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United State AntimonyLEADERSHIP
THROUGH
INNOVATION
Genus plc
Annual Report 2016
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.
Strategic Report
01 2016 Highlights
02 Genus at a Glance
04 Chairman’s Introduction
06 Year in Review
08 Our Investment Case
10 Our Market
12 Our Business Model
14 Strategic Framework
16 Key Performance Indicators
18 Principal Risks and Uncertainties
20 Leadership Through Innovation
26 Chief Executive’s Review
28 Divisional Reviews
36 Financial Review
40 Our People and Culture
42 Responsible Business
Corporate Governance
44 Letter from the Chairman
46
Board of Directors and
Company Secretary
48 Genus Executive Leadership Team
50 Corporate Governance Statement
57 Nomination Committee Report
59 Audit Committee Report
62 Directors’ Remuneration Report
86 Other Statutory Disclosures
88 Directors’ Responsibilities Statement
Financial Statements
Independent Auditor’s Report
89
95 Group Income Statement
Group Statement of
96
Comprehensive Income
97 Group Statement of Changes in Equity
98 Group Balance Sheet
99 Group Statement of Cash Flows
100 Notes to the Group Financial
Statements
144 Parent Company Balance Sheet
145 Parent Company Statement of Changes
in Equity
146 Notes to the Parent Company Financial
Statements
Additional Information
154 Five Year Record –
Consolidated Results
155 Glossary
156 Notice of Annual General Meeting
IBC Advisers
2016 Highlights
Colour the individual bits on
top of each curve
Group Revenue
£m
Colour the individual bits on
top of each curve
Adjusted Profit Before Tax
£m
Colour the individual bits on
top of each curve
Statutory Profit Before Tax
£m
01
2016
2015
2014
2013
388.3
398.5
372.2
345.3
2016
2015
2014
2013
49.7
46.6
39.3
42.5
2012
Colour the individual bits on
top of each curve
341.8
2012
Colour the individual bits on
top of each curve
43.7
Adjusted Basic EPS
Pence
Dividend Per Share
Pence
2016
2015
2014
2013
2012
60.7
56.8
46.5
49.1
50.0
2016
2015
2014
2013
2012
21.4
19.5
17.7
16.1
14.6
2016
2015
2014
2013
2012
60.9
57.8
38.2
33.4
51.6
Financial Highlights1
• Adjusted profit before tax up 7% to £49.7m (up 10%
in constant currency), driven by strong performances
in Genus PIC and Genus Asia, particularly China
• Statutory profit before tax up 5% to £60.9m includes
a pension related exceptional credit of £44.2m
(2015: £0.4m) and a reduction in the value of
biological assets £17.1m (2015: £24.9m increase)
• Adjusted basic earnings per share up 7% to 60.7p
(up 10% in constant currency) and statutory basic
earnings per share up 23% to 81.1p reflecting a
lower statutory tax rate on adjusting items
• Revenue of £388.3m, reduced 3% due to lower bovine
volumes in tough dairy markets, and lower porcine by-
product and up-front sales. Growth of 17% (14% in constant
currency) in strategically important royalty revenues
• Solid cash conversion as expected of 88% (2015: 107%)
after two years of exceptional performance above 100%
• After tax return on invested capital of 19.1% (2015: 21.7%),
impacted by year end currency translation on our US asset
base following the recent strengthening of the US Dollar
against Sterling
• Dividend increased by 10% to 21.4p, well covered by adjusted
earnings at 2.8 times (2015: 2.9 times)
Operational and Strategic Highlights
• Continued volume growth of 4% in porcine, however
bovine volumes 6% lower in tough dairy markets
• Very strong results across Asia, more than doubling
operating profit including joint ventures
– China delivered over £6m in additional operating
profit, benefiting from market tailwinds and strong
product performance
– Signed three new large porcine royalty customers
in China and a commercial multiplier agreement
with Yunnan Shennong
• Strong profit growth in Genus PIC of 9% in constant
currency, with growth in royalty volumes and revenues
• Genus ABS had a challenging year in very difficult dairy
markets and took action to reduce costs, manage margins
and improve pricing; however, profits were 16% lower in
constant currency. The pace of strategic change was
accelerated through:
– In Vitro Brasil S.A. (‘IVB’), our world leading bovine in
vitro fertilisation (‘IVF’) business focused on driving genetic
improvement via embryos, was rapidly integrated and
performed ahead of expectations in its first full year in Genus
– Introduced proprietary TransitionRight™ genetic indices for
Holstein and Jersey breeds focused on key dairy health traits
– Formed De Novo Genetics on 1 September 2016, a
majority-owned strategic partnership combining the
elite Holstein breeding programmes of ABS and De-Su,
the world’s leading independent Holstein breeder,
to accelerate internal production of elite bulls
• Scaled up Genus Sexed Semen (‘GSS’) technology to
commercial launch readiness
– Outcome of litigation against Sexing Technologies (‘ST’)
announced post-period end provides a path towards
commercialisation, with further Court rulings to provide
additional clarity expected in the coming months
• Achieved substantial progress in establishing gene editing as
a key strategic platform for future growth and transformation
of Genus
– In collaboration with the University of Missouri, discovered
a major breakthrough to create pigs resistant to the
devastating Porcine Reproductive and Respiratory
Syndrome Virus (‘PRRSv’) disease through gene editing
– Exclusive strategic collaboration with Caribou Biosciences
to licence leading CRISPR-Cas9 gene editing technology,
enabling further development of PRRSv resistant pigs and
multiple other applications
– Exclusive licence from Washington State University to use
gene editing to target bovine respiratory disease (‘BRD’),
a major disease challenge for beef and dairy producers
1 For definitions of adjusted profit, adjusted EPS, cash conversion and return on invested capital, see Financial Review on pages 36 to 39. Results discussed throughout the
Annual Report are on an adjusted basis unless otherwise stated.
Strategic ReportCorporate GovernanceFinancial StatementsAdditional Information Genus plc Annual Report 2016
02
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 produce
higher-quality animal protein more
efficiently, in the form of meat and milk.
Genus is a 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.
What We Do
How We Operate
Genus applies DNA analysis 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 are
designed to increase the profitability of our
customers, who are some of the world’s
leading 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.
Revenue by Species %
Bovine
Porcine
55
45
Genus sells under well-known trademarks: ‘PIC’
for pigs and ‘ABS’ for dairy and beef cattle. During
the year, we served our customers through three
business units:
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.
Our Asia unit was established in 2012 to create a strong base
in the region’s diverse and fast-changing markets. In FY17,
we will integrate the Asia unit’s porcine and bovine operations
into the global PIC and ABS units, respectively.
This Strategic Report was approved by the Board of Directors on
7 September 2016 and signed on its behalf by:
Karim Bitar
Chief Executive
Stephen Wilson
Group Finance Director
Genus plcAnnual Report 2016
03
Where We Operate
Our porcine business has a network of over
600 breeding herds in over 40 countries.
Over 95% of these herds are owned by
third parties or our customers.
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.
Genus’s head office in Basingstoke,
UK, provides shared services support
to our international operations. Our
R&D laboratories are based in Madison,
Wisconsin, USA.
Revenue by Geography %
12
27
46
15
North America
Latin America
Europe
Asia
£34m
Spend on R&D per year
PIC
40+Country operations
ABS
70+Country operations
2,600
Employees worldwide
136m
Market pig equivalents
with our genetics taken
to market (‘MPEs’)
Strategic ReportCorporate GovernanceFinancial StatementsAdditional Information Genus plc Annual Report 2016
04
Chairman’s Introduction
Implementing a
Successful Strategy
“ Genus delivered another
strong performance in 2016,
with a second consecutive year
of robust profit growth.”
Genus PIC and our Asian operations were the driving forces behind
this growth, with Genus ABS seeing profits decline as its dairy
customers faced further falls in milk prices.
The Group’s strategy focuses on creating differentiated products,
targeting key markets, and sharing in the value we deliver to
customers. We made further strong progress against each of
these objectives. Our research and development programmes
are producing genetic gains that offer increased productivity,
efficiency and profit to our customers. We aim to be at the
forefront of science in our field and in the year developed
or acquired exclusive rights to gene editing technology and
applications. We also made good progress in preparing our
Genus Sexed Semen technology for commercialisation.
China and India are the world’s largest porcine and dairy markets
respectively. We signed further royalty agreements in China and
opened a world-class bull stud in India, positioning us for future
growth in these markets.
As well as increasing our strategically important royalty revenues,
we continued to demonstrate the value of our genetics through
new proprietary indices targeted at traits that create value for
commercial customers thus helping customers to understand
the benefits of our superior genetics and allowing us to share
in the value we add.
Developing our Board and People
The latest independent evaluation of the Board and its
Committees shows that the Board continues to provide strong
and effective leadership. Succession planning and diversity are
important focus areas for us and having previously identified the
need for an additional Non-Executive Director, we were delighted
to appoint Lysanne Gray to the Board during the year. Lysanne
brings considerable experience of risk management, audit,
business operations and the food sector, broadening the range
of skills and knowledge on the Board.
Mike Buzzacott will be retiring from the Board at this year’s
Annual General Meeting, after more than seven years as a
Non-Executive Director and chairman of the Audit Committee.
On behalf of the Board I want to acknowledge his significant
contribution during this time, particularly in transforming the
Committee into an effective value adding resource, whilst
developing and embedding our risk management processes.
We thank him for his contributions and wish him well for the future.
More information on the Board and our corporate governance
arrangements can be found on pages 44 to 87.
Bob Lawson
Chairman of the Board
Genus plcAnnual Report 2016 05
Genus employs over 2,600 people in 26 countries, whose expertise
and dedication enable us to innovate and deliver for customers. I
want to thank everyone for helping to make this another successful
year. In recognition of our people’s importance, we continue to
invest in developing their skills and ensuring we have a strong
pipeline of critical talent coming through the organisation. To
enhance our proprietary, differentiated products for customers,
in the last year we have focused on recruiting, retaining and
developing employees who can help us explore and harness
outstanding science.
The Board recognises its responsibility for setting the behaviours
and ethical standards we want to see throughout Genus. Our
values (see right) underpin our culture, which is one of respect,
openness and fairness.
Since the year end, we have been focused on the court case
with Inguran LLC trading as Sexing Technologies (‘ST’) in Madison,
Wisconsin. The jury’s verdict, delivered in mid-August, confirmed
that ST had wilfully maintained monopoly power in the market
for processing bovine sexed semen since July 2012, but that ABS
had infringed two patents and breached confidentiality under our
existing contract with ST. We are currently awaiting the court’s
decision on our request for an injunction which, if granted, will
allow us to terminate the existing ST contract and remove the
contractual prohibitions preventing the launch of our GSS product
in the short term. Full details of the case can be found in note 7
but as shareholders will readily understand this is an important
milestone in the development of the ABS dairy business.
Our Values
Customer
Centric
Results
Driven
Pioneering
Returns to Shareholders
The Board aims to balance the need to invest in the business,
so we can capture the growth opportunities we see in front of us,
with the requirement to offer shareholders an attractive return
on capital and rising dividends.
People
Focused
We are recommending a final dividend of 14.7 pence per
share, giving a total dividend for the year of 21.4 pence per
share, following the interim dividend of 6.7 pence. This represents
an increase of 10% over last year’s total dividend of 19.5 pence.
The final dividend will be paid on 2 December 2016, to shareholders
on the register at the close of business on 18 November 2016.
Summary
This was a pleasing year for Genus, with robust financial
performance in often difficult markets, and good progress
with our strategy. In the coming year, the Board will continue
to focus on successfully implementing the Group’s strategy, the
competitive landscape, managing risk and continuing to enhance
governance. 2017 will see us step up our investment in research
and development, as we look to further develop and progress
our differentiated product offerings and position the business
for long-term success.
Responsible
Bob Lawson
Chairman
7 September 2016
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.
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.
We are an innovative, forward-
thinking company. We have the
courage and confidence to explore
new ideas and the energy and
enthusiasm to deliver them. We are
creative, tenacious and resourceful
in every area of our work.
We are a business rooted in science
but built around our people. We
inspire, challenge and support
everyone to perform, develop and
grow. We treat others with respect
and we invite views and feedback
to help us improve.
We are ethical to our core. We feel
a deep sense of responsibility to
our customers, colleagues, animals,
communities and shareholders.
We are honest, reliable and
trustworthy. We mean what we
say and do what we say.
Strategic ReportCorporate GovernanceFinancial StatementsAdditional Information Genus plc Annual Report 2016
06
Year in Review
Significant Strategic and
Operational Progress
August 2015
September 2015
November 2015
December 2015
ABS launches
TransitionRight™ index
for Holstein cattle
TransitionRight™ is a
proprietary index aimed
at minimising post-calving
metabolic disorders in
dairy cattle
Imports of boars to
Russia recommence
Follows reopening of the
Russian border for imports
of pigs from Canada
New nucleus farms in
the Philippines
Stocked two new third-party
porcine sire line nucleus farms
to expand capacity
Launch of IVB USA
IVB began serving large
commercial dairies and beef
producers in the US
Technological
breakthrough in
PRRSv resistance
Paper published in ‘Nature
Biotechnology’ announces
the development of the
first PRRSv-resistant pigs,
in collaboration with the
University of Missouri
Nature Biotechnology,
December 2015
Weak dairy markets
impact ABS
Milk prices in the US and
Europe fall for a third
consecutive six-month period,
resulting in a 9% fall in dairy
semen volumes at ABS
through the year
Genus plcAnnual Report 2016 07
January 2016
February 2016
March 2016
Launch of ABS Neo
in Brazil
Commercial launch of elite
genetic embryos, frozen using
an advanced proprietary
freezing technology
Refinancing of Group
debt facilities
New five-year, £170m
multi-currency facilities
with improved terms
Launch of
TransitionRight™ index
for Jersey cattle
TransitionRight™ index
extended to Jersey cattle
April 2016
May 2016
June 20161
ABS acquires
St. Jacobs ABC
Vermont-based St. Jacobs is the
world’s leading provider of show
ring and high type dairy sires
New bull stud opens
in India
New stud opened in
Maharashtra, with capacity for
116 bulls and a new laboratory
Strategic collaboration
signed with Caribou
Biosciences
Providing Genus with access
to CRISPR-Cas9 (gene editing)
technology
Landmark royalty
agreements with key
Chinese customers
Expanded capacity with existing
partners and signed three new
customer royalty agreements
including a contract with
Yunnan Shennong
1 Refers to signing date of Shennong agreement.
Genus plc Annual Report 2016Strategic ReportCorporate GovernanceFinancial StatementsAdditional Information
08
Our Investment Case
Rapid Innovation and
Strong Fundamentals
Genus is a leader in the porcine and
bovine genetics markets and benefits
from significant barriers to entry supported
by its investment in technology.
Leading
international
market position
Genus is a world leading
provider of genetically elite
breeding stock to pork,
beef and milk producers
globally, competing largely
with national and regional
farmer-owned cooperatives.
Our international breadth
reduces our reliance on any
individual market or segment.
Focused,
multi-species,
technology-driven
business model
Genus is exclusively focused
on pioneering animal
genetic improvement,
by leading the way in
adopting new technology.
Our proprietary genomic
selection and gene editing
capabilities can be applied
across multiple species.
Genus plcAnnual Report 2016 09
Positive
long-term market
fundamentals
Barriers
to entry
Growth in global demand
for animal protein increases
competition for finite
resources, such as water
and land. Farmers are
increasingly looking to
genetics and technology
to help them meet this
demand more efficiently,
so they can compete
effectively.
Genus invests heavily in
proprietary technologies
to produce ever-higher
performing animals, raising
the bar for our competitors.
Our branded, strategic
distribution network
serves more than 40,000
customers globally.
Cash generative
with a strong
financial position
In the last five years
we have converted over
90% of our adjusted
operating profit into cash
and maintained net debt
below 1.5 times EBITDA.
Our recently renewed debt
facilities provide us with
£50m of headroom and
expire in 2021. This enables
us to invest in technology
and accelerate genetic
gain, further differentiating
our products from
the competition’s.
Strategic ReportCorporate GovernanceFinancial StatementsAdditional Information Genus plc Annual Report 2016
10
Our Market
Long-Term Demand Drivers for
Animal Genetic Improvement
There are sustainable long-term
drivers of global demand for
animal protein and the way it
is supplied. Genetic improvement
is critical to addressing the
associated challenges.
1. Growing Demand for Animal Protein
The global population is expected to grow by over 1 billion
between 2015 and 2030, with the proportion of urbanised
populations increasing from 54% to 60% of the total over
the same period. Urbanised populations tend to become
wealthier, leading to greater appetite for animal protein.
Colour the individual bits on
top of each curve
World Population Growth 1990–2050
Billion
2050
2045
2040
2035
2030
2025
2020
2015
2010
2005
2000
1995
1990
6.3
6.0
5.7
5.4
5.1
4.7
4.3
4.0
3.2
3.3
3.3
3.3
3.4
3.4
3.4
3.4
3.6
3.3
3.2
2.9
2.6
2.3
3.3
3.3
3.2
3.0
Urban
Rural
Source: United Nations, Department of Economic
and Social Affairs, Population Division (2014).
2. Supply Constraints and Uncertainty
Volatile weather and increasing competition for scarce resources,
such as water and land, can constrain animal protein production.
These factors can also affect the availability of raw materials,
particularly animal feed, which indirectly impacts protein
production. This puts pressure on producers to be as efficient
as possible.
3. More Integrated Supply Chains
Supply chains are vertically integrating, resulting in fewer
participants in the chain. This increases transparency of where
food comes from, giving consumers more influence over food
producers, and driving demand for higher-quality animal protein
and more disease-resistant animals, with less use of drugs.
4. Protein Producers Becoming Larger and
Increasing Use of Technology
Producers are increasingly looking to technology to become more
efficient. For example, dairy farmers are rapidly adopting embryo
technology, so they can select both male and female parents
and deliver a step change in the quality of their milking herds.
Producers also seek efficiency gains through scale. In porcine,
large scale integrated production represents the majority
of capacity in the US and Brazil, and is growing fast in China.
Larger producers typically measure performance in more detail
and better understand the benefits of superior genetics.
Comparing PIC’s and ABS’s Markets
Genus PIC and Genus ABS operate in markets with different
dynamics. The table below summarises the key characteristics
of our addressable markets.
Porcine
Dairy & Beef
Industry
Significant barriers
to entry, with
high 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
Genus plcAnnual Report 2016
11
Colour the individual bits on
top of each curve
Changes in Pig Production by Size of Farm in China
6%
37%
57%
12%
49%
18%
54%
22%
30%
58%
60%
Commercial size farms
(3,000+ heads/farm)
Mid size farms
(50–3,000 heads/farm)
Small size farms
(1–49 heads/farm)
39%
28%
20%
10%
Source: Rabobank.
2006
2009
2012
2015
2020F
Over 1.2 billion pigs are produced for slaughter globally each
year in the markets in which PIC operates, of which around half
are produced in China.
The majority of pigs in Asia come from small scale production
facilities, which typically employ less technology. However, the
drive for efficiency is causing a shift in production towards larger,
more integrated production with higher use of technology.
This will lead to an increased demand for higher quality genetics,
growing PIC’s addressable market. PIC currently supplies over
60% of the world’s top pork producers.
The vast majority of beef cattle in our target markets are bred
on pasture by releasing bulls for natural breeding. Less than
10% of beef animals in these markets are serviced through AI,
although this offers access to elite genetics. Competing demands
for land and resources are expected to increase the drive for
efficiency and quality. This is expected to give rise to demand for
better genetics delivered through AI, as well as new technology,
including IVF and gender skew. ABS currently has around a 20%
share of the addressable AI market.
480
68
Colour the individual bits on
top of each curve
Market Opportunity in Porcine
Pig Population
Heads, million
38
28
27
27
China
USA
Brazil
Germany
Vietnam
Spain
Russia
Mexico
Myanmar
France
Canada
Denmark
Netherlands
Philippines
Poland
Source: FAO 2014.
19
16
14
13
13
12
12
12
12
Colour the individual bits on
top of each curve
Market Opportunity in Beef
Beef production
Tonnes, million
11.7
9.7
6.4
USA
Brazil
China
Argentina
Australia
Mexico
Russia
France
Germany
Canada
India
Turkey
2.8
2.3
1.8
1.6
1.4
1.1
1.1
1.0
0.9
South Africa
0.9
Colombia
UK
0.8
0.8
Source: FAO 2013, total cattle meat produced.
Market Opportunity in Dairy
Market Opportunity in Dairy
Elite genetics are sourced internationally from donor parents and
delivered through artificial insemination (‘AI’). As the use of AI
increases, so does ABS’s market. There is also a large spread in
milk yield between countries with similar AI levels, presenting an
opportunity to increase productivity by displacing locally sourced
semen with elite genetics, and through adopting technology.
To compete in this market, genetics providers must be able to
produce elite genetics, distribute them globally and effectively
communicate their benefits. A small but growing market segment
is also adopting in vitro fertilisation (‘IVF’) and gender skew
technologies, to accelerate genetic improvement in their herds.
In the short term, milk prices affect farmer profitability and their
demand for elite genetics. The past two years have seen falling
milk prices in key markets, reducing demand for elite genetics.
12,000
10,000
8,000
6,000
4,000
Top 10 dairy producing countries
Top 30 dairy producing countries
United States
Germany
France
Poland
New Zealand
Turkey
Russia
i
l
d
e
y
k
l
i
M
2,000
Brazil
China
India
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Adoption of artificial insemination
Source: Genus estimates, OECD, NAAB, Eurostat, DEFRA, ASBIA, IFCN, NHIA.
Strategic ReportCorporate GovernanceFinancial StatementsAdditional Information Genus plc Annual Report 2016
12
Our Business Model
Genus uses genome science to produce more efficient
pigs and cattle for farmers. We deliver these animals into
our customers’ herds as efficiently as possible and we
link the amount we charge our customers to the
benefits our superior animals deliver for them.
Our Core
Strengths
Our Business
Model
Genetically elite animals
We own genetically elite pork, beef and
dairy breeding herds, and also have strategic
partnerships with third-party bovine breeders.
Leading technology and know-how
We have a team of over 90 PhD scientists
in-house, and collaborative relationships
with leading research institutions. We also
have cutting-edge technologies that enable
us to skew the chances of getting male or
female offspring, produce embryos and
edit animals’ genes.
Global supply chain and distribution
We produce bovine semen from our facilities
across four continents, and sell it through
our own staff and independent third-party
resellers. We also produce embryos in the US
and Latin America. In porcine, we genetically
manage herds in over 40 countries. More than
95% of these herds are third-party owned,
reducing our farming and commodity risk.
Strong customer base
In bovine, we serve over 40,000 customers
globally, including some of the world’s leading
beef and dairy producers. In porcine, we
serve over 60% of the world’s leading pork
producers, and engage most of them in
multi-year supply agreements.
Produce differentiated products
Our customers want higher performing animals that
require less feed to grow, are more resistant to disease
and produce higher quality protein. We produce animals
with desirable characteristics by continuously selecting the
highest performing animals in our herds and throughout
our supply chain to breed superior generations using our
technology and know-how, in a continuous cycle.
Distribute genetics quickly and efficiently
to our customers
To give our customers the number of elite pigs they
need, we deliver live animals and semen to third-party
‘multipliers’ or our customers, who then multiply our pigs
over four generations to deliver slaughter pigs. Our global
supply chain and distribution quickly gets our latest
genetics to customers.
We distribute bovine genetics as semen, embryos and live
animals. We produce and process these in strategically
located studs and laboratories, both owned and third
party, and sell them directly in 21 countries, and through
distributors in approximately 50 countries. We offer sexed
bovine genetics, as well as elite frozen embryos.
To maximise our products’ performance in customer herds,
our global technical service teams advise on nutrition,
reproduction, health and other areas.
Genus plcAnnual Report 2016 13
Delivering For
Our Stakeholders
Customers
Our genetically superior animals help our customers
to produce better quality and quantity of meat or
milk at lower cost.
Consumers and communities
Our animals help to reduce the volume of feed
and water required to produce meat and milk. This
lessens our customers’ environmental impact and
increases the availability of safe, affordable animal
protein for all.
Our people
Genus employees have the opportunity to develop
themselves and harness cutting edge science to
deliver value for our customers, whilst benefiting
communities, animal welfare and the environment.
Investors
As we share in the value that our products deliver
to customers, we deliver attractive returns to
our investors.
Share in the value created
We price our products to reflect the value they deliver
for our customers.
Our bovine genetics sold as semen are valued using
both public and, increasingly, proprietary economic
indices, which capture a weighted basket of desirable
characteristics. Embryos are priced based on the
genetic merit of both parents, determined through
their respective index rankings.
Our porcine genetics are measured through our indices
aimed at customer profitability, and are primarily sold
on multi-year pricing models, with an upfront payment
equal to the cost of production and a deferred royalty
linked to the volume of pigs produced. This creates
customer loyalty and aligns our interests with theirs.
Strategic ReportCorporate GovernanceFinancial StatementsAdditional Information Genus plc Annual Report 2016
14
Strategic Framework
Genus has a robust strategy to meet its corporate goals
and capture the significant growth opportunities in the
animal genetics market.
Increasing Genetic Control
and Product Differentiation
Targeting Key Markets
and Segments
Sharing in the
Value Delivered
To maintain and enhance our
product leadership
We do this by leveraging our genomic selection and
broader genome science capabilities to continuously
improve our herds, and investing in new technology
and tools to strengthen our capabilities.
To deliver the right offering for
the right customers
We do this by targeting meat and milk producers globally
who understand the impact of genetics, offering them
products, support and technical services tailored to
their needs.
To capture an appropriate share of the value
we deliver to customers
We do this by demonstrating the value of our genetics and
indices through trials and aligning our interests with our
customers’, by linking our revenues to their productivity.
Achievements in 2015/16
Achievements in 2015/16
Achievements in 2015/16
Pork
• Developed PRRSv-resistant pigs and secured
Pork
• Grew presence with leading pork producers
exclusive global licence
in Europe and Asia
• Accelerated rate of genetic improvement
• Signed new supply chain agreements in China
• Grew proportion of our business under royalty
Beef & Dairy
• Won our first IVF customers in the US
• Began selling elite frozen embryos in Brazil
• Launched a new bull stud in India
Beef & Dairy
• Sourced 20% of all new US Holstein bulls from
our internal breeding programme
• Formed a strategic partnership with the world’s
leading independent Holstein breeder1
• Launched proprietary health indices for Holstein
and Jersey cattle
• Secured an exclusive licence for technology to
combat BRD
Technology
• Prepared GSS for launch
• Secured access to CRISPR-Cas9 gene editing
technology, through collaboration with
Caribou Biosciences
• Signed three new royalty agreements with large
Pork
customers in China
by 2 percentage points
Beef & Dairy
• Achieved over 7% price increase for high health
status bulls, and grew their share of total
volumes by 1.7 percentage points2
• Achieved over 20% aggregate price increase in
Latin America
Key performance indicators
Key performance indicators
Key performance indicators
• See our Increasing Genetic Control
and Product Differentiation KPIs
See page 16
• See our Targeting Key Markets and
• See our Sharing in the Value Delivered KPIs
Segments KPIs
See page 16
See page 17
1
In September 2016.
Genus plcAnnual Report 2016
15
Increasing Genetic Control
and Product Differentiation
Targeting Key Markets
and Segments
Sharing in the
Value Delivered
To maintain and enhance our
product leadership
We do this by leveraging our genomic selection and
broader genome science capabilities to continuously
improve our herds, and investing in new technology
and tools to strengthen our capabilities.
To deliver the right offering for
the right customers
We do this by targeting meat and milk producers globally
who understand the impact of genetics, offering them
products, support and technical services tailored to
their needs.
To capture an appropriate share of the value
we deliver to customers
We do this by demonstrating the value of our genetics and
indices through trials and aligning our interests with our
customers’, by linking our revenues to their productivity.
Achievements in 2015/16
Achievements in 2015/16
Achievements in 2015/16
Pork
Pork
• Developed PRRSv-resistant pigs and secured
• Grew presence with leading pork producers
exclusive global licence
in Europe and Asia
Pork
• Signed three new royalty agreements with large
customers in China
• Accelerated rate of genetic improvement
• Signed new supply chain agreements in China
• Grew proportion of our business under royalty
Beef & Dairy
Beef & Dairy
• Sourced 20% of all new US Holstein bulls from
• Won our first IVF customers in the US
our internal breeding programme
• Began selling elite frozen embryos in Brazil
• Formed a strategic partnership with the world’s
• Launched a new bull stud in India
leading independent Holstein breeder1
• Launched proprietary health indices for Holstein
and Jersey cattle
• Secured an exclusive licence for technology to
combat BRD
Technology
• Prepared GSS for launch
• Secured access to CRISPR-Cas9 gene editing
technology, through collaboration with
Caribou Biosciences
by 2 percentage points
Beef & Dairy
• Achieved over 7% price increase for high health
status bulls, and grew their share of total
volumes by 1.7 percentage points2
• Achieved over 20% aggregate price increase in
Latin America
Key performance indicators
Key performance indicators
Key performance indicators
• See our Increasing Genetic Control
and Product Differentiation KPIs
See page 16
Segments KPIs
See page 16
• See our Targeting Key Markets and
• See our Sharing in the Value Delivered KPIs
See page 17
2 When comparing average unit blend prices and share of total volumes of
Holstein bulls ranked as 5* under TransitionRight™ for the periods Apr – Jul
and Aug – Dec 2015. TransitionRight™ bulls are ranked from 1* to 5*.
Performance
Our key performance indicators
measure how well we are
achieving our goals
See pages 16 to 17
Risk
We look to understand and
mitigate the risks to achieving
our strategic goals
See pages 18 to 19
Divisional Progress
Each of our divisions and our
R&D function has strategic
priorities that support our
Group strategy
See pages 28 to 35
Strategic ReportCorporate GovernanceFinancial StatementsAdditional Information Genus plc Annual Report 2016
16
Key Performance Indicators
We monitor and measure our strategic progress by reference to
the three parts of our strategy: increasing genetic control and
product differentiation; targeting key markets and segments;
and sharing in the value delivered.
Increasing Genetic Control and Product Differentiation
Colour the individual bits on
top of each curve
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top of each curve
Porcine Genetic Improvement Index
US$
Net Merit Rankings
Genomic and daughter-proven bulls
Genomic
Proven
3.15
4.45
3.72
2016
2015
2014
2013
2012
1.90
2.00
2016
2015
2014
2013
18
13
11
11
17
23
30
31
2012
6
28
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 the economic values of pork production.
Performance
Implementing genomic selection technology
in 2013 led to an immediate step change in
genetic gain value improvement. This continued
in 2016, with an improvement of US$3.15.
Monitors our success in developing bulls that
are highly ranked, because of their genetic
performance and economic merit.
Definition
The number of our generally available Holstein
bulls listed in the top 100 Net Merit US$ rankings
for progeny tested and the top 100 Genomic
Net Merit rankings for genomically tested sires.
Performance
Genus maintained a competitive industry
line-up. Holstein proven bulls declined due to a
limited pipeline of genomic bulls several years
ago. We have continued to strengthen our
current position in the genomic bull category.
Targeting Key Markets and Segments
Colour the individual bits on
top of each curve
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top of each curve
Dairy and Beef Volume Growth
%
Porcine Volume Growth
%
2016 (6)
2015
2014
2013
2012
6
5
5
8
2016
2015
2014
2013
2012
4
6
6
5
9
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
Total bovine volumes declined 6% to 17.3 million
doses in tough dairy markets, with Europe and
North America particularly challenging. Beef
units grew 4% as farmers continued to increase
use of beef semen in dairy cows.
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 include MPEs
from Agroceres PIC, our Brazilian JV, and prior
years have been restated for consistency.
Performance
Volumes grew 4% to 136 million MPEs with
strong double digit growth in Asia from our
China, Russia and Vietnam businesses and
strong royalty volume growth across all regions.
Volumes of upfront animals, where MPEs are
counted at the time of initial sale, declined
as planned.
Genus plcAnnual Report 2016
17
Sharing in the Value Delivered
Colour the individual bits on
top of each curve
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top of each curve
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top of each curve
Adjusted Operating Profit (including JVs)
£m
Operating Profit per MPE
£
Operating Profit per Dose of Bovine Semen
£
2016
2015
2014
2013
2012
54.3
51.2
44.8
48.2
48.0
2016
2015
2014
2013
2012
0.51
0.43
0.38
0.41
0.43
2016
2015
2014
2013
2012
0.60
0.88
1.03
1.19
1.26
To track underlying profit generation.
Monitors porcine profitability by unit.
Monitors bovine profitability by unit.
Definition
Net dairy and beef adjusted 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
£0.60, down £0.28 (down £0.23 in constant
currency) due to weak dairy markets in Europe
and North America, along with impacts from
foreign exchange rates. The longer term trend
has been caused by higher cost of genomic
bulls, increased product development to build
our own genetic improvement capability
and currency impacts, particularly in Latin
America. Initiatives to address this trend include
producing bulls internally, launching our GSS
technology and building IVF capability, along
with cost efficiency and pricing actions.
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
£54.3m, up £3.1m (up £4.6m in constant
currency) due to strong performances across
our porcine businesses, particularly in China,
partially offset by declines in our Europe and
North America dairy businesses and increased
investment in R&D.
Definition
Net porcine adjusted operating profit globally,
expressed per MPE. Results include share of
Agroceres PIC, our Brazilian JV.
Performance
£0.51, up £0.08 in actual and constant currency,
helped by strong growth in our China porcine
business and higher royalty volumes across all
sales regions.
Colour the individual bits on
top of each curve
Cash Conversion
%
Colour the individual bits on
top of each curve
Net Debt : EBITDA
2016
2015
2014
2013
2012
88
107
103
77
96
2016
2015
2014
2013
2012
1.4
1.2
1.2
1.0
1.1
Monitors our success in converting profits
into cash.
Ensures we have a strong balance sheet and the
financial capability to execute our strategy.
Definition
Cash generated by operations before capital
expenditure, investments, interest, tax and
dividends, expressed as a percentage of
adjusted operating profit (excluding JVs).
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
Cash conversion of 88% was consistent with
historical averages, following two very strong
years that benefited from a step change in
working capital management and the benefit
of the exit from the Quebec nucleus in 2015.
Performance
1.4, up 0.2 on last year, reflecting the increase
in net debt from £71.8m to £89.7m primarily
as a result of foreign exchange movement on
our US Dollar borrowings, partially offset by
higher EBITDA.
Genus plc Annual Report 2016Strategic ReportCorporate GovernanceFinancial StatementsAdditional Information
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.
The Directors confirm that they have
undertaken a robust assessment of the
principal risks and uncertainties facing
the Group.
More information on the types and levels
of risks the Board is prepared to seek and
accept in executing the strategy, and
how we define risk appetite and identify
and manage risks, can be found in the
Corporate Governance Statement on
page 55.
Link to Strategy
1 Increasing Genetic Control and
Product Differentiation
2 Targeting Key Markets and
Segments
3 Sharing in the Value Delivered
How we manage risk
Strategy
Risk change in 2015/16
Strategic Risks
Risk description
Developing products
with competitive
advantage
• Development programmes fail to
•
produce best genetics for customers.
Increased competition to secure
elite genetics.
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.
•
1, 2
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.
1
We also initiated legal proceedings in
the US, in relation to anti-trust issues
which, together with patent counter-
claims, went to trial in August 2016.
Developing and
commercialising gene
editing technologies
Failure to successfully develop
•
and commercialise gene editing
technologies due to technical, IP,
market, regulatory or financial barriers.
‘Game-changing’ technology secured
by competitors.
•
1, 2
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. Formal
collaboration agreements are in place
with key partners to ensure responsible
exploration and development of the
technologies and the protection of IP.
The Board is updated regularly on key
development projects.
No change in porcine but
increased in bovine due
to continuing trend to
genomic bulls.
No change. The initial verdicts
in the legal proceedings create
a path to commercialisation but
further rulings by the Court are
awaited to bring clarity to the
next steps. Technical progress
to scale up for commercial
launch also progressed well,
reducing launch risk.
Increased due to the discovery
and pursuit of new gene
editing applications and
consequent higher investment
in 2015/16 and beyond. All
key initiatives are progressing
through the R&D life cycle.
Capturing value
through acquisitions
Failure to identify appropriate
•
investment opportunities or to
perform sound due diligence.
Failure to successfully integrate an
acquired business.
•
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.
1, 2, 3
No change.
Genus plcAnnual Report 2016 19
How we manage risk
Strategy
Risk change in 2015/16
2
3
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 2015/16 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.
1, 2
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.
3
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.
No change. Revised plans
and approach to the market
in China and other emerging
markets continue to improve
our ability to control and
mitigate the risk.
No change.
No change.
No change.
Strategic Risks
Risk description
Growing in emerging
markets
•
Failure to appropriately develop
business in China and other
emerging markets.
Operational Risks
Protecting IP
•
Failure to protect our IP means Genus-
developed genetic material, methods,
systems 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
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.
•
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 2015 actuarial valuation. We monitor
the strengths of other employers in
the fund and have retained external
consultants to provide expert advice.
n/a
No change. The trustees’
decision to grant future
pension increases on the basis
of the movement in CPI, rather
than RPI, will reduce costs.
However, this is currently being
partially offset by the impact
of falling bond yields following
the EU referendum in the UK.
Genus plc Annual Report 2016Strategic ReportCorporate GovernanceFinancial StatementsAdditional Information
20
Leadership Through Innovation
Increasing Genetic Control and
Product Differentiation
Case Study
Tackling Disease with Breakthrough Technology
Porcine Reproductive and Respiratory
Syndrome Virus (‘PRRSv’) is the most
significant and harmful disease faced
by pig farmers. Millions of pigs and
piglets suffer from the virus each year,
which causes reproductive failure,
reduced growth and premature death.
Despite being a challenge for the pork
industry for more than a quarter of a
century, there is still no cure.
Nature Biotechnology,
December 2015
In December 2015, we announced that
our long-standing collaboration with
the University of Missouri had produced
a major breakthrough – the first pigs
resistant to this devastating disease. Using
gene editing, the University was able to
breed pigs that do not produce a protein
necessary for PRRSv to spread. Early stage
studies showed that these pigs stayed
healthy and gained weight normally when
exposed to the virus. We are now working
to further develop this technology and
expect that it will take at least five years to
obtain any required regulatory approvals
and make PRRSv resistant animals
available to farmers.
Our work will be aided by our new strategic
collaboration with Caribou Biosciences –
our largest technology driven alliance
to date. Caribou is a leader in the
revolutionary field of CRISPR-Cas9
gene editing, which allows precise and
controllable changes to the genome.
Genus has a worldwide exclusive licence
to use the technology to develop new
traits in pigs, cows and potentially other
livestock species, with PRRSv being one of
our first targets. This collaboration will
ensure that Genus remains at the forefront
of developing and applying technology
to support animal well-being.
Genus plcAnnual Report 2016 21
“ In December 2015,
we announced a major
breakthrough – the first
pigs resistant to Porcine
Reproductive and
Respiratory Syndrome
Virus.”
Genus plc Annual Report 2016Strategic ReportCorporate GovernanceFinancial StatementsAdditional Information
22
Leadership Through Innovation
Targeting Key Markets
and Segments
Case Study
Pursuing Growth in
the World’s Largest
Dairy Market
India offers a major opportunity for Genus.
With a population of 1.25 billion people,
it is the biggest dairy market in the world.
However, milk yield and production
efficiency are low and local restrictions
have hindered genetic improvement,
including a ban on importing bulls and
limits on importing semen.
In view of these restrictions, we explored
other ways of giving farmers access to our
much-needed genetics, and identified a
way of importing elite North American
genetics in the form of embryos, and
implanting them in carefully selected
animals. We needed a local partner to
help with the process and joined forces
with the Chitale family, who owned the
only private stud in India.
As we grew the range of locally housed
bulls, it became clear that we needed
a larger production facility. We formed
a joint venture with the Chitale family
and in early 2016, opened a truly
world-class facility, incorporating the
very latest practice in areas such as bull
handling, production and health and
safety. The stud is the leading facility
of its type in India and one of the
most advanced in the world.
At full capacity, the stud will be able
to produce more than 7 million semen
straws a year. It also has room for
expansion and is compliant with
our GSS project, so we are ready to
implement this when it comes on
stream. Increasing production is being
supported by further development of
our commercial infrastructure and offer
within India. This includes expanding
our range of distributors and
distribution models and developing
a tailored Indian index for genetics,
so we can breed for Indian conditions
and economics.
Genus plcAnnual Report 2016 Case Study
Expanding Our
IVF Offering
In 2015 we acquired a majority holding in IVB,
the world leader in bovine in vitro fertilisation
(‘IVF’). While IVF and artificial insemination
(‘AI’) both allow farmers to improve their
herds’ genetics on the male side, IVF enables
them to select elite female genetics as well.
This allows our customers to accelerate
annual genetic improvement in their herds.
In 2015/16, ABS and IVB have worked
together to expand IVB’s geographical
footprint and its product offering. IVB has
established a new presence in Mexico, which
is an exciting market with the largest ‘cow
pocket’ in Latin America. Mexico offers
tremendous potential to implement IVF
technology and to leverage ABS’s strong
presence. The new operation includes a
laboratory equipped with the very latest
technology. IVB has also relocated a complete
team from Brazil, to ensure its technicians in
Mexico have substantial experience of IVF.
This will ensure Mexican producers receive the
same high quality as our Brazilian customers.
The laboratory in Mexico can produce either
fresh or frozen embryos for dairy producers.
IVB’s new Direct Transfer process has
simplified the freezing and transferring of
embryos, so they can be implanted in one
step, similar to AI. Early results show this new
methodology is achieving equal or better
results than previous freezing techniques,
strengthening customers’ confidence in Direct
Transfer. IVB and ABS have also begun selling
high genetic merit embryos in Brazil and we
continue to target the progressive farms
segment, which has a high level of technology
adoption and the scale to implement it.
23
“ In 2015, we acquired a majority
holding in IVB, the world leader
in bovine IVF.”
Genus plc Annual Report 2016Strategic ReportCorporate GovernanceFinancial StatementsAdditional Information
24
Leadership Through Innovation
Sharing in the Value Delivered
Case Study
Positioning Genus for
Further Success in China
China is the world’s largest porcine market and
offers major long-term opportunities for us.
When we first established a presence in China,
its differing risk profile led us to operate through
owned and joint venture farms. In line with our
global strategy, we are now transitioning to
contracted production with trusted partners,
helping to mitigate our exposure to farming
and commodity price risk.
Riverstone became our first multiplier and
royalty-based customer in 2014. This year we
signed a seven-year agreement with the Yunnan
Shennong Agricultural Industry Group, to enable
them to establish 50,000 sows for a new
production facility. The agreement includes
a multiplication farm, with the capacity to
produce 30,000 grandparent gilts a year, and
the establishment of a sire line nucleus, which
will double our capacity to produce high-quality
terminal boars in China. Both will initially be
stocked with the latest high-health great-
grandparent animals from PIC’s genetic nucleus
in the US. In addition, we signed an agreement
with Jinluo group, China’s biggest slaughter
plant, to supply terminal boars for its 50,000
sow commercial system.
These agreements, and the long-term royalty
arrangements involved, give us resilient revenues
and enable us to share in the value created by
our proprietary genetics.
With this firm foundation in place, we will
now be integrating our porcine operations in
China and our other Asian markets into the
global PIC organisation. This will help us deliver
a consistent customer experience worldwide,
while maintaining flexibility to address local
market needs.
Genus plcAnnual Report 2016 25
Case Study
Preventing Post-Calving
Disorders Through
Advanced Genetics
Cows making the transition from giving
birth to becoming productive members of
the milking herd can suffer from a number
of significant health problems. In fact,
three-quarters of disease in dairy cows
occurs in their first 30 days in milk and as
many as half of high-producing cows are
affected. This means dairies can lose up to
10% of the herd each year due to transition
cow problems, resulting in substantial time,
money and productivity costs.
In August 2015, we launched our
TransitionRight™ genetics, giving farmers the
first genetic solution to multiple post-calving
disorders. Some of the key problems
TransitionRight™ addresses are mastitis,
metritis and ketosis, which typically cost US
farmers between US$200 and US$350 per
case. By choosing a 5-star TransitionRight™
sire, farmers can save an average of US$100
per lactation compared with a 3-star sire and
US$200 compared with a 1-star sire. This
saving reflects lower treatment costs, labour
and lost profits, as well as avoiding additional
housing, care, monitoring and feeding
expense. At the same time, reducing the
incidence of post-calving disorders is
beneficial for animal welfare.
Customers worldwide have responded
positively to TransitionRight™’s introduction
and have quickly incorporated
TransitionRight™ into their genetic selection
criteria. As a result, we have seen growing
demand for high-ranking 4-star or 5-star
TransitionRight™ units.
Strategic ReportCorporate GovernanceFinancial StatementsAdditional Information Genus plc Annual Report 2016
26
Chief Executive’s Review
Robust Performance
“ In 2017, we will further
accelerate our efforts to develop
and apply the science and
technology that is essential
to our longer-term success.”
2016 was another good year for Genus. The Group performed
well overall and we met our financial and operational goals, as
the breadth of our business by geography and species helped
drive growth, despite challenges in some of our markets. We
also made strong progress with implementing our innovation-
led strategy, as we develop Genus into a company, based on
leading-edge science and biotechnology.
Group Performance
Genus achieved a robust performance in 2016, with adjusted
profit before tax including joint ventures (‘JVs’) rising 7% (10%
in constant currency) to £49.7m. On a statutory basis, profit
before tax rose 5% to £60.9m. Porcine volumes rose by 4%,
although bovine volumes were 6% lower in tough dairy markets.
Strategically important revenues such as porcine royalties rose
strongly, however, total revenue was 3% lower.
Genus PIC had another strong and successful year, despite
challenging conditions for our customers in most regions,
achieving a 9% growth in adjusted operating profit including
JVs in constant currency. Profits were up in all regions and
the business achieved strong growth in royalty volumes and
revenues. Over the last few years we have repositioned PIC’s
European operations away from low margin up-front parent
gilt sales towards royalty contracts, particularly with integrated
pork producers, and we saw encouraging results in the year
from this work.
Karim Bitar
Chief Executive
Genus plcAnnual Report 2016 27
With dairy customers facing depressed milk prices across major
markets, Genus ABS had a tough year and saw adjusted operating
profits fall by 16% in constant currency. We took tactical actions
on costs and margins to protect short-term performance and
strategic actions outlined below to position the business for
long-term growth. IVB, the world’s leading supplier of bovine IVF
services and products, was successfully integrated following our
acquisition of 51% in March 2015 and delivered an encouraging
performance in its first full year in Genus. Our Asian operations
achieved very strong results across the region, more than
doubling operating profit including joint ventures. Growth in China
stood out, as we saw the benefit of our work to focus on large
scale pork producers while reducing farming risk in this business.
We also benefited from strong porcine market conditions in
China. Performance in Russia also improved as porcine import
restrictions were lifted.
biotechnology pioneer Caribou Biosciences. This gives us an
exclusive worldwide licence to use the revolutionary CRISPR-
Cas9 gene editing technology to develop new traits in pigs,
cows and potentially other livestock species. Since the end of
the year, we have also announced an exclusive worldwide licence
with Washington State University, for patents and know-how
relating to gene editing targets for BRD.
Genus continued to target key growth markets during the year,
with particular progress in India and China. India is the world’s
largest dairy market and the opening of our joint venture’s new
bull stud was an important milestone for Genus. This new stud
is one of the most advanced designs in the world. China is the
biggest pork producer globally and we strengthened our position
by signing landmark royalty agreements with three key Chinese
integrated pork producers.
Strategic Progress
R&D is the starting point for our innovation-led strategy to
enable us to increase genetic control and product differentiation.
Genomic selection techniques continue to advance and our
application of them to accelerate genetic gains in porcine
continues in our nucleus herds and is now starting to feed into
performance gains for our customers. We also apply these
techniques in bovine, developing proprietary indices such as
TransitionRight™ (see the case study on page 25) focused on dairy
health traits and progressing our internal breeding programme,
which is now producing some of our most elite bulls.
On 1 September 2016, we formed De Novo Genetics, a majority-
owned Holstein breeding strategic partnership, with De-Su, the
world’s leading independent Holstein breeder. De Novo will further
accelerate the proportion of bulls Genus produces internally by
combining ABS’s and De-Su’s elite Holstein breeding programmes.
This will gives us greater control of the genetics we need in order
to create differentiated solutions that help commercial dairy
farmers increase profitability through improved herd productivity,
health and efficiency.
We made excellent technical progress with our GSS technology
in 2016, as we prepared it for commercialisation. Our litigation
against ST went to trial in August 2016 and, while there are several
issues still pending with the Court, the initial verdict’s finding that
ST had wilfully maintained a monopoly should give us a path to
the commercial launch of the technology. This could be within
the next few months if our request for an injunction releasing us
from our contract with ST is granted. The jury’s findings that our
technology infringes two of ST’s patents and specifying royalties
to be paid to ST will be subject to further review by the Court and
is not expected to delay commercialisation. We look forward to
bringing competition to this important market.
Gene editing is becoming a key part of our technology platform
that could transform Genus over time. Our collaboration with
the University of Missouri produced a major breakthrough during
the year, by using gene editing to create the first pigs resistant
to the devastating PRRSv disease. We are working to develop
this technology, aided by our new strategic collaboration with
People and Organisation
With Genus Asia now well established and growing successfully,
we intend to integrate its porcine and bovine operations into
PIC and ABS in the coming year. This will support our strategy
for each species and help us to deliver a consistent experience
to customers around the world. Jerry Thompson, who has
successfully led Asia, will take on a new role to further focus our
efforts in establishing a greater presence with beef customers
globally as COO Genus ABS Beef. He will work closely with Saskia
Korink, who will now lead our global Genus ABS Dairy operations.
Our employee pulse survey continued to show that our
people find Genus an engaging and stimulating place to work.
They are committed to our vision and understand our strategy
for achieving it. I want to thank all my colleagues for their
contribution to delivering for our customers, which in turn
enables Genus to succeed.
Outlook
Over the last two years, Genus has grown adjusted profit before
tax in double digits in constant currency. In 2017, we will further
accelerate our efforts to develop and apply the science and
technology that is essential to our longer-term success. This will
lead to a significant step up in R&D investment in 2017 resulting
in profit for the year being similar to 2016 in constant currency.
However, we anticipate a benefit from exchange rates, with
Sterling having declined sharply towards the end of 2015/16.
Overall, we expect to make further strategic progress in 2017
and to perform in line with market expectations.
Karim Bitar
Chief Executive
7 September 2016
Strategic ReportCorporate GovernanceFinancial StatementsAdditional Information Genus plc Annual Report 2016
28
Genus PIC
Strategic Progress – Genus PIC
“ We have strengthened our
foundations for long-term
success by harnessing leading-
edge technologies.”
Bill Christianson
Chief Operating Officer, Genus PIC
We have continued to grow our porcine business by
accelerating increases in genetic gain and providing
world-class products and services. In parallel, we have
strengthened our foundations for long-term success
by harnessing leading-edge technologies. During the
year, we made the following progress against our
strategic objectives:
Increasing Genetic Control and Product
Differentiation
• Harnessed genomics to accelerate genetic gain and
completed assimilation of genes from Génétiporc
into our genetic improvement programme.
• Streamlined our range of Camborough gilts and elite
terminal boars, to help provide a clear and consistent
product offering.
• Worked with R&D colleagues on technologies that
could aid development of new proprietary products;
examples include our ground-breaking work to
develop pigs resistant to Porcine Reproductive and
Respiratory Syndrome Virus (‘PRRSv’), undertaken
in collaboration with the University of Missouri.
Targeting Key Markets and Segments
• Strengthened relationship with large accounts;
we are currently doing business with more than
60% of the globally largest accounts.
• Standardised processes and ways of working, such
as a global approach to key account management.
• Explored new ways of working with smaller
customers, to help meet their needs effectively
and efficiently.
• Achieved particular success in Europe following
our restructuring in 2013, with growth of 22%.
• Continued to build relationships with key industry
stakeholders, including holding our latest global
symposium in May 2016: this was attended by
around 300 customers, helping us to strengthen
existing contacts, make new connections and
associate PIC with the latest thinking.
Sharing in the Value Delivered
• Ran more product validation trials in more regions
than ever before, consistently demonstrating the
value of our products and enabling us to strengthen
our pricing-for-value strategy in several markets.
• Continued to transition to a royalty pricing model
in regions where this is relatively new, with volume
increases of 8% in Europe, 16% in Latin America and
6% in Asia, resulting in 76% of our global business
utilising the royalty model.
Priorities for FY17
• Continue to pursue our global strategy, tailored as
•
needed for local markets.
Integrate our Asian porcine operations into our global
structure, to help deliver a consistent customer
experience worldwide.
• Significantly expand our global supply chain.
Genus plcAnnual Report 2016 Operating Review – Genus PIC
Revenue
Adjusted operating profit exc JV
Adjusted operating profit inc JV
Adjusted operating margin exc JV
Corn – Key Markets
£ per tonne
300
250
200
150
100
50
0
Aug 13
29
Actual currency
Constant
currency
2016
£m
176.5
64.2
68.7
36.4%
2015
£m
Movement
%
Movement
%
175.5
57.2
61.9
32.6%
1
12
11
(2)
9
9
3.8pts
3.7pts
Pork – Key Markets
£ per kg
3.0
2.5
2.0
1.5
1.0
0.5
Aug 14
Aug 15
Aug 16
Aug 13
Aug 14
Aug 15
Aug 16
US
Brazil
EU
China
US
Brazil
EU
China
Russia
Market
Market conditions for Genus’s porcine customers were challenging
in most regions over the past year. High output, along with
geopolitical instability in Brazil, Russia and the EU, significantly
affected profitability across the animal protein value chain.
Global meat price indices for pork reached a 12-year low.
North American producers maintained a positive net return for
the fiscal year, despite these challenging macroeconomic factors.
A strong export programme, coupled with relatively low cost of
production, delivered an estimated average of £5 profit per head
to producers in the United States. Additionally, farm debt ratios in
the US were low which continued to support expansion in 2015/16.
The outlook for prices in North America is challenging in the near
term, but a 6% forecast increase in slaughter capacity in the US
during 2017 is providing some optimism to the industry. This will
support overall demand, along with an expected 5% increase
in exports.
In Europe, the porcine industry suffered from increased
production and export bans. This led to oversupply and pork prices
declining around 9% compared with the previous year, leaving
prices about 20% below the average for the last five years and
resulting in producers making significant losses. The outlook
for producers is a bit more encouraging, as prices have recently
started to rise and some herd contraction has taken place. It is
also anticipated that exports to China should remain stable.
In Latin America, disease and economic volatility continue to
challenge producers’ profitability. In Mexico, porcine epidemic
diarrhoea virus (‘PEDv’) and PRRSv have affected supply and
contributed to higher pig prices. The political turmoil and recession
in Brazil have hampered the otherwise promising performance
of the Latin America pig industry. Even so, Brazil was the fourth
largest pork producer in 2015/16 and continues to be a major
participant in the global market. Firm exports to Russia and
China, in conjunction with strong domestic demand, has Brazil on
track to increase pork production 3% by the end of the calendar
year, in spite of elevated input costs. Despite these challenges,
Latin America remains a growth market.
Overall, market conditions are mixed heading into FY17.
China will continue to be a driving force globally and exporting
nations will rely on their consumption to bolster production
and financial performance.
Performance
During 2015/16, Genus PIC performed strongly. Adjusted operating
profits including joint ventures were £68.7m, up 9% in constant
currency, and margins expanded by 4% to 36%. Volumes grew by
2%, with all regions contributing strong growth in royalty volumes.
Revenue was 2% lower, primarily due to lower sales of up-front
animals. However, strategically important royalty revenues rose
by 13% in constant currency.
In North America, profits were up 8% in constant currency, on
volume growth of 3%. Strong customer uptake of high genetic
merit boars through the CBV plus and CBV max pricing structures,
in addition to high health in customer herds, contributed to
royalty growth of 9%. A number of customers expanded their
herds, which contributed to high breeding stock sales volumes.
Latin American profits improved 12% in constant currency,
on 3% volume increases, helped by a strong operating profit
performance in Mexico, up 29%. In Brazil, the PIC Agroceres joint
venture also performed well, with a 23% increase in constant
currency operating profit, but the rest of the region declined
due to lower animal shipments to Venezuela, where customers’
access to foreign currency was curtailed.
In Europe, volumes were slightly down, with an 8% increase in
royalty volumes and a 14% decline in up-front volumes, in line
with the strategic direction of the business. Revenue declined by
9% due to the lower up-front sales but operating profit increased
22% in constant currency. The strategic repositioning of the
PIC Europe business over the last few years, to focus on royalty
business with larger producers, is starting to show benefits despite
the tough trading environment in the European pig industry.
Overall, PIC’s successful execution of its strategy has enabled
continued positive momentum globally.
Strategic ReportCorporate GovernanceFinancial StatementsAdditional Information Genus plc Annual Report 2016
30
Genus ABS
Strategic Progress – Genus ABS
“ Despite difficult conditions in
the global dairy market, ABS has
continued to evolve a broader
and increasingly differentiated
range of solutions…”
Saskia Korink Romani
Chief Operating Officer, Genus ABS
Despite difficult conditions in the global dairy market,
ABS has continued to evolve a broader and increasingly
differentiated range of solutions to help dairy and beef
customers ‘Profit from Genetic Progress’. During the year, we
made the following progress against our strategic objectives,
whilst also implementing a number of short-term, profit-
focused initiatives to counter the market headwinds:
Increasing Genetic Control and Product
Differentiation
• Expanded our elite dairy female programme with 20%
of our new bulls sourced from it in 2016. In September
2016 we formed De Novo Genetics in partnership with
the US’s leading independent Holstein breeder.
• Strengthened our beef nucleus herd, which is
•
expected to deliver 900 bulls to our PowerLine beef
bull programme by 2019.
Launched proprietary indices to help customers
identify dairy sires with offspring more resistant
to diseases after giving birth, resulting in price and
volume increases for high health status bulls.
• Harnessed IVB’s IVF technology to expand our
genetic improvement solutions and launched new
direct transfer frozen embryos in Brazil combining
elite female and male genetics.
• Supplied IVF services to a major US dairy customer.
• Prepared to launch our proprietary Genus Sexed
Semen technology in key markets.
Targeting Key Markets and Segments
• Embedded customer segmentation in our dairy
business and created a distinct customer experience
for different segments.
• Upgraded our proprietary Genetic Management
System (GMS 2.0), enabling advanced customisation
and incorporation of genomic data.
• Established IVB’s operations with new laboratories
in the US and Mexico, and expanded operations
in Mozambique.
• Delivered efficiency savings by reducing sales and
service staff in Europe and reduced distribution costs.
Sharing in the Value Delivered
•
Implemented a new pricing-to-value strategy in the
US and UK, based on an ‘ABS Value Index’.
• Demonstrated and captured a share of the value of
higher fertility genetics with customers in Brazil.
Increased prices in Latin America by over 20% to
counter the impact of exchange rate devaluations.
•
Priorities for FY17
• Drive profit recovery through focus on value and
cost initiatives.
• Accelerate delivery of differentiated genetics
produced internally through De Novo partnership.
• Harness new technologies and roll out our
proprietary GSS, to build business with new and
existing customers.
• Continue to grow IVB with large enterprise customers
•
and distribute frozen direct transfer embryos to
medium size customers.
Focus on the exciting opportunities in beef, by
establishing a global team to help us evolve
proprietary products, continue developing our
technology and enhance differentiation.
Genus plcAnnual Report 2016 Operating Review – Genus ABS
Revenue
Adjusted operating profit
Adjusted operating profit inc non-controlling interest
Adjusted operating margin
Dairy – Key Markets
Pence per litre
50
45
40
35
30
25
20
15
31
Actual currency
Constant
currency
2016
£m
158.7
19.5
18.2
12.3%
2015
£m
Movement
%
Movement
%
167.8
24.0
23.5
14.3%
(5)
(19)
(23)
(3)
(16)
(21)
(2.0)pts
(1.8)pts
Beef – Key Markets
Live cattle £ per kg
2.5
2.0
1.5
1.0
0.5
10
Aug 13
Aug 14
Aug 15
Aug 16
0
Aug 13
US
Brazil
EU
China
Russia
India
US
Brazil
Aug 14
Aug 15
Aug 16
Market
Conditions in the dairy and beef markets affect our customers’
profitability and in turn their willingness, at least in the short term,
to invest in genetics.
During the year, milk prices remained depressed across major
markets, with further declines in the US and Europe. Continued
milk production growth in key regions such as EMEA and
continued weak import demand from markets such as Russia,
China and the Middle East led to prices of the main dairy
commodities being between 20% and 50% below their three-year
averages. It looks likely that prices will not improve sustainably
until early 2017.
In Europe, the continuing trade ban imposed by Russia and weak
exports to China, following previous stockpiling, were exacerbated
by a supply increase as quotas were lifted and mild weather
helped production. In the US, demand has remained solid and
milk production growth has slowed, but higher milk imports
have affected the supply/demand equation. However, lower feed
costs have reduced the impact on operating margins compared
with the rest of the globe. In Brazil, the deepening economic
recession has led to a further deterioration in dairy demand and
a fall in farm-gate prices of 18% in real terms, resulting in the
first contraction in milk production since 1993. Meanwhile, the
Argentina dairy industry has been badly affected by some of the
worst flooding in over a decade.
Beef prices in the US were volatile, with a downward trend in
the first half of 2015/16 and a return towards normal levels by
the end of the year. In Brazil, cattle prices remained stable in
the worsening economy, helped by a combination of female
retention, which has reduced finished cattle going to market,
and higher exports with the opening of the US as an export
destination and the devaluation of the Brazilian Real. The outlook
for global beef prices is broadly stable.
volume decrease and a 3% decline in revenues. Excluding IVB,
Genus ABS’s revenues were 9% lower. Europe, and to a lesser
extent North America, were key contributors to the lower results.
In response to the challenging conditions, ABS took robust actions
to reduce costs, particularly in Europe, and to raise prices, especially
in Latin America to counteract the significant currency depreciation
there. Global beef volumes and revenues increased in the year.
In North America, profits decreased by 8% in constant currency,
driven by a 9% conventional dairy volume decrease, although
this was partially offset by increased sorted semen volumes (up
14%), a higher blend and strong cost management. Beef had
another strong year, with volumes up 1% over the record prior year,
including the continued increased use of beef semen in dairy cows.
In Europe, profits decreased by 16% in constant currency. The
severe weakness in the dairy market drove significant volume
decreases in the UK, France and the European distributor business.
However, beef volumes increased by 13% as customers sought
to trim dairy herd sizes by producing beef cross-bred offspring for
slaughter. A strong focus on cost reduction, including reducing
employee numbers and improving service margins, also helped
to mitigate profit pressures in the second half, even as the market
prices fell further.
In Latin America, profits were up 20% in constant currency,
despite volumes declining 10% in tough dairy markets,
exacerbated by drought in Brazil and flooding in Argentina. In
actual currencies, profits reduced as a result of the significant
devaluations across the region. In response, Genus ABS took the
lead in increasing selling prices in key markets such as Brazil,
Argentina and Mexico and by June, prices were on average
24% higher. Our ongoing efforts to manage local supply chain
costs and operating expenses have also been beneficial. Beef
performed solidly, given the adverse conditions in Brazil and
Argentina, with flat volumes.
Performance
Adjusted operating profits for Genus ABS fell by 16% in constant
currency (21% after minority interest), on the back of a 9%
IVB made a strong contribution to the full year results and
exceeded our expectations, delivering revenues of £9.3m and
total operating profit of £2.3m in its first full year of ownership.
Strategic ReportCorporate GovernanceFinancial StatementsAdditional Information Genus plc Annual Report 2016
32
Genus Asia
Strategic Progress – Genus Asia
“ We made significant strategic
progress with tailoring our global
porcine and bovine business
models to help us grasp Asia’s
exciting opportunities for long-
term growth, while further
mitigating short-term risks.”
Jerry Thompson
Chief Operating Officer, Genus Asia
During the year, we made the following progress against
our strategic objectives:
Increasing Genetic Control and Product
Differentiation
• Strengthened relationships and expanded our share
of business with large integrated pork producers in
China, Russia and the Philippines.
• Resumed imports of our latest proprietary genetics
to Russia and populated two new contracted nucleus
facilities in the Philippines.
• Completed and populated our bull stud in India,
a joint venture with BG Chitale, increasing the
availability of differentiated elite genetics in the
world’s largest dairy market, and made our first
export from the new facility.
• Reached a historic agreement with the Indian
government to import live bulls from the US with
the import successfully completed in August 2016.
• Seven of our animals ranked in the top ten Holstein
bulls on the Australian national index, following
genomic testing.
Targeting Key Markets and Segments
• Continued to move from owned facilities to
contracted porcine production in China, establishing
a nucleus partnership for 5,000 sows with Shennong.
• Significantly grew our business in Vietnam, through
our partnership with GreenFeed.
• Continued to develop direct relationships with
large milk producers in India and grew our
distribution network.
Increased our focus on key accounts and distribution
partnerships in other bovine markets.
•
Sharing in the Value Delivered
•
Invested in product validation trials, to demonstrate
the superior performance of PIC’s products.
• Extended our use of the porcine royalty model,
including three further contracts in China.
• Maintained our bovine pricing-to-value strategy
in India, reflecting our higher quality genetics.
• Rolled out value-selling training to our bovine
and porcine teams across the region.
Priorities for FY17
•
Integrate our Asian porcine and bovine operations
into the global PIC and ABS businesses, to support
the established strategy for each species and help
deliver a consistent and compelling customer
experience across the world.
• Continue to tailor each strategy for the needs of our
Asian markets, to help deliver long-term success.
Genus plcAnnual Report 2016 33
Actual currency
Constant
currency
2016
£m
45.1
11.3
13.1
2015
£m
41.4
5.7
5.5
Movement
%
Movement
%
9
98
138
10
98
138
29.0%
13.3%
15.7pts
15.6pts
Operating Review – Genus Asia
Revenue
Adjusted operating profit exc JV
Adjusted operating profit inc JV
Adjusted operating margin inc JV
China Pork Producer Profitability
)
g
k
r
e
p
£
(
s
s
o
L
/
t
fi
o
r
P
1.2
1.0
0.8
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 13
Feb 14
Aug 14
Feb 15
Aug 15
Feb 16
Aug 16
n Profit n Loss — Liveweight price
Market
Conditions for our porcine business improved significantly from
the previous year. In particular, we saw a recovery within China,
the world’s largest porcine market, following two years of losses
in the industry. Rising demand, coupled with limited supplies
following reductions in the country’s sow herd, placed a premium
on available animals and pushed up prices to record highs.
In Russia, we increased profits by 75% in constant currency
through growth in key accounts, following the re-starting of
imports to the country. This was also aided by more than doubling
our sire-line pricing, to reflect the value delivered by our high-
quality genetics. In contrast, profit in the Philippines fell by 9%,
mainly due to lower up-front margins during the transition to
a royalty business model.
In parallel, the market within Russia rebounded as the country
reopened its borders to imports of pigs from North America
and the EU. Demand for pork also remained high in our other
target markets.
In contrast, conditions for our bovine business were challenging.
Dairy prices remained low, reflecting the global picture. Milk prices
fell in Australia and are likely to reduce the number of cows and
farms within the country. Low prices within China continue to drive
consolidation of the country’s dairy industry. Although prices in
India remained stable, the country experienced a major drought
which affected production and demand.
Performance
2016 was a year of significantly improved performance, increasing
operating profit by 138%, with tailwinds from the revitalisation of
porcine markets in China and Russia. The performance, however,
also shows that the business has benefited from the strategic
decisions and investments made in recent years and the tailoring
of our business model to the needs of each market.
Porcine
Overall results were significantly higher than for the preceding
year. Volumes rose by 19%, leading to increases of 22% in revenue
and over 300% in operating profit including joint ventures in
constant currency.
Operating profits in China rose by over £6m, as prices increased and
demand for breeding animals grew. Our business also continued to
reap the benefits of our move away from owned farms to a more
contracted production model, which is helping us reduce farming
exposure and commodity price risk. During the year, we signed
further multiplication and royalty-based contracts with major
producers, as summarised in the case study on page 24.
In Vietnam, where we operate in partnership with GreenFeed,
profits rose by 92%. We also renewed our porcine franchises
in Australia and Korea on improved terms, increasing sire-
line pricing significantly in the process, and we signed a new
franchise in Ukraine.
Across the region, we continued to expand the use of our royalty
model, which provides extra revenue streams and additional
resilience in the event of a fall in demand for new breeding
animals. Royalty revenues across the region rose by 32%.
Bovine
Despite difficult market conditions, bovine volumes rose by 2%
and operating profits by 8%. In China, we further strengthened
our relationships with key distributors and in Russia, performance
improved following the refocusing of the business in the prior year.
We continued to build our business in India and strengthened our
capabilities in the country with the beginning of operations at our
new Brahma stud, a joint venture with BG Chitale (see case study
on page 22).
Our Australian business increased operating profit, aided by
innovative promotions to mitigate the impact of falling milk prices.
Operating profit fell in Japan, however, influenced by fewer top
bulls in local rankings and the strength of the US Dollar.
We also invested in skills and structure to drive performance
of our bovine business, including appointing our first Regional
Director for bovine.
Strategic ReportCorporate GovernanceFinancial StatementsAdditional Information Genus plc Annual Report 2016
34
Genus R&D
Strategic Progress – Genus R&D
“ Our R&D programme delivers
increased genetic control and
differentiated products for
customers, by applying
pioneering technologies.”
Dr Jonathan Lightner
Chief Scientific Officer and Head
of Genus R&D
During the year, we made significant progress on several
fronts, with potentially major benefits for animal well-
being, customer productivity and the sustainability of
protein production.
Genomic Selection
• Accelerated genetic gain for porcine customers by
harnessing genomics and integrated Génétiporc’s
genes into our genetic improvement programme.
• Expanded our elite dairy female programme from
which we sourced 20% of our new Holstein bulls
in the US in 2016. In September 2016, we entered
into partnership with the US’s leading independent
Holstein breeder thereby significantly increasing
our ability to produce bulls internally.
• Strengthened our beef nucleus herd, which is
expected to deliver 900 bulls to our Powerline
programme by 2019.
Introduced TransitionRight™ indices, enabling
customers to identify dairy sires that produce
daughters more resilient to health problems
after giving birth.
•
Gene Editing
• Demonstrated the potential benefits of this
pioneering technology for animals, customers
and consumers, during a transformative year.
• Secured an exclusive global licence to the IP involved
in our ground-breaking work with the University of
Missouri, which used gene editing to develop the first
pigs resistant to PRRSv.
• Agreed an exclusive licence and collaboration
with Caribou Biosciences, giving us access to its
market-leading and proprietary CRISPR-Cas9 gene
editing technology and know-how, which will help
us accelerate our work on PRRSv and explore other
applications.
• Secured an exclusive global licence from the
Washington State University to gene editing
work targeting BRD.
Gender Skew
• Continued to invest in our proprietary GSS
technology, thoroughly testing it to ensure it can
deliver the highest calibre product on a global
and commercial scale, with field trials resulting
in thousands of successful pregnancies.
• Pursued our legal case with ST.
Priorities for FY17
• Continue to develop proprietary indices, built around
traits of economic importance to customers.
• Continue to work with the Roslin Institute on
genotype by sequencing, which has the potential
to be the next leap in genomic science.
• Harness our collaboration with Caribou Biosciences
and strengthen internal skills, to help build a gene
editing trait development capability.
• Prioritise the successful launch and roll-out of GSS.
• Develop our elite dairy female programme and ability
to produce bulls internally, working closely with our
new partner.
• Develop relationships with regulatory authorities to
facilitate the future approval of gene edited products.
Genus plcAnnual Report 2016 Operating Review – Genus R&D
Research
Porcine product development
Bovine product development
Net expenditure in R&D
Performance
Our investment in R&D for the year increased by 16% in constant
currency and capital spending also increased. This reflected
our investments in gene editing capabilities and licensing,
genome science, advancing our GSS initiative, and furthering
our computational capabilities in bovine and beef product
development. In porcine product development, increases in
global volume and related dissemination costs, along with lower
slaughter prices and higher product validation costs, drove the
year over year increase. In September 2016, we also formed a
new strategic partnership (De Novo Genetics) with the world’s
leading independent Holstein breeder, strengthening our ability
to produce our own elite bulls.
As in previous years, our research focused on genomic evaluation,
gender skew and animal health and welfare. Research expenditure
increased by 67% this year, in part due to significant advancements
in gene editing and our partnerships with the University of Missouri
and Caribou Biosciences, as well as related legal expenses and
capability building. We also invested in core informatics capabilities
and expanded research efforts in a number of promising areas.
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. We successfully
initiated our multi-year collaboration with the Roslin institute,
exploring genotype by sequencing opportunities in our PIC
system. This project is partially funded by a grant from the
UK government.
In gender skew, where costs were largely capitalised, we
completed additional testing of our commercial scale capabilities.
We completed final commercial performance tests of our GSS
technology, refined our manufacturing processes and initiated the
production and inventory of units for commercial sale, pending
the outcome of our Court proceedings. We also invested
35
Actual currency
Constant
currency
2015
£m
Movement
%
Movement
%
4.6
11.6
12.4
28.6
74
16
4
20
67
12
–
16
2016
£m
8.0
13.5
12.9
34.4
in technology improvements to the current GSS system, which
included new detection approaches with the promise of further
improvements in fertility. We also continue to build our internal
capabilities in intellectual property development, regulatory
affairs and research strategy.
Bovine product development expenditure was unchanged in
constant currency. We invested in both dairy and beef in our
internal heifer nucleus breeding programmes, and in genetic
services resources to develop proprietary breeding indices and
predictive genomic mating, to deliver higher genetic control and
differentiation. We also made several key dairy bull acquisitions to
strengthen our global line up. Depreciation of dairy bulls increased
year over year, reflecting the continued rising cost of competitive
bulls in the genomic era, however progeny testing costs and
management overheads were reduced.
Porcine product development expenditure increased by 12%,
driven in large part by a decline in slaughter by-product revenues
from our nucleus herds resulting from lower pork prices, partially
offset by lower feed prices, and by the non-recurrence of a
Canadian government support payment in FY15. We also increased
investment in growing the breadth and depth of our genomic
testing of animals and continued to expand our global product
validation programme.
Strategic ReportCorporate GovernanceFinancial StatementsAdditional Information Genus plc Annual Report 2016
36
Financial Review
“ Genus delivered a solid financial
performance in the year ended
30 June 2016.”
Genus delivered a solid financial performance in the year ended
30 June 2016, with adjusted profit before tax up 7% (up 10%
in constant currency) and cash conversion of 88%. Adjusted
earnings per share were also up 7% (10% in constant currency).
On a statutory basis, profit before tax was 5% higher and earnings
per share were 23% higher in actual currency, primarily due to a
lower statutory tax rate. We continue to use adjusted results as
our primary measures of financial performance as they better
reflect our underlying progress. Unless stated otherwise, this
financial review quotes constant currency adjusted growth rates,
which better reflect the Group’s underlying performance.
The effect of exchange rate movements on the translation of our
overseas profits was to reduce the Group’s adjusted profit before
tax for the year by £1.5m or 3% compared with FY15. At the end of
the period, Sterling devalued sharply following the UK referendum
on Brexit. While this had little effect on 2015/16 profits, it had a
significant translational impact on the year-end balance sheet.
Revenue
Revenue declined by 3% in actual and constant currency to
£388.3m (2015: £398.5m) during the period. In porcine, Asia
revenue growth of 22%, primarily in Russia and China, was offset
by the planned continued reduction in up-front sales in Europe.
Lower porcine by-product sales were the result of lower pig prices
and there was a 4% decline in global bovine revenue, due to the
poor dairy market conditions.
Adjusted Operating Profit Including Joint Ventures
Adjusted operating profit including JVs was £54.3m (2015:
£51.2m), up 9% in constant currency and 6% in actual currency.
Genus’s share of JV profits was higher at £6.4m (2015: £4.6m),
helped by the strong performance of the Besun JV in China due
to improved market conditions and lower production costs.
Profits in Genus Asia, excluding JVs, almost doubled with 98%
growth, helped by Asia Porcine growing by more than 200%.
PIC China performed very strongly, buoyed by exceptional market
conditions and reduced production costs resulting from the shift
from owned farms to more contracted production. The Russia,
Vietnam and franchise porcine businesses also achieved strong
double-digit growth, with Russia helped by the country reopening
its borders to pig imports. Asia Bovine grew 8%, helped by
improvements in our Australia and Russia businesses following
restructuring in the prior year.
Genus PIC had a strong year, with profits up 9%. Volume growth
of 2% continues to be affected by the shift to royalty contracts,
with volumes recognised later in the sales cycle. There was also
some reduction in up-front volumes in Europe during the second
half of the year, as market conditions remained challenging for
our customers.
Stephen Wilson
Group Finance Director
Genus plcAnnual Report 2016 Adjusted results*
Revenue
Operating profit
Operating profit inc JVs
Profit before tax
Basic earnings per share (pence)
Statutory results
Revenue
Operating profit
Profit before tax
Basic earnings per share (pence)
Dividend per share (pence)
37
Actual currency
Constant
currency**
2015
£m
Movement
%
Movement
%
398.5
47.2
51.2
46.6
56.8
(3)
4
6
7
7
(3)
6
9
10
10
2015
£m
Movement
%
398.5
59.5
57.8
65.7
19.5
(3)
(2)
5
23
10
2016
£m
388.3
49.3
54.3
49.7
60.7
2016
£m
388.3
58.6
60.9
81.1
21.4
* Adjusted results are before net IAS 41 valuation movement on 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 at a Group and operating segment level.
** Constant currency percentage movements are calculated by restating 2015/16 results at the average exchange rates applied in FY15.
Exchange rates
US Dollar/£
Euro/£
Brazilian Real/£
Mexican Peso/£
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
Average
Closing
2016
1.47
1.33
5.47
25.38
2016
£m
64.2
19.5
11.3
(34.4)
(11.3)
49.3
(1.4)
6.4
54.3
(4.6)
49.7
2015
1.57
1.32
4.26
22.68
2016
1.34
1.20
4.28
24.66
Actual currency
2015
1.57
1.41
4.89
24.68
Constant
currency
2015
£m
57.2
24.0
5.7
(28.6)
(11.1)
47.2
(0.6)
4.6
51.2
(4.6)
46.6
Movement
%
Movement
%
12
(19)
98
(20)
(2)
4
(133)
39
6
–
7
9
(16)
98
(16)
4
6
(183)
61
9
2
10
*
Excludes net IAS 41 valuation movement in biological assets and taxation.
Dairy producers have suffered two years of reducing milk prices
and Genus ABS began a vigorous drive to mitigate the profit
impact of these weak market conditions. Operating profit fell 16%
before minority interest, on a volume decline of 9%. The actions
focused on cost efficiencies in Europe and North America and
pricing in Latin America. IVB performed ahead of expectations
in its first full year of ownership.
R&D costs increased by 16%, as planned, as Genus pursued
key strategic initiatives to further strengthen its proprietary
differentiated offerings. This included intellectual property
creation and protection in gene editing capabilities, aided by our
new partnerships with the University of Missouri and Caribou
Biosciences, and further advances in our GSS initiative. We also
continued to invest in product development, including expansion
of the beef and dairy elite heifer programmes, which produced
encouraging results. Net porcine product development costs also
increased, driven largely by the decline in slaughter by-product
revenues from our nucleus herds resulting from lower pork prices.
Strategic ReportCorporate GovernanceFinancial StatementsAdditional Information Genus plc Annual Report 2016
38
Financial Review continued
Performance by Species
The table below shows our global performance by species, after allocating product development costs specific to each species.
Dairy and beef revenues declined 4% and volumes declined 6% in tough dairy markets, with Europe and North America particularly
challenging. Operating profit declined by 32% due to lower volumes and adverse currency cross rates. Actions are continuing to reduce
cost run rates and increase selling prices in key markets.
Porcine revenues grew by 1%, with royalty income up 17% to £97.8m. Volumes were up 4% (including Agroceres PIC, our JV in Brazil),
with growth strongest in Asia. Profits were up 22% on 2015, with growth in all regions, a focus on pricing appropriately for the value of
our genetics and strong execution of our business model.
Performance by species
Revenue
Dairy and beef
Porcine
R&D
Adjusted operating profit inc JV
Dairy and beef
Porcine
Central and research
Actual currency
Constant
currency
2016
£m
2015
£m
Movement
%
Movement
%
172.8
207.5
8.0
388.3
9.1
64.5
(19.3)
54.3
183.4
201.3
13.8
398.5
14.5
52.4
(15.7)
51.2
(6)
3
(42)
(3)
(37)
23
(23)
6
(4)
1
(43)
(3)
(32)
22
(16)
9
Finance Costs
Net finance costs remained at £4.6m (2015: £4.6m) and include IAS 19 pension interest of £2.2m (2015: £2.3m). The cost of higher
average borrowings in the year, following recent acquisitions and the investment in GSS technology, was offset by interest savings
from the lower financing rates achieved in the new facility agreement and the maturing of fixed interest rate swaps.
Exceptional Items
There was a £36.3m net exceptional credit in 2016 (2015: £5.1m expense), including an exceptional credit of £43.9m, from changing
the index used for pension and deferred pension increases in the Milk Pension Fund from RPI to CPI, and a £0.3m settlement gain related
to the Milk Pension Fund. Exceptional costs were £6.9m for ongoing legal fees and damages in Genus ABS’s case against ST, £0.2m for
acquisition and integration related expenses, primarily St Jacobs and IVB, and other items of £0.8m including restructuring costs.
Statutory Profit Before Tax
The table below sets out a reconciliation between adjusted profit before tax and statutory profit before tax:
Adjusted profit before tax
Operating profit attributable to non-controlling interest
Net IAS 41 valuation movement on biological assets in joint ventures and associates
Tax on joint ventures and associates
Adjusting items:
Net IAS 41 valuation movement on biological assets
Amortisation of acquired intangible assets
Share-based payment expense
Exceptional items
Statutory profit before tax
2016
£m
49.7
1.4
1.9
(1.4)
(17.1)
(6.1)
(3.8)
36.3
60.9
2015
£m
46.6
0.6
(1.0)
(0.7)
24.9
(6.1)
(1.4)
(5.1)
57.8
Our statutory profit before tax was £60.9m (2015: £57.8m). The statutory results benefited from the £36.3m net exceptional
credit described above but were reduced by a £17.1m decline (2015: £24.9m increase) in the net IAS 41 valuation of biological assets
(see below). These items, which tend to be volatile and mostly non-cash, are less representative of the Group’s underlying performance
and have been excluded from adjusted results.
Taxation
The effective rate of tax for the year, based on adjusted profit before tax, was 25.8% (2015: 26.0%). 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 and
Latin America, where the statutory tax rates are typically between 30 and 39%, and the impact of withholding taxes on the repatriation
of funds to the UK.
The tax rate on statutory profits was 19.7% (2015: 31.1%). In addition to the factors mentioned above, there was a favourable impact on
the statutory tax rate in the year, due to the reversal of deferred tax at US rates on the reduction in the IAS 41 biological assets valuation,
while the exceptional pension credit carried deferred tax at 18%.
Genus plcAnnual Report 2016 Earnings Per Share
Adjusted basic earnings per share increased by 7% to 60.7
pence (2015: 56.8 pence) and rose 10% in constant currency.
Basic earnings per share on a statutory basis were 81.1 pence
(2015: 65.7 pence), an increase of 23%, reflecting the lower
statutory tax rate in the year.
Biological Assets
A feature of the Group’s net assets is its substantial investment
in biological assets, which under IAS 41 are stated at fair value.
At 30 June 2016, the carrying value of biological assets was
£354.4m (2015: £315.9m), as set out in the table below:
Biological assets
Non-current assets
Current assets
Inventory
Represented by:
Porcine
Dairy and beef
2016
£m
2015
£m
264.6
66.4
23.4
354.4
184.7
169.7
354.4
242.7
50.2
23.0
315.9
148.1
167.8
315.9
The movement in the overall carrying value of biological assets,
excluding the effect of exchange rate translation increases of
£49.8m, includes:
• a £9.4m increase in the carrying value of porcine biological
assets, due principally to an increase in the number of animals
sold on royalty contracts; and
• a £26.5m decrease in the carrying value of dairy and beef
biological assets, arising from the impact of lower current year
volumes from dairy bulls and an increase in the proportion of
future semen sales from younger genomic animals not yet
in our asset base.
The historical cost of these assets, less depreciation, was £42.5m
at 30 June 2016 (2015: £34.1m), which is the basis used for the
adjusted results.
Retirement Benefit Obligations
The Group’s retirement benefit obligations at 30 June 2016,
calculated in accordance with IAS 19 and IFRIC 14, were £44.5m
(2015: £63.1m) before tax and £34.9m (2015: £49.9m) net of
related deferred tax. The largest element of the liability relates to
the multi-employer Milk Pension Fund, where the deficit reduced
due to the change in pension increases from RPI to CPI, partially
offset by the impact of falling bond yields. We account for this
scheme on the basis of Genus being responsible for 75% of the
plan’s IAS 19 deficit, together with the IFRIC 14 additional liability
for agreed deficit repair contributions in excess of this valuation.
During the year, contributions payable in respect of the Group’s
defined benefit schemes amounted to £6.7m (2015: £6.1m).
Cash Flow
Cash generated by operations remained solid at £43.3m
(2015: £50.7m). Conversion of adjusted operating profit into
cash was 88% (2015: 107%) before capital expenditure,
investments, interest, tax and dividends, with 2015
benefiting from the exit from the Quebec porcine nucleus.
39
The cash outflow from investments was £7.2m, primarily relating
to the acquisition of St Jacobs and an investment in Caribou
Biosciences. This compares with £9.6m, net of cash acquired,
from the acquisition of Birchwood and IVB in 2015. The increase in
capital expenditure of £3.8m to £18.6m (2015: £14.8m) included
investment in a licence to Caribou Bioscience’s gene editing
technology and in GSS capacity and technology. The total cash
outflow for the year after these investments, interest, tax and
dividends was £3.7m (2015: inflow £1.9m).
Cash flow (before debt repayments)
Cash generated by operations
Interest, tax and dividends
Investments, net of cash acquired
Capital expenditure
Other
Adjusted operating profit
Cash conversion
2016
£m
43.3
(25.5)
(7.2)
(18.6)
4.3
(3.7)
49.3
88%
2015
£m
50.7
(27.0)
(9.6)
(14.8)
2.6
1.9
47.2
107%
Net Debt
Net debt increased from £71.8m to £89.7m at 30 June 2016,
primarily due to exchange movements increasing net debt
by £13.6m, as most of our borrowings are in US Dollars. These
exchange movements were particularly pronounced following
the UK’s decision to leave the EU.
During the year, we agreed new five-year borrowing facilities on
improved terms. At the end of June 2016 there was substantial
headroom of £49.8m under the renewed facilities of £169.7m,
which run to February 2021. The Group’s financial position
remains strong.
Our borrowing ratios are strong. Interest cover was 35 times
(2015: 32 times). The ratio of net debt to EBITDA, as calculated
under our financing facilities, moderately increased to 1.4 times
(2015: 1.2 times) primarily due to the impact of exchange rate
movements on our US Dollar borrowing.
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 decreased to 19.1% after tax (2015: 21.7%). This reduction
largely reflects the translational impact on the balance sheet
of exchange rate movements at the end of the year.
Dividend
Reflecting the Board’s continuing confidence in the Group’s
prospects, it is recommending to shareholders a final dividend
of 14.7 pence per ordinary share, resulting in a total dividend for
the year of 21.4 pence per ordinary share, an increase of 10% for
the year. Dividend cover remains consistently strong, with the
dividend covered 2.8 times by adjusted earnings (2015: 2.9 times).
Stephen Wilson
Group Finance Director
7 September 2016
Strategic ReportCorporate GovernanceFinancial StatementsAdditional Information Genus plc Annual Report 2016
40
Our People and Culture
“ We are a business rooted
in science but built around
our people.”
Catherine Glickman
Group HR Director
and Chair of the CSR
Committee
l
v
a
r
b
u
y
e
d g l o
e s
e
y
n
S e c o
p l o
m
e
More than three-quarters of employees responded
and among the highlights were that:
• 89% of respondents understood the Genus vision
and 78% felt regularly informed about business
progress and plans (an increase of 8% on the
previous survey).
• 87% felt Genus to be pioneering animal genetic
improvement and 79% understood our
business strategy.
• 83% said they enjoy working at Genus and the
same number planned to be working here in
a year.
Our Approach
We are a business rooted in science but built around our people. We
have employees in 26 countries covering a wide range of disciplines,
from PhD qualified geneticists and veterinarians to livestock
technicians and accountants. Over the last year, to support the
development of an increasingly proprietary offer for customers, we
have focused on recruiting, retaining and developing employees
who can help us explore and harness what science makes possible.
Our global framework consists of ways to attract, engage,
motivate and reward: it is now well embedded in every business.
The framework is built on our values, which were developed with
input from colleagues. The values underpin our culture of respect,
openness and fairness, guiding how we work and behave.
Using Our Diversity
Genus takes diversity seriously. We appoint the best people to
do the job, with a focus on talent right across the leadership
team. The appointment of Lysanne Gray as a Non-Executive
Director has enhanced Board diversity. Lysanne brings financial
and operational expertise to the Board from the food sector.
We continue to deploy our expert teams globally, particularly in
Technical Services, Genetic Services and Animal Health, using their
performance m
Consolidatin
ana
g o
g
e
m
ur glo
t p
r
e
n
b
o
a
l
c
e
s
s
All staff have clear performance objectives
and two reviews per year. These assess
progress, enable career discussions and
inform talent management.
d
e
c
n
a
h
n
E
t
n
e
m
e
g
a
g
n
e
e
e
y
o
l
p
m
e
We have maintained our systematic
programme that shares information
about the business and nurtures effective
dialogue with employees. We also
introduced innovations, such as
broadcasting our 2015 Global Leadership
Conference to all employees through
a live webcast and Q&A session.
Our progress
The policies and practices
that helped our Company
increase performance
during the year are also
unlocking potential for the
future. Key achievements
in the year have included:
Processes have been embedded across the
business, with robust discussions on the
quality and depth of successors, emergency
cover and stretching development plans.
s
u
c
c
e
s
s
i
o
n
p
l
a
n
n
i
n
g
T
a
l
e
n
t
a
n
d
We have embraced important areas such
as anti-bribery and corruption, training 96%
of staff and exceeding our FY17 target,
animal well-being, safe animal handling
and health and safety, which has been a
core focus for us this year. We have also
continued to strengthen our sales
academies for both ABS and PIC, which
deliver training for key account managers
around the world and help us enhance
our relationships with current and
potential customers.
O
p
tr
ainin
erational
g expansion
We aim for every employee to have a development
plan and offer support to help them succeed, from
formal training to coaching and mentoring. We have
also continued to roll out bespoke development
programmes, including our Advanced Leadership
Programme for senior managers, for which we ran a
very successful event in Dublin, and our programme
for people managers, Managing High-Performing
Teams, which we extended to our managers in Asia.
e d e v elo p m ent
n i fi c a nt
e
y
d s i g
e
u
n
t i n
C o
i n v e s t m e n t i n e m p l o
Genus plcAnnual Report 2016
skills and expertise to support local operations. We continued
to bring in new talent: a particular focus this year has been in
building our Research & Development team, with the recruitment
of PhD geneticists, molecular biologists and embryologists. The
table below shows our gender diversity across the business.
Work levels
Male
Female
Board Directors
GELT
Other employees
7
6
1,856
1
2
799
Total
8
8
2,655
%
Female
13
25
30
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.
Looking Further Ahead
In 2017, our focus will be on resourcing business growth and training
staff to support the initiatives we are delivering, whilst sustaining
performance management, development and talent management.
We will also review our reward mechanisms, specifically our Group
incentive plans and staff commission structures, to ensure they are
aligned with the needs of the business.
41
Case Study
Enhancing Recruitment
We are committed to nurturing talent to create a
strong internal succession plan, coupled with recruiting
new and specialist skills, as we evolve as an agricultural
biotechnology company.
During the year, we launched a dedicated recruitment
portal – linked to our corporate website – to showcase
what is special about our Company and outline the
wide range of roles we offer. The site contains short
films of colleagues giving their views and provides links
to our global business websites for specific vacancies.
We have also encouraged employee referrals for
recruitment, with colleagues across the Company
harnessing their personal networks to bring in talent.
We recruited across a range of roles, including a
production team to deliver our new GSS products offer
for bovine customers and personnel to help us offer IVF
in the United States and Mexico. We invested in senior
roles for our R&D team, including applied genomics,
trait development and intellectual property expertise.
We also continued to promote talent from within, with
examples including the promotion of Dr Katie Olson
to Global Director for Dairy Product Development
within ABS.
s
u
c
c
e
s
s
i
o
n
p
l
a
n
n
i
n
g
T
a
l
e
n
t
a
n
d
Strategic ReportCorporate GovernanceFinancial StatementsAdditional Information Genus plc Annual Report 2016
42
Responsible Business
We are committed to delivering results
responsibly. ‘Responsible’ is one of our
core values as a business and we have
developed policies, practices and an
organisational culture that ensures our
Company and all the people within it act
in an ethical, honest and trustworthy
manner at all times.
This year, we have developed a new online portal to
communicate our approach, practices and impact. This can be
found by visiting our website at www.genusplc.com. The portal
provides more detailed and regularly updated information,
to complement the summary we provide below.
Our Foundation for Success
Our commitment to operating responsibly is overseen by the
Board. The Corporate Social Responsibility (‘CSR’) Committee
defines our strategy, reviews our policies and practices,
monitors external developments and advises the Genus
Executive Leadership Team (GELT) and the Audit Committee.
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.
Our primary intensity ratio includes emissions which are
impacted mainly by the number and age of animals but also by
emissions from our direct distribution and travel. Animal weight
reduced by 2,500 tonnes, driven by exiting owned farms in the
US and China, and emissions reduced as a result. However,
emissions from other sources such as direct distribution
remained constant and as a result the primary intensity ratio
increased. Our secondary intensity ratio was stable year to year.
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.
It recommends annual goals and initiatives, and identifies
the key performance indicators for monitoring and reporting
our performance, which are summarised opposite.
The Committee comprises senior leaders who lead different
aspects of the programme. They meet quarterly to set objectives
and review progress. The full list of members is provided on
our website.
A dedicated sub-committee focuses on animal well-being.
Among its achievements this year were an update of the
Company’s global principles for animal well-being, including
global standards and policies, and the introduction of new online
training, which is mandatory for all employees, irrespective of
their role. The membership of this sub-committee can also be
found on our dedicated ‘Responsibility’ page on our website.
Our Framework and Performance
We translate our commitment to responsible business into a
framework involving five pillars, which are summarised opposite
together with our key achievements and objectives. More detailed
information on our performance is included on our website.
We have previously included a section on employees in this
framework but have removed this to avoid duplication of
material in the ‘Our People and Culture’ section of this report.
Achievements against the targets are included on page 40.
GHG Emissions for 2016 %
14
21
65
From livestock
From third-party distribution
and business travel
From other activities
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.
Emissions from
Scope 1 – combustion of fuel, livestock emissions and direct
distribution and travel
Scope 2 – electricity, steam, heat and cooling purchased
Total scope 1 & 2
Scope 3 – material usage and waste and indirect distribution and
travel
Total emissions
2016
Tonnes
of CO2e
2015
Tonnes
of CO2e
64,655
16,798
81,453
68,562
22,569
91,131
28,433
21,160
109,886
112,291
Primary intensity measure – Animal weight (tonne)
Secondary intensity measure – Turnover (£m)
Primary intensity ratio – Scope 1 & 2 (tCO2e/tonne animal weight)
Secondary intensity ratio – Scope 1, 2 & 3 (tCO2e/£m turnover)
10,249
388.3
7.95
283
12,723
398.5
7.16
282
Annual emissions figures have been calculated based on actual ten-month data for July to April extrapolated to full year.
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 plcAnnual Report 2016
43
Link to Strategy
1
2
3
Increasing Genetic Control and Product Differentiation
Targeting Key Markets and Segments
Sharing in the Value Delivered
Visit www.genusplc.com to read more
about our Responsible Business
What we do
Highlights
What we plan to do next
Operate Safely
Ensuring a safe working
environment for our
colleagues
1, 2
Animal Well-Being
Continually improving
animal welfare, through
proven science-based
initiatives
1, 2, 3
Community
Being a responsible
corporate citizen, within
our communities
1, 2
Environment
Reducing the
environmental impact of
protein production
1, 2
Food Quality
and Security
Providing expertise and
products that increase
the production of high-
quality protein
1, 2, 3
• 83% of staff completed training tailored
• Reduce our vehicle incident frequency
to their role (target 90%).
•
• Significant improvement in incident
reporting, and reviewed by COOs.
Improved reporting resulted in an increase
in incidents on owned property in 2015/16,
with actions taken to mitigate risk.
• As a result of incident types, 94% of those
working directly with animals received
advanced training in animal handling and
we conducted a safe driving initiative in
the UK.
•
rate in the UK and US fleets.
Increase Near-Miss reporting for all
owned production sites.
• Reduce number of recordable
incidents on non-owned premises.
•
Introduced new animal well-being training,
completed by 97% of employees.
• Continued our global Pork Quality
Assurance (‘PQA’) based training in PIC
owned production facilities.
Introduced new diet to improve bull well-
being in all ABS and JV studs.
•
• Continue our programme of PQA-
based training.
• Roll-out global animal care and well-
being standards and processes in PIC
owned production.
• Continue audits at ABS owned and
JV studs.
• All ABS and JV studs were audited and
• Continue upgrade of PIC owned
actions executed.
• Upgraded our Genetic Nucleus site in
Canada, PIC Aurora.
production facilities in the United
States and Canada.
• Continued to respond to crises that
affected those who work with us, providing
practical support.
• Continued supporting the charity Send a
Cow, with 61 cows now provided through
the charity.
• Recruited over 150 staff into our farms from
local communities across our PIC and ABS
production sites globally.
• Continued external audits of Genus PIC’s
waste management systems, to cover 80%
of animals on owned sites.
Improved feed efficiency by 0.02kg of feed
per kg of pork.
•
• Upgraded the Genus ABS production estate,
including landscaping our Dekorra site with
500 trees.
• Continue to respond to crises, support
Send a Cow and recruit into our farms
from local communities.
• Continue Genus PIC’s external audits,
to cover 80% of animals on owned
sites.
Improve feed efficiency by 0.02kg of
feed per kg of pork.
•
• Using genomic selection, the value of PIC
genetics improved by $3.15, providing
highly productive, high health pigs
(see page 16 for more information).
• Reduced genetic lag in the PIC supply chain
•
•
to 3.45 years.
Improved milk production and herd
sustainability with TransitionRight™,
Genetic Management Service (GMS 2.0), IVF
technology and ABS Neo.
Introduced high-quality dairy genetics into
India through our new JV bull stud.
• Continue to increase the rate of
•
genetic improvement to help produce
highly productive, high health pigs.
• Maintain current genetic lag levels
across the global PIC supply chain.
Improve milk production and herd
sustainability through IVF technology,
genetic audits and mating tools, and
the use of relevant trait indices in
genetic selection.
• Export of live elite bulls to step up
genetic merit in India.
Strategic ReportCorporate GovernanceFinancial StatementsAdditional Information Genus plc Annual Report 2016
44
Letter from the Chairman
“ The latest independent external
evaluation of the Board shows
that we continue to provide the
strong and effective leadership
Genus needs.”
Dear Shareholder
In my previous letters, I have noted that
strong governance is a business necessity,
with a critical influence on the Group’s
ability to implement its strategy and
achieve long-term success. I am pleased
to report that the latest independent
external evaluation of the Board shows
that we continue to provide the strong
and effective leadership Genus needs.
At the same time, we recognise the
need to further develop our governance
practices. In the year ahead, we will
maintain our focus on strategy, including
the competitive landscape; developing our
risk agenda in light of our strategy; and
succession planning, including diversity
and the skills mix on the Board. This will
help us to ensure Genus creates value
for all our stakeholders, whether through
our high-quality and differentiated
offer for customers, rewarding work for
our people, support for suppliers and
communities, or through growth and
returns to shareholders.
Set out opposite are some of the
governance highlights of the year.
More information on each area, and our
governance activities more generally, can
be found in the Corporate Governance
Statement on pages 50 to 87.
7 September 2016
Bob Lawson
Chairman of the Board
Genus plcAnnual Report 2016 45
Corporate Governance Highlights
Providing Effective Leadership
An independent external review of the Board’s performance showed
particular strengths in Board culture, strategy, financial reporting,
remuneration and forward planning.
See page 54
Increasing the Board’s Diversity and Experience
The appointment of Lysanne Gray, our first female Non-Executive Director,
adds further relevant experience to the Board, including knowledge of the
food industry.
See pages 57 to 58
Maintaining an Independent Board
The Board has a large majority of independent Directors, with six
Non-Executives (including the Chairman) and two Executive Directors.
See pages 46 to 47
Ensuring Strategic Oversight
The Board held its annual strategy review in January and received regular
updates on strategy and business development during the year.
See pages 52 to 53
Enhancing the Board’s Knowledge of the Business
To give the Board first-hand experience of our business and markets,
the Directors spent a week visiting our US operations.
Lysanne Gray underwent a thorough induction, including site visits,
workshops, and meetings with Executive Directors, senior management
and the auditor Deloitte LLP.
See pages 53 to 54
Continuing to Comply
Genus complied in full with the UK Corporate Governance Code
(the ‘Code’) except for provision E.2.3, as the CEO was unable to attend
the 2015 AGM due to illness.
Engaging our Shareholders
The Executive Directors met institutional investors owning more than half
our share capital, including eight of our ten largest shareholders, as well
as many potential investors.
See page 56
Our Approach to Reporting
on Corporate Governance
This year, we have used the key
Code principles as the framework for our
Corporate Governance Report. The content
of each section is outlined below.
Leadership
Includes the composition of the Board
and its Committees, the Directors’ roles
and responsibilities, and the Board’s main
activities in the year.
See pages 46 to 53
Effectiveness
Includes Board induction and training,
the outcome of this year’s external
Board evaluation, progress against
the recommendations from the 2015
evaluation, and the Nomination
Committee’s activities in the year.
See page 54 and pages 57 to 58
Accountability
Includes an explanation of our risk
management and internal controls,
and the Audit Committee’s activities
during the year.
See page 55 and pages 59 to 61
Relations with Shareholders
Includes our investor relations calendar,
data on the shareholders we met during
the year, and the key themes discussed
at investor meetings.
See page 56
Remuneration
Includes an explanation of our approach
to remuneration, our revised remuneration
policy (which is being put to shareholders
at the AGM), and a report on the Directors’
remuneration for the year.
See pages 62 to 85
Strategic ReportCorporate GovernanceFinancial StatementsAdditional Information Genus plc Annual Report 2016
46
Board of Directors and Company Secretary
Bob Lawson
Ü
Non-Executive Chairman
Nomination Committee Chair
Board Appointment – November 2010
Skills and Experience
Bob has significant experience of leading
international businesses, including through
operational and culture changes, and a
deep understanding of listed companies
and corporate governance.
Career
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
was appointed Non-Executive Chairman of
Eurocell plc in January 2015 and retired as
Chairman of the Federation of Groundwork
Trusts in November 2015. Bob retired
as Non-Executive Chairman of Barratt
Developments plc in November 2014.
Karim Bitar
Chief Executive
Stephen Wilson
Group Finance Director
Board Appointment – September 2011
Board Appointment – January 2013
Skills and Experience
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.
Skills and Experience
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 holds
a degree in Mathematics from the
University of Cambridge.
Career
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.
Career
Stephen was previously Executive Vice
President and Chief Financial Officer of
Misys plc. Prior to Misys, he spent 25 years
at IBM, in roles encompassing finance,
business development and change
programmes. He was a Non-Executive
Director of Xchanging plc, where he
chaired the Audit Committee until its
acquisition by CSC in May 2016.
Mike Buzzacott
ܸ
Non-Executive Director
Audit Committee Chair
Board Appointment – May 2009
Skills and Experience
Mike has extensive experience of working
in Asian and European markets, and
of dealing with acquisitions, mergers
and divestments. He is a Chartered
Certified Accountant.
Career
Mike spent 34 years with BP, holding a
number of international roles including
Finance and Control Director Asia Pacific,
Chief Financial Officer BP Nutrition and
Group Vice President Petrochemicals. He is
a former Non-Executive Director and Audit
Committee Chairman at Scapa Plc, Rexam
Plc and Croda Chemicals Plc. He was also
Chairman of Biofuels Plc and adviser to
the Ineos Group.
Lysanne Gray
ܸ
Non-Executive Director
Board Appointment – April 2016
Skills and Experience
Lysanne has significant experience of risk
management, audit, business operations,
acquisitions and disposals, and corporate
governance, gained within the food sector.
She is a Chartered Accountant.
Career
Lysanne is Financial Controller at Unilever
plc and Unilever NV. Prior to this she
was Chief Auditor, working closely with
Unilever’s Audit Committee, and before
that Chief Financial Officer of Unilever’s
global food service business. She has also
held a number of other senior operational
and financial positions within Unilever.
Member of Nomination Committee
Ü Member of Remuneration Committee
¸ Member of Audit Committee
Genus plcAnnual Report 2016 47
Nigel Turner
ܸ
Senior Non-Executive Director
Remuneration Committee Chair
Board Appointment – January 2008
Skills and Experience
Nigel has substantial experience of
international business and corporate
finance.
Career
Nigel was Chairman of Numis Securities
Ltd and Deputy Chairman of Numis
Corporation plc from December 2005 to
November 2007. Prior to this 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 sat on its Supervisory Board.
Nigel is a Non-Executive Director of Croda
International plc.
Professor Duncan Maskell
ܸ
Non-Executive Director
Lykele van der Broek
ܸ
Non-Executive Director
Board Appointment – April 2014
Board Appointment – July 2014
Skills and Experience
Duncan has co-founded several biotech
companies and has extensive experience
of commercialising science and innovation.
He is also an experienced scientific adviser
to companies, using his broad perspective
on life sciences.
Career
Duncan is Senior Pro-Vice Chancellor (‘PVC’)
of the University of Cambridge, where he
and the four other PVCs are responsible
for the University’s strategy and policy
development. He was previously Head of
the School of the Biological Sciences at
the University, where he led research on
infectious diseases of livestock and people.
Skills and Experience
Lykele has vast experience of growing
companies and working in agricultural
businesses throughout the world,
including in emerging markets.
Career
Lykele retired as a Member of the Board
of Management of Bayer CropScience,
a division of Bayer AG, in 2014, being
responsible for the commercialisation
of innovative agricultural products and
services globally. Prior to this, he held
senior international roles including the
Head of Bayer CropScience’s BioScience
division and President of the Bayer
HealthCare Animal Health division.
Dan Hartley
Group General Counsel and
Company Secretary
Appointment – June 2014
Skills and Experience
Dan has significant experience in multi-
jurisdictional patent litigation, mergers
and acquisitions, patent licensing and
managing product life cycles in complex
areas. He holds degrees in science
and law.
Career
Dan joined Genus from Shire plc,
where he was Senior Vice President and
International Counsel. Dan joined Shire in
2002, after a number of years in private
practice, and worked in increasingly senior
and global roles in the UK and the US.
Strategic ReportCorporate GovernanceFinancial StatementsAdditional Information Genus plc Annual Report 2016
48
Genus Executive Leadership Team (‘GELT’)
GELT’s Responsibilities
GELT shapes our Company vision,
demonstrates the values at the heart
of our business, and leads our strategic
planning and delivery. 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 form a high-functioning,
high-performing team, combining
professional expertise with commercial
acumen to deliver the shared strategy
for the Group.
Karim Bitar
Chief Executive
Stephen Wilson
Group Finance Director
Saskia Korink Romani
Chief Operating Officer, Genus ABS
Jerry Thompson
Chief Operating Officer, Genus Asia
Skills and Experience
Saskia has worked in Europe, Brazil and
the US bringing extensive commercial
and management experience gained
from roles in sectors ranging from
agriculture to consumer goods. She has
highly developed strategic and business
development skills, speaks several
languages and holds an MBA from
Columbia Business School.
Skills and Experience
Jerry is a natural entrepreneur and has
brought his deep industry knowledge,
commercial skills and international
experience to develop the business in
countries as diverse as the UK, Russia
and China. He has helped the Company
establish and grow its business in new
markets, particularly those in Central
and Eastern Europe and Asia.
Career
Saskia joined Genus in 2013 and became
Chief Operating Officer of Genus ABS the
following year. Prior to Genus, she spent
ten years with Cargill Inc, becoming its
first female business unit manager and
rising to be Vice President of Marketing
for its animal nutrition business. Before
joining Cargill, she spent seven years with
Boston Consulting Group. In July 2016, she
became Chief Operating Officer of Genus
ABS Dairy.
Career
Jerry has worked for PIC and subsequently
Genus for more than 20 years. He joined
as a graduate in the UK, subsequently
working in both Siberia and Romania
before taking on leadership of PIC in
Central and Eastern Europe. In the
following years, he led PIC Europe
before becoming Regional Director for
PIC and ABS in Russia & Asia Pacific and
subsequently Chief Operating Officer for
Genus Asia. In July 2016, he became Chief
Operating Officer for Genus ABS Beef.
Genus plcAnnual Report 2016 49
See pages 46 and 47 for Karim’s,
Stephen’s and Dan’s biographies.
Dan Hartley
Group General Counsel and
Company Secretary
Dr Bill Christianson
Chief Operating Officer, Genus PIC
Skills and Experience
Bill has spent his whole career at
the intersection of agriculture and
biotechnology. As a result, he brings a
unique blend of deep industry knowledge
and extensive commercial and global
experience to Genus. He holds doctorates
(DVM and PhD) in Veterinary Medicine
from the University of Minnesota.
Career
Bill has worked for the business since 1993,
when he joined as Manager of Veterinary
R&D, based in the US. He subsequently
worked in a range of operational roles
spanning Europe, South America and the
US, before being appointed as General
Manager of PIC North America in 2007.
He led the combined ABS and PIC business
across the Americas from 2010, before
becoming Chief Operating Officer of
Genus PIC in 2012.
Dr Jonathan Lightner
Chief Scientific Officer and Head of
Genus R&D
Catherine Glickman
Group HR Director
Skills and Experience
Jonathan is a world-renowned
quantitative molecular geneticist with
expertise spanning inter-related fields
such as molecular biology, analytical
chemistry and ‘omic’ technologies. He also
has extensive regulatory and commercial
experience. He holds a Masters in Systems
Engineering from Iowa State, an MBA from
the University of Iowa and a Doctorate
in Plant Physiology from the Institute
of Biological Chemistry at Washington
State University.
Career
Jonathan joined Genus 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. His other leadership roles with
DuPont Pioneer included Senior Research
Director for Trait Characterization within
Hi-Bred International. Jonathan’s previous
experience included three years with Exelixis
as Director of Biochemical Genomics.
Skills and Experience
Catherine brings more than 30 years
of HR experience within multinational
organisations, with particular emphasis
on shaping and embedding approaches to
talent management, succession planning,
leadership development, employee
relations and reward. She has also held
positions on numerous Board Committees
and acted as a pension trustee.
Career
Catherine joined Genus in 2012 after
20 years with Tesco, the international
retailer, concluding with three years
as Group HR Director. Prior to that, she
had held HR roles supporting Tesco’s
international roll-out and a period of
major expansion in the UK. Before Tesco,
she worked in HR for retailers Somerfield
plc and Boots plc. She is a Non-Executive
Director of Marston’s PLC.
Strategic ReportCorporate GovernanceFinancial StatementsAdditional Information Genus plc Annual Report 2016
50
Corporate Governance Statement
Leadership
The Board’s Role
The Board, under the Chairman’s
leadership, is responsible for ensuring
Genus’s long-term success. It approves
our strategy and corporate goals and
monitors our performance against them.
It determines that we have the necessary
resources, systems and controls to achieve
our objectives, and it sets the culture and
standards of behaviour we want to see
throughout Genus.
The Board is also responsible for other
critical decisions, including approving the
corporate budget and ensuring we have
the right funding, approving material
contracts, approving material acquisitions
and investments, and reporting
to shareholders.
This Corporate Governance Statement
explains how we structure the Board and
its Committees, how the Board oversees
the Group and its main activities during
the financial year.
Board Composition
The Board comprises six independent Non-
Executive Directors (‘NEDs’), including the
Chairman, and two Executive Directors –
the Chief Executive and the Group Finance
Director. This gives us a large majority of
independent Directors on the Board.
An Independent Board
2
1
5
Colour the individual bits on
top of each curve
A Broad Base of Relevant Experience
7
International business
Finance
Scientific/biotech
4
3
Food industry
1
The Board has a good mix of well-
established and newer NEDs. In recent
years, we have broadened the range of
skills and experience on the Board through
Non-Executive appointments, giving us
an appropriate blend of different areas
of expertise, long-standing knowledge
of the Group and its markets, and fresh
perspectives. This helps to ensure the
Board provides even-handed oversight,
works in a constructive and focused
manner and has the capabilities to
manage the challenges of a complex and
evolving global business environment.
Almost all our Directors have held
leadership positions in international
companies, with several having run
businesses overseas. Half our Directors,
including the Chairman of the Audit
Committee, have significant financial
experience, while several have strong
backgrounds in scientific research or in
leading science-based businesses.
As Genus grows, the Board must evolve
to keep pace. We consider diversity in its
broadest sense when recruiting, while
ensuring the Board has the skills it needs.
During the year we recruited our first
female NED, Lysanne Gray, who brings
a wide range of relevant experience to
the Board, including knowledge of the
food industry. More information about
our approach to Board composition
and recruitment can be found in the
Nomination Committee report on
pages 57 to 58.
The Board believes that all of the NEDs are
independent in character and judgement,
and that there are no relationships or
circumstances that are likely to affect (or
could appear to affect) their judgement.
Following the performance evaluation
described on page 54, the Board also
confirms that all the Directors continue
to be effective and to demonstrate
commitment to their roles.
As required by the UK Corporate
Governance Code, all the Directors will
offer themselves for election at the next
AGM, with the exception of Mike Buzzacott
who is retiring. Details can be found in the
Notice of AGM at the end of this report. If
re-elected to the Board at the AGM, Nigel
Turner will reach the ninth anniversary
of his original appointment as a NED in
January 2017. Following review, the Board
is satisfied that Nigel remains independent
and that he has no connection with the
Company’s operational activities.
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 other Directors, are summarised in the table below.
Title
Individual(s)
Responsibilities
Chairman
Bob Lawson
Executive Directors
Independent Non-Executive Chairman
Independent Non-Executive Directors
Chief
Executive
Karim Bitar
The two charts that follow show the
length of time our NEDs have served
on the Board, and the number of Board
members with experience of particular
relevance to Genus.
Colour the individual bits on
top of each curve
Non-Executive Tenure on the Board
6 to 9 years
3 to 6 years
1 to 3 years
0 to 1 years
1
1
2
2
Stephen Wilson
Group
Finance
Director
Nigel Turner
Senior
Independent
Non-Executive
Director
Non-Executive
Directors
Mike Buzzacott,
Lysanne Gray,
Duncan Maskell,
Lykele van der Broek
As Chairman, Bob’s primary responsibility is to lead
the Board and ensure it operates effectively. He
achieves this in part through promoting an open
culture, which gives people the courage to challenge
the status quo, and holding meetings with the
Non-Executive Directors without the Executives
present. Bob is also responsible for the Board’s
communications with shareholders.
Karim is responsible for devising and implementing the
Company’s strategy and managing the Company’s
day-to-day operations. He is accountable to the
Board for the Company’s development, in line with its
strategy, and taking into account the risks, objectives
and policies set out by the Board and its Committees.
Stephen is responsible for supporting the Chief
Executive in devising and implementing the strategy,
and managing the Group’s financial and operational
performance.
Nigel provides a sounding board for the Chairman
and is an alternative line of communication
between the Chairman and other Directors. He leads
meetings of the Non-Executive Directors, without
the Chairman present, to appraise the Chairman’s
performance and consults with shareholders in the
absence of the Chairman and Chief Executive.
The NEDs constructively challenge and assist with
the development of the strategy, within the risk and
control framework set by the Board.
Genus plcAnnual Report 2016
51
The CSR 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. More
information about our CSR activities can be
found in the Strategic Report, on pages 42
to 43, and at www.genusplc.com.
The R&D Portfolio Management Team
(‘R&D PMT’) meets twice a year. It
provides a forum for prioritising our R&D
programmes, monitoring their progress
and assessing the quality of our R&D
infrastructure, personnel and pipeline.
The R&D PMT’s meetings during the year
were held in Chicago and Basingstoke.
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 its risk profile;
• 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 2016
In addition to the standing agenda
items, in 2016 the R&D PMT reviewed two
strategic proposals. These were:
• a comprehensive review of gene
editing technology and IP, resulting
in our collaboration with Caribou
Biosciences; and
• an organisational capability building
plan, to support Genus’s advancing
pipeline of gene editing traits,
which was used when forming the
FY17 budget.
Board and Committee Structure
The diagram below shows the Board and the Committees that report to it.
o r t f o li o
t T
m
e
n
D P
R &
M a n a g e
e a m
Com
Au
dit
mitte
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.
e
v
i
t
u
c
e
x
E
s
u
n
e
m
a
e
T
p
h
s
r
e
d
a
i
G
e
L
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.
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.
C
o
m
m
i
t
t
e
e
R
e
m
u
n
e
r
a
t
i
o
n
C
o
m
C
SR
mittee
●
●
Board Committees
Executive Committees
Board Committees
The table below shows Board Committee membership:
Director
Bob Lawson
Karim Bitar
Nigel Turner
Mike Buzzacott
Lysanne Gray
Duncan Maskell
Lykele van der Broek
a tio n
C o m m itt e e
N o m i n
Committee
Audit
Nomination
Remuneration
–
–
M
C
M
M
M
C
M
M
M
M
M
M
M
–
C
M
M
M
M
M = Committee member C = Committee chairman
The Committee Chairmen are responsible
for overseeing the Committee’s activities,
within the terms of reference, and for the
Committees’ leadership and effective
operation. More information about the
roles and work of the Board Committees
can be found in their statements on pages
57 to 85, and in their terms of reference on
our website at www.genusplc.com.
Executive Committees
The Board delegates operating decisions
to the Chief Executive, Group Finance
Director and other members of the Genus
Executive Leadership Team (‘GELT’). GELT’s
responsibilities and membership are set
out on pages 48 and 49.
Strategic ReportCorporate GovernanceFinancial StatementsAdditional Information Genus plc Annual Report 2016
52
Corporate Governance Statement continued
Leadership continued
The Board’s Main Activities in 2016
Matters Considered at All
Board Meetings
• Update on strategic and business
developments from CEO
• Update on financial performance
of businesses and forecasts from
Group FD
• Update on Corporate Governance
and Legal issues from Group GC
and CoSec, and external advisers
Leadership and Effectiveness
• Appointment of Lysanne Gray
as a NED and induction process:
– Interviews with senior
management
– Visited the US and customers
(see page 53) to better
understand the business
operations and environment
Research and Development
• Received regular updates on
R&D pipeline developments,
new initiatives and potential
collaborations
• Attended a dedicated Board science
education presentation
• Received updates from Directors
attending the R&D PMT
• Updated on the recruitment of key
R&D personnel
Company Performance
• Received updates on the
operational performance of the
business and market conditions for
each division
• Received updates on plans to
address profitability in ABS
• Monitored the Group’s performance
against its goals
Business Development and Strategy
• Held strategic meeting with GELT
(see below)
• Reviewed and approved business
development opportunities,
such as:
– Exclusive global licence with
University of Missouri to develop
and commercialise gene edited
pigs resistant to PRRSv
– Updated on IVB integration
– New porcine royalty customers
signed in China
– New bull stud completion with
Chitale JV in India
– GSS development progress and
US litigation proceedings (see
note 7)
– Exclusive licence of Caribou
Biosciences’ leading CRISPR-
Cas9 gene editing technology
platform
– Acquisition of St Jocobs
– Exclusive global licence of IP
relating to BRD from Wisconsin
State University
• Updated on numerous business
development opportunities
including summaries of due
diligence reviews
• Received updates on competitor
landscape
Attendance at Board and Committee Meetings
The table below shows how many Board and Committee meetings each Director
attended during the year.
Board
Audit
Committee
Remuneration
Committee
Nomination
Committee
Non-Executive Chairman
Bob Lawson
Executive Directors
Karim Bitar
Stephen Wilson
Non-Executive Directors
Nigel Turner
Mike Buzzacott**
10 (10)
10 (10)
10 (10)
10 (10)
9 (10)
Lysanne Gray Δ (appointed 1 April 2016)
2 (3)
Duncan Maskell
Lykele van der Broek
10 (10)
10 (10)
5*
5*
5*
5 (5)
5 (5)
1 (1)
5 (5)
5 (5)
6 (6)
4 (4)
6*
6*
6 (6)
6 (6)
2 (3)
6 (6)
6 (6)
4 (4)
4*
4 (4)
4 (4)
1 (2)
3 (4)
4 (4)
Note: Figures in brackets are the maximum number
of Board or Committee meetings the Director could
have attended.
* Attendance by invitation.
** Due to illness, Mike Buzzacott was unable to attend
the Board meeting in May 2016. Mike was provided
with Board materials and submitted feedback via
the Chairman prior to the meeting.
Δ Due to prior commitments pre-appointment,
Lysanne Gray was unable to attend all meetings
following her appointment. However, Lysanne was
provided with all Board and Committee materials
and submitted feedback via each respective
Chairman prior to the meetings.
Board Strategy Review
One of the Board’s key responsibilities is
to approve the Company’s strategy and
monitor its performance against 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.
Genus plcAnnual Report 2016 53
Employees
• Received updates on the global
all-staff survey results and
follow-up actions
• Received updates on key personnel
appointments, assignments and
developments across the Group
Shareholders
• Updated on meetings with
shareholders, potential investors
and analysts
• Received a briefing ahead of
the AGM
• Approved 10% increase in the
dividend payment
Finance
• Approved the annual and interim
results and dividends
• Approved the FY17 budget
• Received tax and treasury updates
• Received pension updates
• Approved the facility renewal
Executive/GELT Updates
• Received monthly financial and
Health and Safety
• Reviewed and monitored the
Group’s health and safety
performance (monthly written
updates and quarterly review)
Risk Management
• Monitored the Group risk register
• Received monthly updates on GSS
litigation (see note 7)
operational performance updates
• Updated on whistleblowing hotline
• Received regular presentations
reports and investigations
from each business unit
At this year’s review, the Board was
taken through:
• A review of global industry trends
and challenges.
• An update on each business unit’s
and R&D’s strategic goals and ways to
accelerate the time required to reach
such goals.
• An update on strategic initiatives and
their anticipated financial impact over
the next five years.
• An overview of the likely transformation
steps for the business in line with the
strategic goals.
• A review of projects designed to share
the value of our differentiated products
with our customers.
Board Visit to the US
We want to ensure that the Board has
first-hand experience of key areas of our
business and markets, so we include an
annual site visit in the Board calendar.
In May 2016, the Board spent a week
visiting our operations and facilities in
the US. This included meeting the senior
management of ABS, PIC and R&D
business units and key members of their
North American teams, and receiving
business update presentations. The Board
also received presentations from leading
industry experts and key customers.
Board visits are designed to enhance
the Board’s understanding of our North
American business, its operations on
the ground, the markets and the needs
of our key customers. The Board met
with some of the largest customers in
the US, providing insight into customer
perspectives of Genus and the drivers
of their purchasing decisions. The
visit was also motivating for our local
management teams, enabling them to
engage with the Board at a local level.
Strategic ReportCorporate GovernanceFinancial StatementsAdditional Information Genus plc Annual Report 2016
54
Corporate Governance Statement continued
Effectiveness
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
• an introduction to our business,
through site visits and meetings with
our management teams.
Induction for Lysanne Gray
Following Lysanne Gray’s appointment
on 1 April 2016, she underwent a
comprehensive induction. This included:
• A visit to our US businesses in May 2016,
as part of the May Board meeting.
This covered a tour of our facilities
in DeForest and Dekorra; a series of
presentations from our ABS and PIC
business 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.
• Ad hoc updates on the latest
developments in corporate governance,
provided by internal and external
presenters.
• Meetings with Executive Directors
and the Company Secretary and
senior managers.
• A meeting with the auditor Deloitte LLP.
Board Evaluation
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 questionnaire by same
external evaluation consultant, to
monitor progress with the focus areas
Year 3
Internal questionnaires and interviews
with the Chairman
This was the first year in our three-year cycle and we therefore had a formal, rigorous
and independent external review. This evaluation was facilitated by Dr Tracy Long of
Boardroom Review, who has no other connection with the Group.
The Chairman agreed the scope of the review, which included individual interviews with
each of the Board members and observation at the February 2016 Board and Committee
meetings. Boardroom Review generated a written report on areas for improvement for
the Board which was followed up with a presentation to the Board at the May Board
meeting and then separate discussion of the principal outcomes of the Board review.
The Evaluation’s Conclusions
During the review, the Board demonstrated particular strengths in the following areas:
• Board culture, with an appropriate balance of challenge and support, and style
of chairmanship;
• strategic alignment and knowledge of the competitive landscape;
• financial reporting and the oversight of risk management from the Audit Committee;
• approach to remuneration and alignment with shareholders’ interests; and
• effective forward agenda planning, prioritisation of issues and quality of information.
In addition, it was noted that the skills and composition of the Board was adding value
to the business and that it has a healthy blend of NED perspectives and experience,
drawn from relevant executive and portfolio careers, a mix of longer serving and newer
Directors, and a size which enables all the NEDs to contribute.
Areas of Focus for 2017
The evaluation identified areas for the Board to consider during the next year, including
continuing focus on:
• strategy, including competitor landscape and shareholder expectations;
• development of the risk agenda, in line with the Company’s strategic objectives; and
• succession planning, including diversity and the mix of skills on the Board, to identify
any current and future skills gaps.
Progress Against 2016 Areas of Focus
Last year’s internal Board effectiveness review identified a number of areas for the Board
to focus on during 2016. The table below shows our progress against these objectives.
Focus area
Progress
Continued oversight of competitor activity.
Further training in corporate governance.
Further exposure to the science that
underpins our R&D programmes.
Further focus on succession planning and
gender diversity.
Competitors’ ongoing activities are
monitored through our business
development team and the Board is updated
at each Board meeting of material activities
in the sector. Deep dives in the competitor
activities are scheduled bi-annually.
In addition to corporate governance
updates provided by our auditor and
Company Secretary, new corporate counsel
was invited to brief the Board on recent
legislation changes during the year.
A dedicated Board science education
session, presented by the Chief Scientific
Officer, was held in December 2015, along
with the periodic R&D updates provided to
the Board.
A formalised succession planning process,
as part of Nomination Committee
meetings, has been introduced to ensure
that the Company is better prepared for
Board succession.
Genus plcAnnual Report 2016 55
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, system
access controls, 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
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.
All business units complete risk and control
self-assessments twice a year. Internal Audit,
as part of their work programme, perform
independent reviews of these assessments
to identify any deficiencies in our controls
and how we should address them. External
audit also provides observation on the control
environment as part of their audit work.
The results are communicated to senior
management and the Audit Committee.
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.
We have an internal control continuous
improvement work programme and routinely
identify opportunities to strengthen our
control environment and improve our risk
management capabilities. However, the
Board has not identified or been told of any
material weaknesses in our internal controls.
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 our 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.
Accountability
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. The Board sets the Group’s risk
appetite, which defines the types and levels
of risks that the Board is prepared to seek and
accept as the Company executes its strategy.
The Board then monitors our risk exposure
against the risk appetite for our principal
risks and ensures appropriate executive
ownership for all risks. This ongoing process
for identifying, evaluating and managing the
significant risks faced by the Group has been
in place for the year under review and up to
the date of approval of the Annual Report
and Accounts. Our principal risks and our
mitigations for them are summarised on
pages 18 and 19.
The Board performed its annual risk review
in May 2016. This review involved a review
of its risk appetite and a fresh assessment
of the types and levels of risk facing Genus
as it executes its strategy. This top-down
assessment was designed to identify and
evaluate any new or emerging risks and
identify whether the risk register covered
all relevant risks. To further assist its
understanding of risk, 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;
the GSS project, particularly in light of
the litigation the Group initiated, as
detailed in note 7;
the in-licensing of IP rights, particularly
those relating to gene editing assets; 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 considered our internal control
self-assessment process, designed to
assess compliance with our minimum
control standards, the independent
internal audit programme and the reports
management prepared when the Board
approved the interim and final results 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.
Strategic ReportCorporate GovernanceFinancial StatementsAdditional Information Genus plc Annual Report 2016
56
Corporate Governance Statement continued
Relations with Shareholders
Investor Relations
Calendar
Date
Type of communication
Location
September 2015
October 2015
November 2015
Preliminary Results Roadshow
London, Edinburgh
Call
Sydney
AGM and Trading Update
Basingstoke, London
February 2016 & March 2016
Interim Results Roadshow
London, Edinburgh, Los Angeles, Boston
April 2016
June 2016
European Roadshow
Calls
Copenhagen, Frankfurt, London
Canada, London, Madison, Paris
Our Chief Executive and Group Finance Director regularly meet
institutional investors, to discuss our strategy and progress, and to
understand how investors view our business. The Chairman also
attends certain meetings. The majority of these meetings take
place after we release our interim and preliminary results.
Key Themes Discussed in Shareholder Meetings
Our meetings with shareholders during the year covered a wide
range of topics. The common themes included:
• Genus’s operational and financial performance.
• Market conditions, particularly in dairy, and our initiatives to
During the year, our investor relations programme included
meetings in several global locations as set out in our Investor
Relations Calendar. The Board sets time aside during its meetings
to discuss feedback from shareholder meetings, including relevant
feedback obtained by independent brokers and our advisers.
This allows all Directors to understand major shareholders’ views.
• Strategic progress across the Group.
• Progress with R&D and our increased spending to accelerate
the programme.
• Progress with integrating and building on the IVB acquisition.
• Capturing a share of the value we deliver to customers.
• The opportunity for PRRSv resistant pigs.
address them.
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 17 November 2016.
8
Number of top 10
shareholders met
18
Number of non-holding
institutions and
potential investors
54%
Proportion of shares
held by institutions
met during year
Note: Shareholdings as at 30 June 2016.
Genus plcAnnual Report 2016 Forward Focus
“ The Committee spent
considerable time overseeing
the search for an additional
NED, which culminated in the
appointment of Lysanne Gray.”
57
Introduction
The Nomination Committee’s primary role is to keep the Board’s
structure, size and composition under review and to manage
appointments to the Board. This year, the Committee increased
its focus on formalising this review process and succession
planning for the Board. This approach is in line with the
increased importance being attached to the work of nomination
committees more generally, recognising their critical role in
ensuring companies have an effective and well-balanced Board.
The Committee also spent considerable time overseeing
the search for an additional NED, which culminated in the
appointment of Lysanne Gray. Lysanne brings considerable
experience of risk management, audit, business operations and
the food sector.
In addition, the Committee has progressed its review and
analysis of each Board member’s skills and experience, to identify
any current or future skills gaps that will need to be filled to
successfully implement the Group’s strategy.
7 September 2016
Committee Composition
and Governance
Chairman
Bob Lawson
Members
Nigel Turner
Mike Buzzacott
Duncan Maskell
Lykele van der Broek
Lysanne Gray
Karim Bitar
Focus Areas 2016
• Continued succession planning for the Board and senior
management
• Development of a documented skills matrix
• Encourage development of internal high-calibre people to
help develop a pipeline of potential Executive Directors
Bob Lawson
Chairman
Strategic ReportCorporate GovernanceFinancial StatementsAdditional Information Genus plc Annual Report 2016Nomination Committee Report
58
Nomination Committee Report continued
Lysanne Gray was the outstanding candidate and the Committee
was pleased to appoint her. The Board considered that Lysanne’s
great depth of experience in risk management, audit and
business operations, together with her exposure to UK corporate
governance and experience in the food sector, will bring additional
value to the Board as Genus continues to deliver its strategy.
Succession Planning Process
During the year, the Committee formalised and committed to
the following succession planning process. It has three phases:
• Assessment. The Committee reviews the likely tenure of the
NEDs, their independence and their skill sets and, in light of the
Group’s direction, identifies possible skills gaps for future years.
• Approach. The Committee encourages the development
of high-calibre internal candidates, to create a pipeline of
potential Executive Directors, and identifies potential new
NEDs who could fill key positions (such as Committee chairs)
or positions generated by the Group’s strategic direction.
• Execution. The Committee holds at least two meetings each
year, including one to discuss succession planning, and other
meetings as required to discuss appointments or retirements.
Diversity Policy
Genus recognises and embraces the benefits of Board diversity.
A diverse Board has members with different skills, backgrounds,
regional and industry experiences, race, gender and other
qualities. By bringing these differences to bear in its discussions
and decision-making, a diverse Board can help Genus to maintain
its competitive advantage. Diversity also links directly to our
values, not only by being people focused and responsible, but
by encouraging new ideas which deliver for our customers and
ultimately drive our results. Our Board diversity policy therefore
aims to ensure that we consider diversity in its broadest sense.
Women make up 25% of our senior management and Genus
will continue to make all Board appointments based on
individual merit.
Bob Lawson
Chairman of the Nomination Committee
7 September 2016
The Committee has written terms of reference, which set out
the authority delegated to it by the Board. These are available
from our website: www.genusplc.com. Copies of contracts of
service and letters of appointment between the Directors and the
Company will be available for inspection at the Registered Office
of the Company during normal business hours until the conclusion
of the Annual General Meeting on 17 November 2016, and at the
place of the Annual General Meeting from at least 15 minutes
prior to the Annual General Meeting until its conclusion.
The Committee’s biographies, along with information on Genus’s
other Board members, can be found on pages 46 to 47.
Committee Roles and Responsibilities
The Committee is responsible for:
• making recommendations to the Board on the structure,
size and composition of the Board and its Committees;
• evaluating the balance of skills, experience, independence,
knowledge and diversity on the Board;
• succession planning for the Directors and other senior
executives;
identifying suitable candidates to become Directors,
based on merit; and
recommending a candidate for Board approval.
•
•
The Committee met three times in the year primarily to discuss
the new NED appointment and succession planning.
The Committee’s Main Activities During the Year
Appointment of Lysanne Gray
The Chairman leads the process for making appointments to
the Board. In appointing a new NED, the Committee sought
a candidate who could chair the Audit Committee, following
Mike Buzzacott’s retirement at the 2016 AGM. The Committee
also had a strong desire to increase the Board’s diversity. With
this in mind, the Committee looked for candidates with the
following attributes:
• Functional experience
– a serving or recently retired chief financial officer or senior
divisional finance executive; and
– experience of UK plc accounting.
• Career experience
– global experience, preferably in an adjacent sector; and
– literate in IT systems for an expanding global business.
• Personal characteristics
– high integrity and honesty;
– able to add value on ethics, stakeholder management
and/or regulatory issues;
– collegiate in style; and
– willing to constructively challenge and support.
To reach the widest possible candidate pool, we engaged Egon
Zender, an executive search firm, which has also provided the
business with occasional executive coaching services, and
provided a clear recruitment brief, as well as seeking referrals
from the Board. The Chairman identified candidates for interview,
who were presented to the Committee and Executive Directors.
Following a one-to-one interview process, the Committee
received feedback on each candidate. Candidates were assessed
consistently throughout the process, against the role specification.
Genus plcAnnual Report 2016 59
Ensuring the Company’s Financial
Reporting Integrity
“ The Committee continued
to focus its efforts on risk
management, internal control
and the Group’s financial
reporting processes.”
Mike Buzzacott
Chairman of the Audit Committee
Strategic ReportCorporate GovernanceFinancial StatementsAdditional Information Genus plc Annual Report 2016Dear ShareholderThe Audit 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.During the financial year, we focused on risk management, internal control and the Group’s financial reporting processes. We have supported the Board in considering its risk appetite and in reviewing the long-term viability statement and supporting analysis. We have carefully considered the critical accounting policies and judgements, the quality of disclosures, compliance with financial reporting standards and reviewed the half-year and Annual Report and Accounts, together with the related external audit reports. We have also 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.In April 2016, we welcomed a new member to the Committee with the appointment of Lysanne Gray. When I step down from the Board in November 2016, Lysanne will be appointed Chair of the Audit Committee. I am happy to report that the Committee membership continues to comply with the UK Corporate Governance Code and related guidance, with all members being NEDs, and maintains 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, are in the Corporate Governance Statement of this Annual Report.7 September 2016Committee Composition and GovernanceChairmanMike BuzzacottMembersNigel TurnerLysanne GrayDuncan MaskellLykele van der BroekFocus Areas 2016• Biological assets valuation• Goodwill and intangible assets• PensionsAudit Committee Report
60
Audit Committee Report continued
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
FY16, the Committee met the UK Corporate Governance Code’s
requirement that at least one Committee member should have
recent and relevant financial experience, with Mike Buzzacott
and Lysanne Gray both having this 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 and any significant financial
reporting judgements;
the integrity of the Group’s financial statements and any
formal announcements relating to financial performance;
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, independence and objectivity of the Group’s
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.
The Committee’s Main Activities During the Year
During the year, the Committee held five 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. At its five meetings, the Committee focused on:
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
Goodwill and intangible assets
Pensions
In compliance with IAS 41, Genus records its biological assets at fair value in the Group
balance sheet (£354.4m), with the net valuation movement excluding foreign exchange
translation 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 including the income statement increase
of £9.4m in the value of porcine and the reduction of £26.5m in the value of bovine
biological assets.
Genus has £86.0m of goodwill and £78.0m of intangible assets on the Group balance
sheet. These balances are tested for any indications of impairment by reference to
the forecasts for the relevant cash generating units. Within intangible assets, Genus’s
policy is to capitalise certain development costs and to perform periodic impairment
reviews of the carrying amounts. At the balance sheet date, the Group had £17.8m of
capitalised development expenses in respect of GSS, as well as £7.7m in associated
fixed assets. During the year, the Committee reviewed progress against plans, the costs
incurred and the project’s timelines to full operation and the outcome of the litigation
with ST. The Committee discussed management’s reports in detail, including whether
any known issues might block the project’s completion. The Committee also discussed
management’s goodwill and intangible asset impairment reviews, 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.
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, including
the treatment of the gain of £43.9m due to the change in pension increases from RPI to
CPI and the use of the 2015 valuation schedule of contributions giving rise to the IFRIC 14
additional liability of £14.9m. 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 plcAnnual Report 2016 61
The Committee assessed the external
auditor’s performance in conducting the
audit for the June 2015 year end, 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. While noting some
opportunities for further improvement, the
Committee concluded that the external
auditor was effective and was satisfied
with the plan put forward by the external
auditor to respond to the opportunities for
improvement identified.
Mike Buzzacott
Chairman of the Audit Committee
7 September 2016
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 external auditor, Deloitte LLP, was
first appointed as the Company’s external
auditor for the period ended 30 June 2006.
In 2015, the Committee oversaw a formal
audit retender process for the audit of the
financial year ending 30 June 2016. The
process concluded with the selection and
subsequent reappointment of Deloitte LLP.
The new audit partner’s first audit period is
the financial year ended 30 June 2016.
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 33% of audit
fees, and reviewed compliance with
the Company’s Non-Audit Services by
Auditor Policy. See note 8 for further
details. The Committee was satisfied that
using Deloitte for such services did not
impair its independence as the Group’s
external auditor.
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:
• 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
and patent issues connected with this
key initiative.
• Pensions: the Board was updated on
the status of discussions with the Milk
Pension Fund in relation to the decision
to move benefit indexation to CPI and
the progress of the triennial valuation.
• Health and Safety: the Board received
updates on the controls and mitigation
activities in place and/or being
implemented to manage this risk, both
on Company and third-party premises.
The Committee also commissioned work
on IT security and data protection from
a new Group CIO and on biosecurity and
continuity of supply, both of which will
report back in FY17.
Internal Control System
Our risk management process and system
of internal controls are described in detail
on pages 18 and 19. The Committee
reviewed a refreshed approach to
monitoring the Group’s implementation
of controls and the results of the key
financial controls self-assessment process,
which is performed on a six-monthly
basis. The Committee further reviewed
Internal Audit’s findings at each scheduled
meeting, and the Group’s whistle blowing
policy and bribery prevention procedures
and conducted its annual review of the
effectiveness of the Group’s internal
controls and disclosures.
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.
Strategic ReportCorporate GovernanceFinancial StatementsAdditional Information Genus plc Annual Report 2016
62
A Pivotal Year for Genus in Advancing
and Delivering Our Strategy
“ Our strategy of transforming
the business into an agricultural
biotechnology pioneer requires
important and necessary
changes to the structure of
reward at a pivotal time for
the business.”
Letter from the Chairman
Dear Shareholder
On behalf of the Board, I am pleased to present the Directors’
Remuneration Report for 2016.
Accelerating Strategic Progress
We have seen a year of significant progress for Genus. We have
reported a second year of double-digit adjusted profit before tax
growth in constant currency coupled with significant advances
in delivery of our strategy. You will see examples of this progress
throughout the Annual Report, but particular highlights include
the successful integration and growth of our IVB business,
preparations for the commercial launch of our proprietary
sexed semen technology and an industry breakthrough with
the generation of the first PRRSv resistant pigs. Our strategy is
transforming the business into an agricultural biotechnology
pioneer, with a strong pipeline of innovation. Gene editing,
in particular, has the potential to be transformative for our
business, although the time frame to develop and realise
these opportunities is long term.
In light of this strategic progress, during the year the
Remuneration Committee (the ‘Committee’) reviewed the
Company’s Remuneration Policy to assess whether it supports
delivery of the Group’s strategy. Maintaining this momentum
requires stable leadership and aligning reward to reflect the
progress made. We identified specific goals that we wanted
to achieve through our approach to remuneration as follows:
• flexibility to recognise very significant biotechnology and
strategic Company milestones;
• ability to retain and attract top talent from a global talent pool;
• alignment of the interests of the executive and shareholders.
Having considered the progress made and the strategic direction
of Genus together with these goals, our conclusion is that changes
to the executive reward structure are required. We believe that
these are important and necessary changes at a pivotal time for
the business. Having discussed this as a Committee and with a
number of our key shareholders, we believe these are important
changes for our Remuneration Policy for 2017 and beyond, and
will be seeking approval for this at the AGM, one year ahead of
the normal cycle.
This remuneration report is therefore split into two sections:
•
the proposed new Directors’ Remuneration Policy
(‘Remuneration Policy’); and
the Annual Report on Remuneration (‘Remuneration Report’).
•
Our Revised Remuneration Policy from 2017
As we transform Genus, we need the ability to recognise better
the key strategic milestones for the Company (‘Company
Nigel Turner
Senior Independent Director and Chairman
of the Remuneration Committee
Genus plcAnnual Report 2016Directors’ Remuneration ReportSection A: Annual Statement 63
Milestones’), particularly as their benefit may only be reflected
some years later in traditional incentive plan measurements.
We also need the flexibility to recognise and retain key individuals
who exist as part of a global talent pool, now and in the future,
so that we optimise the execution of these initiatives to maximise
the Company’s long-term performance and shareholder value.
Our core bonus opportunity for each Executive Director will
remain at 125% of salary. This will continue to be measured using
a combination of financial and non-financial metrics, and 25% of
the award made under the core bonus element will continue to
be made in shares and deferred for three years.
We will introduce a new element to the annual bonus to recognise
progress towards and achievement of Company Milestones. Such
milestones are significant events in the Company’s development.
At the start of the year the Committee will determine what needs
to be achieved during the year to ultimately achieve the Company
Milestone(s). Any awards under this element (up to 75% of salary
for the Chief Executive and 50% of salary for the Group Finance
Director) will be made fully in shares and deferred for three years.
This allows us to recognise industry-changing events for Genus
that build future long-term value for shareholders and retain
individuals who will continue to make such events happen. We
will retrospectively disclose the Company Milestones within our
Remuneration Report so shareholders have full visibility of the
significance we have placed on particular strategic events.
As a result the total possible opportunity under the annual bonus
will increase from 125% of salary to 200% for the Chief Executive
and to 175% for the Group Finance Director.
Financial targets will continue to govern at least half of any
award under the annual bonus. If awards were made under all
elements of the bonus, the total award in shares deferred for
three years would increase from 25% of any award to over 50% of
the annual award for the Chief Executive. This change is designed
to recognise progress, drive alignment with the business and aid
retention of executives through increased shareholding.
We believe it is important for our Executive Directors to be fully
aligned to Company performance through significant shareholding
levels in the business. Alongside the change to annual bonus,
we are doubling the Executive Directors’ minimum shareholding
requirement to 200% of salary (currently 100%).
In order to complement the above policy changes, you will see
some amendments to the way we propose to implement the
Remuneration Policy for 2017 in relation to the Genus plc 2014
Performance Share Plan (‘2014 PSP’). Having reviewed market
conditions, changes to our business strategy and the level of
awards coming through our existing plans, we will adjust the EPS
range for performance such that the annual EPS growth range will
be set at a threshold level of 5% for 20% vesting (currently 6%)
through to 15% for full vesting (currently 20%). The previous range
was set ahead of the decision to accelerate further investment
in research and development as part of our strategy, which
has potential to create significant value for shareholders. We
believe that this amended range continues to reflect stretching
performance against our agreed strategy, and that annual 15%
EPS growth should warrant full awards under the 2014 PSP.
This change will be made for awards granted from 2016.
To support our transformation towards becoming an animal
biotechnology business, we also propose that certain costs in
connection with the development of gene editing are excluded
from the calculation of awards. We want to encourage vigorous
pursuit of the opportunities: because expenditure year on year
will be variable, we want to ensure that considerations of the
remuneration impact do not influence executive decision-making.
By excluding gene editing, we drive the behaviours we seek from
the executives and encourage management to invest for the
long-term interests of shareholders. We will follow this approach
in determining the vesting of long-term awards in 2017 and 2018.
Shareholder Engagement
The Committee consulted major shareholders in July and August
2016 on the proposed changes to the Remuneration Policy. We are
grateful to our shareholders for their time and feedback, which
was challenging but supportive: they were very understanding of
the direction the business is taking and wish to retain, as we do,
the current management team to deliver on the potential.
Outcomes for 2016 Remuneration
In reaching the 2016 outcomes, the Committee has excluded
amounts charged to the Profit and Loss account and cash flows
which were incurred in relation to our investment in gene editing.
This investment opportunity was not foreseen when targets
were set. Management reacted quickly to secure this value for
shareholders and to build our IP position following the PRRSv
resistant pig discovery. We have therefore excluded these costs
from the calculation of awards under the annual bonus and
performance share plan. The Committee is firmly of the view that
this is the right approach and creates an appropriate alignment
between underlying performance and reward.
Adjusted profit before tax, after an adjustment of £0.9m
of gene editing investment, grew 12% in constant currency.
The performance of PIC, and specifically the business in China,
resulted in good Group performance overall. The Committee
therefore determined that 78.2% of maximum annual bonus
should be awarded to the Chief Executive and 78.2% to the
Group Finance Director.
Under the long-term incentive, following adjustment for gene
editing costs and share-based payments as explained further
within this report, the 2013 award partially vested. The three-
year EPS growth rate was 25.4% and RPI was 5.7%, resulting in an
average annual EPS growth over the period of RPI+6.6%. 34.4%
of the award will vest for Chief Executive and 31.4% for Group
Finance Director.
Shareholders’ Views
The Committee was delighted that it received 99.55% approval
of the Remuneration Report in 2015. We will continue to engage
with shareholders, 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
report is clear and 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 2016 AGM.
Nigel Turner
Senior Independent Director and Chairman of the
Remuneration Committee
Strategic ReportCorporate GovernanceFinancial StatementsAdditional Information Genus plc Annual Report 2016
64
Directors’ Remuneration Report continued
Section A: Annual Statement continued
This 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 plcAnnual Report 2016 Section B: Directors’ Remuneration Policy Report
The revised Remuneration Policy is set out in this section. It is being put to shareholders for approval at the AGM to be held on
17 November 2016. This is one year earlier than originally intended, as a result of the changes the Committee is proposing. The
Remuneration Policy is intended to apply, subject to shareholder approval, for three years from the 2016 AGM. Where a material change
to this policy is considered, the Company will consult with major shareholders prior to submitting the revised policy to all shareholders
for approval.
65
•
incentive structures should be simple, reward long-term
sustained growth and key strategic milestones, rather
than volatile performance;
• the policy should be clearly aligned with shareholders’
interests, take due account of current best practice and
not encourage undue risk taking; and
• policy principles for Executive Directors should apply
to the members of the Genus Executive Leadership
Team (‘GELT’), with appropriate tiering through the
wider workforce.
Directors’ Remuneration Policy Report
The key objectives of the Remuneration Policy are that:
• pay should be competitive, so we can attract and retain
the best people;
• fixed pay (base salary, pension and benefits) should take
account of appropriate external benchmarks (both in
the UK where we are listed and globally) and pay for our
other employees;
• short and long-term incentive pay should provide the
opportunity to earn upper quartile total remuneration,
subject to delivering our above-market long-term
growth aspirations;
• we can recognise significant biotechnology and strategic
Company Milestones;
•
incentive pay should be directly linked to the Group’s
strategy, with targets relating to our key performance
indicators (using non-financial ‘input’ measures and/or
‘output’ measures such as earnings per share) and should
be stretching, in light of our strategic plan;
How we are Evolving Reward to Meet Identified Goals
Goal
Current Policy
How we are Evolving Our Policy
Greater flexibility to recognise the long term
benefit of achieving key Company Milestones
• Weighted towards short term financial metrics
• Introduction of a new element within the annual
bonus to recognise Company Milestones.
• Whether this is included within the annual
bonus determined annually in advance by
the Committee.
A strengthening in our ability to retain top talent
• Market competitive base pay
• Compulsory holding period for shares released
• Amended EPS performance range for the 2016
award maintaining stretch.
from PSP (awards made since 2014)
• Increase in maximum possible award under the
annual bonus.
Greater alignment of the interests of the
executive and shareholders
• Compulsory deferral into shares within
• Greater deferral within annual bonus structure,
annual bonus
• Long-term incentive plan awarded in shares
• Minimum shareholding requirement
where over half of the award may be deferred for
three years.
• Increase in minimum shareholding requirements
to 200% of salary.
Strategic ReportCorporate GovernanceFinancial StatementsAdditional Information Genus plc Annual Report 2016
66
Directors’ Remuneration Report continued
Section B: Directors’ Remuneration Policy Report continued
Future Policy Table
Base Salary
Benefits
Pension
To provide competitive fixed
remuneration that will attract and
retain key employees and reflect their
experience and position in the Group.
To provide competitive benefits and
to attract and retain high-calibre
employees.
To provide a competitive Company
contribution that enables effective
retirement planning.
Operation
Operation
Operation
Only basic salary is pensionable.
Pension is provided by way of contribution
to a personal pension or as a salary
supplement in lieu of pension provision.
Reviewed annually as the norm, with
increases from 2017 usually effective
from 1 September.
Benefits generally include a car allowance
and insured benefits (e.g. life assurance
and private medical insurance).
Periodically benchmarked against relevant
market comparators, reflecting the size and
nature of the role, individual performance
and experience, increases awarded to
other employees, Group performance and
broader economic conditions.
Where Executive Directors are recruited
from overseas, or required to relocate
on an international assignment, benefits
more tailored to their geographical
location may be provided and may include
relocation costs and/or tax equalisation
arrangements as necessary.
Where revised benefits are offered in a
geographic location or across the Group,
Executive Directors are likely to be eligible
to receive those benefits on similar terms.
If the Company introduces an all-employee
share plan, Executive Directors will be
eligible to participate on the same terms
as other employees.
Maximum
Maximum
Maximum
Annual percentage increases are generally
consistent with the range awarded across
the Group and in line with the salary awards
for the home country that the executive
works in.
Percentage increases in salary above
this level may be made in certain
circumstances, such as a change in
responsibility or a significant increase
in the role’s scale or the Group’s size
and complexity.
The car allowance value is limited to
£20,000 per annum.
The value of insured benefits will vary year
on year, based on the cost of providing
insured benefits, and is included in the total
single figure table on page 76.
Pension contribution or salary supplements
in lieu of pension are provided to a
maximum of 25% of basic salary.
Performance Conditions
Performance Conditions
Performance Conditions
A broad assessment of individual and
Company performance is used as part of
the salary review.
The salaries payable to the Executive
Directors from 1 July 2016 are disclosed on
page 74.
Changes
Any salary award from 2017 onwards will
be effective from September rather than
July. This aligns pay awards with a review
of the full year’s performance.
None.
None.
Changes
None.
Changes
None.
Genus plcAnnual Report 2016 67
Annual Bonus
The bonus is split into two parts:
A Core Bonus element incentivises against
a combination of financial targets and
personal objectives.
A Company Milestone element incentivises
achievement of significant Company
Milestones. This element is included at the
discretion of the Committee.
In combination, these elements support
achievement of the Group’s goals.
A dividend equivalent provision operates,
enabling dividends to be paid (in cash or
shares) on deferred shares that vest.
Therefore the maximum under the
annual bonus is 200% of salary for
the Chief Executive, 175% for other
Executive Directors.
For financial performance targets under
the Core Bonus element, bonus is earned
on a graduated scale. The level of payment
at threshold is set annually but will not
exceed 25% of maximum. Maximum
awards (100% payable) are for substantial
outperformance against targets.
A summary of the performance targets for
2017 is included on page 74.
Operation
25% of the payments under the Core
Bonus element are made in Company
shares deferred for three years subject to
continued service. The remaining award
is payable in cash.
Payments under the Company Milestone
element are made fully in Company
shares deferred for three years subject to
continued service.
Maximum
Core Bonus opportunity: 125% of salary
The Committee has the discretion to award
an additional variable award (up to 75% of
salary for the Chief Executive, up to 50%
of salary for other Executive Directors) to
reward achievement of company milestones
under the Company Milestone element.
Performance Conditions
Core bonus awards are subject to
achievement against a sliding scale of
challenging financial targets and personal
objectives, which the Committee sets
each year to reflect the priorities for the
year ahead.
The specific performance measures,
targets and weightings are set every year
to align with the Company’s strategy.
Financial targets govern the majority of
Core Bonus payments and are typically
linked to the Group’s key performance
indicators (e.g. profit and cash generation),
Changes
Additional element of bonus (Company
Milestone element) worth a maximum of
75% of salary per annum for significant
strategic achievements. Awards from this
element in deferred shares further align
executives with shareholders and supports
Malus and clawback provisions may
apply for a period of three years from the
point of award, in the event of a material
misstatement of the Group’s financial results.
Share awards are made under the Deferred
Share Bonus Plan (‘DSBP’). Awards (under
either the Core Bonus element or Company
Milestone element) will vest after three
years, subject to continued service.
The Committee has the discretion to
determine in which year the award is
earned, and can choose to recognise
achievement in a subsequent year.
The maximum award in any year will
be up to 75% for the Chief Executive,
50% for other Executive Directors.
with a minority earned based on
performance against personal objectives.
The Company Milestone element
may be included by the Committee to
incentivise and reward the achievement
of pre-determined Company Milestones.
The Committee has the discretion to adjust
the bonus outcome in light of overall
underlying performance. Any adjustment
made will be disclosed within the following
Annual Report on Remuneration.
a long-term and significant personal
shareholding requirement. In years
when a Company Milestone element is
included, the annual bonus maximum
increases from 125% to 200% of salary
for the Chief Executive, 175% for other
Executive Directors.
A diagram illustrating the structure of the annual bonus is shown on page 74.
Strategic ReportCorporate GovernanceFinancial StatementsAdditional Information Genus plc Annual Report 2016
68
Directors’ Remuneration Report continued
Section B: Directors’ Remuneration Policy Report continued
Future Policy Table continued
2014 PSP
The 2014 PSP incentivises executives to
achieve superior returns to shareholders
over a three-year period, to retain key
individuals and align their interests
with shareholders.
Share Ownership Guidelines
To align executives and shareholders.
Operation
Operation
Eligibility to receive awards is at the
Committee’s discretion each year.
Awards vest three years from grant,
subject to continued employment and
satisfaction of challenging three-year
performance targets.
For awards granted from 2014, the after-tax
number of vested shares must be held for
at least a two-year period following vesting.
Executives are expected to achieve a
shareholding of 200% of salary, by retaining
50% of the net of tax number of vested
shares under the Company’s DSBP and PSP.
A dividend equivalent provision enables
dividends to be paid (in cash or shares) on
shares that vest.
Malus and clawback provisions may apply
for a period of three years, in the event of
a material misstatement of the Group’s
financial results.
In addition, the Chief Executive Officer
will retain the entire after tax number of
Restricted Stock that was granted to him
shortly after his appointment.
Maximum
Maximum annual award of 200% of
salary (300% of salary in exceptional
circumstances, such as recruitment).
Performance Conditions
Awards vest based on three-year
performance against a challenging range
of targets, aligned with the delivery of the
Company’s long-term strategy.
Financial targets (including adjusted EPS
growth) will determine the vesting of a
majority of awards granted in any year.
Targets are typically structured as a
challenging sliding scale, with no more
than 20% of the maximum award vesting
for achieving the threshold performance
level through to full vesting for substantial
outperformance of the threshold.
The awards will also be subject to an
underpin that enables the Committee to
scale back (but not scale up) vesting, if the
Group’s performance over the period is not
considered to reflect the progress made
against its strategic business targets.
Changes
None.
Maximum
Not applicable.
Performance Conditions
A summary of the performance targets for
2017 is given on page 80.
Not applicable.
The Committee will review performance
conditions annually, in terms of the
range of EPS targets and the metrics and
weightings applied to each element of
the PSP. Any revisions to the metrics and/
or weightings will only take place if it is
necessary because of developments in
the Company’s strategy and, where these
are material, following dialogue with the
Company’s major shareholders. Should the
Committee believe that a major change
of the current approach is appropriate (for
example, replacing a primary performance
metric with an alternative), this would only
take place following a revised Directors’
Remuneration Policy being tabled
to shareholders.
Changes
To align the executives with shareholder
interests, minimum shareholding doubled
from 100% of salary to 200% of salary.
Genus plcAnnual Report 2016 69
NEDs
To provide compensation that attracts
high-calibre individuals and reflects their
experience and knowledge.
Operation
The Committee determines the
Chairman’s fee.
The Board periodically reviews Non-
Executive Directors’ fees.
No Directors take part in meetings where
their own remuneration is discussed.
Fees are based on the time commitments
involved in each role and set with reference
to the fees paid in other similarly sized UK
listed companies.
Maximum
Any increase in Non-Executive Director
fees may be above the level awarded to
other employees, given that they may only
be reviewed periodically and may need to
reflect any changes to time commitments
or responsibilities.
The periodic review may result in an
increase beyond the fees currently payable.
Non-Executive Directors also receive
reimbursement of reasonable expenses
incurred in connection with Company
business and may settle any tax incurred in
relation to these.
The fees payable for 2017 are stated on
page 82.
Performance Conditions
None.
Changes
Clarification of approach to expenses and
that Genus may settle any tax liability due
in relation to reasonable expenses incurred.
Strategic ReportCorporate GovernanceFinancial StatementsAdditional Information Genus plc Annual Report 2016
70
Directors’ Remuneration Report continued
Section B: Directors’ Remuneration Policy Report continued
Approach to Recruitment Remuneration
Area
Overall
Policy and operation
When hiring a new Executive Director or making internal promotions to the Board, the Committee will apply
the same policy as for existing Executive Directors, as detailed in the Remuneration Policy. The rationale for the
package offered will be explained in the next Annual Report on Remuneration.
For internal promotions, commitments made prior to appointment will typically be honoured, as the executive
transitions to the new remuneration arrangements. Awards made in the transition year would be pro-rated
to reflect the remaining period of the vesting period or financial year. Any award will take into consideration
awards granted prior to promotion.
Base salary
Base salary would be set at an appropriate level, to recruit the best candidate based on their skills, experience
and current remuneration.
If the salary is initially set at a discount to those offered in companies of a similar size, geographical reach and
complexity, the salary will be increased over a period of time to bring the salary to the desired level, subject to
individual performance.
Benefits
Benefits provisions would be in line with the normal policy. In addition, reimbursement of legal fees in
connection with recruitment may be reimbursed.
Pension
Annual bonus
Where appropriate, the executive may also receive relocation benefits or other benefits reflecting normal
market practice in the territory in which the Executive Director is employed.
Pension provision would be in line with normal policy.
Incentive awards would be made under the annual bonus, in line with the normal policy. The maximum award
under the Policy is 200% of salary.
Where an individual joins after the start of a scheme year, awards may be pro-rated for the portion of the
financial year.
Long-term incentives Awards under the Performance Share Plan would be granted in line with the policy outlined for the current
Executive Directors.
In the event of internal promotion, existing awards made under the Plan will continue over their original
vesting period and remain subject to their terms at the date of grant. The Committee may choose to make an
additional award (on the same basis as other Executive Directors), subject to the overall limit permitted under
the Plan in any year.
Where an individual joins after the start of the incentive grant, an award may be made to bring the executive
onto the ‘in-flight’ cycle, subject to the limits set out in the policy. Awards may be pro-rated for the portion of
vesting period served.
Buy-out awards
In addition to normal incentive awards, buy-out awards may be made to reflect value forfeited through an
individual leaving their current employer.
If required, the Committee would seek to reflect the nature, timing and value of awards forgone in any
replacement awards. Awards may be made in cash, shares or any other method as deemed appropriate by the
Committee. Where possible, share awards will be replaced with share awards. Where performance conditions
apply to the forfeited awards, performance conditions will be applied to the replacement award or the reward
size adjusted downwards.
In establishing the appropriate value of any buy-out, the Committee would also take into account the value of
the other elements of the new remuneration package.
The Committee would aim to minimise the cost to the Company. However, buy-out awards are not subject to a
formal maximum. Any awards would be no more valuable than those being replaced.
Malus and Clawback
Malus and clawback may operate in respect of the annual bonus and long-term incentives. These provisions enable the Company to
reduce the payout and vesting levels or to recover the relevant value from cash bonus payout or vesting of shares. These provisions
could take effect in the event of erroneous or misstated financial accounts or other performance indicators within two years of the
reporting date.
Discretions
The Committee retains certain discretions, which are set out in full in the plan rules. These include but are not limited to:
•
•
• any adjustments required as a result of a corporate event (such as a transaction, corporate restructuring, special dividend or
the timing of any bonus payment;
the impact of a change of control or restructuring; and
rights issue).
Genus plcAnnual Report 2016 71
In line with the 2004 and 2014 PSP plan rules, the Committee can amend the performance conditions and/or measures in respect of
any award or payment, if one or more event(s) occur which would lead the Committee to consider that it would be appropriate to do so,
provided that such an amendment would not be materially less difficult to satisfy than the unaltered performance condition would have
been, but for the event in question.
Should the Committee use any of the discretions set out above, they would, where relevant, be disclosed in the next Annual Report on
Remuneration. The views of major shareholders would be sought. Discretion in relation to the Company’s Share Incentive Plan scheme
would be exercised within the parameters of the HMRC approved plan status and the listing rules.
Remuneration Scenarios for Executive Directors
The charts below show how the Group’s Remuneration Policy affects the composition of the Executive Directors’ remuneration at
different levels of performance, both as a percentage of the total remuneration opportunity and as a total value:
Colour the individual bits on
top of each curve
3000
2500
2000
1500
1000
500
0
0
0
0
£
’
£710
100%
£1,806
30%
30%
39%
£2,903
38%
38%
24%
Fixed
Target
Maximum
£1,741
37%
37%
25%
£1,091
30%
30%
40%
Target
Maximum
£441
100%
Fixed
Chief Executive – Karim Bitar
Group Finance Director – Stephen Wilson
Fixed Pay Short Term Incentives Long Term Incentives
• Fixed Pay – salaries as at 1 July 2016 + benefits (using the value to 30 June 2016 as a proxy) + pension (25% of salary for Chief
Executive and 15% of salary for Group Finance Director).
• Below Threshold – fixed pay only.
• Target – annual bonus pays at 50% of the maximum (core bonus and Company Milestone elements), PSP vests at 50% of the
maximum award.
• Maximum – annual bonus and PSP pay out in full.
• Share price growth has been ignored.
Remuneration Policy for Other Employees
The remuneration structure for the Genus Executive Leadership Team (‘GELT’) follows the same approach as the Executive Directors but
with a lower maximum opportunity. Eligibility for the Company Milestone element below the Executive Directors is based on the Chief
Executive’s recommendations and subject to approval by the Committee. The Committee approves the annual objectives and targets
for GELT together with salary awards, bonus targets and out-turns.
For the tier of management below GELT, the remuneration structure consists of base salary, benefits, pension, bonus and long-term share
awards. Performance measures are tailored to reflect the position of the individual and the part of the business in which they operate.
Below the leadership group, the structure and amount of remuneration vary by work level. Generally, at less senior levels of the Group,
total remuneration is less weighted towards performance-related pay, consisting of base salary, bonus and benefits relevant to the
local jurisdiction and market practice. The maximum provision and incentive opportunity available are determined by the seniority and
specialism of the role.
The Group HR Director is invited to present to the Committee on the proposals for salary increases for the employee population generally
and any other changes to the Remuneration Policy. The Committee approves the share award policy for all employees and the value of
awards to all executives and potential new hires.
The Company did not consult with employees when drafting the Directors’ Remuneration Report.
How Shareholders’ Views are Taken into Account
We consulted shareholders on the changes we are proposing for the new policy, specifically the short term bonus and EPS range for the
long term award. During July and August, we spoke to four of our largest shareholders, sharing the business progress and remuneration
proposals. We explained that, when the original policy was approved in 2014, the rate of return was expected to be higher. Investments
that we have recently made – PRRSv resistant pigs, CRISPR-Cas9 technology, IVB Brasil – have brought forward costs, which in the short
term, will impact EPS growth. We shared that we want to retain the very high calibre management team, and incentivise them to deliver
on the opportunities. We are grateful to our shareholders for their time and feedback, which was challenging but supportive: they were
very understanding of the direction the business is taking and wish to retain, as we do, the current management team to deliver on
the potential.
Strategic ReportCorporate GovernanceFinancial StatementsAdditional Information Genus plc Annual Report 2016
72
Directors’ Remuneration Report continued
Section B: Directors’ Remuneration Policy Report continued
The Committee remains committed to ongoing dialogue with the Company’s shareholders and will continue to consult with
shareholders in the future.
Service Contracts, Compensation for Loss of Office and External Appointments Policy
Executive Directors
Under the Executive Directors’ service contracts, the Company is required to give 12 months’ notice of termination of employment, while
the Executive Directors are required to give six months’ notice. If either party serves notice, the executives can continue to receive basic
salary, benefits and pension for the duration of their notice period, during which time the Company may require the individual to fulfil
their duties or assign a period of garden leave.
Under the Chief Executive’s contract, the Company may elect to make a payment in lieu of notice of up to 12 months’ base salary and
benefits, in the event of it terminating his employment. These payments may be made on a monthly basis, in which case the principles
of mitigation apply and he would be obliged to seek alternative employment, with the payments reducing to the extent that he receives
alternative income.
Under the Group Finance Director’s contract, the Company may elect to make a payment in lieu of notice of up to 12 months’ base
salary, in the event of it terminating his employment. These payments may be made on a monthly basis, in which case he would be
required to take all reasonable steps to find alternative employment. The principles of mitigation may apply, which means the Company
may reduce the monthly payments based on his actual earnings during the period for which the monthly payments are made, or the
Company’s assessment of the earnings that he could have received if he had sought alternative employment.
In certain circumstances, such as gross misconduct, the Company may terminate employment immediately without notice or payment.
The Committee may make any statutory entitlements or payments to settle or compromise claims in connection with a termination
of any existing or future Executive Director as necessary. The Committee also retains the discretion to meet any outplacement costs, if
deemed necessary.
There are no enhanced provisions in the event of a change of control. Executive Directors’ service contracts, which include details of
remuneration, will be available for inspection at the AGM or at the Company’s registered office.
Paying the cash element of annual bonuses is normally contingent on the executive being in employment and not under notice at the
payment date, unless the Committee determines otherwise, for example in the event of a good leaver circumstance such as death,
retirement, injury or disability, redundancy or employment being transferred outside the Group. The payment of any bonus will be pro-
rated for the period of service and subject to the relevant performance conditions being achieved.
The vesting of any deferred share bonus awards is determined by the DSBP rules. In general, awards lapse when employment ceases.
However, the deferred share bonus award will vest in certain good leaver circumstances, such as death, retirement, injury or disability,
redundancy, employment being transferred outside the Group or any other reason the Committee decides.
The vesting of any awards granted under the 2004 PSP is determined by the plan’s rules. In general, awards lapse when employment
ceases. However, awards may vest in certain good leaver circumstances, such as death or any other reason the Committee decides. This
vesting is based on the extent to which the performance target has been satisfied. The Committee may decide to reduce the award pro
rata, reflecting the proportion of the performance period that has elapsed.
The vesting of any awards granted under the 2014 PSP will depend on the business’s performance, based on the full performance period,
subject to the Committee’s final judgement. Awards will be pro-rated based on the time that the individual was employed, although
the Committee can decide not to pro-rate an award if it thinks it is inappropriate to do so. Alternatively, the Committee can decide
that a good leaver’s award will vest when he leaves, subject to the performance conditions measured at that time and the pro-rating
described above. This treatment will apply in the case of death.
In the event of a change of control, the treatment detailed above for good leavers under the 2004 PSP and 2014 PSP would apply.
Non-Executive Directors
All Non-Executive Directors have specific terms of engagement. Their appointment is for a fixed term of three years and is subject to one
month’s notice of termination by either the Company or the Non-Executive Director, and to annual re-election at the Company’s AGM, in
accordance with the UK Corporate Governance Code.
Outside Appointments
The Company recognises that Executive Directors may be invited to become Non-Executive Directors of other companies and that this
can broaden the Director’s skills and experience. When Stephen Wilson was appointed in January 2013, he was permitted to retain
his Non-Executive Directorship of Xchanging plc and the associated remuneration. Stephen Wilson retired from this appointment on
5 May 2016.
Genus plcAnnual Report 2016 Section C: At a Glance
What Executive Directors Were Paid in 2016
Chief Executive
Group Finance Director
Explanation
73
£364,140
These were the salaries set on 1 July 2015.
Base salary
Benefits
Pension
£537,367
£23,000
£134,342
£14,000
£54,621
Annual bonus
£525,545
£356,129
Performance
Share Plan
£385,283
£208,521
Total
£1,605,537
£997,411
This comprises a car allowance and insured benefits for both
executives and a medical screen.
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.
For the short-term bonus award, after adjustment for gene
editing costs, the Group’s financial performance meant
that awards for both the Chief Executive and Group Finance
Director were 78.2% of maximum. This is made up of:
• Adjusted profit before tax growth in constant currency of
12% (excluding gene editing costs) ➝ up to 60% of bonus
– 67.9% achieved.
• Cash generation of £18.6m (excluding gene editing
investment) ➝ up to 15% of bonus – 100% achieved.
• Non-financial strategic targets ➝ up to 25% of bonus
– The Chief Executive and Group Finance Director both
received 90% for this element (22.5%).
We explain the link between pay and corporate performance
on page 75 and provide detailed disclosure of the bonus
targets and adjustment for gene editing costs on page 76.
The adjusted EPS figure was 60.7p. The figure used for
determining vesting of PSP awards includes the impact of the
cost of share based payments. In addition, the Committee
exercised discretion to exclude the impact of gene editing
costs incurred, resulting in a revised EPS number of 57.1p.
This EPS level exceeds the threshold for these awards and
therefore the Tier 1 awards granted to the Chief Executive
and to the Group Finance Director (on 26 September 2013)
partially vest.
This is calculated using the average share price for the final
quarter of the financial year ending 30 June 2016, which
was 1,532p.
This should be viewed in the context of:
• A total shareholder return over the 2015/6 financial year
of £97.8m (+11.2%)
• Adjusted EPS growth of +7% (10% in constant currency)
Strategic ReportCorporate GovernanceFinancial StatementsAdditional Information Genus plc Annual Report 2016
74
Directors’ Remuneration Report continued
Section C: At a Glance continued
What Executive Directors Can Earn in 2017 and How
Base salary
Benefits
Pension
Annual bonus
Chief Executive
Group Finance Director
Explanation
£548,114
£25,000
£137,029
£371,423
The Executive Directors have been awarded a salary increase of 2%
as from 1 July 2016: this will be paid in September, backdated to July.
£14,000
There is no change to benefits.
£55,713
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.
A core bonus element
with target value of
62.5% of salary and
a maximum bonus of
125% of salary
A core bonus element
with target value of
62.5% of salary and
a maximum bonus of
125% of salary
Core Bonus Element
The measures for the core bonus element will remain:
• Adjusted profit before tax growth ➝ 80% of salary.
• Cash generation ➝ 20% of salary.
•
Personal objectives ➝ 25% of salary.
A Company Milestone
element with an
award of up to
75% of salary for
achievement of
Company Milestone
A Company Milestone
element with an
award of up to
50% of salary for
achievement of
Company Milestone
Performance Share
Plan – November
2014 awards
Performance Share
Plan – awards that
will be granted in
2016 and may vest
in 2019
Up to 86,271 shares
Up to 51,153 shares
An award over shares
worth 200% of salary
An award over shares
worth 175% of salary
For the adjusted profit before tax growth measure, target bonus
requires 10% growth and maximum bonus requires 15% growth in
constant currency.
Gene editing costs will be excluded in the calculation of adjusted profit
growth and cash generation for 2016/17.
Company Milestone Element
The Committee has determined eligibility for an award in respect
of achieving an identified Company milestone during 2017. Due to
commercial sensitivity, this will be disclosed retrospectively in the 2017
Annual Report.
The opportunity is up to 75% of salary for the Chief Executive and up
to 50% for the Group Finance Director. These levels have been set
following consideration of reward opportunities available from both UK
and international benchmarks.
The vesting of these awards depends on the adjusted EPS achieved in
2017. Full details are given on page 80.
This will be calculated excluding gene editing costs as described
elsewhere in this report.
The vesting of these awards will be subject to an adjusted EPS
growth condition, with the 2019 EPS being compared to the 2016
adjusted EPS of 57.1p (excluding gene editing costs).
5% annual growth ➝ threshold 20% vesting.
15% annual growth ➝ 100% vesting.
Vesting levels will be calculated on a straight line basis between the
above values.
This will be calculated excluding gene editing costs as described
elsewhere in this report.
Annual Bonus Structure for Chief Executive: 2017
2017
2018
2019
2020
2021
Core Bonus
Element
25% of salary
Personal
75% of any award: Paid in cash
i
d
e
n
m
r
e
t
e
D
d
r
a
w
A
i
d
e
n
m
r
e
t
e
D
d
r
a
w
A
80% of salary
PBT
20% of salary
Cash flow
75% of salary
Remuneration
Committee determine
annually in advance if
element included
Up to 200% of salary
Company
Milestone
Element
Total Annual
Bonus opportunity
for Chief Executive
25% of any award: Compulsory Share Deferral
100% of any award: Compulsory Share Deferral
Shares Released
Shares Released
Genus plcAnnual Report 2016
Section D: Remuneration and Performance Statement
Genus’s Strategy and its Link to Performance-Related Pay
Increase genetic
control and product
differentiation
Success
measured by
R&D and business innovation
Proprietary genetic
improvement and
dissemination positions
75
Link to
Remuneration
Policy
Captured within the personal
objectives element of the
annual bonus and through
the Company Milestone
element
Targeting key
markets and
segments
Volume growth
Operating profit
Measured through the profit
element of the annual bonus
Over the longer term will flow
into EPS, used to determine
vesting under the PSP Plan
Sharing in the value
delivered
Cash conversion
Measured through the cash
element of the annual bonus
See pages 65 to 72 for our Remuneration Policy
Performance Components and Their Impact on Remuneration
2015
2016
Movement % Impact on remuneration
Adjusted Results
Revenue
£398.5m
£388.3m
(3) Input to annual bonus profit and EPS in Performance Share Plan.
Adjusted profit before tax
Cash generation
£46.6m
£22.6m
£49.7m
£15.7m
Adjusted earnings per share
Dividend per share
56.8p
19.5p
60.7p
21.4p
7 Annual bonus measure.
(31) Annual bonus measure; performance reflects increased capital
investment in 2015/16.
7 Performance Share Plan performance condition.
10 Executives rewarded via dividend equivalent feature of deferred
bonuses and Performance Share Plan awards.
Share price at year end
1,427p
1,565p
10 Determines the value of deferred bonuses and Performance
Share Plan awards.
Values in the table are in actual currency as shown in the Annual Report. A number of adjustments are made to these for the purposes
of calculating awards under our incentive plans as described within this report.
Executive Directors’ Alignment to Share Price
Shares owned
Maximum rights
to shares
Total share
exposure
Value at share
price on
1 July 2015
(£)1
Value at share
price on
30 June 2016
(£)2
Consequence of
a +/- 50 pence
share price
change
(£)
Difference
(£)
Chief Executive
50,213
258,298
308,511
4,451,814
4,828,197
376,383
154,256
Group Finance Director
8,433
153,728
162,161
2,339,983
2,537,820
197,837
81,081
Conclusion
Executives are
aligned to
share price
1 Value of share price on 1 July 2015 – £14.43.
2 Value of share price on 30 June 2016 – £15.65.
Strategic ReportCorporate GovernanceFinancial StatementsAdditional Information Genus plc Annual Report 2016
76
Directors’ Remuneration Report continued
Section E: 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. The Directors’ Remuneration Report is subject to an advisory vote at the AGM, with the new Directors’ Remuneration Policy in
Section B being subject to a separate binding vote at this year’s AGM.
Balancing this formality with a desire to have a clear and understandable report, we have split this section into the following chapters:
1. What the Executive Directors were paid in 2016.
2. What the Executive Directors can earn in 2017.
3. The process the Committee followed to arrive at these decisions.
4. How the Chief Executive’s pay compares to shareholder returns over the past six years and to employees’ pay.
5. The Chairman and Non-Executive Directors’ fees.
6. Details of the Directors’ shareholdings and rights to shares.
7. Details of the Directors’ contracts and Non-Executive Directors’ letters of appointment.
1. What the Executive Directors Were Paid in 2016
Executive Directors’ Single Total Remuneration Figure (Audited)
The following table shows a single total figure of remuneration for the 2016 financial year for each of the Executive Directors and
compares this figure to the prior year. Variable pay remains in line with last year, based on another year of good overall performance.
Karim Bitar
Stephen Wilson
Year
2016
2015
2016
2015
Salary and fees
£000
Benefits1
£000
Pension2
£000
537
527
364
357
23
24
14
14
135
132
54
53
Subtotal for
fixed pay
£000
695
683
432
424
Bonus3
£000
526
650
356
435
Long-term
incentives4
£000
Subtotal for
variable pay
£000
385
2895
209
1445
911
939
565
579
Total
£000
1,606
1,6225
997
1,0035
1 Benefits comprise a car allowance of £20,000 for Karim Bitar and £12,000 for Stephen Wilson, insured benefits include life assurance and private medical insurance and
a medical screen.
2 Executive Directors receive a cash allowance in lieu of pension shown in the Pension column.
3 Bonus earned excludes gene editing costs incurred in 2016 (outlined in the following section) and includes the 25% which is deferred into Company shares for three years.
4 The value of long-term incentives is determined by the number of awards vesting in relation to performance ended 30 June 2016. Dividend equivalents are not added
to awards made under the long-term incentives. The value shown for 2016 is based on the average share price for the final three months of the 2016 financial year
(which was 1,532p).
5 The 2015 values shown in the previous Annual Report have been updated to reflect the actual value at vesting (share price was 1,496p (vesting 8 December 2015)
for awards for the Chief Executive and 1,431p (vesting 29 February 2016) for awards for the Group Finance Director).
How the Bonuses for 2016 Were Calculated
The 2016 bonuses for Executive Directors were calculated by reference to performance against a challenging sliding scale of profit,
cash flow and personal targets. As disclosed in the Remuneration Committee Chairman’s letter, the Committee exercised discretion to
exclude costs relating to gene editing incurred in the year when calculating awards under the plans. These costs were unforeseen at the
time of setting targets for these awards and the Committee believes that the targets remain as stretching as when the awards were
originally made. This ensured management’s reward was not unfairly affected by decisions to make the right long-term investment
decisions on behalf of the business.
The following are the results achieved in each element of the annual bonus incentive in a year of solid performance.
Bonus target
Strategic objective
Proportion
of bonus
Actual 2016
performance
Threshold
Target
Stretch
Adjusted PBT1
Cash flow
Year-on-year profit
growth2
Generate cash for
reinvestment
and dividend3
60%
£52.1m
£46.6m
£51.2m
£53.5m
15%
£18.6m
£11.0m
£14.0m
£17.0m
Extent to which
targets were met
(%)
67.9%
100%
Non-financial
strategic
objectives
To build the
foundation for
future growth
25%
See table
below
Chief Executive 90%
Group Finance Director 90%
1 Adjusted PBT in constant currency (actual currency was £49.7m).
2 Adjusted PBT excludes gene editing costs of £0.9m, as agreed by the Remuneration Committee. Without this adjustment the award level would have been 49.6% of maximum
for this part of the bonus.
3 Cash flow excludes gene editing costs of £0.9m and capital expenditure of £2.0m, as agreed by the Remuneration Committee. Without this adjustment the award would
have been 78% of maximum. The financial elements of the bonus are payable on a straight-line basis between each threshold, target and stretch level.
Overall extent to which the bonus targets were met:
Chief Executive 78.2%
Group Finance Director 78.2%
Genus plcAnnual Report 2016 77
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:
Executive Director
Karim Bitar
Key achievements in the year
Customer
Achieved porcine targeted profit, volume and royalty growth
in key markets, most significantly in China.
Payout against maximum
of 25% of bonus
90%
In the bovine business, global volumes of doses declined 6%,
adjusted operating profit lower in tough market conditions.
Improved capability and tools through GMS 2.0 launch,
IVB laboratory facilities operational in US and at advanced
construction in Mexico; Indian JV stud now fully operational.
People
Further strengthening of leadership and succession,
specifically in research and development.
Product and service
improvement
Stephen Wilson
Results
Customer/
stakeholders
People
Staff engagement scores in staff survey maintained their
very high level (see page 40). Significant improvement in
H&S execution.
Continued acceleration of genetic improvement in
PIC and reduced genetic lag to 3.3 years (like-for-
like sites). This is described in more detail on page 16
(Key Performance Indicators).
Significant progress on GSS: scaling up of technology to
commercial launch readiness and pursuit of litigation.
Significant progress on gene editing, with breeding of PRRSv
resistant pigs and strategic collaboration with Caribou
Biosciences on CRISPR-Cas9 gene editing technology.
Strategic review completed, with foundations of beef
business set for 2016/17.
Strengthened the good relationships with the Company’s
shareholders, evidenced by broker feedback following
roadshows.
Further strengthening of team, with high-quality recruits into
Finance and IT.
Product and service
improvement
Led the strategic review for the Board.
Continued support for acquisitions, licensing and
partnerships, including University of Missouri (PRRSv)
and Caribou Biosciences (gene editing technology).
Introduced IT tools supporting better sales force
engagement with customers through mobile technology
and for the business with improved forecasting and
budgeting tools.
Results
Reviewed the capital structure and refreshed external
borrowing facilities.
Led negotiations with the Milk Pension Fund to adopt CPI
(replacing RPI) for increases.
Maintained tight internal cost management, risk
management and controls.
90%
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 76.
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
78.2%
£671,709
£525,545
£394,159
£131,386
78.2%
£455,175
£356,129
£267,097
£89,032
Strategic ReportCorporate GovernanceFinancial StatementsAdditional Information Genus plc Annual Report 2016
78
Directors’ Remuneration Report continued
Section E: Annual Report on Remuneration continued
How the Long-Term Incentive Figure Was Calculated in the Single Total Remuneration Table
Karim Bitar’s and Stephen Wilson’s 2014 PSP awards granted on 26 September 2013 were both subject to an adjusted EPS performance
condition, based on the growth in adjusted EPS from a base year of 2013 compared to the adjusted EPS in 2016. 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 EPS*
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