DELIVERING TODAY SHAPING TOMORROW Genus plc Annual Report 2015 A WORLD LEADER IN ANIMAL GENETIC IMPROVEMENT Global demand for pork, beef and milk continues to increase, driven by urbanisation, population growth and rising incomes. Our genetics enable farmers to meet this demand with quality and efficiency. We are world leaders in our markets, with pioneering technology and a deep understanding of our customers’ needs. “ Genus performed well in 2015 achieving operational results that reflect the strategic progress and improvement we have been making. The opportunity in the animal genetics market remains large. We are convinced that as we vigorously execute our strategy of innovation and market focus, we will capture more of the market opportunity. While market conditions across our industries and geographies look likely to be mixed in 2016, we expect underlying performance to be in line with expectations. However, currencies remain a significant headwind.” Karim Bitar Chief Executive Genus plc Annual Report 2015 1 2015 Highlights Group Revenue £m Adjusted Profit Before Tax £m 2015 2014 2013 2012 2011 398.5 372.2 345.3 341.8 309.9 2015 2014 2013 2012 2011 Adjusted Basic EPS Pence Dividend Per Share Pence 2015 2014 2013 2012 2011 56.8 46.5 49.1 50.0 41.9 2015 2014 2013 2012 2011 46.6 39.3 42.5 43.7 36.7 19.5 17.7 16.1 14.6 13.3 Financial Highlights1 Operational Highlights Strategic Report • Adjusted profit before tax of • Volume growth of 6% in porcine and £46.6m, up 19% (up 23% in constant currency), driven mainly by a strong performance from the porcine division • Adjusted earnings per share of 56.8p, up 22% (up 26% in constant currency) • Statutory profit before tax up 51% to £57.8m and earnings per share up 40% to 66.7p • Robust cash conversion of 107% (2014: 103%) was maintained • Strong after tax return on invested capital of 21.2% (2014: 19.2%) • Dividend increased by 10% to 19.5p, well covered by adjusted earnings at 2.9 times (2014: 2.6 times) 1 For definitions of adjusted profit, adjusted EPS, cash conversion and return on invested capital, see Financial Review on pages 36 to 39. 6% in dairy and beef • Strong profit growth in Genus PIC of 17% in constant currency, benefiting from full integration of Génétiporc and a strong overall performance • Genus Asia profits unchanged in constant currency (down 8% in actual currency), despite market challenges in Russia and China • Genus ABS revenue up 9%, with profits unchanged in constant currency (down 3% in actual currency) due to increased product costs • Acquisition of 51% of In Vitro Brasil S.A. (‘IVB’) strengthens Genus ABS’s portfolio, enabling customers to accelerate genetic improvement in their herds with bovine in vitro fertilisation (‘IVF’) • Acquisition of Birchwood secures long-term distribution of Genus PIC’s proprietary boar genetics to mid-sized customers in North America • Good strategic progress achieved in research and development across all the key initiative areas of genomic selection, animal health and gender skew Chairman’s Statement Chief Executive’s Review 2 Genus at a Glance 4 Delivering Today, Shaping Tomorrow 6 8 10 Market Opportunities 12 Business Model 14 Strategic Framework 16 Key Performance Indicators 18 Principal Risks and Uncertainties 20 Divisional Reviews 36 Financial Review 40 People 42 Corporate Social Responsibility Corporate Governance 48 Letter from the Chairman 50 Board of Directors and Company Secretary 52 Genus Executive Leadership Team 54 Corporate Governance Statement 60 Audit Committee Report 64 Directors’ Remuneration Report 82 Nomination Committee Report 83 Other Statutory Disclosures 84 Directors’ Responsibilities Statement Financial Statements Independent Auditor’s Report 85 90 Group Income Statement 91 Group Statement of Comprehensive Income 92 Group Statement of Changes in Equity 93 Group Balance Sheet 94 Group Statement of Cash Flows 95 Notes to the Group Financial Statements 141 Parent Company Balance Sheet 142 Notes to the Parent Company Financial Statements Additional Information 149 Five Year Record – Consolidated Results 150 Glossary 151 Notice of Annual General Meeting IBC Advisers Genus plc Annual Report 2015STRATEGICREPORTCORPORATE GOVERNANCEFINANCIALSTATEMENTSADDITIONALINFORMATION 2 Genus at a Glance Pioneering Animal Genetic Improvement Genus is a world-leading animal genetics company. We provide farmers with superior genetics that enable them to more efficiently produce higher- quality animal protein, in the form of meat and milk. Genus is the market leader in porcine, dairy and beef genetics and is uniquely positioned as a global player, with a dedicated, multi-species research and development (‘R&D’) function and an international distribution network. Where We Operate • Genus has a world-class strategic supply chain, with global reach. • Our bovine business owns bull studs in Europe, North America, Latin America and India, and sells genetics in more than 70 countries, both directly and through distributors. • Our porcine business has a network of over 500 breeding herds in 35 countries. Approximately 98% of these herds are owned by third- parties or our customers. • Genus’s head office in Basingstoke, UK, provides shared services support to our international operations. Our R&D laboratories are based in Madison, Wisconsin, US. Revenue by Geography % Revenue by Species % 29 10 15 46 46 54 North America Latin America Europe Asia Bovine Porcine 130m+market pig equivalents with our genetics taken to market (‘MPEs’)**Including Agroceres, our Brazilian joint venture (‘JV’).£28m+spend on R&D per year18m+doses of semenper year delivered2,600+employeesABS70+country operationsPIC50+country operationsGenus plc Annual Report 2015 3 Our Values Our values are integral to our role, which is to meet a basic human need: nourishment. 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. How We Operate Genus sells under well-known trademarks: ‘PIC’ for pigs and ‘ABS’ for dairy and beef cattle. Our three business units are: • Genus PIC, which serves porcine customers in North America, Latin America and Europe. • Genus ABS, which serves dairy and beef customers in North America, Latin America and Europe. • Genus Asia, which serves porcine, dairy and beef customers in fast-growing Asian markets. What We Do Genus applies biotechnology to accelerate genetic improvement and deliver it to our customers, quickly and efficiently. We breed and distribute the genes of the world’s best pigs and bulls, scientifically selecting livestock whose offspring is designed to increase the profitability of our customers, who are some of the world’s biggest farmers and food producers. In the porcine market, we sell genetically superior boars and sows that produce offspring with desirable characteristics, such as feed-efficient growth or leaner meat. In the dairy and beef markets, our primary product is bull semen, which is delivered through artificial insemination to improve our customers’ herds and their efficiency. We also offer genetically superior embryos through our subsidiary IVB. Corporate Goals Create Genetic Improvement Being the pioneer and leading in genetics is vital for our continued success. Deliver Volume Growth Our market relevance is measured by the number of animals on farms using our genetics. Drive Profitability To capture our share of the value we create through superior genetics. Generate Cash To reinvest in the business and provide returns to shareholders. Corporate Social Responsibility Objectives Our Corporate Social Responsibility (‘CSR’) objectives directly support our corporate goals and help to make us a successful and sustainable business in the long term. Food Quality and Abundance Operate Safely Environment Employees Community Animal Welfare see page 14 see pages 42–47 The Strategic Report was approved by the Board of Directors on 7 September 2015 and signed on its behalf by: Karim Bitar Chief Executive Stephen Wilson Group Finance Director Genus plc Annual Report 2015STRATEGICREPORTCORPORATE GOVERNANCEFINANCIALSTATEMENTSADDITIONALINFORMATION 4 DELIVERING TODAY SHAPING TOMORROW Our strategy focuses on delivering value for our stakeholders today, while ensuring we position our business to create even more value in the future. Here we highlight some of the key events in the last 12 months, as we successfully implemented this strategy. MARC H 201 5 Completed the acquisition of a majority stake in IVB, the world’s leading commercial bovine IVF company The acquisition adds to Genus’s technology toolbox, enabling us to accelerate the rate of genetic improvement through the selection of both superior males and females, and expand our global presence in the commercial dairy and beef segments. Genus plc Annual Report 2015 5 S EPTEM B ER 2014 N OVEM B ER 2014 JAN UARY 201 5 Strategic porcine multiplication agreement in China We signed an exclusive multi-year agreement with Riverstone, Genus’s first commercial multiplier in China, to stock and sustain Riverstone’s new pig production project. The project (with an expected total herd of 24,000 sows) will allow us to reduce our farming risk and align our business model in China with our global porcine model. Acquired Birchwood Genetics PIC completed the acquisition of Birchwood Genetics Inc. Birchwood is a boar stud partner providing male PIC genetics to mid- and small-sized customers in the US. Delivered 1,000th pregnancy from our proprietary gender skew product We have delivered over 1,000 pregnancies in field tests and achieved commercial-scale production validation. Royalties from our strategic partnership with ABP Food Group In May 2014, we entered into a strategic partnership with ABP to develop sustainable, higher quality beef products by leveraging Genus’s genomics technology platform. Under the agreement, Genus is paid a royalty for demonstrable genetic benefit delivered to our partner. Won a significant commercial validation trial in Russia We entered over 58,600 pigs for evaluation against a key competitor’s product. The trial was run with a key Russian customer, producing c. 3 million pigs per annum. We won the trial by c. £1.70 per pig,1 representing a potential customer benefit of over £5m per annum.2 MAY 201 5 J U N E 201 5 J U LY 201 5 Capital Markets event Members of the Genus Executive Leadership Team presented Genus’s business model and its initiatives to further strengthen its position as a leader in animal genetics. The event was the first of its kind since 2012 and was attended by current and prospective investors, and other financial stakeholders. Produced the first commercial units from our proprietary genomic bulls We collected the first units available for sale to customers globally from ABS JOURNEY, a genomic, born from our own elite female nucleus herd. Celebrated the 2015 Chairman’s award The coveted Chairman’s Award for innovation went to a team from ABS in North America, for devising ‘Net Profit Genetics’, a programme helping dairy customers to think differently about sire selection for their herds. 1 Exchange rates assumed as GBP/RUB 79.23. 2 Assuming 100% Genus market share. Genus plc Annual Report 2015STRATEGICREPORTCORPORATE GOVERNANCEFINANCIALSTATEMENTSADDITIONALINFORMATION 6 Chairman’s Statement Bob Lawson Our genetic lead in our porcine and bovine products is underpinned by our R&D programmes and we continued to strengthen our pipeline. 13.4p Final dividend per share in 2015 Genus plc Annual Report 2015 7 A Year of Strategic Delivery Genus had a strong year in 2015, as we delivered on our innovation-led strategy and increasingly focused on the larger scale commercial producers of pork, beef and milk, who are most able to benefit from our genetic improvement. We achieved particularly strong profit growth, driven by an excellent year for Genus PIC in the Americas. Genus ABS grew sales worldwide but higher product costs meant its profits were flat in constant currency. Difficult conditions in China and Russia held back Genus Asia but both markets now appear to be exhibiting early signs of improvement. Our genetic lead in our porcine and bovine products is underpinned by our R&D programmes and we continued to strengthen our pipeline. During the year, we continued to increase the rate of porcine genetic improvement, accelerated the production of high- quality dairy genetics through our elite herds and conducted successful trials of our Genus Sexed Semen (‘GSS’) technology. We also added to our capabilities in dairy and beef, through the purchase of a majority stake in IVB. IVB will enhance our model in ABS, allowing us to offer superior male and female genetics through embryos to our beef and dairy customers. In addition, we successfully completed the integration of Génétiporc, which we acquired in the previous year, and acquired Birchwood Genetics. High-Calibre Leadership The Genus Executive Leadership Team (‘GELT’) is now well established and we are seeing the team’s impact across the business. GELT is made up of highly qualified leaders, who are working together to deliver our strategy and tackle the issues we face, through collaboration and by constructively challenging each other. GELT’s members bring deep sectoral or functional expertise to the business, coupled with the strength of intellect we need to drive the business forward. The latest evaluation of the Board’s performance confirmed that it continues to perform well and provides the right oversight and guidance to the Group. Following the appointments of Professor Duncan Maskell and Lykele van der Broek as Non-Executive Directors, which we reported on last year, there were no further additions to the Board in 2015. During the year both new Board members completed their induction and are already making a significant contribution. The principal change from the evaluation has been that the Board has increased time devoted to developing our strategy. Professor Barry Furr retired as a Non-Executive Director at the Annual General Meeting (‘AGM’) in November 2014. We were greatly saddened by his death in early 2015 and want to record our thanks for his immense contribution to the Company during the eight years that Barry served on the Board. More information about our corporate governance arrangements, including details of the Board evaluation and our induction programme, can be found on pages 54 to 83. A Responsible Business CSR is fundamental to our business and integral to every part of our strategy. Its importance is reflected in our vision – pioneering animal genetic improvement to help nourish the world – which captures our contribution to society. Our CSR Committee helps lead these efforts, defines our CSR strategy and oversees the execution of this strategy. Its members include our in- house experts on animal welfare, the environment, safety and employees. Genus employs over 2,600 people worldwide and I want to thank every one for their dedication and hard work throughout the year. We continue to invest in developing their skills and unleashing their talent, recognising that this underpins our service delivery for customers and our ability to innovate. We recognise exceptional “ The Board is recommending a final dividend of 13.4 pence per share.” new thinking through our coveted Chairman’s Award. This year, the award went to a team from ABS in North America, who devised “Net Profit Genetics”, a programme challenging dairy customers to think differently about selecting sires for their herds. The programme exemplifies the spirit that runs through the Chairman’s Award and I congratulate the team for its achievement. Providing Returns to Shareholders The Board directs the Company on shareholders’ behalf. Providing attractive returns on capital and dividends to shareholders are therefore an important part of our corporate goals. We are recommending a final dividend of 13.4 pence per share. Combined with the interim dividend of 6.1 pence per share, this gives a total dividend for the year of 19.5 pence per share. This is an increase of 10% over last year. The final dividend will be paid on 4 December 2015 to shareholders on the register at the close of business on 20 November 2015. Summary Genus performed strongly during the year and continued to successfully deliver on its strategy. The Board remains focused on the Group’s leadership and talent, its R&D capabilities, the execution of its strategy, and overseeing the Company’s performance. The long-term drivers of our markets remain attractive and we continue to position the business to benefit from this opportunity. Bob Lawson Chairman 7 September 2015 Genus plc Annual Report 2015STRATEGICREPORTCORPORATE GOVERNANCEFINANCIALSTATEMENTSADDITIONALINFORMATION 8 Chief Executive’s Review Karim Bitar Genus achieved very good progress in 2015, with the benefit of many of the strategic changes that have been made over the last few years contributing towards the strong operational performance overall. We continued to step up the pace of genetic improvement and achieved encouraging progress in our R&D initiatives, which bodes well for the future as we become an increasingly science and intellectual property based company. The acquisition of 51% of IVB will also enable us to provide innovative new genetic solutions to our customers in the dairy and beef industries. Group Performance Genus’s overall performance was strong in 2015. Revenues grew 7% to £398m, on volume growth of 6% in porcine and 6% in dairy and beef. Adjusted profit before tax, including joint ventures (‘JVs’), was up 19% to £46.6m and growth in constant currency was even stronger at 23%. PIC had an outstanding year, with 17% operating profit growth including JVs in constant currency. This was driven by an excellent performance in the Americas, with the completion of Génétiporc’s integration and the addition of Birchwood both contributing. We also saw a recovery in the porcine industry, as the impact of porcine epidemic diarrhoea virus (‘PEDv’) waned. Genus plc Annual Report 2015 9 “ Genus’s overall performance was very strong in 2015.” During the year, we strengthened further our people management practices, training and talent development, and increased our emphasis on the health and safety of employees. Our employee pulse survey showed that our employees have a very significant commitment to our vision, values and strategy. Their passion and engagement makes a big contribution to the value we deliver to our customers and our success in the market. Outlook In 2015, we significantly exceeded our target double-digit compound annual growth in adjusted operating profit in constant currency. Our constant currency growth rate in 2016, while in line with expectations, is expected to be more moderate. Based on current conditions, we are cautiously optimistic about improved results in Asia. However, we remain cautious about prospects in dairy, where market conditions are very tough for our customers, and porcine commodity prices have worsened compared with last year. The sharp depreciation of the Euro, Rouble and most Latin American currencies over the last year will also be a continuing headwind. Karim Bitar Chief Executive 7 September 2015 Performance in ABS and Asia was more mixed, with both businesses delivering stable profits in constant currency compared with the prior year. ABS’s sales performance was positive in all regions despite weakening conditions in global dairy markets but higher product costs held back overall profits. Our strategic actions in ABS to increase differentiation through breeding our own bulls, developing proprietary indices and new technologies, such as IVF and GSS, all made good progress. Our Asian operations continued to face challenging conditions in porcine markets, with Chinese producers making losses through most of the year. Russia was also affected by weak markets and closure of the border to imports. Conditions in both of these markets appear more encouraging as we enter the new financial year. Strategy Our innovation strategy starts with R&D. We continued to implement advances in selection techniques that are significantly accelerating genetic gains in our porcine nucleus herds. These new genetics are now working their way through our supply chain, and customers will start to benefit from them during 2016 and 2017. We also applied these approaches in bovine, as we developed proprietary indices and pursued our breeding programme in the dairy and beef nucleus herds we initiated in 2014. Some of the elite young sires from this programme will enter production in 2016. Our leading-edge research programmes in the areas of disease resistance and genetic dissemination technology passed several scientifically significant milestones, although these projects remain long-term in nature. In addition, we continued to make good progress with the technical milestones on GSS and are vigorously pursuing our anti-trust litigation in the US to seek to create an open market for our technology. The trial date has now been set for 1 August 2016. In March, we acquired 51% of IVB, the world’s leading supplier of bovine IVF services. Combining IVB’s skills with ABS’s leading genetic management tools will enable us to accelerate the genetic improvement of our customers’ herds and opens up new opportunities. During the year, IVB introduced a novel method of producing frozen embryos which makes their implantation significantly easier. Our initial integration of the business is progressing well. We generate value for our genetics by targeting key markets and segments and tailoring our business model to the needs of our customers in these markets. PIC increased its market share and grew penetration of the royalty model, particularly in Europe and Asia. Génétiporc was fully integrated a year ahead of schedule and we are very pleased with the results in North America and Latin America. We also acquired Birchwood, a boar stud operation serving mid- sized customers in North America, to strengthen our distribution of male genetics in this segment. Its results are consistent with our expectations. In China, we continued to adapt our business model to reduce financial investment and exposure to the volatile farming market, exiting two owned farms and completing the stocking of our first third-party multiplier, Riverstone, during the year. Riverstone, which is also a royalty-based customer, will stock a second farm in 2016. We gave more details of our strategy and our progress with its execution at a Capital Markets Day we hosted in London in May 2015. A webcast of the event is available at www.genusplc.com. Our People GELT was unchanged in 2015 and I am very pleased with the Group’s high energy, individual capabilities and collective teamwork. It is a privilege to work with such a strong team. Genus plc Annual Report 2015STRATEGICREPORTCORPORATE GOVERNANCEFINANCIALSTATEMENTSADDITIONALINFORMATION 10 Market Opportunities The Animal Genetics Market Consumers around the world are increasingly demanding safe, affordable and high-quality animal protein. At the same time, farmers are striving to produce animal protein more efficiently, in part because of increasing competition for finite resources. Genetics are critical to addressing these challenges. Demand Drivers for Animal Genetics There are four key drivers of demand for our animal genetics. 1. Growing demands for animal protein The global population continues to grow and is becoming increasingly urbanised. These demographic shifts mean much of the increase in demand is coming from emerging markets, in regions such as Asia and Latin America. World Population Growth 1990-2050 Billion 2. Supply constraints At the same time as demand is rising, production is becoming more challenging. Competition for resources such as water and land for producing animal protein is intensifying. Increasingly volatile and unpredictable weather patterns can also significantly affect crop harvests and hence the availability and cost of animal feed. This puts pressure on producers to be as efficient as possible. 3. Shorter, simpler supply chains Supply chains that were previously fragmented, with multiple steps between food producers and consumers, are becoming shorter and transparency is increasing. The result is that consumer needs are having a more direct influence on food producers. This is driving demand for higher-quality animal protein and less use of drugs. 6.3 6.0 5.7 5.4 5.1 3.2 3.3 3.3 3.3 3.4 3.4 3.4 3.4 2050 2045 2040 2035 2030 2025 2020 2015 2010 2005 4.7 4.3 4.0 3.6 3.2 3.3 3.3 3.3 3.2 3.0 2000 2.9 1995 2.6 1990 2.3 Urban Rural Source: United Nations, Department of Economic and Social Affairs, Population Division (2014). As consumers move from an agricultural to an urban lifestyle, they tend to become wealthier. This in turn leads to an increasing demand for animal protein, as meat and dairy products become a larger part of people’s diets. 4. Changes in production In response to all these issues, food producers are increasingly turning to high-quality genetics to increase production and efficiency. For example, artificial insemination (‘AI’) in dairy has reached 75% in the US and 50% in India. There is scope for considerable growth in markets such as Brazil, where AI is used in just 13% of herds. The scale of production is also increasing, as producers focus on efficiency and look to consolidate and vertically integrate, leading to a greater proportion of animal protein being delivered by larger, more technified producers globally. For example, in porcine, large scale integrated pork production accounts for the majority of pork production in the US and Brazil, and is a growing proportion of production in China. Genus plc Annual Report 2015 Market Profiles 11 Porcine Dairy Beef Industry Significant barriers to entry, with high product differentiation Lower barriers to entry, with less product differentiation Lower barriers to entry, with less product differentiation Customer landscape Consolidated and highly technified, with royalty contracts linking price to value added Fragmented and some technification, with prices per unit of sale Fragmented and some technification, with prices per unit of sale The Scale of the Opportunity World production millions of tonnes Milk 2024 2015 933 794 Pork 2024 2015 Beef 2024 2015 129 118 75 68 Forecast compound growth (2015–2024) +1.8% +0.9% +1.1% Data set: OECD-FAO Agricultural Outlook 2015-2024. Note – Beef includes veal: Beef and pork measured as cwe. Genus PIC and Genus ABS operate in markets with different dynamics. The global porcine sector is consolidated and technified in many of our key markets, with strong representation of large integrated pork producers. Such producers are more able to measure and realise the direct benefits of genetic improvement and often rely on head-to-head validation trials to select their preferred supplier of genetics. These genetics are supplied from proprietary animal lines and purchased on multi-year genetic improvement contracts, with payment tied to the resulting improvement in the customer’s breeding herd. The net result is a market with differentiated products and high barriers to entry. In dairy and beef, the global market is much more fragmented and customers are typically less technified. Products and their genetic merit have historically been benchmarked to public indices and all breeders’ genetics are typically sold in an open market system, with no restrictions on further genetic dissemination through the resale of genetic offspring. Barriers to entry are therefore lower and products are priced on a transactional basis. However, both the dairy and beef industry are seeing an increasing trend towards technification, with some of the leading dairy and beef producers looking to invest in bilateral partnerships with genetic suppliers to improve their productivity and the quality of their herds. Genus plc Annual Report 2015STRATEGICREPORTCORPORATE GOVERNANCEFINANCIALSTATEMENTSADDITIONALINFORMATION 12 Business Model CLEAR PATH TO CREATING, DELIVERING & SHARING VALUE Genus’s Competitive Advantages Genus’s business model is built on competitive advantages which help us create value for our customers and shareholders. Our strategy (see pages 14 and 15) reinforces and builds on these advantages. Our competitive edge comes from: • continuously improving our proprietary lines of breeding animals, using the best science available; • our global distribution capability, through our supply chain, technical service and sales network; • long-lasting customer relationships, enhanced by our services to help farmers get the best from our products; and • a business model and multi-species approach that allow us to continually strengthen and leverage our technology platform. “ Genus is absolutely focused on driving genetic improvement faster than ever, delivering this improvement to our customers more quickly and efficiently, and capturing a share of the value we deliver to our customers.” Karim Bitar Chief Executive Produce Differentiated Animal Genetics Genus accelerates genetic improvement by exploiting rapid advances in molecular and genetic biology. We do this through our world-class in-house team of scientists and technicians, and by strategically collaborating with universities and other biotech companies. Our proprietary techniques help us determine the best animals to mate, so our customers see faster genetic gains. To determine breeding goals, we use proprietary indices of desirable animal traits. We own elite animals, and supplement them with elite genetics from outside our herds. We work closely with customers and tailor our genetic programmes to their needs. This enables us to deliver outstanding and differentiated products, to maximise our customers’ profitability. Driving genetic improvement faster than ever... Genus plc Annual Report 2015 13 Share in the Value Delivered We look to capture an appropriate share of the value we deliver to customers. We do this by: • targeting customers who will value Genus genetics; • demonstrating the value of our genetics; and • aligning Genus’s interests with its customers’, by linking our prices to higher productivity and the genetic improvement delivered. Distribute Genetics Our porcine business owns genetic nuclei herds, where we continuously improve the genetic traits of our proprietary elite pig lines. We then cross and multiply these lines, to provide breeding stock for commercial pig production. We do this through more than 500 breeding herds in 35 countries, around 98% of which are owned by our customers or third-party multipliers. This structure is a significant strength, allowing us to meet demand for our genetics throughout the world, protect our intellectual property and reduce our exposure to farming and commodity risk. Genus ABS operates owned studs in the UK, US, Canada and Brazil, with a further stud currently under construction in India. We also house our bulls in third-party owned studs in North America, Europe, Australia and Latin America, providing ABS with a significant distribution platform. We process and distribute genetics to over 40,000 customers worldwide, selling directly in 23 countries and through distributors in a further 54 countries. Following our acquisition of 51% of IVB, Genus ABS also produces and distributes embryos. Through embryo production, we are able to provide our customers with an elite genetic product, by controlling the selection of both male and female parent donors (see page 4). To maximise our products’ potential, our technical service teams assist customers to achieve the best results in nutrition, reproduction, health management and other areas. Our teams help customers select the right genes to meet their goals, and we also benchmark our products against our competitors’. ...delivering improvement to our customers more quickly and efficiently... ...and capturing a share of the value we deliver to our customers. Genus plc Annual Report 2015STRATEGICREPORTCORPORATE GOVERNANCEFINANCIALSTATEMENTSADDITIONALINFORMATION 14 Strategic Framework Goals and Strategy for Growth Genus has a robust strategy to meet its corporate goals and capture the significant growth opportunities in the animal genetics market. Performance Our key performance indicators measure how we are achieving our goals. Risk We look to understand and mitigate the risks to achieving our strategic goals. Strategic Progress Each of our divisions and our R&D function has strategic priorities that support our Group strategy. see pages 16 and 17 see pages 18 and 19 see pages 20–35 Our corporate goals are to: Create Genetic Improvement Drive Profitability Being the pioneer and leading in genetics is vital for our continued success. To capture our share of the value we create through superior genetics. Link to strategy: Link to strategy: Deliver Volume Growth Generate Cash Our market relevance is measured by the number of animals on farms using our genetics. To reinvest in the business and provide returns to shareholders. Link to strategy: Link to strategy: Genus plc Annual Report 2015 15 Our strategy for growth has four elements: Increasing Genetic Control and Product Differentiation To maintain and enhance our product leadership. We do this by: • enhancing our use of genomics, to strongly accelerate the rate of genetic improvement; • increasing our control of bovine genetic development, through elite nucleus herds and proprietary indices; • investing in proprietary technologies, with a focus on disease resistance and gender skew; and • collaborating with universities and biotechnology companies on the latest developments in quantitative and molecular genetics. Targeting Key Markets and Segments Tailoring the Business Model Strengthening Core Competencies To have the right offering for the right customers, who value our genetics and understand their benefits. We do this by: • ensuring we have the right products, in the critical geographies, to meet the needs of our target customers, which are typically: – integrated pork producers and farrow-to-finish pig producers; – enterprise and large commercial dairies; and – integrated beef processors; • aligning our products and services to key customer segments, which value our genetics and technical services; and • investing for growth in the emerging economies, while strengthening our position in more mature markets such as the US and Europe. To adapt our approach to suit different markets, demonstrating the value our genetics deliver to our customers and aligning pricing to that value. We do this by: • developing products that meet each market’s specific requirements; • ensuring we have the right commercial model, notably: – transitioning from direct sales to royalties in our porcine business, where appropriate; and – matching our resources to customers, using cost to serve and customer segmentation; • working with JV partners, to access or create capacity to serve new markets; and • conducting trials to validate the benefits of our genetics for customers. To have the skills we need to implement our strategy. We do this by: • developing our marketing capability and strengthening our key account management; • strengthening our supply chain, allowing us to distribute genetics more efficiently and cost effectively to our customers; • stepping up our technical support to customers; and • enhancing our people management, and transferring people and skills to key target markets. Genus plc Annual Report 2015STRATEGICREPORTCORPORATE GOVERNANCEFINANCIALSTATEMENTSADDITIONALINFORMATION 16 Key Performance Indicators We monitor and measure our strategic progress by reference to our four corporate objectives: Create Genetic Improvement; Deliver Volume Growth; Drive Profitability; and Generate Cash. Net Merit Rankings Daughter-Proven and Genomic Bulls 2015 23 13 Create Genetic Improvement 2013 2012 2014 30 31 28 6 11 11 Porcine Genetic Improvement Index US$ Net Merit Rankings Daughter-Proven and Genomic Bulls 2011 33 7 Proven Genomic 2015 2014 2013 2012 2011 2.23 1.98 1.73 1.31 3.64 2015 2014 2013 2012 2011 Measures the genetic gain we achieve in our porcine nucleus herds. Definition The index measures the marginal economic value improvement in customers’ US$ profitability, per commercial pig per year, on a rolling three-year average. Prior years’ index ratings have been updated, to reflect the latest results from genomic selection and economic values of pork production. Performance A step change in genetic gain value improvement, up US$1.41 to US$3.64, as a direct result of implementing genomic selection technology over the last two years. 23 13 30 31 28 6 11 11 33 7 Proven Genomic Monitors our success in developing bulls that are highly ranked, because of their genetic performance and economic merit. Definition The number of our generally available Holstein bulls listed in the top 100 Net Merit US$ rankings for progeny tested and the top 100 Genomic Net Merit rankings for genomically tested sires. Performance We have strengthened our genomic product position, with growth of our numbers of top 100 genomic Holstein bulls. Overall, Genus maintained a strong product line-up and remains well positioned relative to the competition. Deliver Volume Growth Dairy and Beef Volume Growth % Porcine Volume Growth % 2015 2014 2013 2012 2011 6 5 5 2015 2014 2013 2012 2011 8 11 9 6 6 5 7 Tracks our global unit sales growth in dairy and beef. Tracks the growth in the number of pigs with PIC genetics globally. Definition The change in volume of dairy, beef and sorted units of semen, delivered to customers in the year. Performance Volumes grew 6% to 18.5 million doses, with the strongest growth in Brazil and our European distribution business. Double digit growth of beef units and sorted units were the main product contributors. Definition The change in volume of both direct and royalty animal sales, using a standardised MPEs measure of the slaughter animals that contain our genetics. Results, including prior years, now include MPEs from Agroceres PIC, our Brazilian JV. Performance Volumes grew 6% to 132 million MPEs, with strong double digit growth in Latin America and strong royalty volume growth, offsetting declines in Russia and China caused by adverse market conditions. Genus plc Annual Report 2015 17 Drive Profitability Adjusted Operating Profit (Including JVs) £m Operating Profit per MPE £ Operating Profit per Dose of Semen £ 2015 2014 2013 2012 2011 51.2 44.8 48.2 48.0 44.8 2015 2014 2013 2012 2011 0.43 0.38 0.41 0.43 0.35 2015 2014 2013 2012 2011 0.88 1.03 1.19 1.26 1.25 To track underlying profit generation. Monitors porcine profitability by unit. Monitors bovine profitability by unit. Definition Operating profit including share of JVs, adjusted to exclude IAS 41 valuation movements on biological assets, amortisation of acquired intangible assets, share-based payments and exceptional items. Performance £51.2m, up £6.4m (up £8.0m in constant currency; 2014: flat) due to a strong performance in Genus PIC, particularly in North and Latin America. Definition Net porcine operating profit globally, expressed per MPE. Results, including prior years, now include our share of Agroceres PIC, our Brazilian JV. Performance £0.43, up £0.05 (up £0.06 in constant currency; 2014: down £0.01) helped by higher royalty volumes in North America and strong growth in Latin America, delivering productivity gains. Definition Net dairy and beef operating profit globally, expressed per dose of semen delivered. Excludes India, as its characteristics are substantially different to the rest of our bovine business. Performance £0.88, down £0.15 (down £0.07 in constant currency; 2014: down £0.09) due primarily to foreign exchange, additional product costs on genomic bulls and increased investment in bovine product development. Generate Cash Cash Conversion % Net Debt : EBITDA 2015 2014 2013 2012 2011 107 103 77 96 92 2015 2014 2013 2012 2011 1.2 1.2 1.0 1.1 1.4 Monitors our success in converting profits into cash. Definition Cash generated by operations before interest and taxes, expressed as a percentage of adjusted operating profit (excluding JVs). Performance Maintained strong cash conversion of 107%, through solid working capital management. Ensures we have a strong balance sheet and the financial capability to execute our strategy. Definition The ratio of net debt (being gross debt including finance lease obligations less cash held), to adjusted earnings before interest, tax, depreciation and amortisation (excluding JVs). Performance 1.2, flat on last year, reflecting the increase in net debt from £63.9m to £71.8m as a result of foreign exchange movement on the US$ borrowings, offset by higher EBITDA. Genus plc Annual Report 2015STRATEGICREPORTCORPORATE GOVERNANCEFINANCIALSTATEMENTSADDITIONALINFORMATION 18 Principal Risks and Uncertainties Genus supplies biological products to agricultural customers and is exposed to a wide range of risks and uncertainties. Some of these risks relate to current business operations in our global agricultural markets, while others relate to future commercial exploitation of our extensive R&D portfolio. The table below outlines the principal risks and uncertainties affecting Genus and how we manage them. More information on how we identify and manage risks can be found in the Corporate Governance Statement on pages 58 and 59. Increasing genetic control and product differentiation Targeting key markets and segments Tailoring the business model Strengthening core competencies Strategic Risks Risk description Developing products and our competitive edge • Development programme fails to produce best genetics for customers. • Increased competition reduces market share and margins. Commercialising GSS technology • Launching a new product technology carries technical, production and financial risks. • Failure to commercialise our GSS technology due to intellectual property (‘IP’) and other disputes. Commercialising research • Failure to focus research initiatives on commercially important areas. • Failure to lead on ‘game-changing’ technology or to make new initiatives commercially viable. • Regulatory changes may affect the approval process for products or our ability to export products to certain countries. Capturing value through acquisitions • Failure to identify appropriate investment opportunities or to perform sound due diligence. • Failure to successfully integrate an acquired business. How we manage risk Strategy Risk change in FY15 Dedicated teams align our product development to customer requirements, while our technical services help customers make best use of our products. We frequently measure our performance against competitors in customers’ systems, to ensure the value added by our genetics remains competitive. We have a rigorous process to prepare for the successful commercial launch of our GSS technology, supported by dedicated internal resources and external expert advice. We also initiated legal proceedings in the US, in relation to anti-trust issues. The outcome of these proceedings will not be known until the second half of 2016 and could prevent or delay our plans to commercialise GSS. Our R&D Portfolio Management Team oversees our research, ensures we correctly prioritise our R&D investments and assesses the adequacy of resources and its IP freedom to operate. The Board is updated regularly on key development projects. We have a rigorous acquisition analysis and due diligence process, with the Board reviewing and signing-off all projects. We also have a structured post- acquisition integration planning and execution process. Increased due to higher investment in GSS in 2015 in response to successful field trials. Key initiatives are progressing through the R&D life cycle. The robust process that helped us to successfully acquire and integrate Génétiporc in 2014 was used again for the acquisition and integration of Birchwood and IVB in 2015. Genus plc Annual Report 2015 19 Strategic Risks Risk description Growing in emerging markets • Failure to appropriately develop business in China and other emerging markets. Operational Risks Protecting IP • Genus-developed genetic material, methods and technology could become freely available to third-parties. Ensuring biosecurity and continuity of supply • Loss of key livestock, owing to disease outbreak. • Loss of ability to move animals or semen freely (including across borders) due to disease outbreak, environmental incident or international trade sanctions. • Industry-wide disease outbreaks affecting demand for Genus products. Financial Risks How we manage risk Strategy Risk change in FY15 We have a robust organisation, blending local and expatriate executives supported by the global species teams, to ensure we comply with our global standards. The Board provides regular oversight and dedicated significant time in FY15 to discussing our strategy and the results of our operations in China. We have a global, cross-functional process to identify and protect our IP. Our customer contracts and our selection of multipliers and JV partners include appropriate measures to protect our IP. We conduct robust ‘Freedom To Operate’ searches to identify third-party rights to technology. We have stringent biosecurity standards, with independent reviews throughout the year to ensure compliance. We continue to extend the geographical diversity of our production facilities, to avoid over-reliance on single sites. Volatility in the Chinese porcine market continued in 2015. In response, we adjusted our plans and approach to the market, which reduced our risk. However, we were also affected by border closures in the Russian porcine market, which increased our risk. We continued to strengthen our health management and supply chain resilience. The risks associated with the 2014/15 outbreak of PEDv in North America have been significantly mitigated. Managing agricultural market and commodity prices volatility • Fluctuations in agricultural markets affect customer profitability and therefore demand for our products and services. • Increase in our operating costs, due to commodity pricing volatility. We continuously monitor markets and seek to balance our costs and resources in response to market demand. We actively monitor and update our hedging strategy to manage our exposure. Our porcine royalty model and extensive use of third-party multipliers mitigates the impact of cyclical price reductions or cost increases in pig production. Funding pensions • Exposure to costs associated with failure of third-party members of joint and several liabilities pension scheme. • Exposure to costs as a result of external factors (such as mortality rates, interest rates or investment values) affecting the size of the pension deficit. We are the principal employer for the Milk Pension Fund and chair the group of participating employers. The fund is now closed to future service and has an agreed deficit recovery plan, based on the 2012 actuarial valuation. The result of the 2015 triennial actuarial valuation is due in late 2015. We monitor the strengths of other employers in the fund and have retained external consultants to provide expert advice. Genus plc Annual Report 2015STRATEGICREPORTCORPORATE GOVERNANCEFINANCIALSTATEMENTSADDITIONALINFORMATION 20 Genus PIC Strategic Progress “ We have continued to make significant strategic progress, including further increases in the rate of genetic gain and a reduction in genetic lag. We see the potential for further growth across the world and have developed robust plans to help us seize these opportunities.” Bill Christianson Chief Operating Officer, Genus PIC Increasing Genetic Control and Product Differentiation Targeting Key Markets and Segments Progress Against 2015 Objectives We aimed to: • increase the rate of genetic gain by a further 10%; enhance our products, by completing the integration of Génétiporc; and reduce genetic lag by four months. During the year, we: • increased the rate of genetic gain by more than 10%, by applying genomic analysis across all traits and product lines; • integrated Génétiporc, including embedding its genes in our improvement programme and assimilating its employees; • acquired Birchwood Genetics to strengthen our genetic distribution platform serving mid- and small-sized customers in North America; and • reduced genetic lag globally by two months, despite the impact of PEDv in North America. 2016 Priorities We will: • continue to harness genomics to accelerate the rate of genetic improvement; • develop two new product lines, combining our proprietary genes with those acquired from Génétiporc; • invest in product validation trials, to demonstrate the value of our products against the top five competitors in each market; • increase global distribution of our elite boars; and • reduce genetic lag by two months. Progress Against 2015 Objectives We aimed to: • build on our strength in the Americas; increase our presence in the top 40 European accounts; and introduce a relationship management system, enabling the global deployment of our Key Account Management and Technical Service offering to meet customers’ needs. During the year, we: • increased volumes across the Americas by 8% and grew our share of business with the region’s top 50 customers; • reshaped the European team to focus on the top 40 customers, while maintaining performance; and • introduced a global relationship management system, the Targeted Customer Interface (‘TCI’), to draw together information and insights on customers worldwide. 2016 Priorities We will: • continue to build our presence and share of business with large customers in every region; • strengthen and standardise processes and customer offerings across our business, such as adopting a consistent global approach to key account management; and • continue to build relationships with key industry stakeholders, for example through our biennial global symposium. Genus plc Annual Report 2015 21 L I N K T O S T R AT E G Y C A S E S T U DY PARTNERING TO SUPPORT A GROWING BUSINESS Sandy Pine Systems and Genus PIC have enjoyed a long and fruitful partnership. Owners Greg and Vicki Wilke started their multiplier relationship with PIC in 1983, with 450 grandparent sows. Today Sandy Pine has 140 employees and 16,800 sows, producing more than 175,000 Camborough Isowean gilts each year. It has added a 440-head PIC boar stud and 7,800 Camborough commercial sows, and doubled its multiplier to 11,000 sows, as well as completing a state-of-the-art feed mill. This growth has been made possible by the Wilkes’ continued belief in PIC’s genetic value, sustained over more than 30 years. Tailoring the Business Model Strengthening Core Competencies Progress Against 2015 Objectives We aimed to: • continue the transition to a royalty pricing model in South America, Europe and Asia; establish and stock three new sire line nucleus farms across the US and Latin America; and further increase supply chain efficiency. During the year, we: • increased the proportion of global volumes under the royalty model, including increases of 11% in Asia and 21% in Europe; • established sire line nucleus farms in Quebec (Canada), Ohio (US), and Chihuahua (Mexico); and • increased effectiveness across our supply chain, including through closing inefficient units and managing transport costs. 2016 Priorities We will: • continue to implement a more consistent approach to our global supply chain; • ensure our facilities remain open and operational at least 90% of the time, and make them more resistant to livestock disease; and • add 10,000 sows to large multiplier sites and remove at least 5,000 from smaller sites, to further increase efficiency. Progress Against 2015 Objectives We aimed to: • complete our first product validation trials in Asia; and develop and roll-out further training modules through our Key Account Manager Academy. During the year, we: • completed and won validation trials in China and Thailand, and started to extend trials to Europe; and • introduced seven new modules to our PIC Academy, which is our training resource for key account managers around the world. 2016 Priorities We will: • continue to invest in our Academy and develop new training modules; • implement customer-centric sales techniques across our porcine business; and • continue to enhance the culture of employee health and safety across our business, including developing, implementing, communicating and measuring progress on global standards. Genus plc Annual Report 2015STRATEGICREPORTCORPORATE GOVERNANCEFINANCIALSTATEMENTSADDITIONALINFORMATION Performance Genus PIC performed very strongly, with operating profits including JVs up 17% in constant currency, on revenue growth of 15% to £175.5m. Volumes grew by 8%, with all regions contributing. Operating margins per MPE improved through completion of the integration of Génétiporc and the benefit of synergies a year ahead of schedule and price and cost management. In North America, profits were up 11% in constant currency, on volume growth of 8%. Following the PEDv outbreak in 2014, royalties were impacted during the first half of this financial year. However, this was offset by strong animal shipments, as customers started to expand and improve their herds once the impact of the disease became better contained. There was also the benefit of a full year of Génétiporc and Birchwood contributed positively, as expected. Latin American profits improved 42% in constant currency on a 14% volume increase, helped by an exceptionally strong operating profit performance from the Agroceres PIC JV (up 98%). Agroceres PIC benefited from a full year’s contribution from Génétiporc, investments made in updated genetics and an improved supply chain, market share gains and favourable market conditions. We also saw strong profit growth in Mexico (up 38%), while Latin America’s overhead costs were well controlled. 22 Genus PIC Operating Review Corn – Key Markets CORN – KEY MARKETS (£ PER TONNE) £ per tonne Pork – Key Markets PORK – KEY MARKETS (£ PER KG) £ per kg 300 250 200 150 100 50 0 Aug 12 US Aug 13 Brazil 3.0 2.5 2.0 1.5 1.0 0.5 Aug 14 Aug 15 Aug 12 Aug 13 Aug 14 Aug 15 EU China US Brazil EU China Russia Market Market conditions for Genus PIC’s customers were generally favourable throughout the year, with the exception of Europe. In North America, the outbreak of PEDv that peaked in early 2014 led to tight pork supply and record pig prices in the first half of this financial year. Combined with low input costs, this gave producers exceptional margins. A strong rebound in supply during the second half of the year led to a considerable drop in US pork prices, to levels that are more reflective of long-term averages. In Brazil, pig prices reached a record high in October 2014 helped by strong exports, particularly to Russia, following the ban on exports from the EU to Russia. By the end of the year, prices had fallen back to more normal seasonal patterns. However, the outlook remains positive for the Brazilian pork sector, with strong domestic consumption expected and continuing export demand helped by the devaluation of the Brazilian Real. In Europe, the first half of the financial year was affected by continuing production expansion and export bans, primarily to Russia, leading to oversupply and a 21% decline in pork prices compared with the prior year. Despite some stabilisation of prices in the first half of calendar year 2015, helped by increased exports, prices were still 17% below the prior year and farmer margins were generally negative. L I N K TO S T R AT E G Y C A S E S T U DY TRANSFORMING OUR JOINT VENTURE Agroceres PIC is our JV in Brazil and Argentina with the Agroceres Group, a leading agriculture supplier. In recent years, Agroceres PIC has transformed its business and performance. Major changes include conversion from upfront sales to a royalty model, the construction of South America’s largest and most modern boar stud and the creation of key account management and technical services, dedicated to the top 80 accounts. The result has been a market share increase from 42% to 53% and impressive operating profit growth in the last two years. The business is now well positioned to deliver further strong growth in these highly important markets. Genus plc Annual Report 2015 23 “ We have shown it is possible to have good results at low cost, through high health status, nutrition and the genetic support of PIC.” Claudio Freixes General Manager, Kekén Revenue Adjusted operating profit exc JV Adjusted operating profit inc JV 2015 £m 175.5 57.2 61.9 Actual currency 2014 £m 152.8 49.9 52.6 Movement % 15 15 18 Constant currency Movement % 15 13 17 Adjusted operating margin exc JV 32.6% 32.7% (0.1)pts (0.5)pts In Europe, volumes increased 2% and operating profit increased 5% in constant currency, as we continued to make progress with our strategy to target the larger integrated pork producers. Progress with a number of key accounts was encouraging and the proportion of volumes sold under royalty contracts increased to 59% during the year (2014: 38%). At the same time, we took further action to reduce our exposure in directly owned operations, including streamlining and standardising the UK boar stud operations; establishing European focused support in Technical Services, Genetic Services, Health Assurance and Supply Chain; and expanding the supply of high indexing animals at multiplication partners, to supply our best products to European customers. During the financial year, we successfully integrated Birchwood and Génétiporc into our operations, delivering the expected synergies from both acquisitions ahead of the planned timeframes. Genus PIC also continued to invest in technology (particularly genomics), distribution networks, technical service capabilities and key account management, to help us add even greater value for customers. We made continued progress in demonstrating the strength of our product offering through increased validation trials with a number of large integrated pork producers around the world. L I N K TO S T R AT E G Y C A S E S T U DY BENEFITING FROM OUR ROBUST GENETICS Kekén is Mexico’s leading pork producer, with 61,500 sows. It operates feed manufacturing and processing plants, and sells through its 272 retail stores and via export. PIC has partnered with Kekén since 1992, supplying top genetics and technical expertise. The climate makes conditions difficult for intensive rearing but the robustness of our genetics has helped Kekén increase sales by over 100% in the last five years, to 153,000 tonnes in 2014. Genus plc Annual Report 2015STRATEGICREPORTCORPORATE GOVERNANCEFINANCIALSTATEMENTSADDITIONALINFORMATION 24 Genus ABS Strategic Progress “ We grew business volumes by 8% during 2015, by working to deliver the right products and services to our customers in all regions. We also invested in developing a more differentiated and proprietary genetics offer. The acquisition of IVB is a significant step on this journey.” Saskia Korink Romani Chief Operating Officer, Genus ABS Increasing Genetic Control and Product Differentiation Targeting Key Markets and Segments Progress Against 2015 Objectives We aimed to: • increase genetic control and bovine product differentiation; strengthen our portfolio of genomic dairy bulls; and develop a genetic nucleus herd for beef. During the year, we: • grew our genomic bull presence in public ranking indices by 18%; • established a nucleus herd for beef and expanded our elite dairy female breeding programme, complementing our existing bulls; • developed the two highest-ranking tropical bulls in Brazil, with proprietary type and management information; and • acquired 51% of IVB, to help accelerate genetic improvement in our customers’ herds by enabling the selection of both male and female parents through the use of IVF technology. 2016 Priorities We will: • maintain competitiveness in public ranking indices, while positioning our products by introducing proprietary indices; • further strengthen the elite female programme and develop plans to ring-fence our proprietary genetics; • develop our beef nucleus herd and begin to identify bulls with the best genetic potential; and • continue to develop our proprietary gender skew technology. Progress Against 2015 Objectives We aimed to: • continue implementing our customer segmentation model around the world, helping us identify and meet the needs of each segment; grow in our existing dairy markets and explore new markets; and pursue direct service agreements with integrated beef or dairy suppliers. During the year, we: • grew revenue by 9% (13% in Latin America, 9% in North America and 5% in Europe); • used our segmentation model to start tailoring offerings to different customer types; and • built relationships with leading integrated beef producers worldwide, with the aim of replicating the model established with ABP Group. 2016 Priorities We will: • build partnerships with customers seeking to improve operational efficiency and profit, tailoring our offering to meet their needs; • develop and deliver innovative approaches for more transactional customers, with appropriate pricing and service levels; and • continue to grow volumes and market share in existing markets, while exploring opportunities in new markets. Genus plc Annual Report 2015 25 L I N K T O S T R AT E G Y C A S E S T U DY GROWING OUR BUSINESS THROUGH TAILORED MODELS Our French business drives growth by tailoring its offering to different market segments. For example, we target dairies with up to 500 cows by using our Genetic Management System to help customers achieve the traits they want in their herds. For breeder herds, who demand our elite genetics, our field sales team is leveraging the breadth of our proven and genomic bull line up. We also have an alliance with a leading co-operative, Genes Diffusion, to provide selected genetics to traditional AI customers. This tailored approach has enabled us to triple our sales in France over the last decade. Tailoring the Business Model Strengthening Core Competencies Progress Against 2015 Objectives We aimed to: • demonstrate the benefits of our genetics by using our Genetic Management System (‘GMS’); and work with large integrated beef supply to validate our genetics in a beef-on-dairy offering. During the year, we: • increased GMS use by 16%; • tested Net Profit Genetics with profit-focused customers, aligning the value of our genetics with their commercial goals; Progress Against 2015 Objectives We aimed to: • upgrade our GMS, to help customers select products for more breeding situations; refine our supply chain processes, to improve product availability; and deploy new systems and processes, so our sales and technical service teams can meet their objectives. During the year, we: • upgraded our hand-held GMS tool for dairy customers; • enhanced our product forecasting techniques, to • progressed our beef-on-dairy offer, harnessing dairy improve the efficiency of our supply chain; herds to disseminate beef genetics; and • introduced tablet technology and tools, to help sales • worked with Powerline partners and beef processors, staff communicate with customers; and to assess the value of our genetics. 2016 Priorities We will: • emphasise the economic value of genetic improvement using our genetic toolbox; • introduce globally consistent offerings for partner- oriented customers; • conduct further trials for our beef-on-dairy and Angus-on-Nelore products; and • launching IVB USA, to capture the demand for commercial IVF. • certified 30 Reproductive Management System technicians and delivered Technical Service solutions to more than 1,000 customers with over 1 million cows in 25 countries. 2016 Priorities We will: • roll-out phase 1 of our GMS software rewrite; • promote knowledge sharing and develop an integrated go-to-market strategy with IVB in key markets; and • continue to invest in our people, particularly leadership and sales effectiveness. Genus plc Annual Report 2015STRATEGICREPORTCORPORATE GOVERNANCEFINANCIALSTATEMENTSADDITIONALINFORMATION Performance Genus ABS had a flat operating profit in constant currency, on volume growth of 8% and revenue growth of 9%. Higher regional profit contributions in all regions were offset by increased central supply chain costs, principally due to royalties on leased genomic bulls, adverse foreign exchange cross-rates on US produced semen, and a higher mix of sorted semen. Effective sales management enabled a 2% improvement in average selling prices (‘blend’) across the business and ancillary product sales also improved. In North America, profits grew by 13% in constant currency, driven by a 1% volume increase, increased blend, strong cost management and additional contributions from adjacent products. Beef performance was strong, with volumes up 18% over the prior year, including the continued increased use of beef semen in dairy cows. Sorted semen volumes grew 54%. In Europe, profits improved 7% in constant currency. France, UK and the European Distributor business helped volumes to grow 14%. However, the strong growth in the European Distributor business, where product is sold at wholesale prices, led to an overall 5% blend decrease in Europe. Profit growth of 3% in the core markets of the UK, Italy and France was tempered by the challenging dairy market conditions. 26 Genus ABS Operating Review DAIRY – KEY MARKETS Dairy – Key Markets (PENCE PER LITRE) Pence per litre Beef – Key Markets BEEF – KEY MARKETS (LIVE CATTLE £ PER KG) Live cattle £ per kg 45 40 35 30 25 20 15 Aug 12 US India 3.0 2.5 2.0 1.5 1.0 Aug 13 Aug 14 Aug 15 Aug 12 Aug 13 Aug 14 Aug 15 Brazil EU China Russia US Brazil Market Following a period of buoyant prices in the early part of 2014, dairy prices declined significantly in Europe, North America and Latin America. This resulted from a number of causes, including: a Russia dairy import ban; the slow down of China milk powder imports; intense pressure in many international retail consumer markets; the impact of the removal of EU dairy quotas in the spring of 2015; and favourable weather conditions in key dairy producing countries, resulting in oversupply. By June 2015, global dairy prices were down 32% over the prior year, with Europe down 19%, the US down 28% and Brazil down 5%. In the short term, dairy prices are expected to remain depressed, with global supply still exceeding demand and countries with milk production deficits having already taken advantage of low prices to stockpile imports. Market predictions are for a gradual recovery at best, towards the end of this calendar year and going into 2016. Beef prices have continued on their upward trajectory in the US, with average prices 11% higher than they were a year ago as demand continues to outstrip supply. The Brazilian beef market should also remain strong, with the Brazil export industry continuing to expand with countries such as China looking overseas to meet their demand, and the weakening Real providing a competitive advantage. L I N K TO S T R AT E G Y C A S E S T U DY UNDERSTANDING AND MEETING CUSTOMER NEEDS Genus ABS focuses on its customers’ needs. To do this, we segment our customer base and tailor our offer to individual requirements. This can range from supplying quality genetics to a full Reproductive Management System (‘RMS’) package, which helps customers to optimise their herd pregnancies. We also innovate to improve performance. Research showed that non-RMS customers found it challenging to detect when cows were in heat. In response, we helped to develop Breeder Tag. More than 150 farms now use the system across Europe. It increases the number of pregnancies by nearly 50% in the first year, subsequently generating a significant return on investment. Genus plc Annual Report 2015 27 Revenue Adjusted operating profit Adjusted operating profit inc non-controlling interest Adjusted operating margin Actual currency 2014 £m 157.4 24.3 24.3 15.4% Constant currency Movement % Movement % 7 (1) (3) 9 2 0 (1.1)pts (1.0)pts 2015 £m 167.8 24.0 23.5 14.3% “ IVB made a positive initial contribution to results, in line with expectations, and the integration is progressing well.” Saskia Korink Romani Chief Operating Officer, Genus ABS Across Latin America, profits were up 4% in constant currency on a 9% increase in volumes, combined with a 4% blend increase. Argentina performed well, despite the difficult economic environment in the country, and profits improved in Mexico as we extended coverage into new regions in the country. Volume growth of 9% in Brazil was driven by the strength of beef sales, which increased 17%. IVB, of which 51% was acquired at the end of March 2015, made a positive initial contribution to the results, in line with expectations. The integration process for the business is progressing well and customers and employees have welcomed the opportunity to benefit from the combination with ABS. L I N K TO S T R AT E G Y C A S E S T U DY TAKING A NEW APPROACH TO MARKET IN TURKEY Turkey is the world’s ninth largest milk producer, with 5.3 million cows. In the early 1990s, we started collaborating with Tayyip Turkaslan, who had multiple distributorships in Istanbul. Now we are working with his son, Cansin, who is a genetics and immunology graduate and holds an MBA. In Turkey, genetics are traditionally traded through sub-distributors and vets who provide inseminations. Together with our distributor Cansin, we decided to take a more direct approach to selling to larger farms and to further differentiate our offer through technical support. This has resulted in a closer relationship with customers and a more accurate assessment of the genetics that will succeed in a Turkish dairy environment. Genus plc Annual Report 2015STRATEGICREPORTCORPORATE GOVERNANCEFINANCIALSTATEMENTSADDITIONALINFORMATION 28 Genus Asia Strategic Progress “ Despite some challenging market conditions during the year, especially in China and Russia, we maintained overall performance. We also continued to invest in the capabilities that position us to seize the long-term opportunity in this region, and are beginning to see positive signs for FY16.” Jerry Thompson Chief Operating Officer, Genus Asia Increasing Genetic Control and Product Differentiation Targeting Key Markets and Segments Progress Against 2015 Objectives We aimed to: • expand our range of genomic bulls and embryo programme in India; grow key accounts in China; and demonstrate the value of porcine products and drive product differentiation. Progress Against 2015 Objectives We aimed to: • continue implementing PIC’s key account strategy and grow business with leading Chinese integrated pork producers; grow in Japan, Korea and Vietnam; and expand our bovine sales channels in India. During the year, we: • strengthened the pipeline of genomic young sires in India and now own the leading Holstein, Jersey and Murrah buffalo bulls; • grew our share of key Chinese accounts and secured commercial relationships with seven of China’s top 20 pork producers; • conducted and won porcine validation trials with leading integrators, demonstrating superior economic performance against our competitors; and • reduced porcine genetic lag by 0.7 years, by importing genes from PIC in North America. 2016 Priorities We will: • keep growing our portfolio of genomic bulls in India; • disseminate the latest PIC genetics, including populating two new sire line nucleus units in the Philippines; During the year, we: • grew business with key Chinese accounts, despite challenging markets; • grew in Vietnam with our partner GreenFeed and began selling animals from the nucleus herd established in 2014; and • broadened routes to market in India, building relationships with leading milk producers, developing our distribution and trialling television advertising. 2016 Priorities We will: • further grow our share of large integrated pork producers in China, Russia, the Philippines and Thailand; • work directly with large milk producers by providing tailored genetic products and services, while strengthening relationships with distributors; and • grow our business in India, harnessing the new Chitale • source the most suitable dairy and beef genetics, JV stud and our broader sales channels. through the global supply chain; and • further validate our products and grow our business with integrated pork producers. Genus plc Annual Report 2015 29 L I N K TO S T R AT E G Y C A S E S T U DY EXPANDING OUR CAPABILITY IN CHINA Genus PIC has an exclusive agreement to stock and sustain Riverstone’s major new pig production project in China. In May 2015, we completed the first stocking of 6,200 gilts. The unit can now produce more than 35,000 gilts a year, representing a unique capability to supply large Chinese farms with high health, top genetic breeding pigs. The great grandparent boars were imported from Genus PIC US genetic nucleus and a dedicated Genus PIC service team will now maximise the effectiveness of the genetic improvement programme. The agreement provides us with significant new contracted multiplication and will enable us to develop our royalty model in China. Tailoring the Business Model Strengthening Core Competencies Progress Against 2015 Objectives We aimed to: • build a new Chitale JV bull stud in India and increase genomic semen sales and prices; pursue contracted production of PIC breeding stock; increase our Chinese royalty business; and grow in the Philippines. During the year, we: • prepared the Chitale stud for population during H2 2015 and increased genomic semen sales volumes and selling prices in India; • signed Riverstone as our first commercial grandparent gilt multiplier in China, delivering 6,200 gilts on a royalty basis; and • increased royalty revenue and expanded our share of key accounts in the Philippines. 2016 Priorities We will: • work directly with key accounts in China dairy, while also expanding our distributor relationships; • develop contracted pig production in China; • extend the porcine royalty model across the region, including in China; and Progress Against 2015 Objectives We aimed to: • build strong local teams by developing employees’ knowledge and expertise through tailored training and development programmes, and expatriate assignments; and continue cross-fertilisation of skills from other parts of the Group. During the year, we: • implemented tailored training programmes in the region and in the Americas and Mexico, working with Genus colleagues and external veterinarian and production groups; • supported continuous improvement in health and safety by harnessing training materials in multiple languages; and • strengthened technical and key account skills and knowledge in teams across the region. 2016 Priorities We will: • invest in our team’s commercial skills, to promote the benefits of our high-quality genetics to customers; and • tailor our approach to developing and growing in new • leverage the global Genus network and increase the markets. number of overseas assignments, as part of structured training and development programmes. Genus plc Annual Report 2015STRATEGICREPORTCORPORATE GOVERNANCEFINANCIALSTATEMENTSADDITIONALINFORMATION In the Philippines, pig prices were lower than last year’s record high but still ahead of expectations. Producers are profitable and the industry continues to attract investment. Dairy prices across Asia have been impacted by the fall in global dairy prices, caused at least in part by a reduction in Chinese milk powder imports, as well as the Russian ban on dairy imports from Europe, North America and other countries. However, in Russia prices are up 3% due to the supply constraints caused by the import bans. In Australia, dairy prices have remained stable, helped by the fall in the currency, while in India, prices are down 12% compared to the prior year. Performance Adjusted operating profit including JVs was unchanged in constant currency, while revenue declined by 9%, primarily due to lower porcine sales in Russia, which was affected by the border closure and the slower economy. Results in actual currency were lower than constant currency, primarily due to the devaluation of the Russian Rouble. Porcine Overall results for the porcine business reduced, with volumes 7% lower, revenue 18% lower and operating profit including JVs 7% lower. In Russia, operating profit reduced by £1.2m in constant currency (£1.8m in actual currency). Although upfront sales of gilts and boars were heavily affected by the market conditions, the royalty business model and our 30 Genus Asia Operating Review China Pork Producer Profitability ) g k r e p £ ( s s o L / t fi o r P 0.6 0.4 0.2 0 -0.2 -0.4 ) g k r e p £ ( e c i r P 3.0 2.6 2.2 1.8 1.4 1.0 0.6 Aug 12 Feb 13 Aug 13 Feb 14 Aug 14 Feb 15 Aug 15 Profit Loss — Liveweight price into China are a small proportion of the market (approximately 2–4%), the recent increase in price and low domestic supply may provide some support to the global market as a whole in the next financial year. Russia implemented a ban on pig imports from Europe and North America for much of the period. However, weakness in the general economy and reduced access to finance have had a significant impact on producers’ willingness to expand, despite the business being profitable and the country needing further growth in agriculture to become self-sufficient. As we enter the new financial year, Russia has approved imports from Canada which should benefit Genus. L I N K TO S T R AT E G Y Market Market conditions continued to be challenging across much of the region in the period. In China, a slow down in demand for higher priced protein foods combined with over supply continued to depress pork prices for much of the year, impacting pork producer profitability. The total sow herd over the last 18 months reduced by 19%, or almost 9.5 million animals. By way of comparison, the total US sow herd size is approximately 6 million. The reductions in supply led to a recovery in the pork price of approximately 15% towards the end of the financial year, helping producers’ margins to return to positive in June 2015 based on Genus’s analysis. Though imports C A S E S T U DY EXPANDING OUR PRESENCE IN INDIA ABS India is expanding rapidly. Having grown from 700,000 units of semen in 2011 to over 2 million in 2015, ABS India is now investing in a greenfield production facility, through our JV with Chitale. The state-of-the-art facility is scheduled to commission in the second quarter of FY16. It will be able to produce over 7 million semen straws a year and draws on our global best practice in health and safety, product development and production. It will fast-track the genetic progress of our stud, reducing the genetic gap for Indian dairy animals. The investment demonstrates our commitment to the Indian dairy market and our belief in its long-term growth. Genus plc Annual Report 2015 31 Revenue Adjusted operating profit exc JV Adjusted operating profit inc JV 2015 £m 41.4 5.7 5.5 Actual currency 2014 £m 46.5 6.8 6.0 Movement % (11) (16) (8) Constant currency Movement % (9) (9) 0 “Despite market challenges in China and Russia, Genus maintained overall performance with profits flat in constant currency.” Jerry Thompson Chief Operating Officer, Genus Asia The Australian business was operationally stable during the year but incurred a loss on the sale of a legacy property. Distributor markets were lower due to reduced volumes in Japan in the first half, although performance improved as the year progressed. Summary 2015 was a challenging year, with adverse market conditions in Russia and China. Our continued focus on strategic initiatives has positioned the business to benefit from an improvement in market conditions when they arise. Adjusted operating margin inc JV 13.3% 12.9% 0.4pts 1.3pts strong customer relationships kept the business profitable and healthy. As the industry resumes growth to enhance self-sufficiency, and with the border recently opening to imports from Canada, Genus is well positioned to capture this opportunity. The operating loss in China porcine reduced by £0.6m. Market prices remained low during most of the year, depressing demand for breeding stock, and volumes and breeding margin reduced. However, increased productivity at the Besun JV and in our owned farms, and control of selling costs, more than offset this. Slaughter test results and the operational metrics being achieved by our customers have demonstrated the value of PIC genetics in China. We are working closely with top producers, including delivering animals under the first royalty agreement with Riverstone. In line with our strategy of reducing farming exposure, we exited two owned farms during the year. Following these actions, we now have two owned farms in China and our share of the Besun JV. We continued to have good growth in the Philippines where operating profit grew by 24% and in Vietnam, volumes grew by 37%. Both businesses grew royalty revenues. Bovine Overall bovine results improved, with revenue up 10% on 1% growth in volumes, and operating profits up 7%. In China, revenues and profits improved as we continued to broaden and develop our sales channels, while strengthening our non-exclusive distributor relationship with SKX. Operating profit in India more than doubled, with continued growth in average selling prices as the mix of genomic semen increased. Construction of the new Chitale JV stud is on track to complete this calendar year, which will enable us to expand our range of bulls. A series of marketing campaigns has better positioned ABS as the largest international supplier and the only one with local production in India. L I N K TO S T R AT E G Y C A S E S T U DY GROWING LOCAL SUPPLY THROUGH PARTNERSHIP In the Philippines, demand for quality pork is rising. However, producers find it difficult to increase output because of the high investment required, limited local supply of quality breeding stock and the long production cycle. PIC Philippines therefore partners with investors and the Bank of the Philippine Islands, giving producers access to our genetics and technical services, alongside funding on favourable terms. This is supporting the construction of two contract production facilities, whose owners are long-standing PIC supply chain partners. The units will be stocked in FY16 with our genetically advanced breeding stock, to upgrade and expand the local supply chain and serve customers nationwide. Genus plc Annual Report 2015STRATEGICREPORTCORPORATE GOVERNANCEFINANCIALSTATEMENTSADDITIONALINFORMATION 32 Genus R&D Strategic Progress “ Our R&D programme uses multiple technologies, collaborative partnerships and computational techniques to generate the genetic improvement that delivers economic benefits for our customers.” Dr Jonathan Lightner Chief R&D and Scientific Officer Delivering Results Today, Shaping Success for Tomorrow Our business is founded on discovering, developing and delivering genetic improvement, to create economic benefit for our customers. In particular, we are harnessing the revolution in genome science, as the platform for predictive modelling that informs our product development. This improves the speed with which we select products with trait combinations that help customers achieve their commercial goals. The mission of our R&D teams is to deliver sustained profit growth across our businesses, by: • continuously improving the quality of our products, using the best tools available; • discovering new value that can be delivered by genetics; and • exploring the limits of genome science, to enhance our current businesses and create new ones. We target the majority of our research investment in three value-creation areas: health and welfare, obtaining offspring of the optimal gender (gender skew), and applying genome science advances to genomic selection. Animal Health and Welfare During the year, we continued to work with public sector researchers to explore genetic improvements that enhance animal well-being. We pursue multiple approaches to creating relevant disease resistance. These range from applying genomic information in natural selection breeding, through to cutting-edge gene editing, to produce highly targeted changes to the animal’s genes. We also advanced the application of genome science in improving the health of dairy cattle. We used genomics and naturally occurring variation to identify dairy sires that produce daughters with a far lower incidence of multiple health problems, during the transition from giving birth to entering the milking herd. These sires were developed by leveraging our Real World Data (‘RWD’) data sets and will be introduced in the coming financial year, with a star ranking on a proprietary TransitionRight™ index. Gender Skew We continued to invest in developing proprietary gender skew technology, to deliver sexed semen for beef and dairy customers. This will allow livestock producers to achieve offspring of their desired sex. Dairy producers, for example, may wish to gain female calves. We believe that the biomechanical technology we are developing will deliver this benefit with better results than other approaches available in the market today. We have now conducted extensive field testing, which has resulted in over 1,000 pregnancies. Genus plc Annual Report 2015 33 around the traits that will deliver economic benefits for customers. This differs from public rankings, which typically put greater emphasis on physical attributes. These indices will help our customers identify the animals that are best suited to support their commercial goals. In parallel, we have made significant progress with developing the infrastructure required to bring the technology into production. We have tested the technology, to ensure it can operate at the required intensity over sustained periods. We have also remodelled a commercial production facility. This activity has moved us from proof of concept in early 2014 to manufacturing scale up and commercial readiness. Genomic Selection We lead the industry in applying molecular markers, imputation and single step genomic prediction to genetic improvement in livestock. Within our porcine product development, for instance, we have accelerated genetic improvement significantly since the advent of relationship-based genomic selection in 2013. While we continue to harness and improve existing techniques, we are also exploring another potential step change by working with the Roslin Institute in Edinburgh, UK, to assess genotype by sequencing as an alternative to single-nucleotide polymorphisms. This would change the amount of information we use in the genome from tens of thousands of data points today to billions of data points, potentially transforming our ability to accurately predict product performance and to fully leverage the natural genetic variation in our animals. Within beef and dairy, we are also applying genomics to aid the development of proprietary genetics that will shape a more differentiated offer. Progress is evident in the development of our beef nucleus herd and offspring from our elite female programme for dairy, through which we are bringing the male and female sides of product development under our control. In parallel, we are developing proprietary indices for both beef and dairy, built Genus plc Annual Report 2015STRATEGICREPORTCORPORATE GOVERNANCEFINANCIALSTATEMENTSADDITIONALINFORMATION 34 Genus R&D Operating Review Performance Investment in R&D for the year increased by 1% in constant currency. This reflected investments in our research and IP capabilities, our computational capabilities in bovine and investments in beef product development. In porcine product development, increased investments in product validation and genomic testing were more than offset by the early exit from the Génétiporc Quebec nucleus and favourable commodity prices. GSS technology and validated the production characteristics of our GSS instrumentation. Capital expenditure to support the GSS development and production validation was increased in the year to £7.6m (2014: £1.8m). In health and welfare research projects, our university collaborations produced several gene-edited animals, with the intention of testing specific approaches to improve animal health. We also stepped up our internal capabilities in IP development and research strategy, with key talent additions. Research expenditure continued, as in previous years, to focus on genomic evaluation, gender skew and animal health and welfare. In genomic evaluation, we continued to explore the frontiers of genomic information and its use in animal genetic improvement. We are actively exploring genotype by sequencing approaches that could be applied across our animal systems. In gender skew, we completed additional field trials of the Bovine product development expenditure increased by 4%, with key investments in genetic services to create custom indices using our RWD data system, and in beef resources and progeny testing, to deliver higher genetic control and differentiation in beef. Our RWD system allows us to develop unique genetic insights, which deliver customer value. The system continued to grow in 2015, with a 24% increase in the number of herds it covers to 1,438, representing over 23.8 million animals, and now include operations in five countries. In the dairy genetic nucleus of elite females, the quality and quantity of Holstein animals delivered is exceeding our expectations. We continue to create and acquire high-quality female animals for this programme, including our first Jersey additions in 2015. Our first genomic sires from the proprietary Holstein programme will be placed into stud in the next few months. Our beef product development nucleus is achieving aggressive goals in terms of the quantity of pregnancies produced and has delivered the first bulls to stud in the UK, in support of our ABP collaboration. Porcine product development expenditure declined by 9% due to the operational synergies from the integration of Génétiporc (where the exit from the Quebec genetic L I N K TO S T R AT E G Y C A S E S T U DY VALIDATING OUR PRODUCTS’ PERFORMANCE Genus PIC has long used scientific trials run in commercial systems. These help us to understand our products’ performance and benchmark them against competitors, to aid business growth and identify improvements. In the past, we have conducted these projects in the technically mature North American market. However, in recent years we have significantly expanded our validation activities. In 2015, we completed trials against local leaders in Spain and China, two key growth markets. These trials showed our products had significant advantages for traits such as efficiency, growth and robustness. This demonstrates the value our genetics add for customers and will enable targeted product refinements. Genus plc Annual Report 2015 35 2015 £m 4.6 11.6 12.4 28.6 Actual currency 2014 £m 3.6 12.5 11.6 27.7 Constant currency Movement % Movement % 28 (7) 7 3 28 (9) 4 1 “ We focused our research expenditure in the areas of genomic evaluation, gender skew and animal health.” Dr Jonathan Lightner Chief R&D and Scientific Officer Research Porcine product development Bovine product development nucleus was completed ahead of schedule), a final Canadian government support payment and favourable feed costs and slaughter prices in the genetic nucleus farms. Investment was increased in growing the breadth and depth of our genomic testing of animals. We also continued expansion of our global product validation programme which delivered our first trials in Russia, China and Thailand in 2015. L I N K TO S T R AT E G Y C A S E S T U DY OPTIMISING CUSTOMERS’ BREEDING Selection indices help dairy farmers choose bull mates with the right genetic traits for their females. However, the common indices do not always reflect our customers’ breeding objectives. To address this, our geneticists have derived custom economic indices for our dairy key accounts. These indices include production, reproduction, health and fitness traits, with weightings tailored to customers’ specific needs and incorporating the cost of feed, labour and milk pricing. Customers receive a monetary ranking for their females and potential bull mates, allowing better selection and management strategies. This leads to higher profitability for customers and strengthens their relationship with us. Genus plc Annual Report 2015STRATEGICREPORTCORPORATE GOVERNANCEFINANCIALSTATEMENTSADDITIONALINFORMATION 36 Financial Review Genus delivered a strong performance in the year ended 30 June 2015, with adjusted profit before tax up 19% (up 23% in constant currency), cash conversion of over 100% and an improved return on adjusted capital invested of 21.2% (2014: 19.2%). Adjusted earnings per share were up 22% (26% in constant currency). 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 Basic earnings per share (p) Dividend per share (p) Actual currency Constant currency** 2015 £m 2014 £m Movement % Movement % 398.5 47.2 51.2 46.6 56.8 372.2 42.9 44.8 39.3 46.5 7 10 14 19 22 8 12 18 23 26 2015 £m 2014 £m Movement % 398.5 59.5 57.8 66.7 19.5 372.2 41.8 38.2 47.7 17.7 7 42 51 40 10 The effect of the stronger pound on the translation of our overseas profits reduced the Group’s adjusted profit before tax for the year by £1.7m or 4% compared with FY14. Unless stated otherwise, this financial review quotes constant currency growth rates, which better reflect the Group’s underlying performance. On a statutory basis, profit before tax was 51% higher and earnings per share were 40% higher in actual currency, primarily due to an increase in the value of our biological assets. However, we continue to use adjusted results as our primary measures of financial performance as they better reflect our underlying progress. * Adjusted results are before the movement in the net IAS 41 valuation of biological assets, amortisation of acquired intangible assets, share-based payment expense and exceptional items. Adjusted results are the measures used by the Board to monitor underlying performance. ** Constant currency percentage movements are calculated by restating FY15 results at the exchange rates applied in FY14. Exchange rates US Dollar/£ Euro/£ Brazilian Real/£ Mexican Peso/£ Average Closing 2015 1.57 1.32 4.26 22.68 2014 1.64 1.20 3.75 21.44 2015 1.57 1.41 4.89 24.68 2014 1.71 1.25 3.77 22.18 Genus plc Annual Report 2015 37 “ Adjusted operating profit including JVs was £51.2m (2014: £44.8m), up 18% in constant currency and 14% in actual currency.” Stephen Wilson Group Finance Director Adjusted profit before tax Genus PIC Genus ABS Genus Asia R&D Central Adjusted operating profit Attributable to non-controlling interest Share of JV profits* Adjusted operating profit inc JV Net finance costs Adjusted profit before tax 2015 £m 57.2 24.0 5.7 (28.6) (11.1) 47.2 (0.6) 4.6 51.2 (4.6) 46.6 Actual currency 2014 £m 49.9 24.3 6.8 (27.7) (10.4) 42.9 – 1.9 44.8 (5.5) 39.3 Constant currency Movement % Movement % 15 (1) (16) (3) (7) 10 – 142 14 16 19 13 2 (9) (1) (5) 12 – 174 18 18 23 * Excludes net IAS 41 valuation movement in biological assets and taxation. Revenue Revenue grew 8% (7% in actual currency) to £398.5m (2014: £372.2m), with Genus PIC growing at 15% helped by a full year of Génétiporc and a strong underlying performance. Genus ABS grew at 9%, while Asia declined 9% due to adverse market conditions in Russia. The rest of Asia, without Russia, grew 4%. Adjusted Operating Profit Including Joint Ventures Adjusted operating profit including JVs was £51.2m (2014: £44.8m), up 18% in constant currency and 14% in actual currency. Genus’s share of JV profits was higher at £4.6m (2014: £1.9m), helped by continuing strong growth at Agroceres PIC in Brazil and an improved performance by Besun in China, following the high start-up costs during the prior year. Genus PIC had a very strong year, with profits including JVs up 17%. Volume growth of 8% benefited from a full year of the Génétiporc acquisition, another strong year in Latin America and growth in royalty volumes in North America, following the PEDv outbreak in the prior year. Genus ABS grew volumes and revenues in all regions but operating profit was unchanged, with product costs across ABS impacted by the increased mix of sorted semen, higher royalty payments on certain leased genomic bulls and the depreciation of the Euro and Latin American currencies relative to the US Dollar, where most production costs are incurred. Profits in Genus Asia, including JVs, were unchanged. The Asia bovine business achieved high single digit growth, helped by China, where we continued to develop and strengthen our sales channels. The Asia porcine business achieved strong growth in PIC Philippines and costs were reduced in PIC China. However, these improvements were more than offset by declines in our Russia porcine business caused by adverse market conditions. R&D costs increased by 1%. Increases in key research investments, expansion of our beef and dairy nuclei and additional investments in product validation and genomic testing were largely offset by the benefit of strong by-product slaughter prices and early exit from the Génétiporc Quebec porcine nucleus. Performance by Species The table overleaf shows our global performance by species, after allocating product development costs specific to each species. Dairy and beef revenues grew 9% on volumes up by 6%, with growth strongest in Brazil and our European Distribution business and an improved mix towards the higher priced sorted semen, particularly in North America and Asia. Sales of semen from our global studs, which represent 77% of semen sales by volume, increased by 8%. Profits were stable, primarily due to increased ABS product costs. Porcine revenues grew by 9%, with royalty income up 15% to £77.1m. Volumes were up 6% (including Agroceres PIC, our JV in Brazil), mainly due to a strong product portfolio, a full year of the Génétiporc acquisition and strong performances across most regions. However, Russia and China volumes declined by double digits. Profits were up 22% on 2014, due to Latin America’s continued robust growth, the early completion of synergies from Génétiporc and a somewhat improved result in China as we reduced costs there. Genus plc Annual Report 2015STRATEGICREPORTCORPORATE GOVERNANCEFINANCIALSTATEMENTSADDITIONALINFORMATION 38 Financial Review continued Performance by species Revenue Dairy and beef Porcine R&D Adjusted operating profit inc JV Dairy and beef Porcine Central and research Actual currency 2014 £m Movement % Constant currency Movement % 171.8 184.9 15.5 372.2 15.7 43.1 (14.0) 44.8 7 9 (11) 7 (8) 22 (12) 14 9 9 (12) 8 0 22 (11) 18 2015 £m 183.4 201.3 13.8 398.5 14.5 52.4 (15.7) 51.2 Taxation The effective rate of tax for the year, based on adjusted profit before tax, was 26.0% (2014: 28.2%), with the decrease primarily due to the benefit of a full year of the UK finance company tax regime and favourable prior period adjustments. 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 the US, where the statutory tax rate is approximately 39%, and the impact of withholding taxes on the repatriation of funds to the UK. The tax rate on statutory profits was 29.9% (2014: 24.3%). In addition to the factors mentioned above, there was an unfavourable impact in the year due to the majority of the IAS 41 biological assets valuation movement having deferred tax applied at US rates. Earnings Per Share Adjusted basic earnings per share, including the benefit of the lower tax rate, increased by 22% to 56.8 pence (2014: 46.5 pence) and rose 26% in constant currency. Basic earnings per share on a statutory basis were 66.7 pence (2014: 47.7 pence), an increase of 40%. Finance Costs Net finance costs reduced by £0.9m to £4.6m (2014: £5.5m) and include IAS 19 pension interest of £2.3m (2014: £2.9m). Higher net borrowings following the acquisitions of Birchwood and IVB, and higher capital spending were offset by lower average interest rates, due to the renewal of US$60m of fixed interest rate cover at lower rates. Exceptional Items There was a £5.1m net exceptional expense in 2015 (2014: £2.0m expense), of which £1.4m was for acquisition and integration related expenses, primarily Birchwood and IVB, £2.8m was for ongoing legal fees in Genus ABS’s case against Sexing Technologies (see note 7), and £1.3m was for restructuring costs, with a £0.4m settlement gain related to the Milk Pension Fund. Statutory Profit Before Tax Operating profit on a statutory basis was £59.5m, (2014: £41.8m) while our statutory profit before tax was £57.8m (2014: £38.2m). The statutory results benefit from an increase of £24.9m (2014: £7.5m) in the net IAS 41 valuation of biological assets driven largely by the strength of the porcine business. Amortisation of acquired intangible assets and exceptional items increased following the Génétiporc, Birchwood and IVB acquisitions. The Board believes the volatile nature of these items, most of which are non-cash, is less representative of the Group’s underlying performance than adjusted measures. Biological Assets A feature of the Group’s net assets is its substantial investment in biological assets, which IAS 41 requires us to state at fair value. At 30 June 2015, the carrying value of biological assets was £315.9m (2014: £275.5m), as set out in the table opposite. The movement in the overall carrying value of biological assets, excluding the effect of exchange rate translation changes, includes: • a £20.4m increase in the carrying value of porcine biological assets, due principally to higher value animals, particularly boars, in the pure line herds as well as an increase in the number of animals sold on royalty contracts; and • a £4.5m increase in dairy and beef biological assets, arising from an increase in the number of beef bulls as well as an increased sales demand for beef units. The historical cost of these assets, less depreciation, was £34.1m at 30 June 2015 (2014: £36.2m), which is the basis used for the adjusted results. Retirement Benefit Obligations The Group’s retirement benefit obligations at 30 June 2015, calculated in accordance with IAS 19, were £63.1m (2014: £58.2m) before tax and £49.9m (2014: £46.1m) net of related deferred tax. The largest element of the liability relates to the multi-employer Milk Pension Fund, where we continue to account on the basis of Genus being responsible for 75% of the plan’s funding. During the year, contributions payable in respect of the Group’s defined benefit schemes amounted to £6.1m (2014: £5.6m). Cash Flow Cash generated by operations remained strong at £50.7m (2014: £44.3m). Conversion of adjusted operating profit into cash was 107% (2014: 103%) before capital expenditure, investments, interest, tax and dividends. Genus plc Annual Report 2015 39 “ The return on invested capital increased to 21.2% after tax (2014: 19.2%).” Biological assets Non-current assets Current assets Inventory Represented by: Porcine Dairy and beef Cash flow (before debt repayments) Cash generated by operations Interest, tax and dividends Investments Capital expenditure Other Adjusted operating profit Cash conversion 2015 £m 2014 £m 242.7 50.2 23.0 315.9 148.1 167.8 315.9 2015 £m 50.7 (27.0) (11.1) (14.8) 2.6 0.4 47.2 107% 208.9 44.1 22.5 275.5 124.4 151.1 275.5 2014 £m 44.3 (22.1) (34.1) (6.6) 0.5 (18.0) 42.9 103% This performance was generated by continued strong working capital management and the benefit of the exit from the Quebec nucleus. The cash outflow from investments was £11.1m, primarily from the acquisitions of Birchwood and IVB. This compares with £34.1m from the Génétiporc acquisition and Besun JV investment in 2014. The increase in capital expenditure of £8.2m to £14.8m (2014: £6.6m) included increased investment in GSS technology. The total cash inflow for the year after these investments, interest, tax and dividends was £0.4m (2014: outflow £18.0m). Net Debt While cash flow was positive, net debt increased from £63.9m to £71.8m at 30 June 2015, due to the impact of exchange movements, as our borrowings are denominated primarily in US Dollars. The Group’s financial position remains strong and there is substantial headroom of £51.1m under our borrowing facilities of £138.1m, which run to September 2017. Our borrowing ratios are strong. Interest cover was 31.9 times (2014: 20.6 times). The ratio of net debt to EBITDA, as calculated under our financing facilities, remained the same as the prior year at 1.2 times. Return on Invested Capital We measure our return on invested capital on the basis of adjusted operating profit including JVs after tax divided by the operating net assets of the business, stated on the basis of historical cost, excluding net debt and pension liability. This removes the impact of IAS 41 fair value accounting, the related deferred tax and goodwill. The return on invested capital increased to 21.2% after tax (2014: 19.2%). Dividend Reflecting the Board’s continuing confidence in the prospects for the Group, it is recommending to shareholders a final dividend of 13.4 pence per ordinary share, resulting in a total dividend for the year of 19.5 pence per ordinary share, an increase of 10% for the year. Dividend cover remains strong, with the dividend covered 2.9 times by adjusted earnings (2014: 2.6 times). Stephen Wilson Group Finance Director Genus plc Annual Report 2015STRATEGICREPORTCORPORATE GOVERNANCEFINANCIALSTATEMENTSADDITIONALINFORMATION ABS Chile – annual sales meeting and 10th anniversary celebrations in Torres del Paine, Patagonia, Chile. 40 People PROGRESS THROUGH PEOPLE Genus’s progress is driven by the dedication, determination and passion of our employees. They are talented professionals, committed to pursuing Genus’s goals while developing their careers. During the year, we continued to focus on performance management, talent and succession planning, while delivering leadership development and employee engagement initiatives. This creates a firm foundation for further success. Performance Management Enabling our people to understand how they are doing is vital for their personal development and our business performance. All our staff had performance reviews at the half and full year. We continued to improve the quality of objective setting and development planning. This included refresher training for our managers and supporting our people’s development plans with mentoring and coaching. Talent and Succession Planning We completed our third annual cycle of talent management, covering all our people managers and those with potential. All have clear development plans. New recruits and international appointments during the year. The benefits of our talent development were shown by the promotion of two scientists to lead the GSS project, and development of talented Latin American PIC key account leads into new roles in Mexico, the US and Spain. We also recruited high-calibre professionals, including Dr Dan Tucker (Global Adviser on PIC Health Assurance), Dr Uislei Orlando (PIC Global Director of Nutrition), Mark Birri (Strategy and Business Development Director) and Adam Schilffarth (Senior Engineering Director for Genus ABS). Training and Developing Our People We continue to invest in developing our people. One initiative included extending High Performing Teams, our successful management development programme, with two programmes in North America and three in Latin America. To complement our investment in employee communication, we trained 242 managers in communications skills. This helps them to inspire, challenge and support their teams. We also ran core training in health and safety, anti- bribery and corruption, and safe animal handling, and added seven modules to PIC’s Sales Academy, including PIC Product Differentiation, Farm Economics and Optimum Boar Life. Using Our Diversity We continued to add experience and to transfer knowledge around the Group, through international appointments and recruitment. For example, in PIC, Jürgen Kramer and Wilson Pineda moved from their roles in the US and Mexico to become Regional Director and Commercial Manager respectively for PIC Europe based in Spain. We also recruited two PhD geneticists into our PIC China team. In ABS, Jesus Martinez, Global Director of Business Development, supported our Asia ABS business, particularly China. Pierpaolo Dordoni (General Manager of ABS Italia) supported our ABS Russia business and Arun Baral joined us to head up our Genus ABS Asia business. Genus plc Annual Report 2015 Genus takes diversity seriously. We appoint the best people to do the job, with a focus on talent right across the leadership team. During the year, we recruited more senior women, including a senior IP counsel and a Global ABS Marketing Director. The table below shows our gender diversity across the business. Engaging Our People Employee feedback showed they wanted more information about the business, so we invested in internal communications in 2014/15. This included a quarterly staff update, manager briefing packs to support local communication, quarterly calls with GELT for senior managers, and ‘Ask The Expert’ webinars for all staff, to share knowledge and experience. We ran a short staff survey in November 2014, covering 35% of our people. This showed a double- digit increase (to 81%) in employees feeling they are regularly told about business performance and plans, while the proportion of employees who understand our strategy rose from 80% to 87%. See page 45 for full results. Human Rights We are committed to protecting the human rights of our employees and the people who come into contact with our business. During the year, we continued to comply with our human rights policy. Our Plans for FY16 In the coming year we will continue our leadership education, running our Advanced Leadership Programme and three High Performing Teams programmes, including our first in Asia. We are planning a further seven modules for the PIC Sales Academy and will develop an ABS Sales Academy, to provide training in areas such as sales and genetics. We will enhance our recruitment processes, introducing a new website and online recruitment, and continue to run our intern programme in Europe, the US and China. Engagement remains high on the agenda: a Global Leaders Conference was held in July 2015, a full staff survey is due to be carried out in November 2015, and an update for all our staff three years on from introducing our strategy will take place. We will also upgrade our intranet, to further improve communication. 41 Senior leaders at our Advanced Leadership Programmes held in Shanghai, Barcelona and Nashville. C A S E S T U DY ADVANCED LEADERSHIP PROGRAMME Our Advanced Leadership Programme is our first-ever programme for senior leaders. It explores how Genus can work profitably with customers, accelerate our strategy, enhance employee engagement and maintain a culture of innovation. We ran three programmes during the year, in Nashville, Barcelona and Shanghai, with 56 attendees. Members of the ABS and PIC Russian team. Work levels Board Directors GELT Number of employees at 30 June 2015 Male Female Total % Female 7 6 0 2 7 8 – 25 29 Other employees 1,885 775 2,660 Genus plc Annual Report 2015STRATEGICREPORTCORPORATE GOVERNANCEFINANCIALSTATEMENTSADDITIONALINFORMATION 42 Corporate Social Responsibility DELIVERING RESULTS RESPONSIBLY “ Corporate social responsibility is not optional for Genus. It is integral to the way we run the business and to every part of our strategy.” Catherine Glickman Chair of CSR Committee and Group HR Director Food Quality and Abundance Operate Safely Environment Employees Community Animal Welfare ‘Pioneering animal genetic improvement to help nourish the world’ – words we chose carefully to describe our contribution to society. We believe that our genetics support countries’ health, by helping to increase sustainable animal protein production, for people to eat as part of a nutritious diet. The Committee meets four times a year and reports to GELT in May and the Board in June. Its members include our in-house experts on animal welfare, employees, environment and safety, who were already leading programmes within the business. Leading the CSR Agenda Our CSR Committee established our vision for CSR, which is to ensure that Genus continues to act in a socially responsible, ethical and compliant manner, adopting the highest levels of ethical oversight for the benefit of all our stakeholders. The Committee defines our Group-wide CSR strategy, reviews our policies and practices, monitors external developments, and advises GELT and the Board about CSR matters. It recommends annual goals and initiatives, and identifies the key performance indicators for monitoring and reporting our performance. This year, the Committee has ensured the Group has maintained its focus on achieving its CSR objectives and continued to raise the profile of CSR within the business. Each Committee member has personally led an initiative within the CSR strategy. We have also agreed to increase the areas of activity covered by our CSR strategy, by focusing on our work to extend access to high-quality genetics under a new area – Food Quality and Abundance. This involves working with our customers to contribute to producing more abundant, sustainable and affordable protein. More details can be found on pages 44 to 47. Genus plc Board GELT CSR Committee Animal Welfare Committee We are passionate about protecting the welfare of our animals and operate a policy of zero tolerance of animal mistreatment. We have an Animal Welfare Committee, reporting to the CSR Committee, chaired by Dr Bill Christianson, Chief Operating Officer of Genus PIC. The Committee oversees our animal welfare policies, practices and training. Genus plc Annual Report 2015 Setting Standards – Our CSR Framework From 2015, our approach to CSR falls into six key areas, which are shown in the table below. We aim to be standard setters in each of these areas. Our objectives and performance are set out on pages 44 to 47. CSR is integral to each of the four elements of our business strategy. Achieving our CSR objectives therefore underpins the way in which we implement our strategy. How our CSR strategy and business strategy are intertwined CSR objectives Strategy 43 Increasing Genetic Control and Product Differentiation Targeting Key Markets and Segments Tailoring the Business Model Strengthening Core Competencies Operate Safely – Ensuring a safe working environment for our colleagues Employees – Being a good employer, providing satisfying careers, development and reward Animal Welfare – Continually improving animal welfare, through proven science-based initiatives Community – Being a responsible corporate citizen, within our communities Environment – Reducing the environmental impact of protein production Food Quality and Abundance – Providing expertise and products that increase the production of high-quality protein Greenhouse Gas (‘GHG’) Reporting Our GHG emissions are primarily methane produced by our animals and carbon dioxide (‘CO2’) from consuming fuel and other materials, and transport. Our primary intensity ratio is based on animal weight, which is a key driver of our GHG emissions. Our secondary intensity ratio is based on turnover. Total emissions and animal weight reduced by 13,800 tonnes of CO2 equivalent (‘CO2e’) and 1,300 tonnes respectively, driven by a 34,000 reduction in pig numbers, mainly due to exiting the Génétiporc Quebec porcine nucleus. Our primary and secondary ratios have decreased, with the decrease in the secondary ratio due to growth in porcine royalty. This has no corresponding impact on emissions, as we do not own animals sold on a royalty basis. Our reporting approach We use operational control as our reporting approach. We have determined and reported the emissions we are responsible for within this boundary and believe there are no material omissions. GHG data is therefore reported for assets, which are mainly rented or leased, that are otherwise not referred to elsewhere in the financial statements. We omitted JVs and some livestock held at third-parties due to our limited authority to introduce and implement operating policies. 2015 Tonnes of CO2e 2014 Tonnes of CO2e GHG Emissions for 2015 % Emissions from Scope 1 – combustion of fuel and livestock emissions Scope 2 – electricity, steam, heat and cooling purchased Total scope 1 & 2 Scope 3 – material usage and waste, third-party distribution and business travel Total emissions Primary intensity measure – Animal weight (tonne) Secondary intensity measure – Turnover (£m) Intensity ratio – Scope 1 & 2 (tCO2e/tonne animal weight) Intensity ratio – Scope 1, 2 & 3 (tCO2e/£m turnover) 68,562 22,569 91,131 83,409 23,449 106,858 21,160 19,218 112,291 126,076 12,723 398.5 7.16 282 14,030 372.2 7.62 339 Annual emissions figures have been calculated based on actual ten-month data for July to April extrapolated to full year. 14 13 73 From livestock From third-party distribution and business travel From other activities Assessment methodology World Resources Institute/World Business Council for Sustainable Development. ‘The Greenhouse Gas Protocol: A Corporate Accounting and Reporting Standard’ Defra ‘Guidance on how to measure and report your greenhouse gas emissions’ Defra ‘Environmental Reporting Guidelines: Including mandatory greenhouse gas emissions reporting guidance’ Emissions factor data source IPCC ‘Guidelines for National Greenhouse Gas Inventories’ Defra/DECC ‘Conversion Factors for Company Reporting’ Genus plc Annual Report 2015STRATEGICREPORTCORPORATE GOVERNANCEFINANCIALSTATEMENTSADDITIONALINFORMATION 44 Corporate Social Responsibility continued Our Corporate Social Responsibility Plans What we do Why are we doing it What we said we would do What we did What we plan to do next Case Study Operate Safely We have a duty to keep our employees and animals safe. This means ensuring we maintain our estate, and integrate health and safety into our daily operations, led by senior management. • Audit every Genus-owned property and complete any corrective action within six months. • Ensure at least 90% of staff complete at least one health and safety training session. • Reduce the number of reportable incidents on Genus-owned property by 20%. • Ensure every manager meets their teams once during the year, to discuss how to improve safety. • Audited our estate of 109 sites • Ensure at least 90% of staff and completed 97% of actions within the six-month deadline with the balance due to be completed by September 2015. • 97% of staff completed at least one training session on safety. • Reduced the number of reportable incidents on Genus property by 29%. • 91% of managers led a discussion complete health and safety training tailored to their role. • Comprehensive reporting in every business and region, reviewed quarterly by the Chief Operating Officers. • Maintain the reduction in incidents on owned premises and develop ways to reduce animal-related incidents on non-owned premises. with their staff during the year. • Identify opportunities for improvement, through monthly incident reviews by management. • Carried out a global staff survey • Conduct the second all-staff survey, Staff survey results 2015 2014 Employees We work to attract, retain and motivate highly qualified and committed staff. We explain what we want them to deliver and regularly train them. We listen to their feedback and act on it. Animal Welfare Animals are our business. We work to world-class, science- based and proven standards of animal husbandry, and have zero tolerance for mistreatment. • Listen to what staff think, through a short global survey. • Ensure that every member of staff has clear objectives, a career discussion and a personal development plan. • Continue to develop our staff, delivering operational, management, leadership, communication skills and anti- bribery training. • Continue to provide interesting and secure work within local communities. • Continue with Pork Quality Assurance (‘PQA’) training in all Genus PIC owned farms. • Develop a questionnaire for use in Genus ABS’s animal welfare audits. • Complete animal welfare audits of ABS Genus’s main export centres in the UK, Canada, Brazil and US. • Expand the tree planting programme at our Uberaba stud in Brazil, to provide essential shade for our bulls. in November 2014. Four measures improved and two stayed flat. • All staff had objectives, a mid-year and full year review. • 56 managers attended the Advanced Leadership Programme: 101 attended ‘High Performing Teams’; 245 attended communication skills training, and 407 modules have been completed through the PIC Sales Academy. (See People section on pages 40 and 41.) • Maintained stable work for staff during the year, including redeployment where business operations changed. maintaining or improving results, with a focus on safety at work and acting on feedback received. • Continue the investment in development and training: this will include 95%+ of staff completing Anti-bribery and Corruption training and knowing how to report non- compliance. • Continue to provide opportunities for those developing a career in agriculture through our internship programme. • Completed 24 PQA sessions • Continue our annual programme of within PIC. PQA training. • Developed a bespoke audit • Ensure 95%+ of staff complete framework for ABS and began using it in our main export Animal Welfare training. • Enhance the bulls’ well-being as centres. • Completed audits at our studs in the UK, Canada, US and Brazil. • Planted 300 trees at Uberaba. ruminants: ABS owned studs will feed a higher volume, lower energy content diet, and longer particle length to enhance cud chewing. • Continue the animal welfare audits at our four studs and extend to our JV stud in India once operational. • Upgrade the Genus PIC Aurora site, our genetic nucleus in Canada. Liquid nitrogen (‘LN2’) plays a key part in storing bull semen. However, LN2 boils at -196°C, so even fleeting contact can permanently damage skin and soft tissues. In addition, one litre of LN2 can create 700 litres of gas, posing an asphyxiation risk. We have introduced measures to control the risks. For example, in the UK we have worked with our transport supplier to modify its vans, keeping LN2 storage separate from the driver’s compartment. I understand the Genus business strategy 87% 80% I am regularly told how the business is performing and its future plans 81% 70% My manager sets clear expectations of what has to be achieved in my job 84% 79% Genus actively listens to customers so we can improve our ability to meet their needs 70% 71% I enjoy working at Genus 89% 84% I feel that changes have been made based on my feedback in the last year 44% 42% We use training from Pork Quality Assurance Plus (‘PQA+’) and standards set by National Pork Board in the US as templates for our global annual swine care training programme. In 2014/15, we delivered 24 PQA sessions globally, ensuring all our staff are trained to a consistent standard. We train and certify new staff as they work with us, with existing staff completing refresher sessions during the year. Genus plc Annual Report 2015 45 What we do Why are we doing it What we said we would do What we did What we plan to do next Case Study Operate Safely We have a duty to keep our employees and animals safe. This means ensuring we maintain our estate, and integrate health and safety into our daily operations, led by senior management. • Audit every Genus-owned property and complete any corrective action within six months. • Ensure at least 90% of staff complete at least one health and safety training session. • Reduce the number of reportable incidents on Genus-owned property by 20%. • Ensure every manager meets their teams once during the year, to discuss how to improve safety. • Audited our estate of 109 sites and completed 97% of actions within the six-month deadline with the balance due to be completed by September 2015. • 97% of staff completed at least one training session on safety. • Reduced the number of reportable incidents on Genus property by 29%. • 91% of managers led a discussion with their staff during the year. • Ensure at least 90% of staff complete health and safety training tailored to their role. • Comprehensive reporting in every business and region, reviewed quarterly by the Chief Operating Officers. • Maintain the reduction in incidents on owned premises and develop ways to reduce animal-related incidents on non-owned premises. • Identify opportunities for improvement, through monthly incident reviews by management. Employees committed staff. We explain what • Ensure that every member of staff We work to attract, retain and motivate highly qualified and we want them to deliver and regularly train them. We listen to their feedback and act on it. short global survey. has clear objectives, a career discussion and a personal development plan. • Continue to develop our staff, delivering operational, management, leadership, communication skills and anti- bribery training. • Continue to provide interesting and secure work within local communities. • Listen to what staff think, through a • Carried out a global staff survey in November 2014. Four measures improved and two stayed flat. • All staff had objectives, a mid-year and full year review. • 56 managers attended the Advanced Leadership Programme: 101 attended ‘High Performing Teams’; 245 attended communication skills training, and 407 modules have been completed through the PIC Sales Academy. (See People section on pages 40 and 41.) • Maintained stable work for staff during the year, including redeployment where business operations changed. • Conduct the second all-staff survey, maintaining or improving results, with a focus on safety at work and acting on feedback received. • Continue the investment in development and training: this will include 95%+ of staff completing Anti-bribery and Corruption training and knowing how to report non- compliance. • Continue to provide opportunities for those developing a career in agriculture through our internship programme. Animal Welfare Animals are our business. We work to world-class, science- based and proven standards of animal husbandry, and have zero tolerance for mistreatment. • Continue with Pork Quality Assurance (‘PQA’) training in all Genus PIC owned farms. • Develop a questionnaire for use in Genus ABS’s animal welfare audits. • Complete animal welfare audits of ABS Genus’s main export centres in the UK, Canada, Brazil and US. • Expand the tree planting programme at our Uberaba stud in Brazil, to provide essential shade for our bulls. • Completed 24 PQA sessions • Continue our annual programme of within PIC. PQA training. • Developed a bespoke audit • Ensure 95%+ of staff complete framework for ABS and began using it in our main export centres. • Completed audits at our studs in the UK, Canada, US and Brazil. • Planted 300 trees at Uberaba. Animal Welfare training. • Enhance the bulls’ well-being as ruminants: ABS owned studs will feed a higher volume, lower energy content diet, and longer particle length to enhance cud chewing. • Continue the animal welfare audits at our four studs and extend to our JV stud in India once operational. • Upgrade the Genus PIC Aurora site, our genetic nucleus in Canada. Liquid nitrogen (‘LN2’) plays a key part in storing bull semen. However, LN2 boils at -196°C, so even fleeting contact can permanently damage skin and soft tissues. In addition, one litre of LN2 can create 700 litres of gas, posing an asphyxiation risk. We have introduced measures to control the risks. For example, in the UK we have worked with our transport supplier to modify its vans, keeping LN2 storage separate from the driver’s compartment. Staff survey results 2015 2014 I understand the Genus business strategy 87% 80% I am regularly told how the business is performing and its future plans 81% 70% My manager sets clear expectations of what has to be achieved in my job 84% 79% Genus actively listens to customers so we can improve our ability to meet their needs 70% 71% I enjoy working at Genus 89% 84% I feel that changes have been made based on my feedback in the last year 44% 42% We use training from Pork Quality Assurance Plus (‘PQA+’) and standards set by National Pork Board in the US as templates for our global annual swine care training programme. In 2014/15, we delivered 24 PQA sessions globally, ensuring all our staff are trained to a consistent standard. We train and certify new staff as they work with us, with existing staff completing refresher sessions during the year. Genus plc Annual Report 2015STRATEGICREPORTCORPORATE GOVERNANCEFINANCIALSTATEMENTSADDITIONALINFORMATION 46 Corporate Social Responsibility continued Our Corporate Social Responsibility Plans What we do Why are we doing it What we said we would do What we did What we plan to do next Case Study Community We work to share opportunities with local communities to develop agricultural careers and provide support to charities that work with our species, to build knowledge and expertise. Environment We are committed to reducing the environmental impact of our work. • Continue to support those who work for and with us, by providing practical help and resources for people who are affected by natural or other disasters. • Support investment in agricultural education and science, to build animal agricultural capacity within our industry. In 2014/15, we will develop the approach in our US and European businesses. • Support charities that sponsor agricultural initiatives globally, to build knowledge and understanding of animal husbandry, self sufficiency through livestock and good farming practice. • Continue to recruit into our farms from our local communities, providing valuable jobs, training and income for those that work with us. • Continue annual independent audits of Genus PIC’s waste management systems, covering at least 80% of our owned animals. • Produce more home-grown feed for Genus ABS’s bulls, to reduce reliance on purchased feed, reduce emissions from transporting feed and improve biosecurity. • Explore opportunities to recycle the manure produced by Genus ABS’s bulls, both on crop land producing our feed and by converting it to heat or electricity, for example by using a furnace-type recycler. Food Quality and Abundance Working with our customers, we contribute to producing more abundant, sustainable, safe and affordable protein, as part of a nutritious diet. • New for 2015. • New for 2015. • Using residual funds from our • Continue to respond to crises that Philippines Haiyan appeal, bought equipment for a school on one of the remote islands. • Offered 21 internships for undergraduates and postgraduates in the UK, US, Canada and China. affect those who work with us providing practical support. • Send a Cow – continue the fund raising led by the ABS EMEA team sharing skills, fund raising and matching customer donations. • Continue our programme of • Supported Send a Cow (see case recruitment into our farms from • Recruited and trained 151 staff in study). our farms. local communities providing valuable jobs and training. • Audited 83% of animals in our owned sites. • Continue Genus PIC’s external audits, to cover at least 80% of • Installed an irrigation pivot animals on owned sites. system on a 160-acre square field at Dekorra, enabling us to ‘double crop’ in 2014, with hay and late season corn. • Recycled manure in exchange for • Improve food conversion efficiency by 0.02kg of feed per kg of pork produced averaged over a rolling 3 year period: this genetic trend will be measured across the PIC pure straw at Whenby, UK – see case populations. study. • Upgrade the Genus ABS production Send a Cow helps poor dairy farmers in Africa by sharing knowledge and providing practical farming advice and emotional support. Every farmer helped pledges to ‘pass on’ the gift, by donating one of the cow’s offspring to another family. Research shows that for every person they help, ten more go on to benefit. Staff in our ABS EMEA region have supported the charity by sharing their skills, fund raising and matching customer donations. To date we have raised equivalent funds to send 41 cows to Africa. estate, working with the Future Farmers of America and a local school to landscape our Dekorra site with over 300 trees, and reducing light impact on our neighbours. We house 300 bulls at Whenby Lodge in the UK. Since 2011, we have developed a unique agreement with neighbouring arable farmers David and Tom Unsworth. In 2014/15, we exchanged 3,000 tonnes of manure for nearly 1,600 tonnes of high-quality straw for feed and bedding – keeping our bulls happy and protecting us from volatility in straw prices. • Accelerate the rate of genetic improvement, using relationship- based genomic selection to produce high productivity, high health pigs. • Increase commercial level merit, by reducing lag in the PIC supply chain. 100 150 PIC genetic index • Improve milk production and herd sustainability using genetic audits, GMS and Net Profit Genetics. • Introduce high-quality dairy genetics into India, developing a genomic market, and China, enabling access for milk producers who want to use high-quality genetics. D e c-14 J u n-14 D e c-13 J u n-13 D e c-12 J u n-12 D e c-11 In 2012, PIC introduced relationship-based genomic selection to help us select and breed the best animals to drive genetic improvement. The result has been a step change in performance, giving us differentiated and proprietary products which will benefit customers in the coming years. Having implemented the technology in PIC, we are now sharing it across the Group. Genus plc Annual Report 2015 47 What we do Why are we doing it What we said we would do What we did What we plan to do next Case Study Community We work to share opportunities • Continue to support those who with local communities to develop agricultural careers and provide support to charities that work with our species, to build knowledge and expertise. • Using residual funds from our Philippines Haiyan appeal, bought equipment for a school on one of the remote islands. • Offered 21 internships for undergraduates and postgraduates in the UK, US, Canada and China. • Supported Send a Cow (see case study). • Recruited and trained 151 staff in our farms. • Continue to respond to crises that affect those who work with us providing practical support. • Send a Cow – continue the fund raising led by the ABS EMEA team sharing skills, fund raising and matching customer donations. • Continue our programme of recruitment into our farms from local communities providing valuable jobs and training. Environment We are committed to reducing the environmental impact of our work. Send a Cow helps poor dairy farmers in Africa by sharing knowledge and providing practical farming advice and emotional support. Every farmer helped pledges to ‘pass on’ the gift, by donating one of the cow’s offspring to another family. Research shows that for every person they help, ten more go on to benefit. Staff in our ABS EMEA region have supported the charity by sharing their skills, fund raising and matching customer donations. To date we have raised equivalent funds to send 41 cows to Africa. • Audited 83% of animals in our owned sites. • Installed an irrigation pivot system on a 160-acre square field at Dekorra, enabling us to ‘double crop’ in 2014, with hay and late season corn. • Recycled manure in exchange for straw at Whenby, UK – see case study. • Continue Genus PIC’s external audits, to cover at least 80% of animals on owned sites. • Improve food conversion efficiency by 0.02kg of feed per kg of pork produced averaged over a rolling 3 year period: this genetic trend will be measured across the PIC pure populations. • Upgrade the Genus ABS production Food Quality and Abundance Working with our customers, we contribute to producing more abundant, sustainable, safe and affordable protein, as part of a nutritious diet. • New for 2015. • New for 2015. estate, working with the Future Farmers of America and a local school to landscape our Dekorra site with over 300 trees, and reducing light impact on our neighbours. We house 300 bulls at Whenby Lodge in the UK. Since 2011, we have developed a unique agreement with neighbouring arable farmers David and Tom Unsworth. In 2014/15, we exchanged 3,000 tonnes of manure for nearly 1,600 tonnes of high-quality straw for feed and bedding – keeping our bulls happy and protecting us from volatility in straw prices. • Accelerate the rate of genetic improvement, using relationship- based genomic selection to produce high productivity, high health pigs. • Increase commercial level merit, by reducing lag in the PIC supply chain. 100 150 PIC genetic index • Improve milk production and herd sustainability using genetic audits, GMS and Net Profit Genetics. • Introduce high-quality dairy genetics into India, developing a genomic market, and China, enabling access for milk producers who want to use high-quality genetics. D e c-14 J u n-14 D e c-13 J u n-13 D e c-12 J u n-12 D e c-11 In 2012, PIC introduced relationship-based genomic selection to help us select and breed the best animals to drive genetic improvement. The result has been a step change in performance, giving us differentiated and proprietary products which will benefit customers in the coming years. Having implemented the technology in PIC, we are now sharing it across the Group. work for and with us, by providing practical help and resources for people who are affected by natural or other disasters. • Support investment in agricultural education and science, to build animal agricultural capacity within our industry. In 2014/15, we will develop the approach in our US and European businesses. • Support charities that sponsor agricultural initiatives globally, to build knowledge and understanding of animal husbandry, self sufficiency through livestock and good farming practice. • Continue to recruit into our farms from our local communities, providing valuable jobs, training and income for those that work with us. • Continue annual independent audits of Genus PIC’s waste management systems, covering at least 80% of our owned animals. • Produce more home-grown feed for Genus ABS’s bulls, to reduce reliance on purchased feed, reduce emissions from transporting feed and improve biosecurity. • Explore opportunities to recycle the manure produced by Genus ABS’s bulls, both on crop land producing our feed and by converting it to heat or electricity, for example by using a furnace-type recycler. Genus plc Annual Report 2015STRATEGICREPORTCORPORATE GOVERNANCEFINANCIALSTATEMENTSADDITIONALINFORMATION 48 Letter from the Chairman A STRONG BUSINESS REQUIRES STRONG GOVERNANCE “The Board is committed to further enhancing Genus’s corporate governance. This will facilitate our ability to drive genetic improvement faster and more effectively, and to capture the value we deliver to customers, so we can in turn create value for shareholders.” Genus plc Annual Report 2015 49 Dear Shareholder Strong corporate governance is critical for the Group’s long-term success. The way the Board carries out its responsibilities – from approving strategy to overseeing risk management – has a profound effect on the Group’s future and the interests of our stakeholders. The quality of our corporate governance ultimately determines our ability to serve our customers, create rewarding jobs for employees, support our suppliers and communities, and deliver growth and returns to shareholders. We therefore regularly evaluate our corporate governance and the Board’s performance, to ensure it provides the direction Genus needs to succeed. We also remain supportive of the UK Corporate Governance Code and its principles-based approach. Genus complied with all the provisions of its 2012 edition, which was the applicable standard for this financial year. A Strengthened Board There were two changes to the Board this year. Lykele van der Broek joined us as a Non-Executive Director on 1 July 2014, bringing with him significant international experience of agricultural markets. Professor Barry Furr retired at the Annual General Meeting (‘AGM’) in November 2014. We were greatly saddened by Barry’s death in early 2015 and are grateful for his immense contribution to the Company during his eight years on the Board. Professor Duncan Maskell has taken on Barry’s role as adviser to our R&D Portfolio Management Team, having joined us in April 2014. Both Duncan and Lykele have actively engaged with the Company through their inductions, and provided fresh insight and new perspectives to the Board’s discussions. Combined with the deep knowledge and experience of our longer-serving Non-Executive Directors, this gives us a Board that has a well-balanced array of skills and is well-attuned to the Group’s requirements. Evaluating the Board’s Effectiveness This was the third year of our Board evaluation cycle. We therefore carried out an internal evaluation, using questionnaires, followed by telephone conversations between me and individual Directors and by Board discussions, to drill down into particular issues that arose in the questionnaires and individual discussions. The evaluation confirmed that the Board continues to function effectively, with an open and candid culture, and positive engagement from Board members with wide-ranging but complementary skills. More information on the evaluation can be found on page 57. We take diversity seriously and the Board continues to bear in mind Lord Davies’ recommendations about gender diversity. Our policy is to recruit the right people based on merit, so that the Board has the diversity of skills and experience it needs. In this regard, our recruitment of Duncan and Lykele in the last 18 months has expanded the Board’s diversity by increasing our scientific and international experience. Summary The Board is committed to further enhancing Genus’s corporate governance. This will facilitate our ability to drive genetic improvement faster and more effectively, and to capture the value we deliver to customers, so we can in turn create value for shareholders. Bob Lawson Chairman 7 September 2015 Genus plc Annual Report 2015STRATEGICREPORTCORPORATE GOVERNANCEFINANCIALSTATEMENTSADDITIONALINFORMATION 50 Board of Directors and Company Secretary 1 3 2 4 6 8 5 7 Genus plc Annual Report 2015 51 3 Stephen Wilson Group Finance Director Board appointment January 2013 Stephen was previously Executive Vice President and Chief Financial Officer of Misys plc. Prior to Misys, he spent 25 years at IBM, where he worked in all areas of finance and led business development and change programmes. Stephen has worked in France and the US and has wide- ranging experience of mergers and acquisitions, financing, strategy and investor relations. He is a Fellow of the Chartered Institute of Management Accountants and a Non-Executive Director of Xchanging plc, where he chairs the Audit Committee. He holds a degree in Mathematics from the University of Cambridge. 4 Nigel Turner ܸ Senior Non-Executive Director Remuneration Committee Chair Board appointment January 2008 Nigel is a Non-Executive Director of Croda plc. He was Chairman of Numis Securities Ltd and Deputy Chairman of Numis Corporation plc from December 2005 to November 2007. Previously he was Vice Chairman of ABN AMRO’s Wholesale and Investment Bank, having joined in 2000 from Lazard, where he was a Partner for 15 years and also sat on its Supervisory Board. Nigel has substantial experience of international business and corporate finance. 5 Mike Buzzacott ܸ Non-Executive Director Audit Committee Chair Board appointment May 2009 Mike is a Non-Executive Director of Scapa Plc. He is a qualified accountant and spent 34 years at BP, holding international roles including Finance and Control Director Asia Pacific, CFO BP Nutrition and Group Vice President Petrochemicals. He is a former Non-Executive Director of Croda plc and Rexam plc and was Chairman of Biofuels plc. His roles have given him extensive experience of working in Asian and European markets, and of dealing with acquisitions, mergers and divestments. 6 Professor Duncan Maskell ܸ Non-Executive Director Board appointment April 2014 Duncan is Senior Pro-Vice Chancellor (‘PVC’) of the University of Cambridge, where he and other PVCs are responsible for taking forward the University’s strategy and policy development. He was previously Head of the School of the Biological Sciences at the University where he led researchers working on infectious diseases of livestock and people. He has worked on vaccines at Wellcome Biotech and on bacteria that cause childhood meningitis at the Institute of Molecular Medicine, University of Oxford. Duncan has been instrumental in co-founding several biotech companies. He has extensive experience of commercialising science and innovation, and of being a scientific adviser to companies, using his broad perspective on life sciences. 7 Lykele van der Broek ܸ Non-Executive Director Board appointment July 2014 Lykele retired as a member of the Executive Committee of Bayer CropScience, a division of Bayer AG, on 31 July 2014. Prior to this he held senior international roles, including Head of the Bayer CropScience BioScience division and President of the Bayer HealthCare Animal Health division. He has a Master of Science degree from the Agricultural University in Wageningen, the Netherlands. Lykele has vast experience of growing companies and of working in agricultural businesses in Asia, Europe and Latin America. 8 Dan Hartley Group General Counsel and Company Secretary Appointment June 2014 Dan joined Genus from Shire plc, where he was Senior Vice President and International Counsel. An Australian and UK dual national, Dan holds degrees in science and law. After a number of years in private practice, Dan joined Shire in 2002 and worked in increasingly senior and global roles in the UK and US. He has significant experience in multi-jurisdictional patent litigation, mergers and acquisitions, patent licensing and managing product life cycles in complex areas. 1 Bob Lawson Ü Non-Executive Chairman Nomination Committee Chair Board appointment November 2010 Bob’s executive career spanned several UK and continental groups, including ten years as Chief Executive of Electrocomponents plc and three years as Managing Director of Vitec Group plc. He has experience of leading international businesses, including through operational and culture changes, and a deep understanding of listed companies and corporate governance. He was appointed Non-Executive Chairman of Eurocell plc in January 2015 and is Chairman of the Federation of Groundwork Trusts. Bob retired as Non-Executive Chairman of Barratt Developments plc in November 2014. 2 Karim Bitar Chief Executive Board appointment September 2011 Prior to joining Genus, Karim worked for more than 15 years for Eli Lilly and Company, where he was President of Lilly Europe, Canada and Australia. An ex-McKinsey and Company consultant, he also held management roles at Johnson and Johnson, and the Dow Chemical Company. Karim has extensive experience of leading international, science-based organisations. His strategic review of Genus in 2012 resulted in a new vision, strategy, structure and core values. He has a BSc in Biochemistry from the University of Wisconsin and an MBA from the University of Michigan. Member of Nomination Committee Ü Member of Remuneration Committee ¸ Member of Audit Committee Genus plc Annual Report 2015STRATEGICREPORTCORPORATE GOVERNANCEFINANCIALSTATEMENTSADDITIONALINFORMATION 52 Genus Executive Leadership Team (‘GELT’) 1 3 2 4 6 8 5 7 Genus plc Annual Report 2015 GELT’s Responsibilities GELT leads our strategic planning and delivery and demonstrates the values at the heart of our business. Our vision and values are fully embedded in the business, giving the entire Genus team a clear and compelling culture, purpose and direction. GELT also 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. To achieve its objectives, GELT focuses on the following areas: • corporate strategy – implementing the strategy approved by the Board to achieve sustained growth, and developing Genus as a science and intellectual property based company; • performance management – driving operational results and delivery of corporate goals; 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 managing succession and nurturing talent to bring through the next generation of leaders; and • resources management – judiciously investing in the business for both organic and inorganic growth, including capital expenditure and human resources. GELT’s members are set out on this page. The executives are maturing into a high-functioning, high-performing team, combining professional expertise with commercial acumen to deliver the shared strategy for the Group. 1 Karim Bitar Chief Executive 2 Stephen Wilson Group Finance Director 3 Dan Hartley Group General Counsel and Company Secretary See page 51 for Karim’s, Stephen’s and Dan’s biographies. 4 Bill Christianson Chief Operating Officer, Genus PIC Bill joined Genus in 1993 in research, then moved into operations across Europe. He returned to the US in 1998, taking on increasingly senior roles. He was appointed General Manager of PIC North America in 2007 and from 2010 led the combined PIC and ABS businesses across the Americas. He became PIC’s Chief Operating Officer in 2012. Bill has a unique combination of deep domain knowledge of the porcine industry and extensive commercial and global experience. He has doctorates (DVM and PhD) in Veterinary Medicine from the University of Minnesota. 5 Saskia Korink Romani Chief Operating Officer, Genus ABS Saskia became Chief Operating Officer of Genus ABS in January 2014, having joined Genus in 2013 as Chief Marketing Officer. Prior to Genus, she worked for Cargill Inc and was its first female business unit manager and ultimately Vice President of Marketing for its animal nutrition business. Saskia has wide international experience, having worked in Europe, Brazil and the US. She also has highly developed strategic and business development skills, from seven years with Boston Consulting Group. Multi-lingual, she is originally a physicist and has an MBA from Columbia Business School. 53 6 Jerry Thompson Chief Operating Officer, Genus Asia Jerry has worked for PIC and subsequently Genus for more than 20 years. After two years on the graduate programme in the UK, he took roles in Siberia and Romania, before being promoted to head up PIC in Central and Eastern Europe. In 2008, Jerry was appointed Regional Director for PIC Europe. He moved to Shanghai in 2010, as Regional Director for PIC and ABS in Russia and the Asia Pacific Region. In July 2012, he was promoted onto GELT as Chief Operating Officer for Asia. Jerry is a natural entrepreneur and has a deep operational knowledge of the PIC business and emerging markets. 7 Dr Jonathan Lightner Chief R&D and Scientific Officer Jonathan is a world-renowned quantitative molecular geneticist, whose career has encompassed R&D, regulatory and commercial activities. He joined us in 2013 from Pioneer Hi-bred International Inc, a DuPont business, where he led a global team focused on genetic solutions to enhance agricultural productivity. He has been issued over 40 patents in key areas related to crop improvement. He obtained his Doctorate in Plant Physiology at the Institute of Biological Chemistry at Washington State University in 1994. He also holds a Masters in Systems Engineering from Iowa State (2009) and an MBA from the University of Iowa (2009). 8 Catherine Glickman Group Human Resources Director Catherine joined Genus in 2012. She worked for Tesco plc for 20 years, where she was Group HR Director from 2008 to 2011, focusing on talent, succession and leadership development. She held HR Director roles supporting Tesco’s international roll-out and a period of major expansion for the UK stores. She sat on both the Health and Safety, and CSR Committees and was a pension trustee. Prior to Tesco, she worked in HR for Somerfield plc and Boots plc. Catherine holds a degree in English Language and Literature from Durham University and is a member of the Institute of Personnel and Development. Genus plc Annual Report 2015STRATEGICREPORTCORPORATE GOVERNANCEFINANCIALSTATEMENTSADDITIONALINFORMATION 54 Corporate Governance Statement Adding Value Through Strong Governance Our business success depends on having strong corporate governance. The Board’s decisions are critical to the Group’s future, from approving and monitoring our strategy to the way we identify, monitor and manage risks. We therefore look to ensure that the Board has the right mix of skills and experience, that it has a deep understanding of the Group and that its members work well together, in a spirit of openness and constructive challenge. This section explains our corporate governance approach, including how we structure the Board and its Committees, its oversight of the Group, and its performance and main activities during the financial year. Who is on the Board? At the date of this report, the Board had a large majority of independent Non-Executive Directors. An Independent Board The chart below shows the length of time our Non-Executive Directors, including the Chairman, have been members of our Board. This demonstrates that the Board continues to have a good mix of well-established and newer Non-Executive Directors. Board Tenure 6 to 9 years 3 to 6 years 1 to 3 years 1 2 2 The blend of our Non-Executive Directors’ general experience and areas of expertise, together with their depth of knowledge about the Group’s operations, result in an even- handed oversight of the business and its growth strategy. This balance allows the Board to operate in a constructive and focused manner. As required by the UK Corporate Governance Code, all the Directors will offer themselves for election at the next AGM, details of which can be found in the Notice of AGM at the end of this report. Following the performance evaluation described on page 57, the Board confirms that all the Directors continue to be effective and to demonstrate their commitment to their roles. Board Roles and Responsibilities To ensure we have clear responsibilities at the top of the Company, the Board has set out well-defined roles for the Chairman and Chief Executive. These, along with the responsibilities of our Senior Independent Director, are summarised in the table below. Some issues and decisions are so important that only the Board as a whole can consider them. The Board is therefore responsible for: • approving and monitoring our strategy; • approving our corporate goals; • reviewing our operational performance against these goals; • approving the corporate budget and ensuring we have the right funding; • approving material contracts; • approving material acquisitions and investments; and • reporting to shareholders. 4 2 1 Title Chairman Individual(s) Responsibilities Bob Lawson Chief Executive Karim Bitar Senior Independent Director Nigel Turner Executive Directors Independent Non-Executive Chairman Independent Non-Executive Directors As noted in our 2014 Annual Report, Lykele van der Broek joined the Board as a Non-Executive Director on 1 July 2014 and Professor Barry Furr retired as a Non-Executive Director at the conclusion of the AGM on 14 November 2014, after eight years on the Board. There were no other changes to Board membership during the financial year. As Chairman, Bob’s primary responsibility is to lead the Board and ensure its effective operation. This is achieved in part through promoting an open culture, with the courage to challenge the status quo. Bob is also responsible for communications between the Board and shareholders. Karim is responsible for managing the Company’s day-to-day operations and is accountable to the Board for the Company’s development, consistent with its strategy and with due regard for the risks, objectives and policies set out by the Board and its Committees. Nigel is responsible for providing a sounding board for the Chairman and acting as an alternative line of communication between the Chairman and other Directors. He leads meetings of the Non-Executive Directors in the Chairman’s absence and consults with shareholders in the absence of the Chairman and CEO. Genus plc Annual Report 2015 55 During 2015, Professor Duncan Maskell joined the R&D PMT as a regular member and Board representative. Professor Maskell brings to the team his years of experience as an innovation leader in animal agriculture. The R&D PMT’s other members include Dr Jonathan Lightner, Chief Scientific Officer, key R&D personnel and other key GELT members. The R&D PMT’s meetings during the year were held in Chicago and Edinburgh. As part of the Edinburgh meeting, the team joined our collaborators at the Roslin Institute for an update on the progress of our key collaboration projects. The R&D PMT’s principal responsibilities are to periodically: • review and prioritise the Company’s investment in research, development and technology; • assess the quality and competitiveness of the Company’s R&D pipeline, including considering their risk profiles; • oversee and encourage the ideation management process; and • approve patent and other IP strategies for new technologies, based on business and technical opportunities. R&D PMT Special Focus Areas in 2015 In addition to the standing agenda items, in 2015 the R&D PMT reviewed two strategic proposals: • a comprehensive revision of our overarching IP strategy and approach, before its presentation to the Board; and • a proposal for managing R&D project progression through stage gates, into advanced development. Board Skills and Experience Genus operates in a complex and evolving global business environment. To lead us effectively, the Board must have the skills and experience to manage the associated challenges. Almost all our Directors have held leadership positions in international companies, with several having run businesses overseas. Nearly half our Directors have strong backgrounds in scientific research or in leading science-based businesses, while the same number has significant financial experience. Board Structure The diagram below shows the Board and the Committees that report to it. D P A G N R & A M F O L I O E N T T E A M T R M O E A U CO M DIT MIT T E E Gives us a comprehensive view of our R&D programme and involves our business units in prioritising our R&D initiatives. Ensures the integrity of our financial reporting evaluates our risk management and internal control system, and oversees the internal and external auditors. R Leads our strategic delivery and ensures organisational alignment, engagement and efficient execution. Genus plc Board Determines remuneration for our Executive Directors and senior management, to support our growth strategy and deliver value for stakeholders. C O M M I T T E E E M U N E R A T I O N E V I T U C E X E M A E T P I H S R E D A S U N E E G L C O C S R M MITTEE Board Committees Executive Committees Ensures that the Group continues to engage in business in a socially responsible and ethical manner. Reviews the Board’s structure, size and composition and proposes candidates for appointment to the Board. N E E A T I O T N O M I N C O M M I T The table below shows membership of the Board Committees: Director Bob Lawson Karim Bitar Stephen Wilson Nigel Turner Mike Buzzacott Duncan Maskell Lykele van der Broek M – Committee member C – Committee Chairman The Committee Chairmen are responsible for overseeing activities within the relevant terms of reference, and for the Committees’ leadership and effective operation. More information about the roles and work of the Audit, Remuneration and Nomination Committees can be found in their statements on pages 60 to 82 and in their terms of reference on our website at www.genusplc.com. Committee Audit Nomination Remuneration – – – M C M M C M – M M M M M – – C M M M The Board delegates operating decisions to the Chief Executive, Group Finance Director and other members of GELT. GELT’s responsibilities and membership are set out on pages 52 and 53. R&D Portfolio Management Team The R&D Portfolio Management Team (‘R&D PMT’) meets twice a year. The R&D PMT provides a forum for prioritising our R&D initiatives, monitoring their progress and assessing the quality of our R&D infrastructure, personnel and pipeline. Genus plc Annual Report 2015STRATEGICREPORTCORPORATE GOVERNANCEFINANCIALSTATEMENTSADDITIONALINFORMATION 56 Corporate Governance Statement continued The Board’s main activities during the year are set out below. Leadership • Induction process for Duncan Business Development and Strategy • Held a strategic meeting with GELT (see page 57). • Reviewed and approved business development opportunities, such as: – In Vitro Brazil SA (‘IVB’) 51% acquisition; – Riverstone, the first commercial multiplier in China; and – Birchwood Genetics. • Visited Brazil (see opposite) to better understand the business operations and environment. • Reviewed and approved US legal proceedings against the current provider of sorted semen (see note 7). • Updated on Génétiporc and IVB integration. Maskell and Lykele van der Broek – US and Brazil – Spencer Stuart corporate governance updates. • Review of Board workings, including its skill set and relevance to the direction of Company, and commitment to reviewing Non- Executive Director succession planning at least annually. • Board effectiveness evaluation, conducted through questionnaires, one-to-one calls with the Chairman and Board discussion. A Broad Base of Relevant Experience International business Scientific/biotech 3 Finance 3 Number of Directors 6 Board Diversity As Genus grows, the Board must evolve to keep pace. While we consider diversity in its broadest sense when recruiting, our aim is to ensure that the Board has the right skills to manage the evolving nature of the business. Board Induction and Training A good induction is a key part of ensuring new Board members can fully contribute, so we get the most benefit from their experience. Our induction programme has three main elements: • helping our Board members to conduct themselves effectively, through a course run by Spencer Stuart, one of the world’s leading global executive search and leadership consulting firms; • ensuring our Directors understand the legal and regulatory aspects of being a Board member, and how to maintain their independence; and • an introduction to our business, through site visits and meetings with our management teams. Non-Executive Inductions During the year, Duncan Maskell and Lykele van der Broek underwent comprehensive inductions. These included: • A visit to our US business in January 2015. This covered a tour of our facilities in DeForest and Dekorra; a series of presentations from our Genus ABS and Genus PIC teams, led by their Chief Operating Officers; presentations on our approach to R&D, and a tour of our facilities; and visits to a number of PIC and ABS customers. • Workshops run by Spencer Stuart, covering Board behaviour, Board strategy, and Board and Committee meetings. • Ad hoc updates on the latest developments in corporate governance and updates to the Corporate Governance Code. These were provided by internal and external presenters. In addition, both Non-Executive Directors attended the Board visit to Brazil in May 2015. We also want to ensure that the Board as a whole has first-hand experience of key areas of our business and markets, so we include an annual site visit in the Board calendar. In 2015, the Board visited operations in Brazil (see opposite). The Board’s Activities During the Year The table below shows how many Board and Committee meetings each Director attended during the year. Non-Executive Chairman Bob Lawson Executive Directors Karim Bitar Stephen Wilson Non-Executive Directors Nigel Turner** Mike Buzzacott Barry Furr (retired 14/11/14) Duncan Maskell Lykele van der Broek Board Audit Committee Remuneration Committee Nomination Committee 9 (9) 9 (9) 9 (9) 9 (9) 9 (9) 3 (3) 8 (9) 9 (9) 5* 5* 5* 5 (5) 5 (5) 2 (2) 5 (5) 5 (5) 5 (5) 5* 5* 5 (5) 5 (5) 2 (2) 5 (5) 5 (5) n/a n/a n/a n/a n/a n/a n/a n/a Note: Figures in brackets are the maximum number of Board or Committee meetings the Director could have attended. * Attendance by invitation. ** Attended day one of the two day January 2015 Board meeting. Genus plc Annual Report 2015 57 Employees • Reviewed and monitored the Company’s health and safety performance (monthly written updates and quarterly review). • Received updates on the global staff survey results and follow up actions. • Received updates on succession planning at GELT level and below. • Received updates on key personnel appointments, assignments and developments across the Group. All Non-Executive Directors completed the performance and effectiveness questionnaire, and responses were combined on an anonymous basis, then shared with the Board. In addition, the Chairman interviewed all of the Directors to discuss individual training needs and overall Board effectiveness. The aggregated responses from the anonymous questionnaires and individual Director feedback allowed the Chairman to lead the performance evaluation and effectiveness review at the Board. The performance of the Chairman was evaluated by the Senior Independent Director, through discussions with the other Non- Executive Directors. The evaluation allowed the Senior Independent Director to discuss with the Chairman his performance during the year. The Review’s Conclusions The review concluded that the Board has: • an open and candid culture, that encouraged challenge of the status quo; • high integrity individuals, with complementary skills; and • highly engaged individuals, who were committed to excellence. The review also identified the following as areas of focus for 2016: • continued oversight of competitor activity; • further training in corporate governance; • further exposure to the science that underpins our R&D programmes; and • further focus on succession planning and gender diversity. Research and Development • Received regular updates on R&D developments, new initiatives and potential collaborations. Company Performance • Received updates on the operational performance of the business and market conditions for each division. • Carefully monitored the Group’s performance against its goals. Board Visit to Brazil In May 2015, the Board spent a week visiting our operations in Brazil. This included meeting the senior management of our local Genus businesses, visiting IVB’s laboratories and meeting its leadership team, and meeting the management of Agroceres PIC, our 49% JV in Brazil. In addition, the Board met a number of Brazilian bovine and porcine customers. The visit was designed to enhance the Board’s understanding of our local business, its operations on the ground, the markets and our key relationships, as well as Brazil’s contribution to global protein production. The meetings with several of our largest customers in the region gave the Board insight into customer perspectives of Genus and the drivers of their purchasing decisions. The visit was also motivating for our local management, enabling them to engage with the Board at a local level. Board Strategy Review One of the Board’s key responsibilities is to review, approve and monitor our strategy. To understand how well our strategy is working and to ensure it remains appropriate, the Board holds an annual strategy review each January. Relevant members of GELT present to the Board on their business unit or function. At this year’s review, the Board was taken through: • a review of global industry trends and Genus’s markets; • an update on each business unit’s progress against the four elements of the strategy we first set out in 2012; and • an update on each business unit’s plans over the next two to five years. Board Effectiveness Review Effective leadership is integral to the execution of the Company’s strategy and therefore to the fulfilment of its objectives. The Board is committed to ensuring the Company operates in accordance with the highest standards of governance, in order to promote its success for the benefit of all stakeholders. We assess the Board’s effectiveness over a three-year cycle, using a mixture of 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 This was the third year of our review cycle. The evaluation process therefore consisted of anonymous questionnaires, follow-up telephone conversations between the Chairman and Board members, and an open discussion of the evaluation results prepared at the end of this process. Genus plc Annual Report 2015STRATEGICREPORTCORPORATE GOVERNANCEFINANCIALSTATEMENTSADDITIONALINFORMATION 58 Corporate Governance Statement continued Progress Against 2014/15 Areas of Focus Last year’s Board effectiveness review identified a number of areas for the Board to consider this year. The table below shows our progress against these objectives. Focus area Progress Sharper focus on technology across the Board, both in R&D and the use of technology in commercial sales. • Coverage of the R&D portfolio was included in the Board’s January strategy session and Duncan Maskell joined the R&D PMT (see page 55). Continued focus on competitors. • The Board was updated on competitor profiles during the Consideration of how risk is disclosed and considered through the Audit Committee and through the Board. Consideration of communications with shareholders and other external stakeholders. Consideration of other skill sets required by the Board, such as diversity, agri-business and international markets. January strategy session. • Competitors’ ongoing activities are monitored through our business development team and relevant activities are periodically reported to the Board. • Internal audit regularly updates the Audit Committee on the Group’s material risks. • Private sessions between the Audit Committee, internal audit and the external auditor have been initiated. • The roll-out of whistleblowing policy refresher training and the establishment of a whistleblowing hotline, to ensure there is an anonymous line of communication for the indentification of Group risks. • In May, GELT conducted an Investor Day in London outlining the Company’s strategy and direction as described further on page 59. • Regular meetings were organised between the CEO, CFO and institutional investors/private client brokers, to discuss the Company’s strategy and progress. • An extensive shareholder consultation process was undertaken by the Chairman of the Remuneration Committee and the Chairman of the Board, in connection with approving the 2014 share schemes and our remuneration policy. • The Company’s AGM was held in November 2014, to outline the Group’s performance. • Duncan Maskell and Lykele van de Broek joined the Board in summer 2014, bringing considerable scientific, agri-business and international markets expertise to the Board. • Business induction plans were performed for the new Directors, as described on page 56. Risk Management and Internal Control The Board is responsible for our risk management system and for reviewing our controls and risk mitigations. The risk management system is designed to identify, evaluate and prioritise the risks and uncertainties we face, and applies to the Board, the Audit Committee, GELT, our businesses and our divisional business reviews. Our principal risks and our mitigations for them are summarised on pages 18 and 19. The Board continued its programme of visits to our local operations and received regular political, economic and industry risk updates from the relevant business groups. The Board also sought regular updates on a number of specific risks during the year, including the Group’s work on its: • emerging market strategy, in particular, progress in China and Russia; • Genus Sexed Semen (‘GSS’) project, particularly in light of the litigation the Group initiated, as detailed in note 7; and • acquisition and integration of companies. Internal Control The Board, with the help of the Audit Committee, has reviewed the effectiveness of our internal control system, as well as our financial, operational and compliance controls and our risk management. The review covered our internal audit programme and the reports our management prepared when the Board approved our interim and final reports, and financial statements. It also assessed: • whether we had identified, evaluated, managed and controlled significant risks; and • whether any significant weaknesses had arisen, and if so, whether we had addressed them. The assessment also took into account any risk or control issues we identified through our divisional business reviews, Board and GELT meetings, and insurers’ reviews. These assessments routinely identify areas for improvement. However, the Board has not identified or been told of any material weaknesses in our internal controls. Genus plc Annual Report 2015 59 The regions and businesses complete risk and control self-assessments twice a year. Internal Audit reviews these to identify any deficiencies in our controls and how we should address them. The results are communicated to senior management and the Audit Committee. Understanding Shareholder Views Our Chief Executive and Group Finance Director regularly meet institutional investors and private client brokers, to discuss our strategy and progress, and to understand how investors view our business. The Chairman also attends certain meetings. During the year, our investor relations programme included meetings in London, Edinburgh, Paris and New York. In May 2015, we also held a Capital Markets Day in London, which was attended by almost 100 institutional investors and analysts. The investor presentations were given by our Chief Executive, Group Finance Director, Chief Scientific Officer and the Chief Operating Officers of Genus ABS, Genus PIC and Genus Asia. The presentations covered: • an introduction to Genus and our strategic direction; • an update on the Company’s strategic progress since the last Investor Day; • our R&D approach to continuous genetic improvement; • our porcine, dairy and beef businesses, including Asia; and • our financial performance. The Board sets time aside during the Board meetings to discuss feedback from the Capital Markets Day and other shareholder meetings, including relevant feedback obtained by independent brokers and our advisers. This allows all Directors to understand major shareholders’ views. The AGM also gives the Board an opportunity to communicate with both private and institutional investors, and we welcome their involvement. All our Board members will be available to answer questions at the AGM on 19 November 2015. Risk Management Framework The roles and responsibilities within our risk management framework are set out below: The Board • Has overall responsibility for the Group’s risk management and internal control systems. • Approves strategic objectives. • 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. GELT • Identifies, addresses and mitigates risks Group-wide. • Monitors our risk management process and internal controls. Audit Committee • Supports the Board in monitoring risk exposure against risk appetite. • Reviews the effectiveness of our risk management and internal control system. Risk Management and Internal Audit Function • Oversees the risk management process and provides guidance on risk management. • Maintains the risk schedule created in consultation with senior management. • Engages with senior management to review risks and their mitigation. Our Internal Control System The key elements of our internal control systems are set out below. An internal control system cannot completely eliminate the risks we face or ensure we do not have a material misstatement or loss. Management Structure The Board sets formal authorisation levels and other controls that allow it to delegate authority to run our businesses to the Chief Executive, GELT and their management teams. Our management supplements these controls by setting the operating standards that each subsidiary needs for its business and location. GELT regularly reviews our performance against strategy, budget and a defined set of operational key performance indicators. The Chief Executive, Group Finance Director, Group General Counsel and Company Secretary and the Group Financial Controller also hold monthly reviews with each business unit. Quality and Integrity of Our People We strive to operate with high integrity in everything we do. Our control environment depends on high-quality people who maintain our ethical standards. We ensure our people’s ability and integrity through our recruitment standards, training and consistent performance management. The Board approves appointments to our most senior management positions. Information and Financial Reporting Systems We create detailed operational budgets for the year ahead, along with five-year strategic plans, which the Board reviews and approves. We then monitor our performance throughout the year, so we can address any issues. The information we consider includes our monthly financial results, key performance indicators and variances, updated full- year forecasts and key business risks. The main internal control and risk management processes relating to our preparation of consolidated accounts are our 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 control our capital expenditure through our budget process and by having clear authorisation levels, above which our businesses must submit detailed written proposals to the Board for approval. We carry out due diligence for business acquisitions and material licences, and conduct post- completion reviews of major projects, to ensure we identify areas for improvement and correct any areas of underperformance or overspend. Internal Audit Our internal audit activities are provided by both in-house and external resources, under the leadership of our Head of Risk Management and Internal Audit. During the year, Internal Audit completed a risk-based audit programme agreed by the Audit Committee. The Audit Committee reviews the results of these audits and the subsequent actions we take, which we also communicate to the external auditor. Genus plc Annual Report 2015STRATEGICREPORTCORPORATE GOVERNANCEFINANCIALSTATEMENTSADDITIONALINFORMATION 60 Audit Committee Report ENSURING THE COMPANY’S FINANCIAL REPORTING INTEGRITY “ In keeping with best practice we decided to tender the external audit for fiscal year 2016. The Committee was actively involved in the tender process and provided oversight and directions as the work progressed.” Genus plc Annual Report 2015 61 Dear Shareholder The Audit Committee (‘Committee’) acts on behalf of the Board and shareholders, to ensure the integrity of the Company’s financial reporting, evaluate its system of risk management and internal control, and oversee the performance of the internal and external auditors. We design our annual work programme to deliver these commitments. The membership of the Committee changed during the year, with the retirement of Professor Barry Furr and the appointment of Professor Duncan Maskell and Lykele van der Broek. I am happy to report that the Committee membership not only continues to comply with the UK Corporate Governance Code and related guidance, with all members being Non-Executive Directors, but also to maintain a sound range of financial, commercial and scientific expertise required to fulfil its role effectively. More details on this, and the appointment and induction process for new members, is in the corporate governance section of this Annual Report. During the year, I chaired five Committee meetings and invited the Company’s Chairman, Chief Executive, the Group Finance Director, the Group Financial Controller, the Head of Risk Management and Internal Audit, and senior representatives of the external auditor to attend these meetings. The Committee members and I also held separate private sessions during the year with the Head of Risk Management and Internal Audit and the external audit partner. The Committee reviewed the appropriateness of the half-year and annual financial statements. Among other matters, we focused on critical accounting policies, key assumptions and judgements, the quality of disclosures, compliance with financial reporting standards and all material issues affecting the financial statements. I am comfortable that the Committee fully discussed all critical policies and key assumptions and judgements. In addition, the Committee reviewed the Group’s tax and treasury strategy and its pension arrangements. The Committee reviewed the Annual Report and Accounts taken as a whole, to ensure they are fair, balanced and understandable, and provide the information necessary for shareholders to assess the Company’s strategy, business model and performance. In meeting its commitment to oversee the performance of our internal and external auditor, the Committee reviewed and agreed internal audit’s terms of reference and work plans, as well as the scope, fees and work undertaken by the external auditor. The Committee received the results of the management feedback on the external audit process and reviewed the effectiveness of internal and external audit, discussed the outcomes of these assessments and agreed any actions that were needed. The Committee was satisfied with the performance of the internal audit function and the external auditor during the year. As I reported last year, in keeping with best practice we decided to tender the external audit for fiscal year 2016, as it has been ten years since the last tender. The Committee was actively involved in the tender process and provided oversight and directions as the work progressed. I chaired a special meeting of the Committee to consider the proposals presented by the two shortlisted audit firms. After careful consideration, the Committee recommended the award of external audit services to Deloitte LLP, with a new lead audit partner. Mike Buzzacott Chairman of the Audit Committee 7 September 2015 Genus plc Annual Report 2015STRATEGICREPORTCORPORATE GOVERNANCEFINANCIALSTATEMENTSADDITIONALINFORMATION 62 Audit Committee Report continued Committee Composition and Governance The Committee’s members are Non-Executive Directors with a wide range of financial, commercial and scientific research expertise, appropriate for fulfilling the Committee’s duties. In FY15, the Committee met the UK Corporate Governance Code’s requirement that at least one Committee member should have recent and relevant financial experience. The Committee has formal terms of reference, approved by the Board, that comply with the UK Corporate Governance Code. These are available from our website: www.genusplc.com. Our annual review of these terms took place during the year. The Committee also assessed its own effectiveness, through a structured questionnaire, and concluded that it was effective. Committee Role and Responsibilities 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 The Committee’s Main Activities During the Year At its five meetings during the year, the Committee focused on: external auditor, including any non-audit services it provides to the Group. The Committee also ensures that the Company maintains suitable confidential arrangements for employees to raise concerns and reviews the Company’s systems and controls for preventing bribery. The Committee reports its findings to the Board, identifying any matters that require action or improvement, and making recommendations about the steps to be taken. Financial Reporting The main areas of focus and matters where the Committee specifically considered management’s judgements are set out below: Financial reporting area Judgement and assumptions considered Biological assets valuation Intangible assets – capitalisation and impairment of development costs Acquisitions – Birchwood and IVB Pensions In compliance with IAS 41, Genus records its biological assets at fair value in the Group balance sheet (£315.9m), with the net valuation movement shown in the income statement. At each reporting period, the Committee was updated on the methodology and outcomes of the biological assets valuation. Having noted that the methodology was unchanged during the year, the Committee debated and considered management’s assumptions and estimates, and discussed and reviewed the external auditor’s report on this area. The Committee was satisfied with management’s accounting treatment. Genus’s policy is to capitalise certain development costs and to perform periodic reviews of the carrying amounts to determine whether there is any indication of impairment. At the balance sheet date, the Group had £11.1m of capitalised development expenses in respect of GSS, as well as £5.4m in associated fixed assets. During the year, the Committee received reports from management detailing the cost incurred and the outcome of the impairment reviews. The Committee also reviewed progress against plans and the projects’ timelines to full operation. The Committee discussed management’s reports in detail, including whether any known issues might block the projects’ completion. The Committee reviewed the external auditor’s work, including its assessment of management’s models supporting the estimates and judgements. After due challenge and debate, the Committee was satisfied with management’s assumptions and judgements. During the financial year, Genus acquired 100% of the share capital of Birchwood Genetics Inc., a privately owned boar stud operation. In addition, Genus acquired 51% of the share capital of In Vitro Brazil S.A., the world’s leading commercial provider of bovine IVF technology. These transactions are described in note 37 to the accounts. The Committee received updates on the transactions’ structure and reviewed management’s proposed accounting treatment. The external auditor’s views supported these proposals. After discussing the accounting options available, the Committee agreed with management’s recommendations. The Committee received and reviewed management reports on the treatment of pension costs and also received and considered the external auditor’s pensions accounting input. The Committee considered management’s recommendations were appropriate. The Committee continued to review the status of the other parties who are jointly and severally liable for the Milk Pension Fund deficit and concurred with management’s assumptions for reporting Genus’s share of the fund. Genus plc Annual Report 2015 63 Monitoring Business Risks The Committee reviewed the Group- wide risk management process designed to identify, evaluate and mitigate risks. In the external auditor’s presence, the Committee discussed the risks identified with the Chief Executive and Group Finance Director, along with management’s plans to mitigate them. In view of their importance during the year, the Committee ensured that the Board received and discussed detailed input from management on the following key risks and mitigations: • China and emerging markets: this risk is the threat to our growth if we are unable to develop appropriate businesses in China and emerging markets. With a focus on China, the Board discussed with management the current developments in China and Russia and the actions taken by both regional and global management teams to minimise the impact on our strategy execution. • GSS: this is the risk that we are unable to commercialise our GSS technology. The Board continued to receive regular updates throughout the year on go-to-market readiness, as well as the legal proceedings relating to the anti-trust issues connected with this key initiative. • Information systems continuity and recovery: this risk is relevant to our ability to continue to operate our business in case of a system outage or extended downtime. The Board received an update on the IT system strategy and the results of a comprehensive IT security review performed during the year. The Board discussed the actions taken to strengthen IT security and resilience. • Biosecurity and continuity of supply: this is the risk of a negative outcome for Genus if we lose key livestock or lose our ability to move animals and/or semen freely (including across borders), due to disease outbreak, an environmental incident or international trade sanctions. The Board discussed the outbreak of PEDv in North America and its impact on the entire porcine industry. Genus PIC’s management presented to the Board on the additional measures being taken to strengthen health management and supply chain resilience. Internal Control System Our risk management process and system of internal controls are described in detail on pages 58 and 59. The Committee reviewed the results of the key financial controls self-assessment process, which covers key areas of financial controls and is performed on a six- monthly basis, and conducted its annual review of the effectiveness of the Group’s internal controls and disclosures. The Committee further reviewed internal audit’s findings at each scheduled meeting, and the Group’s whistleblowing policy and bribery prevention procedures. The Committee’s review of the Group’s system of internal control did not identify any material deficiencies. However, Genus routinely identifies and actions control improvement opportunities and the Committee discussed with management various opportunities to further strengthen the Company’s system of internal control. Oversight of External Audit and Internal Audit Internal Audit The Committee reviewed and agreed the internal audit function’s scope, terms of reference, resources and activities. The Head of Risk Management and Internal Audit provided regular reports to the Committee on the work undertaken and management’s responses to proposals made in the internal audit reports issued during the year. The Committee continued to meet the Head of Risk Management and Internal Audit without management being present. The Committee reviewed and was satisfied with the internal audit function’s performance. External Audit The Committee reviewed and agreed the external auditor’s scope of work and fees, held detailed discussions of the results of its audits and continued to meet the external auditor without management being present. The Committee 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 received details of the external auditor’s non-audit services to the Group, reviewed the nature and monetary levels of these services, which stood at 47% of audit fees, and reviewed compliance with the Company’s Non-Audit Services by Auditor Policy. The Committee was satisfied that using Deloitte for such services did not impair its independence as the Group’s external auditor. The Committee assessed the external auditor’s performance, based on questionnaires completed by key finance staff and Committee members. The questionnaires covered the external auditor’s fulfilment of the audit plan, the auditor’s robustness and perceptiveness in its handling of key accounting and audit judgements, the content of the external auditor’s reports, and cost effectiveness. The Committee also considered any regulatory reviews performed on the external auditor. The Committee concluded that the external auditor was effective. External Auditor’s Appointment The external auditor, Deloitte LLP, was first appointed as the Company’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 and he is due to hand over to a new partner after signing off this year’s accounts. In compliance with the UK Corporate Governance Code’s requirement for FTSE 350 companies to put the external audit out to tender at least every ten years, the Committee oversaw a formal audit retender process for the audit of the financial year ending 30 June 2016. All big four audit firms were invited to tender, of which two accepted and engaged in the discovery process. Both firms had access to the Company’s management and finance teams, as well as all key information relevant to developing their proposals. The final proposals were presented to the Committee at a special meeting dedicated to this topic. The presentations were followed by question and answer sessions, during which the Committee questioned each team’s audit approach, global and IT capabilities and how they could add value through the audit process. The Committee then discussed the strengths and weaknesses of the two proposals and how they would meet its primary objective of securing the highest audit standards and the best overall client service. The process concluded with the selection of Deloitte LLP, and the Committee recommended its appointment to the Board. Genus plc Annual Report 2015STRATEGICREPORTCORPORATE GOVERNANCEFINANCIALSTATEMENTSADDITIONALINFORMATION 64 Directors’ Remuneration Report Section A: Annual Statement Contents 64 Section A: Annual Statement – Letter from the Chairman 66 Section B: At a Glance 67 Section C: Remuneration and Performance Statement 68 Section D: Annual Report on Remuneration – how we operate our remuneration policies in practice 79 Section E: Directors’ Remuneration Policy Report – a summary because no change from last year DELIVERING STAKEHOLDER VALUE Letter from the Chairman Our remuneration policy is transparent, supports our business strategy and is working. The pay of our executives is aligned with the value received by our shareholders. Dear Shareholder On behalf of the Board, I am pleased to present the Directors’ Remuneration Report for 2015. The Remuneration Committee (the ‘Committee’) believes the remuneration policy should support the Group’s strategy and deliver value to stakeholders by focusing on sustainable profit growth. The remuneration policy, therefore, clearly aligns corporate performance and individual remuneration, with a significant proportion of pay delivered in shares and vesting over the longer-term. How does Executive remuneration align with our strategy? Our remuneration policy encourages the achievement of the corporate goals: through the structure of the annual bonus, it targets profit growth, cash generation and strategy implementation; through the 2014 Performance Share Plan (‘PSP’), it provides incentives for sustained profit and Earnings Per Share (‘EPS’) growth. This is detailed in Section C: Remuneration and Performance Statement. As referred to in the Chairman’s Statement, the Chief Executive, Karim Bitar, has appointed high-quality executives who are performing very well as a team and are capable of leading Genus as it becomes an increasingly science and intellectual property based company. They have focused on executing the strategy, managing the risks inherent in our sector and effectively tackling challenges such as PEDv and uncertainty in emerging markets. How did we perform in 2015? As highlighted in the Strategic Report, 2015 has been a very good year for the Company, led by the strong performance of PIC. Genus continued to deliver successfully on its strategic goals seeing very good progress across our R&D programmes, strong commercial progress in key markets, a rapid integration of Génétiporc and the acquisition of IVB. Overall, the Committee is of the view that management had a very good year in 2015 with adjusted profit before tax growth of 19% to £46.6m coupled with strong cash flow and tight management of working capital. What does this mean for remuneration in 2015? The Committee has focused on meeting shareholders’ expectations: Genus plc Annual Report 2015 65 we believe the best way to achieve this is to retain and motivate the current leadership team. We want them to continue to deliver the strategy and to be rewarded for achievement of sustained growth. The short-term incentive policy is designed to reward 10% year-on-year profit growth in constant currency as ‘target’ and 15% as ‘stretch’. Similarly, the 2014 PSP fits our remuneration strategy of encouraging the delivery of sustained EPS growth, which aligns executive and shareholder interests. Being clear about our performance expectations is critical. The Committee continued to set stretching strategic objectives for each member of the GELT. The detail and specificity of these objectives define each team members’ expected contribution and aligns their remuneration with their performance. The very good result for 2015 means that, for remuneration purposes, the adjusted profit before tax growth of 23% in constant currency and cash generation of £22.6m delivered the full award on both measures. Executives had stretching strategic objectives: Karim Bitar achieved 95% and Stephen Wilson 90% on these measures see pages 68 and 69 for the detail of performance. Overall this generated a short-term award of 98.75% of the maximum for Karim Bitar and 97.5% for Stephen Wilson which the Committee believes is fully justified given the performance in the year. The 2012 long-term incentive award partially vested in 2015. The three- year EPS growth rate was 23.2%, Retail Prices Index (‘RPI’) was 7.6%, resulting in an average annual EPS growth over the period of RPI +5.2%. 25.6% of the award will vest for Karim Bitar and 23.4% for Stephen Wilson. What did the Committee do in 2015? The Committee had five meetings during the year and on page 73 we describe the issues that were discussed. However, in summary, in terms of remuneration it was a steady-as-she-goes year. The most notable aspects of the implementation of the remuneration policy were: 1. It was brought to our attention that we had been inconsistent in our communication on whether or not adjusted EPS included or excluded the share-based payments accounting charge (also known as IFRS 2) for the purposes of the PSP. I confirm that no change is being made to the presentation of our financial statements, but that when determining vesting under the PSP, EPS will be calculated after the deduction of the share-based payments accounting charge. This applies to both the base year and final year adjusted EPS figures. We think that this change is the right approach for the future in that the PSP should be self-funding and the share-based payments charge does represent a quantifiable cost to shareholders. 2. We clarified our policy on malus and clawback, confirming to the Executive Directors that both apply to the short-term incentive and the PSP awards. When combined with our policy on bonus deferral and the two-year holding period applying to PSP awards, we think we have a comprehensive approach to malus and clawback should events ever arise for us to invoke this. 3. We have rewritten this Directors’ Remuneration Report so that it is clearer on what we have paid Executive Directors in respect of 2015, what they can earn in 2016 and why we do it. We have sought to explain how our remuneration policy supports our strategy and is linked to the results achieved. Will anything change in 2016? Following your approval of the remuneration policy in 2014 (please see Section E: Director’s remuneration policy table), the Committee will continue to pursue this policy in 2016. It believes the policy remains fit for purpose, driving growth without encouraging undue risk taking. In line with this policy, in 2016 we are recommending that the Executive Directors’ salaries will increase by the same percentage as the award to employees in the country where “Our remuneration policy is transparent, supports our business strategy and is working. The pay of our executives is aligned with the value received by our shareholders.” the executive is based: for the Executive Directors this will be 2%. Shareholders’ views The Committee was delighted that it received 99% approval of both the Policy Report and the Remuneration Report in 2014. We will continue to engage with shareholders, welcoming feedback and taking into account shareholder views and best practice. On behalf of the Board, I would like to thank shareholders for their continued support. The Committee hopes that the new form of report is clear, succinct and, as always, would welcome feedback. If you wish to contact me, please email me at remunerationchair@genusplc.com. The Committee looks forward to your support for our remuneration report at the 2015 AGM. Nigel Turner Senior Independent Director and Chairman of the Remuneration Committee This Directors’ Remuneration Report has been prepared so it complies with the provisions of the Large and Medium-sized Companies and Groups (Accounts & Reports) (Amendment) Regulations 2013, which set out the disclosures required for Directors’ remuneration as at the reporting date. The report is also in accordance with the requirements of the Financial Conduct Authority’s Listing Rules. The 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 its 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. Genus plc Annual Report 2015STRATEGICREPORTCORPORATE GOVERNANCEFINANCIALSTATEMENTSADDITIONALINFORMATION 66 Directors’ Remuneration Report continued Section B: At a Glance What the Executive Directors were paid in 2015 and why Chief Executive Group Finance Director Explanation Base salary Benefits Pension £526,830 £24,000 £357,000 These were the salaries set on 1 July 2014. £14,000 This comprises a car allowance and insured benefits for both Executives and a medical screen for the Group Finance Director. £131,708 £53,550 This is a cash allowance (25% of salary for the Chief Executive and 15% for the Group Finance Director) in lieu of participation in a pension plan. Annual bonus £650,306 £435,094 On the short-term bonus award, the Group’s strong financial performance meant the bonus results are close to the maxima. Karim Bitar will receive 98.75% of maximum and Stephen Wilson 97.5%. This is made up of: • Adjusted profit growth in constant currency of 23% > up to 60% of bonus – maximum achieved. • Cash generation of £22.6m > up to 15% of bonus – maximum achieved. • Non-financial strategic targets > up to 25% of bonus – Karim Bitar achieved 95% (23.75%) of this element, Stephen Wilson 90% (22.5%). We explain the link between pay and corporate performance on page 67 and detailed disclosure of the bonus targets on page 68. PSP Total £275,511 £143,785 The 2014/15 adjusted EPS of 56.8 pence per share did meet the threshold, and therefore the Tier 1 awards granted to the Chief Executive (on 7 December 2012) and to the Group Finance Director (on 28 February 2013) partially vest. £1,608,355 £1,003,429 This should be viewed in context of: • A total shareholder return over the 2014/15 financial year of £183m (+ 26.2%). • Adjusted EPS growth of +22%. What the Executive Directors can earn in 2016 and how Chief Executive Group Finance Director Explanation Base salary £537,367 £364,140 Consistent with the general approach taken for Genus UK staff, the Benefits £25,000 Pension £134,342 Executive Directors have been awarded a salary increase of 2% as from 1 July 2015. £14,000 There is no change to the provision of a car allowance and insured benefits: a medical screen has been introduced. The year-on-year change is adjustments in life and medical insurance premiums and medical screen. £54,621 The Chief Executive continues to be paid a 25% cash allowance in lieu of participation in a pension plan; the Group Finance Director receives a 15% cash allowance. Annual bonus A target bonus of 62.5% of salary and a maximum bonus of 125% of salary A target bonus of 62.5% of salary and a maximum bonus of 125% of salary The measures will remain: • Adjusted profit growth > 60% of bonus. • Cash generation > 15% of bonus. • Non-financial strategic targets > 25% of bonus. For the adjusted profit growth measure, target bonus requires 10% growth and maximum bonus requires 15% growth in constant currency. PSP – September 2013 awards PSP – awards that will be granted in 2015 and may vest in 2018 Up to 73,107 shares Up to 43,347 shares The vesting of these awards depends on the EPS achieved in 2016. An award over shares worth 200% of salary An award over shares worth 175% of salary Full details are given on page 70. The vesting of these awards will be subject to an EPS growth condition, with the 2018 EPS being compared to the 2015 adjusted EPS of 56.8 pence per share. • 6% annual growth > threshold 20% vesting. • 20% annual growth > 100% vesting. For illustration, 20% annual growth corresponds to a 2018 adjusted EPS of 90.9 pence per share. At a price/earnings ratio of 25, this would translate to a Genus share price of £22.72 and a market capitalisation of £1,379m. Genus plc Annual Report 2015 67 Section C: Remuneration and Performance Statement Genus’s strategy and corporate goals and their link to performance-related pay Creating genetic improvement Delivering volume growth Driving profitability Generating cash Link to remuneration policy Captured in the non-financial strategic measures under the annual bonus plan. Over longer term will lead to higher EPS as used in PSP Leads to higher earnings which is the primary annual bonus measure and the EPS performance condition in the PSP Supported by the cash generation measure under the annual bonus plan in the near term. Over the longer term, success will flow into EPS captured by the PSP Our corporate goals see pages 14–15 Our remuneration policy see page 79–81 Increase Genetic Control and Product Differentiation Success measured by Targeting Key Markets and Segments Tailoring the Business Model Strengthening Core Competencies Performance components and their impact on remuneration 2015 2014 Movement % Impact on remuneration Adjusted results Revenue Profit before tax Cash generation £398.5m £372.2m £46.6m £22.6m £39.3m £26.2m EPS adjusted Dividend per share 56.8p 19.5p 46.5p 17.7p 7 19 (14) 22 10 Input to annual bonus profit and EPS in PSP. Annual bonus measure. Annual bonus measure; performance reflects increased capital investment in 2015. PSP performance condition. Executives rewarded via dividend equivalent feature of deferred bonuses and PSP awards. Share price at year end 1,427p 1,147p 24 Determines the value of deferred bonuses and PSP awards. Executive Directors’ alignment to share price Shares owned Maximum rights to shares Total share exposure Value at share price on 1 July 2014 (£) Value at share price on 30 June 2015 (£) Consequence of a +/– 50 pence share price change (£) Difference (£) Chief Executive 40,008 242,942 282,950 3,140,745 4,037,697 896,952 +/– 141,475 Group Finance Director 3,071 142,058 145,129 1,610,932 2,070,991 460,059 +/– 72,564 Conclusion Executives are aligned to share price Genus plc Annual Report 2015STRATEGICREPORTCORPORATE GOVERNANCEFINANCIALSTATEMENTSADDITIONALINFORMATION 68 Directors’ Remuneration Report continued Section D: Annual Report on Remuneration Introduction There are extensive legal and best practice disclosure obligations with which we comply in this section of the Directors’ Remuneration Report. This is important because, as a shareholder, you will be asked to vote on the sections A and D of this report at the AGM. Balancing this formality with a desire to have a clear and understandable report, we have split this section D into the following chapters: 1. What the Executive Directors were paid in 2015. 2. What the Executive Directors can earn in 2016. 3. The process that we as a Committee followed to arrive at these decisions. 4. How the Chief Executive’s pay compares to shareholder returns over the past six years. 5. The Chairman and the Non-Executive Directors’ fees. 6. Details of the Directors’ shareholdings and rights to shares. 7. Details of the Directors’ contracts or letters of appointment. 1. What the Directors were paid in 2015 Executive Directors’ Single Total Remuneration Figure The following table shows a single total figure of remuneration for the 2015 financial year for each of the Executive Directors and compares this figure to the prior year. Following the strong performance in the year, the variable pay has increased for 2015. Karim Bitar Stephen Wilson Year 2015 2014 2015 2014 Salary and fees £000 527 517 357 350 Benefits1 £000 Pension2 £000 Subtotal for fixed pay £000 24 24 14 13 132 129 53 53 683 670 424 416 Bonus3 £000 650 207 435 153 Long-Term incentives4 £000 275 – 144 – Subtotal for variable pay £000 925 207 579 153 Total £000 1,608 877 1,003 569 1 Benefits comprise a car allowance of £20,000 for Karim Bitar and £12,000 for Stephen Wilson, insured benefits including life assurance and private medical insurance and a medical screen for Stephen Wilson. 2 Cash allowance in lieu of pension and pension entitlement has been included in the Pension column. 3 Bonus earned includes the 25% which is deferred into Company shares for three years. 4 The value of long-term incentive is determined by the number of awards vesting in relation to performance ended 30 June 2015. How the Bonuses for 2015 were Calculated The 2015 bonuses for Executive Directors were calculated by reference to performance against a challenging sliding scale of profit, cash/debt and personal targets. Performance in the year was strong, demonstrated in the outcomes set out in the table below: Bonus target Adjusted PBT Cash flow Non-financial strategic objectives Strategic objective Year-on-year profit growth Generate cash for reinvestment and dividend payments To build the foundation for future growth Overall extent to which the bonus targets were met: Proportion of bonus Actual 2015 performance Threshold Target Stretch Extent to which targets were met 60% £48.3m1 £39.3m £43.2m £45.2m 100% 15% £22.6m £13.0m £16.0m £19.0m 100% 25% See below Chief Executive 95.0% Group Finance Director 90.0% Chief Executive 98.75% Group Finance Director 97.5% 1 Adjusted PBT in constant currency (actual currency was £46.6m). The financial elements of the bonus are payable on a straight-line basis between each threshold, target and stretch level. Performance against non-financial strategic objectives related to targets set in a number of areas that included customer, people, and product and service improvement. Retrospective disclosure of performance against these targets is set out opposite. Genus plc Annual Report 2015 69 Payout against maximum of 25% of bonus 95% Executive Director Key achievements in the year Karim Bitar Customer Achieved PIC targeted profit and volume growth in Americas, increased sire line capacity and achieved royalty growth targets (see page 20). In the ABS business, delivered revenue growth, while operating profits were flat. Expanded routes to market in China and Indian JV stud is at advanced stage of construction. People Strengthened succession plans and leadership capability. Staff engagement continued to rise measured by staff survey results (see page 45). Product and service improvement Accelerated the genetic improvement in PIC and reduced genetic lag. This is described in more detail on page 16 (key performance indicators). Significant progress on new technologies (Real World Data (‘RWD’) and GSS), improved capability in supply chain and sales. Results Tight management of working capital and cash flow, demonstrated by the cash key performance indicators on page 17. Stephen Wilson Customer/ stakeholders Strengthened the good relationships with the Company’s shareholders, evidenced by broker feedback following investor roadshows and Capital Markets Day. 90% People Strengthened the Finance, IT and Business Development teams, bringing in new high-quality recruits. Product and service improvement Led the strategic review for the Board. Oversaw the Birchwood and IVB due diligence and determined the financial structures through which they were acquired. Introduced IT tools supporting better sales force engagement with customers. Improved Genus’s Risk management system by defining areas of focus and rigorous follow up of audit action plans. Results Ensured that Genus managed working capital effectively, demonstrated by the cash key performance indicators on page 17. As a result of this performance, the bonuses awarded to the Executive Directors were: Karim Bitar Stephen Wilson 1 This is the number that appears in the single total remuneration figure on page 68. 2 The number of shares will be calculated in September when bonuses are paid. Extent to which targets were met Maximum bonus Actual total bonus1 Bonus payable immediately Deferred bonus2 98.75% £658,538 £650,306 £487,730 £162,576 97.5% £446,250 £435,094 £326,321 £108,773 Genus plc Annual Report 2015STRATEGICREPORTCORPORATE GOVERNANCEFINANCIALSTATEMENTSADDITIONALINFORMATION 70 Directors’ Remuneration Report continued Section D: Annual Report on Remuneration continued How the Long-term Incentive Figure was Calculated in The Single Total Remuneration Table Karim Bitar’s PSP award granted on 7 December 2012 and Stephen Wilson’s PSP award granted on 28 February 2013 were both subject to an EPS performance condition, based on the growth in EPS from a base year of 2012 compared to the EPS in 2015. These awards were granted under our former policy. The performance targets were as follows in relation to the awards: Tier 1 The range of targets applicable to awards with a value of 125% of salary for the Chief Executive and 100% of salary to the Group Finance Director were as follows: Per annum growth in adjusted EPS1 % of award vesting2