development and sales in dairy, and
additions to our marketing, technical
services and Chinese teams.
Personal growth is important to
our staff, so we will deliver key
programmes through Genus
University. These include:
• Key Account Manager and
Technical Service Academies
for Genus ABS and Genus PIC,
networking the communities,
sharing best practice and
raising the bar through global
benchmarking and standard setting;
Lindsay case
Genus Pic – Genetic
services Manager
Lindsay has a doctorate in
genetics and has worked
for Genus PIC for two years.
“What drew me to Genus?
The opportunity for a PhD to
contribute beyond a strictly
technical role, generating
genuine appreciation and
excitement about what we do
from both our customers and
the industry. Genus’s technical
leadership and customer-
centricity makes it unique.”
• management development
programmes for our leaders; and
• tailored development for our senior
leaders and people with long-term
potential in the business.
We will perform our first in-
house employee survey,
creating action plans based on
the feedback. We also aim to
improve internal communication,
with each business sharing its
customer successes and financial
performance, and networking
the teams through technology.
We have had a very solid year of
delivery, with full commitment from
the management team to delivering
our key initiatives. We embark on
the second year of our people plan
with much more experience behind
us and a clear understanding of
the priorities needed to continue
to support our strategic delivery.
United States
Germany
China
raymond Karls
Genus aBs – Livestock
Manager, DeForest Madison
Raymond has a degree in
Business Mid-Management
and started working for ABS
while still in high school.
“I’ve stayed because they’ve
treated me well, I’ve been
able to progress my career
and, most of all, because
I’ve had good people to
work with and for. Now I’m
excited to play my part in
making our vision a reality.”
Kerstin reiners
Genus Pic – western europe
commercial Director
Kerstin has a doctorate in
agriculture and recently
rejoined Genus, having
worked for PIC from 2007 to
2011. “I want to build a team
that offers the best customer
service and the best results
for Genus. Collaborating with
colleagues internationally is
also exciting. It helps us to
better understand our markets
and to adapt innovative
strategies locally, backed by
strong products and R&D.”
angel antonio c. Manabat
Genus asia – Pic china
technical services Director
Angel has a doctorate in
veterinary medicine and
recently transferred from the
Philippines to China. “What
excites me is the leadership’s
determination that we will be
always better, year after year,
and that Genus’s values are
practiced at all levels of the
organisation. Here in China,
these values are important
as what we do will determine
Genus’s future in the region.”
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Mexico
Italy
China
Luis González Martínez
Genus aBs Mexico
General Manager
Luis has a master’s degree
in dairy management. He
founded ABS’s Mexican
business unit and turned
it into the market leader.
“It is very satisfying to
work for a global company
interested in feeding the
world, in collaboration with
highly skilled professionals.
Forming teams focused on
solving customers’ needs
has been a priority for me
and has shown results. New
challenges make us look
for innovative solutions.”
Pierpaolo Dordoni
Genus aBs italia
General Manager
Pierpaolo has a master’s
degree in dairy science.
Since he became general
manager in 1998, Genus
ABS’s Italian business has
quadrupled in size and
become market leader. “I
joined because I wanted to
work for an international
company and get a broader
view of the industry that has
always been my passion.
It’s inspiring to contribute
to nourishing the world.”
Jer Geiger
Genus asia – Pic china
health assurance Director
Jer is a doctor of veterinary
medicine and grew up on a
family farm in Illinois. “I’ve
been involved with breeding
stock sales all my life and
PIC’s values are exactly those
I expect of myself. With our
commitment to technology
and professionalism, why
would I work anywhere
else? People with PEP
(passion, enthusiasm
and professionalism) are
everywhere in PIC.”
Genus plc Annual Report 2013 | 45
Bull stud facility in
Dekorra, Wisconsin
46 | Genus plc Annual Report 2013
Providing the Highest Standards of CareOur animals are our business, so we take excellent care of them.The housing at our bull stud facility in Dekorra, Wisconsin, is designed to provide the best animal welfare and protect our employees’ safety.The barns are globally qualified, so they meet the highest standards for international trade, animal health and bio-security. Side-curtain ventilation allows maximum air flow and the animals are freely housed in individual pens, giving them the greatest freedom of movement. We clean and rebed the pens three times a week. All feed is grown in fields free from animal waste and we store the feed securely, eliminating bio-security threats from wildlife.The livestock workers at Dekorra average 27 years of service and the facilities are led by Darel Smith, who has worked for ABS for more than 30 years. To protect their wellbeing, we provide continuous training in safety, including bull handling, working in confined spaces and first responder training. Our vaLues
ResPOnsiBle
27
Average years of service
at Dekorra facility
Genus plc Annual Report 2013 | 47
cOrPOrate resPONsiBiLity
A RESPONSIBLE
BUSINESS
Corporate Responsibility Objectives – 2013/14
Health and Safety
• Roll out our health and
safety framework and
principles
• Improve internal
communication and
engage employees
• Visit all facilities to ensure
compliance with standards
and regulations
Environment
• Increase the proportion of
Genus PIC farms that have
their waste management
systems independently
checked
• Obtain baseline soil test
data for Genus PIC’s
locations outside North
America
• Consider processes to use
manure from Genus ABS
as a compost that could be
resold or recycle it through
a bio-digester
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unity an i m a l w elfare
Community
• Develop the pool of
potential employees, by
helping local populations
to improve their education
and skills
• Work with local
communities to support
specific social initiatives
Employees
• Give every employee the
opportunity to develop
their career, with an annual
discussion and a
commitment to first look
internally to fill a role
• Develop all staff by equal
access to training,
including life skills, IT and
communication
• Ask staff how they feel
about working for Genus
and act on their feedback
• Provide interesting,
valuable and secure work
within local communities
Animal Welfare
• Roll out Pork Quality
Assurance style training
to all production staff in
Genus PIC’s owned
facilities
• Begin construction of a
bio secure bull admittance
facility and vehicle
disinfection station at
Genus ABS
As the global population grows,
food security will become
increasingly important. Genus’s
role is reflected in our vision
and makes enhancing food
affordability, safety and quality,
improving animal welfare and
reducing the environmental
impact of protein production
key priorities for us.
To ensure we operate in the right
way and derive the business benefits,
we are establishing a committee
to lead our efforts. It will set our
strategy and objectives, ensure
we implement them around the
business and monitor performance.
It will be chaired by Tom Kilroy, our
Group General Counsel & Company
Secretary, and include health and
safety, environmental and animal
welfare representatives from
around the world. The Board has
overall accountability for corporate
responsibility and the committee will
report to the Board twice a year.
assessment, training, communication
and aligning for the future. We
developed a new Health and Safety
General Policy Statement, detailing
responsibilities at all levels. A
further 17 policies, which set out
our health and safety framework
and principles, will be rolled out
worldwide in the coming year.
health and safety
Health and safety is critically
important and we continue to
develop our approach. We have a
global team of health and safety
advisors and are working to align
our efforts and share best practice.
During the year, our first Global
Health and Safety Conference
focused on incident trends, risk
We look to continuously improve.
In PIC Spain, for example, we
enhanced our systems for
confined space entry, while in
Europe, we launched a campaign
to highlight common hazards.
The chart on page 49 shows our
minor incident rate over the last three
years. The increase in 2013 was due
to greater staff awareness of our
48 | Genus plc Annual Report 2013
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Case study
supporting Our Local community
In the Philippines, poverty is a
serious problem. Children as young
as four are forced to make a living
by rooting through festering rubbish
dumps to find recyclable items. PIC
Philippines supports the work of
PCF, a charity that improves the lives
of thousands of Filipino children and
their families. It offers education,
training, daily meals, health and
spiritual care and employment
for adult family members.
PIC has created an annual
Scholarship Programme, to allow
a PCF beneficiary to obtain a
college education in agricultural
business. We also run fundraising
events, encouraging employees,
customers and partners to donate,
to support PCF’s vital work.
local communities and to pursue
programmes that will improve
education and life chances, with
a view to boosting our pool of
potential employees. The case study
on this page shows one example
of our work in the Philippines.
Safety Management System (‘SMS’),
an online tool used to monitor,
evaluate and report incidences and
trends worldwide. When incidents
are reported, we look to resolve the
causes and to put corrective action
in place, such as more focused
training and communication.
Rate of Minor Incidents
Per 100 employees
7
1
.
2
2.5
2.0
1.5
1.0
0.5
0.0
2
0
.
1
3
6
0
.
2011
2012
2013
Incidents that resulted in lost time, restricted
work, or major medical treatment.
Our strategy for the coming
year is to build a uniform internal
communication approach, to
engage employees in health and
safety. Monthly management
reports will allow us to measure
success and to quickly resolve and
prevent issues, while quarterly
employee newsletters will explain
health and safety successes and
opportunities. As we roll out our
global policies, we will bring the
principles alive through training.
In 2014, we will also use our global
SMS to track facility audits and
their outcomes. We have more than
50 facilities, ranging from offices
to production units. Our goal is to
visit every facility at least once,
to ensure we meet the highest
standards and follow regulations.
In most locations, a site-level safety
committee reviews the facility
audit reports, the actions required
and the results of those actions.
Genus’s best practice farm and
animal handling protocols reflect
our industry leadership. In 2014,
we will focus on incorporating
all protocols into one uniform
structure and making them
more readily available to staff.
the environment
Genus is committed to conducting
business in ways that are sensitive to
the environmental needs of our local
communities. Our locations therefore
integrate environmental management
into their systems and procedures.
Monitoring and reporting our
environmental performance is
integral to our operations and our
risk management programme.
We assess the environmental risks
associated with existing and new
facilities, and establish controls to
keep risks at acceptable levels. We
train employees at our facilities
in environmental compliance and
have comprehensive environmental
protocols at our facilities, which
are subject to independent checks.
During the year, we had independent
checks at PIC’s farms in North
America and the Besun farm in China.
Genus ABS is required to comply with
local legislation governing manure
storage, and the rate and timing of
manure application to land on which
we grow feed crops. We complete
annual audits and file reports with
the relevant authorities as required.
Our employees
Genus aims to be valued by its
employees and its local communities.
We work hard to provide interesting
and valuable jobs, with the
opportunity to develop careers
nationally and internationally. We
place considerable emphasis on
attracting, recruiting and developing
the people we need, and no matter
their educational background, give
all the opportunity to be considered
for more senior roles. We offer fair
and market competitive pay and
benefits in every country we operate
in, and make compliance with our
standards and local laws a priority.
More details can be found in the Our
People section on pages 41 to 42.
animal welfare
The Genus Animal Welfare Code
of Conduct ensures we provide the
highest level of care for our herds. All
employees who handle our animals
are trained and qualified, and we
design and maintain our facilities to
ensure best practice. Fully qualified
inspectors also provide regular
health assessments. All staff are
required to report any incidents of
animal mishandling and we require
regular written statements that
no incidents have been observed.
The case study on page 46 gives
one example of how we put our
approach into practice, at our bull
stud facility in Dekorra, Wisconsin.
community
We actively encourage our
businesses to engage with their
Genus plc Annual Report 2013 | 49
board of directors & company secretary
bob Lawson
non-executive
chairman
Karim bitar
chief executive
stephen Wilson
Group finance
director
nigel turner
senior non-executive
director
mike buzzacott
non-executive
director
professor barry furr, obe
tom Kilroy
non-executive
director
Group General counsel
& company secretary
board appointment
November 2010
September 2011
January 2013
January 2008
May 2009
December 2006
July 2013
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,
he worked across Asia
and in Europe, and
also held management
roles at Johnson &
Johnson and the Dow
Chemical Company.
Bob Lawson was
appointed Chairman
of the Board and the
Nomination Committee
in November 2010.
He is Non-Executive
Chairman of Barratt
Developments plc
and 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.
Stephen Wilson joined
the Board in January
2013 and was appointed
Group Finance Director
on 1 March 2013. He was
previously Executive
Vice President and Chief
Financial Officer of
Misys plc, the financial
services software
provider that was a
FTSE 250 company until
its acquisition by Vista
Equity Partners. Prior
to Misys, Stephen was
Vice President and CFO
of IBM United Kingdom
Limited. He is a Fellow
of the Chartered
Institute of Management
Accountants and is a
Non-Executive Director
and Chairman of the
Audit Committee of
Xchanging plc. He holds
a degree in Mathematics
from the University
of Cambridge.
Nigel Turner joined
the Board in January
2008 and is Chairman
of the Remuneration
Committee. He was
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.
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
Nomination Committee
and member of
the Remuneration
Committee.
Member of the
Nomination Committee.
Chairman of the
Remuneration
Chairman of the Audit
Committee and member
Committee and member
of the Remuneration
of the Audit and
Nomination Committees.
and Nomination
Committees.
Tom Kilroy joined Genus
in July 2013. He was
previously Executive
Vice President, General
Counsel & Company
Secretary of Misys plc,
the financial services
software company,
and also for a period
was Acting CEO. Prior
to that, he spent a
number of years with GE
Healthcare, a division
of the General Electric
Company. He began
his legal career in the
City of London and is
admitted as a solicitor in
England and Wales. He
graduated from Oxford
University with a BA
(Hons) in Metallurgy
& Materials Science.
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’s 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.
Member of the Audit,
Remuneration and
Nomination Committees.
50 | Genus plc Annual Report 2013
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bob Lawson
non-executive
chairman
Karim bitar
chief executive
stephen Wilson
Group finance
director
nigel turner
senior non-executive
director
mike buzzacott
non-executive
director
professor barry furr, obe
non-executive
director
tom Kilroy
Group General counsel
& company secretary
board appointment
November 2010
September 2011
January 2013
January 2008
May 2009
December 2006
July 2013
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,
he worked across Asia
and in Europe, and
also held management
roles at Johnson &
Johnson and the Dow
Chemical Company.
Bob Lawson was
appointed Chairman
of the Board and the
Nomination Committee
in November 2010.
He is Non-Executive
Chairman of Barratt
Developments plc
and 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.
Stephen Wilson joined
the Board in January
2013 and was appointed
Group Finance Director
on 1 March 2013. He was
previously Executive
Vice President and Chief
Financial Officer of
Misys plc, the financial
services software
provider that was a
FTSE 250 company until
its acquisition by Vista
Equity Partners. Prior
to Misys, Stephen was
Vice President and CFO
of IBM United Kingdom
Limited. He is a Fellow
of the Chartered
Institute of Management
Accountants and is a
Non-Executive Director
and Chairman of the
Audit Committee of
Xchanging plc. He holds
a degree in Mathematics
from the University
of Cambridge.
Nigel Turner joined
the Board in January
2008 and is Chairman
of the Remuneration
Committee. He was
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.
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
Member of the
Nomination Committee
Nomination Committee.
and member of
the Remuneration
Committee.
Chairman of the
Remuneration
Committee and member
of the Audit and
Nomination Committees.
Chairman of the Audit
Committee and member
of the Remuneration
and Nomination
Committees.
Tom Kilroy joined Genus
in July 2013. He was
previously Executive
Vice President, General
Counsel & Company
Secretary of Misys plc,
the financial services
software company,
and also for a period
was Acting CEO. Prior
to that, he spent a
number of years with GE
Healthcare, a division
of the General Electric
Company. He began
his legal career in the
City of London and is
admitted as a solicitor in
England and Wales. He
graduated from Oxford
University with a BA
(Hons) in Metallurgy
& Materials Science.
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’s 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.
Member of the Audit,
Remuneration and
Nomination Committees.
Genus plc Annual Report 2013 | 51
Genus executive Leadership team
Left to right:
Tom, Saskia, Denny, Jerry, Bill,
Catherine, Stephen and Karim.
Over the last year, we have
enhanced the Genus Executive
Leadership Team (‘GELT’), appointing
executives who bring new skills
and expertise to an already strong
team. GELT sets our vision and
culture, leads our strategic delivery
and demonstrates the values
at the heart of our business.
GeLt’s responsibilities
In 2012, GELT developed Genus’s
vision and values, which are
described on pages 1 and 6.
We have now fully embedded
them in the business, giving the
entire Genus team a clear and
compelling purpose and direction.
GELT ensures organisational
alignment, engagement and efficient
execution throughout the Group.
This involves crucial commercial,
scientific, operational and people
decisions. Equally important is GELT’s
stewardship of Genus’s reputation,
ethical working and compliance.
GELT is focused on delivering the
following:
• corporate strategy – developing
and implementing our strategy to
achieve sustained growth, and
strengthening key capabilities such
as our world-class product
development;
• operations management – driving
organisational results, with
operational excellence; ensuring
core processes are reliable and
efficient; regularly reviewing R&D
plans; managing risk, including risk
mitigation; and managing the
Genus balanced scorecard,
including customer equity metrics;
• people – developing high-
performing teams by rigorous
selection, development and setting
stretching goals, together with
nurturing talent to bring through
the next generation of leaders; and
divisional structure
In FY 2013, we implemented a
new divisional structure, which
is aligned to our strategy. This
has proved highly effective,
supporting the acceleration of our
strategy and growth, particularly
in developing markets. Through a
matrix design, we have leveraged
our global expertise to network
best practice, set global standards
and raise performance across the
business units and Asia. This has
enabled us to deliver a solid year of
performance in the following areas:
• insight-driven research;
• strong product development;
• strategic marketing;
• sales and technical services,
targeted at key customer
segments;
• supply-chain optimisation; and
• continued focus on developing
• resources – astute and judicious
markets.
investment in the business,
including capital expenditure
and human resources.
GELT’s members are as follows:
Karim bitar
chief executive
stephen Wilson
Group finance director
tom Kilroy
Group General counsel &
company secretary
See pages 50 and 51 for Karim’s,
Stephen’s and Tom’s biographies.
52 | Genus plc Annual Report 2013
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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 Tesco’s
roll-out into Asia, Central Europe
and the United 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.
bill christianson
chief operating officer, Genus pic
Bill has doctorates in Veterinary
Medicine and Philosophy from
the University of Minnesota. He
joined Genus in 1993. Before his
current appointment in July 2012,
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.
saskia Korink romani
acting chief operating officer,
Genus abs
Saskia joined Genus in January
2013. For the previous ten years, she
worked for Cargill Inc., most recently
as the Vice President of Marketing
for Cargill’s animal nutrition business.
Prior to this, she ran their Cocoa
and Chocolate Business Unit in
Latin America. Saskia has a broad
international background, working
across Europe, Latin America
and North America, and brings
significant business experience
having been at Boston Consulting
Group for seven years, with her
last position being principal at the
Sao Paulo office. She is originally a
physicist, beginning her career in
engineering and packaging design
with Unilever PLC’s former Van den
Bergh Foods business, now part of
their Foods division. She has an MBA
from Columbia Business School.
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
over 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, and 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
to his current role on 1 July 2012.
dr denny funk
chief r&d and 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. Before 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.
Genus plc Annual Report 2013 | 53
CORPORATE GOVERNANCE
LETTER fROm ThE ChAiRmAN
Corporate governance plays a
vital role in business success,
and I am pleased to report that
the standard of governance
in Genus remains high.
Good corporate governance allows
boards to direct their companies
effectively, entrepreneurially and
prudently, to deliver long-term
success. The strategy and business
must therefore be the starting point
for the Company’s governance
approach. Corporate governance
should be a facilitator, providing
the framework within which the
Company can operate successfully.
Complying with the Code
The UK Corporate Governance
Code (the ‘Code’) supports this
view. We strongly believe that its
principles-based approach is the
right one. It gives companies the
flexibility to develop governance
arrangements that suit them and
allows shareholders to judge if those
arrangements are appropriate.
We have continued to comply
with all the provisions in the 2010
edition of the Code, which was
the applicable standard for this
financial year. The 2012 Code
will apply from our next financial
year onwards and we expect
to be fully compliant with it.
Evaluating the Board’s
Effectiveness
Complying with the Code, however,
is only one element of good
governance. It is also important
that the Board operates effectively
and this year we had a rigorous
external evaluation. This found that
the Board works well, with a number
of particular strengths as well as
areas where we can develop. More
information about the evaluation
can be found on page 56.
Strengthening Our
management Team
There was one change to the Board
during the year. John Worby retired
as Group Finance Director, with
Stephen Wilson joining us to take
up the role. We were delighted to
recruit Stephen, who brings strong
financial and business development
skills, experience of working in large
global enterprises and a record of
building sound finance teams.
Since the end of the financial year,
Tom Kilroy has joined Genus as
Group General Counsel & Company
Secretary. Tom brings essential
legal and commercial skills to
the Group, including valuable
experience of optimising and
protecting intellectual property.
54 | Genus plc Annual Report 2013
“ Corporate
governance plays
a vital role in
business success,
and I am pleased
to report that the
standard of
governance in
Genus remains
high.”
Considering Diversity
As Genus grows, we need to
ensure that the Board evolves
to keep pace. We are therefore
beginning the process of recruiting
a Non-Executive Director with
an international background. We
are fully aware of Lord Davies’s
recommendations about gender
diversity and always take this
into account when recruiting. We
also need to consider diversity
in its broadest sense and ensure
that we have the right spread of
skills for the business. This year’s
evaluation found that the Directors
have a complementary mix of skills
and experience, which enable a
knowledgeable dialogue about
the Group and its markets.
Summary
In summary, the Board is committed
to maintaining high standards
of corporate governance. We
will continue to develop our
governance framework, so we can
effectively support the successful
implementation of our strategy.
Bob Lawson
Chairman
CORPORATE GOVERNANCE STATEmENT
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Board membership and Roles
The Board is responsible for managing the Group. We
currently have two Executive Directors, an independent
Non-Executive Chairman and three other independent
Non-Executive Directors. The Directors’ biographies
appear on pages 50 and 51.
The Board has approved clearly defined roles and
responsibilities for our Chairman and Chief Executive.
Bob Lawson, our Chairman, is primarily responsible for
running the Board. Karim Bitar, our Chief Executive, is
responsible for achieving our operational and financial
targets and for implementing our strategy.
Nigel Turner is our Senior Non-Executive Director. He
is available to shareholders with concerns they cannot
resolve through our Chairman, Chief Executive or
Group Finance Director.
To ensure we properly manage our business and
implement our strategy, the Board delegates day-to-day
operating decisions to the Chief Executive, Group Finance
Director, other members of the Genus Executive
Leadership Team (‘GELT’) and their management teams.
In turn, they recommend strategy and plans to the Board,
make routine decisions on resources and ensure we have
robust operational and financial controls. The Board
regularly invites members of our business unit
management teams to present to the Board and
to take part in aspects of strategic reviews.
The Board believes the Directors have the right
experience and calibre to make effective judgements
about our strategy, performance, resourcing and conduct.
We ensure the Directors receive the training they need,
and all Directors have access to advice and services from
the Group General Counsel & Company Secretary, as well
as to independent professional advice.
The chart below shows the length of time each of our
Directors has served on the Board:
Name
Bob Lawson
Karim Bitar
Stephen Wilson
Nigel Turner
Mike Buzzacott
Professor Barry Furr, OBE
Date of Appointment
November 2010
September 2011
January 2013
January 2008
May 2009
December 2006
To ensure the Board works effectively, the Directors
receive Board packs well in advance of meetings. The
Group General Counsel & Company Secretary makes sure
that we follow Board procedures and that we comply with
all of our statutory and regulatory obligations.
how the Board is Structured
The diagram shows the Board and its sub-committees, as
well as the committees that report directly to the Board –
GELT, our new Corporate Responsibility Committee and
the Research & Development Portfolio Management Team
(‘R&D PMT’).
GENUS PLC BOARD
BOARD COMMITTEES
EXECUTIVE COMMITTEES
AUDiT
COmmiTTEE
NOmiNATiON
COmmiTTEE
GENUS
EXECUTiVE
LEADERShiP
TEAm
R&D PORTfOLiO
mANAGEmENT
TEAm
REmUNERATiON
COmmiTTEE
CORPORATE
RESPONSiBiLiTY
COmmiTTEE
Details of the Audit, Remuneration and Nomination
Committees can be found in their respective statements on
pages 59 to 74. Terms of reference for these committees
are available on our website: www.genusplc.com.
GELT’s membership and its responsibilities are described
on pages 52 and 53, while the remit of the Corporate
Responsibility Committee is set out on page 48.
The R&D PMT replaced the Science Committee at the
start of this financial year. It enables comprehensive
oversight of our R&D programme and gives our business
units direct involvement in prioritising our R&D initiatives,
to ensure we meet customer needs today and tomorrow.
The R&D PMT meets twice a year. Key discussions this
year included:
• implementing a Group-wide ideas submission process,
to ensure we consider and progress new ideas that
could lead to value-added products and services;
• reviewing and prioritising continuing and new research
ideas with Genus PIC and Genus ABS, which confirmed
our focus areas as genomic selection, disease resistance
and gender skew;
• establishing a Scientific Computing division within R&D,
to allow us to more efficiently accomplish scientific
computing tasks, including the input, storage and
processing of big data; and
• reviewing and updating the business about our growing
intellectual property portfolio.
The Board’s Activities
The Board’s Remit
We have a formal schedule of matters which are reserved
for the Board’s approval. These include:
• setting and monitoring our Group strategy;
• reviewing our trading performance;
• ensuring we have adequate funding;
• examining major capital expenditure projects
and possible acquisitions;
• approving material contracts;
• formulating policy on key issues; and
• reporting to shareholders.
Genus plc Annual Report 2013 | 55
CORPORATE GOVERNANCE STATEmENT
CONTiNUED
Attendance at meetings
The table below shows the Directors’ attendance at Board and committee meetings. As well as its regular meetings, the
Board can hold additional meetings to consider time-critical issues.
Non-Executive Chairman
Bob Lawson
Executive Directors
Karim Bitar
John Worby**
Stephen Wilson**
Non-Executive Directors
Nigel Turner
Mike Buzzacott
Barry Furr
Board
Audit
Committee
Remuneration
Committee
Nomination
Committee
10 (10)
10 (10)
5 (5)
5 (5)
10 (10)
10 (10)
10 (10)
3*
3*
1*
2*
3 (3)
3 (3)
3 (3)
7 (7)
7 (7)
3*
3*
7 (7)
7 (7)
6 (7)
1 (1)
1 (1)
1*
n/a
1 (1)
1 (1)
1 (1)
Note: Figures in brackets indicate the maximum number of Board or committee meetings the Director could have attended.
* Attendance by invitation.
** John Worby retired from the Board on 31 March 2013. Stephen Wilson joined the Board on 14 January 2013 and succeeded John Worby as
Group Finance Director on 1 March 2013.
The Board’s Activities During the Year
The Board’s main activities during the year are
described below:
Leadership
• Appointment of Stephen Wilson as Group
Finance Director
• Appointment of Tom Kilroy as Group General
Counsel & Company Secretary
Strategy
• Held strategic update away day with GELT
• Regular updates on potential joint venture and
acquisition opportunities
• Update on competitor landscape
• Review of the Shennong joint venture farm
• Approval of a new 100% Genus, 1,000 sow capacity
nucleus farm stocked with the latest genetics
• Updates on the Besun joint venture progress
Research & Development
• Regular updates on R&D developments and new
initiatives
Performance
• Regular updates on business performance and
market conditions
Employees
• Review of the new performance management
framework, work levels, our new structure and how
we are aligning rewards with strategy.
• Regular updates on recruitment to key roles, with
a further update at the August 2013 Board meeting
• Update, after the year end, on the Talent Review
undertaken
Effectiveness
• External Board evaluation carried out by
Boardroom Review
Evaluating the Board
Board Effectiveness Review Cycle
We have a three-year cycle for evaluating the Board’s
effectiveness, using both internal and external evaluations.
Year 1
External Board
effectiveness
review produces
an action plan for
areas of focus
Year 2
Follow up
questionnaires by
same external
evaluation
consultant, to
monitor progress
with the focus
areas
Year 3
Internal
questionnaires and
interviews with the
Chairman and
Group General
Counsel &
Company
Secretary
The Review Process
This year, the Board underwent a formal, rigorous and
independent external review. This was carried out by
Dr Tracy Long of Boardroom Review, who has no other
connection with the Group. The Chairman agreed the
scope of the review, which included individual interviews
with each Board member and attendance and
observation at the April 2013 Board meeting.
Boardroom Review gave feedback individually
and at the May Board meeting.
The review explored three key aspects:
• the work of the Board (strategy, risk and control,
and performance management);
• the Board environment (culture and composition); and
• the use of Board time (planning and allocation).
The Review’s Conclusion
During the review, the Board demonstrated particular
strengths in the following areas:
• Board culture and contribution, and the style of
chairmanship;
• clear strategy, including knowledge of the consumer
landscape and shareholders’ views;
• internal and external financial reporting, the Audit
Committee and the oversight of risk;
• the executive culture and approach to remuneration;
and
• prioritisation of issues and quality of information.
56 | Genus plc Annual Report 2013
The evaluation also found that the Board’s size
encourages close dialogue between Directors and a
flexible approach. The balance of formal and informal time
throughout the year enhances the Board’s dynamics.
Progress Against the 2012 Evaluation
The Board made progress against the areas for
development identified in the 2012 review. In particular:
• the Board increased the number of meetings at the
Group’s global operations by meeting at DeForest, USA,
and Cremona, Italy. This enabled the Board to gain a
greater understanding of the geographic and
operational opportunities in these areas. Site and
customer visits ensure the Non-Executive Directors
are better informed and send a positive message
to employees;
• the Board continued to increase the strategic element
of its meetings by scheduling annual strategic update
away-days with GELT, with the first taking place in
January 2013; and
• the Board increased its focus on succession planning
and people development by being regularly updated.
Areas of focus for 2013/14
The evaluation identified areas for the Board to
consider this year, including:
• the evolution of the Board’s composition, including
international experience and gender diversity;
• the quality of discussion and information regarding
the competitive landscape;
• a deeper review of Executive succession planning;
and
• improving reporting cycles and communication
and the use of Board time.
In addition, the Board has set itself the following
priorities for the coming financial year:
• continuing its global site visits, in line with the
2012 Board review outcome;
• developing the Board in the area of corporate
responsibility (‘CR’), aligning CR with the Group’s
strategic objectives and establishing the new CR
Committee, as described on page 48;
• continuing to ensure its development in governance; and
• increased focus on the talent review.
Shareholder Relations
We have a continuing dialogue with institutional investors
through our investor relations programme. The Chief
Executive and Group Finance Director meet frequently
with institutional shareholders and private client brokers,
with the Chairman also attending some meetings.
The Board discusses feedback from these meetings,
including feedback obtained for us by independent
brokers and our advisors. This allows all Directors to
understand major shareholders’ views. The Chairman
and Senior Non-Executive Director also maintain
contact with major shareholders.
The Annual General Meeting (‘AGM’) gives the Board
an opportunity to communicate with both private and
institutional investors, and we welcome their involvement.
Bob Lawson, Mike Buzzacott, Nigel Turner and Barry Furr
will be available to answer questions, as Chairmen
of the Board and its Committees, at the AGM on
15 November 2013.
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Risk management and internal Control
Risk management
The Board is ultimately responsible for identifying the
major business risks we face. Genus has an established
risk management system, which identifies, evaluates and
prioritises the risks and uncertainties which could affect
the Group, and reviews the controls and risk mitigations
we have in place. The system applies to all of our
worldwide businesses, our divisional business reviews,
GELT, the Audit Committee and the Board.
We further enhanced our management of business risk
in the year, through risk management workshops with
divisional management teams, improved reporting of risks
and Board presentations on certain specific risk areas.
The key risks identified and our mitigating actions to
control these risks are summarised on pages 40 and 41.
internal Control
The Board is responsible for our internal control system
and for reviewing its effectiveness. The Board, with the
Audit Committee’s assistance, has reviewed the
effectiveness of our internal control system and our
financial, operational and compliance controls and risk
management. This assessment considered all significant
internal control aspects which arose during the year.
The assessment considered our internal audit work
programme and management reports prepared at the
time our interim and final reports and financial statements
were approved. It assessed whether we had identified,
evaluated, managed and controlled significant risks,
whether any significant weaknesses had arisen and
whether we had taken the necessary remedial action.
The management reports were based on the output
of detailed risk workshops conducted by the Group
centrally and regionally in the year, and responses to
comprehensive questionnaires issued to each of our
business units and regional management.
In addition, the assessment considered risk events and
controls that we had recognised through other day-to-
day risk management activities, namely the divisional
business reviews, GELT meetings, Main Board meetings
and insurers’ reviews.
While these assessments routinely identify areas for
improvement, the Board has neither identified nor been
advised of any failings or weaknesses which it has
determined to be material or significant.
Our internal Control System
An internal control system is designed to manage, rather
than eliminate, the risk of failure to achieve business
objectives, and can only provide reasonable and not
absolute assurance against material misstatement or
loss. The key elements of our internal control systems
are as follows:
Management Structure
The Board delegates authority to operate the Group’s
subsidiary companies to the Chief Executive, GELT and
their management teams, within limits set by the Board.
Genus plc Annual Report 2013 | 57
CORPORATE GOVERNANCE STATEmENT
CONTiNUED
Appointments to our most senior management positions
require the Board’s approval. We also have formal
empowerment levels, which set out delegation of
authority, authorisation levels and other control
procedures. Operating standards set by GELT
and their management teams supplement these
procedures, as required for each subsidiary’s type
of business and its location.
GELT meets regularly to review the Group’s performance
against its budget, strategy and other key factors. In
addition, the Chief Executive, Group Finance Director,
Group General Counsel & Company Secretary and the
Group Financial Controller hold monthly business review
meetings with each business unit.
Quality and Integrity of Personnel
High-quality people are an essential part of the control
environment, as is maintaining our ethical standards. We
ensure the integrity and competence of our employees
through high recruitment standards, post-recruitment
training courses and a consistent global approach to
performance management.
Information and Financial Reporting Systems
Our planning and financial reporting procedures include
detailed operational budgets for the year ahead, along
with three-year strategic plans, which the Board reviews
and approves. We monitor performance throughout
the year, through monthly reporting of financial results,
key performance indicators and variances, updated
full-year forecasts and information on key business risks.
This allows us to take action as necessary to address
business issues.
The main internal control and risk management processes
related to our preparation of consolidated accounts are
Group-wide accounting policies and procedures,
segregation of duties, a robust consolidation and
reporting system, various levels of management review
and centrally defined process control points and
reconciliation processes.
Investment Appraisal
We regulate our capital expenditure through our budget
process and predetermined authorisation levels. Detailed
written proposals must be submitted to the Board for
expenditure above certain levels.
We carry out due diligence work for business acquisitions
and subject major projects and all acquisitions to timely
post-implementation reviews. This allows us to investigate
and correct any underperformance against expectations
or any significant overspends.
Internal Audit
Our Head of Internal Audit and Risk Management is
responsible for our internal audit activities, which are
provided by a mix of in-house and external resources.
During the year, they completed a risk-based audit
programme agreed by the Audit Committee. The results
of these audits and the follow up of resulting actions are
reviewed by the Audit Committee and communicated to
the external auditors.
The regions and businesses complete risk and control self
assessments twice a year, which are reviewed by Internal
Audit to identify internal control deficiencies and
corrective actions required. The results of this exercise
are communicated to senior management and the
Audit Committee.
58 | Genus plc Annual Report 2013
audit cOMMittee rePOrt
Mike Buzzacott
chairman of the audit committee
“ We design an annual work
programme and agenda
to ensure we fulfil our
commitments.”
The Committee’s main objectives are to monitor the
integrity of the Company’s financial reporting, evaluate
its system of risk management and internal control,
and oversee the performance of the internal audit
function and the external auditors. We design our
annual work programme and agenda to ensure
we fulfil these commitments.
Membership and Governance
The Audit Committee is composed of Non-Executive
Directors and is appointed by the Board to provide a wide
range of financial and commercial expertise, appropriate to
fulfil the Committee’s duties. The Committee continues to
meet the UK Corporate Governance Code’s requirement
that at least one member should have recent and relevant
financial experience.
The Committee has formal terms of reference, approved
by the Board, which comply with the UK Corporate
Governance Code. The Committee reviews its terms of
reference annually and refers any amendments to the
Board for approval. The terms of reference are available
on our website: www.genusplc.com.
The Committee met three times during the financial year and
invited the Company’s Chairman, Chief Executive, Group
Finance Director, Group Financial Controller, Head of Internal
Audit and Risk Management and senior representatives of
the external auditors to attend its meetings. The Committee
also held separate private sessions with external audit,
internal audit and the Group Finance Director.
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committee role and Key areas of responsibility
The Committee’s role and responsibilities include
reviewing and monitoring:
• the financial reporting process;
• the integrity of the Group’s financial statements;
• the Company’s reporting to shareholders;
• the effectiveness of the Group’s accounting systems
and control environment, including risk management
and the internal audit function; and
• the effectiveness and independence of the Group’s
external auditors, including any non-audit services
they provide to the Group.
The Committee is also responsible for ensuring that the
Group has suitable arrangements for employees to raise
concerns in confidence, and for reviewing the Group’s
systems and controls for preventing bribery.
The Committee reports its findings to the Board,
identifying any necessary actions or improvements and
recommending the steps to be taken.
• Reviewing of annual and
half-year financial statements
• Evaluating critical accounting
policies, key assumptions
and judgements
• Monitoring the quality of
disclosures and compliance
with financial reporting
standards
• Monitoring of
independence and
objectivity
• Agreeing scope and fees
• Monitoring level of
non-audit services
• Evaluating performance
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• Monitoring and evaluating
the adequacy and
effectiveness of the risk
management and internal
control systems
• Approval of scope and plans
• Monitoring of management
implementation of remedial
actions
• Evaluating performance
Genus plc Annual Report 2013 | 59
AUDiT COmmiTTEE REPORT
CONTiNUED
The Committee’s main Activities During the Year
At its three meetings during the year, the Committee
focused on:
financial Reporting
The Committee reviewed, with both management and
the external auditors, the appropriateness of the half-year
and annual financial statements. The reviews included
critical accounting policies, key assumptions and
judgements, the quality of disclosures and compliance
with financial reporting standards, all material
issues affecting the financial statements and any
correspondence from the Financial Reporting
Council in relation to financial reporting.
The Committee also reviewed the Annual Report and
Accounts as a whole, to ensure it is fair, balanced and
understandable, and provides the information necessary
for shareholders to assess the Company’s performance,
business model and strategy.
monitoring Business Risks
The Committee reviewed the Group-wide risk
management process, which is designed to identify,
evaluate and mitigate risks. The Committee discussed
with the Chief Executive and Group Finance Director, in
the presence of the external auditor, the risks identified,
management’s plans to mitigate them and any potential
impact on the financial statements.
In addition, the Committee reviewed the Group’s tax
strategy and pension arrangements.
internal Control System
The Committee conducted its annual review of the
effectiveness of the Group’s internal controls and
disclosures, and reviewed internal audit’s findings at each
scheduled meeting. The Committee’s review of internal
controls included the Group’s whistleblowing policy and
bribery prevention procedures.
External Audit
The Committee reviewed and agreed the scope and fees
for the external auditor’s audit work, and held detailed
discussions of the results of their audits. The Committee
continued its practice of meeting with the external
auditor, without management being present. It also
further reviewed the external auditor’s objectivity and
independence and the Company’s policy on engaging the
external auditor to supply non-audit services.
The Committee assessed the external auditor’s
performance, based on questionnaires completed by key
financial staff and Committee members. This assessment
covered the external auditor’s fulfilment of the agreed
audit plan, the auditor’s robustness and perceptiveness in
their handling of key accounting and audit judgements,
the content of their reports and cost effectiveness.
internal Audit
The Committee reviewed and agreed the internal audit
function’s scope, terms of reference, resource and
activities. The Committee received regular reports from
the Head of Internal Audit and Risk Management on
internal audit’s work and management’s responses to
proposals made in internal audit’s reports during the year.
The Committee reviewed the internal audit function’s
performance and continued to meet the Head of Internal
Audit and Risk Management without management
being present.
Committee Evaluation
The Committee reviews its performance and effectiveness
annually. During the financial year, the Committee used a
questionnaire to consider its effectiveness. The key areas
assessed included understanding of roles and
responsibilities, monitoring the integrity of financial
reporting, reviewing the Company’s system of internal
control and risk management, and monitoring the
effectiveness of internal and external auditors.
External Auditor’s Appointment
Deloitte LLP were first appointed as the Group’s external
auditor for the period ended 30 June 2006, following a
formal tender process. The current audit partner’s first
audit period was the financial year ended 30 June 2011.
The Committee reviewed the nature and fees for the
external auditor’s non-audit services and compliance with
the Company’s Non-Audit Services by Auditors Policy.
The Committee is satisfied that using Deloitte for such
services does not impair their independence as the
Group’s external auditor.
The Committee further reviewed the performance and
effectiveness of the external auditors. As a consequence
of its satisfaction with Deloitte’s independence and
effectiveness, the Committee has recommended to the
Board that the external auditor be reappointed for a
further year.
mike Buzzacott
Chairman of the Audit Committee
2 September 2013
60 | Genus plc Annual Report 2013
DirectOrs’ reMuNeratiON rePOrt
Letter FrOM the chairMaN
“ The Remuneration
Committee takes an active
interest in shareholders’
views and developments
in best practice.”
Dear shareholder
On behalf of the Board, I am pleased to present the
Directors’ Remuneration Report for 2012/13. This report
covers the remuneration of Executive and Non-Executive
Directors.
Consistent with the revised reporting framework
published by the Department for Business, Innovation &
Skills, we have split the report that follows this Annual
Statement into two sections:
• a Directors’ Remuneration Policy Report, which sets
out the Group’s remuneration policy for Executive and
Non-Executive Directors; and
• an Annual Report on Remuneration, which discloses
how we applied our remuneration policy in the year
ended 30 June 2013.
As required by current legislation, we will be seeking
your support for both parts of the report, through a
single advisory vote at the AGM on 15 November 2013.
From next year, when the new legislation becomes
effective for Genus, we will hold separate votes on the
Directors’ Remuneration Policy Report and the Annual
Report on Remuneration.
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Performance and reward for 2012/13
As highlighted in the Strategic Review, the year ended
30 June 2013 was a year of change for the Group, as
well as another year of growth. Genus has made
encouraging progress with implementing its new
strategy to capture the very significant growth
opportunities in animal genetics markets from 2014
onwards, while delivering solid operational performance
in challenging markets.
The Group implemented its new organisational
structure, including establishing global business units,
along with a number of successful initiatives to improve
product differentiation, such as our single-step genomic
evaluation process. At the same time, the Group
delivered year on year profit growth of 2% and a
reduction in net debt of 6%. From an operational
perspective, in light of the substantial investments in
creating the platform for future growth and the high
feed costs and challenging markets relative to the
previous year, the Remuneration Committee considers
this to be a robust result.
In light of their performance during the year against
very challenging targets, the proportions of maximum
annual bonuses earned by the Executive Directors were
in the range of 26% to 31%.
Looking at our long-term performance, the 2009/2010
financial year Performance Share Plan (‘PSP’) awards,
which measure performance over the three years ending
30 June 2013, will vest at 100%. Our annualised growth
in adjusted EPS over the period was 11% above the
movement in the Retail Price Index, which means that
the Group achieved the maximum performance
requirement, resulting in full vesting. Given the
challenging economic conditions and high input costs
during this period, the executive management team
delivered an exceptional result over this period.
remuneration Policy for 2013/14
As reported in last year’s Directors’ Remuneration
Report, we undertook a full review of remuneration
policy in early 2012, to ensure our policy supports the
Group’s new strategy. As a result of this review, we
introduced a number of modifications to policy for the
year under review, which included seeking and receiving
shareholder approval for an amendment to our long-
term incentive plan at the 2012 AGM.
Given last year’s review, we will not be making
substantive changes to our remuneration policy for the
current financial year. The Remuneration Committee
did review the current policy’s ongoing suitability and
concluded that weighting pay towards long-term
performance remains appropriate for a growth-focused
company. In addition, the current policy worked
effectively during 2012/13, in attracting and retaining
the high calibre of talent required to deliver our
growth strategy.
continued overleaf >
Genus plc Annual Report 2013 | 61
DiRECTORS’ REmUNERATiON REPORT
LETTER fROm ThE ChAiRmAN CONTiNUED
The Remuneration Committee also remains comfortable
that the current policy does not encourage undue risk
taking, as the performance metrics are fully aligned with
targeted improvements in the Group’s key performance
indicators, incentive pay is subject to clawback
provisions and part of the annual bonus must be
deferred into the Company’s shares. These features,
allied to our share ownership guidelines, ensure that
our remuneration policy is aligned with long-term
shareholders’ interests.
Shareholders’ Views
The Remuneration Committee takes an active interest in
shareholders’ views and developments in best practice.
For example, we introduced part deferral of annual
bonus into shares and share ownership guidelines in the
year under review, to better align policy with current
best practice.
The key issue raised around the time of last year’s AGM
related to the amendment to our long-term incentive
plan. As a result of the feedback we received during a
consultation with shareholders, we amended the
proposed performance target so that the financial
target was subject to a non-financial underpin. This will
enable the Remuneration Committee to reduce the
vesting result, if progress against the Group’s strategic
business targets has been unsatisfactory.
The Committee will undertake its next annual review of
remuneration in advance of setting remuneration policy
for 2014/15. We will continue to take shareholders’ views
into account in this and subsequent reviews.
On behalf of the Board, I would like to thank
shareholders for their continued support. If you wish
to contact me in connection with the Group’s senior
executive remuneration policy, please email me at
remunerationchair@genusplc.com.
The Committee looks forward to your support of our
remuneration policy at the 2013 AGM.
Nigel Turner
Senior independent Director and Chairman of the
Remuneration Committee
This Directors’ Remuneration Report has been prepared
so that it complies with the Companies Act 2006 and
Schedule 8 of the Large and Medium Sized Companies
and Group’s (Accounts and Reports) 2008 Regulations,
which set out the disclosures required for directors’
remuneration as at the reporting date, as well as in
accordance with the requirements of the Listing Rules
and the Financial Conduct Authority.
The current legislation requires the auditor to report to
the Company’s members on the ‘auditable parts’ of the
Directors’ Remuneration Report and to state whether,
in their opinion, the parts of the report that have been
subject to audit have been properly prepared in
accordance with the legislation. We have highlighted
the parts of this report which have been audited.
The Annual Report on Remuneration sets out what our
Directors were paid in respect of the year under review.
The Directors’ Remuneration Policy Report sets out the
policy that will apply in 2013/14, which is the same broad
policy that applied in the year under review and, subject
to ongoing review, for subsequent years. The report has
been approved by the Board and signed on its behalf by
the Chairman of the Remuneration Committee.
DiRECTORS’ REmUNERATiON POLiCY REPORT
(UNAUDiTED iNfORmATiON)
The key objectives of Genus’s Executive remuneration
policy are that:
• pay should be competitive to ensure that we can
recruit and retain the highest calibre individuals;
• fixed pay (base salary, pension and benefits) should
take account of comparable external median
benchmarks and internal pay relativities;
• incentive pay (short and long-term incentives) should
provide the opportunity to earn upper quartile total
remuneration, subject to delivery of our above-
market long-term growth aspirations;
• incentive pay should be directly linked to the Group’s
strategy, with targets relating to our key performance
indicators (using non-financial ‘input’ measures and/
or ‘output’ measures such as earnings per share) and
should be stretching, in light of our strategic plan;
• incentive structures should be simple and easy to
understand, with a clear focus on rewarding long-
term sustained growth, rather than volatile
performance;
• remuneration policy should be clearly aligned with
shareholders’ interests, take due account of current
best practice guidance and not encourage undue risk
taking; and
• policy principles for Executive Directors should apply
to the members of the Genus Executive Leadership
Team (‘GELT’), with appropriate tiering through the
wider workforce.
In applying these principles, the Remuneration Committee
is sensitive to institutional investors’ views on the use of
benchmark pay data and undertakes benchmarking only
periodically. In its use of benchmark pay data, the
Committee considers multiple sources, as well as
individual performance, calibre and experience, and the
Group’s performance. The Committee also considers
Group-wide salary budgets and the wider economic
environment.
62 | Genus plc Annual Report 2013
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The table below summarises the main components of Genus’s remuneration policy, which is derived from the above
policy principles:
Purpose and Link to Strategy
Operation
maximum Potential Value
Performance metrics
Base Salary
To provide competitive fixed
remuneration that will attract
and retain key employees
and reflect their experience
and position in the Group
Reviewed annually, with
increases effective from 1 July
Periodically benchmarked
against relevant market
comparators, reflecting the
size and nature of the role,
individual performance
and experience, increases
awarded to other employees,
Group performance and
broader economic conditions
Benefits
To provide competitive
benefits and to attract and
retain high calibre employees
Benefits generally include a
car allowance and insured
benefits (e.g. life assurance
and private medical insurance)
Pension
To provide a competitive
company contribution
that enables effective
retirement planning
Annual Bonus
Incentivises achievement
of annual objectives which
support the Group’s short-
term performance goals
Only basic salary is pensionable
Pension is provided by
way of contribution to a
personal pension or as a
salary supplement in lieu
of pension provision
Payments under the annual
bonus plan are subject to:
• compulsory deferral of 25%
of any bonus earned into
the Company’s shares for a
period of three years; and
• clawback provisions, which
may apply in the event of
a material misstatement of
the Group’s financial results
Salaries for 2013/14 are
as follows:
• Chief Executive: £516,500
• Group Finance
Director: £350,000
None
Annual increases are generally
consistent with the range
awarded across the Group
Increases above this level (in
percentage of salary terms)
may be made in certain
circumstances, such as a
change in responsibility or
a significant increase in the
role’s scale or the Group’s
size and complexity
None
The value of insured benefits
will vary year on year, based
on the cost of providing
insured benefits, and is
included in the emoluments
table on page 69
Salary supplements
in lieu of pension are
provided to a maximum
of 25% of basic salary
None
125% of salary
Bonus awards are subject
to achievement against a
sliding scale of challenging
financial targets and
personal objectives
Financial targets linked to
the Group’s key performance
indicators (e.g. profit and
cash generation) govern the
majority of bonus payments,
with a minority earned
based on performance
against personal objectives
With regard to financial
performance targets, bonus
is earned on an incremental
basis once a predetermined
threshold target is satisfied
(0% payable) through to
a maximum payment for
substantial out-performance
of the threshold performance
targets (100% payable)
Genus plc Annual Report 2013 | 63
DiRECTORS’ REmUNERATiON REPORT
CONTiNUED
Purpose and Link to Strategy
Operation
maximum Potential Value
Performance metrics
Performance Share Plan (‘PSP’)
PSP incentivises executives
to achieve superior returns
to shareholders over a
three-year period, to retain
key individuals and align
interests with shareholders
200% of salary
Eligibility to receive
awards is at the discretion
of the Remuneration
Committee each year
Awards vest three years from
grant, subject to continued
employment and satisfaction
of challenging three-year
performance targets
Clawback provisions may
apply in the event of a
material misstatement of the
Group’s financial results
Awards vest subject to
achievement against a
challenging sliding scale of
financial targets, based on
growth in earnings per share.
Two separate sliding scales
of earnings per share targets
currently apply to awards
Tier 1 Awards
• Chief Executive: 125%
of salary
• Group Finance Director:
100% of salary
30% of Tier 1 Awards vest at
the threshold performance
level, through to full vesting
for growing earnings per
share by at least 11% above RPI
Tier 2 Awards
• Additional 75% of salary
above Tier 1 Awards
For vesting to take place in
respect of Tier 2 Awards, the
Company will need to achieve
its stated long-term objective
of capturing very significant
growth opportunities
identified in the animal
genetics market. Full vesting
of Tier 2 Awards requires
earnings per share growth to
be at least 20% above RPI
The awards are also subject
to an underpin that enables
the Committee to scale back
(but not scale up) vesting,
if the Group’s financial
performance over the period
is not considered reflective
of the progress made against
its strategic business targets
A complete summary of the
performance targets for
2013/14 is included on
page 71
None
None
Share Ownership Guidelines
To provide alignment between
Executives and shareholders
A shareholding of 100%
of salary is expected to be
achieved, through retention of
50% of the net of tax number
of vested shares under the
Company’s Deferred Share
Bonus Plan and PSP.
In addition, the Chief
Executive will also retain the
entire after tax number of
Restricted Shares that were
granted to him shortly after
his appointment (see page 72)
64 | Genus plc Annual Report 2013
Purpose and Link to Strategy
Operation
maximum Potential Value
Performance metrics
Non-Executive Directors
To provide compensation
that will attract high calibre
individuals and which
reflects their experience
and knowledge
None
The Chairman’s fee is
determined by the Committee
The Non-Executive
Directors’ fees are reviewed
periodically by the Board
No Directors take part in
meetings where their own
remuneration is discussed
Fees are based on the time
commitments involved
in each role and the fees
paid in other similarly sized
UK listed companies
Fees are usually
reviewed annually
Total fees for 2013/14
are as follows:
• Non-Executive
Chairman: £140,000
• Non-Executive
Directors: £50,000
Fees include chairing a
committee or any additional
time commitments or
responsibilities. Any increase
in Non-Executive Director
fees may be above the
level awarded to other
employees, given that they
may only be reviewed on a
periodic basis and taking into
consideration the above
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Remuneration Scenarios for Executive Directors
The charts below show how the composition of
the Executive Directors’ remuneration varies at
different levels of performance under the Group’s
remuneration policy, as a percentage of total
remuneration opportunity and as a total value:
Chief Executive
£000
Finance Director
£000
670 1,410 2,350
2,500
2,000
1,500
1,000
500
420 870 1,470
2,500
2,000
1,500
1,000
500
0
B elo w
thresh old
Targ et
M axi m u m
0
B elo w
thresh old
Targ et
M axi m u m
Long-term variable
Annual variable
Fixed
Notes:
1. Chart labels show proportion of the total package comprised of each element of pay
2. Share price growth has been ignored
3. As a proxy for ‘target’ long-term performance, the mid-point of the lower vesting range
of EPS targets is assumed to be achieved (EPS growth of RPI + 7.5% p.a.). This level of
performance is purely illustrative for the purporses of this chart
how Employees’ Pay is Taken into Account
When setting the Executive Directors’ remuneration,
the Remuneration Committee takes due account of
pay structures elsewhere in the Group. For example,
the Committee considers the overall salary increase
budget and the incentive structures that operate
across the Group.
The Group HR Director facilitates this process, presenting
to the Remuneration Committee on pay structures across
the organisation, their effectiveness and how they fit the
Group’s Remuneration Policy. Part of this process includes
consulting employees on their views of the current policy,
which forms part of the feedback provided to the
Remuneration Committee and is used by the HR Director
to continually assess the policy’s effectiveness.
how Executive Directors’ Remuneration Policy Relates
to the wider Group
The remuneration policy summarised above and
described in detail below provides an overview of the
structure that operates for the Executive Directors.
The same broad structure also operates for the members
of GELT.
Below GELT, the same remuneration principles continue
to apply. However, the structure and quantum of
remuneration vary by work level, with the structures
informed by the specialist nature of many employees’
roles, as well as market practice and employee feedback.
how Shareholders’ Views Are Taken into Account
The Remuneration Committee considers shareholder
feedback received in relation to the AGM each year and
guidance from shareholder representative bodies more
generally. This feedback, plus any additional feedback
received during meetings with shareholders, is then
considered as part of the Company’s ongoing review
of remuneration policy.
As noted earlier, the key issue raised around the time of
last year’s AGM related to the amendment to our long-
term incentive plan. As a result of the feedback received
during a consultation with shareholders, the
Remuneration Committee amended the proposed
performance target so that the financial target was
subject to a non-financial underpin. This will enable the
Committee to reduce the vesting result, if progress
against the Group’s strategic business targets has
been unsatisfactory.
The Remuneration Committee will review remuneration
policy for 2014/15 in light of feedback received in relation
to the 2013 AGM. The Committee will consult shareholders
if any significant policy changes are proposed in the future.
Genus plc Annual Report 2013 | 65
DiRECTORS’ REmUNERATiON REPORT
CONTiNUED
Service Contracts and External Appointments
Policy
Executive Directors
Genus can terminate Executive Directors’ service contracts on one year’s notice, while Executive Directors must give six
months’ notice. The contracts do not contain any pre-determined amounts in the event that the Company terminates
them. Any payments will reflect the circumstances at the time of termination, taking account of the Executive Directors’
duty to mitigate. There are no enhanced provisions in the event of a change of control. Executive Directors’ contracts of
service, which include details of remuneration, will be available for inspection at the AGM on 15 November 2013.
Non-Executive Directors
All Non-Executive Directors have specific terms of engagement and their remuneration is determined by the Board,
taking into account the time they devote to the Company’s affairs. The Non-Executive Directors do not participate in
any of the Company’s incentive schemes or pension schemes. Their appointment is for a fixed term of three years and is
subject to one month’s notice of termination by either the Company or the Non-Executive Director, and to annual
re-election at the Company’s AGM, in accordance with the UK Corporate Governance Code.
Specific contracts
Details of the Executive Directors’ service contracts and the terms of appointment of the Non-Executive Directors are
set out below.
Director
Executives
Karim Bitar
Stephen Wilson*
John Worby**
Non-Executives
Bob Lawson
Nigel Turner
Mike Buzzacott
Barry Furr
Contract Date
Expiry Date
24 May 2011
12 December 2012
25 February 2009
n/a
n/a
n/a
11 November 2010
16 January 2011
6 May 2012
1 December 2006
10 November 2013
15 January 2014
5 May 2015
30 November 2015
Notice Period
(Months)
12 (from Company)
6 (from Executive)
12 (from Company)
6 (from Executive)
12 (from Company)
6 (from Executive)
1
1
1
1
Notes:
* Appointed to the Board on 14 January 2013 and became Group Finance Director on 1 March 2013.
** Retired from the Board on 31 March 2013.
Outside appointments
The Company recognises that Executive Directors may be invited to become Non-Executive Directors of other
companies and that this can help broaden the Director’s skills and experience. Upon appointment as Group Finance
Director in February 2009, John Worby was permitted to retain his existing Non-Executive Directorships of Cranswick
plc and Smiths News plc. John Worby was permitted to retain the associated remuneration of £67,800 in the last
financial year up to the date of his retirement. When Stephen Wilson was appointed in January 2013, he was permitted
to retain his existing Non-Executive Directorship of Xchanging plc and was permitted to retain the associated
remuneration of £23,000 in the period since his appointment.
ANNUAL REPORT ON REmUNERATiON (UNAUDiTED iNfORmATiON)
The Role of the Remuneration Committee
The Company has established a Remuneration Committee (the ‘Committee’) which complies with the UK Corporate
Governance Code. The Committee makes recommendations to the Board, within agreed terms of reference, on an
overall remuneration package for the Executive Directors and other members of GELT. The Committee’s full terms of
reference are available on the Company’s website at www.genusplc.com.
The Committee comprises independent Non-Executive Directors Nigel Turner (Chairman), Mike Buzzacott and
Barry Furr, and also the Company’s Non-Executive Chairman, Bob Lawson, who was considered by the Board
to be independent at the time of his appointment to the Board.
None of the Committee members has any personal financial interest (other than as shareholders), conflicts of interests
arising from cross-directorships or day-to-day involvement in running the business. The Committee makes
recommendations to the Board and no Director plays a part in any discussion about his own remuneration.
66 | Genus plc Annual Report 2013
During the year to 30 June 2013, the Committee met
seven times and considered the following matters:
• the continuing appropriateness of the remuneration
policy and the remuneration arrangements for the
Executive Directors and GELT;
• salary levels for the Executive Directors and
GELT members;
• the terms of the 2012/13 Executive Annual Bonus
Plan and of the individual bonuses payable in light of
the Group’s and individual’s performances in respect
of 2011/12;
• the individual long-term share incentive awards
under the Company’s 2004 Performance Share Plan
and 2004 Executive Share Option Plan;
• the performance measures and targets to apply to
these awards;
• testing of the performance conditions and approval
of the associated vesting levels of long-term share
incentive awards granted in the 2009/2010 financial
year;
• approving the retirement terms of John Worby;
• the remuneration terms of Stephen Wilson on
appointment;
• the Directors’ Remuneration Report for the financial
year ending 30 June 2012; and
• the current investor guidelines on executive
remuneration.
In determining the Executive Directors’ remuneration for
the year, the Committee consulted the Chief Executive
and the Group Human Resources Director about its
proposals, although neither is involved with determining
their own remuneration.
The Committee also appointed New Bridge Street (part
of Aon plc) to provide benchmarking advice on the
remuneration packages for the Executive Directors,
members of GELT and the Non-Executive Directors.
New Bridge Street is a member of the Remuneration
Consultants Group and complies with its Code of
Conduct. Aon plc acts as insurance broker to the Group.
The Committee considered New Bridge Street’s
performance during the year, in terms of the quality and
independence of its advice, the potential for conflicts of
interest (which are actively managed within Aon plc) and
its knowledge and understanding of market practice.
Having reviewed these factors, the Committee decided
to retain New Bridge Street as its advisers.
Shareholder Voting at the 2012 AGm
At last year’s AGM, the Directors’ Remuneration Report
received the following votes from shareholders:
For
Against
Total number
of votes
38,010,695
3,695,544
% of
votes
cast
91.14
8.86
Total number of shares in respect of
which votes were validly made
41,706,239
100
Abstentions
770,064
implementation of Policy for 2013/14
(Unaudited information)
Base Salary
The Committee reviews the Executive Directors’ basic
salaries prior to each financial year, taking into account
individual and corporate performance, an assessment of
comparator companies, wider economic conditions and
levels of increases applicable to the Group’s other
employees.
The Executive Directors’ current salary levels (with effect
from 1 July 2013) are as follows:
• Karim Bitar: £516,500 (no change from prior year); and
• Stephen Wilson: £350,000 (as determined on
appointment on 14 January 2013).
The Committee determined that no further salary
increases would be made to the Chief Executive and
Group Finance Director at the 1 July 2013 review. The
average salary increase for UK based employees reflects
a cost of living adjustment.
The salary set on appointment for the Group Finance
Director reflected his calibre and experience, and the
need to secure an individual with the necessary
capabilities to work alongside the Chief Executive, to
deliver the anticipated higher rates of growth being
targeted from 2014 (as detailed in the Strategic Review).
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When setting pay, the Committee periodically considers
external benchmark data for comparable roles in
companies of broadly similar size, international scope of
operations and complexity. Given there are few direct
comparator listed companies, the Committee considers
general market data. The Committee is careful in its use of
benchmark pay data (for example, it does not target
median market positioning for each Executive Director
each year) and takes into account a broad range of
factors when setting pay, such as the experience, calibre
and performance of the individual and salary increases
across the Group.
Pension and Other Benefits
The Executive Directors receive certain benefits-in-kind,
principally a car or car allowance, life assurance and
private medical insurance. In lieu of company pension
contributions, the Company has agreed to pay Karim Bitar
and Stephen Wilson a taxable pension allowance of 25%
and 15% of basic salary per annum respectively.
Performance-Related Annual Bonus
The Company bonus scheme for the 2013/14 financial
year for its Directors and senior Executives will incentivise
and reward the delivery of challenging adjusted profit
growth targets (60% of the bonus opportunity) and cash
generation (20% of the bonus opportunity) and personal
targets (20% of the bonus opportunity).
These metrics capture performance against a range of
key performance indicators. Profit works as an ‘output’
metric that captures our success against a range of other
KPIs, which we assess on an ongoing basis, such as
growing volumes and revenue while maintaining
appropriate profit levels per transaction and royalty rates.
Cash targets measure our success in generating funds to
invest in growing the business. Progress with
implementing our new strategy forms a central part of the
personal performance targets for each position.
Genus plc Annual Report 2013 | 67
DiRECTORS’ REmUNERATiON REPORT
CONTiNUED
For the 2013/14 financial year, the bonus structure will
continue to operate on a similar basis to that which
operated in 2012/13.
Straight line vesting takes place between performance
points. Given last year was a record for the Group, and
noting the growth premium in this year’s budget
compared with last year, this year’s financial targets are
considered appropriately demanding.
Personal targets are structured to be similarly challenging
to our financial targets. They are linked to the successful
implementation of elements identified in the strategic
review, with the targets being both quantifiable and
stretching. Achievement of these targets is central to
unlocking the growth potential we are proposing to target
through the revisions to our PSP described below.
The Annual Report on Remuneration for 2013/14 will
include retrospective disclosure of the targets set, subject
to the information not being considered seriously
prejudicial to the Group.
In relation to bonus earned against the targets described
above, 25% will be deferred by way of shares for a period
of three years and will vest subject to continued
employment, other than in certain good leaver
circumstances. Deferral ensures there is a continued link
between achieving our short-term financial targets and
the longer-term delivery of our growth strategy. Clawback
provisions apply to the annual bonus, which will enable
the Committee to claw back any element of bonuses that
should not have been paid, in the event of a material
misstatement of the Group’s annual results.
The maximum bonus opportunity remains at 125% of
salary for the Chief Executive. For the current year, the
Group Finance Director will also be subject to a maximum
bonus opportunity of 125% of salary. This mirrors the
maximum opportunity available at his previous employer
and operated from his date of appointment to the Board.
The Remuneration Committee therefore considered it
appropriate to equalise the bonus potential of the Group’s
two lead executives.
Long-Term incentives
Long-term share awards are granted under the Genus plc
2004 PSP which was amended, following shareholder
approval at the 2012 AGM, to enable awards in normal
circumstances to be granted at up to 200% of salary.
This amendment was described in detail in last year’s
Notice of AGM and was made to better align our
remuneration structure with our overall remuneration
policy and incentivise the delivery of our long-term
growth strategy. The changes provided the potential
for higher levels of long-term reward, for delivering the
higher rates of growth targeted by the Group’s new
strategy from 2014. In addition, the primary performance
metric, adjusted earnings per share (‘EPS’) growth, was
made more challenging through the introduction of a
strategic underpin.
Under the PSP, incentives can take the form of conditional
share awards or nil cost options, with vesting based on
achievement against challenging growth in EPS
performance, normally tested over a three-year period.
68 | Genus plc Annual Report 2013
Consistent with the awards granted during the year under
review, it is anticipated that the awards in 2013/14 will be
at 200% of salary for the Chief Executive and 175% of
salary for the Group Finance Director.
The performance targets anticipated to apply to the
awards to be granted this year are as follows:
Tier 1 Awards
The range of targets anticipated to apply to awards with a
value of 125% of salary for the Chief Executive and 100%
of salary to the Group Finance Director are:
Per annum growth
in adjusted EPS*
% of
award
vesting**
Per annum growth
in adjusted EPS*
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