PIONEERING
ANIMAL GENETIC IMPROVEMENT
Genus plc | Annual Report 2017
A WORLD LEADER
IN ANIMAL GENETIC IMPROVEMENT
GENUS HELPS FARMERS TO PRODUCE
HIGH-QUALITY MEAT AND MILK MORE
EFFICIENTLY AND SUSTAINABLY,
WHICH INCREASES THE AVAILABILITY
OF SAFE, AFFORDABLE ANIMAL
PROTEIN FOR CONSUMERS.
STRATEGIC REPORT
02 2017 Highlights
04 Business Model
08 Market Overview
10 Strategic Framework
12 Principal Risks and Uncertainties
14 Chairman’s Statement
16 Chief Executive’s Review
18 Strategy in Action
24 Divisional Reviews
30 Financial Review
34 People and Culture
36 Responsible Business
CORPORATE GOVERNANCE
40 Chairman’s Letter
42
Board of Directors and Company
Secretary
44 Genus Executive Leadership Team
46 The Board’s Year in Review
50 Corporate Governance Statement
55 Nomination Committee Report
57 Audit Committee Report
60 Directors’ Remuneration Report
62 Annual Report on Remuneration
82 Other Statutory Disclosures
84 Directors’ Responsibilities Statement
Independent Auditor’s Report
FINANCIAL STATEMENTS
85
91 Group Income Statement
Group Statement of
92
Comprehensive Income
93 Group Statement of Changes
in Equity
94 Group Balance Sheet
95 Group Statement of Cash Flows
96 Notes to the Group Financial
Statements
149 Parent Company Balance Sheet
150 Parent Company Statement of
151
Changes in Equity
Notes to the Parent Company
Financial Statements
ADDITIONAL INFORMATION
159 Five Year Record – Consolidated Results
160 Glossary
162 Notice of Annual General Meeting
173 Advisers
BUSINESS MODEL
For more information
See pages 4-7
STRATEGY IN ACTION
For more information
See pages 18-23
PEOPLE AND CULTURE
For more information
See pages 34-35
IN 2017, GENUS ACHIEVED AN IMPROVING
FINANCIAL PERFORMANCE THROUGH
THE YEAR AND MADE STRONG
STRATEGIC PROGRESS
KARIM BITAR, CEO
Genus plc | Annual Report 2017
01
STRATEGIC REPORT 2017 Highlights
A YEAR OF SUCCESSFUL DEVELOPMENT WITH STRONG STRATEGIC PROGRESS
AND SOLID FINANCIAL PERFORMANCE
FINANCIAL HIGHLIGHTS1
£459.1m
£56.4m
£40.7m
• Revenue of £459.1m increased 18%
(6% in constant currency) with
strong porcine revenues, up 20% (7%
in constant currency), particularly in
Asia and from royalties, and a return
to growth in bovine revenues which
increased 13% (2% in constant
currency)
• Adjusted profit before tax up 13%
to £56.4m (down 1% in constant
currency) with strong performance
in Genus PIC, particularly China,
offset by planned increased R&D
investments and lower Genus
ABS results
• Statutory profit before tax down
33% to £40.7m, primarily due to
lower pension related exceptional
credits of £5.7m compared with a
£44.2m credit in the prior year,
partially offset by a smaller reduction
in the value of biological assets of
£1.1m (2016: £17.1m decrease)
GROUP REVENUE
(£M)
ADJUSTED PROFIT BEFORE TAX
(£M)
STATUTORY PROFIT BEFORE TAX
(£M)
2017
2016
2015
2014
2013
0
459.1
388.3
398.5
372.2
345.3
2017
2016
2015
2014
2013
459
0.0
9.4
18.8
28.2
56.4
49.7
46.6
2017
2016
2015
2014
2013
40.7
38.2
33.4
60.9
57.8
47.0
56.4
0.0
60.9
39.3
42.5
37.6
OPERATIONAL HIGHLIGHTS3
CONTINUED OPERATING PROFIT GROWTH OF 7%
IN PIC ON VOLUMES UP 4%, WITH PARTICULAR
STRENGTH IN ASIA
IMPROVED SECOND HALF PERFORMANCE IN ABS
AS A RESULT OF ACTIONS TAKEN TO STRENGTHEN
EXECUTION AND IMPROVE EFFICIENCY
• Secured three new Top 20 porcine customers in
• Volume growth of 8% in H2 resulting in volume growth
North America
of 1% overall in the year (2016: 6% lower)
• Signed three new royalty agreements with key Chinese
porcine customers, raising our total number of Chinese
royalty customers to eight4
• Acquired Hermitage’s porcine genetics and entered into a
strategic distribution and production partnership in March
2017, with encouraging early results
• Full year operating profit 13% lower (30% lower in H1)
• Appointed new Chief Operating Officer (‘COO’) of
Genus ABS Dairy in January 2017
• IVB continued to grow its presence with large accounts
in the US and in its newly established Mexican business,
which is already performing well
• Acquired the remaining 49% stake in IVB for £11.4m in
March 2017 to further accelerate integration and growth
1 For definitions of adjusted profit, free cash flow, cash conversion and return on invested capital, see Financial Review on pages 30 to 33. Results discussed
throughout the Annual Report are on an adjusted basis unless otherwise stated.
2 For definition of adjusted earnings per share, see note 12 on page 108.
3 Based on adjusted results.
4
5 The PRRSv programme refers to our development-phase gene editing programme to confer resistance to pigs to Porcine Reproductive and
Includes one new royalty agreement signed post period end in July 2017.
Respiratory Syndrome virus.
02
Genus plc | Annual Report 2017
69.4p
£25.4m
19.9%
• Adjusted basic earnings per share2
up 14% to 69.4p (unchanged in
constant currency) and statutory
basic earnings per share down
34% to 53.8p, reflecting the lower
exceptional pension credit
• Strong free cash flow of £25.4m
(2016: £15.7m), with solid cash
conversion of 84% (2016: 88%) and
good cash inflows from joint
ventures (‘JVs’) of £8.3m (2016:
£3.4m)
• After tax return on invested capital
improved to 19.9% (2016: 19.1%)
• Recommended dividend increased
by 10% to 23.6p, well covered by
adjusted earnings at 2.9 times (2016:
2.8 times)
• Net debt to EBITDA of 1.5x (2016:
1.4x) after acquisitions and
investments of £30.0m (2016: £7.2m)
ADJUSTED BASIC EARNINGS PER SHARE
(PENCE)
FREE CASH FLOW
(£M)
DIVIDEND PER SHARE
(PENCE)
2017
2016
2015
2014
2013
69.4
60.7
56.8
46.5
49.1
2017
2016
2015
2014
2013
25.4
22.6
26.2
15.7
17.2
2017
2016
2015
2014
2013
23.6
21.4
19.5
17.7
16.1
0.00000011.56666723.13333334.70000046.26666757.83333369.400000
0.0
26.2
0.0
23.6
RESEARCH AND DEVELOPMENT INVESTMENT INCREASED
AS PLANNED BY 27% (12% IN CONSTANT CURRENCY) AS
KEY INITIATIVES IN GENOMIC SELECTION, GENDER SKEW
AND GENE EDITING MADE SIGNIFICANT PROGRESS
• Genus Sexed Semen (‘GSS’) technology successfully scaled up
and manufacturing sexed semen in the US and India. Sexcel, the
marketing brand of GSS, launched with customers globally on
1 September 2017 and sales have now commenced
• Successfully obtained a permanent injunction against Sexing
Technologies (‘ST’). ST commenced new patent infringement
litigation in June 2017 which will be vigorously defended
• Launched new dairy genetic improvement programme in September
2016, De Novo, in partnership with leading breeder De-Su with
promising early results in scale and quality of genetics produced
• PRRSv resistance development programme progressing as planned:
launched a gene editing venture with new experimental facilities,
optimised the molecular scissors for carrying out edits, obtained an
Investigational New Animal Drug (‘INAD’) regulatory application
from the US Food and Drug Administration (‘FDA’) and created
the first gene edited pregnancies for the programme5
This Strategic Report was approved by
the Board of Directors on 6 September
2017 and signed on its behalf by:
Karim Bitar
Chief Executive
Stephen Wilson
Group Finance Director
03
STRATEGIC REPORTGenus plc | Annual Report 2017
Business Model
PRODUCING
SUPERIOR BREEDING LIVESTOCK
THROUGH GENETIC IMPROVEMENT
WHAT WE DO
Genus is a world-leading animal
genetics company. We continuously
develop better bovine and porcine
breeding livestock with desirable
characteristics, helping farmers to
produce better quality meat and milk
more efficiently and sustainably.
Examples of desirable characteristics
include feed efficiency, disease
resistance, protein and fat
content, and fertility.
HOW WE DO IT
We analyse animals’ DNA and look for
markers that are linked to desirable
characteristics. We then select animals
with the strongest genetic profile and
breed them to produce even stronger
offspring, which we then sell to our
customers in the form of live breeding
animals, semen or embryos.
£100M+
INVESTED IN 2017
04
We also own technology that enables
us to screen and process semen for
desirable traits, such as gender, and
license technology to make precise,
desirable gene edits to animals’ DNA,
which we are employing on product
development programmes.
For more information
See pages 6-7
£40.5M
£101.7M
£72.6M
£66.2M
£57.0M
2013
2014
2015
2016
2017
● R&D1 ● Capex2 ● Acquisitions & Investments
1
2
Includes GSS capitalised development expenses.
Includes biological asset increases due to purchases.
Genus plc | Annual Report 2017 OUR BUSINESS
SERVING PORK, BEEF AND DAIRY FARMERS WITH SUPERIOR GENETICS
PORK
DAIRY AND BEEF
Our porcine genetics business PIC sells
genetically superior sows, boars and semen,
to breed pigs with desirable characteristics
for pork production.
Our bovine genetics business ABS primarily sells bull semen
and embryos, which are delivered through artificial
insemination to breed dairy and beef cattle with desirable
characteristics for milk and beef production. ABS’s
subsidiary IVB offers comprehensive IVF services.
SALES PRESENCE IN
35+COUNTRIES1
2,000+
CUSTOMERS GLOBALLY
SALES PRESENCE IN
70+ COUNTRIES3
50K+CUSTOMERS
139M
MPEs2
17M+
CATTLE INSEMINATIONS
AND EMBRYO TRANSFERS
REVENUE
OPERATING PROFIT
£250m
£196m
£21m
£446M
£116M
£95m
Note: Excludes Genus R&D revenues & costs.
● Porcine ● Bovine
Including through franchises, distributors and joint ventures.
1
2 MPEs refers to market pig equivalents, a standardised measure of slaughter animals produced by our customers that contain our genetics.
3
Including through distributors.
05
STRATEGIC REPORTGenus plc | Annual Report 2017 Business Model continued
HOW WE DRIVE AND DELIVER
GENETIC IMPROVEMENT
1
PRODUCE SUPERIOR GENETICS
OUR STRENGTHS AND RESOURCES
SHARED PROPRIETARY TECHNOLOGY PLATFORM
GENOMIC SELECTION
Breeding successive generations of
animals by scientifically selecting
superior parents through DNA analysis
BIOSYSTEMS ENGINEERING
GSS: processing bovine semen using
laser technology to deliver offspring of
a desired sex
GENE EDITING
Making precise, controllable changes
directly to animals’ genes
GENOME SCIENCE
Researching DNA to understand the
links between genetic code and the
observable characteristics of animals,
and how these can be influenced
GLOBAL POSITION
Genus is uniquely placed as a global
player, with leading market positions
and well-respected brands
ELITE ANIMALS
We own elite livestock with desirable
traits for farmers
PROPRIETARY TECHNOLOGY
We own leading genomic and breeding
technology, developed in-house and
through strategic partnerships, or
licensed from strategic partners
CUSTOMER RELATIONSHIPS
We serve over 50,000 customers
globally, including world-leading
meat and milk producers
EXPERT PEOPLE
We have over 100 PhD qualified
employees and collaborative relationships
with leading research institutions
SUPPLY CHAIN AND DISTRIBUTION
We have production facilities in key
locations worldwide, coupled with sales
forces and agents in over 70 countries
FINANCIAL STRENGTH
Genus is a cash generative company
with a strong financial position, allowing
us to invest for the future
LINK TO STRATEGY
1
Increasing Genetic Control
and Product Differentiation
2
Targeting Key Markets
and Segments
3
Sharing in the
Value Delivered
06
Genus plc | Annual Report 2017 2
3
DELIVER IMPROVED ANIMALS
DELIVER VALUE AND PRICE ACCORDINGLY
DELIVERING FOR OUR STAKEHOLDERS
CUSTOMERS
We help our customers to produce
better meat and milk more efficiently,
improving their profitability
CONSUMERS
We increase consumers’ access to safe,
affordable and nutritious animal protein
COMMUNITIES AND ENVIRONMENT
We make farming more sustainable by
reducing the consumption of feed,
water and other resources
PEOPLE
Our employees can develop their
careers and apply their scientific
knowledge to benefit our customers
and society
INVESTORS
By sharing in the value we deliver to
customers, we deliver returns to our
investors and generate funds to reinvest
in our company
CUSTOMER
139m
MPEs produced
CUSTOMER
6-7m
dairy and beef
calves born
GENETICS PRIMARILY SOLD ON
MULTI-YEAR ROYALTY AGREEMENTS
BOARS IN STUD
Over
30,000
boars in stud,
producing semen
Superior pigs
with desirable
traits for
farmers
EXPANSION HERDS
Over
300,000
pure line breeding
females managed
every day
GENETICS PRICED ON INDICES
(SEMEN) OR THE INDEX RATING OF
BOTH PARENTS (EMBRYOS)
STUD
Over
17m
straws of semen sold
Over
500superior
dairy and beef
bulls with
desirable traits
for farmers
IVF LAB
Over
240,000
embryos produced
Note: MPEs refers to market pig equivalents, a standardised measure of slaughter animals that contain our genetics.
07
STRATEGIC REPORTGenus plc | Annual Report 2017 Market Overview
GROWING IMPACT OF ANIMAL
GENETIC IMPROVEMENT
LONG-TERM DRIVERS
OF ANIMAL GENETIC
IMPROVEMENT
THE GLOBAL POPULATION IS
GROWING AND MOVING TO CITIES.
URBAN POPULATIONS TEND TO
BECOME WEALTHIER, LEADING TO
GREATER APPETITE FOR ANIMAL
PROTEIN.
3.2
3.3
3.3
6.3
3.3
3.4
6.0
5.7
5.4
5.1
WORLD POPULATION GROWTH 1990-2050
BILLION
2050
2045
2040
2035
2030
2025
2020
2015
2010
2005
2000
1995
2.3
1990
Urban
4.7
4.3
4.0
3.2
2.9
2.6
3.3
3.3
3.4
3.4
Rural
3.0
3.6
3.3
3.2
3.4
Source: United Nations, Department of Economic
and Social Affairs, Population Division (2014).
08
INCREASING COMPETITION FOR RESOURCES SUCH AS LAND
AND WATER PUTS PRESSURE ON FARMERS TO USE SUPERIOR
GENETICS AND NEW TECHNOLOGIES TO IMPROVE EFFICIENCY.
GROWING CONSUMER
AWARENESS IS DRIVING DEMAND
FOR HIGH-QUALITY PRODUCTS,
WHICH ARE PRODUCED WITH
FEWER DRUGS.
FARMS ARE CONSOLIDATING.
LARGER PRODUCERS TYPICALLY
MEASURE PERFORMANCE IN MORE
DETAIL AND BETTER UNDERSTAND
THE BENEFITS OF SUPERIOR GENETICS.
CHANGES IN PIG POPULATION
BY SIZE OF FARM IN CHINA
100
80
60
40
20
0
6%
37%
57%
12%
49%
39%
2006
2009
18%
54%
28%
2012
22%
58%
20%
2015
30%
60%
10%
2020F
Commercial size farms (3,000+ heads/farm)
Mid size farms (50-3,000 heads/farm)
Small size farms (1-49 heads/farm)
Source: Rabobank.
Genus plc | Annual Report 2017
CONSOLIDATION
AND ADOPTION
OF TECHNOLOGY
CONSOLIDATION OF HIGH-QUALITY
BREEDING HERDS. THE NUMBER OF
BREEDERS CONSISTENTLY PRODUCING
HIGH RANKING DAIRY GENETICS HAS
FALLEN IN RECENT YEARS, DUE TO THE
CONSOLIDATION OF ELITE GENETIC
HERDS. ELITE PORCINE BREEDING HERDS
ARE ALSO CONSOLIDATING, WITH SOME
BREEDERS ENTERING INTO STRATEGIC
ALLIANCES TO PRODUCE AND
DISTRIBUTE OTHERS’ GENETICS.
CONSOLIDATION MEANS THAT THERE
ARE FEWER SOURCES OF ELITE
GENETICS, AND HENCE IT IS
INCREASINGLY IMPORTANT FOR
GENETICS COMPANIES TO OWN
AND CONTROL THEIR OWN GENETICS.
ADOPTION OF TECHNOLOGY.
ADOPTION OF SEMEN SEXING
TECHNOLOGY AND IVF IS GROWING
FAST ACROSS DAIRY AND BEEF HERDS.
THESE ARE LIKELY TO REMAIN AREAS
OF STRONG MARKET GROWTH IN THE
COMING YEARS.
CONVENTIONAL
SEMEN
+1% GROWTH IN
+10% GROWTH IN
+20% GROWTH IN
SEXED SEMEN
EMBRYOS
Note: Growth rates refer to actual volume growth
rates for 2017 delivered by ABS. Conventional and
sexed volumes relate to global dairy semen volumes.
Embryos relate to total global embryo volumes.
NO. OF BREEDERS
2016
2008
57
107
TOP 20 BREEDER SHARE OF TOP BULLS
2016
2008
78%
48%
Source: Genus analysis; US Holstein breeders represented in the Top 200 NM$ rankings by birth year.
BREAKTHROUGH TECHNOLOGY AND DATA. THE ANIMAL GENETICS INDUSTRY
IS PURSUING ALTERNATIVE SOLUTIONS IN THE FIGHT AGAINST ANIMAL
DISEASE AND SUFFERING. THESE INCLUDE USING DATA AND HEALTH-
FOCUSED BREEDING INDICES, AND EXPLORING BREAKTHROUGH
TECHNOLOGY, INCLUDING GENE EDITING.
OUR POSITION IN THE ANIMAL GENETICS INDUSTRY
GENUS IS A WORLD LEADER IN ANIMAL GENETIC IMPROVEMENT. OUR COMPETITORS
ARE LARGELY PRIVATE COMPANIES AND FARMER-OWNED COOPERATIVES.
ABS MARKET SHARE1
PIC MARKET SHARE2
Global porcine genetic supply:
Technified/commercial
production ~ 50%
Less technified
production ~ 50%
Share of addressable market:
● 8% ABS
● 8% Competitor 1
● 6% Competitor 2
● 5% Competitor 3
●
4% Competitor 4
●
69% Other
● 23% PIC
● 14% Competitor 1
● 10% Competitor 2
● 4% Competitor 3
3% Competitor 4
12% Internal Customer Programmes
●
●
● 34% Other
1 Source: Governmental agencies, local bovine
genetics and agriculture organisations, Genus
estimates. Market shares represent the estimated
share of combined dairy and beef volumes (semen
and embryos) in ABS’s Top 30 target markets for
dairy and Top 8 target markets for beef.
2 Source: Governmental agencies, local independent
pork organisations, Genus estimates. Global porcine
genetic supply represents production in top pig
production markets, including small and non-
industrial farming activity in those markets. Market
shares in addressable market represent the estimated
share of production in technified/commercial
production in top pig production markets.
09
STRATEGIC REPORTGenus plc | Annual Report 2017
Strategic Framework
CAPTURING
OPPORTUNITIES
SIGNIFICANT GROWTH
INCREASING
GENETIC CONTROL
AND PRODUCT
DIFFERENTIATION
GENUS HELPS FARMERS TO
PRODUCE HIGH QUALITY MEAT
AND MILK MORE EFFICIENTLY AND
SUSTAINABLY. WE DO THIS BY
CONTINUOUSLY PRODUCING
AND DELIVERING BETTER
GENETICS TO THEM.
TARGETING
KEY MARKETS
AND SEGMENTS
SHARING IN
THE VALUE
DELIVERED
To maintain and enhance
our product leadership
We do this by using the
latest technology to improve
continuously our own herds,
investing in new technology
to strengthen our
capabilities, and protecting
our unique position by
choosing how to deploy
our genes and technology.
To deliver the right
offering for the right
customers
We target leading global
and regional meat and milk
producers, and offer them
our superior breeding
animals, semen and
embryos, together with
technical services, tailored
to their needs.
To capture an
appropriate share of
the value we deliver to
customers, aligning our
interests with theirs
We do this by demonstrating
the value of our genetics
through trials and data, and
linking our pricing to genetic
indices and our customers’
productivity.
10
Genus plc | Annual Report 2017
What does success
look like?
Creating better
breeding animals for
farmers, measured
against proprietary
and public indices
weighted towards
economic traits that
help farmers operate
more efficiently and
sustainably.
What does success
look like?
Growing volumes,
particularly with large
commercial dairies
and integrated meat
producers who focus
heavily on the
efficiency and
sustainability of their
production systems.
What does success
look like?
Generating profit
resulting from the
superior quality
and performance
of our products in
customers’ systems.
How do we measure this success?
PORCINE GENETIC IMPROVEMENT INDEX
(US$)
NET MERIT RANKINGS
(DAUGHTER PROVEN AND GENOMIC BULLS)
4.12
3.68
2017
2016
2015
2014
2013
0.000 0.824
Measures the genetic gain we achieve in our porcine nucleus herds.
1.94
1.648
3.76
2.42
3.296
2.472
4.120
13
PROVEN
17
17
23
19
GENOMIC
18
2017
2016
2015
2014
2013
0
Monitors our success in developing bulls that are highly ranked,
because of their genetic performance and economic merit.
30
31
42
11
11
Definition
The index measures the marginal economic value improvement in
customers’ US$ 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 a step
change in genetic gain value improvement in recent years and
has delivered a further improvement of US$3.68 per pig, per
annum in 2017.
Definition
The number of our generally available Holstein bulls listed in the
top 100 Net Merit US$ rankings for progeny tested and the top
100 Genomic Net Merit rankings for genomically tested sires.
Performance
Genus maintained a competitive industry line-up. We have
continued to strengthen our position in the Holstein genomic bull
category while also maintaining our position in proven bulls.
How do we measure this success?
DAIRY AND BEEF VOLUME GROWTH
(%)
PORCINE VOLUME GROWTH
(%)
1
(6)
2017
2016
2015
2014
2013
-6 -5 -4 -3 -2 -1 0 1
Tracks our global unit sales growth in dairy and beef.
5
5
2 3 4 5 6
6
4
4
2017
2016
2015
2014
2013
Tracks the growth in the number of pigs with PIC genetics globally.
9
6
5
Definition
The change in dairy, beef and sorted units of semen and embryos
delivered or produced for customers in the year.
Performance
Bovine volumes returned to growth, improving by 1% to 17.7
million units in varying markets. Europe grew 6% as dairy markets
improved and Asia grew 7% driven by India. However, the North
America (-5%) and Latin America (-2%) markets remained
challenging.
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.
Performance
Volumes grew 4% to 139 million MPEs, with very strong
double-digit growth in Asia from our China and Vietnam
businesses and continued royalty volume growth across all
regions. Volumes of upfront animals, where MPEs are counted at
the time of initial sale, declined as planned.
How do we measure this success?
OPERATING PROFIT PER MPE
(£)
OPERATING PROFIT PER DOSE
(£)
0.61
0.51
2017
2016
2015
2014
2013
Monitors porcine profitability by unit.
0.38
0.43
0.41
0.00
0.61
0.57
0.60
2017
2016
2015
2014
2013
1.19
Monitors bovine profitability by unit.
0.88
1.03
0.48
0.96
0.24
0.72
0.00
1.20
Definition
Net porcine adjusted operating profit globally, expressed per
MPE. Results include our share of Agroceres PIC, our Brazilian
Joint Venture.
Performance
Operating profit per MPE was £0.61, up £0.10, helped by strong
growth in our China porcine business, beneficial exchange rates
and higher royalty volumes across all sales regions.
Definition
Net dairy and beef adjusted operating profit globally, expressed
per dose of semen or embryo delivered. Excludes India, as its
characteristics are substantially different to the rest of our bovine
business and the start up costs of our GSS manufacturing.
Performance
Operating profit per dose was £0.57, down £0.03. Challenging
dairy markets, particularly in North America and Asia, held back
operating profit growth in our sales regions. Initiatives to improve
profitability include growing our presence with large Enterprise
dairies, expanding IVF services and launching SexcelTM.
11
STRATEGIC REPORTGenus plc | Annual Report 2017 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 research and
developments (‘R&D’) portfolio. The
table below outlines the principal
risks and uncertainties facing 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. As part of this
assessment, we considered the Group’s
increased investment in leading-
edge R&D, along with the technical
and customer-facing skills needed to
deliver our growth plans. In response
to the latter issue, we identified
and evaluated a new principal risk
relating to our ability to hire and retain
talented people, as detailed below.
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 our risk appetite and
identify and manage risks, can be
found in the Corporate Governance
Statement on pages 52 and 53.
LINK TO STRATEGY
1
Increasing Genetic Control and
Product Differentiation
2
Targeting Key Markets and Segments
3
Sharing in the Value Delivered
STRATEGY
RISK CHANGE IN 2017
STRATEGIC RISKS
RISK DESCRIPTION
DEVELOPING PRODUCTS WITH COMPETITIVE ADVANTAGE
HOW WE MANAGE RISK
• Development programmes fail to
produce best genetics for
customers.
Increased competition to secure
elite genetics.
•
Dedicated teams align our product development
to customer requirements. We use large-scale
data and advanced genomic analysis to ensure
our breeding goals are met. We frequently
measure our performance against competitors in
customers’ systems, to ensure the value added
by our genetics remains competitive.
COMMERCIALISING GSS TECHNOLOGY
• Failure to manage the technical,
production and financial risks
associated with launching a new
product technology.
• The industry response to the
introduction of competition into
the sexed semen market.
We have rigorously prepared for the successful
commercial launch of our GSS technology,
supported by dedicated internal resources and
external expert advice. We initiated legal
proceedings against ST in the US in 2014, to
open the market to competition.
1 2
1
DEVELOPING AND COMMERCIALISING GENE EDITING TECHNOLOGIES
1 2
• Failure to develop successfully
and commercialise gene editing
technologies due to technical,
intellectual property (‘IP’), market,
regulatory or financial barriers.
‘Game-changing’ technology
secured by competitors.
•
We maintain awareness of new technology
opportunities through a wide network of
academic and industry contacts. Our R&D
Portfolio Management Team (‘R&D PMT’)
oversees our own research, ensures we
correctly prioritise our R&D investments and
assesses the adequacy of resources and the
relevant IP landscapes. We have formal
collaboration agreements with key partners, to
ensure responsible exploration and
development of technologies and the
protection of IP. The Board is updated regularly
on key development projects.
CAPTURING VALUE THROUGH ACQUISITIONS
1 2 3
• 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 material projects.
We also have a structured post-acquisition
integration planning and execution process.
12
No change in porcine but
decreased in bovine, due to the
acquisition of De Novo genetics,
which has secured increased
access to elite dairy genetics.
Reduced. The granting of a
permanent injunction against ST in
the US legal proceedings removed
certain research, marketing and
non-compete restrictions. Technical
progress on GSS continued as we
scaled up for commercial launch in
September 2017, with strong
product trial results. In June 2017
new patent infringement
proceedings were filed by ST in the
US which the Group is defending
vigorously (see note 7).
Increased, due to our discovery
and pursuit of new gene editing
applications and consequent
higher investment in 2018 and
beyond. Key initiatives are
progressing through the R&D life
cycle.
No change. The acquisition process
continues to provide valuable and
timely access to the right
investment opportunities. Our
experiences with post-acquisition
integration provide a platform for
integrating newly acquired
businesses.
Genus plc | Annual Report 2017 RISK DESCRIPTION
GROWING IN EMERGING MARKETS
• Failure to appropriately develop
our business in China and other
emerging markets.
OPERATIONAL RISKS
PROTECTING IP
HOW WE MANAGE RISK
STRATEGY
RISK CHANGE IN 2017
We have a robust organisation, blending local
and expatriate executives, supported by the
global species teams. This allows us to grow
our business in key markets, while managing
risks and ensuring we comply with our global
standards.
2
3
No change. Business performance
has continued to be strong in
China. However, we remain
exposed to the pig cycle in China,
as the majority of our business
there is not yet on a royalty model.
• Failure to protect our IP could
mean Genus-developed genetic
material, methods, systems and
technology become freely
available to third parties.
We have a global, cross-functional process to
identify and protect our IP. Our customer
contracts and our selection of multipliers and
joint venture partners include appropriate
measures to protect our IP. We conduct robust
‘Freedom To Operate’ searches to identify
third-party rights to technology.
No change.
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.
• Lower demand for our products,
due to industry-wide disease
outbreaks.
We have stringent biosecurity standards, with
independent reviews throughout the year to
ensure compliance. We regularly review the
geographical diversity of our production
facilities, to avoid over-reliance on single sites.
1 2
No change.
HIRING AND RETAINING TALENTED PEOPLE
1 2
• Failure to attract, recruit, develop
and retain the global talent
needed to deliver our R&D
programmes and growth plans in
our chosen markets.
We have a robust talent and succession
planning process, including annual assessments
of our global talent pool and active leadership
development programmes. The Group’s reward
and remuneration policies are reviewed
regularly, to ensure their competitiveness. We
work closely with a number of specialist
recruitment agencies to identify candidates
with the skills we need.
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.
•
We continuously monitor markets and seek to
balance our costs and resources in response to
market demand. We actively monitor and
update our hedging strategy to manage our
exposure. Our porcine royalty model and
extensive use of third-party multipliers
mitigates the impact of cyclical price
reductions or cost increases in pig production.
FUNDING PENSIONS
• Exposure to costs associated with
failure of third-party members of
joint and several liabilities pension
scheme.
• Exposure to costs as a result of
external factors (such as mortality
rates, interest rates or investment
values) affecting the size of the
pension deficit.
We are the principal employer for the Milk
Pension Fund (‘MPF’) and chair the group of
participating employers. The fund is closed to
future service and has an agreed deficit
recovery plan, based on the 2015 actuarial
valuation. In agreement with the employers,
the trustees implemented an investment
de-risking strategy and have started a liability
management exercise. We also monitor the
strengths of other employers in the fund and
have retained external consultants to provide
expert advice.
3
n/a
New principal risk. Growth in new
business areas (including IVB and
GSS) and delivery of our R&D
programmes depend on having
people with appropriate skills.
No change.
Reduced. During the year the
trustees and Genus consented to a
Flexible Appointment Agreement
(‘FAA’) resulting in the NMR Group
leaving the scheme after making
payments to the fund and to
Genus. More details on this
arrangement can be found in
note 27.
13
STRATEGIC REPORTGenus plc | Annual Report 2017 Chairman’s Statement
A YEAR OF GOOD
STRATEGIC
PROGRESS
THIS WAS ANOTHER
GOOD YEAR FOR GENUS,
AS WE GREW THE TOP
LINE AND BALANCED
OUR INCREASED
INVESTMENT WITH
THE DISCIPLINE OF
PROVIDING AN
ATTRACTIVE RETURN
ON CAPITAL AND
RISING DIVIDENDS
FOR SHAREHOLDERS
This was another good year for Genus,
as we grew revenue and invested for
the future. Genus PIC was a strong
contributor to our financial
performance, with increases in both
revenue and adjusted operating
profit. While Genus ABS had a
challenging start to the year, our
actions contributed to an improving
performance in the second half. Our
planned increase in R&D investment,
particularly in gene editing, is already
delivering encouraging results.
We balance our investment in growth
with the discipline of providing
shareholders with an attractive return
on capital and rising dividends. The
Board is recommending a final
dividend of 16.2 pence per share, giving
a total dividend for the year of 23.6
pence per share. This represents an
increase of 10% over last year’s total
dividend of 21.4 pence. The final
dividend will be paid on 1 December
2017, to shareholders on the register
at the close of business on
17 November 2017.
Overseeing Our Strategy
One of the Board’s key roles is to
approve the Group’s strategy and
monitor our progress against it. Each
year, we hold a strategic review with
our Executive leadership team, which
gives us the insight we need into the
Group’s competitive landscape, the
challenges it faces and management’s
plans for addressing the compelling
opportunities that they see. We also
receive regular updates on specific
aspects of the business throughout the
year and visit our operations, to give us
first-hand experience of key areas of
the Group and its markets. This year,
we spent a week visiting our operations
and customers in the UK and Spain.
14
Genus plc | Annual Report 2017
This work positions the Board to
provide effective scrutiny of the
Group’s strategic development. This
year we were pleased to approve our
joint venture with De-Su, the
acquisition of Hermitage’s porcine
genetics and our ongoing strategic
partnership, the early acquisition of the
outstanding 49% of IVB, and our
PRRSv programme. We also received
regular updates on progress with our
court case with Inguran LLC, which
concluded successfully. This paved the
way for the launch of our new sexed
semen product, Sexcel in the US, India
and other key markets around the
world, from 1 September 2017. As
anticipated, ST has launched new
patent litigation, which we will
vigorously defend.
FINAL DIVIDEND
PER SHARE
16.2P
23.6P
10%
TOTAL DIVIDEND FOR
THE YEAR (PER SHARE)
TOTAL DIVIDEND
INCREASE
OUR VALUES
CUSTOMER
CENTRIC
RESULTS
DRIVEN
PIONEERING
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.
PEOPLE
FOCUSED
We are a business rooted in science but built around
our people. We inspire, challenge and support
everyone to perform, develop and grow. We treat
others with respect and we invite views and feedback
to help us improve.
Board and People
The Board recognises the importance
of providing independent, strong and
effective leadership to the Group. We
were therefore pleased that the latest
evaluation shows that the Board and its
Committees continue to function well.
Other than Mike Buzzacott’s previously
announced retirement, the Board’s
composition was unchanged during
the year and we remained focused on
succession planning and diversity. More
information on the Board and its
activities can be found on pages 44
to 46 of this report.
The Board delegates responsibility for
the Group’s day-to-day running to the
Executive leadership team. As a result,
we are keenly aware of the need to
attract and retain the best people.
During the year, we kept abreast of
succession planning for the Genus
Executive Leadership Team (‘GELT’)
and the appointment of a talented
new COO for the Genus ABS Dairy
business. Our succession planning
is demonstrated by the internal
promotion to the role of Group Human
Resources Director following the
incumbent’s planned retirement.
More generally, Genus’s people
strategy is to support our growth plans
by recruiting, developing, retaining
and inspiring people who couple deep
operational or technical expertise with
genuine passion for our industry. The
Group has nearly 2,700 employees
around the world, who all play their
part in helping our customers to
improve their performance and
productivity. On behalf of the Board,
I thank them for their contribution to
our success this year.
The Board is responsible for setting
and demonstrating the behaviours
and ethical standards we want to see
throughout Genus. The Group has
a fair, open and respectful culture,
underpinned by our values (see left).
Summary
We made good progress with our
strategy in 2017, while delivering
financial performance in line with
our expectations. The strategic
investments we have made will enable
us to build on our strong position in our
global markets and ensure we have a
sustainable business model. We look
forward with confidence, as we deliver
benefits to our customers,
shareholders and other stakeholders.
RESPONSIBLE We are ethical to our core. We feel a deep sense of
responsibility to our customers, colleagues, animals,
communities and shareholders. We are honest,
reliable and trustworthy. We mean what we say and
do what we say.
Bob Lawson
Chairman
6 September 2017
15
STRATEGIC REPORTGenus plc | Annual Report 2017 Chief Executive’s Review
PIONEERING
ANIMAL GENETIC
IMPROVEMENT
Our R&D programme had a planned
increased investment in gene editing,
as well as other areas of research and
product development. We achieved
further strong results in porcine
product development, with rates of
genetic improvement exceeding our
target. We also incurred pre-launch
costs for our GSS technology, which
we brought to market as planned
after the end of the financial year.
Strategic Progress
In addition to our increased investment
in R&D, we concluded a number of
important strategic developments
in 2017, which continued to build
Genus’s leading position in pioneering
animal genetic improvement.
Our efforts to improve Genus PIC’s
European business in recent years
were rewarded with robust growth
in 2017. To strengthen further this
revitalised operation, we formed a
strategic partnership with Hermitage
and acquired its porcine genetics.
This will help us to accelerate genetic
improvement for the customers of both
organisations, whilst we benefit from
the substantial footprint of Hermitage’s
European supply chain. Early results
of the partnership are encouraging.
In bovine, IVB’s strong performance led
us to acquire the outstanding 49% a
year early in March 2017. The business
continues to expand in the US and, with
the successful launch of its operations
in the important Mexican market.
In 2017, Genus achieved an improving
financial performance through the
year and made strong strategic
progress. We grew our investment
in our leading-edge proprietary
technology platform and positioned
Genus to seize the significant growth
opportunities ahead of us.
Group Performance
The Group performed in line with our
expectations for the year. In constant
currency terms, revenue increased
by 6% while adjusted profit before
tax including joint ventures was 1%
lower, after our planned increase in
R&D investment. In actual currency,
revenue and adjusted profit before
tax rose by 18% and 13% respectively.
Genus PIC continued to perform
well, with adjusted operating profit
including joint ventures up by 7% in
constant currency. Growth in Asia
was strong, particularly in China.
Genus PIC continued to extend its
royalty base, grew its presence with
key integrated producers in China
and won business with new large
customers in North America.
We were disappointed with Genus
ABS’s performance in the first half of
the year and took action to address
the issues, including appointing a
new COO for ABS Dairy to sharpen
our commercial execution and
drive our strategic initiatives. ABS
Dairy performance improved in the
second half, resulting in adjusted
operating profits including non-
controlling interest for the full year
declining by 13% in constant currency
compared with a 30% decline in the
first half. We continue to be pleased
with the performance of IVB.
16
WE EXPECT TO MAKE
FURTHER STRATEGIC
PROGRESS AS WE
CONTINUE TO
INVEST IN R&D
We also formed De Novo Genetics,
a majority owned joint venture with
De-Su, the leading independent
Holstein breeder. De Novo has a world-
leading dairy genetic improvement
programme and significantly expands
and strengthens our capability in
dairy product development. While
the biological results will take time to
come through, De Novo has already
produced industry leading bulls.
We launched Sexcel, our proprietary
semen sexing product, on 1 September
2017. This followed the granting in
our favour of a permanent injunction
against ST, which was ruled to have
wilfully maintained monopoly power
in the US market for processing sexed
Genus plc | Annual Report 2017
REVENUE IN ACTUAL
CURRENCY
18%
13% ADJUSTED PROFIT
BEFORE
TAX IN ACTUAL
CURRENCY
I also extend my thanks to all my
colleagues around the world.
Their hard work and dedication
to delivering for our customers
enables Genus to succeed.
Outlook
The fundamental drivers of our
markets remain favourable, with
demand for superior genetics
continuing to grow. We expect to
make further strategic progress, as
we continue to invest in R&D and
the benefits of this year’s initiatives
come through in both PIC and ABS.
We anticipate making further positive
financial progress in 2018 and to
perform in line with our expectations.
Karim Bitar
Chief Executive
6 September 2017
bovine semen. We are excited by the
prospects for Sexcel, which is the first
competing technology in this space for
over a decade. Sexcel is now available
in the US, India and key markets
around the world. ST has launched
new patent litigation, which we had
anticipated and will vigorously defend.
Our longer-term PRRSv-resistance
programme made good progress, in
conjunction with our partner Caribou
Biosciences. We have edited elite
pig embryos and implanted them,
achieving pregnancies. We co-founded
RenOVAte Biosciences, a biotech
company focused on creating gene
edited livestock, which is supporting
this programme. We also secured an
INAD from the US FDA and continued
to develop constructive relationships
with regulatory authorities.
People
Dr Nate Zwald joined us in January
2017 as COO of ABS Dairy. We are very
pleased with the leadership, customer-
centricity and people focus he has
already brought to the business.
Catherine Glickman stepped down as
Group HR Director and will retire from
Genus at the end of 2017. I want to
thank Catherine for her outstanding
contribution to our progress during
her six years at Genus. Angelle Rosata
was promoted to the role from July
2017 and we welcome her to the GELT.
17
STRATEGIC REPORTGenus plc | Annual Report 2017 Strategy in Action
INCREASING
GENETIC CONTROL AND PRODUCT
DIFFERENTIATION
18
Genus plc | Annual Report 2017 STRATEGIC REPORT
75%
EXPECTED TOTAL
NEW US HOLSTEIN
BULLS SOURCED
IN LESS THAN
FIVE YEARS
CASE STUDY
In September 2016 we joined
forces with De-Su Holsteins, North
America’s leading independent
breeder of Holstein bulls, to create
De Novo Genetics. The majority-
owned venture combines the best
genetics from both partners in a
joint breeding programme, focused
on creating elite and differentiated
Holstein genetics. This follows
years of effective collaboration
between the two organisations.
Owning and producing your own
genetics is becoming increasingly
important in a consolidating genetics
marketplace. De Novo will accelerate
our ability to produce our own bulls,
growing from 20% of total new US
Holstein bulls sourced in 2016 to
around 75% in less than five years.
Strategically, the partnership also
gives us greater control of genetics
that we provide to our customers. It
strengthens our ability to enhance their
profitability, by providing more efficient
and sustainable genetics tailored to
their needs. De Novo is consistently
producing high ranking bulls with
desirable traits for farmers.
GENUS AND DE-SU SHARE THE SAME PHILOSOPHY,
AS WE USE BREEDING TO BUILD ON THE TRAITS THAT
ARE ECONOMICALLY IMPORTANT TO OUR CUSTOMERS
KATIE OLSON – GLOBAL DIRECTOR, DAIRY PRODUCT DEVELOPMENT
19
Genus plc | Annual Report 2017
Strategy in Action continued
TARGETING
KEY MARKETS AND SEGMENTS
20
Genus plc | Annual Report 2017 KEY MARKETS AND SEGMENTS
STRATEGIC REPORT
THIS IS AN IMPORTANT
STEP FOR US AND
HERMITAGE IS AN
EXCELLENT PARTNER,
WITH A TREMENDOUS
REPUTATION AND AN
IMPRESSIVE FOOTPRINT
IN EUROPE
DR BILL CHRISTIANSON,
COO, GENUS PIC
21
CASE STUDY
Over recent years, we have
transformed Genus PIC’s European
business and returned it to strong
growth. In February 2017, we
entered into a strategic partnership
with Hermitage and acquired
its genetics, further reinforcing
PIC’s position in Europe.
Hermitage is one of Europe’s
oldest pig breeding and genetics
companies. Acquiring its genetic
rights and IP will help PIC to accelerate
genetic improvement for European
customers of both businesses.
At the same time, we have taken on
some of Hermitage’s customer and
multiplication contracts, including
those in a number of European
countries. Hermitage has also
become a strategic supply chain and
distribution partner for PIC. Its strong
supply chain and customer service
focused team will further improve
our ability to serve European pig
producers efficiently and reliably.
The partnership is an excellent
strategic fit for PIC. The combination
of PIC’s genetics expertise and quality,
and Hermitage’s supply chain and
operational excellence, will benefit
both businesses and their customers.
Genus plc | Annual Report 2017 Strategy in Action continued
SHARING
IN THE VALUE
DELIVERED
CASE STUDY
During this financial year, IVB’s
new laboratory in Torreón, Mexico,
began serving large dairy enterprise
customers. Torreón is home to
Mexico’s largest dairy farms, and the
area with the biggest concentration
of dairy cows in Latin America.
On-farm IVF services and ready-to-
implant embryos are typically priced
at a significant premium to semen.
This is because an embryo allows for
the selection of superior female as
well as male parent donors to create
genetically superior offspring with
desirable characteristics for farmers.
With the commercial launch of the
IVB lab in Mexico, the IVB and ABS
teams visited numerous farms and
dairies, and were able to demonstrate
the genetic improvement benefits,
and ultimately, the economic returns,
of investing in IVF technology.
As a result, IVB secured over 15 new
accounts by the end of the financial
year, including two large accounts.
In light of this success, IVB Mexico
has taken on new staff to meet the
growing demand for its services.
22
Genus plc | Annual Report 2017
STRATEGIC REPORT
15NEW IVB
CUSTOMERS
SECURED IN
MEXICO
IVB’S ABILITY TO DEMONSTRATE THE
VALUE OF INVESTING IN IVF TECHNOLOGY
IS GENERATING SIGNIFICANT DEMAND
AMONGST DAIRY FARMERS IN MEXICO
DR NATE ZWALD,
COO, GENUS ABS DAIRY
23
Genus plc | Annual Report 2017 Divisional Reviews – Genus PIC
ACCELERATING
GENETIC PROGRESS
STRATEGIC PROGRESS
24
Dr Bill Christianson, Chief Operating Officer,
Genus PIC
A YEAR OF STRONG
STRATEGIC PROGRESS,
IN AN INCREASINGLY
GLOBAL MARKETPLACE
£94.8M
ADJUSTED OPERATING PROFIT
INCLUDING JOINT VENTURES
Genus plc | Annual Report 2017During the year, progress against our strategic objectives included:INCREASING GENETIC CONTROL AND PRODUCT DIFFERENTIATION• Continuing to develop our range of industry-leading genetics and beginning to assimilate genes acquired from Hermitage Genetics• Collaborating with R&D colleagues and external partners on long-term development programmes, including our investigational gene-editing project to produce animals resistant to PRRSvTARGETING KEY MARKETS AND SEGMENTS• Increasing our share of business with large producers around the world, so we now work with over 70% of the largest global accounts• Maintaining our progress in Europe (achieving growth of 26%) and continuing to see the benefits of our tailored strategy for China (with growth of 82%)• Strengthening our supply chain to support markets around the world by upgrading several sites and incorporating Hermitage Genetics facilitiesSHARING IN THE VALUE DELIVERED• Conducting 26 product trials across seven countries, involving more than 63,000 pigs, demonstrating the difference our products and services deliver for customers• Expanding use of the royalty pricing model, particularly in Europe and Asia (including further contracts in China), so that 77% of our volumes are now conducted on a royalty basisPRIORITIES FOR 2018• Continuing to implement our global strategy, tailored to local markets where needed• Expanding use of the royalty model where possible, particularly accelerating the transition in China• Making further investments in our supply chain to underpin growth• Continuing to collaborate with colleagues and partners on new technologies and on plans to commercialise and achieve regulatory acceptance for gene-edited animals
OPERATING REVIEW
Revenue
Adjusted operating profit excl. JVs
Adjusted operating profit incl. JVs
Adjusted operating margin excl. JVs
Pork – Key Markets
£ per kg
Corn – Key Markets
£ per tonne
Actual currency
Constant
currency
2016
£m
Movement
%
Movement
%
207.5
71.7
78.0
20
22
22
7
8
7
34.6%
0.6pts
0.3pts
2017
£m
249.5
87.7
94.8
35.2%
3.0
2.5
2.0
1.5
1.0
300
250
200
150
100
50
0.5
Aug 14
Aug 15
Aug 16
Aug 17
0
Aug 14
Aug 15
Aug 16
Aug 17
US
Brazil
EU
China
Russia
US
Brazil
EU
China
Market
Market conditions for most of Genus
PIC’s customers improved during
the year, primarily due to increased
global trade with Asia. Other factors
included tighter supply in Europe and
continued favourable crop prices in
North America and other key markets.
Global pork prices increased 13%
over the 12 months, and the outlook
is generally moderately favourable.
In China, supply constraints, following
reductions in the sow herd in prior
years, continued to support elevated
pig prices and stimulated record
pork imports. However, prices have
more recently returned to more
normal levels as large producers have
expanded supply and imports have
also slowed. Production also expanded
in Russia and in other core Asian
markets such as the Philippines.
Increasing demand prompted expansion
in the US breeding herd during 2017,
which will lead to further production
growth. While processors recorded
significant profits, US producers
realised more modest returns. With
new production and packing capacity
coming online in 2018, continued strong
domestic and export demand is required
for future producer profitability.
The European porcine industry enjoyed
a steady recovery in pig prices and
producer profitability after a prolonged
period of losses. The main drivers were
a 1.6% decline in the European sow
herd and increased exports to China.
Brazilian producers experienced volatile
input prices and pig prices, following
political and market turbulence involving
the meat industry. During the past five
months, producers have returned to
slightly positive margins per pig, after 12
months of losses. In Mexico, the second
largest producer in Latin America,
pig producers have been expanding.
However, the industry is still suffering
significant impacts from disease.
The porcine genetics market saw
further consolidation in 2017. Genus
PIC took a leading role, partnering with
and acquiring the genetic rights of
Hermitage. Other North American and
European competitors have also entered
into partnerships and distribution
agreements, to expand their reach.
Performance
Genus PIC achieved a good
performance, with operating profits
including joint ventures of £94.8m,
up 7% in constant currency. Volumes
grew by 4% and revenue was 7%
higher, primarily due to royalty growth
and higher breeding stock sales.
Asia’s results were particularly strong,
with a 45% increase in royalty volumes
and 60% increase in operating
profit. China profits grew over 80%
in constant currency, with strong
demand from large scale producers
for PIC genetics. PIC China has signed
up a further three royalty customers.
Strong double-digit growth in Russia,
Philippines and franchises further
underpinned performance across Asia.
In North America, volumes were stable
and revenue grew 2%, but stockings of
new customer systems contributed to
12% growth in breeding stock shipments,
positioning the business for future
royalty growth. To support this future
growth, PIC invested in expanding the
supply chain, upgrading Company-
owned facilities, and increasing the
quality and number of staff, leading to
a 3% reduction in profit in the year.
Latin American profits improved by
2% in constant currency, on stable
volumes. Mexico performed strongly
and operating profit increased by
11%. This growth was offset by the
Andean region, where profit declined
by 15% due to ongoing economic
instability in Venezuela. In Brazil,
profit increased by 5% in constant
currency, despite market volatility.
Europe once again achieved strong
growth, with revenue and volumes up
8% and 6% respectively and profits
increased by 26% in constant currency,
driven primarily by higher royalty
fees and lower costs. Transforming
Europe to focus on royalty business
with producers that value genetics has
been under way for several years and is
delivering sustained benefits, which will
be further enhanced by the Hermitage
Genetics acquisition and partnership.
Overall, Genus PIC performed
well, despite varying global market
conditions and continued investment
to enhance product supply and
differentiation. These investments will
continue to enable Genus PIC to better
serve customers, mitigate market
risks and support future growth.
25
STRATEGIC REPORTGenus plc | Annual Report 2017
Divisional Reviews – Genus ABS
ENHANCING OUR
CUSTOMER FOCUS
STRATEGIC PROGRESS
26
Jerry Thompson
Chief Operating Officer, Genus ABS Beef
Dr Nate Zwald
Chief Operating Officer, Genus ABS Dairy
PRODUCING OUR OWN
GENETICS AND APPLYING OUR
PROPRIETARY SEXING AND IVF
TECHNOLOGIES TO IMPROVE
OUR CUSTOMERS’ HERDS
17.7MUNITS OF SEMEN
AND EMBRYOS SOLD
Genus plc | Annual Report 2017During the year, progress against our strategic objectives included:INCREASING GENETIC CONTROL AND PRODUCT DIFFERENTIATION• Creating De Novo Genetics, our partnership with De-Su Holsteins, to accelerate in-house development of differentiated dairy genetics • Bringing through the first bulls from our beef nucleus herd into production• Launching NuEra Genetics™, the new global brand of our proprietary beef genetics, including the beef genetic nucleus and proprietary indices• Taking full ownership of IVB to further accelerate its integration and growth • Significantly enhancing our Genetic Management System (GMS 2.0) to help customers plan and achieve the genetic blueprint they are seeking for their herdTARGETING KEY MARKETS AND SEGMENTS • Enhancing our focus on large dairy accounts, particularly in the US, tailoring provision of products and services to their needs • Continuing to expand IVB’s reach in the US and grow its business in Mexico, harnessing the new laboratories established in 2016• Helping customers in Latin America maintain the benefits of cross-breeding across generations, by providing hybrid genetics in embryo form • Working with beef supply chain partners in the UK, US and Brazil on proprietary indices to identify genetics that increase supply chain efficiency, profitability and sustainability SHARING IN THE VALUE DELIVERED • Combining elite sire and maternal genetics in embryo form for customers in Latin America, providing a premium product that accelerates genetic progress • Introducing a new beef index in the UK to rank sires on profit potential in customer herds, enabling us to price to valuePRIORITIES FOR 2018• Successfully launching our proprietary sexed genetics offer, Sexcel, in target markets around the world (which we introduced on 1 September 2017)• Building customised genetic blueprints for target dairy customers and tailoring our offer to their needs• Launching further proprietary products and developing new indices for different beef markets and segments• Continuing to extend IVB’s reach to target customers and markets worldwide
OPERATING REVIEW
Revenue
Adjusted operating profit
Adjusted operating profit less non-controlling interest
Adjusted operating margin
Dairy – Key Markets
Pence per litre
Beef – Key Markets
Live cattle £ per kg
Actual currency
Constant
currency
2017
£m
195.9
22.3
21.3
11.4%
2016
£m
Movement
%
Movement
%
172.8
23.3
22.0
13
(4)
(3)
2
(15)
(13)
13.5%
(2.1)pts
(2.1)pts
50
45
40
35
30
25
20
15
10
Aug 14
Aug 15
Aug 16
Aug 17
2.5
2.0
1.5
1.0
0.5
0
Aug 14
US
Brazil
Aug 15
Aug 16
Aug 17
US
Brazil
EU
China
Russia
India
Market
Global dairy producers started
to recover in 2017 from their
unprecedentedly low profitability
in 2016. In Europe, the legacy of the
low prices resulted in milk supply
contracting, with France, Germany, the
Netherlands and the UK producing
3% less milk in the first four months of
2017 compared with 2016. Combined
with modest increases in demand, this
has resulted in Europe experiencing
firmer farm gate milk prices.
Global milk output in the first four
months of 2017 was at the same level
as 2016 due to increases in production
in Argentina, the US, Australia and New
Zealand. The US increased production
2%, with 0.6% of this contributed by
increasing cow numbers. Consistently
low milk prices in China continue
to challenge smaller farms, leading
to consolidation to fewer, larger
dairy farms, and to reduced imports
during the year, although recent
signs suggest an improved outlook.
Following two years of strong beef
cattle prices in the US, producers faced
a sudden and unexpected decline in
prices in the first half of the year, due to
increased cattle numbers and reduced
packer capacity. This resulted in a rapid
drop in the rate of herd expansion and
reduced artificial insemination usage in
this key beef market. Beef prices and
producer profitability in Brazil were
adversely impacted by the tainted meat
scandal in the second half of the year.
Challenging conditions for customers
over the last two years have constrained
demand for quality bovine genetics
as customers conserved cash. This
has affected the bovine genetics
market, driving consolidation
and a focus on distribution chain
efficiencies, exemplified by the
takeover of the Accelerated Genetics
cooperative in the US by Select
Sires, a major US cooperative.
and dairy volumes increased by 5%.
Beef volumes also increased by 9%, as
dairy customers continued to produce
beef cross-bred offspring for slaughter.
A continued focus on cost reduction
and improving service margins also
yielded benefits throughout the year.
Performance
Adjusted operating profits for
Genus ABS fell by 13% in constant
currency with the decline all in the
first half of the year. Volumes in the
second half grew significantly, up 8%
year to year, resulting in a positive
second half performance. For the
year as a whole, volumes increased
1% and revenues 2%. North America
and Asia were key contributors to
the lower results for the year but
performance improved in Europe and
Latin America, and IVB continued
to grow. Results in the second half
were also impacted by provisions for
ST-produced sorted inventory as we
prepared for the launch of Sexcel.
In North America, profits decreased
by 12% in constant currency, driven by
an 8% dairy volume decrease, partially
offset by a 25% increase in sexed semen
volumes and strong cost management.
A strengthened focus on strategic
key account management led to the
addition of a Top 5 US enterprise dairy
as an IVB customer. Beef volumes were
down 13% against the record prior
year, due to low market steer prices
and competition with natural service.
In Europe, profits increased by 8% in
constant currency. The severe dairy
market weakness experienced in
2016 improved in 2017, with many
customers returning to profitability
In Latin America, profits grew 41% in
constant currency, despite volumes
declining 2% due to tough beef markets.
Genus ABS continued to
take the lead in increasing selling prices
in key markets, and by June, ABS
prices were on average 9% higher.
Beef volumes were down 6% from last
year, hampered by political turmoil as
well as misconduct allegations in the
downstream supply chain in Brazil.
Results in Asia were 32% lower, driven
primarily by adverse trading conditions
in China, where many producers have
been loss-making. Australian producers
also struggled with reduced milk prices
and trading in India was impacted by
the demonetisation process. Despite
these challenges, Asia performance
improved in the second half of the year.
IVB continued to deliver strongly
with revenues and operating profit
less non-controlling interest both up
over 30% in constant currency (over
60% in actual currency), on embryo
volume growth of 20%. Commercial
integration between ABS and IVB
enabled over 15 new accounts to be
won in Mexico, including two large
enterprise accounts, leveraging a new
world class IVF facility in Torreon.
In North America, IVB secured a
new key account with a herd of over
60,000 animals, with a new laboratory
to serve it starting in early FY18.
27
STRATEGIC REPORTGenus plc | Annual Report 2017 Divisional Reviews – R&D
PIONEERING TECHNOLOGIES
STRATEGIC PROGRESS
Dr Jonathan Lightner
Chief R&D and Scientific Officer
A YEAR OF FURTHER
PROGRESS ON LONG-TERM
PROJECTS USING
PIONEERING TECHNOLOGIES
12%IN R&D
INVESTMENT IN
CONSTANT
CURRENCY
28
Genus plc | Annual Report 2017During the year, progress against our strategic objectives included:DIFFERENTIATED PRODUCTS FROM GENOMIC SELECTION• Formation of De Novo Genetics, integrating our elite dairy female programme with animals from De-Su Holsteins, to create world leading, proprietary Holstein genetics• Developing proprietary indices for beef, enabling us to select appropriate genetics for the drivers of profitability in target markets and segments • Implementing our proprietary technological platform for genomic evaluation of beef genetics, based on analysing data collected from commercial herds in our target market segments• Implementing genomic evaluations for dairy, focused on TransitionRight™ traits that produce daughters more resistant to health problems which commonly occur after giving birth • Continuing our Nextgen Breeding project with the Roslin Institute, which is exploring the sequencing of porcine DNA to identify and harness several billion data points for animal selectionGENE EDITING• Working with our partners in Caribou Bioscience to select and optimise the gene editing reagents for use in our PRRSv resistance programme• Beginning the process of creating edits in elite PIC genetics, to remove the CD163 gene product, which is required for PRRSv to infect pigs• Securing an INAD application with the US FDA for the PRRSv programme GENDER SKEW• Scaling our proprietary GSS technology in anticipation of our launch on 1 September 2017, to deliver our sexed bovine genetics offer at the highest calibre on a global scale PRIORITIES FOR 2018• Driving our dairy genetic progress through the De Novo joint venture• Launching full genomic selection for beef, harnessing our proprietary technology • Introducing further proprietary bovine indices, such as targeted beef indices, for Brazil and the US • Successfully launching Sexcel, our proprietary sexed genetics offering • Continuing to enhance our gene editing trait development capability • Working with regulators and stakeholders to facilitate the future approval, and acceptance, of gene edited animal proteins OPERATING REVIEW
Gene editing
Other research
Porcine product development
Bovine product development
Net expenditure in R&D less non-controlling interest
Performance
As planned, R&D investment increased
by 12% in constant currency, while
capital spending remained flat. This
reflected increased investments in
gene editing capabilities, genome
science, advancing GSS and furthering
our computational capabilities in
bovine product development.
Our investment in gene editing
increased by £2.6m, as we built
platform capabilities, co-founded a
gene editing company, RenOVAte
Biosciences, to perform the edits,
selected and optimised the gene
editing reagents, created the first
pregnancies of gene edited pigs for
testing, and carried expenses for our
collaboration with Caribou Biosciences
from which we license market leading
and proprietary CRISPR-Cas9 gene
editing technology. We secured
an INAD with the US FDA for the
PRRSv programme. As planned,
we expect gene editing expense to
grow to around £6.0m in 2018.
As in previous years, our research
focused on genomic evaluation,
gender skew and animal health and
well-being. Research expenditure
increased by 2% this year. We also
continued to invest in core informatics
capabilities and expanded research
efforts in a number of promising
areas. Additionally, we continued
to build our internal capabilities
in IP development, regulatory
affairs and research strategy.
Bovine product development
expenditure increased by 6% in
constant currency, as we incurred
pre-launch costs of GSS partially
offset by strategically increasing the
efficiency of our product development
programme, including reducing the
size of our bull herd and the expenses
associated with progeny testing. In
GSS, we continued to refine and scale
up our manufacturing processes in
preparation for commercial launch
incurring costs in the year in excess of
£2m. We added resources in quality
and operational controls and invested
in technology improvements to the
current GSS system, which enhanced
the technology’s performance and
promise further advances in fertility.
De Novo achieved promising genetic
results, while running to plan financially.
We also brought into production 23%
(2016: 20%) of our bulls from our ABS
internal herd with the impact of De
Novo expected to grow significantly
in future years. We continued to
Actual currency
Constant
currency
2016
£m
Movement
%
Movement
%
0.9
7.1
13.5
12.9
34.4
289
18
23
19
27
251
2
7
6
12
2017
£m
3.5
8.4
16.6
15.3
43.8
invest in genetic services resources, to
develop proprietary breeding indices
and predictive genomic mating, to
deliver higher genetic control and
differentiation. We leveraged this work
through our beef nucleus breeding
programme to launch our proprietary
NuEra Genetics beef genetics in the
market after the end of the year.
Within porcine product development,
the single-step genomic evaluation
of all pure line populations, retail
products and traits of economic
importance is continuing to exceed
the aim of a 35% increase in the rate
of genetic gain compared with the
period before its implementation.
Porcine product development costs
increased 7% in constant currency,
driven by increased animal volumes
and the related operating expenses
in our nucleus herds, and lower
market prices for by-product pigs.
These cost increases were partially
offset by lower genetic testing fees,
due to project phasing, and reduced
global genetic dissemination costs.
29
STRATEGIC REPORTGenus plc | Annual Report 2017
Financial Review
DELIVERING A SOLID
FINANCIAL PERFORMANCE
GENUS ACHIEVED A
SOLID FINANCIAL
PERFORMANCE IN
THE YEAR ENDED
30 JUNE 2017
30
Genus achieved a solid financial
performance in line with expectations
in the year ended 30 June 2017, with
revenue growth of 18% (6% in constant
currency) and adjusted profit before
tax up 13% (1% lower in constant
currency) after increased investment in
R&D. Adjusted earnings per share were
also up 14% (flat in constant currency).
On a statutory basis, profit before tax
was 33% lower, primarily due to the
significant pensions-related exceptional
gain in the prior year. 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.
The effect of exchange rate
movements on the translation of
our overseas profits was to increase
the Group’s adjusted profit before
tax for the year by £7.0m or 14%
compared with 2016 caused by the
sharp devaluation of Sterling at the
end of the prior period following
the UK referendum on Brexit.
Revenue
Revenue increased by 18% in actual
currency and 6% in constant currency
to £459.1m (2016: £388.3m) during
the year. In Genus PIC, growth of 7%
in constant currency was across all
regions but was particularly strong
in Asia where revenues grew 24%. All
regions also grew royalty revenue,
with particularly notable growth in
Europe of 22% and Asia of 28%. In
Genus ABS, revenues grew 2% in
constant currency (13% in actual
currency), with mixed performances
across regions. Growth was strongest
in Latin America and IVB.
Adjusted Operating Profit including
JVs (£m)
2017
2016
2015
2014
2013
48.2
44.8
54.3
60.1
51.2
0.00000017.83333335.66666753.50000071.33333389.166667107.000000
Adjusted operating profit including
joint ventures was £60.1m (2016:
£54.3m), up 11% in actual currency
and 2% lower in constant currency.
Within this, Genus’s share of adjusted
joint venture operating profits was
higher at £7.1m (2016: £6.4m).
Genus plc | Annual Report 2017 Adjusted results1
Revenue
Operating profit
Operating profit incl. 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)
Actual currency
Constant
currency2
2016
£m
Movement
%
Movement
%
6
(1)
(2)
(1)
–
388.3
49.3
54.3
49.7
60.7
18
12
11
13
14
2016
£m
Movement
%
388.3
58.6
60.9
81.1
21.4
18
(35)
(33)
(34)
10
2017
£m
459.1
55.1
60.1
56.4
69.4
2017
£m
459.1
38.2
40.7
53.8
23.6
1 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.
2 Constant currency percentage movements are calculated by restating 2017 results at the average exchange rates applied in 2016.
Exchange rates
US Dollar/£
Euro/£
Brazilian Real/£
Mexican Peso/£
Adjusted profit before tax3
Genus PIC
Genus ABS
R&D
Central costs
Adjusted operating profit incl. JVs
Net finance costs
Adjusted profit before tax
Average
Closing
2017
2016
2017
2016
1.27
1.16
4.11
24.61
1.47
1.33
5.47
25.38
1.30
1.14
4.30
23.51
Actual currency
1.34
1.20
4.28
24.66
Constant
currency
2017
£m
94.8
21.3
(43.8)
(12.2)
60.1
(3.7)
56.4
2016
£m
Movement
%
Movement
%
78.0
22.0
(34.4)
(11.3)
54.3
(4.6)
49.7
22
(3)
(27)
(8)
11
20
13
7
(13)
(12)
5
(2)
18
(1)
3
Includes share of adjusted pre-tax profits of joint ventures and removes share of profits of non-controlling interests.
Genus PIC had another robust
year, with profits including joint
ventures up 7%. Volume growth of
4% included royalty volume growth
of 6%, helped by 45% growth in
royalty volumes in Asia, which was
particularly encouraging. Upfront
sales reduced as planned.
Genus ABS had a challenging year,
however performance improved in
the second half as a result of actions
taken. For the year, volumes grew 1%,
while profit was 13% lower (3% lower
in actual currency), driven by weaker
performance in North America and
China and an increase in ST-produced
inventory provisions as we prepared
to launch Sexcel. Performance
improved in Europe and Latin
America, and IVB continued to grow.
R&D costs increased by 12%, as
planned, as we created our first
gene edited pregnancies, ramped
up GSS manufacturing processes,
and incurred increased costs in
our porcine nucleus herds.
Net Finance Costs
Net finance costs reduced to £3.7m
(2016: £4.6m) principally due to lower
IAS 19 pension interest of £1.2m (2016:
£2.2m), following the prior year’s
agreement to change the inflation
index used to pay pensions in the MPF.
Average borrowings and debt interest
in the year were higher, following the
depreciation of Sterling after the Brexit
referendum, the Hermitage acquisition,
and the purchase of the remaining
49% of IVB for £11.4m. Offsetting
this, the Group earned higher interest
income through the year on Brazilian
Real cash deposits hedging the
anticipated 49% IVB acquisition.
Exceptional Items
There was a £2.5m net exceptional
expense in 2017 (2016: £36.3m
credit). The prior year included a
large exceptional gain of £44.2m
related to the MPF’s adoption of
CPI in place of RPI to determine
pension increases. In comparison, the
current year included an exceptional
credit of £5.7m in respect of the
arrangements for National Milk
Records plc (‘NMR’) exiting the MPF
in June 2017. There was also £5.3m
for legal fees in Genus ABS’s case
against ST, £0.6m for acquisition
and integration related expenses,
primarily De Novo and Hermitage,
net of a gain on the cancellation of
the IVB put option, and other items of
£2.3m including restructuring costs.
31
STRATEGIC REPORTGenus plc | Annual Report 2017 Financial Review continued
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 JVs and associates
Tax on JVs 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
2017
£m
56.4
2.1
0.5
(1.4)
(1.1)
(8.7)
(4.6)
(2.5)
40.7
2016
£m
49.7
1.4
1.9
(1.4)
(17.1)
(6.1)
(3.8)
36.3
60.9
Our statutory profit before tax was
£40.7m (2016: £60.9m), with the
prior year benefiting from a large
exceptional credit relating to the MPF
mentioned on page 31. Statutory
profit before tax also included a
net IAS 41 valuation biological asset
movement decline of £1.1m (2016:
£17.1m), amortisation of acquired
intangibles of £8.7m (2016: £6.1m)
and share-based payment expense
of £4.6m (2016: £3.8m). These items
tend to be non-cash, can be volatile
and do not correlate to the underlying
trading performance in the period.
Taxation
The effective rate of tax for the year,
based on adjusted profit before tax,
was 25.0% (2016: 25.8%) reflecting
a higher mix of profits in lower tax
jurisdictions compared with the prior
year. The effective rate remains higher
than the UK corporate tax rate 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. These effects are
partly mitigated by the availability of
manufacturing relief, R&D credits and
agricultural reliefs in certain
jurisdictions.
The tax rate on statutory profits was
18.5% (2016: 19.3%) and is lower than
the effective rate on adjusted profits
primarily due to a reduction in the
applicable deferred tax rate on the
balance sheet carrying value of
biological assets based on the
anticipated mix of future sales by
territory.
32
Earnings Per Share
Adjusted basic earnings per share increased by 14% to 69.4 pence (2016: 60.7
pence) and was unchanged in constant currency. Basic earnings per share on a
statutory basis were 53.8 pence (2016: 81.1 pence), a decline of 34%, with the prior
year benefiting from changing the index used for pension and deferred pension
increases in the MPF from RPI to CPI.
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 2017, the carrying value of
biological assets was £375.3m (2016: £354.4m), as set out in the table below:
Biological assets
Non-current assets
Current assets
Inventory
Represented by:
Porcine
Dairy and beef
2017
£m
279.2
73.9
22.2
375.3
215.6
159.7
375.3
2016
£m
264.6
66.4
23.4
354.4
184.7
169.7
354.4
The movement in the overall carrying value of biological assets, excluding the
effect of exchange rate translation increases of £10.9m, includes:
• a £24.9m 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 £14.8m decrease in the carrying value of dairy and beef biological assets,
arising from the increasing sales mix of genomic bulls which tend to have
shorter productive lives than proven bulls, offset partially by the assets acquired
through the completion of De Novo Genetics.
The historical cost of these assets, less depreciation, was £51.5m at 30 June 2017
(2016: £42.5m), which is the basis used for the adjusted results. The historical cost
depreciation of these assets included in adjusted results was £7.0m (2016: £5.5m).
Retirement Benefit Obligations
The Group’s retirement benefit obligations at 30 June 2017, calculated in
accordance with IAS 19 and IFRIC 14, were £40.9m (2016: £44.5m) before tax and
£32.4m (2016: £34.9m) net of related deferred tax. The largest element of this
liability relates to the multi-employer MPF, where we account for this scheme on
the basis of Genus being responsible for 85% of the scheme since the exit of NMR
(2016: 75%).
During the year, contributions payable in respect of the Group’s defined benefit
schemes amounted to £7.2m (2016: £6.7m).
Genus plc | Annual Report 2017 Cash Flow
Free cash flow was strong at £25.4m (2016: £15.7m), driven by solid cash
generated by operations of £46.3m (2016: £43.3m), representing conversion of
adjusted operating profit of £55.1m (2016: £49.3m) into cash of 84% (2016: 88%),
and strong cash inflows from joint ventures of £8.3m (2016: £3.4m) following good
trading performance in our PIC joint ventures in China and Brazil.
Capital expenditure of £18.9m (2016: £18.6m) included continued investment
in GSS capacity and technology, research and continued investments in the
Group’s facilities.
The cash outflow from investments was £30.0m, primarily relating to the
acquisition of De Novo Genetics, Hermitage Genetics and the purchase of the
remaining 49% of IVB. This compares with £7.2m, net of cash acquired, from the
acquisition of St Jacobs and an investment in Caribou Biosciences in 2016. The
total cash outflow for the year after these investments and dividends was £18.1m
(2016: outflow £3.7m).
Cash flow (before debt repayments)
Cash generated by operations
Interest and tax paid
Capital expenditure
Cash received from JVs
Other
Free cash flow
Acquisitions and investments
Dividends
2017
£m
46.3
(11.7)
(18.9)
8.3
1.4
25.4
(30.0)
(13.5)
(18.1)
2016
£m
43.3
(13.3)
(18.6)
3.4
0.9
15.7
(7.2)
(12.2)
(3.7)
Net Debt
Net debt increased from £89.7m to £111.6m at 30 June 2017, primarily due to the
£30.0m investments in De Novo Genetics, Hermitage Genetics and the remaining
49% of IVB. During the year, we exercised a portion of an accordion in our credit
facilities to increase them by £29.2m and extended the facilities by one year to
February 2022. At the end of June 2017 there was substantial headroom of
£73.6m under the extended facilities of £202.0m.
The Group’s financial position and borrowing ratios remain strong with interest
cover remaining at 37 times (2016: 35 times). EBITDA as calculated under our
financing facilities includes cash received from joint ventures and historical cost
depreciation of biological assets. The ratio of net debt to EBITDA on this basis
moderately increased to 1.5 times (2016: 1.4 times) primarily due to acquisitions
and investments in the year, partially offset by increased EBITDA.
Return on Invested Capital
We measure our return on invested capital on the basis of adjusted operating
profit including joint ventures after tax, divided by the operating net assets of the
business, stated on the basis of historical cost, excluding net debt and pension
liability. This removes the impact of IAS 41 fair value accounting, the related
deferred tax and goodwill. The return on invested capital increased to 19.9% after
tax (2016: 19.1%), reflecting the increase in adjusted profit and lower tax rate in
the year.
Dividend
Reflecting the Board’s continuing confidence in the Group’s prospects, it is
recommending to shareholders a final dividend of 16.2 pence per ordinary share,
resulting in a total dividend for the year of 23.6 pence per ordinary share, an
increase of 10% for the year. Dividend cover by adjusted earnings remains
consistently strong, at 2.9 times (2016: 2.8 times).
Stephen Wilson
Group Finance Director
6 September 2017
33
STRATEGIC REPORTGenus plc | Annual Report 2017 People and Culture
THROUGH PEOPLE
Our people strategy centres on
recruiting, developing and inspiring
employees with deep genetic and
operational expertise. Our global
team ranges from geneticists to
livestock technicians, veterinarians
to accountants: all playing their
part in helping customers improve
performance and productivity.
Our overall headcount remained
broadly level during the year, as we
invested in areas of growth, whilst
adjusting staffing in other areas.
Skill Recruitment
In June 2017, our staff numbered
2,677, up 8 from 2,669 last year.
We controlled headcount tightly,
resourcing areas of growth, for
example, our IVB embryo business
and GSS production in the US, whilst
restructuring other areas, such
as parts of ABS and PIC Supply
Chain, for efficiency. We recruited
16 staff with PhDs this year, bringing
our total of PhD qualified staff to
101. Our talent pool is global, with
staff originating from 30 different
countries: during the year we recruited
or assigned staff into 22 of the 25
countries in which we employ staff.
Female Representation for 2017
31% of our staff are women, 27% in
management roles: we are committed
to identifying women with potential
and developing them into senior roles.
Investing in Our People
We continued to run bespoke
management development
programmes, together with our
PIC and ABS Sales Academies.
We mounted our largest-ever
training programme, equipping
employees for the launch of Sexcel,
and we developed a global training
programme for PIC production
managers to introduce best-in-class
recruitment and on-boarding practices.
34
2,677
2,669
2016 32COUNTRIES
NUMBER OF EMPLOYEES
2017
2016
EMPLOYEE COU NTR Y OF ORIGIN 1
2017 30COUNTRIES
FEMAL E REPRESENTAT ION
1
1
BOARD
DIRECTORS
14%
FEMALE
GELT
13%
FEMALE2
821
OTHER
EMPLOYEES
31%
FEMALE
1
,
8
4
3
6
6
7
Male Female
1 Those employees who chose to record their country of origin.
2 Of the direct reports to GELT, 34% are female (22% excluding administrative supportive staff).
Visit: www.genusplc.com/work-for-us to learn about Genus as an employer.
Genus plc | Annual Report 2017RESULTS We applied rigorous individual
performance conditions before
making the award to those we see
as key to our future success. We
saw a positive impact on morale
and are monitoring to ensure it
has the desired retention effect.
Enhancing Health and Safety (‘H&S’)
We made significant progress this
year, with incidents down by 10%, and
animal related incidents – a specific
target – falling by 12%. Across the
business we increased ‘near miss’
reporting by 61%, 266% in owned
production sites, learning lessons to
avoid future incidents. To support
colleagues working alone on farms,
we introduced a lone working device
to 243 UK colleagues (see case study).
More details are on our website
www.genusplc.com/responsibility.
Human Rights and Anti-Slavery
We remain fully compliant with
our policies and operate to the
highest standards for our people
and those who work with us directly
through our supply chains.
Looking Ahead
To support the Company’s growth
plans, we will be increasing
recruitment in a number of areas.
These include our embryo business,
PIC supply chain capacity and
support for the launch of Sexcel.
We will continue to invest in our
people, and will run our third global
employee survey, seeking feedback
to help us continue improving our
organisation and the way we work.
TO REALISE ANIMAL
GENETIC IMPROVEMENT
TAKES A GENERATION: OUR
TEAMS BRING A UNIQUE
BLEND OF EXPERTISE AND
EXPERIENCE TO DELIVER
RESULTS IN CUSTOMER
HERDS
Aligning Incentives with Business Goals
We introduced new incentive
programmes for ABS and PIC
production staff, rewarding them for
improving productivity, quality and
safety. We overhauled our corporate
incentive programmes. For our annual
scheme, open to all salaried staff, we
simplified targets and strengthened
links with business goals. For our
long-term scheme awarded to
selected senior leaders below GELT,
we moved from performance shares
to restricted stock, aligned to North
American reward practice where the
majority of our leaders are based.
CASE STUDIES
TRAINING INTERVE NTIONS
2017
32,708
24,127
2016
ENHANCING H&S
INCIDENTS
ALL INCIDENTS
10%
20%
RECORDABLE INCIDENTS
ANIMAL-RELATED INCIDENTS
12%
NEAR MISS REPORTING TOTAL COMPANY
61%
PROTECTING LONE WORKERS
We have introduced portable
devices to enhance protection for
dairy technicians working alone
on customer farms. If the device
detects that the technician is not
moving, it relays the location and an
alarm to a 24/7 monitoring station,
activating emergency protocols.
Initially rolled out in the UK, we
plan to introduce these devices
in other geographies.
PIC GENETIC SERVICES
PIC’s multi-national Genetic Services
team is made up of world class
geneticists and data scientists:
one third with PhDs. They use
Relationship Based Genomic
Selection and PicTraq®, our 55 year
database, to identify, improve and
multiply traits of commercial value
to producers, shaping product
indices, mating strategies and
research programmes.
GLOBAL TRAINING ON SEXCEL
We invested in our largest-ever
training programme to support
the launch of Sexcel. This was
developed through collaboration
between global colleagues and
helps participants learn about the
value of sexed genetics and what
is different about our proprietary
technology. It is enabling colleagues
to help customers understand
and make the most of the benefits
Sexcel offers them.
35
STRATEGIC REPORTGenus plc | Annual Report 2017 Responsible Business
SUSTAINABILITY
AT OUR CORE
WE SUPPORT THE MEAT
AND DAIRY INDUSTRIES
THROUGH ETHICAL ANIMAL
GENETIC IMPROVEMENT,
INCREASING THE
SUSTAINABLE SUPPLY
OF ANIMAL PROTEIN TO
HELP NOURISH PEOPLE
AROUND THE WORLD
The world’s population is growing,
demand for protein is rising, but our
natural resources are increasingly
stressed. We work with the core
building block – animal genetics – to
improve the quality and output of
responsibly produced meat and milk.
Our scientific teams harness leading-
edge research and technologies. By
identifying desired genetic traits,
replicating these through our breeding
programmes, disseminating them
rapidly with on farm support to deliver
at scale, we help our customers
increase the supply of affordable and
high quality protein around the world.
CASE STUDY
CASE STUDY
CASE STUDY
Importing live bulls to India
In 2016, we became the first company
ever to import live bulls to India, following
a landmark agreement with the Indian
government. These 13 animals are now
the country’s leading sires, enhancing the
availability of high-quality genetics in the
world’s largest dairy market. They reside
at our Brahma joint venture bull stud,
a state-of-the art facility built using best
practice for animal well-being and H&S.
Enhancing feed efficiency
Our genetic improvement programmes
select animals with desirable traits, for
example, converting feed into growth
more efficiently. This both enhances the
productivity of customer operations and
reduces environmental impact: efficient
growth means animals produce less
manure and methane, farmers can use
less water and we reduce the land
required for crop production.
Recruiting for our farms
In 2017, we recruited 93 new employees
into our bovine and porcine production
facilities from neighbouring communities.
We train every employee on our animal
well-being principles including our zero
tolerance policy on animal cruelty. Our
training is tailored to the different species
and is of a world class standard.
To see the full scope of our framework, and read more about our work
in each area, please visit: www.genusplc.com/responsibility
36
Genus plc | Annual Report 2017
FOOD QUALITY AND SECURITY
‘Food Quality and Security’ is at the very core of what we do as a business.
The diagram below describes how our corporate responsibility approach works with our business cycle
(see our People and Culture section on page 35 for progress on improving H&S).
OUR SCIENTISTS ACCESS
LEADING-EDGE RESEARCH
AND ANALYSIS TO DRIVE
GENETIC IMPROVEMENT
(cid:31)
WE EVALUATE AND VALIDATE
OUR GENETICS IN CUSTOMER
OPERATIONS, SEEKING HOW TO
DELIVER THE NEXT GENERATION
OF GENETIC IMPROVEMENT
(cid:31)
FOOD QUALITY
AND SECURITY
Providing expertise and products
that increase the production
of high quality protein
(cid:31)
WE REPLICATE DESIRABLE
TRAITS THROUGH OUR BREEDING
PROGRAMMES, DELIVERING
BENEFITS FOR ANIMAL
WELL-BEING, CUSTOMER
PRODUCTIVITY AND SUSTAINABLE
PROTEIN PRODUCTION
(cid:31)
WE DELIVER GENETIC
IMPROVEMENT TO BENEFIT
CUSTOMERS BY DISSEMINATING
THE GENES RAPIDLY
WE ARE ROOTED IN THE
COMMUNITIES WE WORK IN,
OPERATING TO GLOBAL H&S
STANDARDS FOR OUR STAFF,
AND GLOBAL ANIMAL
WELL-BEING STANDARDS
(cid:31)
ANIMAL
WELL-BEING
Continually improving animal
well-being through proven
science based initiatives
ENVIRONMENT
Reducing the impact of
protein production
OPERATE SAFELY
Ensuring a safe working
environment for colleagues
COMMUNITY
Being a responsible corporate
citizen within our communities
37
STRATEGIC REPORTGenus plc | Annual Report 2017 Responsible Business continued
LEADING FROM THE FRONT
The leaders on our Corporate Social Responsibility (‘CSR’)
Committee were chosen because each has a role in
delivering our corporate responsibility agenda. Now
in its fourth year of operation, the Committee reports to
the Board, meeting quarterly, setting strategy, annual
objectives and tracking progress.
Achievements of particular note during 2017 included
improvements in H&S performance, see page 35, and
continued investment in animal well-being. The key
performance indicators for monitoring and reporting our
performance are summarised below and can be read in full,
together with more information on our Committee,
at www.genusplc.com/responsibility.
OBJECTIVES UPDATE
WHAT WE DO
FOOD QUALITY AND SECURITY
Providing expertise and products that
increase the supply of high quality protein
HIGHLIGHTS
WHAT WE PLAN TO DO NEXT
• Using genomic selection, the value of PIC
genetics improved by US$3.68, providing
highly productive, high health pigs
• Maintained current genetic lag levels
by market
• Deployed IVF technology, genetic audits
and mating tools to deliver tailored genetic
solutions to ABS customers
• Elite bull export to India, improving
genetic merit
• Maximise porcine genetic improvement
and rapidly disseminate the genes
• Continue development of PRRSv
resistant pigs to improve animal
well-being and producer output
India: using elite male genetics and
sexing technology, increase probability
of female offspring
•
• Launch Sexcel, a sexed product
subjected to less stress during
production
ANIMAL WELL-BEING
Continually improving animal welfare
through proven science-based initiatives
• Pork Quality Assurance (‘PQA’) based
training completed in all owned
production sites and global standards
briefed to every staff member
• Deliver PIC Care programme
• Conduct the second PIC Supply Chain
survey and action plan based on findings
• Continue investment in PIC and ABS
• PIC facilities in US and Canada upgraded
animal housing facilities
to plan
• ABS studs audited and action plans
delivered
ENVIRONMENT
Reducing the environmental impact of
protein production
• External audits of Genus PIC’s waste
• Maintain scope and measures of PIC
management systems, completed on 80%
of animals on owned sites. Waste from the
genetic nuclei used as commercial fertiliser
• Met the targeted improvement in feed
audits on owned production, including
80% of owned sites
Improve feed efficiency by 0.02kg of
feed per kg of pork
•
efficiency of 0.02kg of feed per kg of pork
• Develop beef genetics that improve
feed efficiency, measured through the
in-house Genetic Nucleus (GN) selection
index
OPERATE SAFELY
Ensuring a safe working environment for
our colleagues
• Vehicle incidents increased in the year;
• Reduce occupational road risk year
reduction in UK offset by increase in the
US linked to improved reporting
• Near miss reporting on our production
sites increased by 266%, and by 61%
across the Company
• Total Company recordable incidents
reduced by 20%
on year
• Near miss reporting – reduce risk by
increasing reports across the business
• Continue to reduce incidents, specifically
involving animals, and on customer
premises
COMMUNITY
Being a responsible corporate citizen, within
our communities
• Supported the Send a Cow charity:
• Continue to respond to local crises,
74 cows donated
• Recruited 93 staff into our PIC and ABS
production sites
recruit into local farms and encourage
support for charities close to the
local businesses
38
Genus plc | Annual Report 2017 CASE STUDIES
DEVISING NEW
BULL DIETS
SUPPORTING SAFE
ANIMAL HANDLING
We have devised high forage, high
fibre diets for our bulls that meet
nutritional needs and help them
relax. The diet encourages cud
chewing, which is natural behaviour
for cattle and keeps them calm. We
tailor diets to animal needs and
strive to feed them 1.5% of their
body weight daily.
We have developed bespoke
training to help employees
understand and respond to the
instinctive behaviours of the animals
they work with. We have different
courses on working with pigs,
bulls and cattle. These have been
translated into multiple languages
and all employees undertake
‘refresher’ training regularly.
INCREASING
GENETIC
IMPROVEMENT
We harness genomic selection
technology to help our customers
accelerate genetic improvement in
their herds and produce more animal
protein, using fewer natural resources.
This helps us increase customer
profitability; for example, our Porcine
Genetic Improvement Index shows an
improvement of US$3.68 per
commercial pig per year.
GREENHOUSE GAS (‘GHG’) REPORTING
Our GHG emissions are primarily
methane produced by our animals
and carbon dioxide from consuming
fuel and other materials, and from
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 affected mainly
by the number and age of animals
but also by emissions from our fuel
combustion. Animal weight has
reduced by 1%, driven by exiting
porcine farms in Asia and Europe,
partially offset by an increase in the
number of bovine animals being
produced internally. However, an
increase in fuel combustion, mainly
to control the temperature in our
Chinese porcine farms, has resulted
in an overall increase in the primary
ratio. Our secondary intensity ratio has
reduced, mainly due to an increase
in turnover while maintaining the
absolute level of total emissions.
Our Reporting Approach
We use operational control as
our reporting approach. We have
determined and reported the
emissions we are responsible for
within this boundary and believe
there are no material omissions. GHG
data is therefore reported for assets,
which are mainly rented or leased,
that are otherwise not referred to
elsewhere in the financial statements.
We omitted joint ventures 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 and livestock emissions
Scope 2 – purchased electricity, steam, heat and cooling
Total Scope 1 and 2
Scope 3 – material usage and waste, third party distribution and business travel
Total emissions
Primary intensity measure – animal weight (tonne)
Secondary intensity measure – turnover (£m)
Primary intensity ratio – Scope 1 and 2 (tCO2e/tonne animal weight)
Secondary intensity ratio – Scope 1,2 and 3 (tCO2e/£m turnover)
GHG EMISSIONS FOR 2017 (%)
● 67% From livestock
● 14% From third party distribution and business travel
● 19% From other activities
2017
2016
Tonnes of CO2e
Tonnes of CO2e
77,895
8,065
85,960
24,055
72,596
8,857
81,453
28,433
110,015
109,886
10,146
459.1
8.47
240
10,249
388.3
7.95
283
Annual emissions figures have been calculated based on actual ten-month data for July to April, extrapolated for a 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’.
39
STRATEGIC REPORTGenus plc | Annual Report 2017
Chairman’s Letter
STRONG CORPORATE GOVERNANCE
THE BOARD CONTINUES
TO PROVIDE HIGH-
QUALITY LEADERSHIP
TO THE GROUP
40
Genus plc | Annual Report 2017Dear ShareholderThe contribution of strong corporate governance to business success is widely recognised, and it remains an area of keen focus for investors, the government, standard setters and society more broadly. At Genus, we are highly aware of the critical role the Board plays. We were therefore pleased that the latest evaluation of the Board’s performance showed that it continues to provide high-quality leadership to the Group.During the year, we have devoted considerable time to analysing the Board’s range of skills and planning succession for the Directors. This will remain a priority for us in the coming year. We have also reviewed the Group’s diversity policy, recognising that diversity contributes to better business decisions.We continue to look at how we report on corporate governance, so we provide real insight into the Board’s work and how it leads the Group. This year we have given more emphasis to our activities and offered opportunities for some of our Non-Executive Directors (‘NEDs’) to share their impressions of Genus and the Board.Set out opposite are some of this year’s governance highlights. More information on each area can be found on pages 42 to 83.Bob LawsonChairman6 September 2017 CORPORATE GOVERNANCE
HIGHLIGHTS
PROVIDING
EFFECTIVE
LEADERSHIP
MAINTAINING AN
INDEPENDENT
BOARD
ENSURING
STRATEGIC
OVERSIGHT
ENHANCING
THE BOARD’S
KNOWLEDGE OF
THE BUSINESS
ENGAGING OUR
SHAREHOLDERS
CONTINUING TO
COMPLY
An independent
external follow up
review of the Board’s
performance showed
particular strengths in
the composition and
culture of the Board,
along with the leadership
of the Board and the
organisation.
The Board has a majority
of independent Directors,
with five Non-Executives
(including the Chairman)
and two Executive
Directors.
The Board held its annual
strategy review in January
and received regular
updates on strategy and
business development
and the competitive
landscape during the year.
To give the Board
first-hand experience of
our business and
customers, the Directors
spent a week visiting
our UK and Spanish
operations in May.
The Executive Directors
met institutional investors
owning almost 60%
of our share capital,
including 20 of our 25
largest shareholders,
as well as many
potential investors.
Genus complied in full
with the 2016 edition of
the UK Corporate
Governance Code (the
‘Code’), which was the
standard applicable for
this financial year. A copy
of the Code is available
from the Financial
Reporting Council’s
(‘FRC’) website.
CORPORATE GOVERNANCE
OUR APPROACH TO REPORTING ON
CORPORATE GOVERNANCE
See page 47
See page 50
See pages 46
and 48
See pages 46-49
See pages 50-52
See pages 47
and 55-56
See page 49
See pages 52-53
and 57-59
See page 54
See page 54
See pages 60-81
41
Genus plc | Annual Report 2017CORPORATE GOVERNANCEThis year, we have aimed to provide even greater insight into the Board’s key activities during the year, to demonstrate how the Board works and its effectiveness. The remainder of the Corporate Governance Report explains how we comply with the Code, using the key Code principles as a framework. The content of each section is outlined below:THE BOARD’S YEAR IN REVIEWIncludes the Board’s key activities in the year and details of the annual Board evaluation.LEADERSHIPIncludes the composition of the Board and its Committees, and the Directors’ roles and responsibilities. EFFECTIVENESSIncludes the Nomination Committee’s activities in the year. ACCOUNTABILITYIncludes an explanation of our risk management and internal controls, and the Audit Committee’s activities during the year. RELATIONS WITH SHAREHOLDERSIncludes our investor relations calendar, data on the shareholders we met during the year, and the key themes discussed at investor meetings. REMUNERATIONIncludes an explanation of our approach to remuneration and a report on the Directors’ remuneration for the year. Board of Directors and Company Secretary
Karim Bitar1
Chief Executive
Board Appointment – September 2011
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.
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. On 1 July 2017,
Karim was appointed a Non-Executive
Director on the board of Spectris plc.
He is also a member of the University of
Michigan Ross School of Business
Advisory Board.
Bob Lawson1, 2
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 is currently Non-Executive
Chairman of Eurocell plc and was
formerly Chairman of the Federation of
Groundwork Trusts and Non-Executive
Chairman of Barratt Developments plc.
Stephen Wilson
Group Finance Director
Board appointment – January 2013
Skills and Experience
Before joining Genus, Stephen worked
in France and the US and gained
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
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.
Key to Committees
1 Member of the Nomination Committee.
2 Member of the Remuneration Committee.
3 Member of the Audit Committee.
42
Genus plc | Annual Report 2017 Nigel Turner1, 2, 3
Senior Independent
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 Senior
Independent Director of Croda
International plc.
Lysanne Gray1, 2, 3
Non-Executive Director
Audit Committee Chair
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.
Professor Duncan Maskell1, 2, 3
Non-Executive Director
Lykele van der Broek1, 2, 3
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.
43
CORPORATE GOVERNANCE Genus plc | Annual Report 2017 Genus Executive Leadership Team (‘GELT’)
During 2017, we strengthened the leadership team and ensured it was aligned
to our business priorities. The appointments we made have deepened GELT’s
industry expertise and commercial acumen, further improving its capability
to deliver the Group’s strategy.
Jerry Thompson was appointed to lead our Genus ABS Beef business from
July 2016 and his strategic review is now being implemented (see pages 26
and 27). Saskia Korink, who was COO of Genus ABS Dairy, left the business
in November 2016 and was replaced by Dr Nate Zwald, who joined us in
January 2017. Catherine Glickman, Group HR Director, stepped down from
GELT on 1 July 2017 and Angelle Rosata was promoted to the role with
effect from July 2017.
Karim Bitar
Chief Executive
Stephen Wilson
Group Finance Director
See pages 42 and 43 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 career at the
intersection of agriculture and
biotechnology, giving him a unique
blend of deep industry knowledge and
extensive commercial and global
experience. He holds doctorates (DVM
and PhD) in Veterinary Medicine from
the University of Minnesota.
Career
Bill joined in 1993 as Manager of
Veterinary R&D, based in the US. He
subsequently worked in operational
roles spanning Europe, South America
and the US, before becoming General
Manager of PIC North America in 2007.
He led the combined ABS and PIC
business across the Americas from
2010, before becoming COO of Genus
PIC in 2012.
44
Genus plc | Annual Report 2017 Jerry Thompson
Chief Operating Officer,
Genus ABS Beef
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 Genus
establish and grow its business in
new markets.
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 Siberia
and Romania before leading PIC in
Central and Eastern Europe. He then
led PIC Europe before becoming
Regional Director for PIC and ABS
in Russia and Asia Pacific and
subsequently COO for Genus Asia.
He was appointed to his current role
in July 2016.
Dr Jonathan Lightner
Chief R&D and Scientific Officer
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.
Angelle Rosata
Group HR Director (from 1 July 2017)
Skills and Experience
Angelle combines commercial acumen
with her broad expertise in resourcing,
talent and succession, leadership
development, and H&S.
Her strategic planning skills and
pragmatism help to align the Group’s
people agenda with its business needs.
Angelle holds a Masters in Human
Resource Development from
Vanderbilt University.
Career
Angelle joined Genus PIC in September
2013 as HR Director, following more
than 20 years in the healthcare sector.
She developed and delivered PIC’s
people strategy, before being
appointed HR Director for Genus ABS.
Angelle was appointed Group HR
Director and a member of GELT on
1 July 2017.
45
Dr Nate Zwald
Chief Operating Officer,
Genus ABS Dairy
Skills and Experience
Nate brings deep dairy genetics
expertise, a strong commercial focus
and a passion for people development.
He grew up on the Bomaz dairy farm in
the US, which has produced high-
ranking industry and ABS sires, before
studying at the University of Wisconsin.
Here, he obtained a degree in Dairy
Science, an MBA and a PhD (focused
on the genetic evaluation of health
traits in dairy cattle).
Career
Nate joined Genus in January 2017
after 15 years at Alta Genetics. This
included being Alta’s Advantage
Program Manager, in which he
redesigned progeny testing in partner
herds. For his final ten years with the
company, Nate led Alta’s successful
US business as General Manager.
Nate has a strong dairy industry
network and sits on the board of the
Council on Dairy Cattle Breeding and
is Vice President of the National
Association of Animal Breeders.
CORPORATE GOVERNANCE Genus plc | Annual Report 2017 The Board’s Year in Review
OUR MAIN ACTIVITIES IN 2017
UPDATES RECEIVED AT ALL BOARD
MEETINGS
RESEARCH AND DEVELOPMENT
FINANCE
• Received regular updates on R&D
• Approved the annual and interim
results and dividends
• Approved the 2018 budget
• Received tax and treasury updates
• Received pension updates
• Approved the terms of the exit of
National Milk Records plc from the
MPF
EXECUTIVE/GELT UPDATES
• Received monthly financial and
operational performance updates
• Received regular presentations
from each business unit
H&S
• Reviewed 2017 targets for H&S
and reviewed progress throughout
the year
• Received monthly and quarterly
updates from Head of H&S
including progress against the
H&S KPIs
RISK MANAGEMENT
• Monitored the Group risk register
• Updated on whistleblowing hotline
reports and investigations
• Reviewed and approved a project
to implement a new Enterprise
System across Genus
• Strategic business and competitive
landscape developments from CEO
pipeline developments, new initiatives
and potential collaborations
• Financial performance of
businesses and forecasts from
Group FD
• Corporate governance and legal
issues from Group General Counsel
and Company Secretary, and
external advisers
LEADERSHIP AND EFFECTIVENESS
• Carried out Board effectiveness
review
• Update on the appointment of
COO ABS Dairy and GELT
succession planning
BUSINESS DEVELOPMENT AND
STRATEGY
• Received regular updates on the
progress of the PRRSv development
programme
• Received updates from Directors
attending the R&D Portfolio
Management Team
• 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 the integration
of the new ABS Dairy COO and the
plans to accelerate ABS growth
• Monitored the Group’s performance
against its goals
• Held strategic meeting with GELT
(see page 48)
• Approved:
EMPLOYEES
– the dairy genetic improvement
• Updated on key vacancies and hires,
joint venture, De Novo, in
partnership with one of the
leading Holstein breeders De-Su
– the acquisition of Hermitage
porcine genetics and strategic
distribution channels
– the acquisition of the remaining
49% stake in IVB
– the PRRSv programme
• Received updates on:
– IVB integration, including the
launch in Mexico to serve large
dairy operations
– GSS development progress and
US litigation (see note 14)
– the De Novo joint venture
progress
– business development
opportunities, including
summaries of due diligence
reviews
– the competitor landscape
in particular in sales and R&D
• Met key talent and business leads on
Board site visits
• Updated on resourcing for growth
and other initiatives, in particular the:
– recruitment and training of GSS
teams in the US and India
– resourcing of IVB expansion and
building of capability
SHAREHOLDERS
• Updated on meetings with
shareholders, potential investors and
analysts
• Received regular briefings from
Executive teams
46
Genus plc | Annual Report 2017 EFFECTIVENESS
Assessing Our Effectiveness
To ensure the Board provides
effective leadership, we
have a three-year evaluation
cycle, using a mixture of
internal and external
evaluations.
YEAR 1
External Board effectiveness
review produces an action plan
for areas of focus
YEAR 3
Internal
questionnaires
and interviews
with the Chairman
YEAR 2
Follow-up
questionnaire
by some external
evaluation consultant,
to monitor progress
with the focus areas
THE BOARD PROVIDES AN
APPROPRIATE BALANCE OF
CHALLENGE AND SUPPORT
Our Progress Against Last Year’s Areas of Focus
The table below shows progress against the three focus areas in 2017:
Focus area
Our progress this year
Strategy, including our
competitor landscape
and our shareholders’
expectations.
Developing the risk
agenda, in line with our
strategic objectives.
Succession planning,
including diversity and the
mix of skills on the Board,
to identify any current
and future skills gaps.
Competitors’ activities are monitored
through our business development team.
The Board is updated on competitor
activity at each Board meeting, and in
dedicated ‘deep dives’ twice a year.
In addition to the formalised process in
place to monitor Group risks and the
‘deep dive’ sessions to appraise risk
management plans, the Board performed
a comprehensive Group-wide risk review
in May 2017, to validate existing risks and
identify and evaluate new or emerging ones.
A Board skills matrix and updated Board
role specifications have been developed.
This was the second year of the
three-year cycle. The evaluation was
externally 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 involved:
• effectiveness questionnaires with
each Board member, following
which the Board discussed the
strengths and challenges identified
by the process;
• a workshop with the Board, to
examine and discuss a case study,
based on strengths and challenges
similar to Genus’s; and
• discussion of how the Board could
enhance the effectiveness of its
contribution to the Company.
The Evaluation’s Conclusions
The review showed that the Board
had particular strengths in the
following areas:
• Board culture and leadership, with
the Board functioning well as a
team and having an appropriate
balance of challenge and support,
with open, forthright and relevant
dialogue on critical issues;
• realism about the challenges and
opportunities facing Genus, and
the ability to take long-term
decisions because they are right for
the Company;
• the benefit of high-quality Board
papers, produced in a timely
manner and presented by the
Executives, enabling the Board to
discharge its duties;
• a focus on risk assessment,
including H&S; and
• possession of all the required
disciplines, with the Board being
well prepared for meetings and
generating productive solutions.
47
CORPORATE GOVERNANCE Genus plc | Annual Report 2017What We Will Focus On in 2018The evaluation identified that the priorities for the Board were to continue to focus on the areas identified in the full external effectiveness review performed in the previous year. These were:• continuing to focus on strategic clarity in a changing competitive landscape;• continued risk analysis to better understand the Company’s risks, controls and risk appetite; and• succession planning, including for the Chairman and CEO, and focusing on structured communications with shareholders.
The Board’s Year in Review continued
REVIEWING
AND MONITORING
OUR PERFORMANCE
REVIEWING THE STRATEGY
One of the Board’s key responsibilities
is to approve the Company’s strategy
and monitor our performance
against it. To understand how well
our strategy is working and to
ensure it remains appropriate, the
Board holds an annual strategy
review each January. Members
of GELT present to the Board on
their business unit or function.
Senior Independent Non-Executive
Director Nigel Turner said: “The
annual strategy reviews are extremely
important for both the Board and
GELT. The Board gains greater
understanding of the competitive
landscape and the challenges
the businesses face, as well as the
anticipated five-year financial plans.
This gives us a benchmark against
which we can review, challenge,
approve and monitor each business
unit’s strategic goals and initiatives.
For GELT, it is an opportunity to take
stock, consolidate its plan and receive
independent advice that draws on
the Board’s wealth of experience and
expertise. In summary, the strategy
reviews provide an excellent forum
for constructive debate about the
future, with high-quality contributions
from senior management,
GELT and Board members.”
OVERSEEING R&D
The R&D PMT has a number of
responsibilities. These are periodically
to:
• review and prioritise our
investment in R&D and technology;
• assess the quality and
competitiveness of our R&D
pipeline, including considering its
risk profile;
• oversee and encourage the
ideation management process; and
• approve our patent and other IP
strategies for new technologies,
based on business and technical
opportunities.
The R&D PMT typically meets twice
a year. This year it held one meeting
in Chicago, with a second meeting
in Basingstoke shortly after the
year end.
Professor Duncan Maskell is a
Non-Executive Director and our
adviser to the R&D PMT, providing a
direct link between the R&D PMT
and the Board. He said: “R&D is
Genus’s lifeblood and it is vital
that we oversee it effectively.
The R&D PMT is therefore a key
forum for the Group. In addition to
our standing agenda items, this year
we reviewed two focus areas. We
conducted a ‘deep dive’ review of
the PRRSv resistance development
plan and our technical progress. We
also reviewed the strategy for the
Biosystems Engineering function,
and its plans to continue to drive
innovation in sexing technology, after
the launch of GSS. Both these areas
are strategically important to the
Company and its customers.”
Nigel Turner
Senior Independent Non-Executive Director
Professor Duncan Maskell
Non-Executive Director
48
Genus plc | Annual Report 2017 THE STRATEGY REVIEWS PROVIDE AN EXCELLENT
FORUM FOR CONSTRUCTIVE DEBATE ABOUT THE FUTURE,
WITH HIGH-QUALITY CONTRIBUTIONS FROM SENIOR
MANAGEMENT, GELT AND BOARD MEMBERS
GAINING INSIGHT
INTO THE BUSINESS
We want to ensure that the Board
has first-hand experience of key
areas of our business and markets,
so we include at least one annual
site visit in the Board calendar. In
May 2017, the Board spent a week
visiting our operations and facilities
in the UK and Spain. This included
meeting our ABS and PIC European
leadership and key members of
their teams, as well as receiving
business update presentations.
Commenting on the site visit,
Non-Executive Director Lykele van
der Broek said: “The Board visit
was designed to give us a deeper
understanding of our European
businesses, our operations on the
ground, our markets and the needs
of our key customers. We met some
of our largest customers in the UK
and Spain, which gave us an insight
into their perspectives of Genus, what
drives their purchasing decisions,
how they see the markets and how
they expect their future product and
service requirements will develop. The
visit also gave our local management
teams the chance to have a
mutually stimulating interaction
with the Board, face-to-face.”
REFLECTIONS
ON MY FIRST YEAR
Lysanne Gray joined the Board in
April 2016. Reflecting on her first
year as a Non-Executive Director,
she said: “Since joining Genus, I have
met with GELT, senior managers and
key personnel, through both Board
presentations and site visits. What
is overwhelmingly apparent is that
everyone is genuinely passionate
about delivering the best genetics
and services for our customers while
maintaining consistently high levels
of animal well-being. Our people
have a wealth of expertise and
knowledge and the skill set required
to deliver on the Company’s strategy.
“Genus clearly demonstrates its
values through the decisions our
people take each day, from Board
level through to AI Technicians out on
customer farms. This is a pioneering
business and there have been some
in-depth discussions and complex
decisions to take, as Genus pushes
forwards into new areas. Following
my appointment as Audit Committee
Chair in November 2016, I have been
impressed by the quality of debate
around business and financial risks
and our internal control procedures.
“I want to take this opportunity to
thank my fellow Board members and
the management team, for welcoming
me into the business and ensuring
I had an excellent induction.”
49
Lykele van der Broek
Non-Executive Director
Lysanne Gray
Non-Executive Director
CORPORATE GOVERNANCE Genus plc | Annual Report 2017 Corporate Governance Statement
LEADERSHIP
AN INDEPENDENT BOARD
2
1
4
Executive Directors
Independent Non-Executive Chairman
Independent Non-Executive Directors
The Board’s Role
The Board, under the Chairman’s
leadership, is responsible for ensuring
our 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 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;
ensuring we have the right funding;
approving material contracts,
acquisitions and investments;
and reporting to shareholders.
The Board’s Composition
Following Mike Buzzacott’s retirement
at the 2016 AGM, the Board now
comprises five independent NEDs,
including the Chairman, and two
Executive Directors – the Chief
Executive and the Group Finance
Director. This gives us a majority of
independent Directors on the Board.
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.
NON-EXECUTIVE TENURE ON THE BOARD
MORE THAN 9 YEARS
6 TO 9 YEARS
3 TO 6 YEARS
1 TO 3 YEARS
1
1
1
2
00.0
A BROAD BASE OF RELEVANT EXPERIENCE
INTERNATIONAL BUSINESS
FINANCE
SCIENTIFIC / BIOTECH
FOOD INDUSTRY
1
3
3
6
00.0
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
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
Responsibilities
Chairman
Bob Lawson
Chief Executive Karim Bitar
Group Finance
Director
Stephen Wilson
Senior
Independent
NED
Nigel Turner
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 NEDs without the Executives present. Bob is also
responsible for the Board’s communications with shareholders.
Karim is responsible for devising and implementing our strategy and
managing our 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 NEDs, without the Chairman present, to appraise
the Chairman’s performance, and consults with shareholders in the
absence of the Chairman and Chief Executive.
Lysanne Gray,
Duncan Maskell,
Lykele van der Broek
The NEDs constructively challenge and provide oversight and assistance
in the progression of our execution of strategy, management of the
Company and management of our governance structures, within the risk
and control framework set by the Board.
NEDs
50
Genus plc | Annual Report 2017
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. Several of our
Directors, including the Chair of the
Audit Committee, have significant
financial experience, while others 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. More
information about our approach to
Board composition and recruitment
can be found in the Nomination
Committee report on pages 55 to 56.
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 47, the Board also confirms
that all the Directors continue to
be effective and to demonstrate
commitment to their roles.
As required by the Code, all the
Directors will offer themselves for
election at the next Annual General
Meeting (‘AGM’). 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 tenth anniversary
of his original appointment as a
NED in January 2018. Following
review, the Board is satisfied that
Nigel remains independent and
that he has no connection with the
Company’s operational activities.
Board and Committee Structure
The diagram below shows the Board and the Committees that report to it.
Executive Committees
Information about the GELT and the
R&D PMT can be found on pages
44 to 45 and page 48 respectively.
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 34
to 39, and at www.genusplc.com.
R&D PMT
Gives us a
comprehensive
view of our R&D
programme and
involves our business
units in prioritising
our R&D initiatives.
GELT
Leads our
strategic delivery
and ensures
organisational
alignment,
engagement and
efficient execution.
AUDIT
COMMITTEE
Ensures the integrity
of our financial
reporting, evaluates
our risk management
and internal control
system, and oversees
the internal and
external auditor.
GENUS PLC
BOARD
CSR
COMMITTEE
Ensures that the
Group continues to
engage in business in
a socially responsible
and ethical manner.
REMUNERATION
COMMITTEE
Determines
remuneration for our
Executive Directors and
senior management,
to support our growth
strategy and
deliver value for
stakeholders.
NOMINATION
COMMITTEE
Reviews the Board’s
structure, size
and composition
and proposes
candidates for
appointment to
the Board.
Board Committees
The table below shows Board Committee membership:
Director
Bob Lawson
Karim Bitar
Nigel Turner
Lysanne Gray
Duncan Maskell
Lykele van der Broek
M = Committee member C = Committee Chair
Committee
Audit
Nomination
Remuneration
–
–
M
C
M
M
C
M
M
M
M
M
M
–
C
M
M
M
The Committee Chairs oversee and
lead the Committees’ activities,
within their terms of reference, and
are responsible for their effective
operation. More information about
the roles and work of the Board
Committees can be found in their
statements on pages 55 to 81, and
in their terms of reference on our
website at www.genusplc.com.
51
CORPORATE GOVERNANCE Genus plc | Annual Report 2017
Corporate Governance Statement continued
LEADERSHIP CONTINUED
Attendance at Board and Committee Meetings
The table below shows how many Board and Committee meetings each Director attended during the year.
Director
Board
Nomination
Audit
Remuneration
Non-Executive Chairman
Bob Lawson
Executive Directors
Karim Bitar
Stephen Wilson
Non-Executive Directors
8 (8)
3 (3)
8 (8)
8 (8)
3 (3)
31
51
51
51
6 (6)
61
61
Nigel Turner
8 (8)
3 (3)
5 (5)
6 (6)
Mike Buzzacott
(retired on 17 November 2016)
Lysanne Gray2
Duncan Maskell3
Lykele van der Broek
3 (3)
7 (8)
8 (8)
8 (8)
1 (1)
3 (3)
2 (3)
3 (3)
3 (3)
5 (5)
4 (5)
5 (5)
3 (3)
5 (6)
6 (6)
6 (6)
Note: Figures in brackets are the maximum number of Board or Committee meetings the Director could
have attended.
1 Attendance by invitation.
2 Due to prior commitments pre-appointment, Lysanne Gray was unable to attend the November 2016
Board and July 2016 Remuneration Committee meetings. However, Lysanne was provided with all
Board and Committee materials and submitted feedback via the Board and Committee Chairs prior
to the meeting.
3 Due to prior commitments pre-appointment, Duncan Maskell was unable to attend the November
2016 Audit and Nomination Committee meetings. However, Duncan was provided with all Committee
materials and submitted feedback via the Committee Chairs prior to the meetings.
risks 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 12 and 13.
The Board performed its annual risk
review in May 2017. This involved
reviewing 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 ascertain 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 the:
• litigation relevant to the GSS
project and preparation for market
launch of its products and services;
• in-licensing of IP rights, particularly
those relating to gene editing
assets;
• IT resilience and cyber security;
and acquisition; 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.
MEETINGS
8BOARD
3NOMINATION
COMMITTEE
MEETINGS
COMMITTEE
MEETINGS
5AUDIT
6REMUNERATION
COMMITTEE
MEETINGS
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 our risk
appetite, which defines the types
and levels of risks that the Board is
prepared to seek and accept as the
Group executes its strategy.
The Board then monitors our risk
exposure against the appetite for
our principal risks and ensures
appropriate executive ownership
for all risks. This on-going process
for identifying, evaluating and
managing the Group’s significant
52
Genus plc | Annual Report 2017 The review considered our internal
control self-assessment process,
which is 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.
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
our risk exposure against risk
appetite, for our principal risks.
• Provides direction on the
importance of risk management
and the risk management culture.
GELT
• Identifies, addresses and mitigates
risks Group-wide.
• Monitors our risk management
process and internal controls.
Audit Committee
• Supports the Board in monitoring
risk exposure against risk appetite.
• Reviews the effectiveness of our
risk management and internal
control system.
Risk Management and Internal
Audit Function
• Oversees the risk management
process and provides guidance on
risk management.
• Maintains the risk schedule created
in consultation with senior
management.
• Engages with senior management,
to review risks and their mitigation.
Our Internal Control System
The key elements of our internal
control systems are set out below.
An internal control system cannot
completely eliminate the risks we
face or ensure we do not have a
material misstatement or loss.
Management Structure
The Board sets formal authorisation
levels and other controls that allow
it to delegate authority to run our
businesses to the Chief Executive,
GELT and their management teams.
Our management supplements these
controls by setting the operating
standards that each subsidiary
needs for its business and location.
GELT regularly reviews our
performance against strategy, budget
and a defined set of operational
key performance indicators. The
Chief Executive, Group Finance
Director, Group General Counsel and
Company Secretary, and the Group
Financial Controller also hold monthly
reviews with each business unit.
Quality and Integrity of Our People
We strive to operate with high
integrity in everything we do. Our
control environment depends on
high-quality people who maintain
our ethical standards. We ensure
our people’s ability and integrity
through our recruitment standards,
training and consistent performance
management. The Board is informed
of 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 its work
programme, performs independent
reviews of these assessments
to identify any deficiencies in
our controls and how we should
address them. The external auditor
also provides observations on
the control environment as part
of its audit work. The results are
communicated to senior management
and the Audit Committee.
53
CORPORATE GOVERNANCE Genus plc | Annual Report 2017 Corporate Governance Statement continued
RELATIONS WITH SHAREHOLDERS
Investor Relations Calendar
Date
Type of communication
September 2016
September 2016
November 2016
November 2016
February 2017
Preliminary results announcement and presentation
Preliminary results investor roadshow
London, Edinburgh
Investor Conference
AGM and trading update
Interim results announcement and presentation
London
London
London
Location
London
February and March 2017
Interim results investor roadshow
Calls
Investor calls
London, Edinburgh
London, New York, Paris
INSTITUTIONS
AND POTENTIAL
INVESTORS MET
30NON-HOLDING
59%PROPORTION OF
20NUMBER OF TOP
SHARES HELD BY
INSTITUTIONS MET
DURING YEAR
25 SHAREHOLDERS
MET (8 OF TOP 10)
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. These meetings
usually take place after we release
our interim and preliminary results.
During the year, our investor relations
programme included meetings in
the locations 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.
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 16 November 2017.
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 and our
initiatives to address them;
• strategic progress across the
Group;
• R&D progress and our increased
spending to accelerate the
programme;
• progress in ABS through the
De Novo and IVB acquisitions;
• capturing a share of the value
we deliver to customers;
• the Hermitage acquisition;
• the opportunity for PRRSv
resistant pigs; and
• updates on the GSS litigation.
Note: Shareholdings as at 30 June 2017.
54
Genus plc | Annual Report 2017 Nomination Committee Report
EFFECTIVENESS
A WELL-BALANCED
BOARD
Introduction
The Nomination Committee reviews the Board’s structure, size and
composition and manages appointments to the Board. This year, the
Committee continued to focus on succession planning for the Board,
by reviewing the Directors’ skills and experience and identifying areas
to consider for future appointments. This Committee’s approach
recognises its critical role in ensuring the Company has an effective
and well-balanced Board.
Bob Lawson
Chair of the Nomination Committee
6 September 2017
THE COMMITTEE CONTINUED
TO FOCUS ITS EFFORTS ON
SUCCESSION PLANNING FOR
THE BOARD
Committee Composition and Governance
Focus areas 2017
Chair
Members
Bob Lawson Nigel Turner
Duncan Maskell
Lykele van der Broek
Lysanne Gray
Karim Bitar
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
Non-Executive and Executive
Directors and other senior
executives; and
• identifying and recommending
suitable candidates to become
Directors, based on merit.
The Committee met three times in the year, primarily to discuss the
Board’s current skills and experience, and succession planning.
• Continued succession planning
• Ongoing review of diversity and
mix of skills to identify any current
skills gap
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.
The Committee’s biographies, along
with information on Genus’s other
Board members, can be found on
pages 42 to 43.
55
CORPORATE GOVERNANCE Genus plc | Annual Report 2017 Nomination Committee Report continued
EFFECTIVENESS CONTINUED
The Committee’s Main Activities During the Year
Succession Planning Process
In 2016, the Committee formalised and committed to a three-phase
succession planning process:
ASSESSMENT
APPROACH
EXECUTION
Board Skills Matrix and Experience
Engagement Rules
Appointments
• As part of the Approach phase:
• Desired skills for any new
Non-Executives have been
identified, for use in filling any
future vacancies on the Board.
• Potential internal candidates for
promotion to Executive Director.
– Engagement rules were developed
for use in succession planning,
including:
> succession planning in line with
the Committee’s terms
of reference;
> considering the skills
of any departing NED for
replacement; and
> filling any skills deemed to be
missing or required for the
Company’s future strategic
direction.
– Job specifications for the Non-
Executives and Executives have
been updated.
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.
Service Contracts and Letters
of Appointment
Copies of service contracts and letters
of appointment between the Directors
and the Company will be available
for inspection at the Company’s
registered office during normal
business hours until the conclusion
of the AGM on 16 November 2017,
and at the AGM from at least 15
minutes prior to the meeting until
its conclusion.
• As part of the Assessment phase,
which was formalised last year
following an in-depth review and
discussion, the Committee has
mapped out the Board’s current
skills and experiences across a
range of relevant areas.
• This resulted in a skills matrix,
which identified good skills
coverage from all Board members.
• Potential skills gaps were
identified, so they can be
incorporated into future
succession planning at Board and
Executive level.
• Areas for ongoing Board upskilling
were identified and discussed.
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. Genus will
continue to make all Board
appointments based on individual
merit. The Committee reviewed the
Board diversity policy during the year
and concluded that it remained
appropriate for Genus.
More information about diversity
across Genus can be found in the
Strategic Report on page 34.
56
Genus plc | Annual Report 2017 Audit Committee Report
ACCOUNTABILITY
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
Committee Composition
and Governance
Chair
Members
Lysanne Gray Nigel Turner
Duncan Maskell
Lykele van der Broek
Focus areas 2017
• Biological assets valuation
• Goodwill and intangible assets
• Pensions
• Presentation and disclosure of
exceptional and adjusting items
57
CORPORATE GOVERNANCE Genus plc | Annual Report 2017Dear ShareholderThis is my first report as Chair of the Audit Committee. I joined the Board and the Committee in April 2016 and became Chair of the Committee in November 2016. During my first year, I underwent a thorough induction programme, which involved meetings with the global management team and visits to both Group and customer sites, to better understand the business operations and industry sector. I also had meetings with the Group’s external auditor and invested time to learn about the Group’s system of risk management and internal control.The Audit Committee acts on behalf of the Board and shareholders, to ensure the integrity of the Group’s financial reporting, evaluate its system of risk management and internal control, and oversee the performance of the internal and external auditors. We have an annual work programme that is designed to deliver these commitments.I am happy to report that the Committee’s 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 Board members, are in the Corporate Governance Statement of this Annual Report.During the financial year, we focused on risk management, internal control and the Group’s financial reporting processes. We have supported the Board in monitoring the risk management process 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, 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.Lysanne GrayChair of the Audit Committee6 September 2017
Audit Committee Report continued
ACCOUNTABILITY CONTINUED
The Committee’s members are NEDs
with a wide range of financial,
commercial and scientific research
expertise, appropriate for fulfilling
the Committee’s duties. In 2017, the
Committee met the UK Corporate
Governance Code’s requirement that
at least one Committee member
should have recent and relevant
financial experience, with Lysanne
Gray 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.
The Committee agreed to enhance its
effectiveness by further emphasis on
broadening the Committee’s
knowledge on financial matters.
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 Annual Report to ensure it is
fair, balanced and understandable;
• 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 Group maintains
suitable confidential arrangements
for employees to raise concerns; and
• reviews the Group’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
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
In compliance with IAS 41, Genus records its biological assets at fair value in the Group balance
sheet (£375.3m), 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 £27.4m in the value of porcine biological assets and the reduction of £28.5m
in the value of bovine biological assets.
Genus has £104.7m of goodwill and £88.3m 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 £20.9m of capitalised development expenses in respect of GSS, as well as
£9.3m in associated fixed assets. The Committee discussed management’s goodwill and intangible
asset impairment reviews, as well as 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 recognition of £5.7m
as an exceptional credit, as a consequence of NMR withdrawing from the MPF. The Committee also
continued to review the status of the other parties who are jointly and severally liable for the MPF
deficit and concurred with management’s assumptions for reporting Genus’s share of the fund.
Genus had £16.9m of adjusting items including £2.5m of exceptional items in the Group income
statement. The Committee gave consideration to the presentation of these items in the financial
statements this financial year due to the nature of these items and the recent guidelines on the
use of alternative performance measures issued by the European Securities and Markets Authority.
The Committee received detailed reports from management outlining the judgements applied
in relation to the disclosure of adjusting items which include net IAS 41 valuation movement on
biological assets, amortisation of acquired intangible assets, share-based payment expense and
exceptional items. For adjusting items the Committee took into consideration their volatility and
lack of correlation to the underlying progress and performance of the business. Specifically for
exceptional items, the Committee took into consideration the materiality, frequency, and nature of
the items. Following this detailed review and active discussion with management, the Committee
has concluded that the presentation of the financial statements is appropriate.
Biological assets
valuation
Goodwill and
intangible assets
Pensions
Presentation
and disclosure of
exceptional and
adjusting items
58
Genus plc | Annual Report 2017 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 Group’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 45% of audit fees, and
reviewed compliance with the Group’s
Non-Audit Services by Auditor Policy
(see note 8 to the financial statements
for further details). The Committee
was satisfied that using Deloitte for
such services did not impair its
independence as the Group’s external
auditor.
The Committee assessed the external
auditor’s performance in conducting
the audit for the June 2016 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.
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 and product
trials, as well as the legal
proceedings relating to the anti-
trust and patent issues connected
with this key initiative.
• Gene-editing technology: this is
the risk that we fail to successfully
develop and commercialise gene
editing technologies due to
technical, IP, market, regulatory or
financial barriers. The Board was
updated regularly on the
development of our gene editing
capabilities.
• Pensions: the Board was updated
on the status of discussions with
the Milk Pension Fund in relation
to the outcome of the triennial
valuation and the NMR Flexible
Appointment Agreement (FAA).
• Enterprise systems: the Board
reviewed plans to replace the
ageing existing multiple enterprise
systems across the Group with a
single integrated best in class
cloud-based solution to improve
effectiveness and efficiency.
• IT resilience and cyber security:
the Committee received updates
from the global Chief Information
Officer on the Group’s IT recovery
and continuity plans, as well as the
effort to strengthen infrastructure
and systems security and the
implementation of Group wide
cyber security measures.
• H&S: the Board received updates
on the controls and mitigation
activities in place and/or being
implemented to manage this risk,
both on Group and third-party
premises.
The Committee also received an
update on supply chain risks.
Internal Control System
Our risk management process and
system of internal controls are
described in detail on pages 52
and 59. 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 every
six months. The Committee further
reviewed internal audit’s findings
at each scheduled meeting, and
the Group’s whistleblowing 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 implements control improvement
opportunities and the Committee
discussed with management various
opportunities to further strengthen
the Group system of internal control.
Oversight of External Audit
and Internal Audit
Internal Audit
The Committee reviewed and agreed
the internal audit function’s scope,
terms of reference, resources and
activities. The Head of Risk
Management and Internal Audit
provided regular reports to the
Committee on the work undertaken
and management’s responses to
proposals made in the internal audit
reports issued during the year. The
Committee continued to meet the
Head of Risk Management and
Internal Audit without management
being present. The Committee
reviewed and was satisfied with the
internal audit function’s performance.
External Audit
The FRC’s Audit Quality Review
Team (‘AQRT’) selected to review
the audit of the Company’s financial
statements as part of its 2016 annual
inspection of audit firms. The Chair of
the Committee received a full copy of
the findings of the AQRT and discuss
ed these with Deloitte. There were
no significant areas for improvement
identified within the report. We
are satisfied that there is nothing
within the report which might have a
bearing on the audit appointment.
59
CORPORATE GOVERNANCE Genus plc | Annual Report 2017 Director’s Remuneration Report
Section A: Annual Statement
STRONGPROGRESSMADEDELIVERING
AGAINSTOURSTRATEGY
Letter from the Chairman
Dear Shareholder
On behalf of the Board, I am
pleased to present the Directors’
Remuneration Report for 2017.
Our Remuneration Policy
Shareholders will be aware that
we proposed a new remuneration
policy (‘Remuneration Policy’) for
approval at our 2016 AGM. This was
a year ahead of the next scheduled
binding vote. We concluded that
changes were necessary to ensure we
maintain momentum as the business
transitions to being an agricultural
biotechnology pioneer. The
amendments to the Remuneration
Policy improve our ability to recognise
the strategic progress we make
as the organisation evolves, and
promote stable leadership through an
important period for the business.
We were pleased to receive such high
levels of support from shareholders for
these changes, with over 96% of
shareholders who voted backing the
new policy. We were encouraged also
by shareholders’ desire to understand in
more detail our strategy and plans for
the years ahead and these are covered
elsewhere in the Annual Report.
Transparency with Shareholders
We are committed to reporting
transparently to shareholders on
remuneration. During the year our
previous remuneration disclosure
was ’Highly Commended’ at the 2016
Building Public Trust in Corporate
Reporting Awards. We are committed
to helping shareholders to understand
the factors we consider in developing
and implementing our Remuneration
Policy. This extends to helping people
see the rationale behind decisions and
the way this supports the business
strategy, so we focus on why we have
made certain decisions as well as
the outcome of the decision itself.
Business Performance and Reward
Outcomes for 2017
We have made strong progress this
year on delivering against our three
part strategy. We made significant
steps in increasing genetic control and
product differentiation. As we flagged
last year, this was a year of additional
investment in R&D, and we have seen
real progress on our work in gene
editing, with the PRRSv resistant pig
project hitting its key milestones. In
PIC, genetic improvement exceeded
its targets and met the dissemination
targets. With the establishment of the
De Novo joint venture with De-Su, we
have created a world leading dairy
genetic improvement programme.
IVB continued its growth. In ABS
we gained a permanent injunction,
enabling us to go to market with our
proprietary sexing technology, and
achieved scaling up of production to
deliver cost effectively at volume.
In targeting key markets and
segments, we saw volume and
royalty growth in PIC, with a strong
performance in Asia, particularly
China, and robust growth in Europe.
PIC met its targeted operating profit
Annual bonus –
Core Element
• Adjusted profit before tax
growth of 3.6% in constant
currency
• Strong cash generation
• Good progress against
personal targets
Annual bonus –
Company Milestones
• Ability to launch
sexed semen technology
18.1%
0%
0%
• Total award of 45.6%
of maximum. One
quarter of this award is
made in shares deferred
for three years
TARGET 50%
45.6%
50%
100%
90%
100%
50%
100%
• Total award of 80% of
maximum available,
all deferred into shares
for three years
Long-term – Performance Share
Plan (‘PSP’)
• Three-year average adjusted
earnings per share growth
of 16.4%
• Strong share price growth
over the performance period
ANNUAL EARNINGS
PER SHARE 6%
AWARDS
VESTING 20%
20%
ACTUAL
16.4%
ANNUAL EARNINGS
PER SHARE 20%
ACTUAL
79.4%
AWARDS
VESTING 100%
100%
• 79.4% of the PSP award
vested for both
Executives
60
Genus plc | Annual Report 2017PROFIT BEFORE TAXPERSONAL OBJECTIVESCASH GENERATIONOVERALL% OF MAXIMUM AWARD% OF MAXIMUM AWARDCOMPANY MILESTONE80%% OF AWARD VESTINGBUSINESS ACHIEVEMENTREMUNERATION TARGETSOUTCOMES FOR EXECUTIVES
growth. ABS’s performance for the
year as a whole was disappointing,
not meeting its volume growth or
operating profit targets. However,
actions were taken in H1 to
address this, and we have seen
improving performance in H2.
The final part of the strategy – sharing
in the value we are creating – saw
good cash generation across the
business. Tight control of cash, close
management of working capital and
actions to return cash from joint
ventures resulted in a full award in
this element of the annual bonus.
The way that business and individual
performance has fed through to
reward outcomes is highlighted below
and covered in detail within the
wider Remuneration Report. As a
Committee we recognise the natural
tension between growing the business
year on year and investing for the
future. The Long Term Incentive Plan,
in which the sole measure is adjusted
earnings per share, requires the
Executives to manage both elements.
Over the three year period, we were
pleased to see strong adjusted
earnings per share growth, and
continue to believe adjusted earnings
per share is a key metric to measure
long term business performance.
Annual Bonus (Core Bonus Elements)
Profit before tax: In constant currency
our adjusted profit before tax grew by
3.6% excluding gene editing costs.
This resulted in an award of 18.1% of
maximum under this section of the
Core Bonus.
Cash Generation: The strong free
cash flow performance in the year
significantly exceeded the stretch
target, resulting in full awards under
this part of the Core Bonus.
Personal Objectives: We have
assessed the performance of both
Executive Directors against the
personal targets that were set for
them. Awards of 90% of maximum
were made to the Chief Executive
and Group Finance Director.
Overall, the combination of Company
and individual performance meant
that 45.6% of this Core Bonus
opportunity will be payable. Of this,
one quarter will be awarded in shares
in Genus plc under the Deferred
Share Bonus Plan (‘DSBP’) which
will be deferred for three years.
Annual Bonus (Company Milestones)
The revised Remuneration Policy
provides flexibility to recognise key
strategic events, and to reward and
retain key individuals who were
instrumental in making them happen.
We agreed that the ability to launch
our sexed semen technology would
represent such a milestone. This
technology has been in development
for a number of years and represents
a significant opportunity to generate
future value for shareholders. Getting
to a position where we can launch has
required us to overcome significant
barriers, covering areas such as legal
freedom to trade, development of
production processes to deliver
successfully at scale, and creating
the internal capability to sell across a
diverse customer base. Many of these
aspects are described elsewhere
in the Annual Report. In summary,
we have made strong progress in
creating freedom to operate and have
successfully demonstrated the ability
to produce at scale cost effectively.
We have now launched in 2018 and
the Committee therefore judged that
80% of the award under the Company
Milestones should be made to each
Executive Director. As previously
communicated, these will be awarded
in shares deferred for three years.
Overall, the structure of the bonus
awards and use of deferred shares
means that a significant proportion
of the annual bonus award will be in
shares deferred for three years. When
considering the combined position
of the Core Bonus and Company
Milestone elements, 63.5% of the
total annual bonus award will be
deferred into shares for three years
for the Chief Executive, and 55.9%
for the Group Finance Director.
Long Term Awards
Awards under our 2014 Performance
Share Plan (‘2014 PSP’) granted in
November 2014 will partially vest on
the third anniversary of grant. Vesting
was linked to adjusted earnings per
share performance and the calculation
was performed after adjustment for
costs relating to our gene editing
programme as explained in the Annual
Report last year and elsewhere within
this document. The average adjusted
earnings per share growth rate over
the period was 16.4% resulting in
79.4% of the share award vesting.
During the period we have seen
significant growth in the share price
of Genus plc which rose 49.2%
between award and the end of the
performance period: this is reflected
in the number in the single figure
table within the Report. Under the
terms of the scheme, Executive
Directors will be required to hold onto
the post-tax number of vested shares
for a minimum of a further two years.
Employee engagement and reward
Following regular engagement with
employees around the world on their
performance during the year, senior
management reviews annually their
salaries and benefit provision, which
is benchmarked to the local markets
in which people work. There is a
clear linkage between performance
and reward which is recognised
through annual bonuses, commission
or non-financial recognition. Each
year we make share awards to a
number of senior leaders in the
business, designed to recognise the
contribution people are making,
align them to our success and
support retention of key talent.
We are aware of the developing
regulatory environment on pay
in the UK, Europe and the US,
and we will continue to monitor
this over the coming year.
Looking forward to 2018
We will operate under the agreed
Remuneration Policy in 2017/18. We
have decided to include the Company
Milestones within the structure of
the annual bonus for the coming
year. This is in line with the agreed
Remuneration Policy and awards will
be made if specific identified strategic
milestones are achieved during 2018.
Due to commercial sensitivity we will
disclose these in the next Directors’
Remuneration Report, along with the
level of any award as determined by
the Committee. There are no changes
to the way we propose to implement
the Remuneration Policy in 2018.
As always I would like to thank
shareholders for their support. We
try to make our disclosures as easy
to read as possible, while fulfilling our
disclosure obligations. If you have
any feedback I can be contacted at
remunerationchair@genusplc.com.
I look forward to your support at our
forthcoming AGM.
Nigel Turner
Senior Independent Non-Executive
Director and Chair of the
Remuneration Committee
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 ‘auditable parts’ of the Directors’
Remuneration Report state whether, in his
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.
61
CORPORATE GOVERNANCE Genus plc | Annual Report 2017 Annual Report on Remuneration
Section B: At a Glance
(For more detail please see pages 65 to 76)
WHAT EXECUTIVE DIRECTORS WERE PAID IN 2017:
1
2
Base salary and benefits
• Salaries were effective 1 July 2016
• Benefits include a car allowance and a
pension allowance of 25% of base for
Chief Executive and 15% for Group
Finance Director
Annual bonus –
Core Element
• Maximum opportunity 125% of salary
comprising 80% adjusted profit before
tax, 20% Cash Generation and 25%
personal objectives
• Overall award 45.6% of maximum
• 25% of total award under this element
made in shares deferred for three years
3 Annual bonus –
Company Milestones
• Maximum opportunity of 75% of salary for
Chief Executive and 50% of salary for
Group Finance Director
• Company Milestones linked to sexed
semen technology. 80% of maximum
award made to Chief Executive and
Group Finance Director (60% and 40%
of salary respectively)
• All awards to be made in shares deferred
for three years
4
PSP
• Awards vested at 79.4% of maximum
based on average annual adjusted
earnings per share growth achieved
of 16.4%
Chief Executive Karim Bitar
Group Finance Director Stephen Wilson
BASE SALARY
£548,114
BENEFITS
£159,769
BASE SALARY
£371,423
BENEFITS
£68,945
Company performance
Target 50%
PBT
CASH GENERATION
PERSONAL OBJECTIVES
OVERALL
0%
Executive outcome
45.6%
90%
CORE ELEMENT
£312,315
MAX. OPPORTUNITY
£685,142
CORE ELEMENT
£211,637
MAX. OPPORTUNITY
£464,278
Company performance
COMPANY MILESTONES
Executive outcome
80%
100%
100%
100%
COMPANY MILESTONE
£328,868
MAX. OPPORTUNITY
£411,085
COMPANY MILESTONE
£148,569
MAX. OPPORTUNITY
£185,712
Company performance
6%
20%
ACTUAL
16.4%
ACTUAL
79.4%
20%
100%
Total shares released 68,499
Total shares released 40,615
Executive outcome
INDICATIVE VALUE
£1,248,0211
INDICATIVE VALUE
£739,9941
1 Calculated based on the average share price for the final quarter of financial year ended
30 June 2017 (1,821.95p)
5
Total remuneration breakdown
Chief Executive Karim Bitar
Group Finance Director Stephen Wilson
TOTAL
£2,597,087
£1,540,568
PERFORMANCE
SHARES
COMPANY
MILESTONES
CORE
ELEMENT
BASE SALARY
AND BENEFITS
£1,248,021
£328,868
£312,315
£707,883
£739,994
£148,569
£211,637
£440,369
62
Genus plc | Annual Report 201718.1%% OF MAXIMUM AWARDANNUAL ADJUSTED EPS% OF AWARD VESTING
WHAT EXECUTIVE DIRECTORS CAN EARN IN 2018 AND HOW:
1
2
3
4
Base salary
• Salaries were increased by 1.5% from
1 September 2017, with new values of
£556,336 and £376,994. The previous
pay review date was July and there was
no backdating of awards
• No changes to benefits items provided
Annual bonus –
Core Element
The measures for the Core Bonus element
will remain unchanged
• Adjusted profit before tax growth
g 80% of salary
• Cash generation g 20% of salary
• Personal objectives g 25% of salary
For the adjusted profit before tax growth,
target bonus requires 10% growth and
maximum requires 15% growth in constant
currency
Annual bonus –
Company Milestones
• The Remuneration Committee has
determined that this element will
be included in the reward structure
for 2018
• Due to commercial sensitivity, this
will be disclosed retrospectively in
the 2018 Annual Report
• All awards to be made in shares
deferred for three years
PSP (September 2015 awards)
• The vesting of these awards depends
on the adjusted earnings per share
(excluding gene editing costs) achieved
in the three financial years ending
30 June 2018
PSP (September 2017 awards)
• The vesting of these awards will be
subject to an adjusted earnings per
share growth, with the 2020 earnings
per share being compared to the 2017
adjusted earnings per share (excluding
gene editing costs)
• 5% annual growth g threshold
20% vesting
• 15% annual growth g 100% vesting
• Vesting levels will be calculated on
a straight line basis between the
above values
Chief Executive Karim Bitar
Group Finance Director Stephen Wilson
BASE SALARY
£554,965
BENEFITS
£161,241
BASE SALARY
£376,066
BENEFITS
£69,410
Maximum of 125% of salary, Target award of 62.5% of salary
ADJUSTED PROFIT BEFORE
TAX GROWTH g 80% OF SALARY
CASH GENERATION g 20% OF SALARY
PERSONAL OBJECTIVES g 25% OF SALARY
Maximum award of 75% of salary
for Chief Executive
Maximum award of 50% of salary
for Group Finance Director
SHARES WORTH
UP TO 75% OF SALARY
0%
Max
SHARES WORTH
UP TO 50% OF SALARY
75%
0%
Max
50%
Chief Executive –
award (shares)
Group Finance Director –
award (shares)
UP TO 78,850 SHARES
UP TO 46,753 SHARES
Award to Chief Executive
of 200% of salary
Award to Group Finance Director
of 175% of salary
5%
20%
15%
100%
63
CORPORATE GOVERNANCE Genus plc | Annual Report 2017ANNUAL ADJUSTED EPS% OF AWARD VESTING Annual Report on Remuneration continued
Section C: Remuneration and Performance Statement
Genus’s Strategy and its Link to Performance-Related Pay
See pages 77 to 81 for a summary of our Remuneration Policy agreed by shareholders in 2016. Our strategy and the way
this is linked to variable reward is shown below.
INCREASE GENETIC
CONTROL AND PRODUCT
DIFFERENTIATION
SUCCESS
MEASURED BY
R&D AND BUSINESS
INNOVATION
LINK TO
REMUNERATION
POLICY
TARGETING KEY
MARKETS AND
SEGMENTS
SHARING IN THE VALUE
DELIVERED
PROPRIETARY GENETIC
IMPROVEMENT AND
DISSEMINATION POSITIONS
VOLUME GROWTH
OPERATING PROFIT
CASH CONVERSION
Specific events are
captured through the
Company Milestone
element of the annual
bonus (where awarded).
Personal objectives within
the Core Element of the
annual bonus recognise
wider progress than
financial measures alone
Measured through the
profit element of the
annual bonus
Over the longer term will
flow into EPS, used to
determine vesting under
the PSP
Measured through the
cash element of the
annual bonus
Performance Components and Their Impact on Remuneration
2016
2017
Movement %
Impact on remuneration
Adjusted results
Revenue
£388.3m
£459.1m
18
Input to annual bonus profit and earnings per
share in PSP.
Adjusted profit before tax
Generation of free cash flow
£49.7m
£15.7m
£56.4m
£25.4m
Adjusted earnings per share
Dividend per share
60.7p
21.4p
69.4p
23.6p
13 Annual bonus measure.
62 Annual bonus measure; performance reflects
increased cash from operations, lower taxes paid
and higher receipts from joint ventures.
14 PSP performance condition.
10 Executives rewarded via dividend equivalent
feature of deferred bonuses and PSP awards.
Share price at year end
1,565p
1,780p
14 Determines the value of deferred bonuses and
PSP 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 and in line with our
Remuneration Policy.
Executive Directors’ Alignment to Share Price
The table below shows the value of shares held by the individual, or awarded under the Deferred Share Bonus Plan
(‘DSBP’), but not yet released (on a post-tax basis). It does not include awards under the PSP scheduled to vest in the
future subject to Company performance (earnings per share), which has potential to significantly increase the alignment
of the Executives, subject to the resulting level of vesting of awards.
Shares
awarded
under
the DSBP
(post-tax)
Shares
owned
Total share
exposure
Indicative
value on
1 July
2016
(£)1
Indicative
value on
30 June
2017
(£)2
Difference
(£)
Consequence
of a +/- £2
share price
change
(£)
Chief Executive
65,353
12,480
77,833
1,192,402
1,418,078 225,676
155,666
Group Finance
Director
16,214
8,560
24,774
379,538
451,370
71,832
49,548
1 Value calculated using the average share price for the final quarter of the financial year ended 30 June 2016 (1,532p).
2 Value calculated using the average share price for the final quarter of the financial year ended 30 June 2017 (1,821.95p).
Conclusion
Executives
remain aligned
to share price
64
Genus plc | Annual Report 2017
Section D: Annual Report on Remuneration
Introduction
We comply with extensive legal and best practice disclosure obligations in this section of the Directors’ Remuneration
Report, which is subject to an advisory vote at the 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 2017.
2. What the Executive Directors Can Earn in 2018.
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 Eight 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 Executive Directors’ Contracts and Non-Executive Directors’ Letters of Appointment.
1. What the Executive Directors Were Paid in 2017
Executive Directors’ Single Total Remuneration Figure (Audited)
The following table shows a single total figure of remuneration for the 2017 financial year for each of the Executive
Directors and compares this figure to the prior year.
Salary
and fees
£000s
548
537
371
364
Year
2017
2016
2017
2016
Benefits1
£000s
Pension2
£000s
Subtotal
for fixed
pay
£000s
Annual
bonus3
(Core
Element)
£000s
Annual
bonus
(Company
Milestone)4
£000s
23
23
13
14
137
134
56
55
708
694
440
433
312
526
212
356
329
149
Subtotal
for
variable
pay
£000s
1,889
1,010
1,101
618
PSP5
£000s
1,248
4846
740
2626
Total
£000s
2,597
1,704
1,541
1,050
Karim Bitar
Stephen Wilson
1 Benefits include a car allowance of £20,000 for Karim Bitar and £12,000 for Stephen Wilson. Insured benefits include life assurance, private medical
insurance and a medical screen.
2 Executive Directors receive a cash allowance in lieu of pension, which is shown in the Pension column.
3 Bonus earned includes the 25% of the Core Bonus element which is deferred into Company shares.
4 All awards under the Company Milestone element are made in shares deferred for three years.
5 The value of the PSP is determined by the number of awards vesting in relation to performance in the period ended 30 June 2017. Dividend equivalents are
not added to awards made under the PSP. The value shown for 2017 is based on the average share price for the final three months of the 2017 financial year
(which was 1,821.95p).
6 The 2016 values shown as estimated in the previous Annual Report have been restated to reflect the actual value at vesting. The share price was 1,926p on
27 September 2016 when awards vested for the Chief Executive and Group Finance Director.
How the Bonuses for 2017 Were Calculated
Annual Bonus: Core Element
The 2017 bonuses for Executive Directors were calculated by reference to performance against a challenging sliding scale
of profit, cash flow and personal targets. As in 2016 and as previously communicated to shareholders, 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.
Bonus target1
Strategic objective
Adjusted profit
before tax2
Generation of
free cash flow
Personal
objectives
Year-on-year
profit growth
Generate cash for
reinvestment
and dividend
To build the
foundation for
future growth
Proportion
of salary
(maximum)
Actual 2017
performance
Threshold
Target
Stretch
Extent to which targets were met
(%)
80%
£52.4m £50.6m £55.6m £58.2m
20%
£25.4m £12.4m £15.4m £18.4m
18.1%
100%
25%
See
page 66
Chief Executive 90%
Group Finance Director 90%
1 The financial elements of the bonus are payable on a straight-line basis between each threshold, target and stretch level.
2 Adjusted profit before tax in constant currency was £49.0m (actual currency was £56.4m). For purposes of measuring growth for the annual bonus the agreed policy
is to exclude gene editing costs which were £3.4m (2016: £0.9m), giving a 2017 performance of £52.4m. Without this adjustment the award level would have been
below threshold for this part of the bonus.
Overall extent to which targets for the Core Element of the annual bonus were met:
Chief Executive 45.6%
Group Finance Director 45.6%
65
CORPORATE GOVERNANCE Genus plc | Annual Report 2017 Annual Report on Remuneration continued
Section D: Annual Report on Remuneration continued
Personal Objectives
Performance against personal objectives related to targets set in a number of areas that included customers, people, and
product and service improvement. Retrospective disclosure of performance against these targets is as follows:
Payout against maximum
of 25% of salary
90%
Executive Director
Key achievements in the year
Karim Bitar
Customer
People
Product
and service
improvement
Achieved PIC targets on profit and new stockings, with
strong performance in Asia, specifically China, and robust
growth in the EU. Extended the royalty model in China,
with key integrated producers and penetrated large
customers in North America.
ABS: disappointing H1 was followed by stronger H2 after
interventions. Global volumes grew 1% and adjusted
operating profit declined by 13%.
IVB met targets, successful launch of Mexican and US
operations.
Beef opportunities analysed, and strategy approved:
execution of H2 plan.
Aligned people to strategy, with appointment of COO
Beef; integration of Asia into species business units
completed with no loss of performance; appointed ABS
Dairy COO to drive performance improvement; invested in
R&D, GSS and IVB to drive future revenue streams.
PIC genetic improvement exceeded its target and met its
regional dissemination targets.
PIC supply chain strengthened by strategic partnership
with Hermitage, taking advantage of its strong European
footprint; acquisition of Hermitage porcine genetics.
Targeted investment in gene editing with PRRSv project
meeting 2017 milestones.
Formed the De Novo joint venture with De-Su to produce
world class Holstein genetics.
Results
Acquired remaining 49% of IVB, now fully integrated
Genus business.
Stephen Wilson
Customer/
stakeholders
Sustained good relationships with the Company’s
shareholders.
90%
People
Further strengthening of team, specifically IT, with
appointment of new Group CIO and further strengthening
of the finance leadership.
Product
and service
improvement
Critical to successful year of business development with
acquisitions, licensing and partnerships, including De Novo
joint venture with De-Su, full acquisition of IVB through the
buyout, Hermitage acquisition and NMR.
Continued to improve internal finance controls.
Improved financial planning processes through
TM1 system.
Supported the ABS sales force with mobile technology
to support herd mating schedules.
Results
Maintained tight internal cost management disciplines and
cash flow management, risk management and controls.
66
Genus plc | Annual Report 2017 Annual Bonus: Company Milestones
The Committee included this element of the annual bonus for 2017 as disclosed in our 2016 Directors’ Remuneration
Report. We set a target related to securing the ability to deploy our sexed semen technology, producing our first product
(Sexcel) delivered to customers through our ABS business. This would represent the culmination of multiple years of
development and be the first case of Genus developing its own proprietary technology to offer to customers. The
Committee believed that this was fully in line with the intended purpose of the Company Milestone element: an example
of a significant strategic achievement that will change our industry and build long-term value for shareholders.
The maximum opportunity under the Company Milestone was an award of shares deferred for three years worth up to
75% of salary for the Chief Executive and 50% of salary for the Group Finance Director. The performance criteria and
resulting awards as determined by the Committee are as follows:
Performance criteria
Outcome/progress made
Resulting award
Remove threats and barriers
so the business can launch the
Genus sexed semen technology in
targeted markets
• Gained a permanent injunction enabling
freedom to launch new technology to
market
• Demonstrated that a competitor had wilfully
maintained a monopoly position within a
market
Deliver the production plan to
launch Sexcel
• Production facilities developed and tested
• Successfully ramped up production
• Targeted cost efficiency achieved
The Committee concluded
that 80% of the possible award
should be made for each of the
Executive Directors.
This corresponds to awards of
deferred shares worth 40% of
salary for the Group Finance
Director and 60% of salary for
the Chief Executive.
As a result of this performance, the total annual bonus (both the Core Element and Company Milestone) awarded to the
Executive Directors was:
Annual bonus:
Core Element
Annual bonus:
Company Milestone
Total bonus
Extent
to which
targets
were met
Cash
bonus
Deferred
shares
Extent
to which
targets
were met
Deferred
shares
Total
cash
Deferred
shares 1
Total
Karim Bitar
Stephen Wilson
45.6% £234,236
£78,079
80% £328,868 £234,236 £406,947 £641,183
45.6% £158,728
£52,909
80% £148,569 £158,728 £201,478 £360,206
1 The number of shares will be calculated in September when bonuses are paid.
How the Performance Share Plan Figure was Calculated in the Single Total Remuneration Table
Karim Bitar’s and Stephen Wilson’s PSP awards granted on 20 November 2014 were subject to a performance condition,
based on the growth in adjusted earnings per share from 2014 to 2017. The range of targets applicable to the awards,
which had a value of 200% of salary for the Chief Executive and 175% of salary to the Group Finance Director, was as follows:
Average annual growth in adjusted earnings per share1
Less than 6% p.a.
6% p.a.
20% p.a.
1 Straight line vesting between the points in the above table.
% of award
vesting
Nil
20%
100%
As with the short-term award, the Committee exercised discretion to calculate the long-term award after excluding gene
editing costs incurred during the performance period, to avoid an unintended impact on the Executives’ remuneration.
The adjusted 2017 earnings per share after the cost of share based payments and adjusting for costs relating to gene
editing was 68.1p. This represents an average annual growth in adjusted earnings per share of 16.4% compared to the
comparable 2014 adjusted earnings per share figure (after the cost of share based payments). The resulting level of
vesting is therefore 79.4% of maximum for both the Chief Executive and Group Finance Director1.
Karim Bitar’s award was over a maximum of 86,271 shares, so the actual level of vesting is 68,499 shares and these will
vest on 20 November 2017. Stephen Wilson’s award was over a maximum of 51,153 shares, so the actual level of vesting
is 40,615 shares and these will vest on the same date.
The Company’s average share price for the period from 1 April 2017 to 30 June 2017 was 1,821.95p, meaning that the values
shown for these awards within the single figure table are £1,248,021 for Karim Bitar and £739,994 for Stephen Wilson.
1 The average annual earnings per share growth including the gene editing costs would be 13.7% and the associated vesting level would be 64% of
maximum.
67
CORPORATE GOVERNANCE Genus plc | Annual Report 2017
Annual Report on Remuneration continued
Section D: Annual Report on Remuneration continued
Breakdown of Vesting for Chief Executive:
1,400,000
1,200,000
1,000,000
800,000
600,000
400,000
200,000
0
£217,053
£1,053,654
£836,601
£411,420
+49.2%
£1,248,021
VALUE AT
AWARD
VALUE OF
SHARES LAPSED
VALUE OF
SHARES RETAINED
SHARE PRICE
GROWTH
VALUE AT
30 JUNE 2017
2014 PSP Award:
Key points:
• Based on average annual earnings per
share-growth of 16.4%, 79.4% of the original
grant of shares will vest
• Strong share price growth was seen over the
three year period, from 1,221p at award to
1,821.95p at release (based on average price
over last three months of the year)
• This increased the value of the long term
award on vesting by 49.2%
Material Contracts
There were no other contracts or arrangements during the financial year in which a Director of the Company was
materially interested and/or which were significant in relation to the Group’s business.
Payments for Loss of Office and Payments to Former Directors (Audited)
There were no payments for loss of office in the year or to any former Directors of the business.
Executive Directors’ External Appointments
Executive Directors are permitted to accept an external non-executive position, with the Board’s approval. Any fees
received in respect of these appointments may be retained by the Executive. Neither the Chief Executive nor Group
Finance Director held any Non-Executive Directorships in the period from 1 July 2016 to 30 June 2017. As previously
communicated, the Chief Executive (Karim Bitar) has been appointed as a Non-Executive Director of Spectris Plc with
effect from 1 July 2017. Any fees or payments made in connection with this appointment will be disclosed in future
remuneration reports.
2. What the Executive Directors Can Earn in 2018
A summary of this chapter is given on page 63.
Base Salary
The Committee reviews the Executive Directors’ base salaries, taking into account factors such as individual and corporate
performance, an assessment of market conditions and, most importantly, the salary increases applicable to the Group’s
other UK employees.
In line with other UK employees, the date of salary review has been moved to 1 September 2017. The Executive Directors’
current salary levels (with effect from 1 September 2017 and with no backdating of awards) are as follows:
• Karim Bitar: £556,336 (1.5% increase); and
• Stephen Wilson: £376,994 (1.5% increase).
The Committee determined that salaries would be increased by 1.5%, reflecting the core award across the UK employee
population. It did not refer to other market benchmarking data this year when making this decision.
Benefits
The Executive Directors will receive benefits including a car allowance, private fuel (for Chief Executive), life assurance,
an annual medical screen and private medical insurance.
Pension
In lieu of Company pension contributions, the Company pays the Chief Executive and Group Finance Director a taxable
pension allowance of 25% and 15% of basic salary per annum respectively.
68
Genus plc | Annual Report 2017 Performance-Related Annual Bonus
Consistent with the Remuneration Policy agreed by shareholders in 2016, the Company bonus scheme for 2018 for the
Executive Directors is:
Annual Bonus: Core Element
Value of bonus
A Core Element of 125% of salary based on profit, cash and personal objectives.
Bonus
Performance measures
Chief Executive/Group Finance Director
On-target value of bonus 62.5% (Core Bonus element)
Adjusted profit before tax
Cash generation
Personal objectives
– 80% of salary weighting.
– 20% of salary weighting.
– 25% of salary weighting.
Calibration of profit target No bonus is payable unless the prior year’s result is exceeded. Thereafter, the Core Bonus
award is determined on the following basis:
Growth on prior year adjusted profit before tax1
0%
10% p.a. delivers
15% p.a.
Payout (profit
element)
Percentage of
salary awarded
0%
50%
100%
0%
40%
80%
Straight-line payout between performance points.
1 In constant currency and excluding gene editing costs.
The cash target is the budgeted figure, with a specific range of £3m below the target
and £3m above. Specific numbers were set (rather than a percentage range) to ensure
Executives are focused on actual cash generation.
Personal objectives are linked to successful implementation of objectives for the Executive
Directors. It would be commercially sensitive to disclose them in advance. We will disclose
retrospectively performance against these targets.
Of the 125% Core Bonus element, one quarter of the total award will be deferred by way of
shares for three years and will vest subject to continued employment, other than in certain
good leaver circumstances.
The Committee can apply malus to deferred bonuses and claw back any element of
paid bonuses that should not have been awarded or paid, in the event of a material
misstatement of the Group’s annual results.
Calibration of cash
generation target
Calibration of
personal objectives
Bonus deferral
Malus and clawback
Annual Bonus: Company Milestone Element
Value of bonus
A Company Milestone element of up to 75% and 50% of salary for the Chief Executive and
the Group Finance Director respectively.
Performance measures
Company Milestones represent pivotal and significant events in the Company’s
development, which reposition the Company as an agricultural biotechnology pioneer.
Such events would be significant strategic achievements and long-term value creating.
Bonus deferral
The Committee has determined that this element of the annual bonus will be included
for 2018 for the Chief Executive and Group Finance Director. Due to commercial sensitivity
the target and achievement against it including any resulting award will be disclosed
retrospectively.
For achievement of the Company Milestone element, any award will be deferred into
shares for three years and will vest subject to continued employment, other than in certain
good leaver circumstances.
69
CORPORATE GOVERNANCE Genus plc | Annual Report 2017 Annual Report on Remuneration continued
Section D: Annual Report on Remuneration continued
2. What the Executive Directors Can Earn in 2018 continued
Long-Term Incentives
Awards to be granted in 2018 will be granted in line with the Remuneration Policy approved by shareholders and under
the 2014 PSP. The Chief Executive will be granted an award over shares worth 200% of salary and the Group Finance
Director will be granted an award over shares worth 175% of salary. These awards are in line with those awarded in 2015,
due to vest in 2018.
The performance targets for the awards to be granted in 2018 will primarily relate to average annual growth in adjusted
earnings per share, measured over three years and excluding gene editing costs. The same approach will govern awards due
to vest in 2018.
The range of targets for the 2018 awards is as follows:
Average annual growth in adjusted earnings per share1
Less than 5% p.a.
5% p.a.
15% p.a.
Vesting
(% award)
0%
20%
100%
Straight-line vesting between performance points.
1 Growth in adjusted earnings per share over the three-year performance period will be calculated on a simple average annual growth rate after the cost of
share based payments and gene editing.
The Committee remains convinced that using adjusted earnings per share is the correct approach and is consistent with
awards made in 2016. The Committee believes the above targets are appropriately challenging, that they incentivise
Executives to deliver the Company’s growth strategy and are therefore aligned with shareholders’ interests. They also
adhere to the principles of transparency and simplicity, to maximise the incentive provided to participants by the 2014 PSP.
As with awards currently granted under the 2014 PSP, the Committee will retain the ability to scale back vesting based on
earnings per share performance if it does not consider the vesting result to be consistent with the progress achieved
against the Company’s strategy during the performance period. This is considered appropriate to broaden the Executive
team’s focus beyond financial performance.
2014 PSP awards granted in 2018 will continue to require the Executives to retain the after-tax number of shares vesting
in 2020 for two years. Clawback and malus provisions may be applied at the Committee’s discretion, if the Company’s
results are found to have been materially misstated within three years of vesting.
3. The Process the Committee Followed to Arrive at These Decisions
The Committee complies with the UK Corporate Governance Code. It makes recommendations to the Board, within
agreed terms of reference, on remuneration for the Executive Directors and other members of GELT. The Committee’s
full terms of reference are available on the Company’s website at www.genusplc.com.
During 2017, the Committee comprised:
Director
Nigel Turner (Chairman)
Mike Buzzacott1
Duncan Maskell
Lykele van der Broek
Lysanne Gray2
Bob Lawson
Independent status
Attendance at meetings
Yes
Yes
Yes
Yes
Yes
Yes
6/6
3/3
6/6
6/6
5/6
6/6
1 Mike Buzzacott retired on 17 November 2016.
2 Due to prior commitments pre-appointment, Lysanne Gray was unable to attend the July 2016 Remuneration Committee meeting following her
appointment. However, Lysanne was provided with all Committee materials and submitted feedback via the Chairman prior to the meeting.
None of the Committee members has any personal financial interest (other than as shareholders), conflicts of interests
arising from cross-directorships or day-to-day involvement in running the business. The Chief Executive and the Group
Finance Director attend meetings at the invitation of the Committee, but are not present when their own remuneration is
being discussed. The Committee is supported by the Group HR Director, Group Reward Director, Finance and Company
Secretariat functions.
During the year, the Committee continued to use PricewaterhouseCoopers (‘PwC’) for advice it considers is of value,
objective and independent. PwC’s fees were £35k for its remuneration advice to the Committee. PwC is a member of the
Remuneration Consultants Group and complies with its Code of Conduct. Separate teams within PwC provide unrelated
advisory service, including taxation, international assignments and acquisition related services to the Group.
70
Genus plc | Annual Report 2017 During the year to 30 June 2017, the Committee met six times and considered the following matters:
JULY 2016
SEPTEMBER 2016
NOVEMBER 2016
• Pay review for GELT members.
• Approval of the Directors’
• Review of shareholder voting
JULY 2016
• Review of Directors’ Remuneration
Report.
Remuneration Report for 2016.
• Determination of Annual Bonus
awards in respect of 2016.
• Testing of the performance
conditions and approval of the
vesting levels of long-term share
incentive awards granted in 2013.
on the Remuneration Policy and
Annual Remuneration Report.
• Review of remuneration reporting
for 2016.
APRIL 2017
• Approve long-term share incentive
awards under the Company’s 2014
PSP and the associated
performance targets.
• Discussion of Company Milestone
element within annual bonus.
• Review shareholder perspectives
and discussion of AGM season.
• Review of shareholdings by
Executive Directors and GELT.
• Approval of PSP for senior
leadership.
MAY 2017
• Proposal for Company Milestone
for 2018.
• Committee effectiveness
review.
How Shareholders’ Views are Taken into Account
We consulted with shareholders ahead of proposing a revised Remuneration Policy to shareholders at our 2016 AGM.
We were pleased with the constructive dialogue with shareholders and for their time and feedback on the proposed policy
changes. The results of the most recent vote were as follows:
For
Against
Total number of shares in respect of which
votes were validly made
Votes withheld
Vote on Directors’ Remuneration
Report (advisory)
Vote on Directors’
Remuneration Policy
Total number
of votes
% of
votes cast
Total number
of votes
% of
votes cast
41,184,785
96.94
40,093,114
1,301,514
3.06
1,619,093
96.12
3.88
42,486,299
100
41,712,207
100
513,260
1,287,352
How Employees’ Pay is Taken into Account
While the Company does not consult employees on matters of Directors’ remuneration, the Committee does take account
of the policy for employees across the workforce when determining the Remuneration Policy for Directors.
The Group HR Director facilitates this process, presenting to the Committee on the pay structures across the organisation
and how they fit the Group’s Remuneration Policy. The process includes a staff engagement survey that includes questions
on pay, as well as consulting employees informally on their views of the current overall Remuneration Policy. This forms part
of the feedback provided to the Committee and is used by the Group HR Director to assess the Remuneration Policy’s
ongoing effectiveness and the changes that should be made.
When setting the Executive Directors’ base salaries, the Committee compares the salary increases proposed for each
Executive Director within those proposed for employees in their geographical location, as well as considering the typical
increase proposed across the Group as a whole.
71
CORPORATE GOVERNANCE Genus plc | Annual Report 2017
Annual Report on Remuneration continued
Section D: Annual Report on Remuneration continued
4. How the Chief Executive’s Pay Compares to Shareholder Returns Over the Past Eight Years and to Employees’ Pay
Total Shareholder Return
The following graph shows the Company’s performance measured by total shareholder return (‘TSR’), compared with the
TSR performance of the FTSE 250 Index. The FTSE 250 Index was selected as it represents a broad equity market of which
the Company is a member.
Total remuneration (£000s)
£2,034
£2,383
Richard Wood
2010
20111
Year ending 30 June
2012
£231
R
20122
£1,776
2013
£868
Karim Bitar
2014
2015
2016
2017
£877
£1,622
£1,704
£2,597
Annual bonus
(% of max)
Total PSP vesting
(% of max)
64%
94%
88%
77%
31%
32%
99%
78%
58.5%3
100%
88%
–
–
–
–
26%
34%
79.4%
1 PSP vesting relates to all awards that were tested early on cessation of employment.
2
Includes payment (as previously disclosed) for loss of annual bonus (£163,000) and the value of restricted stock (£755,000) granted to compensate him for
loss of value forfeit on joining Genus.
Includes the award under the Company Milestone element of the annual bonus.
3
Eight years of Total Shareholder Return
)
£
(
)
d
e
s
a
b
e
r
(
R
S
T
400
350
300
250
200
150
100
50
0
June 10
June 11
June 12
June 13
June 14
June 15
June 16
June 17
Genus
FTSE 250
This graph shows the value, by 30 June 2017, of £100 invested in Genus plc on 30 June 2009 compared with the value of £100 invested in the FTSE 250 Index.
Source: Thomson Datastream.
Chief Executive Pay Compared to Genus Employees
Remuneration Received (% Change from 2016 to 2017)
Chief Executive
UK comparators2
Salary %
Benefits %
2
2.1
(1)
0
Annual
bonus %
221
(35)
Includes the award made under the Company Milestone element of the annual bonus.
1
2 A subset of the UK workforce comprising circa 25 employees with a bonus structure based on Group performance. This is considered the most relevant
comparator group for these purposes.
Distribution Statement
Employee costs (£m)
Distributions to shareholders1
1
Includes dividends and share buy-backs.
72
2016
2017
% change
£118.4m £137.6m
£12.2m £13.5m
16%
11%
Genus plc | Annual Report 2017
5. The Chairman and Non-Executive Directors’ Fees
Fees payable to the Non-Executive Directors per annum are as follows:
Position
Chairman
Audit and Remuneration Committee Chairs
Adviser to R&D PMT
Base Non-Executive Director fee
2016 fees
2017 fees
2018 fees
£160,000 £160,000 £160,000
£60,000
£60,000
£60,000
n/a
n/a
£65,000
£55,000
£55,000
£55,000
Fees were increased in 2016 (as explained in the Directors’ Remuneration Report set out in the 2015 Annual Report and
approved at the 2015 AGM). The Chairman’s fee, which had not been reviewed since 2010, was increased to £160,000 and
Non-Executive Director fees, which were last reviewed in 2012, increased to £55,000 which includes, for each of them,
their fees for membership of the Board’s Committees. The responsibilities of chairing the Audit and Remuneration
Committees were also recognised with an additional fee of £5,000, giving the Chairs of these Committees a total fee
of £60,000.
Fees will continue at this level for 2018. The additional responsibilities as advisors of the R&D PMT are to be recognised for
2018 as shown in the above table.
Total Single Figure of Remuneration (Audited) for 2016 and 2017 are as follows:
Non-Executive Directors
Bob Lawson
Nigel Turner
Mike Buzzacott1
Duncan Maskell
Lykele van der Broek
Lysanne Gray
Total
Fees
£000s
160
160
60
60
25
60
55
55
55
55
58
14
413
404
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
Taxable
expenses
£000s
Benefits
£000s
Total
£000s
2
3
1
2
1
2
2
2
1
–
1
–
8
9
–
–
–
–
4
–
–
–
11
6
–
–
15
6
162
163
61
62
30
62
57
57
67
61
59
14
436
419
1 Mike Buzzacott retired on 17 November 2016
The Non-Executive Directors’ taxable expenses are travel expenses related to their role and have been grossed up for tax
where applicable, in line with HMRC rules.
Spotlight: Increased Alignment of Executives
to Genus through shareholding
In introducing the new Remuneration Policy, we increased the
shareholding guideline for Executives from 100% of salary to 200%
of salary.
As will be seen within the Directors’ Remuneration Report, a
significant part of the Annual Bonus for 2017 will be made in shares. In
addition, Executives will be required to retain the post-tax shares from
the 2014 PSP award for a further two years from November 2017.
We have seen significant progress by both Executives in developing
their shareholding in the business as highlighted in the adjacent table.
This shows the value of shares held by the individual and the
post-tax value of any shares awarded under the DSBP not yet
released. We have also provided a forecast of the position as
at November 2017, when awards under the DSBP for the 2017
annual bonus will have been made, and the vesting of the 2014 PSP
awards will have taken place (which the Executives are required to
retain for a further two years).
Shareholding as percentage of salary
KARIM
BITAR
STEPHEN
WILSON
173%
258%
256%
121%
63%
419%
NOV 2017
JUN 2017
JUN 2016
TARGET
0
50
100
150
200
250
300
350
400
450
SHAREHOLDING
REQUIREMENT
TO 2016 =
100% OF SALARY
SHAREHOLDING
REQUIREMENT
FROM 2017 =
200% OF SALARY
73
CORPORATE GOVERNANCE Genus plc | Annual Report 2017 Annual Report on Remuneration continued
Section D: Annual Report on Remuneration continued
6. Details of the Directors’ Shareholdings and Rights to Shares
Directors’ Shareholdings (Audited)
The Directors had the following interests in the Company’s shares:
Bob Lawson
Karim Bitar
Stephen Wilson
Nigel Turner
Mike Buzzacott
Duncan Maskell
Lykele van der Broek
Lysanne Gray
Total
At 30 June
2017
Number
% of salary
held1
% of
shareholding
guideline2
8,557
65,353
16,214
15,000
4,0003
0
3,750
0
112,874
n/a
258%
121%
n/a
n/a
n/a
n/a
n/a
n/a
200%
200%
n/a
n/a
n/a
n/a
n/a
Unvested
DSBP awards
at 30 June
2017
Number
Unvested PSP
awards held at
30 June 2017
Number
n/a
23,548
16,150
n/a
223,307
132,406
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
At 30 June
2016
Number
7,201
50,213
8,433
15,000
4,000
–
3,750
–
39,698
355,713
88,597
1 Based on the combined number of beneficially held shares and the net of tax DSBP awards held and the average closing share price over the three months
to 30 June 2017 of 1,821.95p.
2 Executive Directors are expected to work towards achieve a shareholding of 200% of salary as set out in the Remuneration Policy agreed by shareholders in
2016. This was increased from 100% in 2016.
3 This represents the shareholding at the point Mike Buzzacott retired from the Board (17 November 2016)
There were no changes in the Directors’ interests between 30 June 2017 and the date of this report.
Company Share Price
The market price of the Company’s shares on 30 June 2017 was 1,780p and the lowest and highest share prices during the
financial year were 1,642p and 2,042p respectively.
Performance Share Awards Granted in 2017 (Audited)
The awards granted under the 2014 PSP were as follows:
Executive
Karim Bitar
Stephen Wilson
Number of shares
comprising award
Face/maximum value
of awards at grant
date (% salary)1
% of award
vesting at
threshold
58,186
£1,096,224 (200%)
34,500
£649,980 (175%)
20
20
Performance period
01.07.16–30.06.19
01.07.16–30.06.19
1 The closing average share price over the three days prior to the award being granted has been used to determine the maximum face value of the awards.
This was 1,884p for Karim Bitar and Stephen Wilson (award granted on 14 September 2016).
The awards were granted as nil-cost share options and vesting will be subject to achieving a challenging sliding scale of
adjusted earnings per share growth target and a strategic underpin, consistent with our Remuneration Policy. The
adjusted earnings per share growth performance target for the above awards is:
Average annual growth in adjusted earnings per share 1
Less than 5% p.a.
5% p.a.
20% p.a.
Straight-line vesting between performance points
Vesting
(% award)
0%
20%
100%
1 Growth in adjusted earnings per share over the three-year performance period will be calculated on a simple average annual growth rate after the cost of
share based payments and adjusted for gene editing costs.
Deferred Bonus Awards Granted in 2017 (Audited)
The basis of the awards’ calculation is described in more detail on page 65, which resulted in the following DSBP awards
being granted in relation to the 2016 annual bonus:
74
Genus plc | Annual Report 2017 Executive
Karim Bitar
Stephen Wilson
Number of shares
comprising award
Face value of awards
at grant date1
6,973
4,725
£131,371
£89,019
These awards are not subject to any further performance conditions and will normally vest in full on 14 September 2019,
subject to continued service.
1 The closing average share price over the three days prior to the award being granted has been used to determine the maximum face value of the awards.
This was 1,884p for Karim Bitar and Stephen Wilson (award granted on 14 September 2016).
Summary of Scheme Interests (Audited)
At 30 June 2017, the Executive Directors had the following beneficial interests in share awards and share options:
Karim Bitar
Grant date
Award
Vesting
period
Share price
at grant
At 30 June
2016
Number
Granted
in year
Number
Lapsed
in year
Number
Exercised
in year
Number
At 30 June
2017
Number
26 September 2013
30 December 2013
PSP 26 September 2013 to
27 September 2016
DSBP 30 December 2013 to
27 September 2016
1,413p
73,107
1,413p
3,495
21 October 2014
DSBP
21 October 2014 to
21 October 2017
1,111p
4,648
20 November 2014
14 September 2015
14 September 2015
14 September 2016
14 September 2016
Total
Stephen Wilson
PSP 20 November 2014 to
20 November 2017
DSBP 14 September 2015 to
14 September 2018
PSP 14 September 2015 to
14 September 2018
PSP 14 September 2016 to
14 September 2019
DSBP 14 September 2016 to
14 September 2019
1,221p
86,271
1,363p
11,927
1,363p
78,850
1,884p
1,884p
–
–
58,186
6,973
(47,958)
(25,149)
–
–
–
–
–
–
–
(3,495)
–
–
–
–
–
–
0
0
4,648
86,271
11,927
78,850
58,186
6,973
258,298
65,159
(47,958) (28,644) 246,855
Grant date
Award
Vesting
period
Share price
at grant
At 30 June
2016
Number
Granted
in year
Number
Lapsed
in year
Number
Exercised
in year
Number
At 30 June
2017
Number
26 September 2013
30 December 2013
PSP 26 September 2013 to
27 September 2016
DSBP 30 December 2013 to
27 September 2016
1,413p
43,347
1,413p
1,050
21 October 2014
DSBP
21 October 2014 to
21 October 2017
1,111p
3,445
20 November 2014
14 September 2015
14 September 2015
14 September 2016
14 September 2016
Total
PSP 20 November 2014 to
20 November 2017
DSBP 14 September 2015 to
14 September 2018
PSP 14 September 2015 to
14 September 2018
PSP 14 September 2016 to
14 September 2019
DSBP 14 September 2016 to
14 September 2019
1,221p
51,153
1,363p
7,980
1,363p
46,753
1,884p
1,884p
–
–
34,500
4,725
(29,736) (13,611)
–
–
–
–
–
–
–
(1,050)
–
–
–
–
–
–
0
0
3,445
51,153
7,980
46,753
34,500
4,725
–
–
–
–
–
–
–
–
–
–
-
-
153,728
39,225 (29,736) (14,661) 148,556
75
CORPORATE GOVERNANCE Genus plc | Annual Report 2017 Annual Report on Remuneration continued
Section D: Annual Report on Remuneration continued
6. Details of the Directors’ Shareholdings and Rights to Shares continued
Summary of Scheme Interests (Audited) continued
In relation to the share awards granted on 14 September 2016, the closing average share price over the three days prior to
14 September 2016 (the grant date for the PSP awards) was used (1,884p) to determine the number of shares comprising
individual awards.
The performance targets applying to the 14 September 2016 awards are as described above. An earnings per share range
also applied to awards made in 2015 and 2014. No further performance conditions apply to the DSBP awards.
Dilution
The aggregate dilution of all relevant share incentives is 4.98% at 30 June 2017, which is less than the permissible 10% in
ten years dilution limit.
7. Details of the Executive Directors’ Contracts and Non-Executive Directors’ Letters of Appointment
Appointment date
Current contract date
Expiry date
Notice period (Months)
24 May 2011
24 May 2011
Stephen Wilson
12 December 2012
12 December 2012
n/a
n/a
12 (from Company)
6 (from Executive)
12 (from Company)
6 (from Executive)
11 November 2010
11 November 2016
11 November 2019
17 January 2008
17 January 2017
16 January 2020
1 April 2014
1 July 2014
1 April 2016
7 May 2009
1 April 2017
1 July 2017
1 April 2016
1 April 2020
1 July 2020
1 April 2019
7 May 2015
17 November 20161
n/a
1
1
1
1
1
Director
Executives
Karim Bitar
Non-Executives
Bob Lawson
Nigel Turner
Duncan Maskell
Lykele van der Broek
Lysanne Gray
Mike Buzzacott
1 Mike Buzzacott retired on 17 November 2016.
76
Genus plc | Annual Report 2017 Section E: Summary of Directors’ Remuneration Policy
Our existing Directors’ Remuneration Policy was approved by shareholders on 17 November 2016. We were pleased to
receive over 96% support for the changes which you will see referred to elsewhere within this Report. There are no
proposed changes to the Policy this year and therefore there will be no resolution seeking shareholder approval at the
forthcoming AGM. We will continue to have the annual resolution seeking shareholder approval on how we have
implemented the Remuneration Policy.
The table summarising the Remuneration Policy is shown below for information. The full details of the revised
Remuneration Policy can be found within our 2016 Annual Report (which can be viewed through our website at
www.genusplc.com).
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;
• 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 GELT, with appropriate tiering through the
wider workforce.
77
CORPORATE GOVERNANCE Genus plc | Annual Report 2017
Annual Report on Remuneration continued
Summary of Current Remuneration Policy continued
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.
Periodically benchmarked against
relevant market comparators,
reflecting the size and nature of the
role, individual performance and
experience, increases awarded to
other employees, Group performance
and broader economic conditions.
Benefits generally include a car
allowance and insured benefits (e.g.
life assurance and private medical
insurance).
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 in which the Executive works.
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 65.
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.
None.
The salaries payable to the Executive
Directors from 1 September 2017
are disclosed on page 68.
None.
78
Genus plc | Annual Report 2017 Annual Bonus
The bonus is split into two parts:
A Core Bonus element incentivises
against a combination of financial
targets and personal objectives.
Operation
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.
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.
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.
A dividend equivalent provision
operates, enabling dividends to be
paid (in cash or shares) on deferred
shares that vest.
Payments under the Company
Milestone element are made fully in
Company shares deferred for three
years subject to continued service.
Share awards made under the DSBP
(under either the Core Bonus element
or Company Milestone element) will
vest after 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), with a minority
earned based on performance
against personal objectives.
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.
Therefore the maximum under the
annual bonus is 200% of salary for
the Chief Executive, 175% for other
Executive Directors.
The Committee may include the
Company Milestone element
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.
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 2018 is included on
page 69.
79
CORPORATE GOVERNANCE Genus plc | Annual Report 2017
Annual Report on Remuneration continued
Summary of Current Remuneration Policy continued
2014 PSP
The 2014 PSP incentivises
Executives to achieve superior
returns to shareholders over a
three-year period, to retain key
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.
individuals and align their interests
with shareholders.
To align Executives and shareholders.
Share Ownership Guidelines
For awards granted from 2014, the
post-tax number of vested shares
must be held for at least a two-year
period following vesting.
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.
Operation
Executives are expected to achieve
a shareholding of 200% of salary, by
retaining 50% of the net of post-tax
number of vested shares under the
Company’s DSBP and PSP.
In addition, the Chief Executive will
retain the entire post-tax number of
Restricted Stock that was granted to
him shortly after his appointment.
Maximum
n/a
A summary of the performance
targets for 2018 is given on page 70.
n/a
Performance Conditions
The Committee will review
performance conditions annually,
specifically the range of earnings
per share 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.
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
earnings per share 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.
80
Genus plc | Annual Report 2017
Approved by the Board and
signed on its behalf by:
Nigel Turner
Chair of the Remuneration Committee
6 September 2017
Non-Executive Directors
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 73.
Performance Conditions
None.
81
CORPORATE GOVERNANCE Genus plc | Annual Report 2017
Other Statutory Disclosures
The Company has one class of ordinary share, with the rights set out in the
Articles of Association. All issued shares are fully paid and each share has the
right to one vote at the Company’s general meetings. There are no specific
restrictions either on the size of a holding or on the transfer of shares, which are
both governed by our Articles of Association and prevailing legislation. No
person has any special rights of control over the Company’s share capital.
Details of the Company’s employee share schemes are set out in note 51. In
connection with these schemes, the Genus plc Employee Benefit Trust holds
shares in the Company from time to time and abstains from voting in respect
of any such shares.
For additional information on capital risk management including financial
instruments, see note 24.
Authority to Acquire the Company’s Own Shares
The Directors may only buy back shares to the extent authorised by the shareholders
in general meeting. The current power to buy back shares was granted by
shareholder resolution at the 2016 AGM and a new authority is being sought at
the 2017 AGM within the limits set out in the notice of meeting, that is up to a
nominal value of £611,745 (representing 10% of the Company’s current issued
share capital). No shares were bought back by the Company, under the authority
granted at the 2016 AGM, from the date of that AGM up to the date of this report.
Directors
The Directors and the dates of their
respective appointments are listed on
pages 42 and 43.
Equal Opportunities/Employees
with Disabilities
Genus values diversity and aims
to make best use of everyone’s
skills and abilities. We are therefore
committed to equal opportunities
at every stage of our employees’
careers. Our policy on employees
with disabilities is to fully and fairly
consider people with disabilities
for all vacancies. We interview and
recruit people with disabilities and
endeavour to retain employees if they
become disabled while they work for
us. Where possible, we will retrain
employees who become disabled and
adjust their working environment, so
they can maximise their potential.
Political Contributions
The Group does not make political
contributions.
Dividend
The Board is recommending to
shareholders a final dividend of
16.2 pence per ordinary share,
resulting in a total dividend
for the year of 23.6 pence per
ordinary share, an increase of 10%
for the year. It is proposed that
the final dividend will be paid on
1 December 2017 to shareholders
on the register at the close of
business on 17 November 2017.
Share Capital
Note 29 gives details of the
Company’s issued share capital
and any movements in the issued
share capital during the year. The
Directors may only issue shares
to the extent authorised by the
shareholders in general meeting. The
current power to allot shares was
granted by shareholder resolution at
the 2016 AGM and a new authority
is being sought at the 2017 AGM
within the limits set out in the notice
of meeting, that is up to a nominal
value of £4,078,303.72 (representing
two-thirds of the Company’s
current issued share capital).
82
Genus plc | Annual Report 2017Going Concern and Long-Term Viability StatementAfter making enquiries, the Directors have a reasonable expectation that the Group has adequate resources to continue its operational existence for the foreseeable future and for a period of at least 12 months from the date of this report. Accordingly, the Directors continue to adopt and consider appropriate the going concern basis in preparing the Annual Report.During the year Genus exercised an extension option to extend the maturity of the facility for a further year to February 2022, on the same terms and pricing, and in March 2017 exercised the first tranche of the Accordion feature of the facility, increasing our GBP facility by £10m to £75m and increasing our US$ facility by $25m to $165m. At 30 June 2017 the Group had net debt of £111.6m (2016: £89.7m) and had substantial headroom of £73.6m (2016: £49.8m) under the renewed facilities of £202m. The Group’s financial position remains strong. In accordance with provision C.2.2 of the 2014 revision of the Code, the Directors have assessed the viability of the Group over a three-year period to June 2020. This period is deemed appropriate given the visibility the Company has to its product development pipeline, for example, as a result of the genetic lag of approximately three years between the porcine nucleus herds and customers’ production systems. In addition, the nature of the principal risks and uncertainties affecting Genus, including the agricultural markets in which it operates, were taken into account in determining the three-year period. The Directors have considered Genus’s current financial position, its planned capital expenditure, as well as the financing facilities available to the Group. They also assessed the potential impact, in severe but plausible scenarios, of the principal risks and uncertainties, set out on pages 12 to 13, and in particular the impacts of biosecurity, market down-turn, continuity of supply and increased competition including new product launches. The assessment took into account the likely degree of effectiveness of current and available mitigating actions.Based on this assessment, the Directors have a reasonable expectation that the Group will be able to continue in operation and meet its liabilities as they fall due over the period to June 2020. Substantial Shareholdings
As at 1 September 2017, we were aware of the following material interests in the
Company’s ordinary shares:
Fund Manager
Lansdowne Partners
Baillie Gifford & Co
Columbia Threadneedle Investments
NFU Mutual Investment Mgrs
Allianz Global Investors
Legal & General Investment Mgt
M&G Investment Mgt
Shareholding
6,088,888
4,080,940
3,748,354
2,507,442
2,183,133
2,117,859
1,892,622
%
9.95
6.67
6.13
4.10
3.57
3.46
3.09
There have been no material changes in shareholding since 30 June 2017.
No other person has notified an interest in the Company’s ordinary shares,
which is required to be disclosed to us.
Provision of Information to the Company’s Auditor
Each of the Directors at the date of approval of this Annual Report confirms
that:
• so far as the Director is aware, there is no relevant audit information of which
the Company’s auditor is unaware; and
• the Director has taken all the steps that he ought to have taken as a Director
in order to make himself aware of any relevant audit information and to
establish that the Company’s auditor is aware of that information.
This confirmation is given and should be interpreted in accordance with the
provisions of section 418 Companies Act 2006.
Appointment of Auditor
Deloitte LLP has expressed its willingness to continue in office as auditor and
a resolution to reappoint it will be proposed at the forthcoming AGM.
Directors’ Indemnities
The Company has made qualifying third party indemnity provisions for the
benefit of its Directors which were made during the year and remain in force
at the date of this report.
Requirements of the Listing Rules
Details of the Company’s long-term incentive schemes can be found in the
Directors’ Remuneration Report on pages 60 to 81.
Approved by the Board and signed on its behalf by:
Dan Hartley
Group General Counsel and Company Secretary
6 September 2017
83
CORPORATE GOVERNANCE Genus plc | Annual Report 2017 Director’s Responsibilities
The Directors are responsible for
preparing the Annual Report and the
Financial Statements in accordance
with applicable law and regulations.
Company law requires the Directors
to prepare Financial Statements for
each financial year. Under that law, the
Directors are required to prepare the
Group Financial Statements in
accordance with International
Financial Reporting Standards
(‘IFRSs’) as adopted by the European
Union and Article 4 of the IAS
Regulation and have chosen to
prepare the Parent Company Financial
Statements in accordance with
Financial Reporting Standard 101
‘Reduced Disclosure Framework’.
Under company law, the Directors
must not approve the financial
statements unless they are satisfied
that they give a true and fair view of
the state of affairs of the Company
and of the profit or loss of the
Company for that period.
In preparing the Parent Company
Financial Statements, the Directors
are required to:
• select suitable accounting policies
and then apply them consistently;
• make judgements and accounting
estimates that are reasonable and
prudent;
• state whether Financial Reporting
Standard 101 ‘Reduced Disclosure
Framework’ has been followed,
subject to any material departures
disclosed and explained in the
Financial Statements; and
• prepare the Financial Statements
on the going concern basis, unless
it is inappropriate to presume that
the Company will continue in
business.
In preparing the Group Financial
Statements, International Accounting
Standard 1 requires that Directors:
• properly select and apply
accounting policies;
• present information, including
accounting policies, in a manner
that provides relevant, reliable,
comparable and understandable
information;
• provide additional disclosures when
compliance with the specific
requirements in IFRSs are
insufficient to enable users to
understand the impact of particular
transactions, other events and
conditions on the entity’s financial
position and financial performance;
and
• make an assessment of the
Company’s ability to continue as a
going concern.
The Directors are responsible for
keeping adequate accounting records
that are sufficient to show and explain
the Company’s transactions and
disclose with reasonable accuracy at
any time the financial position of the
Company and enable them to ensure
that the Financial Statements comply
with the Companies Act 2006. They
are also responsible for safeguarding
the assets of the Company and hence
for taking reasonable steps for the
prevention and detection of fraud and
other irregularities.
The Directors are responsible for the
maintenance and integrity of the
corporate and financial information
included on the Company’s website.
Legislation in the UK governing the
preparation and dissemination of
Financial Statements may differ from
legislation in other jurisdictions.
Directors’ Responsibility Statement
We confirm that to the best of our
knowledge:
• the Financial Statements, prepared
in accordance with the relevant
financial reporting framework, give
a true and fair view of the assets,
liabilities, financial position and
profit or loss of the Company and
the undertakings included in the
consolidation taken as a whole;
• the Strategic Report includes a fair
review of the development and
performance of the business and
the position of the Company and
the undertakings included in the
consolidation taken as a whole,
together with a description of the
principal risks and uncertainties
that they face; and
• the Annual Report and Financial
Statements, taken as a whole, are
fair, balanced and understandable,
and provide the information
necessary for shareholders to
assess the Company’s performance,
business model and strategy.
Approved by the Board and signed
on its behalf by:
Karim Bitar
Chief Executive
6 September 2017
Stephen Wilson
Group Finance Director
6 September 2017
84
Genus plc | Annual Report 2017 Independent Auditor’s Report
To the Members of Genus plc
REPORT ON THE AUDIT OF THE FINANCIAL STATEMENTS
Opinion
In our opinion:
• the financial statements give a true and fair view of the state of the Group’s and of the Parent Company’s affairs as
at 30 June 2017 and of the Group’s profit for the year then ended;
• the Group financial statements have been properly prepared in accordance with IFRSs as adopted by the EU;
• the Parent Company financial statements have been properly prepared in accordance with United Kingdom
Generally Accepted Accounting Practice including Financial Reporting Standard 101 ‘Reduced Disclosure Framework’;
and
• the financial statements have been prepared in accordance with the requirements of the Companies Act 2006 and,
as regards the Group financial statements, Article 4 of the IAS Regulation.
We have audited the financial statements of Genus plc (the ‘Parent Company’) and its subsidiaries (the ‘Group’) which
comprise:
• the Group Income Statement;
• the Group Statement of Comprehensive Income;
• the Group and Parent Company Statements of Changes in Equity;
• the Group and Parent Company Balance Sheets;
• the Group Statement of Cash Flows; and
• the related notes 1 to 55.
The financial reporting framework that has been applied in the preparation of the Group financial statements is applicable
law and IFRSs as adopted by the EU. The financial reporting framework that has been applied in the preparation of the
Parent Company financial statements is applicable law and United Kingdom Accounting Standards, including FRS 101
‘Reduced Disclosure Framework’ (United Kingdom Generally Accepted Accounting Practice).
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (‘ISAs (UK)’) and applicable law.
Our responsibilities under those standards are further described in the auditor’s responsibilities for the audit of the
financial statements section of our report.
We are independent of the Group and the Parent Company in accordance with the ethical requirements that are relevant
to our audit of the financial statements in the UK, including the FRC’s Ethical Standard as applied to listed public interest
entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We confirm that the
non-audit services prohibited by the FRC’s Ethical Standard were not provided to the Group or the Parent Company.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Summary of our audit approach
Key audit matters The key audit matters that we identified in the current year were:
• Fair value of biological assets under IAS 41 ‘Agriculture’
• Orphan pension scheme liabilities related to the Milk Pension Fund
• Impairment of the ABS cash generating unit
Materiality
Scoping
We determined materiality for the Group to be £2.2m (2016: £2.2m), which is 5.0% (2016: 5.3%) of
pre-tax profit before exceptional items and changes in fair value of biological assets.
Our audit scope covered 17 components (2016: 22). Of these, eight were subject to a full audit
(2016: 11), whilst the remaining nine (2016: 11) were subject to specified audit procedures. The
coverage of key account balances was 82% of revenue, 80% of profit before tax and 92% of net assets.
Significant changes
in our approach
Last year we included a key audit matter relating to the impairment of capitalised development
costs, this was not included this year following the related court rulings in the year which have
removed any restriction that prevents commercial launch.
Our impairment risk in the current period has been focused specifically on the assets associated
with the ABS business, due to the more limited headroom associated with this cash generating unit.
85
FINANCIAL STATEMENTS Genus plc | Annual Report 2017 Independent Auditor’s Report continued
To the Members of Genus plc
Conclusions relating to principal risks, going concern and viability statement
We have reviewed the Directors’ statement regarding the appropriateness of the going concern
basis of accounting contained within note 2 to the financial statements and the Directors’
statement on the longer-term viability of the Group contained within the Directors’ Report on
page 82.
We are required to state whether we have anything material to add or draw attention to in
relation to:
• the disclosures on pages 12 - 13 that describe the principal risks and explain how they are being
managed or mitigated;
• the Directors’ confirmation on page 84 that they have carried out a robust assessment of the
principal risks facing the Group, including those that would threaten its business model, future
performance, solvency or liquidity;
• the Directors’ statement on page 84 about whether they considered it appropriate to adopt the
going concern basis of accounting in preparing them and their identification of any material
uncertainties to the Group and the Parent Company’s ability to continue to do so over a period
of at least 12 months from the date of approval of the financial statements;
• the Directors’ explanation on page 82 as to how they have assessed the prospects of the
Group, over what period they have done so and why they consider that period to be
appropriate, and their statement as to whether they have a reasonable expectation that the
Group will be able to continue in operation and meet its liabilities as they fall due over the
period of their assessment, including any related disclosures drawing attention to any
necessary qualifications or assumptions; and
• whether the Directors’ statements relating to going concern and the prospects of the Company
required in accordance with Listing Rule 9.8.6R(3) are materially inconsistent with our
knowledge obtained in the audit.
We confirm that we
have nothing
material to add or
draw attention to in
respect of these
matters.
We agreed with the
Directors’ adoption
of the going
concern basis of
accounting and we
did not identify any
such material
uncertainties.
However, because
not all future events
or conditions can be
predicted, this
statement is not a
guarantee as to the
Group’s ability to
continue as a going
concern.
Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the
financial statements of the current period and include the most significant assessed risks of material misstatement
(whether or not due to fraud) that we identified. These matters included those which had the greatest effect on: the
overall audit strategy; the allocation of resources in the audit; and directing the efforts of the engagement team.
These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our
opinion thereon, and we do not provide a separate opinion on these matters.
Fair value of biological assets under IAS 41 ‘Agriculture’
Key audit matter
description
The Group calculates the fair value of biological assets through the use of discounted cash flow
models and recent transaction prices. As at 30 June 2017 the total fair value of biological assets is
£353m.
Our risk is focused specifically on the following key assumptions for each species, being the most
sensitive assumptions applied in the valuation models. Certain assumptions contain high levels
of management judgement and therefore represent potential areas where management could
fraudulently manipulate the financial statements.
For bovine asset valuations: the future growth rates of proven and genomic semen sales; the
biological asset value discount factor; and; the discount rates applied.
For porcine asset valuations: the expected useful breeding life of pigs; the number of offspring
generations valued in the nucleus herd, and; the discount rate applied.
Details of the biological assets are disclosed in note 15 to the accounts. The Audit Committee has
included their assessment of this risk on page 58 and it is included in the key accounting estimates
and judgements in note 4.
86
Genus plc | Annual Report 2017 How the scope
of our audit
responded to the
key audit matter
Our response to this risk considers the separate elements of the fair value calculations: the basis
for management’s estimates and judgements applied in the key assumptions; the validity of
transactional data used for other inputs; and the mechanical integrity of the models themselves.
For the bovine asset valuations, our audit work included obtaining an understanding of
management’s processes surrounding the compilation of the future demand, marketable life and
production volume forecasts. We considered the appropriateness of projected prices, volume
growth rates against historical trends, current performance and third party market data, and
analysed management’s historical forecasting accuracy.
For the porcine asset valuations our audit work included consideration of the appropriateness of
management’s assessment of the number of future generations from which output is attributable
to the current herd and expected useful lives. We tested the expected percentages of animals
to be sold, retained and slaughtered as well as recent selling prices by reference to historical
transactional data. For all other assumptions in each model we challenged the significant estimates
with reference to third party or historical transactional data as appropriate.
For both species’ valuation models, we used internal valuation experts in our testing of the
discount rates applied to the cash flows.
We also tested the mechanical integrity of the spreadsheets used to calculate the fair values using
analytical tools and performed sensitivity analyses on the key assumptions.
Key observations
From the work performed, we are satisfied that the key assumptions applied in respect of the
valuation of biological assets are appropriate.
Orphan pension scheme liabilities related to the Milk Pension Fund (MPF)
Key audit matter
description
Genus is party to the MPF, a joint and several liable multi-employer pension scheme, and is
exposed to the risk of additional liabilities from the default of other scheme members beyond its
current share of 85% of the liabilities.
Our risk is focused on the financial position and stability of the other employers within the MPF.
Our risk is also focused on the accounting treatment of National Milk Record plc’s (“NMR”)
withdrawal from the scheme.
Details of the defined benefit pension scheme are disclosed in note 27 to the accounts. The Audit
Committee has included their assessment of this risk on page 58 and it is included in the key
accounting estimates and judgements in note 4.
How the scope
of our audit
responded to the
key audit matter
In response to the risk of additional liabilities for the multi-employer scheme arising from other
employers, we have considered the financial strength and stability of remaining employers in the
scheme and their ability to contribute to the deficit through a review of the most recent publicly
available financial information, including the latest financial statement and media reports
We have reviewed the accounting and disclosure for NMR withdrawal from the MPF, as set out in
note 27 to the financial statements.
Key observations
From our work performed, we are satisfied that the accounting and disclosure is appropriate for
the orphan liabilities and NMR’s withdrawal from the scheme.
Impairment of the ABS CGU
Key audit matter
description
The Group has £32.4m of goodwill on its balance sheet and total assets of £132.8m in relation to
the ABS CGU.
On an annual basis, management is required to perform an impairment assessment for goodwill,
and to assess for indicators of impairment in respect of other intangible and tangible assets.
Assessment of the carrying value of CGU’s assets is a key risk due to the quantum of the balance
and the judgements involved in setting the key assumptions and assertions used by management
to support their assessment of the carrying value. In testing the carrying value for impairment,
management has made a number of key assumptions including short-term and long-term growth
rates and discount rates.
Our risk in the current period has been focused specifically on the assets associated with the ABS
business due to the more limited headroom associated with this CGU.
The associated disclosure is included in note 14. The Audit Committee has included their
assessment of this risk on page 58 and it is included in the key accounting estimates and
judgements in note 4.
87
FINANCIAL STATEMENTS Genus plc | Annual Report 2017 Independent Auditor’s Report continued
To the Members of Genus plc
Impairment of the ABS CGU (continued)
How the scope
of our audit
responded to the
key audit matter
We challenged the assumptions used by management in their annual impairment assessment by
comparing the projected growth rates and forecast cash flows against historical trends achieved
in the business in the wake of what has been challenging market conditions. We analysed historical
budgeting accuracy to assess the reliability of management’s forecasts. We reviewed third-party
market data sources used by management in their forecast models.
We evaluated management’s assessment of the sensitivity of the Group’s impairment assumptions
to reasonably possible changes and considered the associated disclosures provided by the Group
in relation to its impairment review within note 14.
We used valuation specialists within the audit team to challenge the discount rates applied to these
cash flows by reference to market data, including the risk premium applied to each CGU.
Key observations
From our work performed, we are satisfied that the carrying value of the goodwill and other assets
attributable to the ABS segment is appropriate.
Our application of materiality
We define materiality as the magnitude of misstatement in the financial statements that makes it probable that the
economic decisions of a reasonably knowledgeable person would be changed or influenced. We use materiality both in
planning the scope of our audit work and in evaluating the results of our work.
Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:
Group materiality £2.2m (2016: £2.2m)
Basis for
determining
materiality
5.0% (2016: 5.3%) of pre-tax profit before exceptional items and changes in fair value of biological
assets.
Rationale for the
benchmark applied
We have used a profit based measure given the Group is listed and therefore shareholders focus on
profitability. The profit is adjusted for the exceptional items and changes in fair value of biological assets
to avoid distortion that could otherwise arise due to non-recurring items and fair value movements.
Adjusted PBT:
£44.3m
Group materiality
£2.2m
Component
materiality range
£1.1m to £1.76m
● PBT
● Group materiality
Audit Committee
reporting threshold
£0.1m
We agreed with the Audit Committee that we would report to the Committee all audit differences in excess of £0.1m
(2016: £0.1m), as well as differences below that threshold that, in our view, warranted reporting on qualitative grounds. We
also report to the Audit Committee on disclosure matters that we identified when assessing the overall presentation of
the financial statements.
An overview of the scope of our audit
Our Group audit was scoped by obtaining an understanding of the Group and its environment, including Group-wide
controls, and assessing the risks of material misstatement at the Group level. Based on that assessment, we focused our
Group audit scope primarily on the audit work at 17 components (2016: 22). Of these, eight were subject to a full audit
(2016: 11), whilst the remaining nine (2016: 11) were subject to specified audit procedures where the extent of our testing
was based on our assessment of the risks of material misstatement and of the materiality of the Group’s operations at
those locations. The change in number of components within scope reflects the impact of acquisitions and certain entities
which are no longer significant to the Group following internal restructuring.
88
Genus plc | Annual Report 2017 These 17 components represent the principal business units and account for 82% (2016: 88%) of the Group’s revenue and
80% (2016: 92%) of the Group’s profit before tax and 92% (2016: 99%) of the Group’s net assets.
REVENUE
PROFIT BEFORE TAX
NET ASSETS
● 62% Full audit scope
● 20% Specified audit procedures
● 18% Out of scope
● 17% Full audit scope
● 63% Specified audit procedures
● 20% Out of scope
● 65% Full audit scope
● 27% Specified audit procedures
● 8% Review at group level
At the Parent entity level we also tested the consolidation process and carried out analytical procedures to confirm our
conclusion that there were no significant risks of material misstatement of the aggregated financial information of the
remaining components not subject to audit or audit of specified account balances.
The Group audit team continued to follow a programme of planned visits. The lead audit partner visited the United States,
Mexico and Brazil components during the current and previous year. In years when we do not visit a significant component
we include the component audit team in our team briefing, discuss their risk assessment, and review documentation of
the findings from their work.
Other information
The Directors are responsible for the other information. The other information comprises the
information included in the Annual Report, other than the financial statements and our auditor’s
report thereon.
We have nothing to
report in respect of
these matters.
Our opinion on the financial statements does not cover the other information and, except to
the extent otherwise explicitly stated in our report, we do not express any form of assurance
conclusion thereon.
In connection with our audit of the financial statements, our responsibility is to read the other
information and, in doing so, consider whether the other information is materially inconsistent
with the financial statements or our knowledge obtained in the audit or otherwise appears to be
materially misstated.
If we identify such material inconsistencies or apparent material misstatements, we are required
to determine whether there is a material misstatement in the financial statements or a material
misstatement of the other information. If, based on the work we have performed, we conclude
that there is a material misstatement of this other information, we are required to report that fact.
In this context, matters that we are specifically required to report to you as uncorrected material
misstatements of the other information include where we conclude that:
• Fair, balanced and understandable – the statement given by the directors that they
consider the Annual Report and financial statements taken as a whole is fair, balanced and
understandable and provides the information necessary for shareholders to assess the Group’s
performance, business model and strategy, is materially inconsistent with our knowledge
obtained in the audit; or
• Audit Committee reporting – the section describing the work of the Audit Committee does not
appropriately address matters communicated by us to the Audit Committee; or
• Directors’ statement of compliance with the UK Corporate Governance Code – the parts of the
Directors’ statement required under the Listing Rules relating to the Company’s compliance
with the UK Corporate Governance Code containing provisions specified for review by the
auditor in accordance with Listing Rule 9.8.10R(2) do not properly disclose a departure from a
relevant provision of the UK Corporate Governance Code.
89
FINANCIAL STATEMENTS Genus plc | Annual Report 2017 Independent Auditor’s Report continued
To the Members of Genus plc
Responsibilities of Directors
As explained more fully in the Directors’ Responsibilities Statement, the Directors are responsible for the preparation of
the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the
Directors determine is necessary to enable the preparation of financial statements that are free from material
misstatement, whether due to fraud or error.
In preparing the financial statements, the Directors are responsible for assessing the Group’s and the Parent Company’s
ability to continue as a going concern, disclosing as applicable, matters related to going concern and using the going
concern basis of accounting unless the Directors either intend to liquidate the Group or the Parent Company or to cease
operations, or have no realistic alternative but to do so.
Auditor’s responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from
material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion.
Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs
(UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are
considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic
decisions of users taken on the basis of these financial statements.
A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting
Council’s website at: www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report.
Use of our report
This report is made solely to the Company’s members, as a body, in accordance with Chapter 3 of Part 16 of the
Companies Act 2006. Our audit work has been undertaken so that we might state to the Company’s members those
matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted
by law, we do not accept or assume responsibility to anyone other than the Company and the Company’s members as a
body, for our audit work, for this report, or for the opinions we have formed.
Report on other legal and regulatory requirements
Opinions on other matters prescribed by the Companies Act 2006
In our opinion the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance
with the Companies Act 2006.
In our opinion, based on the work undertaken in the course of the audit:
• the information given in the Strategic Report and Directors’ Report for the financial year for which the financial
statements are prepared is consistent with the financial statements; and
• the Strategic Report and Directors’ Report have been prepared in accordance with applicable legal requirements.
In the light of the knowledge and understanding of the Group and of the Parent Company and their environment obtained
in the course of the audit, we have not identified any material misstatements in the Strategic Report or Directors’ Report.
Matters on which we are required to report by exception
Adequacy of explanations received and accounting records
Under the Companies Act 2006 we are required to report to you if, in our opinion:
• we have not received all the information and explanations we require for our audit; or
• adequate accounting records have not been kept by the Parent Company, or returns adequate
for our audit have not been received from branches not visited by us; or
• the Parent Company financial statements are not in agreement with the accounting records
and returns.
We have nothing to
report in respect of
these matters.
Directors’ remuneration
Under the Companies Act 2006 we are also required to report if in our opinion certain
disclosures of Directors’ remuneration have not been made or the part of the Directors’
remuneration report to be audited is not in agreement with the accounting records and returns.
We have nothing to
report in respect of
these matters.
Other matters
Auditor tenure
Following the recommendation of the Audit Committee, we were appointed by the Board on 8 June 2006 to audit the
financial statements for the year ending 30 June 2006 and subsequent financial periods. The period of total uninterrupted
engagement including previous renewals and reappointments of the firm is 12, covering the years ending 30 June 2006 to
30 June 2017.
Consistency of the audit report with the additional report to the Audit Committee
Our audit opinion is consistent with the additional report to the Audit Committee we are required to provide in
accordance with ISAs (UK).
Andrew Bond, FCA (Senior statutory auditor)
For and on behalf of Deloitte LLP
Statutory Auditor
Reading, United Kingdom
6 September 2017
90
Genus plc | Annual Report 2017 Group Income Statement
For the year ended 30 June 2017
Revenue
Adjusted operating profit
Adjusting items:
– Net IAS 41 valuation movement on biological assets
– Amortisation of acquired intangible assets
– Share-based payment expense
– Exceptional items:
– Pension-related
– Litigation
– Acquisition and integration
– Other (including restructuring)
Total exceptional items
Total adjusting items
Operating profit
Share of post-tax profit of joint ventures and associates retained
Finance costs
Finance income
Profit before tax
Taxation
Profit for the year from continuing operations
Attributable to:
Owners of the Company
Non-controlling interest
Earnings per share from continuing operations
Basic earnings per share
Diluted earnings per share
Alternative measure of performance
Adjusted operating profit from continuing operations
Adjusted operating profit attributable to non-controlling interest
Pre-tax share of profits from joint ventures and associates excluding net IAS 41
valuation movement
Adjusted operating profit including joint ventures and associates
Net finance costs
Adjusted profit before tax from continuing operations
Adjusted earnings per share from continuing operations
Basic adjusted earnings per share
Diluted adjusted earnings per share
Note
5, 6
5
15
14
28
7
8
17
10
10
11
12
10
12
2017
£m
459.1
2016
£m
388.3
55.1
49.3
(1.1)
(8.7)
(4.6)
(14.4)
5.7
(5.3)
(0.6)
(2.3)
(2.5)
(16.9)
38.2
6.2
(4.5)
0.8
40.7
(6.4)
34.3
32.8
1.5
34.3
(17.1)
(6.1)
(3.8)
(27.0)
44.2
(6.9)
(0.2)
(0.8)
36.3
9.3
58.6
6.9
(4.7)
0.1
60.9
(10.6)
50.3
49.3
1.0
50.3
53.8p
53.0p
81.1p
80.3p
55.1
(2.1)
7.1
60.1
(3.7)
56.4
49.3
(1.4)
6.4
54.3
(4.6)
49.7
69.4p
68.4p
60.7p
60.1p
91
FINANCIAL STATEMENTS Genus plc | Annual Report 2017 Group Statement of Comprehensive Income
For the year ended 30 June 2017
Profit for the year
Items that may be reclassified subsequently to profit or loss
Foreign exchange translation differences
Fair value movement on net investment hedges
Fair value movement on cash flow hedges
Tax relating to components of other comprehensive income
Items that may not be reclassified subsequently to profit
or loss
Actuarial gain/(loss) on retirement benefit obligations
Movement on pension asset recognition restriction
Recognition of additional pension liability
Tax relating to components of other comprehensive income
Note
2017
£m
7.7
(2.7)
2.1
(4.6)
1.2
0.3
(4.3)
0.4
11
27
27
27
11
Other comprehensive income for the year
Total comprehensive income for the year
Attributable to:
Owners of the Company
Non-controlling interest
2016
£m
76.6
(13.3)
(0.7)
(16.8)
(12.8)
(0.6)
(14.9)
4.5
2017
£m
34.3
2.5
(2.4)
0.1
34.4
33.8
0.6
34.4
2016
£m
50.3
45.8
(23.8)
22.0
72.3
72.1
0.2
72.3
92
Genus plc | Annual Report 2017 Group Statement of Changes in Equity
For the year ended 30 June 2017
Called
up share
capital
£m
Share
premium
account
£m
Note
Own
shares
£m
Translation
reserve
£m
Hedging
reserve
£m
Retained
earnings
£m
Non-
controlling
interest
£m
Total
£m
Total
equity
£m
6.1
112.2
(0.1)
(10.1)
202.7
310.8
(5.7) 305.1
Balance at 30 June 2015
Foreign exchange translation
differences, net of tax
Fair value movement on net
investment hedges, net of tax
Fair value movement on cash
flow hedges, net of tax
Actuarial loss on retirement
benefit obligations, net of tax
Movement on pension asset
recognition restriction, net of
tax
Recognition of additional
pension liability, net of tax
Other comprehensive
(expense)/income for the year
Profit for the year
Total comprehensive income for
the year
Recognition of share-based
payments, net of tax
Adjustment arising from change
in non-controlling interest and
written put option
Dividends
Issue of ordinary shares
Balance at 30 June 2016
Foreign exchange translation
differences, net of tax
Fair value movement on net
investment hedges, net of tax
Fair value movement on cash
flow hedges, net of tax
Actuarial gain on retirement
benefit obligations, net of tax
Movement on pension asset
recognition restriction, net of
tax
Recognition of additional
pension liability, net of tax
Other comprehensive
(expense)/income for the year
Profit for the year
Total comprehensive income for
the year
Recognition of share-based
payments, net of tax
Adjustment arising from change
in non-controlling interest
Dividends
Issue of ordinary shares
13
13
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
0.1
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
0.5
–
–
–
–
–
–
–
–
–
–
–
–
–
58.2
(1.2)
57.0
–
–
–
(0.6)
–
–
–
(10.6)
(0.6)
–
(11.0)
(11.0)
–
–
(0.6)
(0.6)
(12.2)
(12.2)
58.2
(10.6)
–
–
–
–
–
–
–
–
–
(10.6)
(0.6)
(11.0)
(0.6)
(12.2)
47.6
–
(0.6)
–
(23.8)
49.3
23.2
49.3
(1.2)
1.0
22.0
50.3
47.6
(0.6)
25.5
72.5
(0.2)
72.3
–
–
–
–
–
–
–
–
3.3
3.3
–
3.3
–
(12.2)
–
–
(12.2)
0.1
(0.5)
–
–
(0.5)
(12.2)
0.1
3.9
(0.9)
3.0
3.9
(2.2)
–
–
–
–
–
–
1.7
–
–
–
–
–
–
(2.2)
1.7
1.0
1.0
0.3
0.3
(3.7)
(3.7)
–
–
–
–
–
(2.2)
1.7
1.0
0.3
(3.7)
1.7
–
1.7
–
(2.4)
32.8
1.0
32.8
(0.9)
1.5
0.1
34.3
1.7
1.7
30.4
33.8
0.6
34.4
–
–
–
–
–
–
–
–
4.0
4.0
–
4.0
–
(13.5)
–
–
(13.5)
0.5
8.6
–
–
8.6
(13.5)
0.5
6.1
112.3
(0.1)
37.5
(0.6) 219.3
374.5
(6.4) 368.1
Balance at 30 June 2017
6.1
112.8
(0.1)
39.2
1.1
240.2
399.3
2.8
402.1
93
FINANCIAL STATEMENTS Genus plc | Annual Report 2017 Group Balance Sheet
As at 30 June 2017
Assets
Goodwill
Other intangible assets
Biological assets
Property, plant and equipment
Interests in joint ventures and associates
Other investments
Derivative financial asset
Deferred tax assets
Total non-current assets
Inventories
Biological assets
Trade and other receivables
Cash and cash equivalents
Income tax receivable
Derivative financial asset
Asset held for sale
Total current assets
Total assets
Liabilities
Trade and other payables
Interest-bearing loans and borrowings
Provisions
Obligations under finance leases
Current tax liabilities
Derivative financial liabilities
Total current liabilities
Interest-bearing loans and borrowings
Retirement benefit obligations
Provisions
Deferred tax liabilities
Derivative financial liabilities
Obligations under finance leases
Total non-current liabilities
Total liabilities
Net assets
Equity
Called up share capital
Share premium account
Own shares
Translation reserve
Hedging reserve
Retained earnings
Equity attributable to owners of the Company
Non-controlling interest
Put option over non-controlling interest
Total non-controlling interest
Total equity
Note
14
14
15
16
17
18
24
11
19
15
20
21
24
22
25
23
26
24
25
27
23
11
24
26
29
29
29
29
24
2017
£m
104.7
88.3
279.2
67.5
22.7
5.5
0.1
3.8
571.8
33.1
73.9
88.8
26.5
1.9
1.3
0.3
225.8
797.6
(76.4)
(7.7)
(2.7)
(1.4)
(5.2)
(0.6)
(94.0)
(127.2)
(40.9)
(3.7)
(124.2)
(3.7)
(1.8)
(301.5)
(395.5)
402.1
6.1
112.8
(0.1)
40.0
1.1
239.4
399.3
6.1
(3.3)
2.8
402.1
2016
£m
86.0
78.0
264.6
61.8
24.3
3.6
–
4.7
523.0
35.7
66.4
78.1
34.0
1.0
0.6
0.3
216.1
739.1
(65.1)
(4.6)
(1.2)
(1.1)
(4.9)
(0.5)
(77.4)
(115.3)
(44.5)
–
(118.5)
(12.6)
(2.7)
(293.6)
(371.0)
368.1
6.1
112.3
(0.1)
37.5
(0.6)
219.3
374.5
5.0
(11.4)
(6.4)
368.1
The financial statements were approved and authorised for issue by the Board of Directors on 6 September 2017.
Signed on behalf of the Board of Directors
Karim Bitar
Chief Executive
94
Stephen Wilson
Group Finance Director
Genus plc | Annual Report 2017
Group Statement of Cash Flows
For the year ended 30 June 2017
Net cash flow from operating activities
Cash flows from investing activities
Dividends received from joint ventures and associates
Joint venture loan repayment
Acquisition of subsidiaries, net of cash acquired
Increase in investment in subsidiaries
Acquisition of investment
Acquisition of investment in joint venture
Disposal of subsidiary, net of cash disposed
Disposal of joint venture
Purchase of property, plant and equipment
Purchase of intangible assets
Proceeds from sale of property, plant and equipment
Proceeds from sale of assets held for sale
Net cash outflow from investing activities
Cash flows from financing activities
Drawdown of borrowings
Repayment of borrowings
Payment of finance lease liabilities
Equity dividends paid
Dividend to non-controlling interest
Issue of ordinary shares
Debt issue costs
Note
30
36
36
18
17
14
Net cash (outflow)/inflow from financing activities
Net (decrease)/increase in cash and cash equivalents
Cash and cash equivalents at start of the year
Net (decrease)/increase in cash and cash equivalents
Effect of exchange rate fluctuations on cash and cash equivalents
Total cash and cash equivalents at 30 June
21
2017
£m
34.6
3.8
3.0
(17.5)
(12.0)
(0.3)
(0.2)
–
1.5
(13.4)
(5.5)
1.4
–
(39.2)
68.1
(55.7)
(2.0)
(13.5)
(0.1)
0.5
(0.4)
(3.1)
2016
£m
30.0
2.4
1.0
(3.5)
–
(3.5)
(0.2)
0.1
–
(11.8)
(6.8)
1.8
0.7
(19.8)
53.6
(37.3)
(1.9)
(12.2)
(0.4)
0.1
(1.4)
0.5
(7.7)
10.7
34.0
(7.7)
0.2
26.5
21.3
10.7
2.0
34.0
95
FINANCIAL STATEMENTS Genus plc | Annual Report 2017 Notes to the Group Financial Statements
For the year ended 30 June 2017
1. Reporting entity
Genus plc (the ‘Company’) is a public company limited by shares incorporated in the United Kingdom under the
Companies Act 2006. Its registered office is Matrix House, Basing View, Basingstoke, Hampshire RG21 4DZ. The Group
financial statements for the year ended 30 June 2017 comprise the Company and its subsidiaries (together referred to as
the ‘Group’). We have used the equity method to account for the Group’s interests in joint ventures and associates. Our
business model on pages 4 and 7 explains the Group’s operations and principal activities.
2. Basis of preparation
We have prepared the Group financial statements in accordance with International Financial Reporting Standards (‘IFRSs’)
as adopted by the European Union and therefore comply with Article 4 of the IAS Regulation.
Unless otherwise stated, we have consistently applied the significant accounting policies set out below to all periods
presented in these Group financial statements.
The going concern statement has been included in the Directors’ Report on page 82 and forms part of these statements.
In note 5 we have reclassified the comparative period to reflect the change in operating segments and amendments in
non-current assets between geographical regions, in note 9 we have restated the comparative employee costs to conform
with the current period definition and in note 15 we reclassified a prior year misclassification between the two bovine
categories ‘changes in fair value of biological assets’ and ‘inventory transferred to cost of sales at fair value’, also
impacting the comparative in note 8 – cost of inventories recognised as an expense.
Functional and presentation currency
We present the Group financial statements in Sterling, which is the Company’s functional and presentational currency. All
financial information presented in Sterling has been rounded to the nearest £0.1m.
Use of estimates
Preparing financial statements requires management to make judgements, estimates and assumptions that affect our
application of accounting policies and our reported assets, liabilities, income and expenses. Our actual results may differ
from these estimates. We review our estimates and underlying assumptions on an ongoing basis, and recognise revisions
to accounting estimates in the period in which we revise the estimate and in any future periods affected.
Note 4 provides information about significant areas of estimation uncertainty and the critical judgements we made in
applying accounting policies that have the most effect on the amounts we recognised in the financial statements.
Alternative performance measures (‘APMs’)
In reporting financial information, the Group presents APMs, which are not defined or specified under the requirements of
IFRS.
The Group believes that these APMs, which are not considered to be a substitute for or superior to IFRS measures,
provide stakeholders with additional helpful information on the performance of the business. The APMs are consistent
with how the business performance is planned and reported within the internal management reporting to the Board and
the Executive Leadership Committee. Some of these measures are also used for the purpose of setting remuneration
targets.
The key APMs that the Group uses include: adjusted operating profit, adjusted profit before tax from continuing
operations, adjusted earnings per share, adjusted EBITDA and net debt.
The Group reports some financial measures, on both a reported and constant currency basis. The constant currency basis,
which is an APM, retranslates the previous year results at the average actual periodic exchange rates used in the current
financial year. This measure is presented as a means of eliminating the effects of exchange rate fluctuations on the
year-on-year reported results.
The Group makes certain adjustments to the statutory profit measures in order to derive many of these APMs. The Group’s
policy is to exclude items that are considered to be significant in both nature and/or quantum and where treatment as an
adjusted item provides stakeholders with additional useful information to assess the year-on-year trading performance of
the Group. On this basis, the following were included within adjusted items for the year ended 30 June 2017:
• net IAS 41 valuation movements on biological assets–movements can be materially volatile and do not directly correlate
to the underlying trading performance in the period. Furthermore, the movement is non-cash related and many
assumptions used in the valuation model are based on future projections rather than current trading;
• amortisation of acquired intangible assets–by excluding it helps the comparability between acquired operations and
organically grown operations, as the latter are not able to recognise internally generated intangible assets. Adjusting
for amortisation provides a more consistent basis for comparison between the two;
• share-based payments – this expense is considered to be relatively volatile and is not fully reflective of the current
period trading as the performance criteria are based on earnings per share performance over a three-year period and
include estimates of future period performance; and
• exceptional items – are items which either due to their size or their nature are excluded to improve the understanding
of the Company’s underlying performance, see note 7 for further details.
The reconciliation between operating profit from continuing operations and adjusted operating profit from continuing
operations is shown on the face of the Group Income Statement. All other reconciliations are included within the Financial
Review section.
96
Genus plc | Annual Report 2017 3. Significant accounting policies applied in the current reporting period that relate to the financial statements
as a whole
This section sets out our significant accounting policies that relate to the financial statements as a whole. Where an
accounting policy is generally applicable to a specific note to the financial statement, the policy has been described in
that note. We have also detailed below the new accounting pronouncements that we will adopt in future years and our
current view of the impact they will have on our financial reporting.
Accounting convention
We prepare the Group financial statements under the historical cost convention, except for our biological assets, share-
based payment expense, pension liabilities and derivative financial instruments. In accordance with IFRS, we measure:
biological assets at fair value less point-of-sale costs, which represent the costs of distribution and selling expenses;
share-based payment expense; pension liabilities; and certain financial instruments at fair value.
Basis of consolidation
Subsidiaries are entities the Group controls. We have control of an entity when we are exposed, or have the rights, to
variable returns from the entity and have the ability to affect the returns through power over the entity. In assessing
control, we take into account potential voting rights that we can currently exercise or convert. We fully consolidate the
results of subsidiaries we acquire from the date that control transfers to the Group. We cease consolidating the results of
subsidiaries we cease to control from the date that control passes.
In preparing the Group financial statements, we eliminate intra-Group balances and any unrealised income and expenses
arising from intra-Group transactions. Unrealised gains arising from transactions with equity accounted investees are
eliminated against the investment, to the extent of our interest in the investee. We eliminate unrealised losses in the same
way as unrealised gains, but only to the extent that there is no evidence of impairment.
Foreign currencies
We record foreign currency transactions in the relevant Group entity’s functional currency, at the exchange rate on the
transaction date. At each balance sheet date, we retranslate monetary assets and liabilities denominated in foreign
currencies at the exchange rate on the balance sheet date. We recognise the foreign exchange differences arising on
retranslation in the Group Income Statement.
When non-monetary assets and liabilities are measured at historical cost in a foreign currency, we translate them at the
exchange rate at the transaction date. When non-monetary assets and liabilities are stated at fair value in a foreign
currency, we translate them at the prevailing exchange rate on the date we determined the fair value.
The assets and liabilities of foreign operations, including goodwill arising on consolidation, are translated into Sterling at
the prevailing exchange rates at the balance sheet date. We translate these operations’ revenues and expenses using an
average rate for the period.
When exchange differences arise from translating foreign operations into Sterling, or from the fair value movement of
related effective hedges, we take them to the foreign currency translation reserve. When we dispose of a foreign
operation, we release these differences to the Income Statement. Exchange movements on inter-Company loans
designated as long-term funding are taken to the foreign currency translation reserve, together with any related taxation.
The principal exchange rates were as follows:
US Dollar/£
Euro/£
Brazilian Real/£
Mexican Peso/£
2017
1.27
1.16
4.11
24.61
Average
2016
1.47
1.33
5.47
25.38
2015
1.57
1.32
4.26
22.68
2017
1.30
1.14
4.30
23.51
Closing
2016
1.34
1.20
4.28
24.66
2015
1.57
1.41
4.89
24.68
Revenue
Revenue is the value of sales and royalties receivable from customers, net of trade discounts and value added tax.
The principal components of the Group’s revenue and their respective accounting treatments are:
• Revenue from the sale of bovine and porcine semen, porcine breeding animals, embryos and ancillary products, which
we recognise when risks and rewards transfer to the customer or distributor. This is either when we ship to customers
or on delivery, depending on the terms of sale.
• Royalties, which we recognise when receivable. We receive royalty payments from certain porcine customers based on
key performance variables, such as the number of pigs born per litter, the number of litters born per sow and the
average slaughter weight of the animals born. This amount is confirmed directly to Genus by the customer.
• Revenue from consulting, which represent the amounts we charged for services we provided during the year, including
recoverable expenses but excluding value added tax. We recognise services provided but not yet billed as revenue,
based on a fair value assessment of the work we have delivered and our contractual right to receive payment. Where
unbilled revenue is contingent on a future event, we do not recognise any revenue until the event occurs.
• Revenue from a contract to provide services is recognised by reference to the stage of completion of the contract. The
stage of completion of the contract is determined based on the fair value of services provided to date.
• Revenue from the slaughter of porcine animals, which we recognised when the risks and rewards transfer to the
slaughterhouse.
97
FINANCIAL STATEMENTS Genus plc | Annual Report 2017 Notes to the Group Financial Statements continued
For the year ended 30 June 2017
3. Significant accounting policies applied in the current reporting period that relate to the financial statements as
a whole continued
Research and development
We undertake research with the aim of gaining new scientific or technical knowledge, and recognise this expenditure in
the income statement as we incur it.
The Group constantly monitors its research activities. When research projects achieve technical feasibility and are
commercially viable, our policy is to capitalise further development costs within intangible assets, in accordance with
IAS 38.
Our development activities include developing and maintaining our porcine genetic nucleus herd and our bovine pre-stud
herds. We do not capitalise development expenditure separately for these herds, as their fair value is included in the fair
value of the Group’s biological assets, in accordance with IAS 41.
We disclose the costs of research and herd development activities, as required by IAS 38.
New standards and interpretations
The following new standards and interpretations have been adopted in the current period:
• Amendments to IFRS 11 ‘Accounting for Acquisitions of Interests in Joint ventures’, IAS 27 ‘Equity Method in Separate
Financial Statements’, IAS 1 ‘Disclosure Initiatives’;
• Amendments to IFRS 10, IFRS 12 and IAS 28 ‘Investment entities: Applying the Consolidation Exception’;
• Amendments to IAS 16 and IAS 38 ‘Clarification of Acceptable Method of Depreciation and Amortisation’; and
• ‘Annual Improvements to IFRS 2012 – 2014 Cycle’.
There has been no significant impact on the results or disclosures for the current period from the adoption of these new
standards and interpretations.
New standards and interpretations not yet adopted
At the date of authorisation of these Group financial statements, the following standards and interpretations were in issue
but not yet effective (and in some cases had not yet been adopted by the EU). These standards and interpretations have
not been applied in preparing these Group financial statements:
• ‘Annual improvement 2014-2016 cycle’;
• IFRIC 22 ‘Foreign Currency Transaction and Advance Consideration’;
• IAS 7 (amendments) ‘Disclosure Initiative’;
• IAS 12 ‘Recognition of Deferred Tax Assets for Unrealised Losses’;
• IFRS 2 (amendments) ‘Classification and Measurement of Share-based Payment Transactions’;
• IFRS 9 ‘Financial Instruments’;
• IFRS 10 and IAS 28 (amendments) ‘Sale or Contribution of Assets Between an Investor and its Associate or Joint
Venture’;
• IFRS 15 ‘Revenue from Contracts with Customers’; and
• IFRS 16 ‘Leases’.
The Group is currently assessing the impact of the new pronouncements on its results, financial position and cash flows.
It is not practicable to provide a reasonable estimate of the effect of these standards until a detailed review has
been completed.
4. Critical accounting judgements and key sources of estimation uncertainty
In applying the Group’s accounting policies, which are described in note 3 or in the specific note the policy relates to, the
Directors are required to make judgements, estimates and assumptions about the carrying amounts of assets and
liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on
historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are
recognised in the period in which the estimate is revised, if the revision affects only that period, or in the period of the
revision and future periods, if the revision affects both current and future periods.
Critical judgements
Defined benefit pension schemes (note 27)
Amounts recorded in the financial statements in respect of defined benefit pension schemes are also based on significant
estimates. Judgements required included the extent to which we should provide for any amounts that might become
payable under our joint and several liability in respect of the Milk Pension Fund (‘MPF’), and the extent of additional
liability required under IFRIC 14.
Estimates and key sources of estimation uncertainty
Determination of the fair value of biological assets (note 15)
Determining the fair values of our bovine and porcine biological assets requires significant estimates and assumptions.
Following is a list of these significant estimates and assumptions, showing whether we consider them to be observable or
unobservable inputs to the fair value determination. In addition we identify those inputs that are ‘readily obtainable
transactional data’ or ‘open market prices’.
98
Genus plc | Annual Report 2017 4. Critical accounting judgements and key sources of estimation uncertainty continued
Significant estimates and assumptions
Observable/unobservable
Bovine
Long-term dairy volume growth rate
Expected unit prices
Animals' useful lifespan
Discount rate
Porcine
(general)
Animals' useful lifespan
The proportion of animals that go to slaughter
The mix of boars and gilts
Unobservable
Unobservable
Observable
Unobservable
Observable
Observable
Observable
Porcine (pure
line herds)
Number of future generations attributable to the
current herds
Observable
Fair value prices achieved on sales
Animals' expected useful lifespan and productivity Observable
Discount rate
Observable
Unobservable
n/a
n/a
readily obtainable
n/a
readily obtainable
readily obtainable
readily obtainable
readily obtainable
open market prices
readily obtainable
n/a
Impairment of goodwill and intangible assets (note 14)
Determining whether goodwill and intangible assets are impaired requires us to consider any specific impairment
indicators and to estimate the value in use of the CGUs to which we have allocated goodwill and intangible tangible
assets. The value in use calculation requires us to estimate the future cash flows arising from the CGU, the appropriate
discount rate and the long-term growth rates, in order to calculate present value.
5. Segmental information
IFRS 8 ‘Operating Segments’ requires operating segments to be identified on the basis of internal reports about
components of the Group that are regularly reviewed by the Group Chief Executive and the Board to allocate resources to
the segments and to assess their performance. For management purposes effective from 1 July 2016, the Group’s
operating and reporting structure comprises three operating segments: Genus PIC, Genus ABS and Research and
Development. These segments are the basis on which the Group reports its segmental information. The principal activities
of each segment are as follows:
Genus PIC – our global porcine sales business;
Genus ABS – our global bovine sales business; and
Research and Development – our global spend on research and development.
A segment analysis of revenue, operating profit, depreciation, amortisation and non-current asset additions and segment
assets and liabilities are detailed below. We do not include our adjusting items in the segments, as we believe these do not
reflect the underlying progress of the segments. The accounting policies of the reportable segments are the same as the
Group’s accounting policies, as described in the financial statements.
Revenue
Genus PIC
Genus ABS
Research and Development
Research
Porcine Product Development
Bovine Product Development
2017
£m
249.5
195.9
–
10.7
3.0
13.7
2016
£m
207.5
172.8
–
8.0
–
8.0
459.1
388.3
Operating profit by segment is set out below and reconciled to the Group’s adjusted operating profit. A reconciliation of
adjusted operating profit to profit for the year is shown on the Group Income Statement.
99
FINANCIAL STATEMENTS Genus plc | Annual Report 2017
Notes to the Group Financial Statements continued
For the year ended 30 June 2017
5. Segmental information continued
Adjusted operating profit
Genus PIC
Genus ABS
Research and Development
Research
Porcine Product Development
Bovine Product Development
Adjusted segment operating profit
Central
Adjusted operating profit
2017
£m
87.7
22.3
(11.9)
(16.6)
(14.2)
(42.7)
67.3
(12.2)
55.1
2016
£m
71.7
23.3
(8.0)
(13.5)
(12.9)
(34.4)
60.6
(11.3)
49.3
Our business is not highly seasonal and our customer base is diversified, with no individual customer generating more
than 2% of revenue.
Other segment information
Genus PIC
Genus ABS
Research and Development
Research
Porcine Product Development
Bovine Product Development
Segment total
Central
Total
Genus PIC
Genus ABS
Research and Development
Research
Porcine Product Development
Bovine Product Development
Segment total
Central
Total
Depreciation
Amortisation
Additions to non-current assets
2017
£m
0.8
2.1
0.3
1.9
1.4
3.6
6.5
2.3
8.8
2016
£m
0.8
1.7
–
1.8
1.4
3.2
5.7
2.2
7.9
2017
£m
6.0
2.1
0.9
–
2.2
3.1
11.2
–
11.2
2016
£m
5.9
1.1
–
–
–
–
7.0
–
7.0
2017
£m
1.1
3.4
2.5
2.6
5.6
10.7
15.2
5.0
20.2
2016
£m
1.4
2.6
3.6
1.7
7.3
12.6
16.6
4.3
20.9
Segment assets
Segment liabilities
2017
£m
258.3
132.8
5.9
182.4
202.7
391.0
782.1
15.5
797.6
2016
£m
233.5
144.4
3.7
146.7
203.1
353.5
731.4
7.7
739.1
2017
£m
(60.1)
(41.1)
(1.4)
(72.0)
(52.6)
(126.0)
(227.2)
(168.3)
(395.5)
2016
£m
(50.3)
(47.7)
(0.4)
(59.6)
(51.2)
(111.2)
(209.2)
(161.8)
(371.0)
Exceptional items of £2.5m expense (2016: £36.3m credit), relate to Genus ABS (£6.9m expense), Genus PIC (£2.1m
expense) and our central segment (£6.5m credit). Note 7 provides details of these exceptional items.
We consider share-based payment expenses on a Group-wide basis and do not allocate them to reportable segments.
100
Genus plc | Annual Report 2017 5. Segmental information continued
Geographical information
The analysis of revenue by geographical area is stated on the basis of where the legal entity is incorporated and therefore
in the country the revenue will be reported. The Group’s revenue by geographical segment is analysed below:
Revenue
North America
Latin America
Rest of Europe, Middle East and Africa
UK
Asia
Non-current assets (excluding deferred taxation and financial instruments)
North America
Latin America
Rest of Europe, Middle East and Africa
UK
Asia
6.Revenue
Sale of animals, semen, embryos and associated products and services
Royalties – animal and semen
Consulting services
Interest income (see note 10)
2017
£m
214.5
71.4
48.5
70.0
54.7
459.1
2017
£m
407.9
47.2
37.1
60.9
14.8
567.9
2017
£m
335.7
116.1
7.3
459.1
0.8
459.9
2016
£m
178.7
58.6
40.7
65.2
45.1
388.3
2016
£m
376.0
43.2
22.0
59.6
17.5
518.3
2016
£m
283.5
97.8
7.0
388.3
0.1
388.4
7. Exceptional items
Accounting policy
The Group presents exceptional items separately, as we believe it helps to improve the understanding of the Company’s
underlying performance.
In determining whether an item should be presented as exceptional, we consider items which are material either because
of their size or their nature, and those which are non-recurring. For an item to be considered as exceptional, it must
initially meet at least one of the following criteria:
• it is a one-off material item;
• it is has been directly incurred as the result of either an acquisition and/or integration or other major
restructuring programme;
• it has been previously classified as an exceptional item, and as such consistent accounting treatment is being
applied; or
• it is unusual in nature e.g. outside the normal course of business.
If an item meets at least one of the criteria, we then exercise judgement as to whether the item should be classified
as exceptional.
The tax impact of the exceptional items is disclosed in note 11.
Operating (expense)/income:
Pension-related
Litigation
Acquisition and integration
Other (including restructuring)
2017
£m
5.7
(5.3)
(0.6)
(2.3)
(2.5)
2016
£m
44.2
(6.9)
(0.2)
(0.8)
36.3
101
FINANCIAL STATEMENTS Genus plc | Annual Report 2017 Notes to the Group Financial Statements continued
For the year ended 30 June 2017
7. Exceptional items continued
Pension-related
On 23 June 2017, National Milk Records plc ('NMR') withdrew from the MPF under a Flexible Apportionment Arrangement
between NMR, Genus and the Trustees of the MPF. In return for the right to withdraw from the MPF, NMR made a one-off,
lump sum cash payment of £10.1m to the MPF, equivalent to the undiscounted value of all NMR's future payments under
the existing MPF recovery plan which extends to March 2026; and NMR also made a payment to Genus of £4.7m, with
£1.4m being satisfied by the issue NMR shares.
As a result of the NMR withdrawal, Genus has recognised £5.7m as an exceptional credit, with £4.5m (£4.7m payment net
of fees) being received directly from NMR, and £1.2m from the MPF pension scheme reflecting the impact of NMR paying
undiscounted amounts into the scheme. See note 27 for further details.
During the prior year, a gain of £43.9m arose as a result of changing the index used for pensions and deferred pension
increases in the MPF from RPI to CPI, and a £0.3m settlement gain arose from members leaving the same scheme.
Litigation
Litigation includes legal fees of £5.3m (2016: £5.4m) related to the action by ABS Global, Inc. (‘ABS’) against Inguran, LLC
(aka Sexing Technologies (‘ST’)) and £nil (2016: £1.5m (US$2m)) for up-front damages related to patent infringement and
confidential information.
On 14 July 2014, ABS launched a legal action against ST in the US District Court for the Western District of Wisconsin
alleging, among other matters, that ST: (i) has a monopoly in the processing of sexed bovine semen in the US; and
(ii) unlawfully maintains this monopoly through anticompetitive conduct. The legal action aimed to remove these barriers
and allow free and fair competition in the sexed bovine semen processing market (‘ABS Action’). In parallel with the
ABS Action, ABS also filed Inter-Partes Review applications (‘IPR’) before the US Patent Office challenging the validity of
several of ST’s group patents, including US Patent No. 7,195,920 (the ‘’920 patent’), US Patent No. 7,820,425 (the
‘’425 patent’), US Patent No. 8,206,987 (the ‘’987 patent’) and US Patent No. 8,198,092 (the ‘’092 patent’).
ST and its subsidiary XY Inc. filed an Answer and Counterclaim to the ABS Action, denying any anticompetitive activities,
and alleging, among other matters, that the Company and ABS infringed the ’920, ’425, ’987 and ’092 patents.
On 29 April 2015, the Patent Trial and Appeal Board (‘PTAB’) ruled that ABS had not demonstrated a reasonable likelihood
of prevailing on its assertion that relevant claims of the ’987 patent were invalid and declined to order the institution of a
trial. However, trials were instituted for the other three patents. On 11 January and 15 April 2016, the PTAB ruled that the
’920 and ’425 patents were unpatentable. ST has appealed these decisions. The parties await a decision from the PTAB on
whether the ’092 patent is unpatentable.
On 1 August 2016, the trial of the ABS Action commenced and lasted for approximately two weeks. Following the jury
verdicts, both sides filed post-trial motions. On 31 March 2017, the Court entered a judgment which confirmed: (i) the
Company and ABS had proved that ST had wilfully maintained a monopoly in the market for sexed bovine semen
processing in the US since July 2012, and awarded a permanent injunction against ST which, among other matters,
relieved ABS of certain research, marketing and other non-compete restrictions contained in the 2012 semen sorting
agreement between the parties; (ii) ST's ’987 and ’092 patents were valid and infringed; and (iii) that ABS had materially
breached the confidentiality obligations under the 2012 semen sorting agreement. The Court also confirmed that: (i) the
Company and ABS should pay ST an upfront amount of US$750,000 and an ongoing royalty of US$1.25 per straw on
commercialisation of the Genus Sexed Semen technology for the use of ST's ’987 patent in the US; (ii) the Company and
ABS should pay ST an up front payment of US$500,000 and an ongoing royalty of US$0.50 per straw for the use of ST’s
’092 patent in the US; and (iii) ABS should pay ST damages of US$750,000 for having breached the confidentiality
obligations under the 2012 semen sorting agreement. Both parties have appealed the Court’s decision.
On 7 June 2017, ST, XY LLC and Cytonome/ST, LLC filed proceedings against ABS Global, Inc., the Company and Premium
Genetics (UK) Limited (‘PG’) in the United States District Court for the Western District of Wisconsin (‘New Litigation’).
The New Litigation alleges that ABS and the Company infringe seven patents and asserts trade secret and breach of
contract claims. ABS, the Company and PG have filed a Motion to dismiss the trade secret and breach of contract claims.
The Company and ABS intend to vigorously defend the patent infringement claims.
Acquisitions and integration
During the period, £0.6m of expenses were incurred, with £1.6m of expenses in relation to acquisitions and integration,
principally of De Novo Genetics and Hermitage Genetics, being partially offset by a gain on cancellation of the IVB
put option.
Other (including restructuring)
Included within ‘other’ of £2.3m is £1.8m restructuring costs primarily relating to ABS operating business, especially
supply chain.
102
Genus plc | Annual Report 2017 8. Operating profit
Operating costs comprise:
Cost of sales excluding net IAS 41 valuation movement on biological assets and amortisation of
multiplier contract intangible assets
Net IAS 41 valuation movement on biological assets
Amortisation of multiplier contract intangible assets
Cost of goods sold
Other cost of sales
Amortisation of customer relationship intangible assets
Other cost of sales
Research and Development expenditure
Amortisation of technology and licences and patents
Research and Development costs
Administrative expenses
Share-based payment expense
Amortisation of software, licences and patents
Exceptional items within administrative expenses
Total administrative expenses
Total operating costs
Profit for the year is stated after charging/(crediting):
Net foreign exchange losses
Depreciation of owned fixed assets
Depreciation of assets held under finance leases and hire purchase contracts
Loss/(profit) on disposal of fixed assets
Profit on sale of asset held for sale
Operating lease rentals
– plant and machinery
– other
Employee costs (see note 9)
Cost of inventories recognised as an expense
Auditor’s remuneration is as follows:
Fees payable to the Company’s auditor and their associates for the audit of the Company’s
Annual Report and financial statements
Fees payable to the Company’s auditor and their associates for other services to the Group
– The audit of the Company’s undertakings
Total audit fees
Tax compliance services
Other services
Total non-audit fees
Total fees to the Group’s auditor
Fees payable to other auditors of Group companies
2017
£m
2016
£m
(199.7)
(1.1)
(0.2)
(201.0)
(88.2)
(5.8)
(94.0)
(41.5)
(3.9)
(45.4)
(72.1)
(4.6)
(1.3)
(2.5)
(80.5)
(157.6)
(17.1)
(0.2)
(174.9)
(81.0)
(3.6)
(84.6)
(34.4)
(2.3)
(36.7)
(65.1)
(3.8)
(0.9)
36.3
(33.5)
(420.9)
(329.7)
2017
£m
0.1
7.1
1.7
0.2
–
4.0
4.5
137.6
98.5
2017
£m
0.3
0.5
0.8
0.1
0.2
0.3
1.1
–
2016
£m
0.5
6.4
1.5
(0.2)
(0.2)
4.0
3.4
118.4
81.9
2016
£m
0.1
0.5
0.6
0.2
–
0.2
0.8
–
Non-audit tax services principally comprise tax compliance support services. Other services include financial due
diligence provided in relation to the acquisition of Hermitage Genetics. These services fall within the non-audit services
policy approved by the Company’s Audit Committee.
103
FINANCIAL STATEMENTS Genus plc | Annual Report 2017 Notes to the Group Financial Statements continued
For the year ended 30 June 2017
9. Employee costs
This note shows the total employment costs and the average number of people employed by segment during the year.
Employee costs, including Directors’ remuneration, amounted to:
Wages and salaries (including bonuses and sales commission)
Social security costs
Contributions to defined contribution pension plans
Share-based payment expense (excluding National Insurance)
The number of full time equivalent employees, including Executive Directors, was as follows:
2017
£m
118.4
12.1
3.5
3.6
137.6
2016
£m
102.0
10.0
3.0
3.4
118.4
Genus PIC
Genus ABS
Research and Development
Central
Included in the totals above:
UK
Year end
Average monthly
2017
Number
669
1,613
172
81
2,535
2016
Number
705
1,598
136
62
2,501
2017
Number
686
1,603
163
69
2,521
2016
Number
722
1,601
137
58
2,518
702
705
704
729
The Directors’ Remuneration Report sets out details of the Directors’ remuneration, pensions and share options.
10. Net finance costs
Net finance costs mainly arise from interest due on bank loans, pension scheme liabilities, amortisation of debt issue costs
and the results of hedging transactions used to manage foreign exchange and interest rate movements.
Accounting policy
We recognise interest income and interest payable in the Income Statement, as they accrue.
Interest payable on bank loans and overdrafts
Amortisation of debt issue costs
Other interest payable
Net interest cost in respect of pension scheme liabilities
Net interest cost on derivative financial instruments
Total interest expense
Interest income on bank deposits
Total interest income
Net finance costs
2017
£m
(2.7)
(0.4)
(0.1)
(1.2)
(0.1)
(4.5)
0.8
0.8
(3.7)
2016
£m
(1.7)
(0.5)
(0.1)
(2.2)
(0.2)
(4.7)
0.1
0.1
(4.6)
11. Taxation and deferred taxation
This note explains how our Group tax charge arises. The deferred tax section of the note also provides information on our
expected future tax charges and sets out the tax assets and liabilities held across the Group together with our view on
whether or not we expect to be able to make use of them in the future.
Accounting policies
Tax on the profit or loss for the year comprises current and deferred tax. We recognise tax in the income
statement, unless:
• it relates to items we have recognised directly in equity, in which case we recognise it in equity; or
• it arises as a fair value adjustment in a business combination.
We provide for current tax, including UK corporation tax and foreign tax, at the amounts we expect to pay (or recover),
using the tax rates and the laws enacted or substantively enacted at the balance sheet date, together with any
adjustments to tax payable in respect of previous years.
Deferred tax is tax we expect to pay or recover due to differences between the carrying amounts of our assets and
liabilities in our financial statements and the corresponding tax bases used in calculating our taxable profit. We account
for deferred tax using the balance sheet liability method.
104
Genus plc | Annual Report 2017 11. Taxation and deferred taxation continued
We generally recognise deferred tax liabilities for all taxable temporary differences, and deferred tax assets to the extent
that we will probably have taxable profits to utilise deductible temporary differences against. We do not recognise these
assets and liabilities if the temporary difference arises from:
• our initial recognition of goodwill; or
• our initial recognition of other assets and liabilities in a transaction (other than a business combination) that affects
neither our taxable profit nor our accounting profit.
We recognise deferred tax liabilities for taxable temporary differences arising on our investments in subsidiaries, and
interests in joint ventures and associates, except where we can control the reversal of the temporary difference, and it is
probable that it will not reverse in the foreseeable future.
We calculate deferred tax at the tax rates we expect to apply in the period when we settle the liability or realise the asset.
We charge or credit deferred tax in the Income Statement, except when it relates to items we have charged or credited
directly to equity, in which case the deferred tax is also dealt with in equity.
Income tax expense
Current tax expense
Current period
Adjustment for prior periods
Total current tax expense in the Group Income Statement
Deferred tax expense
Origination and reversal of temporary differences
Adjustment for prior periods
Total deferred tax expense in the Group Income Statement
Total income tax expense excluding share of income tax of equity accounted investees
Share of income tax of equity accounted investees (see note 17)
Total income tax expense in the Group Income Statement
Reconciliation of effective tax rate
Profit before tax
Add back share of income tax of equity-accounted investees
Profit before tax excluding share of income tax of equity-accounted
investees
Income tax at UK corporation tax of 19.75% (2016: 20.00%)
Effect of tax rates in foreign jurisdictions
Non-deductible expenses
Tax exempt income and incentives
Change in tax rate
Movements in recognition of tax losses
Change in unrecognised temporary differences
Tax overprovided in prior periods
Tax on undistributed reserves
Total income tax expense in the Group Income Statement
2017
%
19.75
7.83
0.70
(5.00)
(2.85)
0.70
(0.70)
(0.95)
(0.95)
18.53
2017
£m
40.7
1.4
42.1
8.3
3.3
0.3
(2.1)
(1.2)
0.3
(0.3)
(0.4)
(0.4)
7.8
2017
£m
9.9
0.4
10.3
(2.6)
(1.3)
(3.9)
6.4
1.4
7.8
2016
%
20.00
1.35
0.48
(4.00)
1.28
1.12
(0.32)
(0.49)
(0.16)
19.26
2016
£m
10.4
(1.4)
9.0
0.7
0.9
1.6
10.6
1.4
12.0
2016
£m
60.9
1.4
62.3
12.5
0.8
0.3
(2.5)
0.8
0.7
(0.2)
(0.3)
(0.1)
12.0
The tax rate for the year depends on our mix of profits by country and our ability to recognise deferred tax assets in
respect of losses in some of our smaller territories. Tax is calculated using prevailing tax legislation, reliefs, and existing
interpretations and practice. The Group’s future tax charge and effective tax rate could be affected by factors such as
countries reforming their tax legislation to implement the OECD’s BEPS recommendations and by European Commission
initiatives including state aid investigations.
The tax credit attributable to exceptional items is £1.5m (2016: charge of £5.4m).
105
FINANCIAL STATEMENTS Genus plc | Annual Report 2017 Notes to the Group Financial Statements continued
For the year ended 30 June 2017
11. Taxation and deferred taxation continued
Income tax recognised directly in the Statement of Comprehensive Income and Statement of Changes in Equity
Income tax recognised directly to the Statement of Comprehensive Income
Financial instruments
Foreign exchange differences on long-term intra-Group currency loans and balances
Actuarial movement on retirement benefit obligations
Translation of biological assets, intangible assets and finance leases
Income tax recognised directly to the Statement of Changes in Equity
Share-based payment expense
2017
£m
0.4
0.4
(0.4)
3.8
4.2
2016
£m
(0.1)
(0.1)
(4.5)
17.0
12.3
(0.4)
(0.1)
Unrecognised deferred tax assets and liabilities
At the balance sheet date, the Group had unused tax losses which were available for offset against future profits, with a
potential tax benefit of £15.6m (2016: £15.2m). We have recognised a deferred tax asset in respect of £2.4m (2016: £2.5m)
of these benefits as we expect these losses to be offset against future profits of the relevant jurisdictions in the near term.
We have not recognised a deferred tax asset in respect of the remaining £13.2m (2016: £12.7m), due to uncertainty about
the availability of future taxable profits in the relevant jurisdictions.
At 30 June 2017, the expiry dates of deferred tax assets in respect of losses available for the carry forward were
as follows:
Losses for which a deferred tax asset is recognised
Losses for which no deferred tax asset is recognised
Expiring within
1 and 10
years
£m
11 and 20
years
£m
–
–
–
0.2
–
0.2
Unlimited
£m
2.2
13.2
15.4
At 30 June 2016, the expiry dates of deferred tax assets in respect of losses available for the carry forward were
as follows:
Losses for which a deferred tax asset is recognised
Losses for which no deferred tax asset is recognised
Expiring within
1 and 10
years
£m
11 and 20
years
£m
–
–
–
0.3
–
0.3
Unlimited
£m
2.2
12.7
14.9
Total
£m
2.4
13.2
15.6
Total
£m
2.5
12.7
15.2
The gross value of losses for which deferred tax assets are recognised is £12.9m (2016: £12.5m). The gross value of losses
for which deferred tax assets are not recognised is £44.9m (2016: £41.5m).
We have not recognised deferred tax liabilities totalling £4.5m (2016: £4.5m) for the withholding tax and other taxes that
would be payable on the unremitted earnings of certain overseas subsidiaries. This is because we can control the timing
and reversal of these differences and it is probable that the differences will not reverse in the foreseeable future.
Recognised deferred tax assets and liabilities
We have offset deferred tax assets and liabilities above, to the extent that they arise in the same tax jurisdiction.
The following is the analysis of the deferred tax balances:
Deferred tax assets
Deferred tax liabilities
2017
£m
(3.8)
124.2
120.4
2016
£m
(4.7)
118.5
113.8
UK deferred tax assets and liabilities are stated at 17%, which is the UK headline rate of tax effective from 1 April 2020. The
tax effect of timing differences reversing in the UK between the reporting date and 1 April 2020 at current rates over 17%
is immaterial.
106
Genus plc | Annual Report 2017 11. Taxation and deferred taxation continued
Movement in net deferred tax liabilities during the year
Property, plant and
equipment
Intangible assets
Biological assets
Retirement benefit
obligations
Share-based payment
expense
Short-term timing
differences
Tax loss carry-forwards
Property, plant and
equipment
Intangible assets
Biological assets
Retirement benefit
obligations
Share-based payment
expense
Short-term timing
differences
Tax loss carry-forwards
Balance
brought
forward
1 July 2016
£m
Recognised
in Income
Statement
£m
Changes
in tax rate
recognised
in Income
Statement
£m
Prior year
adjustments
recognised
in Income
Statement
£m
Recognised
in equity
£m
Acquisitions
£m
Foreign
exchange
difference
£m
Balance
carried
forward
30 June 2017
£m
7.0
18.7
109.7
(9.6)
(2.2)
(7.3)
(2.5)
113.8
1.2
(2.2)
(0.1)
1.3
(0.6)
(0.8)
–
(1.2)
0.3
(0.4)
(1.6)
0.2
–
(0.2)
0.1
(1.6)
(0.1)
–
–
0.1
0.2
(1.2)
–
(1.0)
–
–
3.7
(0.4)
–
1.2
–
4.5
–
4.4
–
–
–
0.8
–
5.2
0.2
0.3
–
(0.1)
–
0.3
–
0.7
8.6
20.8
111.7
(8.5)
(2.6)
(7.2)
(2.4)
120.4
Balance
brought
forward
1 July 2015
£m
Recognised
in Income
Statement
£m
Changes
in tax rate
recognised
in Income
Statement
£m
Prior year
adjustments
recognised
in Income
Statement
£m
Recognised
in equity
£m
Acquisitions
£m
Foreign
exchange
difference
£m
Balance
carried
forward
30 June 2016
£m
4.4
18.5
97.5
(13.2)
(1.9)
(6.4)
(1.5)
97.4
0.7
(1.7)
(5.5)
7.9
(0.5)
(1.3)
(1.1)
(1.5)
0.2
(0.4)
1.0
0.7
0.3
0.2
0.2
2.2
0.6
(0.2)
–
–
–
0.5
–
0.9
–
0.8
16.0
(4.5)
(0.1)
0.2
–
12.4
–
0.3
0.7
–
–
–
–
1.0
1.1
1.4
–
(0.5)
–
(0.5)
(0.1)
1.4
7.0
18.7
109.7
(9.6)
(2.2)
(7.3)
(2.5)
113.8
12. Earnings per share
Basic earnings per share is the profit generated for the financial year attributable to equity shareholders divided by the
weighted average number of shares in issue during the year.
Basic earnings per share from continuing operations
Basic earnings per share
2017
(pence)
53.8
2016
(pence)
81.1
The calculation of basic earnings per share from continuing operations for the year ended 30 June 2017 is based on the
net profit attributable to owners of the Company from continuing operations of £32.8m (2016: £49.3m) and a weighted
average number of ordinary shares outstanding of 60,944,000 (2016: 60,814,000), which is calculated as follows:
Weighted average number of ordinary shares (basic)
Issued ordinary shares at the start of the year
Effect of own shares held
Shares issued on exercise of stock options
Shares issued in relation to Employee Benefit Trust
Weighted average number of ordinary shares in year
2017
000s
61,013
(163)
47
47
60,944
2016
000s
60,968
(177)
23
–
60,814
107
FINANCIAL STATEMENTS Genus plc | Annual Report 2017 Notes to the Group Financial Statements continued
For the year ended 30 June 2017
12. Earnings per share continued
Diluted earnings per share from continuing operations
Diluted earnings per share
2017
(pence)
53.0
2016
(pence)
80.3
The calculation of diluted earnings per share from continuing operations for the year ended 30 June 2017 is based on the
net profit attributable to owners of the Company from continuing operations of £32.8m (2016: £49.3m) and a weighted
average number of ordinary shares outstanding, after adjusting for the effects of all potential dilutive ordinary shares, of
61,833,000 (2016: 61,387,000), which is calculated as follows:
Weighted average number of ordinary shares (diluted)
Weighted average number of ordinary shares (basic)
Dilutive effect of share options
2017
000s
60,944
889
Weighted average number of ordinary shares for the purposes of diluted earnings per share
61,833
Adjusted earnings per share from continuing operations
2016
000s
60,814
573
61,387
Adjusted earnings per share
Diluted adjusted earnings per share
2017
(pence)
69.4
68.4
2016
(pence)
60.7
60.1
Adjusted earnings per share is calculated on profit before net IAS 41 valuation movement on biological assets,
amortisation of acquired intangible assets, share-based payment expense and exceptional items, after charging taxation
associated with those profits, of £42.3m (2016: £36.9m), which is calculated as follows:
Profit before tax from continuing operations
Add/(deduct):
Net IAS 41 valuation movement on biological assets
Amortisation of acquired intangible assets
Share-based payment expense
Exceptional items (see note 7)
Net IAS 41 valuation movement on biological assets in joint ventures
Tax on joint ventures and associates
Attributable to non-controlling interest
Adjusted profit before tax
Adjusted tax charge
Adjusted profit after tax
Effective tax rate on adjusted profit
Reconciliation of effective tax rate
Total income tax expense in the Group Income Statement
Net IAS 41 valuation movement on biological assets
Amortisation of acquired intangible assets
Share-based payment expense
Exceptional items (see note 7)
Net IAS 41 valuation movement on biological assets in joint ventures
Attributable to non-controlling interest
Adjusted profit before tax
108
2017
£m
40.7
1.1
8.7
4.6
2.5
(0.5)
1.4
(2.1)
56.4
(14.1)
42.3
25.0%
2017
Tax
£m
7.8
1.7
3.1
0.5
1.5
(0.2)
(0.3)
14.1
2016
£m
60.9
17.1
6.1
3.8
(36.3)
(1.9)
1.4
(1.4)
49.7
(12.8)
36.9
25.8%
2017
%
18.5
154.5
35.6
10.9
60.0
40.0
14.3
25.0
2017
Profit
£m
42.1
1.1
8.7
4.6
2.5
(0.5)
(2.1)
56.4
Genus plc | Annual Report 2017 12. Earnings per share continued
Total income tax expense in the Group Income Statement
Net IAS 41 valuation movement on biological assets
Amortisation of acquired intangible assets
Share-based payment expense
Exceptional items (see note 7)
Net IAS 41 valuation movement on biological assets in joint ventures
Attributable to non-controlling interest
Adjusted profit before tax
2016
Profit
£m
62.3
17.1
6.1
3.8
(36.3)
(1.9)
(1.4)
49.7
2016
Tax
£m
12.0
4.5
2.3
0.4
(5.4)
(0.6)
(0.4)
12.8
13. Dividends
Dividends are one type of shareholder return, historically paid to our shareholders in December and March.
Amounts recognised as distributions to equity holders in the year
Final dividend
Final dividend for the year ended 30 June 2016 of 14.7 pence per share
Final dividend for the year ended 30 June 2015 of 13.4 pence per share
Interim dividend
Interim dividend for the year ended 30 June 2017 of 7.4 pence per share
Interim dividend for the year ended 30 June 2016 of 6.7 pence per share
2017
£m
9.0
–
4.5
–
13.5
2016
%
19.3
26.3
37.7
10.5
14.9
31.6
28.6
25.8
2016
£m
–
8.1
–
4.1
12.2
The Directors have proposed a final dividend of 16.2 pence per share for 2017. This is subject to shareholders’ approval at
the Annual General Meeting and we have therefore not included it as a liability in these financial statements.
14. Intangible assets
Our Group Balance Sheet contains significant intangible assets, mainly in relation to goodwill, acquired technology,
customer relationships and our Genus Sexed Semen (‘GSS’) development project. We recognise that accounting for
intangible assets is an area which includes critical accounting judgements and key sources of estimation uncertainty. See
note 4.
Accounting policies
Identifiable intangible assets are recognised when the Group controls the asset, it is probable that future economic
benefits attributed to the asset will flow to the Group and the cost of the asset can be reliably measured.
Goodwill
When we acquire a subsidiary, associate or joint venture, the goodwill arising is the excess of the acquisition cost,
excluding transaction costs, over our interest in the net fair value of the acquiree’s identifiable assets, liabilities and
contingent liabilities. Identifiable assets include intangible assets which could be sold separately or which arise from legal
rights, regardless of whether those rights are separable.
We state goodwill at cost less any accumulated impairment losses. We allocate goodwill to CGUs, which are the smallest
identifiable group of assets that generate cash inflows that are largely independent of the cash inflows from other assets
or groups of assets. We do not amortise goodwill but we do test it annually for impairment.
IAS 21 requires us to treat the following as assets and liabilities of the acquired entity, rather than of the acquiring entity:
• goodwill arising on acquisition of a foreign operation; and
• any fair value adjustments we make on acquisition to the carrying amounts of the acquiree’s assets and liabilities.
We therefore express them in the foreign operation’s functional currency and retranslate them at the balance sheet date.
109
FINANCIAL STATEMENTS Genus plc | Annual Report 2017 Notes to the Group Financial Statements continued
For the year ended 30 June 2017
14. Intangible assets continued
Intangible assets
Intangible assets that we have acquired in a business combination since 1 April 2005 are identified and recognised
separately from goodwill, where they meet the definition of an intangible asset and we can reliably measure their fair
values. Their cost is their fair value at the acquisition date.
After their initial recognition, we report these intangible assets at cost less accumulated amortisation and accumulated
impairment losses. This is the same basis as for intangible assets acquired separately.
The estimated useful lives for intangible assets are as follows:
Porcine and bovine genetics technology 20 years
15 years
Multiplier contracts
10 to 17 years
Customer relationships
10 years
Genus sexed semen
term of agreement (4 years)
Patents and licences
2 to 10 years
Software
Intangible assets acquired separately
We carry intangible assets acquired other than through a business combination at cost less accumulated amortisation and
any impairment loss. We charge amortisation on a straight-line basis over their estimated useful lives, and review the
useful life and amortisation method at the end of each financial year, accounting for the effect of any changes in estimate
on a prospective basis.
Impairment
We review the carrying amounts of our tangible and intangible assets at each balance sheet date, to determine whether
there is any indication of impairment. If any indication exists, we estimate the asset’s recoverable amount.
For goodwill, and tangible and intangible assets that are not yet available for use, we estimate the recoverable amount at
each balance sheet date. The recoverable amount is the greater of their net selling price and value in use. In assessing
value in use, we discount the estimated future cash flows to their present value, using a pre-tax discount rate of 10.7%
(2016: 10.8%), which is derived from the Group’s weighted average cost of capital. For some countries we add a premium
to this rate, to reflect the risk attributable to that country. If the asset does not generate largely independent cash inflows,
we determine the recoverable amount for the CGU that the asset belongs to.
We recognise an impairment loss in the income statement whenever the carrying amount of an asset or its CGU exceeds
its recoverable amount.
When we recognise an impairment loss in respect of a CGU, we first allocate it to reduce the carrying amount of any
goodwill allocated to CGUs, and then apply any remaining loss to reduce the carrying amount of the unit’s other assets on
a pro rata basis.
Reversals of impairment
We reverse an impairment loss in respect of assets other than goodwill when the impairment loss may no longer exist and
we have changed the estimates we used to determine the recoverable amount.
We only reverse an impairment loss to the extent that the asset’s carrying amount does not exceed the carrying amount it
would have had, net of depreciation or amortisation, if we had not recognised the impairment loss.
110
Genus plc | Annual Report 2017
14. Intangible assets continued
Brand,
multiplier
contracts
and
customer
relationships
£m
Separately
identified
acquired
intangible
assets
£m
Technology
£m
Software
£m
Genus
Sexed
Semen
£m
Patents,
licence and
other
£m
Cost
Balance at 1 July 2015
Additions
Acquisition
Effect of movements in
exchange rates
Balance at 30 June
2016
Additions
Acquisition (see
note 36)
Reclassified from
tangible fixed assets
Effect of movements in
exchange rates
Balance at 30 June
2017
Amortisation and
impairment losses
Balance at 1 July 2015
Amortisation for the
year
Effect of movements in
exchange rates
Balance at 30 June
2016
Reclassified from
tangible fixed assets
Amortisation for the
year
Effect of movements in
exchange rates
Balance at 30 June
2017
46.1
–
–
0.5
46.6
–
6.7
–
61.5
–
0.7
10.5
107.6
–
0.7
11.0
72.7
119.3
–
7.4
–
–
14.1
–
2.3
0.1
2.2
53.4
82.3
135.7
19.8
31.5
51.3
2.3
–
3.8
5.6
6.1
5.6
22.1
40.9
63.0
–
2.7
–
–
6.0
1.0
–
8.7
1.0
24.8
47.9
72.7
Carrying amounts
At 30 June 2017
28.6
34.4
63.0
At 30 June 2016
24.5
31.8
56.3
At 30 June 2015
26.3
30.0
56.3
6.6
–
–
0.3
6.9
0.9
–
1.0
–
8.8
4.5
0.7
0.2
5.4
0.7
1.3
0.1
7.5
1.3
1.5
2.1
11.1
4.6
–
2.1
17.8
3.1
–
–
0.4
21.3
–
–
–
–
–
0.4
–
0.4
20.9
17.8
11.1
Total
£m
Goodwill
£m
125.6
6.8
0.7
73.9
–
1.9
13.5
10.2
146.6
5.5
14.1
1.0
2.7
86.0
–
16.2
–
2.5
0.3
2.2
–
0.1
2.6
1.5
–
–
–
4.1
169.9
104.7
–
0.2
–
0.2
–
0.8
–
1.0
3.1
2.4
0.3
55.8
7.0
5.8
68.6
0.7
11.2
1.1
81.6
–
–
–
–
–
–
–
–
88.3
104.7
78.0
86.0
69.8
73.9
Additions in the year to intangible assets of £3.1m relates to costs capitalised in respect of the GSS development project.
Included above is £20.9m of capitalised development expenses in respect of GSS, and a further £9.3m is included within
fixed assets relating to GSS.
Additions to patents and licences of £1.5m relate to a stage payment for the worldwide licence to use Caribou
Biosciences, Inc.’s leading CRISPR-Cas9 gene editing technology platform.
111
FINANCIAL STATEMENTS Genus plc | Annual Report 2017 Notes to the Group Financial Statements continued
For the year ended 30 June 2017
14. Intangible assets continued
Impairment testing for CGUs containing goodwill
To test impairment, we allocate goodwill to our CGUs which are in line with our operating segments. These are the lowest
level within the Group at which we monitor goodwill for internal management purposes.
The aggregate carrying amounts of goodwill allocated to each operating segment are as follows:
Genus PIC
Genus ABS
2017
£m
72.3
32.4
104.7
2016
£m
59.3
26.7
86.0
We test goodwill annually for impairment, or more frequently if there are indications that goodwill might be impaired. We
determine the recoverable amount of our CGUs by using value in use calculations. The key assumptions for these
calculations relate to discount rates, growth rates, expected changes to selling prices, direct costs and the cost saving
derived from the GSS project.
We have estimated the pre-tax discount rate using the Group’s weighted average cost of capital (‘WACC’). We risk
adjusted the discount rate for risks specific to each market, adding between nil and 14% to the WACC as appropriate. The
post-tax WACC of 8.0% (2016: 8.0%) we applied to our cash flow projections equates to a pre-tax rate of approximately
10.7% (2016: 10.8%). Our estimates of changes in selling prices and direct costs are based on past experience and our
expectations of future changes in the market.
The annual impairment test is performed immediately before year end. It is based on cash flows derived from our most
recent financial and strategic plans approved by management, cash flows beyond this period extrapolated using
estimated growth rates. Short-term profitability and growth rates are based on past experience, current trading conditions
and our expectations of future changes in the market.
We have applied annual growth rates to cash flows in the five-year financial and strategic planning period. A growth rate
of 2.5% (2016: 2.5%) has been used to extrapolate cash flows beyond this period.
The Genus PIC and Genus ABS CGUs are deemed to be significant. The individual country assumptions used to determine
value in use for these CGUs are:
Genus PIC
Genus ABS
Genus PIC
Genus ABS
Risk adjusted discount rate
Short-term growth rates
(CAGR)
Long-term growth rates
2017
8–22%
8–22%
2016
8–23%
8–19%
2017
6–24%
1–26%
2016
6–12%
1–15%
2017
2.5%
2.5%
2016
2.5%
2.5%
Weighted average
risk adjusted discount rate
Weighted average
short-term growth rates
(CAGR)
2017
9%
9%
2016
9%
9%
2017
11%
8%
2016
9%
7%
The rates towards the higher end of the range above represent those which are applied to our smaller entities and those
in emerging markets and hence appear high relative to others.
Sensitivity to changes in assumptions
Having completed our impairment review we have concluded that a reasonably possible change in any one key
assumption does not result in an impairment in either PIC or ABS. A combination of a 4% reduction in ABS’s weighted
average short-term growth rates combined with global macro-economic changes which caused both a 1% increase in
post-tax WACC and a 1% reduction in long-term growth rates could result in goodwill impairment in the ABS CGU. No
reasonably possible combination of changes in key assumptions would result in impairment in the PIC CGU.
112
Genus plc | Annual Report 2017 15. Biological assets
The Group applies quantitative genetics and biotechnology to animal breeding. We use these techniques to identify and
select animals with the genes responsible for superior milk and meat, high health and performance traits. We sell breeding
animals and semen to customers, who use them to produce offspring which yield greater production efficiency, milk and
meat quality, for the global dairy and meat supply chain. We recognise that accounting for biological assets is an area
which includes critical accounting judgements and key sources of estimation uncertainty. See note 4.
Accounting policies
Biological assets and inventories
In bovine, we use research and development to identify genetically superior bulls in a number of breeds, primarily the
Holstein dairy breed. Each selected bull has its performance measured against its peers, by using genomic evaluations
and progeny testing of its daughters’ performance. We collect and freeze semen from the best bulls, to satisfy our
customers’ demand. Farmers use semen from dairy breeds to breed replacement milking stock. They use the semen we
sell from beef breeds in either specialist beef breeding herds, for multiplying breeding bulls for use in natural service, or on
dairy cows to produce animals to be reared for meat.
Our research and development also enables us to produce and select our own genetically superior females from which we
will breed future bulls.
We hold our bovine biological assets for long-term internal use and classify them as non-current assets. We transfer bull
semen to inventory at its fair value at the point of harvest, which becomes its deemed cost under IAS 2. We state our
inventories at the lower of this deemed cost and net realisable value.
Sorting semen is a production process rather than a biological process. As a result, we transfer semen inventory into
sexed semen production at its fair value at the point of harvest, less the cost to sell, and it becomes a component of the
production process. We carry sexed semen in finished goods at production cost.
In porcine, we maintain and develop a central breeding stock (the ‘nucleus herd’), to provide genetically superior
animals. These genetics help make farmers and food processors more profitable, by increasing their output of consistently
high-quality products, which yield higher value. So we can capitalise on our intellectual property, we outsource the vast
majority of our pig production to our global multiplier network. We also sell the offspring or semen we obtain from
animals in the nucleus herd to customers for use in commercial farming.
Pig sales generally occur in one of two ways: ‘upfront’ and ‘royalty’. Under upfront sales, we receive the full fair value of
the animal at the point we transfer it to the customer. Under royalty sales, the pig is regarded as comprising two
separately identifiable components: its carcass and its genetic potential. We receive the initial consideration, which is
approximately the animal’s carcass value, at the point we transfer the pig to the customer. We retain our interest in the
pig’s genetic potential and receive royalties for the customer’s use of this genetic potential.
The breeding animal biological assets we own, and our retained interest in the biological assets we have sold under
royalty contracts, are recognised and measured at fair value at each balance sheet date. We recognise changes in fair
value in the income statement, within operating profit for the period.
We classify the porcine biological assets we are using as breeding animals, as non-current assets and carry them at fair
value. The porcine biological assets we are holding for resale, which are the offspring of the breeding herd, are carried at
fair value and classified as current assets. We split our retained interest in the genetics from royalty sales between current
and non-current assets, based on the expected remaining life of the animals.
Determination of fair values – biological assets
IAS 41 ‘Agriculture’ requires us to show the carrying value of biological assets in the Group Balance Sheet. We determine
this carrying value according to IAS 41’s provisions and show the net valuation movement in the income statement. There
are important differences in how we value our bovine and porcine assets, as explained below.
Bovine – we base the fair value of proven bulls, bulls with a genomic evaluation and bulls on test, on the net cash flows we
expect to receive from selling their semen, discounted at a current market-determined pre-tax rate. Proven bulls are those
we have evaluated through daughter proofs and whose semen we actively market. Genomic bulls are those we market on
their estimated genetic value. We adjust the fair value of the bovine herd and semen inventory we manage where a third
party has a share in semen sales from a particular bull. The significant assumptions determining the fair values are the
expected future demand for semen, estimated production value, each bull’s expected marketable life and, for bulls on test,
the percentage whose production we expect to actively market. In assessing the sales price, we use independent
statistical data for the bulls. This data is produced three times a year in all our major markets. In addition, we estimate
which markets we will sell the semen in, as well as domestic and export prices. Females are valued by reference to market
prices and published independent genetic evaluations.
Porcine – the fair value of porcine biological assets includes the animals we own entirely and our retained interest in the
genetics of animals we have sold under royalty arrangements. The fair value of animals we own is calculated using the
animals’ average live weights, plus a premium where we believe that their genetics make them saleable. We base the live
weight value and the genetic premium on recent transaction prices we have achieved. The significant assumptions in
determining fair values are the breeding animals’ expected life, the percentage of production animals that are saleable as
breeding animals, and the expected sales prices. For our retained interest in the genetics of animals sold under royalty
contracts, we base the initial fair value on the fair values we achieved in recent direct sales of similar animals, less the
amount we received upfront for the carcass element. We then remeasure the fair value of our retained interest at each
reporting date. The significant assumption in determining the fair value of the retained interest is the animals’
expected life.
113
FINANCIAL STATEMENTS Genus plc | Annual Report 2017 Notes to the Group Financial Statements continued
For the year ended 30 June 2017
15. Biological assets continued
We value the pigs in our pure line herds, which are the repository of our proprietary genetics, as a single unit of account.
We do this using a discounted cash flow model, applied to the herds’ future outputs at current prices. The significant
assumptions we make are the number of future generations attributable to the current herds, the fair value prices we
achieve on sales, the animals’ expected useful lifespan and productivity, and the discount rate.
Non-recognition of porcine multiplier contracts where no contractual interest is retained by the Group
To manage commercial risk, a very large part of our porcine business model involves selling pigs to farmers (‘multipliers’)
who produce piglets on farms we neither manage nor control. We have the option, but not the obligation, to buy the
offspring at slaughter market value plus a premium. Because the offspring have superior genetics, we can then sell them
to other farmers at a premium.
We do not recognise the right to purchase offspring on the balance sheet, as we enter into the contracts and continue to
hold them for the purpose of receiving non-financial items (the offspring), in accordance with our expected purchase
requirements. This means the option is outside the scope of IAS 39. We do not recognise the offspring as biological assets
under IAS 41, as we do not own or control them.
Fair value of biological assets
Non-current biological assets
Current biological assets
Balance at 30 June 2015
Increases due to purchases
Decreases attributable to sales
Decrease due to harvest
Changes in fair value less estimated sale costs
Acquisition
Effect of movements in exchange rates
Balance at 30 June 2016
Non-current biological assets
Current biological assets
Balance at 30 June 2016
Increases due to purchases
Decreases attributable to sales
Decrease due to harvest
Changes in fair value less estimated sale costs
Acquisition
Effect of movements in exchange rates
Balance at 30 June 2017
Non-current biological assets
Current biological assets
Balance at 30 June 2017
Bovine
£m
144.8
–
144.8
7.7
–
(31.6)
2.1
1.9
21.4
146.3
146.3
–
146.3
11.9
–
(40.7)
10.3
5.4
4.3
Porcine
£m
97.9
50.2
148.1
112.9
(152.0)
(18.0)
67.7
–
26.0
184.7
118.3
66.4
184.7
176.0
(197.8)
(19.3)
66.0
–
6.0
Total
£m
242.7
50.2
292.9
120.6
(152.0)
(49.6)
69.8
1.9
47.4
331.0
264.6
66.4
331.0
187.9
(197.8)
(60.0)
76.3
5.4
10.3
137.5
215.6
353.1
137.5
–
137.5
141.7
73.9
215.6
279.2
73.9
353.1
Bovine biological assets include £6.9m (2016: £7.8m) representing the fair value of bulls owned by third parties but
managed by the Group, net of expected future payments to such third parties and are therefore treated as assets held
under finance leases.
There are no movements in the carrying value of the bovine biological assets in respect of sales or other changes during
the year.
The current market-determined post-tax rate used to discount expected future net cash flows from the sale of bull semen
is the Group’s weighted average cost of capital. This has been assessed as 8.0% (2016: 8.0%).
Decreases due to harvest represent the semen extracted from the biological assets. Inventories of such semen are shown
as biological asset harvest in note 19.
Included in increases due to purchases is £87.0m arising on the initial recognition of biological assets acquired through
multiplier purchases, other than parent gilts (2016: £49.4m).
Decreases attributable to sales during the period of £197.8m (2016: £152.0m) include £66.6m (2016: £49.6m) in respect of
the reduction in fair value of the retained interest in the genetics of animals, other than parent gilts, transferred under
royalty contracts.
114
Genus plc | Annual Report 2017 15. Biological assets continued
Porcine biological assets include £111.0m (2016: £69.3m) relating to the fair value of the retained interest in the genetics
animals, other than parent gilts, transferred to customers under royalty contracts.
Total revenue in the period, including parent gilts, includes £159.5m (2016: £127.2m) in respect of these contracts,
comprising £54.0m (2016: £38.1m) on the initial transfer of animals to customers and £105.5m (2016: £89.1m) in respect of
royalties received.
For pure line porcine herds, the net cash flows from the herds’ expected output are discounted at the Group’s required
rate of return, adjusted for the greater risk implicit in including output from future generations. This adjusted rate has been
assessed as 11.0% (2016: 11.0%). The number of future generations taken into account is seven (2016: seven) and their
estimated useful lifespan is 1.4 years (2016: 1.3 years).
Year ended 30 June 2017
Net IAS 41 valuation movement on biological assets1
Changes in fair value of biological assets2
Inventory transferred to cost of sales at fair value
Biological assets transferred to cost of sales at fair value
Fair value movement in related financial derivative
Year ended 30 June 2016
Net IAS 41 valuation movement on biological assets2
Changes in fair value of biological assets
Inventory transferred to cost of sales at fair value
Biological assets transferred to cost of sales at fair value
Fair value movement in related financial derivative
Bovine
£m
Porcine
£m
Total
£m
10.3
(38.8)
–
(28.5)
–
(28.5)
66.0
(19.3)
(18.8)
27.9
(0.5)
27.4
76.3
(58.1)
(18.8)
(0.6)
(0.5)
(1.1)
Bovine
£m
Porcine
£m
Total
£m
2.1
(28.6)
–
(26.5)
–
(26.5)
67.7
(18.0)
(39.7)
10.0
(0.6)
9.4
69.8
(46.6)
(39.7)
(16.5)
(0.6)
(17.1)
1 This represents the difference between operating profit prepared under IAS 41 and operating profit prepared under historical cost accounting, which forms
part of the reconciliation to adjusted operating profit.
Includes £2.1m write down in bovine assets.
2
Fair value measurement
All of the biological assets fall under Level 3 of the hierarchy defined in IFRS 13.
Unobservable inputs
Bovine
Long-term dairy volume growth rate
Discount rate
Value at point of production – United States
Value at point of production – Rest of world
Porcine
Discount rate – upfront prices
Discount rate – pure line herd
2017
2016 Sensitivity
2.0%
8.0%
17%
25%
8%
11%
2.6% 1% decrease in the growth rate would result in
approximately a £4.0m reduction in value.
8.0% 1% increase in the discount rate would result in
approximately a £3.6m reduction in value.
16% 1% decrease in the rate would result in
approximately a £2.9m reduction in value.
26% 1% decrease in the rate would result in
approximately a £2.6m reduction in value.
8% 1% increase in the discount rate would result in
approximately a £0.3m reduction in value.
11% 1% increase in the discount rate would result in
approximately a £2.8m reduction in value.
Significant increases/(decreases) in any of these inputs in isolation would result in a significantly lower or higher fair
value measurement.
115
FINANCIAL STATEMENTS Genus plc | Annual Report 2017 Notes to the Group Financial Statements continued
For the year ended 30 June 2017
15. Biological assets continued
Additional information
Bovine
Quantities at period end
Number of proven bulls
Number of genomic bulls
Total number of marketable artificial insemination bulls
Number of doses of semen valued in inventory
Total number of bulls in development, excluding marketable bulls
Amounts during the year
Fair value of agricultural produce – semen harvested during the period
Porcine
Quantities at period end
Number of pigs (own farms)
2017
2016
256
266
522
258
280
538
7.2m
7.2m
854
1,071
£40.7m
£31.6m
108,549
120,051
Number of pigs, excluding parent gilts, despatched on a royalty basis and valued at fair value
110,632
74,602
Amounts during the year
Fair value of agricultural produce – semen harvested during the period
£19.3m
£18.0m
16. Property, plant and equipment
We make significant investments in our property, plant and equipment. All assets are depreciated over their useful
economic lives.
Accounting policies
We state property, plant and equipment at cost, together with any directly attributable acquisition expenses, or at their
latest valuation, less depreciation and any impairment losses. Where parts of an item of property, plant and equipment
have different useful lives, we account for them separately.
We charge depreciation to the income statement on a straight-line basis, over the estimated useful lives of each part of an
asset. The estimated useful lives are as follows:
• Freehold buildings
• Leasehold buildings
• Plant and equipment
• Motor vehicles
10 to 40 years
over the term of the lease
3 to 20 years
3 to 5 years
We do not depreciate land or assets under construction.
116
Genus plc | Annual Report 2017
16. Property, plant and equipment continued
Cost or deemed cost
Balance at 1 July 2015
Additions
Transfer
Disposals
Effect of movements in exchange rates
Balance at 30 June 2016
Additions
Reclassification to intangible assets
Transfer
Disposals
Effect of movements in exchange rates
Balance at 30 June 2017
Depreciation and impairment losses
Balance at 1 July 2015
Depreciation for the year
Disposals
Effect of movements in exchange rates
Balance at 30 June 2016
Depreciation for the year
Reclassification to intangible assets
Disposals
Effect of movements in exchange rates
Balance at 30 June 2017
Carrying amounts
At 30 June 2017
At 30 June 2016
At 30 June 2015
Land and
buildings
£m
Plant, motor
vehicles and
equipment
£m
Assets
under
construction
£m
37.3
2.0
2.0
(0.9)
6.9
47.3
1.2
–
2.2
(0.6)
1.6
51.7
13.2
2.0
(0.7)
2.7
17.2
2.4
–
(0.5)
0.6
19.7
32.0
30.1
45.2
4.1
4.7
(3.2)
7.9
58.7
3.8
(1.0)
6.9
(3.7)
1.7
66.4
24.1
5.9
(2.4)
6.0
33.6
6.4
(0.7)
(2.7)
1.2
37.8
28.6
25.1
24.1
21.1
5.1
8.0
(6.7)
(0.7)
0.9
6.6
9.7
–
(9.1)
(0.5)
0.2
6.9
–
–
–
–
–
–
–
–
–
–
6.9
6.6
5.1
Total
£m
87.6
14.1
–
(4.8)
15.7
112.6
14.7
(1.0)
–
(4.8)
3.5
125.0
37.3
7.9
(3.1)
8.7
50.8
8.8
(0.7)
(3.2)
1.8
57.5
67.5
61.8
50.3
Leased plant and machinery
At 30 June 2017, plant, motor vehicles and equipment included assets held under finance leases with a carrying value of
£7.3m (2016: £7.8m, 2015: £6.8m). The associated depreciation charge for the year was £1.7m (2016: £1.5m, 2015: £1.2m).
17. Equity-accounted investees
We hold interests in several joint ventures and associates where we have significant influence.
Accounting policies
Joint ventures are entities over whose activities we have joint control, under a contractual agreement. The Group financial
statements include the Group’s share of profit or loss arising from joint ventures.
Associates are entities in which the Group has significant influence, but not control, over the financial and operating
policies. The Group financial statements include the Group’s share of the total recognised income and expense of
associates on an equity-accounted basis, from the date that significant influence commences until the date it ceases.
When our share of losses exceeds our interest in an associate, we reduce the carrying amount to nil and stop recognising
further losses, except to the extent that the Group has incurred legal or constructive obligations or made payments on an
associate’s behalf.
Under the equity method, investments in joint ventures or associates are initially recognised in the Group Balance Sheet at
cost and adjusted thereafter to recognise the Group’s share of the profit or loss and other comprehensive income of the
joint ventures and associates. Related party transactions with the Group’s joint ventures and associates primarily comprise
product and services. As each arrangement is a separate legal entity and control rights are substantially equal with the
other parties, there are no significant judgements required to be made.
The Group’s share of profit after tax in its equity-accounted investees for the year was £6.2m (2016: £6.9m).
117
FINANCIAL STATEMENTS Genus plc | Annual Report 2017 Notes to the Group Financial Statements continued
For the year ended 30 June 2017
17. Equity-accounted investees continued
The carrying value of the investment is reconciled as follows:
Balance at 1 July
Share of post-tax profits of joint ventures and associates retained
Dividends received from Agroceres – PIC Genética de Suínos Ltda (Brazil)
Shareholder loan repayment
Addition
Disposal of Humei Pig Improvement Company (China)
Effect of other movements including exchange rates
Balance at 30 June
2017
£m
24.3
6.2
(3.8)
(3.0)
0.2
(1.5)
0.3
22.7
2016
£m
19.6
6.9
(2.4)
(1.0)
0.2
–
1.0
24.3
During the year, the Group injected further capital of £0.2m into Chitale Genus ABS (India) Pvt. Ltd, which is its
investment under a joint venture agreement with B.G. Chitale Dairies Pvt. Ltd in India.
There are no significant restrictions on the ability of the joint ventures and associates to transfer funds to the Parent, other
than those imposed by the Companies Act 2006 or equivalent government rules within the joint venture jurisdiction.
Related party transactions with joint ventures and associates
Purchase of goods and services to joint ventures and associates
Transaction value
Balance outstanding
2017
£m
3.7
2016
£m
2.0
2017
£m
(0.3)
2016
£m
(0.7)
All outstanding balances with joint ventures and associates are priced on an arm’s-length basis and are to be settled in
cash within six months of the reporting date. None of the balances are secured.
Summary financial information for equity-accounted investees, adjusted for the percentage ownership held by the Group,
is shown below:
Joint ventures and associates – year ended 30 June 2017
Net assets
Ownership
Current
assets
£m
Non-current
assets
£m
Biological
assets
£m
Total
assets
£m
Current
liabilities
£m
Total
liabilities
£m
Net
assets
£m
49%
5.0
10.4
4.4
19.8
(3.1)
(3.1)
16.7
50%
0.3
49%
6.9
–
–
–
10.4
–
0.3
(0.2)
(0.2)
0.1
0.2
–
4.6
7.1
(2.3)
(2.3)
4.8
1.3
28.5
(0.2)
(5.8)
(0.2)
(5.8)
1.1
22.7
Agroceres – PIC
Genética de Suínos
Ltda (Brazil)
HY-CO
Hybridschweine-
Cooperations GmbH
(Germany)
Xianyang Yongxiang
Agriculture
Technology Co., Ltd.
(China1)
Chitale Genus ABS
(India) Private Limited
(India)
50%
1.3
13.5
1 Classified as an associate.
118
Genus plc | Annual Report 2017 17. Equity-accounted investees continued
Income statement
Agroceres – PIC
Genética de Suínos
Ltda (Brazil)
HY-CO
Hybridschweine-
Cooperations GmbH
(Germany)
Humei Pig
Improvement
Company (China)
Xianyang Yongxiang
Agriculture
Technology Co., Ltd.
(China1)
Chitale Genus ABS
(India) Private Limited
(India)
Ownership
Revenue
£m
Net IAS 41
valuation
movement
on biological
assets
£m
Expenses
£m
Operating
profit
£m
Taxation
£m
Profit
after tax
£m
49%
21.1
0.7
(15.2)
6.6
(1.4)
5.2
50%
50%
1.7
1.6
–
–
(1.5)
0.2
(1.6)
–
49%
3.8
(0.2)
(2.8)
0.8
50%
0.2
28.4
–
0.5
(0.2)
(21.3)
–
7.6
–
–
–
–
(1.4)
0.2
–
0.8
–
6.2
Joint ventures and associates have a December year end, except Chitale Genus ABS (India) Private Limited, which has a
March year end.
Joint ventures and associates – year ended 30 June 2016
Net assets
Ownership
Current
assets
£m
Non-current
assets
£m
Biological
assets
£m
Total
assets
£m
Current
liabilities
£m
Total
liabilities
£m
Net
assets
£m
Agroceres – PIC
Genética de Suínos
Ltda (Brazil)
HY-CO
Hybridschweine-
Cooperations GmbH
(Germany)
Humei Pig
Improvement
Company (China)
Xianyang Yongxiang
Agriculture
Technology Co., Ltd.
(China1)
Chitale Genus ABS
(India) Private Limited
(India)
1 Classified as an associate.
49%
6.8
6.2
3.9
16.9
(1.8)
(1.8)
15.1
50%
50%
49%
50%
0.1
1.3
–
1.2
7.0
4.5
0.1
15.3
0.9
12.8
–
–
0.4
–
4.3
0.1
2.5
–
–
(1.1)
(1.1)
0.1
1.4
11.9
(5.1)
(5.1)
6.8
1.0
32.4
(0.1)
(8.1)
(0.1)
(8.1)
0.9
24.3
119
FINANCIAL STATEMENTS Genus plc | Annual Report 2017 Notes to the Group Financial Statements continued
For the year ended 30 June 2017
17. Equity-accounted investees continued
Ownership
Revenue
£m
Net IAS 41
valuation
movement
on biological
assets
£m
Expenses
£m
Operating
profit
£m
49%
50%
50%
49%
50%
14.7
1.7
(10.2)
1.2
3.7
4.0
0.1
23.7
–
–
0.2
–
1.9
(1.1)
(3.5)
(2.4)
(0.1)
(17.3)
6.2
0.1
0.2
1.8
–
8.3
Taxation
£m
(1.4)
–
–
–
–
(1.4)
Profit
after
tax
£m
4.8
0.1
0.2
1.8
–
6.9
Income statement
Agroceres – PIC Genética de Suínos
Ltda (Brazil)
HY-CO Hybridschweine-
Cooperations GmbH Germany
Humei Pig Improvement Company
(China)
Xianyang Yongxiang Agriculture
Technology Co., Ltd. (China1)
Chitale Genus ABS (India) Private
Limited (India)
1 Classified as an associate.
18. Other investments
We hold a number of unlisted and listed investments, mainly comprising our strategic investment in Caribou Biosciences,
Inc. and shares in listed entity National Milk Records plc (‘NMR’).
Accounting policy
Available for sale (‘AFS’) financial assets are non-derivatives that are either designated as AFS or are not classified as:
(a) loans and receivables; (b) held-to-maturity; or (c) financial assets at fair value through the profit and loss.
AFS listed equity investments are stated at fair value. AFS unlisted equity investments that do not have a quoted market
price in an active market and whose fair value cannot be reliably measured are measured at cost less any identified
impairment losses at the end of each reporting period.
AFS investments carried at fair value
Unlisted equity shares – Caribou Biosciences
Unlisted equity shares – RenOVate Biosciences, Inc.
Listed equity shares – NMR
2017
£m
3.6
0.3
1.6
5.5
2016
£m
3.6
–
–
3.6
On 21 June 2017, as part of the NMR pension agreement, we acquired 2,120,000 ordinary shares in NMR.
During the prior year, we invested $5.0m to acquire a strategic non-controlling interest of 5% in Caribou Biosciences, Inc.
These shares are not held for trading and accordingly are classified as AFS.
19. Inventories
Our inventory primarily consists of bovine semen, raw materials and ancillary products.
Accounting policies
Inventory (excluding biological assets) is stated at the lower of cost and net realisable value. Cost is determined on the
basis of weighted average costs and comprises direct materials and, where appropriate, direct labour costs and those
overheads that have been incurred in bringing the inventories to their present location and condition.
For biological assets accounting policies, see note 15.
Biological assets’ harvest classed as inventories
Raw materials and consumables
Goods held for resale
2017
£m
22.2
0.7
10.2
33.1
2016
£m
23.4
0.9
11.4
35.7
120
Genus plc | Annual Report 2017 20. Trade and other receivables
Our trade and other receivables mainly consist of amounts owed to us by customers and amounts we pay to our suppliers
in advance.
Accounting policies
We state trade and other receivables at their amortised cost less any impairment losses.
Trade receivables
Other debtors
Prepayments and accrued income
Other taxes and social security
2017
£m
73.7
5.4
7.8
1.9
88.8
2016
£m
65.0
5.5
5.3
2.3
78.1
Trade receivables
The average credit period our customers take on the sales of goods is 59 days (2016: 61 days). We do not charge interest
on receivables for the first 30 days from the date of the invoice. We provide for all receivables based upon knowledge of
the customer and historical experience, and estimate irrecoverable amounts by reference to past default experience.
No customer represents more than 5% of the total balance of trade receivables (2016: nil).
At 30 June 2017, £56.4m (2016: £50.3m) of trade receivables were not yet due for payment.
Included in the Group’s trade receivables balance, net of provision, are debtors with a carrying amount of £17.3m (2016:
£14.7m) which are past due at the reporting date but which we have not provided for, as there has been no significant
change in credit quality and we consider the amounts are recoverable. The Group does not hold any collateral over these
balances. The average age of these receivables is 48 days (2016: 48 days).
Ageing of trade receivables that are past due and presented net of provisions that have been established:
Days past due
0–30 days
31–90 days
91–180 days
Over 180 days
2017
£m
9.2
5.8
1.5
0.8
17.3
At 30 June 2017, trade receivables of £21.7m (2016: £19.0m) were past due but not impaired. The ageing of these
receivables is as follows:
Days past due
0–30 days
31–90 days
91–180 days
Over 180 days
2017
£m
9.2
5.9
2.0
4.6
21.7
The Directors consider that the carrying amount of trade and other receivables approximates their fair value.
At 30 June 2017, trade receivables are shown net of an allowance for doubtful debts of £4.4m (2016: £4.3m).
2016
£m
7.7
5.1
1.3
0.6
14.7
2016
£m
7.7
5.2
2.5
3.6
19.0
121
FINANCIAL STATEMENTS Genus plc | Annual Report 2017 Notes to the Group Financial Statements continued
For the year ended 30 June 2017
20. Trade and other receivables continued
Movement in the allowance for doubtful debts
Balance at the start of the year
Impairment losses recognised
Amounts written off as uncollectible
Impairment losses reversed
Disposed of on dissolution
Effect of movements in exchange rates
Balance at the end of the year
2017
£m
4.3
1.6
(0.4)
(1.5)
–
0.4
4.4
2016
£m
3.1
2.6
(0.5)
(1.3)
(0.1)
0.5
4.3
In determining the recoverability of a trade receivable, we consider any change in the receivable’s credit quality from the
date we initially granted credit up to the reporting date. The concentration of credit risk is limited, as our customer base is
large and unrelated.
Receivables denominated in currencies other than Sterling comprise £32.1m denominated in US Dollars (2016: £29.5m),
£11.0m denominated in Euros (2016: £11.3m) and £27.9m denominated in other currencies (2016: £22.1m).
21. Cash and cash equivalents
We hold cash and bank deposits which have a maturity of three months or less, to enable us to meet our short-term
liquidity requirements.
Accounting policies
Cash and cash equivalents comprise cash balances. Bank overdrafts that are repayable on demand form an integral part
of our cash management and are included in interest-bearing loans and borrowings less than one year. We only include
them in cash and cash equivalents in the statement of cash flows.
Bank balances
The carrying amount of these assets approximates their fair value.
2017
£m
26.5
2016
£m
34.0
Included within bank balances above is £9.7m (2016: £5.8m) which is subject to certain local restrictions, principally
in China.
22. Trade and other payables
Our trade and other payables mainly consist of amounts we owe to our suppliers that have been invoiced or are accrued.
They also include taxes and social security amounts due in relation to our role as an employer.
Accounting policies
Trade payables are not interest bearing and are stated at their nominal value.
Trade payables
Other payables, accrued expenses and deferred income
Other taxes and social security
2017
£m
20.7
49.0
6.7
76.4
2016
£m
20.7
40.0
4.4
65.1
Payables denominated in currencies other than Sterling comprise £32.3m denominated in US Dollars (2016: £25.2m),
£9.8m denominated in Euros (2016: £9.0m) and £17.9m denominated in other currencies (2016: £15.4m). The carrying
values of these liabilities are a reasonable approximation of their fair values.
122
Genus plc | Annual Report 2017 23. Provisions
A provision is a liability recorded in the balance sheet, where there is uncertainty over the timing or amount that will be
paid, and is therefore estimated. The main provisions we hold are in relation to contingent deferred consideration.
Accounting policies
We recognise a provision in the balance sheet when an event results in the Group having a current legal or constructive
obligation, and it is probable that we will have to settle the obligation through an outflow of economic benefits. If the
effect is material, we discount provisions to their present value.
Balance at 1 July 2015
Additional provision in the year
Utilisation of provision
Release of provision
Balance at 30 June 2016
Additional provision in the year
Acquisition
Utilisation of provision
Release of provision
Balance at 30 June 2017
Current
Non-current
Contingent
deferred
consideration
£m
Property
lease
provision
£m
Other
provisions
£m
–
–
–
–
–
–
5.1
–
–
5.1
0.1
–
–
–
0.1
–
–
–
–
0.1
2.3
0.8
(1.7)
(0.3)
1.1
1.1
–
(0.5)
(0.5)
1.2
2017
£m
2.7
3.7
6.4
Total
£m
2.4
0.8
(1.7)
(0.3)
1.2
1.1
5.1
(0.5)
(0.5)
6.4
2016
£m
1.2
–
1.2
Contingent deferred consideration of £5.1m relates to the acquisitions of Hermitage Genetics and De Novo Genetics, and
are subject to certain conditions being met by the seller.
Other provisions mainly relate to legal (£1.0m) and restructuring (£0.2m) provisions. The timing and cash flows associated
with the restructuring costs and a majority of legal claims are expected to be less than one year. However, for some legal
claims the timing of cash flows may be long-term in nature. The property provision mainly represents the discounted
future costs of dilapidations.
24. Financial instruments
This note details our treasury management and financial risk management objectives and policies, as well as the Group’s
exposure and sensitivity to credit, liquidity, interest and foreign exchange rate risk, and the policies in place to monitor and
manage these risks.
Financial risk management objectives
The Group’s Corporate Treasury function provides services to the business, coordinates our access to domestic and
international financial markets, and monitors and manages the financial risks relating to the Group’s operations, through
internal risk reports that analyse exposures by degree and magnitude of risks. These risks include market risk (including
currency risk, fair value interest rate risk and price risk), credit risk, liquidity risk and cash flow interest rate risk.
We seek to minimise the effects of these risks by hedging them using derivative financial instruments. Our use of financial
derivatives is governed by policies approved by the Board of Directors, which provide written principles on foreign
exchange risk, interest rate risk, credit risk, the use of financial derivatives and non-derivative financial instruments, and
the investment of excess liquidity. The Board of Directors regularly reviews our compliance with policies and exposure
limits. The Group does not enter into or trade financial instruments, including derivative financial instruments, for
speculative purposes.
Key financial risks and exposures are monitored through a monthly report to the Board of Directors, together with an
annual Board review of corporate treasury matters.
Financial risk
The principal financial risks our activities expose us to are the risks of changes in foreign currency exchange rates, interest
rates and commodity prices. We use derivative financial instruments to manage our exposure to interest rate, foreign
currency and commodity price risks, including:
• forward foreign exchange contracts, to hedge the exchange rate risk arising on the sale of goods and purchase of
supplies in foreign currencies;
• interest rate swaps, to mitigate the risk of rising interest rates; and
• forward commodity contracts, to hedge commodity price risk.
123
FINANCIAL STATEMENTS Genus plc | Annual Report 2017 Notes to the Group Financial Statements continued
For the year ended 30 June 2017
24. Financial instruments continued
Accounting policies
Financial instruments
Financial assets and liabilities, in respect of financial instruments, are recognised on the Group’s balance sheet when the
Group becomes a party to the instrument’s contractual provisions.
Financial liabilities and equity instruments
Financial liabilities and equity instruments issued by the Group are classified according to the substance of the contractual
arrangements entered into and the definitions of a financial liability and an equity instrument. An equity instrument is any
contract that provides a residual interest in the assets of the Group after deducting all of its liabilities and includes no
obligation to deliver cash or other financial assets. The accounting policies adopted for specific financial liabilities and
equity instruments are set out below.
Put option arrangements over non-controlling interest
The potential cash payments related to put options issued by the Group over the equity of subsidiary companies are
accounted for as financial liabilities, when such options may only be settled by exchange of a fixed amount of cash or
another financial asset for a fixed number of shares in the subsidiary.
The amount that may become payable under the option on exercise is initially recognised at present value within
borrowings, with a corresponding charge directly to equity. The charge to equity is recognised separately as written put
options over non-controlling interest, adjacent to non-controlling interest in the net assets of consolidated subsidiaries.
Such options are subsequently measured at amortised cost, using the effective interest rate method, in order to accrete
the liability up to the amount payable under the option at the date at which it first becomes exercisable. The charge
arising is recorded as a financing cost. If the option expires unexercised, the liability is derecognised with a corresponding
adjustment to equity.
Derivative financial instruments and hedging activities
The fair value of interest rate swaps is the estimated amount that we would receive or pay to terminate the swap at the
balance sheet date, taking into account current interest rates and the creditworthiness of the swap counterparties.
The fair values of forward exchange contracts and forward commodity contracts are their quoted market price at the
balance sheet date, which is the present value of the quoted forward price.
Cash flow hedges
Where a derivative financial instrument is designated as hedging the variability in cash flows of a recognised asset or
liability, or a highly probable forecast transaction, we recognise the effective part of any gain or loss on the instrument
directly in the Group Statement of Comprehensive Income. We recognise any ineffective portion of the hedge
immediately in the Group Income Statement.
If we hedge a forecast transaction that subsequently results in our recognising a financial asset or liability, we recycle in
the Group Income Statement the associated gains and losses that we had recognised in equity. We do this in the same
period or periods that the asset or liability affects the Group Income Statement, which are the periods when we recognise
the interest income or expense.
If we expect a hedged forecast transaction to occur but the hedging instrument has expired, been sold, terminated or
exercised, or we have revoked the designation of the hedge relationship, then the cumulative gain or loss at that point
remains in equity and we recognise it in accordance with the above policy when the transaction occurs. If we no longer
expect the hedged transaction to take place, we immediately recognise in the Group Income Statement the cumulative
unrealised gain or loss recognised in equity.
Net investment hedges
Where we have designated a derivative financial instrument as hedging the variability of the net assets of an overseas
subsidiary, which arises from the spot or forward exchange rate translation risk associated with the subsidiary’s functional
currency, we recognise the effective part of any gain or loss on the instrument directly in the hedging reserve. Any
ineffective portion of the hedge is recognised immediately in the Group Income Statement.
When a hedging instrument expires or is sold, terminated or exercised, or we revoke designation of the hedge relationship,
the cumulative gain or loss at that point remains in equity until we dispose of the investment it relates to.
We only apply net investment hedge accounting in the Group financial statements.
Capital risk management
The Group manages its capital to ensure that Group entities can continue as a going concern, while maximising the return
to shareholders by optimising our debt and equity balance. The Group’s capital structure consists of debt, which includes
the borrowings disclosed in note 25, cash and cash equivalents, and equity attributable to equity holders of the Parent,
comprising issued capital, reserves and retained earnings as disclosed in note 29.
124
Genus plc | Annual Report 2017 24. Financial instruments continued
Gearing ratio
The Group keeps its capital structure under review and monitors it monthly to ensure the gearing ratio remains
below 60%. The Group is not subject to externally imposed capital requirements. The gearing ratio at the year end was
as follows:
Debt (see note 25)
Cash and cash equivalents (see note 21)
Net debt (see note 30)
Equity
Net debt to equity ratio
2017
£m
138.1
(26.5)
111.6
402.1
28%
2016
£m
123.7
(34.0)
89.7
368.1
24%
Debt is defined as long and short-term borrowings, as detailed in note 25.
Equity includes all capital and reserves of the Group attributable to equity holders of the Parent.
Categories of financial instruments
We have categorised financial instruments held at valuation into a three-level fair value hierarchy, based on the priority of
the inputs to the valuation technique in accordance with IFRS 13. The hierarchy gives the highest priority to quoted prices
in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). If the
inputs used to measure fair value fall within different levels of the hierarchy, we base the category level on the lowest
priority level input that is significant to the fair value measurement of the instrument in its entirety. We have estimated the
fair values of the Group’s outstanding interest rate swaps by calculating the present value of future cash flows, using
appropriate market discount rates, representing Level 2 fair value measurements as defined by IFRS 13. We have not
categorised any financial instruments as Level 1 or Level 3.
Financial assets
Other investments
Trade receivables and other debtors, excluding prepayments (see note 20)
Cash and cash equivalents
Derivative instruments in non-designated hedge accounting relationships
Assets held for sale
Derivative instruments in designated hedge accounting relationships
Financial liabilities
Trade and other payables, excluding other taxes and social security (see note 22)
Derivative instruments in designated hedge accounting relationships
Loans and overdrafts (see note 25)
Leasing obligations (see note 26)
Derivative instruments in non-designated hedge accounting relationships
Put option over non-controlling interest
There is no material difference between the carrying value and fair value.
Foreign currency risk management
We undertake transactions denominated in foreign currencies.
2017
Carrying
value
£m
2016
Carrying
value
£m
5.5
81.0
26.5
1.3
0.3
0.1
3.6
72.8
34.0
0.6
0.3
–
(69.7)
(0.4)
(134.9)
(3.2)
(0.6)
(3.3)
(60.7)
(1.2)
(119.9)
(3.8)
(0.5)
(11.4)
The carrying amounts of the Group’s foreign currency denominated monetary assets and monetary liabilities at the
reporting date were as follows:
US Dollar (including leases)
Euro
Brazilian Real
Chinese Yuan Renminbi
Liabilities
Assets
2017
£m
(106.2)
(12.1)
–
(1.9)
2016
£m
(89.1)
(9.4)
–
(5.3)
2017
£m
8.7
1.9
0.1
1.9
2016
£m
1.0
2.2
0.1
5.3
125
FINANCIAL STATEMENTS Genus plc | Annual Report 2017 Notes to the Group Financial Statements continued
For the year ended 30 June 2017
24. Financial instruments continued
Foreign currency income statement sensitivity analysis
The Group is mainly exposed to movements in the US Dollar, Euro, Brazilian Real, Mexican Peso and Chinese Yuan
Renminbi exchange rates.
The following table details the Group’s sensitivity to a 10% increase and decrease in Sterling against these currencies. 10%
is the sensitivity rate used when reporting foreign currency risk internally to key management and represents our
assessment of a significant change in foreign exchange rates. The sensitivity analysis includes only outstanding foreign
currency denominated monetary items and adjusts their translation at the period end for a 10% change in foreign
currency rates. It includes external loans, as well as loans to foreign operations within the Group where the loan is
denominated in a currency other than the lender or borrower’s currency. A positive number below indicates an increase in
profit when Sterling weakens against the relevant currency. A strengthening of Sterling against the relevant currency
would produce an equal but opposite reduction in profit, and the balances below would be negative.
10% currency movement
Profit or loss
10% currency movement
Profit or loss
10% currency movement
Profit or loss
Euro currency impact
US Dollar currency impact
2017
£m
1.0
2016
£m
0.6
2017
£m
2.0
2016
£m
3.1
Brazilian Real currency impact Mexican Peso currency impact
2017
£m
0.9
2016
£m
0.7
2017
£m
1.2
2016
£m
1.0
Chinese Yuan Renminbi
currency impact
2017
£m
0.9
2016
£m
0.3
Forward foreign exchange contracts
The Group’s policy is to enter into forward foreign exchange contracts, to cover specific foreign currency payments and
receipts. The following table details the forward foreign currency contracts outstanding as at the year end:
Average exchange rate
Foreign currency
Contract value
Fair value
2017
2016
2017
2017
£m
2016
£m
8.64
1.75
23.29
–
76.75
1.14
4.79
16.73
1.06
2,930
3.37
37.4
659
16.16
6.81
49.98
1.32
18.27
1.14
–
–
13.04
–
1.93
26.10
9.07
–
–
5.61
–
1.10
3,017
–
–
689
–
–
46.86
1.30
–
1.11
14.25
19.04
–
CNY
AUD
MXN
CNY
RUB
EUR
PLN
ZAR
CHF
COP
BRL
PHP
CLP
ARS
CNY
PHP
CAD
MXN
EUR
ARS
MXN
ZAR
1.0
1.8
–
0.2
0.6
0.3
–
0.3
0.2
0.5
0.2
0.1
0.4
0.3
4.6
0.4
0.2
0.6
–
–
0.1
–
1.7
0.8
0.1
–
–
0.4
–
0.3
0.2
–
–
0.1
–
–
1.2
0.6
–
0.7
0.1
0.7
–
2017
£m
–
(0.1)
–
–
–
–
–
–
–
–
–
–
–
–
–
0.1
–
–
–
–
–
–
–
2016
£m
–
(0.1)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(0.1)
Outstanding contracts
Buy CNY
Buy AUD
Buy MXN
Sell CNY
Sell RUB
Sell EUR
Sell PLN
Sell ZAR
Buy EUR/Sell CHF
Buy USD/Sell COP
Buy BRL/Sell USD
Buy PHP/Sell AUD
Buy USD/Sell CLP
Buy USD/Sell ARS
Buy USD/Sell CNY
Buy PHP/Sell USD
Buy CAD/Sell USD
Buy USD/Sell MXN
Buy USD/Sell EUR
Buy ARS/Sell USD
Buy MXN/Sell USD
Buy USD/Sell ZAR
126
Genus plc | Annual Report 2017 24. Financial instruments continued
Interest rate risk management
The Group is exposed to interest rate risk, as Group entities borrow funds at both fixed and floating interest rates. We
manage this risk centrally, by maintaining an appropriate mix between fixed and floating rate borrowings, using interest
rate swaps. We regularly review our hedging activities, to align with our interest rate views and defined risk appetite,
thereby ensuring we apply optimal hedging strategies to minimise the adverse impact of fluctuations in interest expense
through different interest rate cycles.
The Group’s exposures to interest rates on financial assets and financial liabilities are detailed in the liquidity risk
management section of this note.
Interest rate sensitivity analysis
We have determined the sensitivity analyses below, based on the Group’s exposure to interest rates for both derivatives
and non-derivative instruments, at the balance sheet date. For floating rate liabilities, we prepared the analysis assuming
the liability outstanding at the balance sheet date was outstanding for the whole year. A 1.0% increase or decrease is
used when reporting interest rate risk internally to key management and is our assessment of a significant change in
interest rates.
If interest rates had been 1.0% higher or lower and all other variables were held constant, the Group’s profit for the year
ended 30 June 2017 would have decreased or increased by £0.5m (2016: decrease/increase by £0.5m). This impact is
smaller than would otherwise be the case, due to our fixed rate hedging.
Interest rate swap contracts
Under interest rate swap contracts, the Group agrees to exchange the difference between fixed and floating rate interest
amounts, calculated on agreed notional principal amounts. These contracts enable us to mitigate the risk of changing
interest rates on the cash flow exposures on the variable rate debt we hold. We determine the fair value of interest rate
swaps at the reporting date by discounting the future cash flows, using the yield curves at the reporting date and the
credit risk inherent in the contract. This fair value is disclosed below. The average interest rate is based on the outstanding
balances at the end of the financial year.
Cash flow hedges
The following table details the notional principal amounts and remaining terms of interest rate swap contracts outstanding
as at the reporting date:
Outstanding receive floating pay fixed contracts
USD interest rate swaps
Within one year
Two to five years
GBP interest rate swaps
Two to five years
Average contract
fixed interest rate
Notional principal amount
Fair value
2017
%
–
1.10
0.51
2016
%
0.68
1.10
–
2017
£m
–
84.7
20.0
2016
£m
15.0
82.3
–
2017
£m
–
1.2
0.1
2016
£m
(0.3)
(0.4)
–
The interest rate swaps settle on a quarterly basis. The corresponding floating rate on the interest rate swaps is three-
month LIBOR. We settle the difference between the fixed and floating interest rate on a net basis.
Interest rate swap contracts that exchange floating rate interest amounts for fixed rate interest amounts are designated as
cash flow hedges, to reduce our cash flow exposure resulting from variable interest rates on borrowings. The interest rate
swaps and the interest payments on the loan occur simultaneously and we recognise the amount deferred in equity in
profit or loss, over the period that the floating rate interest payments on debt affect profit or loss.
Commodity hedges
The Group hedges both feed and slaughter exposures by using the Chicago Mercantile Exchange lean hog, corn and
soybean meal commodity futures.
Commodity hedge
Open contracts from July 2017 to June 2018
Lean hog futures
Corn
Soybean meal
Open contracts from July 2016 to June 2017
Lean hog futures
Corn
Soybean meal
Winter wheat
Average price
Notional principal amount
Fair value
2017
US$
2016
US$
0.68
3.95
314
0.76
3.98
310
–
n/a
n/a
n/a
0.71
3.99
307
5.07
2017
£m
10.7
(2.2)
(2.3)
(1.1)
(0.3)
(0.2)
–
4.6
2016
£m
n/a
n/a
n/a
9.0
(2.8)
(1.8)
(0.2)
4.2
2017
£m
(0.1)
(0.2)
(0.2)
(0.1)
–
–
–
(0.6)
2016
£m
n/a
n/a
n/a
(0.2)
(0.1)
0.4
–
0.1
127
FINANCIAL STATEMENTS Genus plc | Annual Report 2017 Notes to the Group Financial Statements continued
For the year ended 30 June 2017
24. Financial instruments continued
Credit risk management
Credit risk is the risk that a counterparty will default on its contractual obligations, resulting in financial loss to the Group.
We have a policy of only dealing with creditworthy counterparties. We regularly monitor our exposure and the credit
ratings of our counterparties, and the aggregate value of transactions concluded is spread amongst approved
counterparties. Credit exposure on financial instruments is controlled by counterparty limits that the Board reviews and
approves annually.
Trade receivables consist of a large number of customers, spread across diverse industries and geographical areas. We
carry out ongoing credit evaluation of the financial condition of accounts receivable.
Liquidity risk management
The Board of Directors has ultimate responsibility for managing liquidity risk. We manage this risk by maintaining
adequate reserves and banking facilities, by continuously monitoring forecast and actual cash flows, and by matching the
maturity profiles of financial assets and liabilities.
Liquidity and interest risk tables
For non-derivative financial liabilities, see notes 25 and 26.
The following table details the Group’s remaining contractual maturity for its non-derivative financial liabilities, excluding
trade payables and other creditors. We have drawn up the table based on the undiscounted cash flows of financial
liabilities, using the earliest date on which we can be required to pay. The table includes both interest and principal
cash flows.
Weighted
average
effective
interest rate
%
Less than
1 month
£m
1–3 months
£m
3 months to
1 year
£m
1–5 years
£m
5+ years
£m
2017
Variable interest rate instruments
2016
Variable interest rate instruments
2.3
1.7
7.8
5.2
0.5
0.3
4.7
2.3
144.4
125.7
–
–
Total
£m
157.5
133.5
The following table details the Group’s expected maturity for other non-derivative financial assets, excluding trade
receivables and other debtors. We have drawn up this table based on the undiscounted contractual maturities of the
assets, including interest we will earn on them, except where we expect the cash flow to occur in a different period.
Weighted
average
effective
interest rate
%
Less than
1 month
£m
1–3 months
£m
3 months to
1 year
£m
1–5 years
£m
5+ years
£m
2017
Variable interest rate instruments
2016
Variable interest rate instruments
0.63
26.5
0.38
34.0
–
–
–
–
–
–
–
–
Total
£m
26.5
34.0
The Group has financing facilities with a total unused amount of £73.6m (2016: £49.8m) at the balance sheet date. We
expect to meet our other obligations from operating cash flows and the proceeds of maturing financial assets. We expect
to reduce the debt to equity ratio, as borrowings decrease through repayment from operating cash flows.
The following table details the Group’s liquidity analysis for its derivative financial instruments. We have drawn up the
table based on the undiscounted net cash outflows on derivative instruments that settle on a net basis and the
undiscounted gross outflows on derivatives that require gross settlement. When the amount payable or receivable is not
fixed, we have determined the amount disclosed by reference to the projected interest and foreign currency rates, as
illustrated by the yield curves at the reporting date.
Less than
1 month
£m
1–3 months
£m
3 months to
1 year
£m
1–5 years
£m
5+ years
£m
–
–
–
–
0.1
0.9
(0.5)
(0.7)
–
–
Total
£m
1.0
(1.2)
2017
Interest rate swaps
2016
Interest rate swaps
128
Genus plc | Annual Report 2017 25. Loans and borrowings
The Group’s borrowing for funding and liquidity purposes comes from a range of committed bank facilities.
Interest-bearing loans and borrowings
We initially recognise interest-bearing loans and borrowings at their fair value, less attributable transaction costs. After
this initial recognition, we state them at amortised cost and recognise any difference between the cost and redemption
value in the income statement over the borrowings’ expected life, on an effective interest rate basis.
Non-current liabilities
Unsecured bank loans
Obligations under finance leases (see note 26)
Current liabilities
Unsecured bank loans and overdrafts
Obligations under finance leases (see note 26)
2017
£m
127.2
1.8
129.0
7.7
1.4
9.1
2016
£m
115.3
2.7
118.0
4.6
1.1
5.7
Total interest-bearing liabilities
138.1
123.7
Terms and debt repayment schedule
Terms and conditions of outstanding loans and overdrafts were as follows:
Revolving credit facility and overdraft
Revolving credit facility, term loan and overdraft
Revolving credit facility and overdraft
Finance lease liabilities
Other unsecured bank borrowings
Total interest-bearing liabilities
Currency
Interest rate
GBP
USD
EUR
USD
Other
1.5%
2.4%
0.7%
5.0%
0.7%
2017
£m
22.6
106.2
–
3.2
6.1
138.1
2016
£m
26.2
86.0
6.2
3.8
1.5
123.7
The above revolving credit facilities are unsecured. Information about the Group’s exposure to interest rate and foreign
currency risks is shown in note 24.
Loans and borrowings (excluding finance leases) comprise amounts falling due:
In one year or less or on demand
In more than one year but not more than two years
In more than two years but not more than five years
Less: unamortised issue costs
Current liabilities
Non-current liabilities
2017
£m
2016
£m
8.1
–
128.2
136.3
(1.4)
134.9
(7.7)
127.2
5.1
–
116.1
121.2
(1.3)
119.9
(4.6)
115.3
During the year, we exercised an Accordion request, which increased our available credit facilities by £10m and US$25m.
We also extended the Group’s credit facilities by one year, which now expire in February 2022. At the balance sheet
date, the Group’s credit facilities comprised a £75m multi-currency revolving credit facility and a US$165m revolving
credit facility.
As part of its interest rate strategy, the Company has entered into interest rate swaps to hedge floating LIBOR rates. As a
result, bank loan and overdrafts include borrowings of US$110m (£84.7m) fixed at 1.10% and GBP £20m fixed at 0.51%,
excluding applicable bank margin.
129
FINANCIAL STATEMENTS Genus plc | Annual Report 2017 Notes to the Group Financial Statements continued
For the year ended 30 June 2017
26. Finance lease liabilities
A finance lease is a commitment to make a payment in the future, primarily in relation to plant and machinery and
motor vehicles.
Accounting policies
We classify leases as finance leases whenever the lease terms transfer substantially all the risks and rewards of ownership
to us. All other leases are operating leases.
We recognise the assets we hold under finance leases at their fair value or, if lower, at the present value of the minimum
lease payments, each of which we determine at the start of the lease. We include our corresponding liability in the balance
sheet, as a finance lease obligation.
We apportion lease payments between finance charges and a reduction in our lease obligation, so we achieve a constant
rate of interest on the remaining liability. We recognise finance charges directly in the income statement, unless they are
directly attributable to qualifying assets, in which case we capitalise them in accordance with our general policy on
borrowing costs.
Finance lease liabilities are payable as follows:
Less than one year
Between one and five years
Minimum
lease
payments
2017
£m
1.4
1.8
3.2
Interest
2017
£m
Principal
2017
£m
0.1
0.1
0.2
1.5
1.9
3.4
Minimum
lease
payments
2016
£m
1.1
2.7
3.8
Interest
2016
£m
Principal
2016
£m
–
0.2
0.2
1.1
2.9
4.0
Finance lease liabilities are secured on the assets to which they relate. There are no other restrictions imposed by the
lessor. The fair value of the leases is approximately equal to the carrying amount.
27. Retirement benefit obligations
The Group operates a number of defined contribution and defined benefit pension schemes covering many of its
employees. The principal funds are the Milk Pension Fund (‘MPF’) and the Dalgety Pension Fund (‘DPF’) in the UK, which
are defined benefit schemes. The assets of these funds are held separately from the Group’s assets and are administered
by Trustees and managed professionally. We recognise that accounting for retirement benefit obligations is an area which
includes critical accounting judgements and key sources of estimation uncertainty. See note 4.
Accounting policies
Defined contribution pension schemes
A number of our employees are members of defined contribution pension schemes. We charge contributions to the
income statement as they become payable under the scheme rules. We show differences between the contributions
payable and the amount we have paid as either accruals or prepayments in the balance sheet. The schemes’ assets are
held separately from those of the Group.
Defined benefit pension schemes
The Group operates defined benefit pension schemes for some of its employees. These schemes are closed to new
members and to further accrual. We calculate our net obligation separately for each scheme, by estimating the amount of
future benefit that employees have earned, in return for their service to date. We discount that benefit to determine its
present value, and deduct the fair value of the plan’s assets (at bid price). The liability discount rate we use is the market
yield at the balance sheet date on high-quality corporate bonds, with terms to maturity approximating our pension
liabilities. Qualified actuaries perform the calculations, using the projected unit method.
We recognise actuarial gains and losses in equity in the period in which they occur, through the Group Statement of
Comprehensive Income. Actuarial gains and losses include the difference between the expected and actual return on
scheme assets and experience gains and losses on scheme liabilities.
Genus and the other participating employers are jointly and severally liable for the MPF defined benefit scheme’s
obligations. We account for our section of the scheme and our share of any orphan assets and liabilities, and provide for
any amounts we believe we will have to pay under our joint and several liability. The joint and several liability also means
we have a contingent liability for the scheme’s obligations that we have not accounted for.
Under the joint and several liability, we initially recognise any changes in our share of orphan assets and liabilities in the
income statement. After this initial recognition, any actuarial gains and losses on the orphan assets and liabilities are
recognised directly in equity through the Group Statement of Changes in Equity, in the period in which they occur.
130
Genus plc | Annual Report 2017 27. Retirement benefit obligations continued
Retirement benefit obligations
The financial positions of the defined benefit schemes as recorded in accordance with IAS 19 and IFRIC 14, are aggregated
for disclosure purposes. The liability split by principal scheme is set out below.
The MPF – Genus’s share
The Dalgety Pension Fund
Other retirement benefit obligations and other unfunded schemes
Overall net pension liability
2017
£m
30.4
–
10.5
40.9
2016
£m
34.3
–
10.2
44.5
Overall, we expect to pay £7.3m (2017: £7.1m) in contributions to defined benefit plans in the 2018 financial year.
The defined benefit plans are administered by Trustee boards that are legally separated from the Group. The Trustee
board of each pension fund consists of representatives who are employees, former employees or are independent from
the Company. The boards of the pension funds are required by law to act in the best interest of the plan participants
and are responsible for setting certain policies, such as investment and contribution policies, and for the governance of
the fund.
The defined benefit pension schemes exposes the Group to actuarial risks such as greater than expected longevity of
members, lower than expected return on investments and higher than expected inflation, which may increase the plans’
liabilities or reduce the value of their assets.
UK pensions are regulated by The Pensions Regulator, a non-departmental public body established under the Pensions
Act 2004 and sponsored by the Department for Work and Pensions, operating within a legal regulatory framework set by
the UK Parliament. The Pensions Regulator has statutory objectives set out in legislation, which include promoting and
improving understanding of the good administration of work-based pensions, protecting member benefits and regulating
occupational defined benefit and contribution schemes. The Pensions Regulator’s statutory objectives and regulatory
powers are described on its website at thepensionsregulator.gov.uk.
All defined benefit schemes are registered as an occupational pension plan with HMRC and are subject to UK legislation
and oversight from The Pensions Regulator. UK legislation requires that pension schemes are funded prudently and valued
at least every three years. Separate valuations are required for each scheme. Within 15 months of each valuation date, the
plan trustees and the Group must agree any contributions required to ensure that the plan is fully funded over time on a
suitably prudent measure.
Funding plans are individually agreed with the respective trustees for each of the Group’s defined benefits pension
schemes, taking into account local regulatory requirements.
The MPF
The MPF was previously operated by the Milk Marketing Board and was also open to staff working for Milk Marque Ltd
(the principal employer, now known as Community Foods Group Limited), NMR, First Milk Ltd, hauliers associated to First
Milk Ltd, Dairy Farmers of Britain Ltd (which went into receivership in June 2009) and Milk Link Ltd.
We have accounted for our section of the scheme and our share of any orphan assets and liabilities, which together
represent approximately 85% of the MPF (2016: 75%). Although the MPF is managed on a sectionalised basis, it is a ‘last
man standing scheme’, which means that all participating employers are jointly and severally liable for all of the fund’s
liabilities. With effect from 30 June 2013, Genus’s remaining active members ceased accruing benefits in the fund and
became deferred pensioners.
On 11 January 2016, the Trustees of the MPF agreed with a request from the employers to change the index used for
pension and deferred pension increases from RPI to CPI. The members of the scheme were informed of this change on
17 February 2016, which is effective for increases starting in 2016. As a result of the change, Genus recorded a gain of
£43.9m.
The most recent actuarial triennial valuation of the MPF was at 31 March 2015 and was carried out by qualified actuaries. The
valuation has been agreed by the Trustees.
The principal actuarial assumptions adopted in the 2015 valuation were that:
• investment returns on existing assets would exceed fixed interest gilt yields by 1.1% p.a.;
• CPI price inflation is expected to be 0.9% p.a. lower than RPI price inflation; and
• pensions in payment and pensions in deferment would increase in future in line with CPI price inflation, subject to
various minimum and maximum increases.
At 31 March 2015, the market value of the fund’s assets was £403m. This represented approximately 87% of the value of
the uninsured liabilities, which were £465m at that date.
131
FINANCIAL STATEMENTS Genus plc | Annual Report 2017 Notes to the Group Financial Statements continued
For the year ended 30 June 2017
27. Retirement benefit obligations continued
The deficit in the fund as a whole, by reference to the 31 March 2015 valuation, was £62m (of which Genus’s notional share
was £47m). This shortfall is being addressed by additional contributions from the participating employers. Under the
Trustee prepared schedule of contributions, Genus will be required to make deficit repair contributions of £5.6m p.a.
commencing 31 March 2016, and rising thereafter by 3.4% p.a. until 31 August 2022, in addition to funding the scheme’s
operating expenses. Genus has assessed its additional pension liability under IFRIC 14 by reference to this schedule of
contributions, resulting in an amount of £19.6m (2016: £14.9m) being recognised in the Group Statement of
Comprehensive Income.
On 23 June 2017, NMR withdrew from the MPF under a Flexible Apportionment Arrangement between NMR, Genus and
the Trustees of the MPF. In return for the right to withdraw from the MPF, NMR made a one-off, lump sum cash payment
of £10.1m to the MPF, equivalent to the undiscounted value of all NMR’s future payments under the existing MPF recovery
plan which extends to March 2026; and NMR also made a payment to Genus of £4.7m, with £1.4m being satisfied by the
issue NMR shares.
As a result of the NMR withdrawal, Genus has recognised £5.7m as an exceptional credit, with £4.5m (£4.7m payment net
of fees) being received directly from NMR, and £1.2m from MPF pension scheme reflecting the impact of NMR paying
undiscounted amounts into the scheme.
The DPF
The most recent actuarial valuation of the DPF was at 31 March 2015 and carried out by qualified actuaries.
The principal actuarial assumptions adopted in the 2015 valuation were that investment returns on existing assets would
be 4.1% p.a. before retirement and 2.2% p.a. after retirement and that the annual increase in pensions in payment would be
3.3% p.a.
The market value of the available assets at 31 March 2015 was £31.6m. The value of those assets represented
approximately 101% of the value of the uninsured liabilities, which were £31.3m at 31 March 2015. Under the funding
agreement, the Company will not have to make deficit repair contributions.
The disclosures required under IAS 19 have been calculated by an independent actuary based on accurate calculations
carried out as at 31 March 2015 and updated to 30 June 2016.
As at 30 June 2017 the DPF was in an overall net pension asset position of £6.5m. However, the Company does not have
the unilateral right to this surplus and therefore in line with IFRIC 14 the recognition of this asset is restricted.
The Trustees of the DPF hold an £18.7m reserve against future unknown liabilities materialising. As the economic benefit
to Genus of this amount is not certain, it is treated as a contingent asset.
In addition to the aggregate assets and liabilities disclosed, a bulk annuity policy was secured with an insurance company
in July 1999, which matched the benefit entitlement of the almost all of the fund’s current and deferred pension liabilities
at that time. The value of these policies and related liabilities at 30 June 2017 was £708m (2016: £703m).
Other defined benefit scheme in deficit
The Group operates a closed defined benefit scheme for a small number of former employees of the National Pig
Development Company Limited. The total market value of scheme assets and liabilities at 30 June 2017, under the
provisions of IAS 19, were £5.2m (2016:£5.2m) and £6.7m (2016:£6.5m), respectively.
Other unfunded schemes
When the Group acquired Sygen International plc, it also acquired three unfunded defined benefit schemes and an
unfunded retirement health benefit plan, which it now operates for the benefit of the previous Group’s senior employees
and executives.
The scheme liabilities for the three unfunded defined benefit schemes amounted to £8.1m (2016: £8.0m), based on IAS
19’s methods and assumptions. This amount is included within pension liabilities in the Group Balance Sheet. Interest on
pension scheme liabilities amounted to £0.2m (2016: £0.2m).
The principal assumptions used to calculate the scheme liabilities were that the discount rate would be 2.65% (2016: 2.8%)
and that inflation and pension payment increases would be 3.1% per annum (2016: 2.7%).
The scheme liabilities for the unfunded retirement health benefit plan amounted to £0.9m (2016: £0.9m), based on IAS
19’s methods and assumptions. This amount is included within retirement benefit obligations in the Group Balance Sheet.
Interest on plan liabilities amounted to £nil (2016: £0.1m).
The principal assumptions used to calculate the plan liabilities were that the discount rate would be 2.65% (2016: 2.8%)
and that the long-term rate of medical expense inflation would be 7.1% (2016: 6.7%).
132
Genus plc | Annual Report 2017 27. Retirement benefit obligations continued
Aggregated position of defined benefit schemes
Present value of funded obligations (includes Genus’s 85% share of MPF (2016: 75%))
Present value of unfunded obligations
Total present value of obligations
Fair value of plan assets (includes Genus’s 85% share of MPF (2016: 75%))
Restrict recognition of asset (DPF)
Recognition of additional liability (MPF)
Recognised liability for defined benefit obligations
Plan assets consist of the following:
Equities
Diversified growth funds
Liability driven investments
Gilts and corporate bonds
Cash
Other
2017
£m
424.2
9.0
433.2
(418.4)
6.5
19.6
40.9
2016
£m
347.9
8.9
356.8
(334.0)
6.8
14.9
44.5
2017
£m
90.4
93.7
93.5
59.5
8.9
72.4
2016
£m
99.3
57.6
32.7
95.7
1.7
47.0
418.4
334.0
Each of the defined benefits schemes manages risks through a variety of methods and strategies including equity
protection, to limit downside risk of falls in equity markets, as well as inflation and interest rate hedging.
Movement in the liability for defined benefit obligations
Liability for defined benefit obligations at the start of the year
Benefits paid by the plans
Current service costs and interest
Actuarial gains recognised on fund liabilities arising from changes in demographic assumptions
Actuarial losses recognised on fund liabilities arising from changes in financial assumptions
Actuarial losses/(gains) recognised on fund liabilities arising from experience (other)
Gains on curtailments and settlements
Change from RPI to CPI for benefit increases in the MPF
Recognition of additional liabilities due to increasing Genus’s share of MPF
Exchange rate adjustment
Liability for defined benefit obligations at the end of year
Movement in plan assets
Fair value of plan assets at the start of the year
Administration expenses
Gains on curtailments and settlements
Recognition of additional assets due to increasing Genus’s share of MPF
Contributions paid into the plans
Benefits paid by the plans
Interest income on plan assets
Actuarial gains recognised in equity
Fair value of plan assets at the end of the year
2017
£m
356.8
(15.3)
9.8
–
28.0
2.2
–
–
51.5
0.2
433.2
2017
£m
334.0
(0.6)
–
52.7
7.2
(15.3)
9.0
31.4
418.4
2016
£m
386.1
(18.3)
14.3
(10.9)
41.6
(11.8)
(1.4)
(43.9)
–
1.1
356.8
2016
£m
329.2
(0.7)
(1.1)
–
6.7
(18.3)
12.1
6.1
334.0
133
FINANCIAL STATEMENTS Genus plc | Annual Report 2017 Notes to the Group Financial Statements continued
For the year ended 30 June 2017
27. Retirement benefit obligations continued
Summary of movements in Group deficit during the year
Deficit in schemes at the start of the year
Administration expenses
Gains on curtailments and settlements
Exceptional gain on NMR withdrawal from MPF
Change from RPI to CPI for benefit increases in the MPF
Contributions paid into the plans
Net pension finance cost
Actuarial loss recognised during the year
Movement in restriction of assets
Recognition of additional liability
Exchange rate adjustment
Deficit in schemes at the end of the year
Amounts recognised in the Group Income Statement
Administrative expenses
Interest obligation
Interest income on plan assets
Interest on additional liability
Gains on curtailments and settlements
Exceptional gain on NMR withdrawal from MPF
Change from RPI to CPI for benefit increases in the MPF
The expense/(income) is recognised in the following line items in the Income Statement
Administrative expenses
Settlement gain in exceptional items
Exceptional gain on NMR withdrawal from MPF
Change from RPI to CPI for benefit increases in the MPF in exceptional items
Net finance charge
Actuarial gains and losses recognised in the Group Statement of Comprehensive Income
Cumulative loss at the start of the year
Actuarial (gain)/loss recognised during the year
Movement in restriction of assets
Recognition of additional liability
Exchange rate adjustment
Cumulative loss at the end of the year
2017
£m
(44.5)
(0.6)
–
1.2
–
7.2
(1.2)
1.2
0.3
(4.3)
(0.2)
(40.9)
2017
£m
0.6
9.8
(9.0)
0.4
–
(1.2)
–
0.6
2017
£m
0.6
–
(1.2)
–
1.2
0.6
2017
£m
79.4
(1.2)
(0.3)
4.3
0.2
82.4
2016
£m
(63.1)
(0.7)
0.3
–
43.9
6.7
(2.2)
(12.8)
(0.6)
(14.9)
(1.1)
(44.5)
2016
£m
0.7
14.3
(12.1)
–
(0.3)
–
(43.9)
(41.3)
2016
£m
0.7
(0.3)
–
(43.9)
2.2
(41.3)
2016
£m
50.0
12.8
0.6
14.9
1.1
79.4
134
Genus plc | Annual Report 2017 27. Retirement benefit obligations continued
Actuarial assumptions and sensitivity analysis
Principal actuarial assumptions at the reporting date (expressed as weighted averages):
Discount rate
Consumer Price Index (CPI)
Retail Price Index (RPI)
2017
2.65%
2.05%
3.15%
2016
2.8%
1.6%
2.7%
The mortality assumptions used are consistent with those recommended by the schemes’ actuaries and reflect the latest
available tables, adjusted for the experience of the scheme where appropriate. For 2017, the mortality tables used are 97%
of the SN2A tables, with birth year and 2014 CMI projections, subject to a long-term rate of improvement of 1.25% for
males and females (2016: the mortality tables used are 97% of the SN2A tables, with birth year and 2014 CMI projections,
subject to a long-term rate of improvement of 1.25% for males and females).
The following table shows the assumptions used for all schemes and illustrates the life expectancy of an average member
retiring at age 65 at the balance sheet date and a member reaching age 65 in 20 years’ time.
Retiring at balance sheet date at age 65
Retiring at age 65 in 20 years’ time
Male
Female
Male
Female
2017
Years
23.0
25.2
24.7
27.0
2016
Years
22.9
25.1
24.6
26.9
Duration of benefit obligations
The weighted average duration of the defined benefit obligations at 30 June 2017 was 17.4 years (2016: 17.5 years).
Sensitivity analysis
Measurement of the Group’s defined benefit obligation is sensitive to changes in certain key assumptions. The sensitivity
analysis below shows how a reasonably possible increase or decrease in a particular assumption would, in isolation, result
in an increase or decrease in the present value of the defined benefit obligation as at 30 June 2017.
Discount rate
Rate of inflation
Life expectancy
Decrease
by 0.25%
£m
Increase
by 0.25%
£m
Decrease
by 0.25%
£m
Increase
by 0.25%
£m
Decrease
by 1 year
£m
Increase
by 1 year
£m
Increase/(decrease) in present value of defined
obligation
16.9
(16.2)
(11.9)
12.1
(16.9)
16.9
The sensitivity analysis may not be representative of an actual change in the defined benefit obligation, as it is unlikely
that changes in assumptions would occur in isolation from one another.
The sensitivities assume the fund’s assets remain unchanged. However, in practice changes in interest rates and inflation
will also affect the value of the fund’s assets. The fund’s investment strategy aims to hold matching assets which should
move broadly in line with the liabilities of the funds, to protect partially against changes in interest rates and inflation.
This sensitivity analysis has been prepared using the same method adopted when adjusting results of the latest funding
valuation to the balance sheet date. This is the same approach adopted in previous periods.
The history of experience adjustment is as follows:
Present value of the defined benefit obligation
Fair value of plan assets
Restrict recognition of asset and recognition of additional
liability
Deficit in the plans
Experience adjustments arising on plan liabilities (%)
Experience adjustments arising on plan assets (%)
2017
£m
433.2
(418.4)
26.1
40.9
7.1
7.6
2016
£m
2015
£m
2014
£m
2013
£m
356.8
(334.0)
386.1
(329.2)
367.8
(314.6)
355.2
(294.1)
21.7
44.5
5.3
4.1
6.2
63.1
4.9
3.7
5.0
58.2
2.9
4.9
3.9
65.0
5.1
2.5
135
FINANCIAL STATEMENTS Genus plc | Annual Report 2017 Notes to the Group Financial Statements continued
For the year ended 30 June 2017
28. Share-based payments
We have a number of share plans used to award shares to Directors and senior management as part of their remuneration.
To record the cost of these, a charge is recognised over the vesting period in the consolidated income statement, based
on the fair value of the award on the date of grant.
Accounting policies
We recognise the fair value of share awards and options granted as an employee expense, with a corresponding increase in
equity. We measure the fair value at the grant date and spread it over the vesting period of each option. We use a binomial
valuation model to measure the fair value of options and a Black-Scholes valuation model to measure the fair value of share
awards. We adjust the amount we recognise as an expense, to reflect the estimated performance against non-market
related conditions and the number of share awards and options that actually vest at the end of the vesting period.
The Group recognised a total share-based payment expense of £4.6m (2016: £3.8m), including National Insurance
contributions of £1.0m (2016: £0.4m).
Share awards
There were 1,089,391 conditional share awards outstanding at 30 June 2017. These conditional shares were awarded to
Executive Directors and senior management under the 2004 Performance Share Plan on 7 December 2012, 26 September
2013 and 14 March 2014, and under the 2014 Performance Share Plan on 20 November 2014, 14 September 2015 and
14 September 2016. In accordance with the plans’ terms, participants have received a conditional annual award of shares
or nil cost option awards which will normally vest after three years, with the proportion of the award vesting depending
on growth in the Group’s adjusted earnings per share. Further details of the plan’s performance conditions are given in the
Directors’ Remuneration Report.
In the year ended 30 June 2017, awards were granted on 14 September 2016, with an aggregate fair value of £5,725,000.
The fair value of services received in return for share awards granted is based on the fair value of share awards granted,
measured using a Black-Scholes valuation model. At the date of grant, the fair value of a share awarded was £18.78, based
on an expected dividend yield of 1.21%.
Outstanding at the start of year
Exercised during the year
Forfeited during the year
Granted during the year
Outstanding at 30 June
Exercisable at 30 June
Number
of awards
2017
Number
of awards
2016
1,122,448
(94,882)
(243,030)
304,855
1,034,287
(61,550)
(254,818)
404,529
1,089,391
31,026
1,122,448
17,289
Bonus and restricted stock share awards
In addition to the outstanding share awards above, there were 102,731 bonus and restricted stock share awards
outstanding at 30 June 2017. The bonus shares were awarded to Executive Directors and senior management as part of
the compulsory deferred bonus, and restricted stock share awards were granted to senior management in connection
with recruitment. In accordance with the awards’ terms, participants have received a conditional annual bonus award of
shares or nil cost option awards, which will normally vest between one and three years, after award, providing the
participant is employed by the Group at that time.
In the year ended 30 June 2017, 25,576 bonus share awards were granted on 14 September 2016, with an aggregate fair
value of £482,000, and 22,138 restricted stock share awards were granted in total on 21 December 2016, with an
aggregate fair value of £182,000.
Number
of awards
2017
68,870
(12,153)
(1,700)
47,714
102,731
–
Number
of awards
2016
43,547
(19,370)
(433)
45,126
68,870
–
Outstanding at the start of year
Exercised during the year
Forfeited during the year
Granted during the year
Outstanding at 30 June
Exercisable at 30 June
136
Genus plc | Annual Report 2017 28. Share-based payments continued
Share options
On 12 August 2004, the Group established a share option programme that entitles key management and other senior
employees to purchase shares in the Company. Further grants on similar terms were offered to these employee groups as
set out below. The terms and conditions of the grants are as set out below. All options are to be settled by physical
delivery of shares and meet the criteria for being treated as equity settled.
Employees entitled
2004 Company share plan
2004 Company share plan
2004 Company share plan
2004 Company share plan
2004 Company share plan
2004 Company share plan
2004 Company share plan
Total share options
Grant date
Number of
instruments
Vesting
conditions
Option
exercise price
(pence)
Contractual
life of options
21 September 2007
19 September 2008
15 September 2009
10 September 2010
9 September 2011
7 September 2012
26 September 2013
4,048
7,923
17,911
31,993
41,729
47,711
72,050
223,365
Exercisable
Exercisable
Exercisable
Exercisable
Exercisable
Exercisable
Exercisable
582.00
775.67
654.50
729.83
977.83
1,334.00
1,413.00
10 years
10 years
10 years
10 years
10 years
10 years
10 years
The number and weighted average exercise prices of share options are as follows:
Outstanding at the start of year
Forfeited during the year
SAR effected during the year
Exercised during the year
Outstanding at 30 June
Exercisable at 30 June
Weighted
average
exercise price
2017
(pence)
1,132
1,351
1,215
1,092
1,118
1,118
Weighted
average
exercise price
2016
(pence)
1,119
1,171
1,038
932
1,132
986
Number
of options
2017
396,971
(17,470)
(87,296)
(68,840)
223,365
223,365
Number
of options
2016
612,821
(76,793)
(94,801)
(44,256)
396,971
261,608
The options at 30 June 2017 had a weighted average remaining contractual life of 4.4 years (2016: 5.4 years). No share
options were granted during the year (2016: nil). The weighted average share price at the date of exercise during the year
was £19.45p (2016: £14.83p).
29. Capital and reserves
Called up share capital is the number of shares in issue at their par value. A number of shares were issued in the year in
relation to employee share schemes.
Accounting policies
Equity instruments issued by the Group are recorded at the amounts of the proceeds received, net of direct issuance costs.
Own shares
We include the transactions, assets and liabilities of the Group-sponsored Qualifying Employee Share Ownership Trust
(‘QUEST’) in the Group financial statements. In particular, the trust’s purchases of the Company’s shares are deducted
from shareholders’ funds until they vest unconditionally with employees.
Share capital
Issued and fully paid
Ordinary shares of 10 pence
2017
Number
2016
Number
61,161,622
61,012,703
The holders of ordinary shares are entitled to receive dividends, as declared from time to time.
The movement in share capital for the period was as follows:
Issued under the Executive Share Option Plan
Issued to Employee Benefits Trust
2017
Number
68,840
80,079
148,919
2016
Number
44,256
–
44,256
2017
£m
6.1
2017
£m
–
–
–
2016
£m
6.1
2016
£m
–
–
–
137
FINANCIAL STATEMENTS Genus plc | Annual Report 2017 Notes to the Group Financial Statements continued
For the year ended 30 June 2017
29. Capital and reserves continued
Shares issued under share option plans were issued at option prices as follows:
Executive Share Option Plan
2017
Number
Price
(pence)
2016
Number
Price
(pence)
–
1,984
2,847
2,434
8,065
24,139
9,206
20,165
68,840
440.00
582.00
776.00
654.50
729.83
977.83
1334.00
1413.00
4,992
527
–
629
4,860
26,799
6,449
–
44,256
440.00
582.00
776.00
654.50
729.83
977.83
1334.00
1413.00
Reserve for own shares
The Company’s shares are held by a QUEST, which is an employee benefit trust established to facilitate the operation of
our long-term incentive scheme for senior management. The reserve amount represents the deduction in arriving at
shareholders’ funds for the consideration the trust paid for the Company’s shares, which had not vested unconditionally at
the balance sheet date. The number and market value of the ordinary shares held by the employee benefit trust and the
QUEST were:
Shares allocated but not vested
Unallocated shares
2017
Number
70,272
92,334
2016
Number
85,075
92,334
162,606
177,409
2017
£m
1.3
1.6
2.9
2016
£m
1.3
1.5
2.8
The shares have a nominal value of £16,261 (2016: £17,741).
Translation reserve
The translation reserve comprises all foreign currency differences arising from translating the financial statements of our
foreign operations.
The Group uses foreign currency denominated borrowings as a hedge against the translation exposure on the Group’s net
investment in overseas companies. Where the hedge is fully effective at hedging the variability in the net assets of such
companies caused by changes in exchange rates, the changes in value of the borrowings are recognised in the
Consolidated Statement of Comprehensive Income and accumulated in the hedging and translation reserve. The ineffective
part of any change in value caused by changes in exchange rates is recognised in the Consolidated Income Statement.
Hedging reserve
The hedging reserve comprises the effective portion of the cumulative net change in the fair value of cash flow hedging
instruments, net of taxation.
Hedging and translation reserves
Balance at 30 June 2015
Exchange differences on translation of overseas operations
Loss recognised on net investment hedges
Loss recognised on cash flow hedges – interest swaps
Income tax related to net gains recognised in other comprehensive income
Balance at 30 June 2016
Exchange differences on translation of overseas operations
Loss recognised on net investment hedges
Gain recognised on cash flow hedges – interest swaps
Income tax related to net gains recognised in other comprehensive income
Balance at 30 June 2017
Hedging
reserve
£m
Translation
reserve
£m
–
–
–
(0.7)
0.1
(0.6)
–
–
2.1
(0.4)
1.1
(10.1)
77.8
(13.3)
–
(16.9)
37.5
8.6
(2.7)
–
(4.2)
39.2
138
Genus plc | Annual Report 2017 2017
£m
34.3
1.1
8.7
4.6
(6.2)
3.7
6.4
2.5
55.1
8.8
0.2
–
2.5
66.6
(5.4)
(5.7)
0.1
(6.6)
(0.9)
48.1
1.4
(9.0)
5.8
46.3
0.8
(3.1)
0.6
(10.0)
34.6
2016
£m
50.3
17.1
6.1
3.8
(6.9)
4.6
10.6
(36.3)
49.3
7.9
(0.2)
(0.2)
0.9
57.7
(4.7)
(3.8)
(1.2)
(6.1)
0.3
42.2
(0.7)
2.6
(0.8)
43.3
0.1
(1.6)
0.1
(11.9)
30.0
30. Notes to the cash flow statement
Profit for the year
Adjustment for:
Net IAS 41 valuation movement on biological assets
Amortisation of acquired intangible assets
Share-based payment expense
Share of profit of joint ventures and associates
Finance costs (net)
Income tax expense
Exceptional items
Adjusted operating profit from continuing operations
Depreciation of property, plant and equipment
Loss/(profit) on disposal of plant and equipment
Gain on asset held for sale
Amortisation of intangible assets
Adjusted earnings before interest, tax, depreciation and amortisation
Exceptional item cash
Other movements in biological assets and harvested produce
Increase/(decrease) in provisions
Additional pension contributions in excess of pension charge
Other
Operating cash flows before movement in working capital
Decrease/(increase) in inventories
(Increase)/decrease in receivables
Increase/(decrease) in payables
Cash generated by operations
Interest received
Interest and other finance costs paid
Cash flow from derivative financial instruments
Income taxes paid
Net cash from operating activities
Analysis of net debt
Cash and cash equivalents
Interest-bearing loans – current
Obligation under finance leases – current
Interest-bearing loans – non-current
Obligation under finance lease – non-current
Net debt
At 1 July
2016
£m
Net cash
flows
£m
Foreign
exchange
£m
Non-cash
movements
£m
At 30 June
2017
£m
34.0
(4.6)
(1.1)
(5.7)
(115.3)
(2.7)
(118.0)
(89.7)
(7.7)
(3.0)
2.0
(1.0)
(9.4)
–
(9.4)
(18.1)
0.2
(0.1)
–
(0.1)
(2.5)
(0.1)
(2.6)
(2.5)
–
–
(2.3)
(2.3)
–
1.0
1.0
26.5
(7.7)
(1.4)
(9.1)
(127.2)
(1.8)
(129.0)
(1.3)
(111.6)
Included within non-cash movements is £1.3m in relation to new finance leases.
139
FINANCIAL STATEMENTS Genus plc | Annual Report 2017 Notes to the Group Financial Statements continued
For the year ended 30 June 2017
31. Operating leases
The Group has entered into non-cancellable commercial arrangements on certain properties, plant, motor vehicles
and equipment.
Accounting policies
For operating leases, we charge the rentals payable, and any incentives we receive to enter into an operating lease, to the
income statement on a straight-line basis over the lease term.
Total of future minimum lease payments under non-cancellable operating leases which expire within:
Less than one year
Between one and five years
More than five years
2017
£m
2.7
10.7
5.8
19.2
2016
£m
1.3
10.7
9.2
21.2
The leases have various terms and renewal rights. There are no other restrictions imposed by these lease agreements.
32. Capital and other commitments
At 30 June 2017, outstanding contracted capital expenditure amounted to £4.9m and all relate to the purchase of
property, plant and equipment. (2016: £0.7m).
A software agreement was signed on 23 June 2017, with a minimum five-year term, with an annual cost of £0.7m.
33. Contingencies and bank guarantees
Contingent liabilities are potential future cash outflows, where the likelihood of payments is considered more than remote
but is not considered probable or cannot be measured reliably.
The retirement benefit obligations referred to in note 27 include obligations relating to the MPF defined benefit scheme.
Genus, together with other participating employers, is joint and severally liable for the scheme’s obligations. Genus has
accounted for its section and its share of any orphan assets and liabilities, collectively representing approximately 85%
(2016: 75%) of the MPF. As a result of the joint and several liability, Genus has a contingent liability for the scheme’s
obligations that it has not accounted for. The total deficit of the MPF scheme from the most recent triennial valuation can
be found in note 27.
During the year, as part of a commercial agreement in favour of a third party, we entered into a bank guarantee for £4.1m
which will expire within two years.
34. Directors and key management compensation
This note details the total amounts earned by the Company’s Directors and members of the Executive Committee.
Key management compensation (including Directors)
Salaries and short-term employee benefits
Post-employment benefits
Share-based payment expense
Directors
Details of Directors’ compensation are included in the Directors’ Remuneration Report.
Other transactions with key management personnel
Other than remuneration, there were no transactions with key management personnel.
2017
£m
6.1
0.3
2.6
9.0
2016
£m
5.8
0.3
2.1
8.2
140
Genus plc | Annual Report 2017 35. Group entities
In accordance with section 409 of the Companies Act 2006, a list of subsidiaries and joint ventures and associates as at
30 June 2017 is set out below. All subsidiary undertakings are subsidiary undertakings of their immediate Parent
undertaking(s), unless otherwise indicated.
Nature of business
Bovine
Name of undertaking
Registered address
ABS Argentina S.A.
ABS Chile Limitada
ABS Genetics South Africa
(Pty) Ltd
ABS Global (Canada) Inc.
ABS Global, Inc.
ABS Italia S.r.l.
ABS México, S.A. de C.V.
ABS Progen Ireland
Limited
Bovec SASU – changed
name
Chitale Genus ABS (India)
Private Limited
De Novo Genetics LLC
A.Castellanos 1169, (3080)
Esperanza, Sante Fe, Argentina
Avenida del Parque #4161 office
#601, Huechuraba, Santiago, Chile
Prestige Park Block B, Unit No
5B, Pastorale Street, Durbanville
Industrial Park, Durbanville, 7550,
South Africa
1525 Floradale Road, Elmira ON
N3B 2Z1, Canada
1525 River Road, De Forest WI
53532, United States
Via Bastida nr. 6, loc. Cavatigozzi,
26020, Cremona, Italy
Kansas No. 2028, Quintas
Campestre, 31214, Chihuahua, Chih.,
Mexico
Suite 6, Rineanna House, Shannon
Free Zone, Co. Clare, Ireland
69 Chemin des Molieres, 69210,
Lentilly, France
Amar Neptune, Office No.406, off
Baner Road, S. No.6/1/1, Village
Baner, Tal. Haveli, Pune, Pune,
Maharashtra, India
1286 Oriole Drive, New Albin IA
52160, Untied States
Genus ABS Colombia SAS Avenida Carrera 70 , No. 105 – 51,
Genus Australia Pty Ltd
Genus (Beijing)
International Trade Co.,
Ltd.
Genus Breeding India
Private Limited
Genus Breeding Limited
‘Genus Ukraine’ LLC
GIFCO (Ireland) Designated
Activity Company
Inimex Genetics Limited
In Vitro Brasil México, S.A.
de C.V.
In Vitro Brasil S.A.
Bogota, Colombia
2 Fleet Street, Somerton VIC 3062,
Australia
B1608, Lucky Tower, East5 3rd Ring
Road, Chaoyang District, Beijing,
100027, China
Amar Neptune, Office No.406, off
Baner Road, S. No.6/1/1, Village
Baner, Tal. Haveli, Pune, Pune,
Maharashtra, India
Matrix House, Basing View,
Basingstoke, Hampshire RG21 4DZ,
United Kingdom
Pidlisna str., 1, KYIV 03164, Ukraine
Suite 6, Rineanna House, Shannon
Free Zone, Co. Clare, Ireland
Matrix House, Basing View,
Basingstoke, Hampshire RG21 4DZ,
United Kingdom
Plaza Comercial Punto Colorines,
Boulevard Independencia #746,
Lote. 27010, Sala 6 e 7., Cidade
Torreon – Estado, Coahuila, Mexico
São Francisco Farm, Km 165 of
Righway Campinas-Mogi Mirim,
City of Mogi Mirim, São Paulo,
13.800-970, Brazil
Country of
incorporation
Direct/
indirect
Group
interest
% of share
capital/voting
rights held
by Group
companies
Share class
Argentina
Direct ARS1 ordinary
100%
Chile
South Africa
Direct CLP1 common
stock
Indirect ZAR1 ordinary
100%
100%
Canada
Indirect CAD1 ordinary
100%
United
States
Indirect
Italy Indirect
USD0.01
common
€1 Quota
Mexico
Direct MXN10 Class 1
MXN10 Class 2
100%
100%
100%
Ireland Indirect €1.25 ordinary
100%
France Indirect
€10 ordinary
100%
India
Indirect
INR100
ordinary
United
States
Colombia
Indirect
Indirect
Australia
Indirect
China
Indirect
No par value
LLC units
COP10,000
ordinary
No par value
ordinary
No par value
common stock
50%1
51%
100%
100%
100%
India
Indirect
INR10 ordinary
100%
United
Kingdom
Direct
£1 ordinary
100%
Ukraine Indirect
No par value
common stock
Ireland Indirect US$1 ordinary
100%
100%
United
Kingdom
Indirect
£1 ordinary
100%
Mexico Indirect MXN1 ordinary
99%
Brazil
Indirect
No par value
common
100%
141
FINANCIAL STATEMENTS Genus plc | Annual Report 2017 Notes to the Group Financial Statements continued
For the year ended 30 June 2017
35. Group entities continued
Name of undertaking
Registered address
Carrera 72A N° 49A – 39, Barrio
Normandia Segundo Sector –
Bogotá D.C, Colombia
188671, Distrito De Leningrado
Região De Vsevolojskiy, Vilarejo De
Lepsar, Russian Federation
1525 River Road, De Forest WI
53532, United States
Rod. BR 050 Km 196 + 150metros,
Zona Rural, Delta, MG – 38108-000,
Brazil
1525 River Road, De Forest WI
53532, United States
400553858, Av. Mao Tse Tung,
Maputo, Mozambique
Country of
incorporation
Direct/
indirect
Group
interest
% of share
capital/voting
rights held
by Group
companies
Share class
Colombia
Indirect COP1 common
51%
Russia
Indirect RUB1 ordinary
50%
United
States
Brazil
Indirect
US$0.001
common
Indirect BRL1 ordinary
United
States
No par value
common
Mozambique Indirect MZN1 ordinary
Indirect
100%
100%
100%
80%
100%
Maximo Tajes 7189, Uruguay
Uruguay Indirect
UYU0.54
provisional
certified
registered
UYU1.00
registered
In Vitro Colombia S.A.S.
In Vitro Russia LLC
IVB USA, Inc.
Pecplan ABS Imp. e Exp.
Ltda.
St Jacobs Animal Breeding
Corp.
ZAP In Vitro Mozambique,
Limitada
Zitery S.A
Porcine
Name of undertaking
Registered address
Agricola PIC Andina LimitadaAutopista Los Libertadores Km39.5,
Agroceres PIC Genética de
Suínos Ltda
Chacabuco, Colina, Santiago, Chile
Rua 1 JN, n˚ 1411, Sala 16 – Jardim
Novo, Rio Claro/SP – CEP, 13.502-
741, Brazil
Minnesota, LLC
Birchwood Genetics, Inc.
Genetiporc International
Génétiporc México, S.A. de
Agroceres PIC Suínos Ltda Rua 1 JN, n˚ 1411, Sala 17 – Jardim
Novo, Rio Claro/SP – CEP, 13.502-
741, Brazil
465 Stephens Road, West
Manchester OH 45382,
United States
100 BlueGrass Commons Blvd,
Suite 2200, Hendersonville, TN
37075 United States
Wenceslao de la Barquera No.7, Col.
Villas del Sur, 76040 Queretaro,
Queretaro, Mexico
100 BlueGrass Commons Blvd,
Suite 2200, Hendersonville, TN
37075 United States
Office 1106, Ramada Plaza, 509
Caobao Road, Xuhui District,
Shanghai, 200233, China
Riverside One, Sir John Rogerson's
Quay, Dublin 2, Ireland
Genetiporc USA, LLC
Genus China Limited
Hermitage Genetics
Company
C.V.
Designated Activity
Company
HY-CO Hybridschweine-
Cooperations GmbH
LLC PIC Genetics
Tegelberg 19 – 21, 24576 Bad
Bramstedt, Germany
79 Narodnyy Boulevard, 308000,
Belgorod, Russian Federation
142
Country of
incorporation
Direct/
indirect
Group
interest
% of share
capital/voting
rights held
by Group
companies
Share class
Chile Indirect CLP1 common
stock
Indirect BRL1 ordinary
Brazil
100%
49%1
Brazil
Indirect BRL1 ordinary
49%1
United
States
United
States
Indirect
No par value
ordinary
Indirect
No par value
ordinary
100%
100%
Mexico Indirect MXN1 ordinary
100%
United
States
Indirect
US$100 LLC
units
China
Indirect
No par value
common Stock
Ireland Indirect €1.27 ordinary
€1.27
redeemable
preference
shares
No par value
common stock
Indirect RUB1 ordinary
Russia
Germany Indirect
100%
100%
100%
50%1
100%
Genus plc | Annual Report 2017 PIC Andina Venezuela S.A. Avenida De La Urbanización San
Venezuela
Chile Indirect
US$65.449
ordinary
Indirect VEF1 ordinary
100%
100%
35. Group entities continued
Name of undertaking
Registered address
Morganite Investments
Limited
PIC (Zhangjiagang) Pig
Improvement Co., Ltd.
PIC Andina SpA
Riverside One, Sir John Rogerson's
Quay, Dublin 2, Ireland
Office 1210, International Finance
Tower, 20 Jingang Road,
Zhangjiagang Bonded Zone,
Zhangjiagang City, Jiangsu
Province, China
Avenida del Parque #4161 office
#601, Huechuraba, Santiago, Chile
PIC Canada Ltd.
PIC France SA
PIG Datendienst GmbH
Pig Improvement
Company de México, S.
de R.L. de C.V.
PIG Improvement Company
Deutschland GmbH
Pig Improvement Company
España, S.A.
Pig Improvement Company
UK Limited
PIC Italia S.r.l.
PIC Philippines, Inc.
PIC Polska Sp. z o.o.
PIC Romania S.R.L.
PIC USA, Inc.
Jacinto , Residencias Ambar 1, Apto.
E-2-A, Maracay, Estado Aragua,
Venezuela, Bolivarian Republic of
4500 Bankers Hall East, 855 2nd
Street SW, Calgary AB T2P 4K7,
Canada
69 Chemin des Molieres, 69210,
Lentilly, France
Ratsteich 31, 24837 Schleswig,
Germany
Wenceslao de la Barquera No.7, Col.
Villas del Sur, 76040 Queretaro,
Queretaro, Mexico
Jathostraβe 11a, D-30163 Hannover,
Germany
C/Pau Vila, 22 20 puerta 6, 08174
Sant Cugat del Valles, Barcelona,
Spain
Matrix House, Basing View,
Basingstoke, Hampshire RG21 4DZ,
United Kingdom
Strada dei Loggi 22, 06135, Ponte
San Giovanni, Perugia, Italy
Unit 2101/2102, 21st Floor Jollibee
Plaza, F. Ortigas, Jr. Rd., Ortigas
Center, Pasig City, 1605, Philippines
ul. Gwiazdzista 7 lok.2, 01 – 651,
Warszawa, Poland
PIC Romania SRL, 8, Caimatei
Street, Sector 2, Bucharest,
Romania
100 BlueGrass Commons Blvd,
Suite 2200, Hendersonville, TN
37075 United States
RenOVate Biosciences, Inc. 3500 South Dupont Highway,
Reprodutores PIC, Lda
Shaanxi PIC Pig
Improvement Co., Ltd.
Xianyang Yongxiang
Agriculture Technology Co.,
Ltd.
Dover, Delaware 19901,
United States
Avenida General Norton De Matos,
59A 10A/B, Miraflores, Oeiras, 1495-
148 Alges, Portugal
Room 2008, Unit 1, Building 1,
Block Saigao, Weiyang Road,
Xi'an Economic and Technological
Development Zone, Xi'an City,
Shaanxi Province, China
Qiaojiaguan Village, Jianjun Town
Yongshou County, Xianyang
Shaanxi Province, China
Country of
incorporation
Direct/
indirect
Group
interest
% of share
capital/voting
rights held
by Group
companies
Share class
Ireland Indirect
€1 ordinary
100%
China
Indirect US$1 ordinary
100%
Canada
Indirect CAD1 ordinary
100%
France Indirect
€17 ordinary
100%
Germany Indirect
Mexico Indirect
Germany Indirect
Spain Indirect
No par value
common stock
No par value
common stock
No par value
common stock
€25 ordinary
50%1
100%
100%
100%
United
Kingdom
Indirect £0.10 ordinary
100%
Italy Indirect
€1 ordinary
85%
Philippines
Indirect
Poland Indirect
Romania
Indirect
PHP100
ordinary
PLN1,000
ordinary
RON2,983.10
ordinary
100%
100%
100%
Indirect US$1 ordinary
100%
United
States
United
States
Direct
Portugal
Indirect
China
Indirect
US$0.001
series seed
preferred
No par value
common stock
No par value
common stock
50%
100%
100%
China
Indirect
No par value
common stock
49%1
143
FINANCIAL STATEMENTS Genus plc | Annual Report 2017 Notes to the Group Financial Statements continued
For the year ended 30 June 2017
35. Group entities continued
Other
Name of undertaking
Registered address
Promar International
Limited
Accounting & Managerial
Services S. de R.L. de
C.V.
Génétiporc Servicios
Tecnicos S.A. de C.V.
PIC Servicios
Agropecuarios, S.A. de
C.V.
GIL Finance S.à.r.l.
ABS International, Inc.
ABS Pecplan Ltda.
Matrix House, Basing View,
Basingstoke, Hampshire RG21 4DZ,
United Kingdom
Kansas No. 2028, Quintas
Campestre, 31214, Chihuahua, Chih.,
Mexico
Wenceslao de la Barquera No.7, Col.
Villas del Sur, 76040 Queretaro,
Queretaro, Mexico
Wenceslao de la Barquera No.7, Col.
Villas del Sur, 76040 Queretaro,
Queretaro, Mexico
121 Avenue de la Faiencerie , L – 1511
, Luxembourg
1525 River Road, De Forest WI
53532, United States
Rod. BR 050 Km 196 + 150metros,
Zona Rural, Delta, MG – 38108-000,
Brazil
Brazilian Holdings Limited Matrix House, Basing View,
Basingstoke, Hampshire RG21 4DZ,
United Kingdom
Matrix House, Basing View,
Basingstoke, Hampshire RG21 4DZ,
United Kingdom
Matrix House, Basing View,
Basingstoke, Hampshire RG21 4DZ,
United Kingdom
Matrix House, Basing View,
Basingstoke, Hampshire RG21 4DZ,
United Kingdom
Matrix House, Basing View,
Basingstoke, Hampshire RG21 4DZ,
United Kingdom
Rua 1 JN, 12133, Piso Superior, Sala
13,, Jardim Novo, Cidade De Rio
Claro, Estado De Sao Paulo, CEP
13.502.74, Brazil
Matrix House, Basing View,
Basingstoke, Hampshire RG21 4DZ,
United Kingdom
Matrix House, Basing View,
Basingstoke, Hampshire RG21 4DZ,
United Kingdom
Alpha Building, London Road,
Nantwich, Stapeley, Cheshire CW5
7JW, United Kingdom
Suite 6, Rineanna House, Shannon
Free Zone, Co. Clare, Ireland
100 BlueGrass Commons Blvd,
Suite 2200, Hendersonville, TN
37075 United States
Matrix House, Basing View,
Basingstoke, Hampshire RG21 4DZ,
United Kingdom
Place Saint-Lambert 14, 1200
Woluwe-Saint-Lambert
Julia House, 3 Th Dervis Street,
Nicosia, Ch 1066, Cyprus
Fyfield (SM) Limited
Fyfield Holland B.V.
Genus Investments
Limited
PIC (UK) Limited
PIC Do Brasil
Empreendimentos e
Participações Ltda.
PIC Fyfield Limited
Pig Improvement
Company Overseas
Limited
Premium Genetics (UK)
Limited
Premium Genetics
Limited
Sygen, Inc.
Sygen International
Limited
Agence Spillers N.V.
Bellapais Farm Limited
144
Direct/
indirect
Group
interest
Direct
Country of
incorporation
United
Kingdom
Mexico Indirect
% of share
capital/voting
rights held
by Group
companies
100%
100%
Share class
£1
ordinary
MXN1
class 1
Mexico Indirect MXN 1 ordinary
100%
Mexico Indirect
MXN1,000
ordinary
Luxembourg Indirect
USD1
ordinary
Indirect US$1 common
United States
Brazil
Direct
United
Kingdom
Indirect
United
Kingdom
Indirect
Netherlands
Indirect
United
Kingdom
Direct
United
Kingdom
Indirect
Brazil
Indirect
United
Kingdom
Indirect
United
Kingdom
Indirect
United
Kingdom
Indirect
Ireland Indirect
United States
Indirect
United
Kingdom
Direct
Belgium Indirect
Cyprus
Indirect
BRL1
ordinary
£1
ordinary
£1
ordinary
NPV
ordinary
£1
ordinary
£1
ordinary
BRL0.01
ordinary
£1
ordinary
£1
ordinary
£0.10
ordinary
€1.27
ordinary
US$10
common
£0.10
ordinary
No par value
common stock
No par value
common stock
100%
34.1%1
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
Genus plc | Annual Report 2017 35. Group entities continued
Name of undertaking
Registered address
Bellapais Hatcheries
Limited
Bioscience Network
Limited
Julia House, 3 Th Dervis Street,
Nicosia, Ch 1066, Cyprus
25 Bothwell Street, Glasgow,
Lanarkshire G2 6NL
Country of
incorporation
Direct/
indirect
Group
interest
Cyprus
Indirect
United
Kingdom
Direct
Brazilian Properties
Limited
Matrix House, Basing View,
Basingstoke, Hampshire RG21 4DZ,
United Kingdom
United
Kingdom
Direct
Busby Participações Ltda. Av. Leopoldino de Oliveira, 4.113,
Brazil
Indirect
Cannavarro Participações
Ltda.
Dalco Exportadora Ltda.
Dalgety Pension Trust
Limited
Elmira ABC Ltd.
Sala 303, Centro, CEP: 38010-000,
UBERABA-MG
Av. Leopoldino de Oliveira, 4.113,
Sala 303, Centro, CEP: 38010-000,
UBERABA-MG
Rua Branco de Morais, No. 84,
cj.06, Chacara Santo Antonio, Sao
Paulo-SP, 04718-010, Brazil
Matrix House, Basing View,
Basingstoke, Hampshire RG21 4DZ,
United Kingdom
929 Arthur Street N. Elmira, N3B
2Z1, Canada
Brazil
Indirect
Brazil
Indirect
United
Kingdom
Indirect
Canada
Indirect
Fyfield Dormant
Fyfield Ireland Limited
Matrix House, Basing View,
Basingstoke, Hampshire RG21 4DZ,
United Kingdom
One Spencer Dock, North Wall
Quay, Dublin 1, Ireland
United
Kingdom
Indirect
Ireland Indirect
Genus Americas, Inc.
Genus Quest Trustees
Limited
Genus Trustees Limited
National Pig Development
Company Limited
PIC Benelux B.V.
Pig Improvement
Company Far East
Limited
Pigtales Limited
Progen Ltd
Skogluno Participações
Ltda.
1525 River Road, De Forest WI
53532, United States
Matrix House, Basing View,
Basingstoke, Hampshire RG21 4DZ,
United Kingdom
Matrix House, Basing View,
Basingstoke, Hampshire RG21 4DZ,
United Kingdom
Matrix House, Basing View,
Basingstoke, Hampshire RG21 4DZ,
United Kingdom
Saffierborch 18, 5241 LN Rosmaien,
Netherlands
C/O Level 54, Hopewell Centre, 183
Queen's Road East, Hong Kong
Matrix House, Basing View,
Basingstoke, Hampshire RG21 4DZ,
United Kingdom
Matrix House, Basing View,
Basingstoke, Hampshire RG21 4DZ,
United Kingdom
Av. Leopoldino de Oliveira, , 4.113,
Sala 303, Centro, CEP: 38010-000,
UBERABA-MG
United States
Indirect
United
Kingdom
United
Kingdom
Direct
Direct
United
Kingdom
Indirect
Indirect
Netherlands
No par value
common stock
Hong Kong Indirect US$10 ordinary
United
Kingdom
Indirect
United
Kingdom
Indirect
Brazil
Indirect
£1
ordinary
£1
ordinary
BRL1
ordinary
Share class
No par value
common stock
Limited by
guarantee,
without share
capital
£1
ordinary
BRL1
ordinary
BRL1
ordinary
BRL1
ordinary
£1
ordinary
NPV Class ‘A’
special shares
NPV Class ‘B’
special shares
NPV common
shares
£1
ordinary
€1.25
‘A’ ordinary
€1.25
‘B’ ordinary
US$0.001
common
£1
ordinary
£1
ordinary
£1
ordinary
% of share
capital/voting
rights held
by Group
companies
34.1%1
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
145
FINANCIAL STATEMENTS Genus plc | Annual Report 2017 Notes to the Group Financial Statements continued
For the year ended 30 June 2017
35. Group entities continued
Name of undertaking
Registered address
Spillers Limited
Matrix House, Basing View,
Basingstoke, Hampshire RG21 4DZ,
United Kingdom
Spillers Overseas Limited Matrix House, Basing View,
Spratts GmbH
SyAqua México, S. de R.L.
de C.V.
Basingstoke, Hampshire RG21 4DZ,
United Kingdom
Ratsteich 31, 24837 Schleswig,
Germany
Av Camaron Sabalo No 310, Local
25 y 26 Zona Dorada, Mazatlan,
Sinaioa, Mexico
Country of
incorporation
Direct/
indirect
Group
interest
% of share
capital/voting
rights held
by Group
companies
Share class
United
Kingdom
Indirect £0.25 ordinary
£1 preference
United
Kingdom
Indirect
£0.25
ordinary
Germany Indirect
Mexico Indirect
No par value
common stock
No par value
common stock
100%
100%
100%
100%
100%
100%
Sygen Investimentos Ltda. Rua Branco de Morais, No. 84,
Brazil
Indirect
Usicafé SA
cj.06, Chacara Santo Antonio, Sao
Paulo-SP, 04718-010, Brazil
c/o Cabinet Mayor, avocats, Rue
Jean-Gabriel Eynard 6, 1205
Genève
Switzerland Indirect
BRL0.63
ordinary
CHF1,000
ordinary
1 Associated undertakings including joint venture interests.
36. Acquisition of subsidiaries
During the year, we formed De Novo Genetics, completed the purchase of Hermitage Genetics and acquired the
remaining 49% shareholding of In Vitro Brasil S.A.
Accounting policies
Business combinations
We use the purchase method to account for all business combinations. The cost of acquisition is the aggregate of the fair
value at the date of exchange of assets we give, liabilities we incur or assume, and equity instruments we issue in
exchange for control of the acquiree. We recognise acquisition-related costs in the profit and loss as we incur them.
We recognise the acquiree’s identifiable assets, liabilities and contingent liabilities, which meet the conditions for
recognition under IFRS 3, at their fair values at the acquisition date. The exceptions are non-current assets (or disposal
Groups) that are classified as held for sale in accordance with IFRS 5 ‘Non-Current Assets Held for Sale and Discontinued
Operations’, which we recognise and measure at fair value less costs to sell.
Acquisition of interests from non-controlling shareholders
In transactions with non-controlling parties that do not result in a change of control, the difference between the fair
value of the consideration paid or received and the amount by which the non-controlling interest is adjusted is recognised
in equity.
146
Genus plc | Annual Report 2017
36. Acquisition of subsidiaries continued
De Novo Genetics
On 1 September 2016, we formed De Novo Genetics, a 51% 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 gives us greater control of the
genetics we need to create differentiated solutions that help commercial dairy farmers increase profitability through
improved herd productivity, health and efficiency.
The preliminary amounts recognised in respect of the identifiable assets acquired/transferred and liabilities assumed, at
the date of acquisition, are set out in the table below.
Intangible assets identified – customer relationships
Biological assets (including asset transferred)
Financial assets
Financial liabilities
Total identifiable net assets
Equity attributable to non-controlling interest
Goodwill
Total consideration
Satisfied by:
Net cash outflow arising on acquisition of subsidiary
Deferred cash consideration
Deferred contingent cash consideration
Biological assets transferred
£m
5.0
11.5
0.5
(6.3)
10.7
(5.3)
5.4
4.8
10.2
2.3
3.5
0.8
3.6
10.2
The goodwill of £4.8m arising from the acquisition consists largely of future synergies expected from combining the
acquired operations with existing Genus operations. None of the goodwill recognised is expected to be deductible for
income tax purposes.
The fair value of the financial assets includes trade receivables with a fair value of £0.5m and a gross contractual value
of £0.5m.
Hermitage Genetics
On 31 March 2017, we acquired the entire share capital of Hermitage Genetics, which included technology being the
genetic rights and intellectual property of Hermitage. As part of the agreement, the remaining Hermitage business will
also become a strategic supply chain and distribution partner for PIC covering the supply of porcine genetics in
several markets.
In addition, we acquired certain Hermitage customer relationships in various geographies including Russia, the US and
several European countries.
The preliminary amounts recognised in respect of the identifiable assets acquired/transferred and liabilities assumed, at
the date of acquisition, are set out in the table below.
Intangible assets identified
– Technology
– Customer relationships
Financial assets
Financial liabilities
Total identifiable net assets
Goodwill
Total consideration
Satisfied by:
Cash consideration
Deferred contingent cash consideration
£m
6.7
2.4
0.1
(1.1)
8.1
11.4
19.5
15.2
4.3
19.5
The goodwill of £11.4m arising from the acquisition consists largely of future synergies expected from combining the
acquired operations with existing Genus operations. None of the goodwill recognised is expected to be deductible for
income tax purposes.
147
FINANCIAL STATEMENTS Genus plc | Annual Report 2017
Notes to the Group Financial Statements continued
For the year ended 30 June 2017
36. Acquisition of subsidiaries continued
The fair value of the financial assets includes trade receivables with a fair value of £0.1m and a gross contractual value
of £0.1m.
If the acquisition of Hermitage Genetics had been completed on the first day of the financial period, Group revenues and
Group profit would have been £2.9m and £1.5m, respectively.
In Vitro Brasil S.A.
During the year, with the agreement of the existing shareholder we purchased the remaining 49% of In Vitro Brasil S.A. for
£11.4m, and the option was cancelled, with a gain of £1.0m being recognised as an exceptional credit.
PIC Italia S.r.l
On 29 September 2016, we increased our shareholding in PIC Italia S.r.l from 50% to 85%, for a cash consideration
of £0.6m.
Net acquisition and integration related costs included within exceptional items amount to £0.6m.
37. Post-balance sheet events
There are no post-balance sheet events.
38. Non-controlling interest
Non-controlling interest
Put option over non-controlling interest (see note 24)
Total non-controlling interest
2017
£m
6.1
(3.3)
2.8
2016
£m
5.0
(11.4)
(6.4)
Summarised financial information in respect of each of the Group’s subsidiaries that has a material non-controlling interest
is set out below. The summarised financial information below represents amounts before intra-Group eliminations.
De Novo Genetics
Biological assets
Current assets
Non-current assets
Current liabilities
Net assets
Equity attributable to owners of the Company
Non-controlling interest for De Novo Genetics
Other non-controlling interest
Non-controlling interest
2017
£m
10.2
1.4
2.4
(2.1)
11.9
(6.1)
5.8
0.3
6.1
During the year £0.1m of dividends were paid to non-controlling interests (2016: £0.4m).
During the year, with the agreement of the existing shareholder we purchased the remaining 49% of In Vitro Brasil S.A.
for £11.4m.
148
Genus plc | Annual Report 2017 Parent Company Balance Sheet
As at 30 June 2017
Non-current assets
Intangible assets
Tangible assets
Investments in subsidiaries
Other investments
Derivative financial asset
Current assets
Debtors
Cash at bank and in hand
Creditors: amounts falling due within one year
Net current assets
Total assets less current liabilities
Creditors: amounts falling due after more than one year
Net assets
Capital and reserves
Called up share capital
Share premium account
Own shares
Profit and loss account
Hedging reserve
Shareholders’ funds
Note
41
42
43
44
50
45
47
48
51
2017
£m
3.1
0.8
84.4
1.9
1.3
91.5
465.2
–
465.2
(257.5)
207.7
299.2
(127.8)
171.4
6.1
112.8
(0.1)
51.5
1.1
171.4
2016
£m
2.4
0.7
82.4
–
–
85.5
466.4
–
466.4
(291.3)
175.1
260.6
(116.1)
144.5
6.1
112.3
(0.1)
26.8
(0.6)
144.5
The Company recognised a total comprehensive profit for the year of £35.8m (2016: £9.3m loss).
The financial statements were approved and authorised for issue by the Board of Directors on 6 September 2017.
Signed on behalf of the Board of Directors
Karim Bitar
Chief Executive
Stephen Wilson
Group Finance Director
Company number: 02972325
149
FINANCIAL STATEMENTS Genus plc | Annual Report 2017
Parent Company Statement of Changes in Equity
For the year ended 30 June 2017
Called up
share capital
£m
Share
premium
account
£m
Own
shares
£m
Profit and
loss account
£m
Hedging
reserve
£m
Balance at 1 July 2015
Total comprehensive loss for the financial year
Shares issued
Dividends
Share-based payment expense, net of tax
Fair value of movement on cash flow hedges,
net of tax
Balance at 30 June 2016
Total comprehensive profit for the financial year
Movement on pension asset recognition
Shares issued
Dividends
Share-based payment expense, net of tax
Fair value of movement on cash flow hedges,
net of tax
Balance at 30 June 2017
6.1
–
–
–
–
–
6.1
–
–
–
–
–
–
6.1
112.2
–
0.1
–
–
–
112.3
–
–
0.5
–
–
–
112.8
(0.1)
–
–
–
–
–
(0.1)
–
–
–
–
–
–
(0.1)
45.2
(9.3)
–
(12.2)
3.1
–
26.8
35.8
(1.2)
–
(13.5)
3.6
–
51.5
–
–
–
–
–
(0.6)
(0.6)
–
–
–
–
–
1.7
1.1
For information on dividends (see note 13), cash flow hedges (see note 24) and share-based payment expense
(see note 28).
Total
equity
£m
163.4
(9.3)
0.1
(12.2)
3.1
(0.6)
144.5
35.8
(1.2)
0.5
(13.5)
3.6
1.7
171.4
150
Genus plc | Annual Report 2017 Notes to the Parent Company Financial Statements
For the year ended 30 June 2017
39. Accounting information and policies
Basis of preparation
The Parent Company financial statements have been prepared in accordance with Financial Reporting Standard 101,
‘Reduced Disclosure Framework’ (‘FRS 101’) and the Companies Act 2006 (the ‘Act’). FRS 101 sets out a reduced
disclosure framework for a ‘qualifying entity’ as defined in the standard, which addresses the financial reporting
requirements and disclosure exemptions in the individual financial statements of qualifying entities that otherwise apply
the recognition, measurement and disclosure requirements of EU-adopted IFRS.
The Company financial statements have been prepared using the historical cost convention, as modified by the
revaluation of certain financial assets and financial liabilities and in accordance with the Act. The financial statements have
been prepared on a going concern basis as set out in note 1 of the consolidated financial statements of Genus plc. The
accounting policies set out below and stated in the relevant notes have been applied consistently to all periods presented
in these financial statements.
The Company has taken advantage of the disclosure exemptions available under FRS 101 in relation to share-based
payments, business combinations, financial instruments, presentation of comparative information in respect of certain
assets, presentation of a cash flow statement, standards issued not yet effective, impairment of assets and related party
transactions. Where required, equivalent disclosures are given in the consolidated financial statements of Genus plc.
As permitted by section 408 of the Act, the Company has not presented its own income statement in this Annual Report.
Critical accounting judgements and key sources of estimation uncertainty
Preparing Company financial statements in conformity with FRS 101 requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at
the date of the Company financial statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates. The estimates and underlying assumptions are reviewed on an
ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised, if the
revision affects only that period or in the period of the revision and future periods if the revision affects both current and
future periods.
The areas of judgement that have the most significant effect on the amounts recognised in the financial statements are
the review for impairment of investment carrying values and the valuation of share-based payments.
Pensions
A number of our employees are members of defined contribution pension schemes. We charge contributions to profit and
loss as they become payable under the schemes’ rules. We show differences between the contributions payable and the
amounts actually paid as either accruals or prepayments in the balance sheet. The schemes’ assets are held separately
from those of the Company.
Certain former employees of the Company are members of one of the Group’s defined benefit pension schemes, further
details of which are given in note 27 of the Group financial statements. The schemes are all multi-employer defined benefit
schemes, whose assets and liabilities are held independently from the Group but within their sponsored Group company.
Significant accounting policies applied in the current reporting period that relate to the financial statements as a whole
Taxation
We provide for current tax, including UK corporation tax and foreign tax, at the amounts we expect to pay or recover,
using the tax rates and the laws enacted or substantively enacted at the balance sheet date.
Foreign currencies
We record transactions in foreign currencies at the rate ruling at the transaction date or at the contracted rate, if the
transaction is covered by a forward foreign currency contract. We retranslate monetary assets and liabilities denominated
in foreign currencies at the prevailing rate of exchange at the balance sheet date or, if appropriate, at the forward contract
rate. All differences are taken to the income statement.
Own shares
The Company has adopted FRS 101, which requires us to recognise the assets and liabilities associated with the
Company’s investment in its own shares in the Company’s financial statements, where there is de facto control of the
assets and liabilities.
The Company’s own shares held by a Qualifying Employee Share Ownership Trust remain deducted from shareholders’
funds until they vest unconditionally with employees.
151
FINANCIAL STATEMENTS Genus plc | Annual Report 2017 Notes to the Parent Company Financial Statements continued
For the year ended 30 June 2017
39. Accounting information and policies continued
Employee share schemes
The Company’s Executive Directors and Chief Operating Officers receive part of their remuneration in the form of share
awards, which vest upon meeting performance criteria over a three-year period.
We measure the cost of these awards by reference to the shares’ fair value at the award date. At the end of each financial
reporting period, we estimate the extent to which the performance criteria will be met at the end of three years, and
record an appropriate charge in the profit and loss account, together with a corresponding credit to profit and loss
reserves. Changes in estimates of the number of shares vesting may result in charges or credits to the profit and loss
account in subsequent periods.
Share-based payments
We have implemented the generally accepted accounting principle for accounting for share-based payments with
subsidiary undertakings under FRS 101, whereby the Company has granted rights to its shares to employees of its
subsidiary undertakings under an equity-settled arrangement, and the subsidiaries have not reimbursed the Company for
these rights. Under this arrangement, the Company treats the share-based payment recognised in the subsidiary’s
financial statements as a cost of investment in the subsidiary and credits equity with an equal amount.
Derivative financial instruments and hedging
Our activities expose us primarily to the financial risks of changes in foreign currency exchange rates and interest rates.
We use interest rate swaps to hedge interest rate risk. We also use forward foreign currency contracts, implemented
through a medium-term US Dollar cross currency borrowing and related interest rate swap, to hedge exposure to
translation risk associated with US Dollar net assets of subsidiaries. Forward foreign currency contracts do not qualify for
hedge accounting in the Parent Company financial statements, as the hedged item is not in its balance sheet.
Our use of financial derivative instruments is governed by the Group’s policies, which are approved by the Board of
Directors. The notes to the Group financial statements include information about the Group’s financial risks and their
management, and its use of financial instruments and their impact on the Group’s risk profile, performance and
financial condition.
The fair value of the US Dollar and interest rate swaps is the estimated amount that we would receive or pay to
terminate the swap at the balance sheet date, taking into account current interest rates and the creditworthiness of the
swap counterparties.
The fair value of forward exchange contracts is their quoted market price at the balance sheet date, which is the present
value of the quoted forward price.
Cash flow hedges
Where a derivative financial instrument is designated as hedging the variability in cash flows of a recognised asset or
liability, or a highly probable forecast transaction, we recognise the effective part of any gain or loss on the instrument
directly in the hedging reserve. We recognise any ineffective portion of the hedge immediately in the profit and
loss account.
If we hedge a forecast transaction that subsequently results in our recognising a financial asset or liability, then we
reclassify the associated gains and losses that we had recognised directly in equity into profit or loss. We do this in the
same period or periods that the asset or liability affects profit or loss, which are the periods when we recognise the
interest income or expense.
If we expect a hedged forecast transaction to occur but the hedging instrument has expired, been sold, terminated or
exercised, or we have revoked the designation of the hedge relationship, then the cumulative gain or loss at that point
remains in equity and we recognise it in accordance with the above policy when the transaction occurs. If we no longer
expect the hedged transaction to occur, we immediately recognise in the profit and loss account the cumulative
unrealised gain or loss recognised in equity.
When a hedging instrument expires or is sold, terminated or exercised, or we revoke designation of the hedge relationship,
the cumulative gain or loss at that point remains in equity until we dispose of the investment it relates to.
We treat derivatives embedded in other financial instruments or other host contracts as separate derivatives, when their
risks and characteristics are not closely related to those of the host contracts and the host contracts are not carried at fair
value, with unrealised gains and losses reported in the income statement.
152
Genus plc | Annual Report 2017 40. Employees
Staff costs, including Directors’ remuneration, during the year amounted to:
Wages and salaries
Social security costs
Pension costs
Share-based payment expense
The average monthly number of employees including Directors during the year was as follows:
Administration
2017
£m
4.9
1.5
0.1
2.0
8.5
2016
£m
5.3
0.7
0.1
1.7
7.8
2017
Number
37
2016
Number
34
Details of Directors’ remuneration, pensions and share options are included in the Directors’ Remuneration Report.
41. Intangible assets
Accounting policies
Patents, licences and software are stated at acquisition cost less accumulated amortisation. The amortisation period is
determined by reference to expected useful life, which is reviewed at least annually. Amortisation is charged to the income
statement on a straight-line basis over the estimated useful life. Changes in the expected useful life or the expected
pattern of consumption of future economic benefits embodied in the asset are accounted for by changing the
amortisation period or method, as appropriate, and are treated as changes in accounting estimates.
Cost
Balance at 1 July 2016
Additions
Balance at 30 June 2017
Amortisation
Balance at 1 July 2016
Amortisation for the year
Balance at 30 June 2017
Carrying amounts
At 30 June 2017
At 30 June 2016
Software
£m
Patents and
licences
£m
Total
£m
1.0
0.3
1.3
0.7
0.2
0.9
0.4
0.3
2.2
1.5
3.7
0.1
0.9
1.0
2.7
2.1
3.2
1.8
5.0
0.8
1.1
1.9
3.1
2.4
Additions to patents and licences of £1.5m relate to a stage payment for the worldwide licence to use Caribou
Biosciences, Inc.’s leading CRISPR-Cas9 gene editing technology platform.
42. Tangible assets
Accounting policies
We state fixed assets at cost, together with any incidental acquisition expenses, or at their latest valuation, less
depreciation and any provision for impairment. We calculate depreciation on a straight-line basis, to write the assets down
to their estimated residual values over their estimated useful lives. The rates of annual depreciation on tangible fixed
assets are as follows:
Leasehold improvements
Equipment
period of lease
3 to 20 years
153
FINANCIAL STATEMENTS Genus plc | Annual Report 2017
Notes to the Parent Company Financial Statements continued
For the year ended 30 June 2017
42. Tangible assets continued
We review the carrying value of fixed assets for impairment, if events or changes in circumstances indicate that the
carrying value may not be recoverable.
Cost
Balance at 1 July 2016
Additions
Balance at 30 June 2017
Depreciation
Balance at 1 July 2016
Depreciation for the year
Balance at 30 June 2017
Carrying amounts
At 30 June 2017
At 30 June 2016
Short
leasehold
improvements
£m
Equipment
£m
Total
£m
0.5
–
0.5
–
0.1
0.1
0.4
0.5
0.6
0.2
0.8
0.4
–
0.4
0.4
0.2
1.1
0.2
1.3
0.4
0.1
0.5
0.8
0.7
43. Investments in subsidiaries
Accounting policies
Shares in subsidiary undertakings are stated at cost less any provision for impairment.
The Company assesses investments for impairment whenever events or changes in circumstances indicate that the
carrying value of an investment may not be recoverable. If any such indication of impairment exists, then we estimate the
recoverable amount. If the recoverable amounts of the cash-generating unit is less than the value of the investment, it is
considered to be impaired and we write it down to its recoverable amount. An impairment loss is recognised immediately
in the profit and loss account.
Cost
Balance at 1 July 2016
Additions
Balance at 30 June 2017
Provision for impairment
Balance at 1 July 2016
Provided during the year
Balance at 30 June 2017
Carrying amounts
At 30 June 2017
At 30 June 2016
Shares in
subsidiary
undertakings
£m
273.0
4.6
277.6
190.6
2.6
193.2
84.4
82.4
Additions relate to increasing our investment in ABS Pecplan Ltda. and Genus Investments Limited.
Impairment has been recognised on our investment in Pecplan ABS Imp. e Exp. Ltda., which reflects changes in the
business structure, as well as Sygen International Limited, due to recognised foreign exchange losses.
Principal subsidiary undertakings
The Company’s principal subsidiaries and their main activities are given in note 35.
154
Genus plc | Annual Report 2017 44. Other investments
Accounting policies
Listed equity investments are stated at fair value. Unlisted equity investments that do not have a quoted market price in
an active market and whose fair value cannot be reliably measured are measured at cost less any identified impairment
losses at the end of each reporting period.
Listed investment
Other investment
2017
£m
1.6
0.3
1.9
2016
£m
–
–
–
On 21 June 2017, as part of the NMR pension agreement we acquired 2,120,000 ordinary shares in National Milk Records
plc – see note 27.
We also invested £0.3m in Renovate Biosciences Inc.
45. Debtors
Amounts due within one year
Amounts owed by Group undertakings
Corporation tax recoverable
Other taxes and social security
Prepayments and accrued income
Deferred taxation
Derivative financial asset
Note
46
2017
£m
462.3
0.1
–
1.3
1.5
–
465.2
2016
£m
463.6
–
0.1
0.5
1.6
0.6
466.4
At the balance sheet date, the amounts owed by Group undertakings were £462.3m (2016: £463.6m). The carrying
amount of these assets approximates their fair value. There are impaired receivable balances of £nil (2016: £nil). Of the
amounts owed by Group undertakings, £334.7m (2016: £336.0m) is interest-bearing.
46. Deferred taxation
Accounting policies
We recognise deferred taxation in respect of all timing differences that have originated but not reversed at the balance
sheet date, where transactions or events that result in an obligation to pay more tax in future or a right to pay less tax in
future have occurred at the balance sheet date.
We only recognise deferred taxation assets if we consider it more likely than not that we will have suitable profits from
which we can deduct the future reversal of the underlying timing differences. Timing differences are differences arising
between the Company’s taxable profits and its results as stated in the financial statements, and which are capable of
reversing in one or more subsequent periods.
We only recognise deferred taxation in respect of the future remittance of retained earnings of overseas subsidiaries to
the extent that, at the balance sheet date, dividends have been accrued as receivable.
We measure deferred taxation on a non-discounted basis, at the tax rates we expect to apply in the periods in which we
expect the timing differences to reverse, based on tax rates and laws enacted or substantively enacted at the balance
sheet date.
The movements in deferred taxation are as follows:
At the start of the year
Recognised in income statement
(Release)/recognised in equity
At the end of the year
2017
£m
1.6
0.1
(0.2)
1.5
2016
£m
1.2
0.3
0.1
1.6
155
FINANCIAL STATEMENTS Genus plc | Annual Report 2017 Notes to the Parent Company Financial Statements continued
For the year ended 30 June 2017
46. Deferred taxation continued
The amounts provided are as follows:
Share-based payment expense
Other timing differences
2017
£m
1.3
0.2
1.5
2016
£m
1.1
0.5
1.6
Unrecognised deferred tax assets
At the balance sheet date, the Company had no unused tax losses available for offset against future profits with a
potential tax benefit of £nil (2016: £nil).
47. Creditors: amounts falling due within one year
Bank loans and overdrafts
Trade creditors
Other creditors
Amounts owed to Group undertakings
Accruals and deferred income
Derivative financial liabilities
Note
49
50
2017
£m
7.5
0.8
0.7
245.0
2.9
0.6
257.5
2016
£m
4.5
0.6
0.2
281.9
3.6
0.5
291.3
Included within amounts owed to Group undertakings are amounts of £209.6m (2016: £240.7m) which are interest-
bearing and payable on demand.
There are no outstanding contributions due to defined contribution pension schemes for the benefit of the employees
(2016: £nil).
48. Creditors: amounts falling due after more than one year
Bank loans and overdrafts
Derivative financial liabilities
Note
49
50
2017
£m
127.4
0.4
127.8
2016
£m
115.3
0.8
116.1
49. Loans and borrowings
Accounting policies
We initially state debt at the amount of the net proceeds, after deducting issue costs. The carrying amount is increased by
the finance cost in respect of the accounting period and reduced by payments made in the period.
We charge the finance costs of debt to the profit and loss account over the debt term, at a constant rate on the carrying
value of the debt to which they relate.
Loans and borrowings comprise amounts falling due:
In one year or less or on demand
In more than one year but not more than two years
In more than two years but not more than five years
Less: unamortised issue costs
Amounts falling due within one year
Amounts falling due after more than one year
2017
£m
2016
£m
8.1
–
128.2
136.3
(1.4)
134.9
(7.5)
127.4
5.0
–
116.1
121.1
(1.3)
119.8
(4.5)
115.3
During the year, we exercised an Accordion request, which increased our available credit facilities by £10m and US$25m.
We also extended the Group’s credit facilities by one year, which now expire in February 2022. At the balance sheet
date, the Group’s credit facilities comprised a £75m multi-currency revolving credit facility and a US$165m revolving
credit facility.
As part of its interest rate strategy, the Company has entered into interest rate swaps to hedge floating LIBOR rates. As a
result, bank loan and overdrafts include borrowings of US$110m (£84.7m) fixed at 1.10% and GBP £20m fixed at 0.51%,
excluding applicable bank margin.
156
Genus plc | Annual Report 2017
49. Loans and borrowings continued
Terms and debt repayment schedule
Terms and conditions of outstanding loans and overdrafts were as follows:
Revolving credit facility and overdraft
Revolving credit facility, term loan and overdraft
Revolving credit facility and overdraft
Other unsecured bank borrowings
Total interest-bearing liabilities
The above revolving credit facilities are unsecured.
50. Derivatives and other financial instruments
Additional disclosure on financial instruments can be found in note 24.
Currency
Interest rate
GBP
USD
EUR
Other
1.5%
2.4%
0.7%
0.7%
2017
£m
22.6
106.2
–
6.1
134.9
2016
£m
26.2
86.0
6.2
1.4
119.8
51. Capital and reserves
Share capital
Issued and fully paid
Ordinary shares of 10 pence
2017
Number
2016
Number
61,161,622 61,012,703
The holders of ordinary shares are entitled to receive dividends, as declared from time to time.
The movement in share capital for the period was as follows:
Issued under the Executive Share Option Plan
Issued to Employee Benefits Trust
2017
Number
68,840
80,079
148,919
2016
Number
44,256
–
44,256
Shares issued under share option plans were issued at option prices as follows:
2017
£m
6.1
2017
£m
–
–
–
2016
£m
6.1
2016
£m
–
–
–
Executive Share Option Plan
2017
Number
Price
(pence)
2016
Number
Price
(pence)
–
1,984
2,847
2,434
8,065
24,139
9,206
20,165
68,840
440.00
582.00
776.00
654.50
729.83
977.83
1334.00
1413.00
4,992
527
–
629
4,860
26,799
6,449
–
44,256
440.00
582.00
776.00
654.50
729.83
977.83
1334.00
1413.00
Reserve for own shares
The Company’s shares are held by a Qualifying Employee Share Ownership Trust (‘Quest’), which is an employee benefit
trust established to facilitate the operation of our long-term incentive scheme for senior management. The reserve
amount represents the deduction in arriving at shareholders’ funds for the consideration the trust paid for the Company’s
shares, which had not vested unconditionally at the balance sheet date. The number and market value of the ordinary
shares held by the employee benefit trust and the QUEST were:
Shares allocated but not vested
Unallocated shares
2017
Number
70,272
92,334
2016
Number
85,075
92,334
162,606
177,409
2017
£m
1.3
1.6
2.9
2016
£m
1.3
1.5
2.8
The shares have a nominal value of £16,261 (2016: £17,741).
Hedging reserve
The hedging reserve comprises the effective portion of the cumulative net change in the fair value of cash flow hedging
instruments net of taxation – see note 24.
157
FINANCIAL STATEMENTS Genus plc | Annual Report 2017 Notes to the Parent Company Financial Statements continued
For the year ended 30 June 2017
52. Operating leases
Accounting policies
For operating leases, we charge the rentals payable, and any incentives we receive to enter into an operating lease, to the
income statement on a straight-line basis over the lease term.
The Company has entered into non-cancellable commercial arrangements on certain equipment, properties and motor
vehicles. The leases have various terms and renewal rights.
Total of future minimum lease payments under non-cancellable operating leases which expire within:
More than five years
Operating lease rentals charged in the year:
Other
2017
£m
1.0
2017
£m
0.2
2016
£m
1.2
2016
£m
0.2
53. Related party transactions
The Company is exempt under FRS 101 from disclosing transactions with other members of the Group.
Transactions between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation
and are not disclosed in this note. Details of other related party transactions are disclosed in note 17, note 27 and note 34
in the Group financial statements.
54. Capital and other commitments
At 30 June 2017, outstanding contracted capital expenditure amounted to £nil (2016: £nil).
A software agreement was signed on 23 June 2017, with a minimum five-year term, with an annual cost of £0.8m.
55. Contingencies and bank guarantees
On 23 June 2017, NMR withdrew from the MPF under a Flexible Apportionment Arrangement between NMR, Genus and
the Trustees of the MPF. In return for the right to withdraw from the MPF, NMR made a one-off, lump sum cash payment
of £10.1m to the MPF, equivalent to the undiscounted value of all NMR’s future payments under the existing MPF recovery
plan which extends to March 2026; and NMR also made a payment to Genus of £4.7m, with £1.4m being satisfied by the
issue NMR shares.
As a result of the NMR withdrawal, Genus plc has recognised £5.7m as an exceptional credit, with £4.5m (£4.7m payment
net of fees) being received directly from NMR, and £1.2m from the MPF pension scheme reflecting the impact of NMR
paying undiscounted amounts into the scheme see note 27.
The retirement benefit obligations referred to in note 27 include obligations relating to the MPF defined benefit scheme.
Genus, together with other participating employers, is joint and severally liable for the scheme’s obligations. Genus has
accounted for its section and its share of any orphan assets and liabilities, collectively representing approximately 85%
(2016: 75%) of the MPF. As a result of the joint and several liability, Genus has a contingent liability for the scheme’s
obligations that it has not accounted for. The total deficit of the MPF scheme from the most recent triennial valuation can
be found in note 27.
During the year, as part of a commercial agreement in favour of a third party, we entered into a bank guarantee for £4.1m
which will expire within two years.
158
Genus plc | Annual Report 2017 Five-Year Record – Consolidated Results
ADDITIONAL INFORMATION
The information included in the five-year record below is in accordance with IFRS as adopted for use in the
European Union.
Financial results
Revenue from continuing operations
Adjusted operating profit from continuing operations1
Adjusted operating profit including joint ventures and
associates1
Adjusted profit before tax1
Basic adjusted earnings per share1
Diluted adjusted earnings per share1
Operating profit from continuing operations
Profit before tax from continuing operations
Profit after tax from continuing operations
Basic earnings per share
Diluted earnings per share
Net assets
Net debt
2017
£m
459.1
55.1
60.1
56.4
69.4p
68.4p
38.2
40.7
34.3
53.8p
53.0p
402.1
111.6
2016
£m
2015
£m
2014
£m
388.3
398.5
372.2
49.3
54.3
49.7
60.7p
60.1p
58.6
60.9
50.3
81.1p
80.3p
368.1
89.7
47.2
51.2
46.6
56.8p
56.1p
59.5
57.8
40.5
65.7p
64.9p
305.1
71.8
42.9
44.8
39.3
46.5p
46.4p
41.8
38.2
28.9
47.7p
47.6p
285.3
63.9
20132
£m
345.3
45.0
48.2
42.5
49.1p
48.4p
36.3
33.4
23.4
38.8p
38.3p
300.5
52.9
1 Adjusted operating profit, adjusted profit before tax and adjusted basic and diluted earnings per share are before net IAS 41 valuation movement on
biological assets, amortisation of acquired intangible assets, share-based payment expense, exceptional items and other gains and losses.
2 Restated due to adoption of the amendments of IAS 19.
Genus plc | Annual Report 2017
159
Glossary
AGM – Annual General Meeting.
Artificial insemination or AI –
Using semen collected from a bull or boar to
impregnate a cow or sow when in estrus. Artificial
insemination allows a genetically superior male to
be used to mate with many more females than
would be possible with natural mating.
Biosecurity – The precautions taken to reduce the
chance of transmitting disease agents from one
livestock operation to another.
Boar – A male pig.
BRD – Bovine Respiratory Disease, a complex,
bacterial and viral infection that causes lung disease
in cattle (particularly calves) and is often fatal.
CEO – Chief Executive Officer.
Company – Genus plc.
CIO – Chief Information Officer.
COO – Chief Operating Officer.
CPI – Consumer Prices Index.
CRISPR-Cas 9 – Technology which accurately
targets and cuts DNA to produce precise and
controllable edits to the genome.
CSR – Corporate Social Responsibility.
DSBP – Deferred Share Bonus Plan.
EPS – Earnings per share.
Farrow – When a sow gives birth to piglets.
FDA – US Food and Drug Administration.
GELT – Genus Executive Leadership Team.
Gender skew – The ability to influence the
proportion of offspring being of a particular sex.
Gene editing – The process that allows precise
changes to be made in the genome of the
animal without introducing genetic material from
another organism.
Genetic lag – The amount of time required to
disseminate genetic gain from a nucleus herd to the
commercial customer.
Genetic nucleus – A specialised pig herd, where
Genus PIC keeps its pure lines. Pigs are genetically
tested at the nucleus to select the best animals to
produce the next generation.
Genomic bull – A bull which has been assessed
through genomic testing. This typically refers to
bulls which have not been progeny-tested.
Genomically tested – An animal that has been DNA
profiled.
Genomics – The study of the genome, which is the
DNA sequence of an animal’s chromosomes.
Gilt – A young female pig, which has not yet given
birth.
GMS – ABS’s Genetic Management System, which
creates a genetic solution tailored to each individual
dairy producer to obtain improved herd genetics.
Grandparent – The relationship of a breeding pig to
the generation of terminal market pigs. A
grandparent produces parents, who in turn produce
the commercial generation of terminal pigs.
Group – Genus plc and its subsidiary companies.
GSS – Genus Sexed Semen.
INAD – Investigational New Animal Drug.
IVB – In Vitro Brasil S.A.
In vitro fertilisation or IVF – The fertilisation of an
oocyte with semen (outside an animal) in a
laboratory for transfer into a surrogate.
Genetic gain – The change of the genetic make up
of a particular animal population in response to
having selected parents that excelled genetically
for important traits.
Index/Indices – A formula incorporating
economically important traits for ranking the
genetic potential of animals as parents of the next
generation.
160
Genus plc | Annual Report 2017 Integrated pork producer – Producers of pork
typically involved in raising animals to slaughter
weight all the way through to packaged and/or
branded pork products.
PSP – Performance Share Plan.
R&D – Research and development.
IP – Intellectual property.
JV – Joint venture.
Line – Multiple animals that have been mated
together in a closed breeding population. Pure lines
can have their origins in one founding breed or in
several breeds.
Market pig equivalents (‘MPE’) – A calculated
measure of the number of terminal pigs, of which
each pig accounts for half a male MPE and half a
female MPE, produced by each invoiced product.
MPF – Milk Pension Fund.
Multiplier – A producer whose farm contains
grandparent sows. The farm crosses together two
lines of grandparents, multiplying the number
of genetically improved parents that are available
for sale.
NED – Non-Executive Director.
Net Merit (‘NM’) – A multi-trait selection index
published by the U.S. Council on Dairy Cattle
Breeding (CDCB), based on the economic value
of yield, fitness and conformation evaluations.
NMR – National Milk Records plc.
PEDv – Porcine epidemic diarrhoea virus, which
causes older pigs to lose weight and is usually fatal
for newborn piglets.
PMT – Portfolio Management Team.
PQA – Pork Quality Assurance.
Progeny tested – Elite animals whose genetic value
as a parent has been tested and validated through
the performance of their offspring.
PRRSv – Porcine Reproductive and Respiratory
Syndrome virus.
R&D PMT – Research and Development Portfolio
Management Team.
RMS – ABS’s Reproductive Management System,
which is a systematic approach to maximising
pregnancy production and its contribution to herd
profitability.
RPI – Retail Prices Index.
RWD – ABS’s Real World Data System of observed
performance data from many dairy herds.
Sire – The male parent of an animal.
Sire line – The male line selected for traits desirable
for the market.
Sow – A female pig which has given birth at least
once.
Straw – A narrow tube used to package frozen bull
semen.
Stud – Locations where bulls or boars are housed
and their semen collected, evaluated, diluted into
multiple doses/straws and packaged, ready for
shipping to farms.
Trait – A measurable characteristic that may be a
target for genetic selection.
TransitionRight™ – Genus ABS’s patent-pending
genetic selection tool to help prevent multiple post
calving metabolic disorders that occur during
transition.
Unit – A straw of frozen bull semen or tube/bag of
fresh boar semen sold to a customer.
Terminal boars – The male pig that is used to mate
with a parent female to produce a terminal pig.
2013 – 2018 – The year ending 30 June respectively.
Genus plc | Annual Report 2017
161
Notice of Annual General Meeting
THIS DOCUMENT IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION
If you are in any doubt as to the action you should take, you should consult your stockbroker, bank manager, solicitor,
accountant or other independent financial adviser authorised under the Financial Services and Markets Act 2000. If you
have sold or transferred all your shares in Genus plc, please send this document and the accompanying documents as
soon as possible to the purchaser or transferee, or to the stockbroker, bank or other agent through whom the sale or
transfer was effected for transmission to the purchaser or transferee.
Notice of Annual General Meeting
Notice is hereby given that the 2017 Annual General Meeting of Genus plc (the ‘Company’) will be held at Buchanan
Communications, 107 Cheapside, London EC2V 6DN on 16 November 2017 at 11.00 am for the following purposes:
To consider and if thought fit, to pass the following resolutions, of which numbers 1 to 12 will be proposed as ordinary
resolutions and numbers 13 to 16 as special resolutions.
Ordinary Resolutions
1. To receive the Company’s audited Financial Statements and the Directors’ Reports for the year ended 30 June 2017
(the ‘Annual Report and Accounts’).
2. To approve the Directors’ Remuneration Report for the year ended 30 June 2017, as set out on pages 60 to 77 of the
Company’s Annual Report 2017.
3. To declare a final dividend of 16.2 pence per ordinary share, payable on 1 December 2017 to shareholders on the register
of members at the close of business on 17 November 2017.
4. To re-elect Bob Lawson as a Director of the Company who, being eligible, offers himself for re-election.
5. To re-elect Karim Bitar as a Director of the Company who, being eligible, offers himself for re-election.
6. To re-elect Stephen Wilson as a Director of the Company who, being eligible, offers himself for re-election.
7. To re-elect Nigel Turner as a Director of the Company who, being eligible, offers himself for re-election.
8. To re-elect Lysanne Gray as a Director of the Company who, being eligible, offers herself for re-election.
9. To re-elect Duncan Maskell as a Director of the Company who, being eligible, offers himself for re-election.
10. To re-elect Lykele van der Broek as a Director of the Company who, being eligible, offers himself for re-election.
11. To reappoint Deloitte LLP as auditor of the Company to hold office from the conclusion of the Annual General Meeting
until the conclusion of the next general meeting of the Company at which Financial Statements are laid and to
authorise the Audit Committee of the Board to determine the remuneration of the auditor.
12. That the Directors be generally and unconditionally authorised in accordance with section 551 of the Companies Act
2006 (the ‘Act’) to exercise all the powers of the Company to allot shares in the Company and to grant rights to
subscribe for, or to convert any security into, shares in the Company up to a maximum aggregate nominal amount of:
12.1. £2,039,151.86 being 20,391,518 ordinary shares of 10 pence each (‘Ordinary Shares’) representing one third of the
issued share capital of the Company; and
12.2. £2,039,151.86 being 20,391,518 Ordinary Shares representing a further third of the issued share capital of the
Company, provided that (i) they are equity securities (within the meaning of section 560(1) of the Act) and (ii)
they are offered by way of an offer to holders of Ordinary Shares open for acceptance for a period fixed by the
Directors to holders on the register on a fixed record date (as the Directors may determine) in proportion as nearly
as may be to the respective numbers of Ordinary Shares held by them on any such record date and to other
holders of equity securities entitled to participate therein, but subject to such exclusions or other arrangements as
the Directors may deem necessary or expedient to deal with any fractional entitlements or legal or practical
difficulties under the laws of, or the requirement of any recognised regulatory body or any stock exchange in, any
territory or by virtue of shares being represented by depositary receipts or any other matter (a “rights issue”),
such authority to expire on the conclusion of the Company’s Annual General Meeting next following or, if earlier, the
close of business on the day which is 15 months after the date on which this resolution is passed but so that the
Company may, before the expiry of such period, make an offer or agreement which would or might require shares to
be allotted or such rights to be granted after such expiry and the Directors may allot shares and grant rights in
pursuance of such an offer or agreement as if the authority conferred hereby had not expired.
162
Genus plc | Annual Report 2017
Special Resolutions
13. That subject to and conditional on the passing of resolution 12, the Directors be empowered, pursuant to sections
570 and 573 of the Act, to allot equity securities (within the meaning of section 560 of the Act) for cash pursuant to
the authority conferred by resolution 12 or by way of a sale of treasury shares as if section 561(1) of the Act did not
apply to any such allotment, provided that this power shall be limited to the allotment of equity securities (or sale of
treasury shares):
13.1. in connection with an offer of securities (but in the case of the authority granted under paragraph 12.2 of
resolution 12 above by way of rights issue only, as defined in that paragraph) to the holders of Ordinary Shares on
a fixed record date (as the Directors may determine) in proportion as nearly as may be to the respective numbers
of Ordinary Shares held by them, on any such record date and to such other holders of equity securities entitled to
participate therein, but subject to such exclusions or other arrangements as the Directors may deem necessary or
expedient to deal with any fractional entitlements or legal or practical difficulties under the laws of, or the
requirement of any regulatory body or any stock exchange in, any territory or by virtue of shares being
represented by depository receipts or any other matter; and
13.2. other than pursuant to paragraph 13.1 above, to any person or persons up to an aggregate nominal amount of
£305,872.78 representing not more than 5% of the issued share capital of the Company as at 2 October 2017
(being the latest practicable date prior to the publication of this Notice),
and shall expire upon the expiry of the general authority conferred by resolution 12 above, save that the Company may,
before such expiry, make an offer or agreement which would, or might, require equity securities to be allotted, or
treasury shares to be sold, after such expiry and the Directors may allot equity securities or sell treasury shares in
pursuance of any such offer or agreement as if the power had not expired.
14. That subject to and conditional on the passing of resolution 12, the Directors be authorised in addition to any authority
granted under resolution 13 to allot equity securities (within the meaning of section 560 of the Act) for cash pursuant
to the authority conferred by resolution 12 or by way of a sale of treasury shares as if section 561(1) of the Act did not
apply to any such allotment or sale, provided that this power shall be:
14.1. limited to the allotment of equity securities, or sale of treasury shares, up to an aggregate nominal amount of
£305,872.78 representing not more than 5% of the issued share capital of the Company as at 2 October 2017
(being the latest practicable date before publication of this Notice); and
14.2. used only for the purposes of financing (or refinancing, if the authority is to be used within six months after the
original transaction) a transaction which the Directors of the Company determine to be an acquisition or other
capital investment of a kind contemplated by the Statement of Principles on Disapplying Pre-Emption Rights most
recently published by the Pre-Emption Group prior to the date of this Notice,
and shall expire upon the expiry of the general authority conferred by resolution 12 above, save that the Company may,
before such expiry, make an offer or agreement which would, or might, require equity securities to be allotted, or
treasury shares sold, after such expiry and the Directors may allot equity securities or sell treasury shares in pursuance
of any such offer or agreement as if the power had not expired.
15. That the Company be generally and unconditionally authorised to make market purchases (within the meaning of
section 693(4) of the Act) of Ordinary Shares on such terms and in such manner as the Directors think fit provided that:
15.1. the maximum aggregate number of Ordinary Shares hereby authorised to be purchased is 6,117,455 (representing
10% of the Company’s issued ordinary share capital as at 2 October 2017, being the latest practicable date before
publication of this Notice);
15.2. the minimum price, exclusive of any expenses, which may be paid for an Ordinary Share is 10 pence;
15.3. the maximum price, exclusive of any expenses, which may be paid for an Ordinary Share is an amount equal to the
higher of: (a) 105% of the average of the middle market quotations for an Ordinary Share, as derived from the
London Stock Exchange Daily Official List, for the five business days immediately before the day on which such
share is contracted to be purchased; and (b) the higher of the price of the last independent trade and the highest
current independent bid for an Ordinary Share in the Company on the trading venues where the market purchases
by the Company pursuant to the authority conferred by this resolution 15 will be carried out; and
15.4. the authority conferred by this resolution shall expire on the conclusion of the Company’s Annual General Meeting
next following or the close of business on the day which is 15 months after the date of its passing (whichever
occurs first) unless previously renewed, varied or revoked by the Company in general meeting, except that the
Company may, before such expiry, enter into a contract for the purchase of Ordinary Shares under the authority
hereby conferred prior to the expiry of such authority, which will or may be completed by or executed wholly or
partly after the expiration of this authority, and may purchase its Ordinary Shares in pursuance of any such
contract.
16. That a General Meeting, other than an Annual General Meeting, may be called on not less than 14 clear days’ notice and
that such authority shall expire on the conclusion of the Company’s Annual General Meeting next following.
Genus plc | Annual Report 2017
163
Notice of Annual General Meeting continued
The Board considers that all the resolutions to be considered at the Annual General Meeting are in the best interests of
the Company and its members as a whole and are therefore likely to promote the success of the Company for the benefit
of its members as a whole. The Directors unanimously recommend that you vote in favour of all the proposed resolutions
as they intend to do in respect of their own beneficial holdings which amount in aggregate to 108,874 shares representing
approximately 0.178% of the existing issued ordinary share capital of the Company.
By order of the Board
Registered office:
Matrix House
Basing View
Basingstoke
RG21 4DZ
Registered in England and Wales with number 02972325
Dan Hartley
Group General Counsel & Company Secretary
2 October 2017
164
Genus plc | Annual Report 2017 Explanatory Notes
This section contains an explanation of each of the resolutions to be put to the Annual General Meeting. Resolutions 1 to
12 are ordinary resolutions requiring the approval of a simple majority of shareholders present (in person or by proxy) and
voting at the Annual General Meeting. Resolutions 13 to 16 are special resolutions requiring the approval of 75% of
shareholders present (in person or by proxy) and voting at the Annual General Meeting.
Resolution 1 – To Receive the Annual Report
The Chairman will present the Annual Report to the Annual General Meeting.
Resolution 2 – Approval of the Directors’ Remuneration Report
The Company is required to offer an annual advisory vote on the implementation of the Company’s existing remuneration
policy in terms of the payments and share awards made to Directors during the year (the ‘Directors’ Remuneration
Report’) and a separate binding vote on the Company’s forward looking remuneration policy (the ‘Directors’
Remuneration Policy’) at least once every three years, or earlier if a change is made to the Directors’ Remuneration Policy,
or if the advisory vote is not passed by shareholders.
Resolution 2 seeks shareholder approval for the Directors’ Remuneration Report as set out on pages 60 to 77 of the
Company’s Annual Report 2017. The Directors’ Remuneration Report gives details of the Directors’ remuneration for the
year ended 30 June 2017. Resolution 2 is an advisory resolution and does not affect the future remuneration paid to any
Director. The report also includes details of the Remuneration Committee’s representations and activities. The Company’s
auditor Deloitte LLP has audited those parts of the Directors’ Remuneration Report which are required to be audited and
their report is issued in the Company’s Annual Report 2017.
Shareholder approval for the Directors’ Remuneration Policy was given at the Company’s Annual General Meeting held in
November 2016. As there are no proposed changes to the Directors’ Remuneration Policy, it is not required to be offered
at this year’s Annual General Meeting. For ease of reference, a table summarising the Directors’ Remuneration Policy has
been included on pages 78 to 81 of the Directors’ Remuneration Report, but that table does not form part of the Directors’
Remuneration Report for the purposes of resolution 2.
Resolution 3 – Final Dividend
Final dividends must be approved by shareholders but must not exceed the amount recommended by Directors. If the
meeting approves the recommended final dividend it will be paid out in accordance with resolution 3. An interim dividend
of 7.4 pence per Ordinary Share was paid on 31 March 2017 to shareholders on the register at 3 March 2017, resulting in a
total dividend for the year of 23.6 pence per Ordinary Share.
Resolutions 4 to 10 – Re-election of Directors
In accordance with provisions of the UK Corporate Governance Code, all Directors of the Company are required to offer
themselves for annual re-election. Biographies of all of the current Directors can be found on pages 42 to 43 of the
Company’s Annual Report 2017. The Board has confirmed, following a performance review, that all Directors standing for
re-election continue to perform effectively and demonstrate commitment to their roles. The Board has considered
whether each of the independent Non-Executive Directors is free from any relationship that could materially interfere with
the exercise of his or her independent judgement and has determined that each continues to be considered to be
independent.
Resolution 11 – Appointment of Auditor and Auditor’s Remuneration
The Company is required to appoint an auditor at each general meeting at which accounts are presented, to hold office
until the end of the next such meeting. This resolution is recommended by the Audit Committee and proposes the
reappointment of the Company’s existing auditor, Deloitte LLP and gives authority to the Audit Committee to agree the
auditor’s remuneration.
Resolution 12 – Authority to Allot Shares
Resolution 12 is proposed as an ordinary resolution and seeks the approval of shareholders, in accordance with section 551
of the Act, to authorise the Directors to allot Ordinary Shares for a period as stated in resolution 12.
The Investment Association (“IA”) guidelines on directors’ authority to allot shares state that IA members will regard as
routine resolutions seeking the authority to allot shares representing up to two-thirds of the Company’s issued share
capital, provided that any amount in excess of one-third of the Company’s issued share capital is only used to allot shares
pursuant to a fully pre-emptive rights issue.
In light of the IA guidelines, the Board considers it appropriate that Directors be granted authority to allot shares in the
capital of the Company up to a maximum nominal amount of £4,078,303.72 representing two-thirds of the Company’s
issued ordinary share capital as at 2 October 2017 (the latest practicable date prior to publication of this Notice). If the
Company wishes to allot more than a nominal amount of £2,039,151.86 (representing one-third of the Company’s issued
ordinary share capital), then any additional amount can only be allotted pursuant to a rights issue. The power will last until
the end of the next Annual General Meeting of the Company or, if earlier, on the close of business on the day which is 15
months after the date on which resolution 12 is passed.
The Directors have no current intention to allot new Ordinary Shares1 (other than in relation to the Company’s employee
share schemes) and intend to comply with the guidance issued by the Investment Association. However, if the Directors
do exercise this authority, the Directors intend to follow emerging best practice as regards to its use. As at the date of this
Notice, no shares are held by the Company in treasury.
Genus plc | Annual Report 2017
165
Notice of Annual General Meeting continued
Resolutions 13 and 14 – Disapplication of Pre-emption Rights
Resolutions 13 and 14 are special resolutions and give the Directors authority to allot Ordinary Shares in the capital of the
Company pursuant to the authority granted under resolution 12 above for cash without complying with the pre-emption
rights in the Act in certain circumstances.
Resolution 13 will permit the Directors to allot:
(a) equity securities for cash and sell treasury shares up to a nominal amount of £4,078,303.72, representing two-thirds of
the Company’s issued share capital as at 2 October 2017 (the latest practicable date prior to publication of this
Notice) on an offer to existing shareholders on a pre-emptive basis (that is including a rights issue or an open offer),
with one-third being available only in connection with a rights issue (in each case subject to any adjustments, such as
for fractional entitlements and overseas shareholders, as the Directors see fit); and
(b) equity securities for cash and sell treasury shares up to a maximum nominal value of £305,872.78, representing
approximately 5% of the issued ordinary share capital of the Company as at 2 October 2017 (the latest practicable
date prior to publication of this Notice) otherwise than in connection with a pre-emptive offer to existing
shareholders.
Resolution 14 is being proposed as a separate resolution to authorise the Directors to allot additional equity securities for
cash and sell treasury shares up to a maximum nominal value of £305,872.78, representing a further 5% of the issued
ordinary share capital of the Company (as at 2 October 2017, being the latest practicable date prior to publication of this
Notice), otherwise than in connection with a pre-emptive offer to existing shareholders for the purposes of financing a
transaction (or refinancing within six months of the transaction) which the Directors determine to be an acquisition or
other capital investment contemplated by the Pre-Emption Group’s Statement of Principles (the “Pre-Emption Group
Principles”).
The Pre-Emption Group Principles were revised in March 2015 to allow the authority for an issue of shares for cash
otherwise than in connection with a pre-emptive offer to be increased from 5% to 10% of the Company’s issued share
capital, provided that the Company confirms that it intends to use the additional 5% authority only in connection with an
acquisition or specified capital investment which is announced contemporaneously with the issue or which has taken
place in the preceding six-month period and is disclosed in the announcement of the issue (a ‘Relevant Acquisition or
Specified Capital Investment’). The Directors believe that it is appropriate to seek this additional 5% authority in resolution
14 to give the Company the flexibility that this resolution affords. In line with Pre-Emption Group 2016 guidance, the
annual disapplication of pre-emption rights is being proposed as two separate resolutions.
The Board intends to adhere to the provisions in the revised Pre-Emption Group’s Statement of Principles and to not allot
shares for cash on a non pre-emptive basis in excess of an amount equal to 7.5% of the total issued ordinary share capital
of the Company (excluding treasury shares) within a rolling three-year period, without prior consultation with
shareholders.
The authority contained in resolutions 13 and 14 will expire upon the expiry of the authority to allot shares conferred in
resolution 14 (that is at the end of the next Annual General Meeting of the Company or, if earlier, on the close of business
on the day which is 15 months from the date of these resolutions). The Directors’ existing authority expires at the
forthcoming Annual General Meeting.
Resolution 15 – Authority to Purchase Own Shares
Resolution 15, is proposed as a special resolution and seeks authority for the Company to purchase up to 10% of its
Ordinary Shares at, or between, the minimum and maximum prices specified in this resolution. This power would be used
only after careful consideration by the Directors, having taken into account market conditions prevailing at that time, the
investment needs of the Company, its opportunities for expansion and its overall financial position. The Directors would
exercise the authority to purchase Ordinary Shares only if they considered it to be in the best interests of shareholders as
a whole and if the purchase could be reasonably expected to result in an increase in earnings per share.
The Directors have no present intention of exercising the authority to purchase Ordinary Shares but consider it prudent to
obtain the flexibility this resolution provides. In considering whether to use this authority, the Directors will take into
account factors including the financial resources of the Company, the Company’s share price and future funding
opportunities. The authority will be exercised only if the Directors believe that to do so would result in an increase in
earnings per share and would be in the interests of shareholders generally. Any purchases of Ordinary Shares would be by
means of market purchases through the London Stock Exchange.
Under the Act, the Company is allowed to hold its own shares in treasury following a purchase of its own shares, instead
of cancelling them. Such shares may be resold for cash or used to satisfy share options and share awards under the
Company’s share incentive schemes but all rights attaching to them, including voting rights and any right to receive
dividends, are suspended whilst they are held in treasury. If the Directors exercise the authority conferred by resolution 15,
the Company will have the option of holding repurchased shares in treasury.
If resolution 15 is passed at the Annual General Meeting, it is the Company’s current intention to hold in treasury all of the
shares it may purchase pursuant to the authority granted to it. However, in order to respond properly to the Company’s
capital requirements and prevailing market conditions, the Directors will reassess at the time of any and each actual
purchase whether to hold the shares in treasury or cancel them, provided it is permitted to do so. As at the date of this
Notice, no shares are held by the Company in treasury.
166
Genus plc | Annual Report 2017 At 2 October 2017 (the latest practicable date prior to the publication of this Notice), options were outstanding to
subscribe for 1,447,510 Ordinary Shares, representing 2.3% of the issued share capital at that date. If the full authority to
purchase such shares (existing and sought) was exercised, they would represent 2.6% of the Company’s issued share
capital as at that date. The authority sought at the Annual General Meeting will expire at the conclusion of the Annual
General Meeting next following, or the close of business on the day which is 15 months from the date of this resolution
(whichever is earlier).
Resolution 16 – Notice Period for General Meetings
Resolution 16, is proposed as a special resolution and seeks the approval of shareholders to reduce to 14 clear days the
notice period required for a general meeting (other than an Annual General Meeting). The notice period required for
general meetings for listed companies is 21 days but the Company may provide a shorter notice period of 14 clear days
(for meetings other than Annual General Meetings) provided two conditions are met. The first condition is that the
Company offers a facility for shareholders to vote by electronic means. This condition is met if the Company offers a
facility, accessible to all shareholders, to appoint a proxy by means of a website. The second condition is that there is an
annual resolution of shareholders approving the reduction of the minimum notice period from 21 days to 14 days. Annual
General Meetings will continue to be held on at least 21 clear days’ notice. It is intended that the shorter notice period
would not be used as a matter of routine for general meetings but only where the flexibility is merited by the business of
the meeting and is thought to be in the interests of the shareholders as a whole.
General Notes
This Notice is being sent to all members and to any person nominated by a member of the Company under section 146 of
the Act to enjoy information rights. Information regarding the Annual General Meeting, including the information required
by section 311A of the Act, is available from www.genusplc.com.
Proxies
Members will find an attendance card and a form of proxy enclosed with this Notice. If you are attending the Annual
General Meeting, you should bring the attendance card with you. Only holders of Ordinary Shares, or their duly appointed
representatives, are entitled to attend, vote and speak at the Annual General Meeting. Any member so entitled may
appoint one or more proxies to attend, speak and to vote instead of him or her. A proxy need not be a member of the
Company but must attend the Annual General Meeting to represent you. Your proxy could be the Chairman, another
Director of the Company or another person who has agreed to attend to represent you. Your proxy must vote as you
instruct and must attend the meeting for your vote to be counted. Details of how to appoint one or more proxies are set
out in the notes to the proxy form. A member may appoint more than one proxy provided each proxy is appointed to
exercise rights attached to different shares. You may not appoint more than one proxy to exercise rights attached to any
one share. A vote withheld is not a vote in law, which means that the vote will not be counted in the calculation of votes
for or against the resolution. If no voting indication is given, your proxy will vote or abstain from voting at his or her
discretion. Your proxy will vote (or abstain from voting) as he or she thinks fit in relation to any other matter which is put
before the Annual General Meeting.
To be valid, a duly executed form of proxy for use at the Annual General Meeting together, if appropriate, with the power
of attorney or other authority (if any) under which it is signed or a duly certified copy of such power or authority must be
deposited at the offices of Equiniti Registrars, Freepost RTHJ-CLLL-KBKU, Equiniti, Aspect House, Spencer Road, Lancing,
BN99 8LU at least 48 hours before the time appointed for holding the Annual General Meeting or any adjournment
thereof. Alternatively, proxies may be appointed by having an appropriate CREST message transmitted, if you are a user
of the CREST system (further details are below). In the case of a member which is a company, the proxy form must be
executed under its common seal or signed on its behalf by an officer of the company or an attorney for the company.
To change your proxy instructions you may return a new proxy appointment using the methods set out above. Where you
have appointed a proxy using the hard copy proxy form and would like to change the instructions using another hard
copy proxy form, please contact Equiniti Limited, Aspect House, Spencer Road, Lancing BN99 6DA. The deadline for
receipt of proxy appointments (see above) also applies in relation to amended instructions. Where two or more valid
separate appointments of proxy are received in respect of the same share in respect of the same meeting, the one which
is last sent shall be treated as replacing and revoking the other or others.
Completion and return of a form of proxy will not preclude shareholders from attending the Annual General Meeting and
voting in person if they wish to do so.
The right to appoint a proxy does not apply to persons whose shares are held on their behalf by another person and who
have been nominated to receive communications from the Company in accordance with section 146 of the Act
(‘nominated persons’). Nominated persons may have a right under an agreement with the registered member who holds
shares on their behalf to be appointed (or to have someone else appointed) as a proxy. Alternatively, if nominated persons
do not have such a right, or do not wish to exercise it, they may have a right under such an agreement to give instructions
to the person holding the shares as to the exercise of voting rights.
Genus plc | Annual Report 2017
167
Notice of Annual General Meeting continued
Voting record date
Pursuant to Regulation 41 of the Uncertificated Securities Regulations 2001, the time by which a person must be entered
on the register of members of the Company in order to have the right to attend and vote at the Annual General Meeting is
6.30pm on 14 November 2017 (or if the Annual General Meeting is adjourned, members on the register of members not
later than 6.30pm on the day that is two working days prior to the reconvened Annual General Meeting). Changes to
entries on the register of members after the relevant time will be disregarded in determining the rights of any person to
attend or vote (and the number of votes they may cast) at the Annual General Meeting or adjourned meeting.
Documents on display
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, and at the place of the Annual General Meeting for at least 15 minutes prior to the Annual General
Meeting until its conclusion.
CREST
CREST members who wish to appoint a proxy or proxies through the CREST electronic proxy appointment service may
do so for this Annual General Meeting to be held on 16 November 2017 at 11.00am and any adjournment(s) thereof by
using the procedures described in the CREST Manual found on the Euroclear website www.euroclear.com. CREST
Personal Members or other CREST sponsored members, and those CREST members who have appointed a voting service
provider(s), should refer to their CREST sponsor or voting service provider(s), who will be able to take the appropriate
action on their behalf. In order for a proxy appointment or instruction made using the CREST service to be valid, the
appropriate CREST message (a ‘CREST Proxy Instruction’) must be properly authenticated in accordance with Euroclear
UK and Ireland Limited’s specifications and must contain the information required for such instructions, as described in
the CREST Manual. The message, regardless of whether it constitutes the appointment of a proxy or to an amendment to
the instruction given to a previously appointed proxy must, in order to be valid, be transmitted so as to be received by the
issuer’s agent (ID RA19) by the latest time(s) for receipt of proxy appointments specified in this Notice of Annual General
Meeting. For this purpose, the time of receipt will be taken to be the time (as determined by the timestamp applied to the
message by the CREST Applications Host) from which the issuer’s agent is able to retrieve the message by enquiry to
CREST in the manner prescribed by CREST. After this time, any change of instructions to proxies appointed through
CREST should be communicated to the appointee through other means.
CREST members and, where applicable, their CREST sponsors or voting service providers should note that Euroclear UK
and Ireland Limited do not make available special procedures in CREST for any particular messages. Normal system timings
and limitations will therefore apply in relation to the input of CREST Proxy Instructions. It is the responsibility of the CREST
member concerned to take (or, if the CREST member is a CREST personal member or sponsored member or has appointed
a voting service provider(s), to procure that his CREST sponsor or voting service provider(s) take(s)) such action as shall
be necessary to ensure that a message is transmitted by means of the CREST system by any particular time. In this
connection, CREST members and, where applicable, their CREST sponsors or voting service providers are referred, in
particular, to those sections of the CREST Manual concerning practical limitations of the CREST system and timings.
The Company may treat as invalid a CREST Proxy Instruction in the circumstances set out in Regulation 35(5) (a) of the
Uncertificated Securities Regulations 2001, as amended.
Corporate Representatives
Any corporation which is a member can appoint one or more corporate representatives who may exercise on its behalf
all of its powers as a member provided that they do not do so in relation to the same shares.
Total Voting Rights
As at 2 October 2017 (being the latest practicable date before publication of this Notice), the Company’s issued share
capital comprised 61,174,556 Ordinary Shares of 10 pence each. As at the date of this Notice, no shares are held by the
Company in treasury. Each Ordinary Share carries the right to one vote at a general meeting of the Company and,
therefore, the total number of voting rights in the Company as at 2 October 2017 is 61,174,556. The Company’s website,
referred to above, will include the contents of this Notice, information on the number of shares and voting rights and, if
applicable, any shareholders’ statements, shareholders’ resolutions or shareholders’ matters of business received by the
Company after the date of this Notice.
Questions
Under section 319A of the Act, the Company must cause to be answered at the Annual General Meeting any question
a member asks relating to the business being dealt with at the Annual General Meeting unless answering the question
would interfere unduly with the preparation for the Annual General Meeting or involve the disclosure of confidential
information; the answer has already been given on a website in the form of an answer to a question; or it is undesirable
in the interests of the Company or the good order of the Annual General Meeting that the question be answered.
168
Genus plc | Annual Report 2017 Requisition Rights
Under section 527 of the Act, members meeting the threshold requirements set out in that section have the right to
require the Company to publish on its website a statement setting out any matter relating to: (i) the audit of the
Company’s Accounts (including the auditor’s report and the conduct of the audit) that are to be laid before the Annual
General Meeting; or (ii) any circumstances connected with an auditor of the Company ceasing to hold office since the
previous meeting at which annual accounts and reports were laid in accordance with section 437 of the Act. The
Company may not require the members requesting any such website publication to pay its expenses in complying with
sections 527 or 528 of the Act. Where the Company is required to place a statement on its website under section 527 of
the Act, it must forward the statement to the Company’s auditor not later than the time when it makes the statement
available on the website. The business which may be dealt with at the Annual General Meeting includes any statement
that the Company has been required under section 527 of the Act to publish on its website.
Voting at the meeting
In order for the voting preferences of all shareholders including those who cannot attend the meeting but who validly
appoint a proxy, to be taken into account, a poll will be conducted on all resolutions at the Annual General Meeting this
year. Each shareholder and proxy present at the meeting will be invited to complete a poll card indicating how they wish
to cast their votes in respect of each resolution. The results of the voting will be posted on the Company’s website as
soon as practicable after the meeting. Except as provided above, members who have general queries about the Annual
General Meeting should call Equiniti registrars on 0371 384 2290. Lines open 8.30am to 5.30pm, Monday to Friday
(excluding UK public holidays). If calling from overseas, please call the Equiniti overseas helpline number of +44 121 415
7047. No other methods of communication will be accepted. You may not use any electronic address provided either in
this Notice of Annual General Meeting, or any related documents (including the proxy form) to communicate with the
Company for any purposes other than those expressly stated.
Genus plc | Annual Report 2017
169
Notes
Notes
Notes
Advisers
SECRETARY AND
REGISTERED OFFICE
DAN HARTLEY
Matrix House
Basing View
Basingstoke
Hampshire RG21 4DZ
Registered Number 02972325
FINANCIAL ADVISER
HSBC BANK PLC
8 Canada Square
London E14 5HQ
STOCKBROKERS
PEEL HUNT
Moor House
120 London Wall
London EC2Y 5ET
LIBERUM CAPITAL LIMITED
Ropemaker Place
Level 12
25 Ropemaker Street
London EC2Y 9LY
STATUTORY AUDITOR
DELOITTE LLP
Abbots House
Abbey Street
Reading RG1 3BD
SOLICITORS
HERBERT SMITH FREEHILLS LLP
Exchange House
Primrose Street
London EC2A 2EG
BANKERS
BARCLAYS BANK PLC
2nd Floor
90–92 High Street
Crawley
West Sussex RH10 1BP
REGISTRARS
EQUINITI LIMITED
Aspect House
Spencer Road
Lancing
West Sussex BN99 6DA
WWW.GENUSPLC.COM
Genus plc | Matrix House, Basing View, Basingstoke, Hampshire RG21 4DZ
T: +44 (0)1256 347100 | F: +44 (0)1256 477385