Genus plc / Annual Report 2019
Pioneering animal genetic improvementTO HELP NOURISH THE WORLD. WHAT WE DO
We help farmers produce meat
and milk more efficiently and sustainably
INCREASING
AVAILABILITY
OF HIGH-
QUALITY,
AFFORDABLE
ANIMAL
PROTEIN.
Visit our corporate website
for further information.
GENUSPLC.COM
001
08–09
CHAIRMAN'S STATEMENT
22–25
ABS DIVISIONAL REVIEW
CONTENTS
STRATEGIC REPORT
002 2019 Highlights
004 Year in Review
006 Genus at a Glance
008 Chairman’s Statement
010 Business Model
012 Market Overview
014 Strategic Framework and
Key Performance Indicators
016 Chief Executive’s Review
018 Divisional Reviews
030 Financial Review
034 People and Culture
038 Corporate Responsibility
043 Non-financial Information Statement
044 Principal Risks and Uncertainties
046 Going Concern and
Viability Statement
CORPORATE GOVERNANCE
048 Chairman’s Letter
050 Board of Directors
and Company Secretary
052 Genus Executive
Leadership Team (‘GELT’)
054 The Board
056 The Board’s Year in Review
062 Nomination Committee Report
065 Audit & Risk Committee Report
069 Directors’ Remuneration Report
095 Directors' Report
096 Directors’ Responsibilities
097
FINANCIAL STATEMENTS
Independent
Auditor’s Report
104 Group Income Statement
105 Group Statement of
Comprehensive Income
106 Group Statement of Changes
in Equity
107 Group Balance Sheet
108 Group Statement of
Cash Flows
109 Notes to the Group
Financial Statements
162 Parent Company
Balance Sheet
163 Parent Company Statement
of Changes in Equity
164 Notes to the Parent Company
Financial Statements
ADDITIONAL INFORMATION
172 Five-Year Record –
Consolidated Results
173 Glossary
175 Notice of Annual
General Meeting
IBC Advisers
18–21
PIC DIVISIONAL REVIEW
26–29
R&D DIVISIONAL REVIEW
STRATEGIC REPORT
002
Genus plc / Annual Report 2019
2019 HIGHLIGHTS
Financial
Highlights1
Genus achieved continued
strategic progress and
delivered good operational
and financial performance
in 2019, despite the
challenging environment
in China caused by the
rapid spread of African
Swine Fever (‘ASF’).
1
For definitions of adjusted profit, free cash flow
and cash conversion, see the Financial Review
on pages 30 to 33. For more information on
Alternative Performance Measures see Note 2 to
the Financial Statements on page 109. Results
discussed throughout the Annual Report are on
an adjusted basis unless otherwise stated.
2 For the definition of adjusted basic earnings per
share, see note 12 to the Financial Statements
on page 123.
3 Based on adjusted results including joint venture
income, less non‑controlling interest in constant
currency.
GROUP REVENUE
£488.5m
2018: £470.3m 2017: £459.1m 2016: £388.3m 2015: £398.5m
Revenue of £488.5m increased by 4% (3% in constant currency)
with strong bovine revenue, up 7% in constant currency,
primarily driven by sexed semen sales growth of 40%. Porcine
revenue was stable despite fewer animal shipments in China
as a result of ASF, however strategically important porcine
royalty revenue increased by 7% in constant currency.
ADJUSTED PROFIT BEFORE TAX
£61.0m
2018: £58.5m 2017: £56.4m 2016: £49.7m 2015: £46.6m
Adjusted operating profit including joint ventures
and excluding gene editing increased by 6% in both
constant and actual currency, led by strong growth in
ABS, up 15% in constant currency, while R&D investment
was increased as planned. Adjusted profit before tax
increased 4% to £61.0m (5% in constant currency).
FREE CASH FLOW
£10.0m
2018: £24.3m 2017: £25.4m 2016: £15.7m 2015: £22.6m
Free cash flow of £10.0m (2018: £24.3m) included a planned
increased investment in capital expenditure and genetic inventory
to meet growth objectives over the short and medium term.
Cash conversion was as expected at 84% (2018: 101%), while cash
inflows from joint ventures were higher at £3.4m (2018: £2.8m).
Net debt to EBITDA of 1.0x (2018: 1.4x), with net debt at 30 June
2019 of £79.6m (2018: £108.5m) following an equity placement of
£66.5m and acquisitions and investments of £22.7m (2018: £1.8m).
STATUTORY PROFIT BEFORE TAX
£9.9m
2018: £7.8m
Statutory profit before tax of £9.9m (2018: £7.8m) was
impacted by non‑cash fair value movements in biological
assets and a one‑off Guaranteed Minimum Pension (‘GMP’)
equalisation charge in respect of legacy pension schemes.
2017: £40.7m 2016: £60.9m 2015: £57.8m
ADJUSTED BASIC EARNINGS PER SHARE
73.2p
2018: 75.9p
2016: 60.7p
2017: 69.4p
2015: 56.8p
Adjusted basic earnings per share2 decreased 4% to 73.2p
(down 3% in constant currency) primarily as a result of a £2.4m
tax credit in the prior year following US tax reforms. Statutory
basic earnings per share decreased 82% to 12.4p, reflecting
significant prior year non‑cash deferred tax credits relating
to biological asset value arising from the US tax reforms.
DIVIDEND PER SHARE
27.7p
2018: 26.0p
2016: 21.4p
2017: 23.6p
2015: 19.5p
Reflecting the Board’s continuing confidence in the Group’s
prospects, it is recommending a final dividend of 18.8p per
share, to give a total dividend of 27.7p per share, up 7% and
well covered by adjusted earnings at 2.6 times (2018: 2.9 times).
STRATEGIC REPORT
003
Operational
Highlights3
ABS ACHIEVED ANOTHER STRONG PERFORMANCE, WITH
OPERATING PROFIT UP 15%, CONTINUED HIGH GROWTH
IN SEXCEL®, GENUS’ HIGH-FERTILITY SEXED GENETICS
PRODUCT PRODUCED WITH INTELLIGEN® TECHNOLOGY,
AND RAPID GROWTH IN THE GROUP’S NUERA®
DIFFERENTIATED BEEF GENETICS
> Volume growth of 6%, with sexed genetics up 42%
and beef up 22%
> Operating profit growth was achieved in all regions,
particularly in North America, up 40%, as more
customers choose Genus’ high‑fertility Sexcel offering
and beef genetics, supported by NuEra beef genetics
> IntelliGen production extended to three new sites
around the world, and a number of new customers
were secured
ROBUST OPERATING PROFIT GROWTH OF 4% IN PIC,
DESPITE THE IMPACT OF ASF ACROSS CHINA. OPERATING
PROFIT GROWTH OF 10% EXCLUDING CHINA
> Royalty revenue up 7%, with growth in all regions
> Stable overall volumes, with growth of 5% excluding
China, driven by North America, Latin America and
Spain. 82% (2018: 76%) of volumes now under royalty
> Strong operating profit growth in Latin America of 23%
and Europe of 30%, with encouraging customer wins
from our strategic collaboration with Møllevang
RESEARCH AND DEVELOPMENT (‘R&D’) INVESTMENT
INCREASED BY 13% AS PLANNED, PRIMARILY FROM
CONTINUED INVESTMENT IN GENE EDITING AND THE
INTELLIGEN PLATFORM
> Continued progress with the Porcine Reproductive
and Respiratory Syndrome virus (‘PRRSv’) development
programme, with increased numbers of edited pigs
produced and constructive engagement with the US
Food and Drug Administration (‘FDA’)
> Strategic relationship initiated with Beijing Capital
Agribusiness (‘BCA’) to fund and develop the PRRSv
programme in China
> Further strengthened our porcine genetic product
portfolio by integrating Møllevang’s genetics
> Continued leadership in the dairy Holstein breed with
42 of the top 100 genomic bulls in the US$ Net Merit
rankings, driven by the success of the De Novo
breeding programme
CHANGES TO THE GENUS EXECUTIVE LEADERSHIP TEAM
(‘GELT’)
> Appointment of Stephen Wilson, currently Group
Finance Director, as Chief Executive with effect from the
close of business on 13 September 2019, following the
resignation of Karim Bitar
> Initiation of an external search for a new Group Finance
Director and appointment of Janet Duane, currently
Group Financial Controller, on an interim basis
> Dr Elena Rice appointed as Chief Scientific Officer
and Head of R&D, following Dr Jonathan
Lightner’s retirement
004
Genus plc / Annual Report 2019
Year in review
2018
JULY
AUGUST
SEPTEMBER
OCTOBER
NOVEMBER
Spanish
distribution
enhanced
Acquisition of Spanish
bovine genetics
distributor Progenex,
S.L.
ASF
outbreak
begins
First case of ASF, a
devastating and highly
contagious porcine
disease, reported
in China
Progress
with PRRSv
resistance
First progeny born from
our gene edited pigs in
our PRRSv resistance
programme
New
European
IntelliGen
facility
New IntelliGen semen
sexing facility launched
in Europe
Sexed semen
capacity
expanded
Second IntelliGen
facility goes live
in Gujarat, India
See p.023
See p.019
See p.026
See p.026
See p.026
PIC
offering
Strategic collaboration
with Møllevang Genetics
commences, including
distribution and
multiplication in Europe,
and integration of
genetic programmes
See p.020
005
DECEMBER
2019
MARCH
MAY
JULY1
AUGUST1
Funds raised
to support
growth
5% equity placement
raises a net £66.5m
CEO
steps
down
Strategic
collaboration
in China
Facility
upgrade
begins
CEO Karim Bitar
announces he
will step down in
September after
successfully leading
Genus for eight years
Genus announces strategic
porcine collaboration in
China with BCA to research,
develop, register and
market PRRSv‑resistant
pigs
Works commence
on new bovine facility
in Wisconsin
CEO
succession
completed
Stephen Wilson, currently
Group Finance Director,
appointed as Chief
Executive with effect
from September 2019
See p.033
See p.009
See p.017
See p.040
See p.009
IntelliGen
capacity
growth
New IntelliGen semen
sexing facility launched
in Latin America
New
CSO
appointed
Dr Elena Rice,
a leading world
expert in agricultural
biotechnology, joins
Genus as Chief Scientific
Officer and Head of R&D
from Bayer
See p.026
See p.017
1 Post FY19 financial year end.
STRATEGIC REPORT
006
Genus plc / Annual Report 2019
GENUS AT A GLANCE
Producing genetically
superior breeding animals
What we do
REVENUE1
OPERATING PROFIT
INCLUDING JOINT VENTURES1
Genus is a world-leading
animal genetics company.
We breed better pigs and cattle for farmers,
so that they can produce high quality meat
and milk more efficiently and sustainably.
We do this by accurately selecting animals
with desirable characteristics and using
them to breed subsequent generations.
Examples of desirable characteristics include
feed efficiency, disease resistance, animal
health, protein and fat content, and fertility.
How we do it
We analyse animals’ DNA
and look for markers that we
know are linked to desirable
characteristics.
We then select animals with the strongest
genetic profile and breed them to produce
even better offspring, in a continuous cycle.
We distribute these genetically superior
animals to our customers in the form of
breeding animals, semen or embryos.
We also own technology that enables us to
screen and process semen for desirable traits,
such as gender, and license‑in technology
to make precise, desirable gene edits to
animals’ DNA, which we are employing in
our product development programmes.
See p.010
£253.7m
£222.6m
£100.6m
£29.9m
INVESTING TO STRENGTHEN OUR POSITION
£110m+
in FY19
£m
120
100
80
60
40
20
00
13
14
15
16
17
18
19
Research & Development2
Capital Expenditure3
Acquisitions & Investments
1 Revenue and Operating Profit excludes R&D revenues and costs.
2
3
Includes IntelliGen capitalised development expenses.
Includes biological asset cash movements and finance lease payments.
007
Serving pork, dairy
and beef farmers globally
PORK
PIC, our porcine genetics business, sells
genetically superior sows, boars and semen,
to breed pigs with desirable characteristics for
pork production. PIC also provides technical
services and advice to farmers, to maximise
the performance of our breeding animals in
their farms.
PIC owns over 10 pure-bred pig lines housed
in strategically located ‘nucleus’ facilities
around the world. These herds are bred out
into much larger breeding herds in over 450
predominantly sub-contracted ‘multiplication’
units around the world. PIC boars are also
housed in about 400 boar studs globally,
where semen is collected for distribution
to customers and multiplication herds.
PIC genetics are sold under the PIC brand through
direct sales channels and strategic partners.
See p.019
40+
DAIRY AND BEEF
ABS, our bovine genetics business, sells bull
semen and embryos to breed calves with
desirable characteristics for milk and beef
production. ABS also provides semen sexing,
IVF, reproductive and other technical services
to farmers, to maximise the performance of
their animals.
ABS produces genetically elite bulls in the US,
Europe and Latin America. The most elite bulls
‘graduate’ to one of ABS’s six production studs,
where their semen is collected for distribution
as a frozen ‘straw’ of semen or used to create
embryos for sale.
ABS genetics are sold globally both directly
and through partners under the ABS brand.
In the UK and France they are sold under
the long-established Genus and Bovec
brands, respectively.
See p.023
75+
Countries with sales presence1
Countries with sales presence3
150m+
MPEs2
2,500+
Customers
19m+
Cattle inseminations and embryo transfers
50,000+
Customers
1
Including through
franchises, distributors
and joint ventures.
2 MPEs refers to market
pig equivalents, a
standardised measure
of our customers’
production of slaughter
animals that contain our
genetics.
Including through
distributors.
3
STRATEGIC REPORT
008
Genus plc / Annual Report 2019
CHAIRMAN’S STATEMENT
Continued progress
Our values
> CUSTOMER CENTRIC
We are one team, dedicated to helping
customers thrive. We anticipate their needs
and help them seize opportunities, acting
as partners to improve quality, efficiency
and output. If we’re not adding value for
our customers, we stop and think again.
> RESULTS DRIVEN
We are proactive, determined to be the
best we can be and to exceed expectations.
We redefine standards for ourselves, our
customers and our industry. Every one of
us takes pride in delivering the highest level of
performance. If something can be improved,
we find a simpler, better way to do it.
> PIONEERING
We are an innovative, forward‑thinking
company. We have the courage and
confidence to explore new ideas and the
energy and enthusiasm to deliver them.
We are creative, tenacious and resourceful
in every area of our work.
> PEOPLE FOCUSED
We are a business rooted in science but built
around our people. We inspire, challenge and
support everyone to perform, develop and
grow. We treat others with respect and we
invite views and feedback to help us improve.
> RESPONSIBLE
We are ethical to our core. We feel a deep
sense of responsibility to our customers,
colleagues, animals, communities and
shareholders. We are honest, reliable and
trustworthy. We mean what we say and
do what we say.
Bob Lawson
Chair of the Board
4 September 2019
009
Genus now employs nearly 3,000 people across
26 countries. I am fortunate in being able to
visit many of these people during the year and
I am always left with an enduring admiration
for their commitment, professionalism and
dedication to customers. On behalf of you,
our shareholders, and the Board I offer to
them our sincere thanks.
The Group aims to balance investment in
the business with the discipline of generating
attractive returns on capital and paying a
growing dividend to shareholders. During the
year we consulted shareholders on bringing
more flexibility to our progressive dividend
policy. The Board is therefore recommending a
final dividend of 18.8 pence per share, resulting
in a total dividend in respect of the year of
27.7 pence per share. This is an increase of 7%
compared with last year’s total dividend of
26.0 pence per share. The final dividend will
be paid on 29 November 2019, to shareholders
on the register at the close of business on
8 November 2019.
The impact of the Chinese ASF outbreak has
been significant on our results. However, the
application and ingenuity of our people has
minimised the long-term impact and enabled
us to maintain our investment, R&D activities
and dividend at the planned levels. This does
give me great confidence in the future and the
fundamental quality of the Group.
BOB LAWSON
Chair of the Board
4 September 2019
The Board is pleased with the Company’s
progress over the last year. The implementation
of the strategy has continued to plan as have the
investments in R&D together with the essential
expansion of our infrastructure to assist in our
anticipated future growth.
ABS had a good year, driven by its strong
performance in the United States, where profit
was up 40% as customers used more of our
elite genetics, high fertility Sexcel product, and
NuEra beef genetics. PIC grew operating profit
by 4%, despite the outbreak of ASF in China,
with strong profit growth in Latin America and
Europe, helped by customer wins arising from
our strategic collaboration with Møllevang.
We were pleased that the quality of the business
was endorsed by the strong support for the
equity placing in December, which will enable
the Group to seize future opportunities.
The annual strategic review with the executive
leadership team took place in January and
focused on market development opportunities
in our core dairy, beef and pork businesses
and on implementing emerging technologies
in the animal genetics market. This annual
strategic review forms the basis of the Board’s
monitoring and review processes during
the year.
The most important strategic development this
year was the collaboration with BCA to develop
and commercialise the PRSSv-resistant pigs
for the Chinese market. A second important
element of the collaboration was to expand the
distribution infrastructure for elite PIC genetics
within China. This is a long term and important
collaboration for the Company, that will enable
the supply and distribution of high quality,
sustainable pork production in China.
For us all, whether based in the UK or
elsewhere, Brexit has created uncertainty.
However, it has not influenced our strategy or
investment activity as, from our analysis, its
impact is likely to be modest as far as Genus
is concerned.
During the year significant change took place
to the Board with Nigel Turner, who had been
the Senior Independent Director, retiring at the
AGM after nine years. Nigel had played a very
significant role in the creation and formation
of the modern Genus and his legacy lives on
today. Lesley Knox joined the Board as our
Senior Independent Director and also Chair of
the Remuneration Committee. As previously
announced, Professor Ian Charles took over the
scientific mantle from Professor Duncan Maskell
on his relocation to Australia. I have been
delighted by the manner that the refreshed
Board has meshed together and continues to
deliver its responsibilities to you.
In March 2019, we announced Karim’s decision
to resign from Genus. During his tenure as Chief
Executive, Karim has developed the Group
strategy and resourced the business to become
a global leader in the provision of animal
protein genetics. He leaves the Company with
an outstanding leadership team, market leading
genetics, innovative technology platforms and
an exciting pipeline of R&D programmes.
Following Karim’s decision, we initiated a
global search for his successor and after an
exhaustive review, it was very clear that the
‘stand-out’ candidate was Stephen Wilson,
our current Group Finance Director. Stephen
has worked alongside Karim for over six years
and has been intimately involved in all aspects
of the business from strategy formulation to
operational delivery. I am not only delighted but
confident that Stephen will lead the business to
new heights of achievement.
Our Chief Scientific Officer, Jonathan Lightner
retired in April and I am pleased that we have
recruited Dr Elena Rice to succeed him. Her
background at Bayer has been in Agricultural
science and she brings not only the science but
deep experience of the regulatory issues facing
agricultural companies and is the perfect leader
for our R&D team.
STRATEGIC REPORT
010
Genus plc / Annual Report 2019
BUSINESS MODEL
Producing and delivering
superior animals to farmers
DELIVER A DIFFERENTIATED PROPRIETARY GENETIC OFFERING
Produce genetically superior
breeding animals
OUR STRENGTHS
AND RESOURCES
SHARED PROPRIETARY
TECHNOLOGY PLATFORM
GLOBAL POSITION
Genus is uniquely placed as a global player,
with leading market positions and brands
GENOME SCIENCE
We understand the links between DNA
and animals’ observable characteristics,
and how we can influence them
ELITE ANIMALS
We own elite livestock, with traits
farmers value
PROPRIETARY TECHNOLOGY
We own and license leading genomic and
breeding technology, developed in‑house
and through strategic partnerships
CUSTOMER RELATIONSHIPS
We serve over 50,000 customers globally,
including world‑leading meat and
milk producers
EXPERT PEOPLE
We have over 90 PhD qualified employees
and relationships with leading research
institutions
GENOMIC SELECTION
We breed successive generations of animals
by scientifically selecting superior parents
through DNA analysis
BIOSYSTEMS ENGINEERING
We use technology to interrogate
and select cells, such as in our semen
sexing technology
GENE EDITING
We are developing more sustainable,
disease‑resistant breeding animals by
making precise changes to their genes
IN VITRO BIOLOGY
We perform IVF matings, which enables
selection of both female and male parents
to increase the quality of offspring
LINK TO STRATEGY
Deliver a differentiated proprietary
genetic offering
Focus on progressive protein
producers globally
Share in the value delivered
See p.014
SUPPLY CHAIN AND DISTRIBUTION
We have production facilities in key locations
worldwide, coupled with sales forces and
agents in over 80 countries
FINANCIAL STRENGTH
Our cash generative businesses and strong
financial position allow us to invest for
the future
011
FOCUS ON PROGRESSIVE PROTEIN PRODUCERS GLOBALLY
SHARE IN THE VALUE DELIVERED
Deliver improved breeding
animals to farmers
Price according to
the value delivered
GENETICS PRIMARILY SOLD ON MULTI-YEAR
ROYALTY AGREEMENTS
Superior pigs with traits farmers value
GENETICS PRICED ACCORDING
TO INDICES OF GENETIC MERIT
BOARS IN STUD
35,000+
boars producing semen
EXPANSION HERDS
450,000+
GGP/GP animals with our genetics
under genetic management1
CUSTOMER
150m+
MPEs produced
STUDS AND LABS
19m+
straws of semen sold
and embryos produced
600+
superior dairy and
beef bulls with traits
farmers value
CUSTOMER
c.7m
dairy and beef calves
born
DELIVERING FOR
OUR STAKEHOLDERS
CUSTOMERS
We help our customers to produce
better meat and milk, more
efficiently and sustainably
CONSUMERS
We increase consumers’ access
to safe, healthy, affordable and
nutritious animal protein
COMMUNITIES & ENVIRONMENT
We make farming more sustainable
by reducing the use of feed, water
and other resources and use fewer
animals to produce the same
amount of meat and milk, reducing
greenhouse gas emissions over time
PEOPLE
We employ nearly 3,000 people
globally, who all help to deliver our
vision of nourishing the world
INVESTORS
By sharing in the value we deliver
to customers, we generate returns
for our investors
1 GGP/GP refers to great grandparent/grandparent of a commercial slaughter pig.
STRATEGIC REPORT
012
Genus plc / Annual Report 2019
MARKET OVERVIEW
Feeding the world
more sustainably
Drivers
Trends
Position
CONSUMPTION OF ANIMAL PROTEIN
continues to grow as the global population
expands and urbanises, and seeks a more
varied and nutritious diet. Pork, milk and beef
consumption are forecast to grow by 1%, 2%
and 1% respectively in the next decade.
INCREASING COMPETITION FOR RESOURCES
such as land and water puts pressure on
farmers to become more efficient, including
through the use of genetically superior animals
and new technologies.
GROWING CONSUMER AWARENESS
is driving demand for high-quality, healthier
and more sustainable products, which are
produced with fewer drugs. This increases
farmers’ demand for genetically superior
breeding animals, which are more efficient and
resilient. In the future gene editing and other
breakthrough technology may provide farmers
with breeding animals that are fully resistant to
some of the most devastating diseases globally.
FARMS ARE BECOMING LARGER
AND MORE TECHNIFIED
Technified producers typically measure
performance in more detail and better
understand the efficiency benefits of genetically
superior breeding animals and optimised
breeding strategies, such as combining the use
of sexed dairy and beef semen on dairy herds to
maximise profit.
CONSOLIDATION OF ELITE BREEDING HERDS
High-ranking dairy breeding bulls are bred
from genetically elite breeding herds. The
increasing use of costly technology and scale
required to keep pace with industry leaders is
driving consolidation. As genetics consolidate,
some breeders are choosing to form strategic
alliances with competitors, so they can offer
their customers superior genetics.
ADOPTION OF TECHNOLOGY
Adoption of semen sexing technology is
growing fast across dairy herds, as they enable
farmers to breed a stronger next generation of
cows with fewer breedings (given the higher
likelihood of obtaining a female pregnancy
with sexed semen). This means the rest of the
herd can be bred with beef semen, to maximise
the meat quality of the resulting calf. Access to
sexing technology is fundamental to competing
in bovine genetic improvement.
BREAKTHROUGH TECHNOLOGY AND DATA
The animal genetics industry is pursuing
innovative solutions in the fight against animal
disease and suffering. These include using
data and health-focused breeding indices and
exploring breakthrough technologies, including
gene editing, which could have a significant
impact on farming and animal well-being.
Genus is a world leader in animal genetic
improvement. We have a global commercial
platform with critical mass. We are also the only
listed porcine and bovine genetics company
globally, giving us strategic access to finance.
Our competitors are largely private companies
and farmer-owned cooperatives, many of which
are regionally focused.
MARKET SHARE > PIC2
1
3
2
8
7
6
45
1 PIC
2 Competitor 1
3 Competitor 2
4 Competitor 3
5 Competitor 4
6 Competitor 5
7 Internal programmes
8 Other
24%
12%
9%
3%
3%
3%
12%
34%
BREEDERS FEATURED IN
TOP 200 HOLSTEIN BULL RANKINGS1
MARKET SHARE > ABS3
120
100
80
60
40
20
0
#
120
100
80
60
40
20
0
%
Number of
breeders featured
Top 20 breeders’
share of top bulls
2008
2019
Source: Genus analysis; US Holstein breeders
represented in the Top 200 NM$ rankings by birth year;
2019 data based on Top 200 Holsteins active using April
2019 data from the Council on Dairy Cattle Breeding.
1
2
3
4
5
6
7
1 Competitor 1
2 Competitor 2
3 ABS
4 Competitor 3
5 Competitor 4
6 Competitor 5
7 Other
10%
9%
8%
5%
3%
3%
62%
013
3,000
2,500
2,000
1,500
1,000
500
0
d
e
c
u
d
o
r
p
k
l
i
m
e
g
a
r
e
v
A
)
s
e
n
n
o
t
(
m
r
a
f
r
e
p
AVERAGE US DAIRY FARM SIZE
)
s
0
0
0
(
s
m
r
a
f
y
r
i
a
d
S
U
f
o
r
e
b
m
u
N
60
50
40
30
20
10
0
2008
2013
2018
Licensed dairy farms (000s)
Average milk produced per farm (tonnes)
Source: NASS/USDA
% OF PIGS SOLD BY LARGE US FARMS (5,000+ PIGS)
91%
2012
Farms with 5,000+ pigs sold
Farms with <5,000 pigs sold
Source: USDA 2017 Census of Agriculture
94%
2017
ABS GENETICS SALES VOLUMES TO US DAIRY FARMERS (%)
84
81
74
5
11
2016
4
14
2017
9
18
2018
55
21
24
2019
Dairy Sexed
Beef on Dairy
Dairy Conventional
Data represents proportion of total genetic units sold to dairy farmers in the US; excludes beef x beef units
1 Source: Genus analysis; US Holstein breeders represented in the Top 200 NM$ rankings by birth year; 2019 data based on Top 200 Holsteins
active using April 2019 data from the Council on Dairy Cattle Breeding.
2 Source: Governmental agencies, local independent pork organisations, Genus estimates. Market shares represent the estimated share
of technified/commercial production in top pig production markets.
3 Source: Governmental agencies, local bovine genetics and agriculture organisations, Genus estimates. Market shares represent the
estimated share of combined dairy and beef volumes in ABS’s Top 30 target markets for dairy and Top 8 target markets for beef.
STRATEGIC REPORT
014
Genus plc / Annual Report 2019
STRATEGIC FRAMEWORK AND KEY PERFORMANCE INDICATORS
Capturing significant
growth opportunities
Genus helps farmers to
produce high-quality meat
and milk more efficiently
and sustainably. We do this
by continuously producing
superior breeding animals
through genetic improvement,
with desirable characteristics
tailored for different markets.
Strategic priorities
What does success
look like?
DELIVER A DIFFERENTIATED PROPRIETARY
GENETIC OFFERING
GENETIC GAIN
We invest in the latest technology to continuously
improve our own herds and product offering,
and we protect our unique position by choosing
how to deploy our genes and technology in
the marketplace.
Creating better breeding animals
for farmers, measured against
proprietary and public indices which
are weighted towards economic
traits that help farmers operate
more efficiently and sustainably.
See p.020
FOCUS ON SERVING PROGRESSIVE PROTEIN
PRODUCERS GLOBALLY
VOLUME GROWTH
We focus our offering on leading integrated
pork producers and progressive cattle farmers
worldwide. We offer them our superior breeding
animals, semen and embryos, together with
technical services, tailored to their needs.
Growing volumes, particularly
with progressive dairy and beef
farmers and integrated pork
producers, who focus heavily on the
efficiency and sustainability of their
production systems.
See p.024
SHARE IN THE VALUE DELIVERED
PROFITABILITY
We aim to capture an appropriate share of the
value we deliver to customers, aligning our
interests with theirs. We demonstrate the value of
our genetics on farm through validation trials and
data, and link our pricing to genetic indices and
our customers’ productivity.
Generating profit resulting from
the performance of our products in
customers’ systems.
See p.028
KEY TO RISKS
1
2
3
Developing products
with competitive advantage
Continuing to successfully
develop IntelliGen technology
Developing and commercialising
gene editing technologies
4 Capturing value through acquisitions
5 Growing in emerging markets
6 Protecting IP
7
Ensuring biosecurity
and continuity of supply
8 Hiring and retaining talented people
9
Managing agricultural market
and commodity prices volatility
10 Funding pensions
015
Proven
Genomic
Risks
Key performance indicators
3
7
4
8
1
5
9
2
6
10
PORCINE GENETIC IMPROVEMENT INDEX (US$)
2019
2018
2017
2016
2015
3.46
3.13
3.06
3.68
3.40
8.75
0.00
17.50
26.25
35.00
NET MERIT RANKINGS (GENOMIC AND DAUGHTER
PROVEN BULLS)
2019
2018
2017
2016
2015
19
18
13
61.25
42
17
17
15
24
23
37
43.75
52.50
70.00
Measures the genetic improvement we achieve in our porcine nucleus herds, which
ultimately filters down to our customers’ farms.
Monitors how many of our bulls are highly ranked, based on economically relevant
traits for farmers.
DEFINITION: The index measures the
marginal improvement in customers’
US$ 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 the following years and
has delivered a further improvement of
US$3.46 per pig, per year, in 2019.
DEFINITION: The number of our
generally available Holstein bulls listed
in the top 100 Genomic Net Merit US$
rankings for genomically tested sires
and the top 100 Net Merit rankings for
daughter proven sires.
PERFORMANCE: Genus has established
and maintained a leadership position
with its strength in genomic bulls,
which over time will become daughter
proven bulls. This is mainly driven by the
growing proportion of high-quality bulls
sourced from our proprietary breeding
programme, De Novo1.
1 De Novo Genetics LLC is 51% owned by Genus.
3
7
4
8
1
5
9
2
6
10
PORCINE VOLUME GROWTH (%)
DAIRY AND BEEF VOLUME GROWTH (%)
0
2019
2018
2017
2016
2015
1
2
3
4
5
6
7
8
0
Excluding China 5
8
4
4
6
-6
2019
2018
2017
2016
2015
-5
-4
-3
-2
-1
0
1
2
3
4
5
6
1
-6
5
6
6
Tracks the growth in the number of commercial pigs with PIC genetics globally.
Tracks our global unit sales growth in dairy and beef.
DEFINITION: The change in volume of
both direct and royalty animal sales,
using a standardised MPEs measure
of commercial slaughter animals that
contain our genetics.
PERFORMANCE: Volumes were stable
at 150 million MPEs. Excluding China,
where volumes declined 50% as a result
of ASF, all regions contributed to a
growth of 5%. Royalty contract volumes
increased 7%, fuelled particularly by
double digit growth in Latin America
and Asia.
DEFINITION: The change in dairy, beef
and sorted units of semen and embryos
delivered or produced for customers
in the year.
PERFORMANCE: Bovine volumes
improved 6% to 19.7 million units,
primarily from growth in North America
and Latin America. Sexed volumes were
up 42%, reflecting strong growth in
Sexcel, which also influenced the use
of beef-on-dairy genetics, supporting
a 22% increase in global beef volumes.
Embryo volumes were marginally up
as growth was impacted by phasing of
production in key accounts.
3
7
4
8
1
5
9
2
6
10
OPERATING PROFIT PER MARKET PIG EQUIVALENT (£)
BOVINE OPERATING PROFIT PER DOSE (£)
0.00
2019
2018
2017
2016
2015
0.61
0.00
1.03
0.60
0.56
0.61
0.51
0.43
2019
2018
2017
2016
2015
0.50
0.48
0.52
0.34
0.78
Monitors porcine profitability by unit.
Monitors bovine profitability by dose.
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 £0.60, up £0.04 (up £0.03 in
constant currency). This was primarily
due to strong royalty contract revenue
growth more than offsetting lower
profits in China.
DEFINITION: Bovine adjusted operating
profit globally, expressed per dose of
semen or embryo delivered or produced
for customers. Prior years have been
restated to include India which had
previously been excluded.
PERFORMANCE: Operating profit
per dose was £0.50, up £0.02. This
was due to the strong sales growth of
our premium Sexcel product, which
has lower production costs than its
predecessor technology, partially offset
by increased investment in bovine
product development.
STRATEGIC REPORT
016
Genus plc / Annual Report 2019
CHIEF EXECUTIVE’S REVIEW
Positioned for growth
The strength of the
leadership team is one
reason I have such
confidence in Genus’s
prospects.
5%
Adjusted profit before tax
increase in constant currency
6%
Adjusted operating profit growth
in constant currency excluding
gene‑editing costs
Karim Bitar
Chief Executive
4 September 2019
017
As the Chairman has explained in his
statement on page 09, sadly this is my
final report to you as Chief Executive.
During my eight years at Genus, we
have taken significant strides towards
transforming the Group into a truly global
agricultural biotechnology pioneer, focused
on animal genetic improvement. I am
pleased to be handing over a business
that is in good shape and is in a strong
position to achieve continued growth.
GROUP PERFORMANCE
The Group achieved a good performance in
FY19, which was in line with expectations. In
constant currency terms revenue increased
by 3%, adjusted profit before tax was 5%
higher and adjusted operating profit rose
by 6%, excluding gene editing costs. This
was the result of challenging conditions in
China caused by the rapid spread of ASF.
Excluding the impact of ASF, our results
for the year would have been ahead of our
double-digit medium term growth objective.
In actual currency terms, revenue was up 4%
and adjusted profit before tax increased by 4%.
Genus PIC increased its adjusted operating
profit including joint ventures by 4% in constant
currency. The business was affected by the
outbreak of ASF across China, causing volumes
in the country to fall by 50% resulting in a £5m
operating profit reduction in China, compared
with FY18. This impact was more than offset
by strong growth in both Latin America and
Europe. Royalty revenue and royalty volumes
continued to grow at 7%, with royalties now
representing 82% (2018: 76%) of total volumes.
ABS continued its turnaround, with the plans
we implemented to revitalise the business
delivering the anticipated results. Volume
growth was 6% and operating profit was up
15% in constant currency. Sexcel continued to
be strongly adopted by customers, with sexed
genetics volumes being 42% higher in FY19
while maintaining price levels. We also achieved
rapid growth in NuEra, our differentiated
beef genetics, with volumes rising by 22%.
Research and development investment
increased by 13% as planned, as we
continued to invest in gene editing and
IntelliGen. We made further progress
with the PRRSv programme and signed a
strategically important collaboration in
China. We are also delivering strong results
in our dairy, beef and porcine genomic
selection breeding programmes.
STRATEGIC PROGRESS
The most significant strategic development in
the year was our porcine strategic collaboration
in China, which we announced in May 2019
and expect to close in the second half of the
calendar year, following customary Chinese
regulatory approvals. This is a very important
step in our PRRSv resistance commercialisation
programme, validating our technology and
providing us with a very capable partner
to work on PRRSv resistance in China.
Our partner in the collaboration is BCA,
which owns a leading Chinese animal
protein genetics business and has a deep
understanding of the country’s porcine
sector. CITIC Agriculture, a very reputable
and influential state-owned investor in China,
is a key shareholder and adviser to BCA.
BCA will establish and fund a collaboration-
specific entity (‘BCA Future Bio-Tech’) which
will use Genus’ intellectual property and know
how to pursue the PRRSv resistance regulatory
and development work in China. In return,
we will receive US$20m, after meeting certain
milestones in the development programme.
BCA will fund the development work in
China, which is expected to cost several tens
of millions of US dollars. Once regulatory
approval is received, Genus and BCA will form
a joint venture which will include PIC’s existing
operations in China. Genus will own 49% of this
business and will receive between US$120m
and US$160m in consideration for our existing
operations. We will also receive royalties on
the sales of PRRSv-resistant pigs in China.
Genus and BCA also plan to accelerate the
use of PIC genetics in China, through the
phased integration of PIC genetics into
BCA’s breeding facilities and their planned
major expansion, in response to the
opportunities we have due to the breeding
stock shortage in China caused by ASF.
At the very start of the year, we formed a
strategic partnership with Møllevang, one of
Denmark’s leading pig-breeding companies.
We are pleased with the traction we are
seeing, with market share gains and customer
wins from new products in line with our
expectations.
Sexed genetics are a key part of the growth
strategy in ABS. In addition to the rapid uptake
of Sexcel by our customers, we successfully
grew the IntelliGen business during the
year, winning new customers and starting
production in three new locations around
the world.
PEOPLE
Genus has an outstanding group of talented
and committed people and leading them
has been one of the privileges of my career.
I want to thank all of my colleagues for their
important contribution to making Genus
the world-leading business it is today.
The strength of the leadership team is one
reason I have such confidence in Genus’
prospects over the coming years. I am delighted
that Stephen Wilson has been appointed to
succeed me as Chief Executive to continue
executing the strategy we have jointly
developed.
There was one change to GELT in FY19, with
Dr Jonathan Lightner retiring as Chief Scientific
Officer and Head of R&D, after a distinguished
career which included six years at Genus. I am
delighted that Dr Elena Rice joined us in July
2019 to take up this critical role. Elena was
previously at Bayer and has deep expertise in
running R&D programmes, regulatory science
and portfolio management in crop genetics.
She has led the development and introduction
of new genetic improvement technologies
including gene editing projects. She will
help us continue to enhance genetic
improvement in our chosen species.
OUTLOOK
Genus is a strong business, with a proven
strategy and business model, which positions
us for ongoing growth in both ABS and PIC.
ASF will continue to affect PIC volumes in
China in the short term and while we foresee
some improvement in FY20, fuller restocking
is likely in FY21. Notwithstanding this,
and in line with the Board’s expectations,
Genus expects to deliver further strategic
and financial progress in FY20.
KARIM BITAR
Chief Executive
4 September 2019
STRATEGIC REPORT
018
Genus plc / Annual Report 2019
DIVISIONAL REVIEW / GENUS PIC
A strategic milestone
Business priorities
SHORT TERM
>
MEDIUM TERM
>
LONG TERM
Increase supply of animals
to China, to aid its recovery
from ASF.
Capture increased market share
in North America and Europe with
Møllevang influenced genetics.
Continue responsible
development of PRRSv‑
resistant pigs, while engaging
with stakeholders regarding
the benefits.
“
Helping producers
increase profitability
through our growing
range of proprietary
genetics and world-class
support services.
Strategic Progress in 2018/19
DELIVERING A
DIFFERENTIATED
PROPRIETARY
GENETIC OFFERING
> Agreeing a strategic
collaboration with BCA
to research, develop and
commercialise PRRSv‑resistant
pigs in China.
> Increasing pig numbers in our
elite genetic facilities by over
20%, enabling us to enhance
selection intensity.
> Conducting genomic testing
on animals from Møllevang
Genetics and integrating
these genes into our product
development programme.
FOCUSING ON LARGE
AND PROGRESSIVE
PROTEIN
PRODUCERS
GLOBALLY
> Growing revenue in Europe by
21%, through a blend of direct
service for large customers
and indirect relationships with
smaller producers.
> Establishing a new European
nucleus via Møllevang, to
expand our commercial
product portfolio for customers
in the region.
> Continuing our growth in Latin
America, where we are the
market leader: growing genetic
improvement faster and
capturing more genetic value
per pig than our competitors,
working with over 80% of large
producers.
> Developing a new agreement
with BCA to expand our supply
and distribution network in
China.
SHARING IN THE
VALUE DELIVERED
> Continuing to expand the use of
royalty contracts, so that 82%
of our global business is now
conducted on this basis.
> Conducting a further 28
product trials, involving nearly
44,000 pigs, to show customers
the benefit of using our elite
genetics in their production
system.
Revenue
Adjusted operating profit exc JVs
Adjusted operating profit inc JVs
Adjusted operating margin exc JVs
DR BILL CHRISTIANSON
CHIEF OPERATING OFFICER
Genus PIC
019
ACTUAL CURRENCY
2018
£m
247.7
88.7
94.8
CONSTANT
CURRENCY
Movement
%
Movement
%
2
5
6
–
2
4
35.8%
0.9pts
0.7pts
2019
£m
253.7
93.1
100.6
36.7%
MARKET
The pork market saw dramatic volatility in FY19
and this is expected to continue. Analysts are
projecting a 40% to 50% reduction in China’s
pig herd due to ASF, equating to up to 15 million
tonnes of lost pork production in 2019, much
more than the entire global pork trade in 2018.
This massive production gap presents a unique
opportunity for all animal protein sectors and
will impact global pork, beef and poultry prices
for years. The ASF epidemic will permanently
reshape the Chinese pork industry. Chinese
officials indicate that up to 80% of producers,
primarily smaller ones, will ultimately not
repopulate their herds, driving the industry
toward larger scale and more vertically
integrated production, providing a significant
opportunity for Genus PIC.
The EU, Brazil, Canada and the US are all
preparing to supply China, leading to an
expected 8% increase in global pork exports
in 2019. The US would be uniquely positioned
to supply China, but tariffs on US pork to China
limit the short term potential. Canada has also
been facing pork import barriers from China.
Pig prices have increased around the world
in response to these dynamics. Pig prices
have risen sharply in China in recent months.
Average pig carcass prices in the EU through
August 2019 were up approximately 20%, on
strong sales to China. However, prices in the
US have been volatile, given the competing
dynamics of increased export potential and
continued tariffs.
The porcine genetics market also saw
significant changes in FY19. The breakup of one
of PIC’s main global competitors, DanAvl, into
three companies has reshaped the European
market. DanAvl continues to operate as a
smaller rebranded company called Danbred.
A new competitor, Danish Genetics, has been
created by former DanAvl nucleus breeders
and multipliers. Lastly, Møllevang Genetics
partnered with PIC, starting from July 2018.
PERFORMANCE
Genus PIC grew operating profits despite
the ASF outbreak in China. Operating profit
including joint ventures was £100.6m, up 4%
in constant currency. Global volumes were
unchanged, with a decline in Asia offset by
growth in all other regions. Strategically
important royalty revenues rose by 7%.
In North America, volumes were up by 4%
and royalty revenue grew 3% in constant
currency. Operating profits were down by 3%,
driven by short term higher customer credits
arising from animals from a few contract farm
locations. Actions were taken to resolve the
source of this issue. We saw improving business
momentum as the second half progressed and
we launched the new Møllevang-influenced
PIC800 Duroc sireline.
Latin American operating profits including
joint ventures improved by 23% and revenues
were up 22% in constant currency. All key
markets in the region generated double-digit
operating profit growth. Revenues were also up
in key trading countries and market conditions
continued to improve in the second half of our
fiscal year. Breeding stock revenue increased
by 36% and royalty revenue grew by 14% in
constant currency.
In Europe, strong operating profit growth
of 30% in constant currency was driven by
successful execution of strategic initiatives,
leading to 11% royalty revenue growth. The
integration of PIC’s strategic collaboration with
Møllevang Genetics saw positive impacts on
customer trials and demand and the outlook
for Europe remains strong.
Asia’s operating profits including joint ventures
were below prior year by 37% in constant
currency. This was wholly due to the ASF
outbreak in August 2018, which reduced PIC’s
profit in China by around £5m. This reduction
was only partially offset by operating profit
growth in the Philippines, Vietnam and Japan.
Despite market volatility, PIC’s global business
remains strong and it is well positioned to meet
changing market needs. PIC continued to focus
on its long term strategy, with investments to
enhance product supply and differentiation.
The collaboration in China with BCA is a
strategic milestone that will allow us to further
expand our business in China.
STRATEGIC REPORT
020
Genus plc / Annual Report 2019
Delivering a Differentiated Proprietary Genetic Offering
EFFICIENT +
SUSTAINABLE
Our work with Miratorg is a
tremendous example of what sets
us apart for our customers. We look
forward to helping Miratorg achieve
even more over the next few years.
JACK KEANE, GENERAL MANAGER,
PIC RUSSIA
Partnering with Russia’s
Leading Pork Producer
to Deliver a Sustainable
Production System.
In January 2019, we sealed one of the
largest deals in Genus PIC’s history by
becoming the exclusive damline partner
for Miratorg, Russia’s leading pig producer.
Following a similar sireline agreement in
2016, we are now Miratorg’s sole genetic
partner.
PIC’s relationship with Miratorg began in
the early 2000s, when Miratorg started pig
production. As Miratorg grew, it worked
with several genetic suppliers, before
deciding to move to a single partnership
to support its planned expansion.
PIC was determined to become Miratorg’s
sole partner. By drawing on global expertise
in areas such as genomics, technical services
and meat quality, PIC provided insights
to Miratorg that no other company could
match. As the relationship grew stronger,
Miratorg asked PIC to redesign its whole
approach to pig production. Over six months,
PIC brought a series of recommendations
to Miratorg which aligned with Miratorg’s
goal of having a sustainable genetic
production system. PIC advised Miratorg on
restructuring the nucleus and multiplication
farms, to bring greater health, production
and economic benefits, proving its ability
to support Miratorg’s commercial goals.
Over the course of the agreement, PIC will
replace all of Miratorg’s nucleus animals
and stock the new multiplication network.
At the full run rate, Miratorg will be a
top five European customer for PIC.
021
STRATEGIC REPORT
022
Genus plc / Annual Report 2019
DIVISIONAL REVIEW / GENUS ABS
Positive momentum
Business priorities
SHORT TERM
>
MEDIUM TERM
>
LONG TERM
Drive growth through Sexcel and
Beef InFocus, while continuing
to strengthen our proprietary
genetics, technology and
support services.
Increase the number of
customers with 100% ABS
relationships and secure further
pull‑through agreements for
the beef supply chain.
Transition to a performance‑
based pricing model for
dairy accounts.
“
Becoming the partner
of choice for customers:
helping them to achieve
their goals and
maximise profitability.
Strategic Progress in 2018/19
DELIVERING A
DIFFERENTIATED
PROPRIETARY
GENETIC OFFERING
FOCUSING ON LARGE
AND PROGRESSIVE
PROTEIN
PRODUCERS
GLOBALLY
SHARING IN
THE VALUE
DELIVERED
> Continuing to enhance and
> Building business with new
expand our range of proprietary
dairy and beef genetics to help
customers achieve their goals.
> Growing global volume sales
of sexed genetics – including
Sexcel, our proprietary product
– by 42%.
> Expanding our range of dairy
Icon Sires™ – genetic leaders,
bred in‑house – on which we
retain an option to buy progeny
at a pre‑defined price and
breeding rights to any bulls.
> Strengthening NuEra Genetics,
our proprietary beef range, and
launching Beef InFocus as our
global beef‑on‑dairy brand,
leading to 22% growth in global
beef growth of volumes.
and existing US customers by
developing and implementing
whole‑herd genetic strategies,
growing sales of sexed genetics
by 52% and Beef InFocus
by 176%.
> Growing sales of sexed genetics
in India, the world’s largest
dairy market, with signed
contracts with regional states
now exceeding 500,000 units of
sexed genetics per annum.
> Signing our latest beef pull‑
through agreement with AkTep
in Kazakhstan, through which
we will develop and supply
profitable genetics for its
supply chains.
> Progressing seven validation
trials to demonstrate the
difference that our beef
genetics make in customer
production systems and
strengthen our pricing‑to‑
value strategy.
> Continuing our transition to
performance‑based pricing
within dairy, as we help
progressive dairy farmers
achieve their goals.
Revenue
Adjusted operating profit1
Adjusted operating margin
1
Less non-controlling interest.
JERRY THOMPSON
CHIEF OPERATING OFFICER
Genus ABS Beef
DR NATE ZWALD
CHIEF OPERATING OFFICER
Genus ABS Dairy
023
CONSTANT
CURRENCY
Movement
%
7
15
ACTUAL CURRENCY
2018
£m
Movement
%
210.6
26.1
12.4%
6
15
1.0pts
1.0pts
2019
£m
222.6
29.9
13.4%
MARKET
Milk and beef producers continued to
consolidate, with growth of large-scale farming
in Russia, the Middle East and the US. Customers
are using more sexed dairy genetics and, in the
US, margin pressure continues to lead to a trend
of more beef on dairy genetics to generate a
more valuable by-product from older animals.
From late 2018 into 2019, the global milk supply
showed little growth. Increased demand
in markets such as China, sustaining above
average levels of imports, meant prices for dairy
commodities increased through the first half
of 2019 and this appears to be sustainable as
stocks of dairy products reduce.
Despite better milk prices, margins have been
eroded in markets such as Europe, following the
extended drought in mid-2018, which required
additional feed purchases and kept feed prices
high. More recent droughts in Australia have
also reduced cow numbers. Milk yield per cow
continues to grow in the US and other global
markets as genetics improve, but growth in US
output has been held back by a 1% decline in
cow numbers.
The outbreak of ASF and growth in fast food
restaurants has led to a 53% increase in beef
imports in China, in the first half of 2019, helping
to fuel global demand. Much of this demand
was met by countries such as Argentina,
Australia and Brazil, where exports grew by
20% in the first half of 2019. Damaging winter
weather conditions in the US led to a downturn
in exports of 3% for the first half of 2019.
Overall, beef prices trended positively, with
countries such as Australia up as much as 14%
to the end of July 2019 and China up 7%.
The dairy and beef genetics market continued
to consolidate. The merger of Koepon Holdings
(Alta) and CRI (Genex) was completed in late
2018, to form Urus, which is now the largest
bovine genetics supplier by volume.
PERFORMANCE
ABS performed strongly with operating profit
increasing 15% in constant currency. Volume
and revenue rose 6% and 7% respectively.
Sexed volumes grew 42%, reflecting Sexcel’s
continued success. Increased use of beef
genetics in dairy herds supported 22%
growth in global beef volumes. IVB is now fully
integrated into the geographic regions and
reported within their results.
In Europe, operating profit was up 7% in
constant currency, with stable volumes. The
trend of dairy customers using sexed genetics,
coupled with beef genetics for a portion of the
herd, increased beef volumes by 10%. European
sexed semen volumes grew 24%.
In North America, revenues grew by 4% and
operating profit by 40% in constant currency,
fuelled by previous investments in key
account management and high growth in
Sexcel. Semen and embryo volumes were up
by 9%, with sexed volumes up 48% and beef
volumes up 60%, supported by proprietary
NuEra genetics selected for cross-bred beef on
dairy performance. North American embryo
profits increased substantially, as operational
efficiency improved in key customer sites.
In Latin America, operating profit increased
by 15% in constant currency. High growth in
Sexcel was partially offset by a strong prior
year embryo performance, influenced by the
phasing of a key account embryo services
contract. Volumes increased by 10%, driven
by sexed volumes up 30% and beef volumes
up 14%, utilising NuEra genetics, selected for
cross-bred performance of North American
sires with tropical cows.
In Asia, operating profit was up 7% and revenue
increased by 10%, with a steady performance
across most key markets. Sexcel sales in India
continued to ramp up, with several large orders
to be fulfilled from the Genus India Brahma
facility. Production began at the Mehsana
cooperative bull stud in Gujarat towards
the end of the period and commissioning of
the production facility for the State of Uttar
Pradesh is in progress.
Overall, the increasing customer adoption of
Sexcel, combined with our proprietary beef
offering and leading dairy genetics portfolio,
mean we anticipate continued progress in the
next fiscal year.
STRATEGIC REPORT
024
Genus plc / Annual Report 2019
Focusing on Progressive Protein Producers Globally
SUPERIOR
BREEDS
By switching to ABS we’ve managed
to improve the quality of our herd
whilst also maximizing the value
of our milking pregnancies through
the use of Sexcel and ABS’s leading
beef genetics.
DONOVAN COETZEE,
GOLDEN DAKOTA DAIRY
Partnering with progressive
dairy farmers to maximise
the impact of every pregnancy.
In 2014 Donovan Coetzee moved from
South Africa to South Dakota to manage
the 3,300 cow Golden Dakota Dairy. Since
taking on the dairy, Donovan has focused
on improving the performance and
sustainability of his herd by utilising high-
quality genetics and technical support.
Donovan decided to partner with ABS given
its leading bull line‑up, sexing technology
and partner‑led attitude. With support from
ABS’s technical services team, Donovan
decided to utilise ABS’s sexed semen product,
Sexcel, which combines ABS’s leading
genetics sexed with the latest technology,
to breed the next generation of high‑
quality heifers for Golden Dakota Dairy.
By employing Sexcel, which results in a much
higher probability of obtaining a female calf
than conventional semen, Donovan was
also able to breed a large portion of the
remaining herd with ABS’s leading ‘beef on
dairy’ product, InFocus. InFocus genetics are
beef genetics (in the form of semen) that are
specifically selected to maximise the quality
and profitability of calves for beef production.
025
STRATEGIC REPORT
026
Genus plc / Annual Report 2019
DIVISIONAL REVIEW / GENUS R&D
Accelerating genetic
improvement
“
Accelerating genetic
improvement and using
pioneering technologies
to enhance animal
well-being, customer
productivity and the
sustainability of protein
production.
Business priorities
SHORT TERM
>
MEDIUM TERM
>
LONG TERM
Continue to harness
developments in genomic
science to accelerate genetic
improvement across our chosen
species.
Demonstrate resilience in a
disease challenge for our ‘proof of
concept’ project targeting Bovine
Respiratory Disease.
Successfully bring PRRSv‑
resistant animals to market.
Strategic Progress in 2018/19
DIFFERENTIATED
PRODUCTS FROM
GENOMIC SELECTION
GENE EDITING
GENDER SKEW
> Expanding our line‑up of elite
> Increasing the number of
> Enhancing production
dairy genetics through De Novo
Genetics, our joint venture with
De‑Su Holsteins, by producing
industry‑leading animals of
high genetic merit.
> Strengthening our proprietary
selection indices for beef
genetics and demonstrating
the financial benefits that
high‑ranking sires deliver for
customers in target markets
and segments.
> Continuing to collaborate
with colleagues in PIC and
The Roslin Institute on the DNA
sequencing of elite PIC animals,
through which we are seeking
to harness billions of data
points for animal selection.
gene‑edited pigs in our PRRSv‑
resistance programme, from
multiple elite lines born in our
facilities, while continuing
to make good progress on
preparations for seeking
regulatory approval to market
such animals.
> Achieving pregnancies from
beef embryos edited in‑house,
as we continue to explore
whether a single change to
the CD18 gene can improve
resilience to Bovine Respiratory
Disease.
capabilities and capacity to
help Genus ABS meet global
demand for Sexcel, its bovine
sexed genetics product.
> Continuing to license our
proprietary sexing technology
to third parties through
IntelliGen Technologies,
establishing a global network
currently comprising seven
owned and licensed labs across
three continents.
Porcine product development
Bovine product development
Gene editing
Other research and development
Net expenditure in R&D1
1
Less non-controlling interest.
DR ELENA RICE
CHIEF SCIENTIFIC OFFICER
AND HEAD OF R&D
Genus R&D
027
ACTUAL CURRENCY
CONSTANT
CURRENCY
2019
£m
18.4
20.0
7.3
9.0
54.7
2018
£m
17.0
17.2
5.0
7.6
46.8
Movement
%
Movement
%
8
16
46
18
17
5
13
42
14
13
PERFORMANCE
Net R&D investment increased as planned by
13% in constant currency, as Genus pursued
key strategic initiatives to further strengthen its
proprietary differentiated offerings, including
increasing investment in gene editing, primarily
under the PRRSv programme.
Accelerated genetic gain in our porcine
populations continues to be driven by our
single-step genomic evaluation process.
Investments increased to expand genetic
testing to additional elite genetic production
sites and populations, following the Møllevang
strategic collaboration. Early results from
incorporating these genetics into PIC’s product
development programme are encouraging
and we launched the Duroc-based PIC800
sireline towards the end of the period. We also
applied research to develop new genetic traits
of commercial relevance, such as tenderness,
and are now already selecting for these traits.
The investment in these initiatives was partially
offset by lower operating costs in PIC’s nucleus
herds.
Bovine product development expenditure
increased by 13%, as Genus continued to
produce an industry leading Holstein dairy bull
portfolio, with over 50% coming from the De
Novo joint venture. This joint venture is also
delivering a strong pipeline of young bulls and
is helping to drive volume increases within
ABS. The beef genetic nucleus programme also
produced strong results and the pipeline of
proprietary NuEra beef bulls coming into the
stud is set to double during the next year.
In addition, we continued with our investment
in IntelliGen, while amortising historical
capitalised development costs. During the
period, we expanded Sexcel manufacturing
to meet significantly increasing demand and
to provide unique genetic offerings globally.
We also successfully brought into production
our first external customer site in India, added
capacity in other sites and further expanded
the IntelliGen footprint globally through new
customers for technology transfer and external
customer service.
Gene editing expenditure increased by 42%,
primarily due to investment in the PRRSv
resistance programme. We continued our
engagement with the FDA and the relationship
remains constructive and positive. As planned,
we increased the number of gene edited pigs,
working with RenOVAte to continue producing
founder gene edited pigs and multiplying up
animal numbers by breeding initial founders
with pure-line animals. There are now hundreds
of edited animals and we have taken on
additional dedicated facilities to house them,
as we continue to grow the population.
Other R&D expenditure included work on our
bioinformatics platform, genome science and
external collaborations in a variety of discovery
areas, including seeking new gene edit targets
and exploring the benefits of full genome
sequencing.
STRATEGIC REPORT
028
Genus plc / Annual Report 2019
Genus Research and Development
HEALTHIER
ANIMALS
We are making continued progress
with our PRRSv-resistance
programme and are reducing the
technological, regulatory approval
and customer acceptance risk.
DR MATT CULBERTSON, GLOBAL PRODUCT
DEVELOPMENT DIRECTOR
Developing PRRSv-Resistant
Pigs for a More Sustainable
Pork Industry.
PRRSv is a devastating and incurable
porcine disease, causing reproductive
failure, reduced growth and early death.
Genus is using ground-breaking gene
editing technology to develop PRRSv-
resistant pigs, helping to produce healthier
animals and a more sustainable food
system.
We made continued progress with our
PRRSv programme in FY19. We continue
to produce gene edited pigs and to
validate the technology and gather
data for regulatory submissions.
The US is a key pork market and a trailblazer
for adopting new technology. We are building
on our constructive and collaborative
relationship with the US Food and Drug
Administration (‘FDA’) and plan to make an
initial submission in 2020. In addition, we are
starting to assess how regulators in other key
markets will treat gene edited technologies,
including Japan, South Korea and China.
We know that customer acceptance of PRRSv
resistant pigs will be important. Our focus
is on understanding how food industry
decision makers and consumers view gene
editing and helping them to appreciate the
benefits. We have also engaged in coalitions
looking at the ethical use of this technology
and set guidelines for its use. Furthermore,
we regularly meet non‑governmental
organisations to discuss the benefits to
animal wellbeing, the environment, and
the potential to reduce antibiotic usage.
Our strategic collaboration with BCA in
China also has a key role. Developing the
technology, seeking regulatory approval
and achieving customer acceptance in China
will help develop a more sustainable pork
production supply chain that can meet the
needs of Chinese families and consumers.
029
STRATEGIC REPORT
030
Genus plc / Annual Report 2019
FINANCIAL REVIEW
Good financial results
In the year ended 30 June 2019,
Genus achieved good financial
results despite challenging
conditions in China caused by
the rapid spread of ASF in the
pig industry.
Revenue growth was 3% in constant
currency (4% in actual currency) and
adjusted operating profit growth including
joint ventures was 3% in both constant
and actual currencies, after our planned
increase in investment in R&D. Excluding
gene editing costs, adjusted operating
profit increased by 6% in both constant and
actual currencies. Adjusted profit before tax
was up 4% (5% in actual currency) despite
profits in the Chinese porcine business
being £5m lower as a result of ASF.
On a statutory basis, profit before tax was
£9.9m (2018: £7.8m). The difference between
statutory and adjusted profit before tax was
primarily due to non‑cash items, including
a charge of £16.1m in respect of legacy
pension schemes due to the recent High
Court decision on the Lloyd’s Bank case
related to GMP equalisation (see below for
further details) and a reduction of £14.7m
(2018: £28.7m) in the net IAS 41 biological
asset fair value. This was primarily a result
of lower bovine biological asset fair values,
consistent with trends over the last few
years. Statutory earnings per share were
82% lower, with the prior year benefiting
from a £32.5m non‑cash reduction in Genus’s
deferred tax liabilities as a result of tax
reforms in the US. Genus continues to use
adjusted results as its primary measures
of financial performance as they better
reflect the Group’s underlying progress.
The effect of exchange rate movements
on the translation of our overseas profits
was to reduce the Group’s adjusted profit
before tax for the year by £0.3m compared
with 2018, with the stronger Dollar against
Sterling more than offset by weakness in
the Brazilian Real. Unless stated otherwise,
the financial and operating reviews quote
constant currency adjusted growth rates.
Stephen Wilson
Group Finance Director
4 September 2019
REVENUE
Revenue increased by 3% in constant currency (4% in actual currency) to
£488.5m (2018: £470.3m). In PIC, revenue was stable in constant currency
(up 2% in actual currency), with our strategically important royalty
revenue up 7%, with growth in all regions. This was offset by significantly
lower breeding stock sales in China, as ASF caused customer stocking
delays and cancellations. In ABS, revenues grew 7% in constant currency
(6% in actual currency), with all regions making a positive contribution.
Sexed genetics revenue growth of 40% was ahead of our expectations
due to continued strong uptake of Sexcel, our high-fertility sexed
genetics product.
ADJUSTED OPERATING PROFIT INCLUDING JOINT VENTURES
ACTUAL CURRENCY
2019
£m
100.6
29.9
(54.7)
(10.9)
64.9
(3.9)
61.0
2018
£m
94.8
26.1
(46.8)
(11.0)
63.1
(4.6)
58.5
CONSTANT
CURRENCY
Movement
%
Movement
%
6
15
(17)
1
3
15
4
4
15
(13)
4
3
15
5
Adjusted Profit Before Tax1
Genus PIC
Genus ABS
R&D
Central costs
Adjusted operating
profit incl. JVs
Net finance costs
Adjusted profit before
tax
1
Includes share of adjusted pre-tax profits of joint ventures and removes share of adjusted
profits of non-controlling interests.
Adjusted operating profit including joint ventures was £64.9m (2018:
£63.1m), up 3% in both actual and constant currencies. Within this,
Genus’s share of adjusted joint venture operating profits was higher at
£7.6m (2018: £6.2m), primarily due to strong results in the PIC Agroceres JV
in Brazil and amounts attributable to non-controlling interests reduced
to £0.4m (2018: £0.8m). Our gene editing investment, which is primarily
focused on creating resistance in pigs against the devastating PRRSv
disease, increased to £7.3m (2018: £5.0m) as we increased the number of
edited animals produced. Excluding this investment, adjusted operating
profit increased by 6% in constant currency to £72.2m (2018: £68.1m).
ADJUSTED OPERATING PROFIT INCLUDING JVS EXCLUDING
GENE EDITING INVESTMENT (£m)
80
75
70
65
60
55
50
45
40
FY15
FY16
FY17
FY18
FY19
Adjusted operating profit
Gene editing investment
031
Year ended 30 June
Adjusted results1
Revenue
Operating profit incl.
JVs excl. gene editing
Operating profit incl.
JVs
Profit before tax
Basic earnings per
share (pence)
Statutory results
Revenue
Operating profit
Profit before tax
Profit after tax
Basic earnings per
share (pence)
Dividend per share
(pence)
ACTUAL CURRENCY
2019
£m
488.5
72.2
64.9
61.0
73.2
2018
£m
470.3
68.1
63.1
58.5
75.9
CONSTANT
CURRENCY2
Movement
%
Movement
%
4
6
3
4
3
6
3
5
(4)
(3)
488.5
470.3
8.7
9.9
6.7
12.4
27.7
8.2
7.8
41.6
69.7
26.0
4
6
27
(84)
(82)
7
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 alternative performance measures used
by the Board to monitor underlying performance at a Group and operating segment
level. They are consistently applied throughout.
2 Constant currency percentage movements are calculated by restating the results for the
year ended 30 June 2019 at the average exchange rates applied to adjusted operating
profit for the year ended 30 June 2018.
Exchange rates
US Dollar/£
Euro/£
Brazilian Real/£
Mexican Peso/£
AVERAGE
CLOSING
2019
1.29
1.13
4.99
2018
1.35
1.13
4.51
2019
1.27
1.12
4.89
2018
1.32
1.13
5.12
25.04
25.37
24.40
26.30
PIC had a robust year with adjusted operating profit including joint
ventures up 4%, despite a profit decline in China of approximately £5m
caused by ASF. Volumes were stable, with continued growth in royalty
contract volumes, particularly in Latin America, offset by a significant
decline in breeding stock volumes in China. The European business
transformation continues to drive strong results, with another high
double-digit operating profit growth of 30%, with the integrations of
Møllevang and Hermitage continuing to create supply chain synergies and
superior genetic offerings for our customers.
ABS performed strongly with adjusted operating profit less non-
controlling interest increasing 15%, with volume growth of 6%. Sexcel
continued to demonstrate that it is the sexed product of choice for
progressive dairy farmers, driving overall sexed volume growth of 42%
and with lower production costs than its predecessor. Strong operating
profit growth was achieved across all regions with growth strongest
in North America, up 40%, where there was a pronounced shift in the
industry to using sexed genetics and beef on dairy genetics, which aligns
to our market-leading offerings.
As planned, R&D investment increased by 13%, primarily from a 42%
increase in gene editing investment as we expanded the number of gene
edited pigs produced and continued positive engagement with the FDA.
To maintain leadership in genetics across both porcine and bovine, we
increased investment in bovine product development, including in our
IntelliGen technology, by 13% and porcine product development by 5%.
STRATEGIC REPORT
032
Genus plc / Annual Report 2019
FINANCIAL REVIEW CONTINUED
STATUTORY PROFIT BEFORE TAX
The table below reconciles adjusted profit before tax to 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:
2019
£m
61.0
0.4
(1.1)
(1.4)
2018
£m
58.5
0.8
(0.5)
(1.5)
Net IAS 41 valuation movement on biological
(14.7)
(28.7)
assets
Amortisation of acquired intangible assets
Share-based payment expense
Exceptional items
Statutory Profit Before Tax
(9.5)
(3.0)
(21.8)
9.9
(9.5)
(5.4)
(5.9)
7.8
Our statutory profit before tax was £9.9m (2018: £7.8m), with the impact
of the GMP equalisation of £16.1m (2018: £nil) in exceptional items largely
offset by the reduction in the non-cash fair value net IAS 41 biological
asset movement, which was £14.7m against £28.7m in the prior year.
Within this, there was a £1.9m reduction (2018: £5.3m uplift) in porcine
biological assets and a £12.8m reduction (2018: £34.0m reduction) in
bovine biological assets, due to a variety of fair value model estimate
changes. Share-based payment expense was £3.0m (2018: £5.4m). These
items tend to be non-cash, can be volatile and do not correlate to the
underlying trading performance in the period.
EXCEPTIONAL ITEMS
There was a £21.8m net exceptional expense in the year (2018: £5.9m
expense), which included a charge of £16.1m in respect of legacy pension
schemes due to the recent High Court decision on the Lloyd’s Bank case
related to GMP equalisation, offset by a settlement gain of £0.9m (net of
fees). As noted below, this GMP equalisation accounting charge does not
result in a cash outflow for Genus. Also included are charges of £5.0m for
legal fees related to Genus ABS’s litigation with STGenetics (‘ST’), £0.7m
for acquisition and integration related expenses, primarily relating to
Møllevang and Progenex S.L., and other items which include £1.5m of fees
relating to our strategic porcine collaboration in China with BCA and an
insurance receipt from a legacy environmental claim.
NET FINANCE COSTS
Net finance costs reduced to £3.9m (2018: £4.6m), benefiting from both
interest rate hedging gains and lower net debt, as a result of the £66.5m
equity placement which more than offset the Møllevang investment
during the period.
TAXATION
The effective rate of tax, based on adjusted profit before tax, was 24.3%
(2018: 20.5%) with the prior year benefiting from a £2.4m credit from the
net reduction of tax liabilities in the US following the enactment of US tax
reforms. Excluding this one-off credit, the underlying tax rate on adjusted
profits in the prior year would have been 24.6%. The effective rate remains
higher than the UK corporate tax rate due to the mix of overseas profits
and the impact of withholding taxes on the repatriation of funds to the
UK. These effects are partly mitigated by the availability of R&D credits
and agricultural reliefs in certain jurisdictions.
The tax rate on statutory profits was a charge of 40.7% (2018: 347%
credit), with the prior year credit reflecting a large non-cash deferred
tax credit of £32.5m as a result of US tax reform. This primarily arose on
applying the new US tax rates to the deferred tax liabilities associated
with the fair value uplift under IAS 41 on the Group’s biological assets.
EARNINGS PER SHARE
Adjusted basic earnings per share decreased by 4% (3% in constant
currency) to 73.2 pence (2018: 75.9 pence) as a result of the higher tax
rate and increased share count. Basic earnings per share on a statutory
basis were 12.4 pence (2018: 69.7 pence), down 82%, with the prior year
boosted by non-cash deferred tax credits arising from the US tax reforms.
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
2019, the carrying value of biological assets was £366.7m (2018: £363.0m),
as set out in the table below:
Biological Assets
Non-current assets
Current assets
Inventory
Represented by:
Porcine
Dairy and beef
2019
£m
307.6
40.1
19.0
366.7
249.0
117.7
366.7
2018
£m
305.8
37.0
20.2
363.0
238.8
124.2
363.0
The movement in the overall balance sheet carrying value of biological
assets, excluding the effect of exchange rate translation decreases of
£13.0m, includes:
> a £1.0m increase in the carrying value of porcine biological assets,
due principally to an increase in the pure-line valuation (driven by an
increase in the percentage of animals going for breeding sales), offset
partially by a decrease in retained interest (mainly in the US); and
> a £10.2m reduction in the bovine biological assets value, primarily due
to current estimates, based on market data, of the semen sales price
attributable to the biological asset value.
The historical cost of these assets, less depreciation, was £58.2m at
30 June 2019 (2018: £51.0m), which is the basis used for the adjusted
results. The historical cost depreciation of these assets included in
adjusted results was £9.4m (2018: £6.4m).
RETIREMENT BENEFIT OBLIGATIONS
The Group’s retirement benefit obligations at 30 June 2019 were £24.2m
(2018: £33.9m) before tax and £19.8m (2018: £27.9m) net of related
deferred tax. The largest element of this liability relates to the multi-
employer Milk Pension Fund, which we account for on the basis of Genus
being responsible for 86% of the scheme (2018: 86%).
During the year, contributions payable in respect of the Group’s defined
benefit schemes amounted to £7.6m (2018: £7.3m).
In October 2018, the High Court handed down judgment in the Lloyds
Bank pensions case, requiring pension schemes to equalise GMPs.
Genus’s legacy pension schemes are affected by this ruling, resulting
in an aggregate past service charge of £16.1m in the period, offset by a
settlement gain of £0.9m (net of fees).
033
NET DEBT
Net debt decreased to £79.6m at 30 June 2019 (2018: £108.5m), with
the £66.5m net equity placement proceeds being partially offset by the
Møllevang acquisition and planned increased investments in capital
and inventory within the business. At the end of June 2019 there was
substantial headroom of £125.6m under the Group’s credit facilities of
£225m. Of the Group’s facilities, £45m is due to expire in February 2021,
with the remainder expiring in February 2022.
The Group will adopt the IFRS 16 ‘Leases’ standard from 1 July 2019 using
the modified retrospective approach. It will recognise the cumulative
effect of applying IFRS 16 at the 1 July 2019 transitional date and the prior
period will not be restated.
The impact on the opening balance sheet as at 1 July 2019 will be to
recognise a right of use asset and corresponding lease liability in the
region of £28.0m. Profit before tax is not expected to change materially,
however operating profit in FY20 is expected to increase in the region of
£1m (due to the depreciation expense being lower than the operating
lease expense it replaces) offset by the increased finance charges on the
higher liability. IFRS 16 also requires a reclassification of cash flow from
operations to net cash used in financing activities, however the overall
impact to the Group is cash flow neutral.
The Group’s financial position and borrowing ratios remain strong,
with interest cover increasing to 34 times (2018: 25 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 improved to 1.0 times (2018: 1.4 times)
with both lower net debt and an increased EBITDA.
RETURN ON INVESTED CAPITAL
We measure the Group’s 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 was lower at 18.9% after tax (2018: 23.9%), reflecting the
higher tax rate, with the prior year benefiting from deferred tax liability
reductions following US tax reforms, and the higher levels of capital and
other investments in the current year, to support future growth.
DIVIDEND
During the year the Board consulted its largest shareholders on its
dividend policy. Following this consultation, the Board intends to
maintain a progressive dividend within a target adjusted earnings cover
range of 2.5 – 3.0 times. The Board is recommending to shareholders a
final dividend of 18.8 pence per ordinary share, an increase of 5% over
the prior year final dividend. When combined with the interim dividend
increase of 10%, this results in a total dividend for the year of 27.7 pence
per ordinary share, an increase of 7% for the year. Dividend cover from
adjusted earnings remains strong at 2.6 times (2018: 2.9 times).
STEPHEN WILSON
Group Finance Director
4 September 2019
The Dalgety Pension Fund (‘DPF’) has an IAS 19 surplus of £19.1m,
which includes a £22.5m separate reserve held against future unknown
liabilities, which has not been recognised in the Genus Financial
Statements as the Group does not have a unilateral right to it. The cost
of GMP equalisation is estimated to be £11.5m for the DPF, which will be
fully met by the scheme reserve without a cash cost to Genus. However,
IAS 19 requires us to record a charge in the Income Statement of £11.5m,
which is offset by an equal and opposite credit in the Statement of
Comprehensive Income.
The cost of GMP equalisation for Genus’s share of the Milk Pension Fund
(‘MPF’) is estimated to be £4.5m, which is also recorded as a charge to the
Income Statement under IAS 19. Despite this charge, the MPF has a £8.6m
surplus on an IAS 19 basis. However, under IFRIC 14 Genus accounts for
its committed payments under the deficit recovery plan as a liability.
In February 2019, as part of the 31 March 2018 scheme valuation, a new
deficit recovery plan was agreed with the MPF Trustees, which now
finishes approximately a year earlier in September 2021.
CASH FLOW
Cash generated by operations of £48.4m (2018: £58.3m) represented cash
conversion of 84% (2018: 101%) of adjusted operating profit excluding
joint ventures. The reduction was primarily due to the expansion of PIC
genetic nucleuses, higher cash cost of exceptional items and a lower
growth in creditor balances than the prior year.
Capital expenditure cash flows of £28.3m (2018: £22.5m) included
investment growth in IntelliGen for new global locations and the
investment in the new Genus One enterprise system, which is progressing
well. Cash inflows from joint ventures were higher at £3.4m (2018: £2.8m).
After interest and tax paid, total free cash flow was £10.0m (2018: £24.3m).
The cash outflow from investments was £22.7m (2018: £1.8m), primarily
due to the acquisition of Møllevang to grow further our leadership in
porcine genetics.
In December 2018, a 5% equity placement of 3.1m shares raised proceeds
of £66.5m net of fees. Over the last five years the Company has invested
over £180m in capital expenditure and acquisitions funded from cash
flow and financing facilities. This included investments in gene editing
technology, Møllevang, IVB, Hermitage, Génétiporc and De Novo, as well
as increasing capital investment in IntelliGen and supply chain facilities to
support growth. The equity placement provides flexibility to continue to
proactively pursue future growth opportunities.
The total cash inflow for the year after this equity placement, investments
and dividends was £37.0m (2018: £7.6m).
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
Share placement
Net cash flow
2019
£m
48.4
(15.0)
(28.3)
3.4
1.5
10.0
(22.7)
(16.8)
66.5
37.0
2018
£m
58.3
(15.1)
(22.5)
2.8
0.8
24.3
(1.8)
(14.9)
–
7.6
STRATEGIC REPORT
034
Genus plc / Annual Report 2019
PEOPLE AND CULTURE
Being a people magnet
ANGELLE ROSATA
GROUP HR DIRECTOR
“
We aim to be
a world-class
company recruiting,
developing and
retaining top talent.
A TEAM OF MANY TALENTS
We employ nearly 3,000 people in 26
countries around the world. They perform
a wide range of roles in many different
settings, from working in laboratories to
working with animals on customer farms.
We are an increasingly diverse team and
are constantly exploring ways of further
enhancing diversity in all its forms. Our
latest initiative is the creation of a Women’s
Leadership Forum, which will bring together
female leaders and a cross-section of other
women to develop ideas for increasing
diversity and improving working practices.
A VALUES-DRIVEN CULTURE
We foster a positive and inclusive culture, built
on our five core values. They underpin all the
policies and working practices summarised in
the global Genus employee handbook, which
we introduced during the year. This is shared
with new employees and is also available to
potential recruits through www.genusplc.com.
Recent steps to further embed the values
have included refreshing our performance
management process by establishing an even
stronger focus on aligned behaviours. We
have also introduced mandatory manager and
employee training on preventing workplace
harassment, to help ensure our employees
continue to work in a safe environment that
is free from discrimination of any kind.
A STRONG TALENT PIPELINE
We source and develop the people we need to
pursue our business goals. We seek colleagues
who demonstrate both the required technical
capabilities and alignment with our core values.
During the year, we made a number of strategic
hires, including a new Health Assurance Director
for PIC in Asia, our Global Senior Director of
Regulatory Science and Affairs and our new
Chief Scientific Officer and Head of R&D.
We invest in people at all levels to help
them fulfil their potential. This year, we
introduced bespoke training modules for
aspiring leaders and for supervisors, targeting
the particular development needs at each
stage. We also introduced a Genus CEO
Scholarship, for a place on the Online MBA
Program at the University of Michigan’s Ross
School of Business. The successful applicant
began her course in September 2019.
We also use other methods to grow our people
and build the skills needed to progress our
business plans. These include identifying
opportunities for expanding current roles with
new responsibilities or assignments. This year,
for example, we expanded the role of Global
Product Development Director in PIC to take on
responsibility for bringing PRRSv-resistant pigs
to market. We also arranged several short-term
assignments for members of our IntelliGen
Technologies Global Deployment team, to help
set up laboratories for our proprietary bovine
sexing technology in Brazil, India and Europe.
A GLOBAL FRAMEWORK
We maintain and regularly review a comprehensive
set of global policies for employees, ranging
from our Anti-Harassment and Diversity and
Inclusion policy to a range of health and safety
policies (health & safety is covered in this report’s
‘Responsibility’ section).
We publish all policies and support employees
with periodic training where relevant. Our
indicators (including employee survey feedback
and health & safety statistics) show these
are being implemented consistently. There
are many routes through which employees
can raise concerns, from informal feedback
loops to our formal grievance procedure. Any
concerns reported are immediately referred
to the Group General Counsel and Company
Secretary and are then investigated and
discussed accordingly with Group HR Director,
Head of Risk Management and Internal Audit
and the company’s Audit & Risk Committee.
This process is regularly reviewed as part of
our annual Audit & Risk Committee activity.
There were no issues reported during the year.
HEALTH AND SAFETY
We prioritise the safety of employees and are
committed to the prevention of injury, ill health
and continual improvement in our occupational
health and safety management systems. This
year we reduced recordable injuries across
the business by 7% although the proportion
of animal-related injuries rose by 4%. We
maintained ‘near misses’ reporting rates in line
with prior year focussing on quality of hazard
identification in some of our higher risk areas.
ANTI-BRIBERY AND CORRUPTION
Our Anti-Bribery and Corruption policy
explains how we act professionally, fairly and
with integrity in all our business dealings.
All employees undertake mandatory
annual training on this policy and must
achieve 100% in a post-training test.
035
We foster a positive and inclusive
culture, built on our five core values.
BOARD GENDER BREAKDOWN
2
1
1 Male
2 Female
71%
29%
EXEC GENDER BREAKDOWN
2
1
1 Male
2 Female
75%
25%
WORKFORCE GENDER BREAKDOWN
2
1
1 Male
2 Female
66%
34%
The training is supported by our Whistleblowing
policy, which allows employees to anonymously
report any concerns about unethical behaviour
and explains the process for doing so. Any
concerns are immediately investigated through
the same procedure outlined above. There
were no issues reported during the year.
HUMAN RIGHTS
Genus is committed to respecting the human
rights of workers throughout our value chain
and the local communities in which we operate.
We aim to ensure that anyone who might
be affected by Genus can enjoy the human
rights described in the International Bill of
Human Rights and the ILO Declaration on
Fundamental Principles and Rights at Work.
We monitor this through the same process
used for the policies outlined earlier and there
were no issues identified during the year.
STRATEGIC REPORT
036
Genus plc / Annual Report 2019
Global Leadership Conference
INVESTING
IN PEOPLE
We invest in people at all
levels, including leaders.
In October 2018, over 100
colleagues took part in our
third Global Leadership
Conference. This enabled
leaders to discuss business
progress, align future plans
and collaborate on emerging
opportunities.
The conference was held at the Wellcome
Genome Campus in Cambridge (UK), with the
theme Leading Today, Transforming Tomorrow.
This theme summarised our aim to lead the
field in every area of our work, while re‑
shaping what is possible for our customers
and industry.
The event crystallised company priorities
as we continue to pioneer animal genetic
improvement to help nourish the world. Each
member of the Genus Executive Leadership
Team presented on plans for their area of
the business and led discussions around the
issues and opportunities involved.
Our keynote speaker was a global authority on
leadership, whose sessions explored ways of
building a sustainable pipeline of talent.
We ran collaborative workshops in which
leaders worked together on ideas for
addressing themes arising from these
discussions. This input has subsequently
informed the development of our
People strategy.
Through this conference, we nurtured
common purpose among leaders, developed
their knowledge and skills and strengthened
relationships between them.
037
STRATEGIC REPORT
038
Genus plc / Annual Report 2019
CORPORATE RESPONSIBILITY
A responsible business
Pursuing our purpose
Our purpose is to pioneer animal genetic
improvement to help nourish the world.
We use leading-edge science and ground-
breaking technology to discover, develop and
deliver enhanced animal genetics that help
customers increase the world’s supply of safe,
affordable and high-quality milk and meat.
We pursue our purpose with a deep sense
of responsibility: one of the core values that
shape our work in every part of the world, every
day. We have a long-standing and long-term
commitment to reducing the impact of our
operations on the world around us, while
making a positive contribution to society
through our work with animals, colleagues,
customers and local communities.
We fulfil this commitment by challenging
ourselves and those around us to think
differently. From small improvements
in working practices to innovations
that address stakeholder needs, we
constantly develop and explore new
ideas for enhancing our contribution and
delivering positive, sustainable change.
We translate our bold thinking into policies
and practices that underpin our operations
around the world. From core principles on
protecting animal welfare to guidelines on
supporting community causes, we articulate
expectations, provide information and
deliver training where needed to ingrain
responsible business practices across our
organisation and the people we work with.
We set and continually monitor progress
using key performance indicators (see
pages 14 to 15). We also ensure employees
have multiple routes to raise any concerns
(including the independent whistleblowing
hotline explained earlier). No material
issues were reported during the year.
VEHICLE TELEMATICS
OPERATE SAFELY
Following successful trials, we recently
introduced telematics to over 300
company vehicles in the UK. In-cab devices
process data on engine performance and
give drivers verbal and visual prompts, for
example to slow down. Drivers also have
access to a smartphone app, through
which they receive instant feedback on
each journey, plus competitions with
rewards for elite drivers. In our trials,
the technology helped reduce errant
driver behaviour such as speeding and
harsh braking by 91%. The devices are
also helping to increase fuel efficiency
and reduce vehicle emissions.
CHINA ASF ROADSHOW
ANIMAL WELFARE
The spread of African Swine Fever in China
was threatening herds and preventing
customers from travelling to PIC’s
traditional roadshow. PIC therefore set
up a ‘virtual’ roadshow, through which it
live streamed a series of presentations
from PIC and industry experts giving
practical guidance on how to prevent
the disease or eradicate it from facilities.
Over 72,000 people viewed the live
stream and over 96% of those who gave
feedback rated it as ‘good’ or ‘very good’.
CHARITABLE DONATIONS POLICY
COMMUNITY
We regularly donate money, time and
resources to support community causes.
Our global Charitable Donations Policy
ensures that any such projects are
aligned with our vision, strategy and
CSR framework. It confirms that we aim
to support registered charities, not-for-
profit or non-governmental organisations
based in local communities and/
or with a connection to food security
and agriculture. The policy has been
published for employees on our intranet.
039
Our Corporate Social
Responsibility (‘CSR’)
framework
We have developed a bespoke framework that sets out
our aims and approach in the five areas most relevant
to our business and our impact on the world around us.
FOOD QUALITY
& SECURITY
Advancing genetic
improvement in food‑
producing animals,
through technology
and innovation.
ANIMAL WELL-BEING
Continuously improve
animal welfare practices
across our business
worldwide.
ENVIRONMENT
Ensuring Genus is a
proper steward of all
environmental resources.
HEALTH AND SAFETY
Ensure a safe working
environment for our
colleagues.
COMMUNITY
Proactively engage in
communities where
Genus operates.
Our scientists use
leading‑edge research
and analysis to drive
genetic improvement
OUR
FRAMEWORK
We replicate
desirable traits through
our breeding programmes,
delivering benefits for
animal well‑being, customer
productivity and sustainable
protein production
We evaluate and validate
our genetics in customer
operations, seeking to
deliver the next generation
of genetic improvement
We deliver genetic
improvement to benefit
customers, by disseminating
the genes rapidly
We are rooted in
the communities we
work in, operating to global
health and safety standards
for our staff and global animal
well‑being standards
STRATEGIC REPORT
040
Genus plc / Annual Report 2019
CORPORATE RESPONSIBILITY CONTINUED
Progressing our CSR strategy
Our CSR Committee contains
experts from around our
global company. The
Committee sets our CSR
strategy, articulates annual
objectives and monitors
progress.
Our progress with our CSR strategy, including
key performance indicators where relevant, is
summarised opposite.
For more information on our work, progress
and CSR Committee, please visit our dedicated
website: www.genusplc.com/responsibility.
Progress update
What we do
Highlights in the year
What we plan to do next
> Drove further genetic improvement
in both porcine and bovine species
> Continued our work to combat
PRRSv in pigs and signed a major
collaboration agreement in China
> Increased the availability of Sexcel
in target markets around the world
> Continue driving porcine and
bovine genetic improvement and
rapidly disseminate the genetics to
customers globally
> Continue responsible development
of gene editing technology, to aid
disease eradication and animal
wellbeing
> Continued to invest in PIC and ABS
animal housing facilities
> Continued aligning standard
operating procedures across the PIC
supply chain
> Ensure employees with animal care
responsibilities are routinely trained
on current animal care standards
> Continue investment in animal
housing facilities
> Maintained our focus on reducing
> Keep reviewing and updating animal
bovine stress, to improve maternal
health
care standards and operating
procedures, to maintain alignment
with best practice
> Educate the industry on how Sexcel
can significantly increase unassisted
birthing of calves
> Audited 80.3% of PIC-owned
production sites
> Improved feed efficiency by 0.02 kg
> Maintain scope and measures of
PIC audits on owned production,
including 80% of owned sites
of feed per kg of pork
> Improve feed efficiency by 0.02 kg of
> Completed roll-out of eco-friendly
porcine semen packaging solution
in Mexico
feed per kg of pork per annum
> Continue to evolve beef genetics
that improve feed efficiency and
reduce greenhouse gas emissions
> Explore opportunities for wider
deployment of renewable energy
solutions across ABS and PIC sites
> Work to address nutrient
management challenges by
exploring technological innovations
> Work to minimize packaging waste
across genetic dissemination devices
in global distribution channels
> Vehicle incidents rose slightly by 2%
> Recordable incidents dropped by
7%, although the proportion of
animal-related injuries rose by 4%
> Reduce occupational road risk
year-on-year
> Continue to reduce recordable
injuries
> Recruited 146 staff into our PIC
> Continue to respond to local
and ABS production sites
> Enhanced our range of placement
and employment opportunities for
students and apprentices
community crises, recruit into
local farms and encourage support
for charities close to the local
businesses and aligned with
our mission
FOOD QUALITY AND
SECURITY
Advancing genetic
improvement in food-
producing animals,
through technology
and innovation
ANIMAL WELL-BEING
Continuously improve
animal welfare
practices across our
business worldwide
ENVIRONMENT
Ensuring Genus is a
proper steward of
all environmental
resources
HEALTH & SAFETY
Ensure a safe working
environment for our
colleagues
COMMUNITY
Proactively engage in
communities where
Genus operates
041
Climate Change Policy and
Greenhouse Gas (‘GHG’) Reporting
In 2019 we agreed to introduce a Group Climate
Change Policy which, among other things, will
acknowledge the reality of climate change and
recognise the lasting negative impact it will
have on our business and our communities. We
support the outcomes of the Paris Agreement
and the long-term goal to limit the global
average temperature rise to 1.5 °C. As we look
to the future, Genus will take action on climate
change in a number of ways, including:
> Driving porcine and bovine genetic
improvements which support productivity
gains and improve feed efficiency; and
> Reducing the carbon footprint of our own
operations through developing a better
understanding of how energy is used in
our business. We are committed to the
sustainable development of new facilities and
are evaluating the use of renewable power
solutions on a number of our farms.
Our total emissions reduced by 3% due
primarily to fewer pigs, which in turn resulted
in a 6% reduction in animal weight. This is
primarily the result of prior-year disease
outbreaks in the US (scope 1) as well as
reductions in emissions from air transport from
fewer porcine imports to Asia due to ASF (scope
3). These reductions were partially offset by
higher energy use in the increased production
of Sexcel (scope 2) and construction of new
porcine and IntelliGen facilities (scope 3).
Our primary intensity ratio did however
increase by 4% as the savings in emissions in
animal weight were offset by fixed emissions
remaining constant and our increased energy
use as outlined above. Our secondary intensity
ratio has reduced by 7% due mainly to the
reduction in emissions and the increase
in turnover.
We are still in the data collection and
feasibility phase for these initiatives but will
develop our approach in line with our broader
climate targets.
Our GHG emissions are primarily methane
produced by our animals, 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 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
some operations in rented or leased premises,
that are not treated as assets 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.
GHG EMISSIONS FOR 2019 (%)
5
4
6
3
7
2
1
45%
1 Scope 1 Livestock
10%
2 Scope 1 Fuel
3 Scope 1 Own Transport
14%
4 Scope 2 Electricity and Heat 10%
4%
5 Scope 3 Distribution
10%
6 Scope 3 Travel
7%
7 Scope 3 Other
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 from
Scope 1 – combustion of fuel, own transport 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/turnover)
2019
2018
Tonnes of CO2e
Tonnes of CO2e
EMISSIONS FACTOR DATA SOURCE
IPCC ‘Guidelines for National Greenhouse
Gas Inventories’
DEFRA/DECC ‘Conversion Factors for Company
Reporting’
65,517
9,164
74,681
20,974
95,655
9,077
488.5
8.2
196
67,650
8,398
76,048
23,016
99,064
9,608
470.3
7.9
211
Annual emissions figures have been calculated based on actual nine-month data for July to March for travel and
distribution and ten-month data for July to April, with both extrapolated to full year.
STRATEGIC REPORT
042
Genus plc / Annual Report 2019
NON-FINANCIAL INFORMATION STATEMENT
043
In FY20 we will report on the new
non-financial reporting requirements
contained in Sections 414CA and
414CB of the Companies Act 2006.
The table opposite, and the information it refers
to, is intended to help stakeholders understand
our position on key non-financial matters.
Reporting
requirement
ENVIRONMENTAL MATTERS
EMPLOYEES
HUMAN RIGHTS
SOCIAL MATTERS
Policies and standards
which govern our approach
CSR Framework
Global Employee Handbook;
Whistleblower Policy
Global Employee Handbook;
Whistleblower Policy
Risk management and
additional information
See page 40
See pages 34 to 35
See page 35
Charitable Donations Policy
See page 38
ANTI-CORRUPTION AND ANTI-BRIBERY
Anti Bribery and Corruption Policy
See page 34
POLICY EMBEDDING, DUE DILIGENCE AND OUTCOMES
Global Employee Handbook
See Strategic Report on pages 2 to 46
DESCRIPTION OF PRINCIPAL RISKS AND IMPACT OF
BUSINESS ACTIVITY
DESCRIPTION OF THE BUSINESS MODEL
N/A
N/A
See Principal Risks and Uncertainties on
pages 44 to 45
See Business Model on pages 10 to 11
NON-FINANCIAL KEY PERFORMANCE INDICATORS
CSR Framework
See page 40
STRATEGIC REPORT
044
Genus plc / Annual Report 2019
PRINCIPAL RISKS AND UNCERTAINTIES
Genus is exposed to a wide
range of risks and uncertainties
as it provides farmers with
superior genetics to fulfil
its vision.
Risk
Strategic risks
Risk description
Some of these risks relate to the current
business operations in our global agricultural
markets, while others relate to future
commercial exploitation of our leading-edge
R&D programmes. We are also exposed to
global economic and political risks such as
trade restrictions and Brexit. Additionally, we
monitor emerging new risks such as changing
consumption patterns and the emergence of
alternative proteins such as lab-based meat.
Out of this broad risk universe we have
identified ten principal risks, which we
periodically evaluate based on an assessment
of the likelihood of occurrence and magnitude
of potential impact, together with the
effectiveness of our risk mitigation controls.
Our assessment is that Brexit is not a principal
risk for Genus. The table below outlines these
principal risks and uncertainties and how we
manage them. We also identified those principal
risks which are more likely to have a short to
medium-term impact for the evaluation of our
going concern and viability assessment. This is
discussed in detail within our viability statement.
The Directors confirm that they have
undertaken a robust assessment of the
principal risks and uncertainties facing
the Group. More information on our risk
management framework can be found in the
Corporate Governance Statement on page 68.
How we manage risk
Risk change in 2019
DEVELOPING
PRODUCTS WITH
COMPETITIVE
ADVANTAGE
> Development programmes fail
to produce best genetics for
customers.
> Increased competition to secure
elite genetics.
STRATEGIC LINK
Dedicated teams align our product development to
customer requirements. We use large-scale data and
advanced genomic analysis to ensure we meet our
breeding goals. We frequently measure our
performance against competitors in customers’
systems, to ensure the value added by our genetics
remains competitive.
No change.
CONTINUING TO
SUCCESSFULLY
DEVELOP
INTELLIGEN
TECHNOLOGY
STRATEGIC LINK
> Failure to manage the technical,
production and financial risks
associated with the rapid
development of the IntelliGen
business.
Our continued development of the technology and its
deployment to new markets is supported by dedicated
internal resources and agreements with suppliers.
Further patent infringement proceedings initiated by
ST in the US in 2017 are being vigorously defended.
DEVELOPING AND
COMMERCIALISING
GENE EDITING AND
OTHER NEW
TECHNOLOGIES
STRATEGIC LINK
> Failure to develop successfully
and commercialise gene editing
technologies due to technical,
intellectual property (‘IP’),
market, regulatory or financial
barriers.
> Competitors secure ‘game-
changing’ new technology.
We stay aware 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
> Failure to identify appropriate
investment opportunities or to
perform sound due diligence.
> Failure to successfully integrate
STRATEGIC LINK
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.
GROWING IN
EMERGING
MARKETS
STRATEGIC LINK
> Failure to appropriately develop
our business in China and other
emerging markets.
Our organisation blends local and expatriate
executives, supported by the global species teams,
to allow us to grow our business in key markets, while
managing risks and ensuring we comply with our
global standards. We also establish local partnerships
where appropriate to increase market access.
Reduced. We saw continued strong
growth and customer acceptance of
Sexcel. The IntelliGen team made
further improvement to processing
efficiency. We continued to increase
IntelliGen’s global deployment,
securing new third-party customers.
No change. Key initiatives continue
to progress through the R&D life
cycle and we maintain the high level
of investment needed to bring the
end products to market. We entered
into a strategic collaboration
arrangement with BCA in China
to research, develop and
commercialise PRRSv-resistant
pigs in China.
No change. The acquisition process
continues to provide valuable and
timely access to investment
opportunities. Our experiences with
post-acquisition integration provide
a platform for integrating newly
acquired businesses.
Increased. In China, we have
experienced the negative impact
of the country-wide ASF outbreak,
which is causing disruption to the
pig industry. The trade disputes
between the US and China increase
uncertainty for global trade.
045
LINK TO STRATEGY/
VIABILITY ASSESSMENT
Increasing Genetic Control
and Product Differentiation
Targeting Key Markets
and Segments
Sharing in the
Value Delivered
Considered for Viability
Assessment
Risk
Operational risks
Risk description
PROTECTING IP
> Failure to protect our IP could
STRATEGIC LINK
mean Genus-developed genetic
material, methods, systems
and technology become freely
available to third parties.
ENSURING
BIOSECURITY AND
CONTINUITY OF
SUPPLY
STRATEGIC LINK
> 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
and disputes.
> Lower demand for our products,
due to industry-wide disease
outbreaks.
HIRING AND
RETAINING
TALENTED PEOPLE
STRATEGIC LINK
> Failure to attract, recruit, develop
and retain the global talent
needed to deliver our growth
plans and R&D programmes.
Financial risks
MANAGING
AGRICULTURAL
MARKET AND
COMMODITY
PRICES VOLATILITY
> Fluctuations in agricultural
markets affect customer
profitability and therefore
demand for our products
and services.
STRATEGIC LINK
FUNDING
PENSIONS
> Increase in our operating costs,
due to commodity pricing
volatility.
> Exposure to costs associated with
failure of third-party members
of joint and several liabilities
pension scheme.
> Exposure to costs because of
external factors (such as GMP
equalisation, mortality rates,
interest rates or investment
values) affecting the size of the
pension deficit.
How we manage risk
Risk change in 2019
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
maintain IP landscape watches and where necessary
conduct robust ‘freedom to operate’ searches, to
identify third-party rights to technology.
We have stringent biosecurity standards, with
independent reviews throughout the year to ensure
compliance. We investigate biosecurity incidents, to
ensure learning across the organisation. We regularly
review the geographical diversity of our production
facilities, to avoid over-reliance on single sites.
No change.
Increased. This is due to the ongoing
escalation of trade wars. In addition,
supply chain risks associated with
disease outbreaks have increased
around the world. We continue to
strengthen our biosecurity measures
to mitigate this inherent risk.
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.
Increased. The Group’s Finance
Director is taking on the role of
Chief Executive in September 2019.
An external search is under way
for a new Finance Director.
To date, we have been largely
successful in recruiting and
retaining the appropriate skills to
meet our business growth plans.
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 and/or cost
changes in pig production.
No change.
We are the principal employer for the Milk Pension
Fund and chair the group of participating employers.
The fund is closed to future service and has an agreed
deficit recovery plan, based on the 2018 actuarial
valuation. We also monitor the strength of other
employers in the fund and have retained external
consultants to provide expert advice.
Reduced. The outcome of the
triennial 2018 fund valuation
resulted in a lower deficit and
reduced the length of the existing
recovery plan to September 2021.
The employers group signed a
memorandum of understanding
with the Trustee to formalise the
investment de-risking strategy.
STRATEGIC REPORT
046
Genus plc / Annual Report 2019
GOING CONCERN AND VIABILITY STATEMENT
ASSESSMENT PERIOD
In their assessment of the Group’s viability, the
Directors have determined that a three-year
time horizon, to June 2022, is an appropriate
period to adopt. This was based on the Group’s
visibility of 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 and the pipeline of young bulls.
The Board also considered the nature of the
principal risks affecting Genus, including the
agricultural markets in which it operates.
GOING CONCERN AND VIABILITY
STATEMENT
Based on this assessment, 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.
Also, 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 2022.
The Strategic Report was approved by the
Board of Directors on 4 September 2019 and
signed on its behalf by:
KARIM BITAR
Chief Executive
4 September 2019
STEPHEN WILSON
Group Finance Director
4 September 2019
The Board assesses the Group’s going concern
and viability based on its cashflows and
business plans, combined with downside
scenarios of the principal risks described
overleaf and other financial and performance
factors that could threaten the Group’s
plans, performance and financial position.
The outcome of this analysis and the
appropriateness of the period over which the
Board decided to provide its viability statement
are described below.
ASSESSING OUR PROSPECTS
In order to reach a conclusion on both the
appropriateness of adopting the going
concern basis of accounting in preparing
the Annual Report and on our viability, the
Board carried out a robust assessment of
the principal risks facing Genus, including
those that would threaten its business model,
future performance, solvency or liquidity. This
assessment considered:
> Genus’s current strategic plan, financial
position and its planned capital expenditure,
as well as the financing facilities available to
the Group. During the year Genus completed
an equity placement of 3.1 million shares at
£22 per share, which raised £66.5m of funds,
net of fees. Total debt facilities of £225m
are available to the Group until February
2021, when £45m of the facilities expire,
with the remainder expiring in February
2022. In reaching our conclusion and based
on discussions with the banks, we have a
reasonable expectation of being able to
extend our facilities for a further five-year
period prior to the expiry of our current
facilities.
> At 30 June 2019, the Group had net debt of
£79.6m (2018: £108.5m) and had substantial
headroom of £125.6m (2018: £99.3m). The
Group’s financial position remains strong.
> The potential impact on the Group’s cashflow
and net debt, in severe but plausible
scenarios of selected principal risks, and
in particular the impacts of biosecurity,
agricultural markets down-turn, border
closures, the continuing development
of IntelliGen, continuity of supply and
increased competition. This assessment
takes into account the effectiveness of
mitigating actions, and the position if each
of the identified principal risks materialised
individually and where multiple risks occur
in parallel.
047
Corporate
Governance
048 Chairman’s Letter
050 Board of Directors and
Company Secretary
052 Genus Executive Leadership Team
(‘GELT’)
054 The Board
056 The Board’s Year in Review
062 Nomination Committee Report
065 Audit & Risk Committee Report
069 Directors’ Remuneration Report
095 Directors’ Report
096 Directors’ Responsibilities
CORPORATE GOVERNANCE
048
Genus plc / Annual Report 2019
CHAIRMAN’S LETTER
Providing leadership
and oversight
Dear Shareholder
This was another busy
and challenging year for
the Board. This report sets
out how we have applied
rigorous corporate governance
practices, which show how
we provide the leadership and
oversight the Group requires
to successfully implement its
strategy and create long-term
value for our shareholders
and other stakeholders.
Genus complied in full with the 2016 edition
of the UK Corporate Governance Code, which
was the applicable standard for this year.
Bob Lawson
Chair of the Board
4 September 2019
049
We are refining our governance
framework to reflect the new Code
and this year’s Board evaluation.
In March this year we announced the resignation of our Chief
Executive, Karim Bitar. His significant contribution during his
eight years as Chief Executive are outlined in my report on
page 9. The Nomination Committee conducted a thorough
search for Karim’s successor, as described in its report on
page 62, culminating in the appointment of Stephen Wilson
as Chief Executive. Stephen has been with Genus since
January 2013 and has a very strong and deep understanding
of Genus and has been a leading part of the team in the
successful strategic and operational development of the
Group in recent years, as it has continued to grow and
strengthen its position as a world leader in animal genetics.
Stephen was by far the strongest candidate for the role
following a review of both external and internal candidates
managed by an external search agency. We have begun
the search for a new Group Finance Director to replace
Stephen, and hope that this position will be quickly filled,
with our Financial Controller Janet Duane acting as the
interim Group Finance Director. In addition, as I approach
nine years as Chairman of the Board, the Nomination
Committee will in due course consider my own succession,
ensuring that it takes place at an appropriate time to allow
for the successful transition of the new executive team.
In April this year we said goodbye to Dr Jon Lightner,
our Chief Scientific Officer and Head of Research and
Development. As described in my statement on
page 9, Jon leaves us in a strong position. We are
delighted to welcome Dr Elena Rice, a world expert in
agricultural biotechnology, to the role. Elena will help us
to continue to enhance our development pipeline and
explore new ways to improve animal health, customer
productivity and the sustainability of protein production.
BOB LAWSON
Chair of the Board
4 September 2019
As we move into 2020, we are refining our governance
framework to reflect both the requirements of the 2018
edition of the Code and the feedback from this year’s
Board evaluation. The new Code places a strong emphasis
on the Company’s relationship with its shareholders and
other stakeholders. It also highlights the importance of
establishing a corporate culture aligned with the Company’s
purpose and business strategy, and which promotes
integrity and values diversity. The Board’s activities
this year reflect the need to balance these priorities.
Whilst the latest Board evaluation showed that the Board
is functioning well, we know we can always improve. As a
result, the Board has reviewed its practices to identify where
they are in line with the new Code and made changes where
appropriate. We will report against the new requirements
in next year’s Annual Report, to allow time to embed these
new practices in our corporate governance framework
and to monitor their operation and effectiveness.
However, I want to highlight some of the more significant
steps which the Board has already taken, including
designating Lykele Van Der Broek and Lesley Knox as
our Workforce Engagement Directors. We have also
strengthened our reporting on our stakeholder relationships
by summarising our approach and the engagement
mechanisms we have in place on page 60. To reflect the
importance of effective risk management to the successful
implementation of the Group’s strategy, the Audit
Committee has been renamed the Audit & Risk Committee,
and will build on our existing processes for managing
strategic, operational and financial risks with an enhanced
focus on the risks associated with new opportunities
and innovations. Lastly, to reflect the Nomination
Committee’s role in overseeing my own succession, it is
appropriate that the chair of that committee has been
given to Lesley Knox, our Senior Independent Director.
Last year’s evaluation identified the induction of new
Directors as a priority for the Board in FY19. We made good
progress in this area, with a comprehensive induction
programme for Lesley Knox and Ian Charles. This comprised
meetings with senior management to discuss strategy,
financial performance, operations, risks and opportunities;
site visits and meetings with employees to provide insight
into our bovine, porcine and R&D business units; and
corporate governance seminars. This induction has given
them a thorough grounding in Genus and has allowed
them to make an immediate impact at the Board.
CORPORATE GOVERNANCE
050
Genus plc / Annual Report 2019
BOARD OF DIRECTORS AND COMPANY SECRETARY
COMMITTEE
MEMBERSHIP
BOARD
APPOINTMENT
SKILLS AND
EXPERIENCE
TENURE
3
1
4
<1 year
1-5 years
5+ years
1
4
3
> Significant experience
of leading international
businesses, including
through operational and
culture changes
> Deep understanding of
listed companies and
corporate governance
CURRENT
APPOINTMENTS
Non-Executive Chairman of
Eurocell plc.
BOB LAWSON
Non-Executive Chairman
KARIM BITAR
Chief Executive
STEPHEN WILSON
Group Finance Director and
Chief Executive designate
LYSANNE GRAY
Non-Executive Director
LYKELE VAN DER BROEK
Non-Executive Director;
Workforce Engagement
Director
LESLEY KNOX
Senior Independent
Non-Executive Director;
Workforce Engagement
Director
PROFESSOR IAN CHARLES
DAN HARTLEY
Non-Executive Director
Group General Counsel
and Company Secretary
November 2010
September 2011
January 2013
April 2016
July 2014
June 2018
July 2018
June 2014
> Extensive strategic,
financial and operational
experience in technology
businesses, including
international experience
in Europe and the US
> Wide-ranging knowledge
of mergers and
acquisitions, financing,
IT transformation and
investor relations
> Fellow of the Chartered
Institute of Management
Accountants
> Degree in Mathematics
from the University of
Cambridge
None
> Extensive experience of
leading international,
technology driven
organisations
> Led the strategic review
of Genus in 2012,
resulting in a new vision,
strategy, structure and
core values
> BSc in Biochemistry
from the University of
Wisconsin and an MBA
from the University of
Michigan
Non-Executive Director
on the board of Spectris
plc and member of the
University of Michigan
Ross School of Business
Advisory Board.
> Significant experience of
> Vast experience of
> Broad international,
> Entrepreneurial scientist,
> Significant experience
risk management, audit,
growing companies and
strategic and financial
with deep scientific
business operations,
acquisitions and
disposals, and corporate
governance, gained
within the food sector
> Chartered accountant
working in agricultural
businesses throughout
the world, including in
emerging markets
services experience, both
expertise
through executive and
non-executive roles
> Has advised numerous
> More than 30 years’
experience in academic
and commercial research
in multi-jurisdictional
patent litigation, mergers
and acquisitions, patent
and technology licensing
and managing product
life cycles
law
companies including
manufacturers and
distributors of food
products, encompassing
poultry and poultry
breeding companies
institutions
is infectious diseases,
the microbiome and its
impact on health and
well-being
> Current research focus
> Degrees in science and
Financial Controller at
Unilever plc and Unilever
NV.
Chair of Eden Research plc.
Non-Executive Director
Co-founder and Board
Director of Longas
Technologies Pty Ltd.
PAST
APPOINTMENTS
Chief Executive of
Electrocomponents plc,
Managing Director of Vitec
Group plc, Chairman of the
Federation of Groundwork
Trusts, Chairman of Hays
plc, and Non-Executive
Chairman of Barratt
Developments plc.
President of Lilly
Europe, Canada and
Australia; McKinsey and
Company consultant;
and management roles
at Johnson and Johnson,
and the Dow Chemical
Company.
Executive Vice President
and Chief Financial Officer
of Misys plc; finance and
business development
roles at IBM; and Non-
Executive Director and
Audit Committee Chair of
Xchanging plc.
Chair of Grosvenor Group
Co-founder and Board
Chief Auditor of Unilever;
Chief Financial Officer of
Unilever’s global food
service business; and a
number of other senior
operational and financial
positions within Unilever.
Member of the Board of
Management of Bayer
CropScience, a division
of Bayer AG; senior
international roles
CropScience’s BioScience
division; and President
of the Bayer HealthCare
Animal Health division.
including the Head of Bayer
of British Linen Bank
Senior Vice President and
International Counsel of
Shire plc; and senior and
global roles in private
practice, in the UK and
the US.
and Senior Independent
Director of Thomas
Cook plc; Non-Executive
Director and Chair of the
Remuneration Committee
of Legal & General plc; and
Chair of Legal & General
Investment Management.
and member of the
Remuneration committee;
Founder director of British
Linen Advisors; Governor
Group; and numerous
non-executive roles,
including Centrica, SAB
Miller, Alliance Trust, Hays,
Scottish Provident and
Bank of Scotland.
Director of Auspherix;
Director of the ithree
institute, University of
Technology, Sydney;
co-founder and Chief
Scientific Officer of Arrow
Therapeutics; founder
member of The Wolfson
Institute for BioMedical
Research at University
College London; and
various roles at Glaxo
Wellcome and Sheffield,
Cambridge and Leicester
Universities.
051
KEY TO COMMITTEES
Member of the Nomination Committee.
Member of the Remuneration Committee.
Member of the Audit & Risk Committee.
Committee Chair
BOB LAWSON
Non-Executive Chairman
KARIM BITAR
Chief Executive
STEPHEN WILSON
Group Finance Director and
Chief Executive designate
LYSANNE GRAY
Non-Executive Director
LYKELE VAN DER BROEK
Non-Executive Director;
Workforce Engagement
Director
LESLEY KNOX
Senior Independent
Non-Executive Director;
Workforce Engagement
Director
PROFESSOR IAN CHARLES
Non-Executive Director
DAN HARTLEY
Group General Counsel
and Company Secretary
November 2010
September 2011
January 2013
April 2016
July 2014
June 2018
July 2018
June 2014
> Significant experience of
risk management, audit,
business operations,
acquisitions and
disposals, and corporate
governance, gained
within the food sector
> Chartered accountant
> Vast experience of
> Broad international,
> Entrepreneurial scientist,
growing companies and
working in agricultural
businesses throughout
the world, including in
emerging markets
strategic and financial
services experience, both
through executive and
non-executive roles
> Has advised numerous
companies including
manufacturers and
distributors of food
products, encompassing
poultry and poultry
breeding companies
with deep scientific
expertise
> More than 30 years’
experience in academic
and commercial research
institutions
> Current research focus
is infectious diseases,
the microbiome and its
impact on health and
well-being
> Significant experience
in multi-jurisdictional
patent litigation, mergers
and acquisitions, patent
and technology licensing
and managing product
life cycles
> Degrees in science and
law
COMMITTEE
MEMBERSHIP
BOARD
APPOINTMENT
SKILLS AND
EXPERIENCE
> Significant experience
> Extensive experience of
> Extensive strategic,
of leading international
businesses, including
leading international,
technology driven
through operational and
organisations
culture changes
> Led the strategic review
> Deep understanding of
of Genus in 2012,
financial and operational
experience in technology
businesses, including
international experience
in Europe and the US
listed companies and
corporate governance
resulting in a new vision,
> Wide-ranging knowledge
strategy, structure and
of mergers and
core values
> BSc in Biochemistry
from the University of
Wisconsin and an MBA
from the University of
Michigan
acquisitions, financing,
IT transformation and
investor relations
> Fellow of the Chartered
Institute of Management
Accountants
> Degree in Mathematics
from the University of
Cambridge
CURRENT
APPOINTMENTS
Eurocell plc.
Non-Executive Chairman of
Non-Executive Director
None
on the board of Spectris
plc and member of the
University of Michigan
Ross School of Business
Advisory Board.
Financial Controller at
Unilever plc and Unilever
NV.
Chair of Eden Research plc.
PAST
APPOINTMENTS
Chief Executive of
Electrocomponents plc,
Managing Director of Vitec
Group plc, Chairman of the
Federation of Groundwork
Trusts, Chairman of Hays
plc, and Non-Executive
Chairman of Barratt
Developments plc.
President of Lilly
Europe, Canada and
Australia; McKinsey and
Company consultant;
and management roles
at Johnson and Johnson,
and the Dow Chemical
Company.
Executive Vice President
and Chief Financial Officer
of Misys plc; finance and
business development
roles at IBM; and Non-
Executive Director and
Audit Committee Chair of
Xchanging plc.
Chief Auditor of Unilever;
Chief Financial Officer of
Unilever’s global food
service business; and a
number of other senior
operational and financial
positions within Unilever.
Member of the Board of
Management of Bayer
CropScience, a division
of Bayer AG; senior
international roles
including the Head of Bayer
CropScience’s BioScience
division; and President
of the Bayer HealthCare
Animal Health division.
Non-Executive Director
and Senior Independent
Director of Thomas
Cook plc; Non-Executive
Director and Chair of the
Remuneration Committee
of Legal & General plc; and
Chair of Legal & General
Investment Management.
Chair of Grosvenor Group
and member of the
Remuneration committee;
Founder director of British
Linen Advisors; Governor
of British Linen Bank
Group; and numerous
non-executive roles,
including Centrica, SAB
Miller, Alliance Trust, Hays,
Scottish Provident and
Bank of Scotland.
Co-founder and Board
Director of Longas
Technologies Pty Ltd.
Co-founder and Board
Director of Auspherix;
Director of the ithree
institute, University of
Technology, Sydney;
co-founder and Chief
Scientific Officer of Arrow
Therapeutics; founder
member of The Wolfson
Institute for BioMedical
Research at University
College London; and
various roles at Glaxo
Wellcome and Sheffield,
Cambridge and Leicester
Universities.
Senior Vice President and
International Counsel of
Shire plc; and senior and
global roles in private
practice, in the UK and
the US.
CORPORATE GOVERNANCE
052
Genus plc / Annual Report 2019
GENUS EXECUTIVE LEADERSHIP TEAM (‘GELT’)
KARIM BITAR
Chief Executive
STEPHEN WILSON
Group Finance Director and
Chief Executive designate
DAN HARTLEY
Group General Counsel
and Company Secretary
ANGELLE ROSATA
Group HR Director
DR BILL CHRISTIANSON
Chief Operating Officer,
Genus PIC
JERRY THOMPSON
Chief Operating Officer,
Genus ABS Beef
DR NATE ZWALD
DR ELENA RICE
Chief Operating Officer,
Chief Scientific Officer and
Genus ABS Dairy
Head of R&D
TENURE
SKILLS AND
EXPERIENCE
See pages 50 and 51 for Karim’s, Stephen’s and Dan’s biographies.
3
1
4
<1 year
1-5 years
5+ years
1
4
3
> Deep and broad
expertise spanning
resourcing, talent
of agriculture and
biotechnology,
> Deep understanding
> A natural entrepreneur
with deep industry
knowledge, commercial
skills and international
management, succession
with broad industry
planning, leadership
knowledge and extensive
experience
development and health
commercial and global
> Has helped Genus
and safety
experience
> Extensive HR strategic
> DVM and PhD in
planning skills and
commercial acumen
> Masters in Human
Resource Development
from Vanderbilt
University
Veterinary Medicine
from the University of
Minnesota
establish and grow
businesses in countries
as diverse as the UK,
Russia, India and China
> Holds a degree in
Agriculture from the
and is a graduate of
Harvard Business
School’s Advanced
Management Program
> Deep expertise and
experience of dairy
genetics, strong
commercial focus and
passion for people
development
> Board member of the
Council on Dairy Cattle
Breeding and Vice
President of the National
Association of Animal
Breeders
MBA and PhD in Dairy
Cattle Genetics from the
University of Wisconsin
University of Plymouth
> Degree in Dairy Science,
and introduction of new
> Deep expertise in
running R&D programs,
regulatory science, and
portfolio management.
> At Bayer she was
responsible for a pipeline
spanning seeds, traits
and biological products
(among others) across all
phases of development
and all geographies.
> Led the development
genetic improvement
technologies and also
nurtured a portfolio of
gene editing projects.
> She is a strategic thinker
and inspiring leader
who works closely and
collaboratively with
commercial teams.
> BSc and MSc in Biology
from Moscow State
University, and PhD in
Plant physiology and
biochemistry from the
Timiryazev Institute
of Plant Physiology
in Moscow
> Joined Genus in
September 2013,
following more than 20
years in the healthcare
sector
> Developed and delivered
PIC’s people strategy,
before becoming HR
> Joined Genus in 1993
> Joined PIC in 1992,
> Joined Genus in January
> Joined Genus as Chief
and subsequently
worked in operational
roles spanning Europe,
South America and the
US, before becoming
General Manager of PIC
North America in 2007
working initially in the
UK and then Siberia and
Romania, before leading
PIC in Central and
Eastern Europe and then
Europe as a whole
> Led PIC and ABS in
2017 after 15 years at Alta
Genetics, including 10
Scientific Officer and
appointed to GELT on
years as General Manager
15 July 2019
of its US business and
more than two years
as Global Marketing
Director
> Spent 18 years in
increasingly senior roles
within Bayer, leading
teams using pioneering
Director for ABS and then
> Led the combined ABS
Russia and Asia Pacific,
> Remains involved in his
science and cutting-
Group HR Director on
1 July 2017
and PIC business across
the Americas from 2010,
before becoming COO of
Genus PIC in 2012
Genus Asia in 2012 and
then COO for Genus ABS
Beef in July 2016
before becoming COO for
family’s commercial
dairy operation, Bomaz
farm in the US, which has
produced high-ranking
industry and ABS sires
edge technology to help
farmers grow food more
sustainably
053
KARIM BITAR
Chief Executive
STEPHEN WILSON
DAN HARTLEY
Group Finance Director and
Group General Counsel
Chief Executive designate
and Company Secretary
ANGELLE ROSATA
Group HR Director
DR BILL CHRISTIANSON
Chief Operating Officer,
Genus PIC
JERRY THOMPSON
Chief Operating Officer,
Genus ABS Beef
DR NATE ZWALD
Chief Operating Officer,
Genus ABS Dairy
DR ELENA RICE
Chief Scientific Officer and
Head of R&D
SKILLS AND
EXPERIENCE
> Deep and broad
expertise spanning
resourcing, talent
management, succession
planning, leadership
development and health
and safety
> Extensive HR strategic
planning skills and
commercial acumen
> Masters in Human
Resource Development
from Vanderbilt
University
> Deep understanding
of agriculture and
biotechnology,
with broad industry
knowledge and extensive
commercial and global
experience
> DVM and PhD in
Veterinary Medicine
from the University of
Minnesota
> A natural entrepreneur
with deep industry
knowledge, commercial
skills and international
experience
> Has helped Genus
establish and grow
businesses in countries
as diverse as the UK,
Russia, India and China
> Holds a degree in
Agriculture from the
University of Plymouth
and is a graduate of
Harvard Business
School’s Advanced
Management Program
> Deep expertise and
experience of dairy
genetics, strong
commercial focus and
passion for people
development
> Board member of the
Council on Dairy Cattle
Breeding and Vice
President of the National
Association of Animal
Breeders
> Degree in Dairy Science,
MBA and PhD in Dairy
Cattle Genetics from the
University of Wisconsin
> Joined Genus in
September 2013,
following more than 20
years in the healthcare
sector
> Developed and delivered
PIC’s people strategy,
before becoming HR
Director for ABS and then
Group HR Director on
1 July 2017
> Joined Genus in 1993
and subsequently
worked in operational
roles spanning Europe,
South America and the
US, before becoming
General Manager of PIC
North America in 2007
> Led the combined ABS
and PIC business across
the Americas from 2010,
before becoming COO of
Genus PIC in 2012
> Joined PIC in 1992,
working initially in the
UK and then Siberia and
Romania, before leading
PIC in Central and
Eastern Europe and then
Europe as a whole
> Led PIC and ABS in
Russia and Asia Pacific,
before becoming COO for
Genus Asia in 2012 and
then COO for Genus ABS
Beef in July 2016
> Joined Genus in January
2017 after 15 years at Alta
Genetics, including 10
years as General Manager
of its US business and
more than two years
as Global Marketing
Director
> Remains involved in his
family’s commercial
dairy operation, Bomaz
farm in the US, which has
produced high-ranking
industry and ABS sires
> Deep expertise in
running R&D programs,
regulatory science, and
portfolio management.
> At Bayer she was
responsible for a pipeline
spanning seeds, traits
and biological products
(among others) across all
phases of development
and all geographies.
> Led the development
and introduction of new
genetic improvement
technologies and also
nurtured a portfolio of
gene editing projects.
> She is a strategic thinker
and inspiring leader
who works closely and
collaboratively with
commercial teams.
> BSc and MSc in Biology
from Moscow State
University, and PhD in
Plant physiology and
biochemistry from the
Timiryazev Institute
of Plant Physiology
in Moscow
> Joined Genus as Chief
Scientific Officer and
appointed to GELT on
15 July 2019
> Spent 18 years in
increasingly senior roles
within Bayer, leading
teams using pioneering
science and cutting-
edge technology to help
farmers grow food more
sustainably
CORPORATE GOVERNANCE
054
Genus plc / Annual Report 2019
CORPORATE GOVERNANCE STATEMENT
The Board
THE BOARD’S ROLE
The Board is responsible for ensuring our long term
success. It approves our strategy and corporate goals and
monitors our performance against them; 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.
These include approving the corporate budget; ensuring
we have the right funding; approving material contracts,
acquisitions and investments; and reporting to shareholders.
THE BOARD’S COMPOSITION
Professor Duncan Maskell and Nigel Turner retired as
Non-Executive Directors (‘NEDs’) at the Annual General
Meeting (‘AGM’) on 15 November 2018. At the date of this
report, the Board therefore comprised five independent
NEDs (including the Chairman), and two Executive Directors
– the Chief Executive and the Group Finance Director. This
gives a majority of independent Directors on the Board.
The Board comprises both well-established and newer
NEDs, as we have broadened the Board’s skills and
experience through Non-Executive appointments over
recent years. As a result, the Board has an appropriate blend
of different areas of expertise, long-standing knowledge
of the Group and its markets, and fresher perspectives.
This helps to ensure the Board provides even-handed
oversight, works in a constructive and focused manner
and has the capabilities to manage the challenges of a
complex and evolving global business environment.
Almost all of our Directors have held leadership positions in
international companies, with several having run businesses
Title
Individual
Responsibilities
overseas. Several of our Directors, including the Chair
of the Audit & Risk Committee, have significant financial
experience, while others have strong backgrounds in
scientific research or in leading science-based businesses.
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 58, the
Board also confirms that all the Directors continue to be
effective and to demonstrate commitment to their roles.
Bob Lawson, who was appointed as Chairman of Genus
plc in November 2010, will have served nine years at the
date of the next AGM, at which he will seek re-election.
He recognises the requirement to move on from the role
of Chairman but the Board has postponed this change,
to ensure a smooth transition to the new Chief Executive
and Group Finance Director. Bob continues to make an
outstanding contribution to the Board and the Board
believes that a transition period is a necessary step to
ensure ongoing continuity in the execution of Genus’
strategic objectives, for the benefit of all of its stakeholders.
As required by the Code, all the Directors, with the exception
of Karim Bitar who will step down from the Board on
13 September 2019, will offer themselves for election at the
next AGM. Details can be found in the Notice of AGM at the
end of this report.
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.
CHAIRMAN
BOB LAWSON
CHIEF EXECUTIVE
KARIM BITAR
GROUP FINANCE
DIRECTOR
STEPHEN WILSON
SENIOR INDEPENDENT
NED
LESLEY KNOX
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
allows people to challenge the status quo, and holding meetings with the NEDs
without the Executives present. Bob also engages in the direct communication
with shareholders.
Karim is responsible for devising and implementing our strategy and for
managing our day-to-day operations. He is accountable to the Board for the
Group’s development, in line with its strategy, taking into account the risks,
objectives and policies set out by the Board and its Committees.
Stephen is responsible for helping the Chief Executive to devise and implement
the strategy, and for managing the Group’s financial and operational
performance.
Lesley provides a sounding board for the Chair and is an alternative line of
communication between the Chair and other Directors. She leads meetings of
the NEDs, without the Chair present, to appraise the Chair’s performance, and
consults with shareholders in the absence of the Chair and Chief Executive.
NEDs
LYSANNE GRAY,
LYKELE VAN DER
BROEK, IAN CHARLES
The NEDs constructively challenge, oversee and help to progress the execution of
our strategy, the management of the Group and the management of our
governance structures, within the risk and control framework set by the Board.
055
Board and
Committee
structure
The diagram below shows the Board and the Committees that report to it:
AUDIT & RISK
COMMITTEE
Ensures the integrity of our
financial reporting, evaluates
our risk management and
internal control system, and
oversees the internal and
external auditors.
BOARD COMMITTEES
REMUNERATION
COMMITTEE
Determines remuneration
for our Executive Directors
and senior management,
to support our growth
strategy and deliver value
for stakeholders.
GENUS PLC BOARD
NOMINATION
COMMITTEE
Reviews the Board’s
structure, size and
composition and
proposes candidates
for appointment to the
Board.
GELT
Leads our strategic
delivery and ensures
organisational alignment,
engagement and efficient
execution.
R&D PMT
Gives us a
comprehensive view of
our R&D programme and
involves our business
units in prioritising our
R&D initiatives.
OTHER TEAMS REPORTING TO THE BOARD
BOARD COMMITTEES
The table below shows Board Committee membership at the
year end:
ATTENDANCE AT BOARD AND COMMITTEE MEETINGS
The table below shows how many Board and Committee
meetings each Director attended during the year.
Committee
Director
Board Nomination
Risk Remuneration
Audit &
Director
Audit & Risk
Nomination Remuneration
Bob Lawson
Karim Bitar
Stephen Wilson
Lysanne Gray
Lykele van der Broek
Lesley Knox
Ian Charles
–
–
–
C
M
M
M
M
M
–
M
M
C
M
M
–
–
M
M
C
M
M = Committee member C = Committee chair
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 62 to 94, and in their
terms of reference on our website at www.genusplc.com.
Non-Executive
Chairman
Bob Lawson
Executive Directors
Karim Bitar
(steps down 13
September 2019)
Stephen Wilson
Non-Executive
Directors
Nigel Turner
(resigned 15
November 2018)
Lysanne Gray
Duncan Maskell
(resigned 15
November 2018)
Lykele van der Broek
Lesley Knox
Ian Charles
8
8
8
3
8
2
7
8
6
1
1
11
–
1
–
1
1
1
51
51
51
3
5
1
5
5
3
6
61
61
4
6
2
6
6
4
2
Note: The maximum
number of meetings
that Directors could have
attended during the year:
Board 8, Nomination
Committee 12, Audit
& Risk Committee 5
and Remuneration
Committee 6.
1 Attendance by
invitation.
Immediately after
the announcement of
the Chief Executive’s
departure in March
2019, the Committee
initiated an executive
recruitment search.
Since that time,
the Committee has
received numerous
updates on the process
and progress of the
executive recruitment
at Board meetings.
CORPORATE GOVERNANCE
056
Genus plc / Annual Report 2019
THE BOARD’S YEAR IN REVIEW
Board
activities
Topic and link
to our strategy
LEADERSHIP AND
EFFECTIVENESS
LINK TO OUR STRATEGY
The Board held 8 scheduled meetings
during the year. At each scheduled meeting,
the Board receives updates on:
> business performance, business development,
talent development and competitive landscape
developments from the Chief Executive;
> financial performance of the business and forecasts
from the Group Finance Director; and
> corporate governance and legal issues from the
Group General Counsel and Company Secretary,
and external advisers.
Each year the Board also holds a strategy session,
focusing on the strategic direction and goals of the
Group and its business units. In addition, each year
one of the Board meetings is held outside the UK.
This year the May Board meeting was held in the US,
giving the Board members an opportunity to spend
time with US employees from PIC, ABS and R&D.
The table below provides more detail of the Board’s
discussions and activities, and the outcomes from
them:
Activity
Actions arising
Monitor Board effectiveness
External evaluation undertaken during the year.
Monitor pipeline of senior
talent
Updated on talent initiatives and management outcomes.
Progress
Focus areas identified
(see page 59)
New Chief Scientific Officer and
Head of Research & Development
appointed
Global Leadership Conference
held in October. See page 36
BUSINESS
DEVELOPMENT
& STRATEGY
Monitor progress against our
strategic objectives
LINK TO OUR STRATEGY
Review and approve business
development activities
Held strategy meeting with GELT and other business leaders.
See above
Approved:
> Strategic relationship with BCA to develop and commercialise
See pages 22 to 23
Monitor strategic
developments
Genus’ PRRSv resistance technology in China
> Acquisition of Progenex, S.L., a bovine genetics business in Spain
> Equity placement to raise £66.5 million (net of fees)
> Agreement with Cedar Lane Genetics to provide facilities and
labour for 1,600 additional Genetic Nucleus sow spaces
> Addition of farrow-to-finish farm capacity in Minnesota to drive
the PRRSv programme
> Acquisition and development of land in Leeds, WI to relocate and
upgrade Bull housing currently situated at the DeForest campus
> Expansion of bovine stud facilities in Dekorra, US and Ruthin, UK
Received updates on:
> ASF in China and its implications for the pork industry
> US litigation relating to IntelliGen technology
> Out-licence of IntelliGen technology to various third party
customers
> Implementation of GenusOne enterprise management system
> Material business development opportunities, including
summaries of due diligence
> Competitor activities
> Conducted reviews comparing the performance of acquisitions
against anticipated financial model
See pages 22 to 23
RESEARCH &
DEVELOPMENT
LINK TO OUR STRATEGY
Monitor R&D progress
Received updates on:
See pages 26 to 27
> R&D programmes and material investments
> The progress of material patent portfolio filings
> The progress of the PRRSv development programme and
IntelliGen improvements
057
Topic and link
to our strategy
Activity
Actions arising
Progress
EMPLOYEES
Review recruitment pipeline
LINK TO OUR STRATEGY
Received updates on key vacancies and hires, in particular in
relation to the new Chief Scientific Officer and Head of Research &
Development, and the scale up of the IntelliGen team and the PIC
team in China.
Discussed capability building and talent development in leadership
below GELT level.
Met key talent and business leads on Board site visits.
Update on employee feedback Held town hall meetings with employees and designated
Non-Executive Directors.
US Board visit enabled informal
meetings with employees.
Workforce Engagement Directors
met with employees over
breakfast at PIC and ABS sites.
SHAREHOLDERS
LINK TO OUR STRATEGY
COMPANY
PERFORMANCE
AND FINANCE
LINK TO OUR STRATEGY
Monitor investor attitudes
towards Genus
Updated on meetings with shareholders, potential investors and
analysts.
Undertook comprehensive shareholder engagement in connection
with the Company’s 2018 AGM and 2019 Remuneration Policy.
See pages 69 to 94
Monitor performance against
plan
Received updates on:
See pages 30 to 33
> The operational performance of the business
> Market conditions for each division
Monitored the Group’s performance against its strategy, budget
and goals.
Review past and projected
financial performance
Approved the annual and interim results and dividends.
Approved the FY20 budget.
Monitor key financial issues
Received tax and treasury updates.
£66.5m net share placing
completed in December 2018.
Received pension updates.
Reviewed the Group’s financing needs and considered fundraising
options.
Received monthly financial and operational performance updates.
Received regular presentations from each business unit.
Conducted strategy session comparing performance of each
business unit against previously presented strategic goals.
EXECUTIVE / GELT
UPDATES
Monitor business unit
performance and plans
LINK TO OUR STRATEGY
HEALTH & SAFETY
LINK TO OUR STRATEGY
Ensure strong culture of health
and safety
Reviewed FY19 targets for health and safety and reviewed progress
throughout the year.
See pages 34 to 41
Received monthly and quarterly updates from the Head of Health &
Safety, including progress against relevant KPIs.
RISK
MANAGEMENT
Monitor risk management and
control
LINK TO OUR STRATEGY
Monitored the Group’s risk register.
See pages 44 to 45
Received updates on the whistleblowing hotline reports and
investigations.
CORPORATE GOVERNANCE
058
Genus plc / Annual Report 2019
THE BOARD’S YEAR IN REVIEW CONTINUED
Assessing
the Board’s
effectiveness
To ensure the Board provides effective leadership to the Group, we have a three-
year evaluation cycle, using a mixture of internal and external evaluations.
YEAR 1
An external Board
effectiveness review produces
an action plan for the areas of
focus identified by the review.
YEAR 3
An internal review using
questionnaires and interviews with
the Chair of the Board.
YEAR 2
A follow-up questionnaire by the
same external consultant enables
us to monitor our progress with
the focus areas.
This was the first year of the current three-year cycle and
the evaluation was therefore externally facilitated by Sharon
Constançon of Genius Methods, an independent evaluator
with no other connections to the Company. The evaluation
comprised the observation of Board and Board committee
meetings and one to one interviews with each of the
Directors and certain other key management employees.
The Evaluation’s Conclusions
The review showed that the Board is effective in most
areas, is well led, and the Directors challenge constructively
and effectively. The review highlighted the following
key strengths:
> The Board has been effective in the context of being
creative, entrepreneurial and forward thinking. The Board
has been risk balanced, courageous and has taken some
key long-term strategic decisions. The Directors challenge
the Executive well.
> The Chairmanship is clear, meetings are well chaired and
the Chairman has a sound relationship with the Chief
Executive. The Chairman has provided strong leadership,
clarity of direction and a strong ethical culture, and has
created a safe environment in which the Directors can
operate. The Chairman also has a demonstrable passion
for the business.
> The Board is engaged with the business, cares about the
Company and shares a passion for its future direction.
> The Chief Executive and Group Finance Director are open
and transparent with the Board.
> The Board supported and shared the Chief Executive’s
entrepreneurial spirit and has enabled the successful
transformation of the business. As a result, the business
is in a strong position, which encourages the employment
and retention of talent.
059
Board Focus
Areas for FY20
The evaluation identified the following priorities for the
Board in FY20:
> The Board will seek to nurture strategic over operational
discussions through better management of Board agendas
and presentation materials.
> The Board will ensure greater focus on the Group’s
research and development pipeline and strategy during
the year.
> The Audit Committee has been renamed the Audit & Risk
Committee, and its risk management focus will increase
from oversight of operational and financial risks to include
risks associated with innovation and future opportunities.
> The Nomination Committee will focus on the transition
to the new Chief Executive, and consider the skills on the
Board, ensuring that the Board has the right balance of
skills to service its future strategic direction, including with
respect to future markets and seeking regulatory approval
for, and consumer acceptance of, the commercialisation
of gene-edited animals. Given the need to address the
succession plan for the Chairman following the transition
to the new Chief Executive, the chair of the Nomination
Committee will change to the Senior Independent Director.
> The Board will review its governance procedures to ensure
a detailed after-action review is carried out after each
Board meeting, and make sure Board papers are clear,
calling out progress against key topics and alignment with
strategy.
BOARD FOCUS AREAS FOR FY19
The outcomes of last year’s internally facilitated review, and the Board’s progress with addressing these focus areas, are set
out below:
Focus Area
Progress
Reviewing the sequence and timing of Board succession
> Two new NEDs were appointed.
Ensuring appropriate induction of new Directors
> Comprehensive inductions for Lesley Knox and Ian Charles
Obtaining greater insights into local and regional operating
environments, markets and customer demands
were successfully undertaken during the year
> Regular updates from the Chief Executive
> Board and GELT strategy meeting
> May Board site visits, including customer visits
Obtaining greater insight into competitors’ performance,
strategies and weaknesses
> Regular updates from the Chief Executive and the Head of
Strategy
CORPORATE GOVERNANCE
060
Genus plc / Annual Report 2019
THE BOARD’S YEAR IN REVIEW CONTINUED
Stakeholder
Engagement
The Group has a wide range of stakeholders
and looks to actively engage with them, to
keep them updated about our business and
our progress and to ensure we understand
their priorities. Some of this engagement
is carried out directly at Board level, while
other engagement occurs during the course
of running the business, which the Board
keeps informed about through reports from
management.
The table below describes our key stakeholders
and examples of engagement during the
year and any actions which arose from this
engagement.
KEY STAKEHOLDER ENGAGEMENT
BOARD REPRESENTATIVE
ENGAGEMENT IN FY19
ACTIONS ARISING
SHAREHOLDERS
OVERVIEW
Genus looks to maintain strong relationships
with shareholders, ensuring they understand
our strategy, progress and performance
and that we understand how they view our
business.
EMPLOYEES
OVERVIEW
Our people play a crucial role in helping us
pursue our strategic goals and uphold the core
values that underpin our organisation. We
engage, equip and support them to achieve
their full potential while building our business.
CUSTOMERS
OVERVIEW
Our customers depend on our genetics to
improve their businesses and their profitability.
We look to understand their needs and to
help them make the most of our products
and services.
COMMUNITIES
OVERVIEW
We look to be a responsible citizen within our
communities, supporting local recruitment,
responding to crises and supporting charities.
“
We had constructive conversations on the way we seek to
align our Remuneration Policy to our business strategy, and
the importance of driving strategic evolution in our business
in pursuit of long-term value creation for shareholders.
Comments from shareholders indicated support for our
strategy and recognition for the progress that had been
made over the life of the current Policy in evolving Genus
into a technology-led organisation.
“
There were some searching questions from some clearly
committed employees. We answered them and also asked for
their views and ideas. That’s a key part of our role: we want to
hear what employees themselves think, so we can share that
feedback and discuss as a Board what the Company can do
about it.
LESLEY KNOX
REMUNERATION COMMITTEE CHAIR
LYKELE VAN DER BROEK
WORKFORCE ENGAGEMENT DIRECTOR
> Results announcements, presentations and
> Regular news flow on key developments
> Changes to our proposed Remuneration
live webcasts
> Investor roadshows, led by the Chief
Executive and Group Finance Director
in the business
Policy were made in response to shareholder
> Investor discussions in relation to the
feedback received
proposed Remuneration Policy led by the
> The Remuneration Committee considered
> AGM and trading update in November 2018
Chair of the Remuneration Committee
> Annual report
cases where feedback was specific to one
single shareholder or where shareholders
held diverging views and determined the
most appropriate way forward
> The Board has appointed Lesley Knox and
> Chief Executive video update, manager-led
> The Board received updates from the
Lykele van der Broek as its designated
updates and updates via intranet following
Employee Engagement Directors following
Employee Engagement Directors. During the
results announcements
the employee town hall meetings and
year site visits were held, including employee
> Leadership calls and quarterly manager
discussed the feedback received
town hall meetings with NEDs
briefings
> Regular intranet communications on business
development transactions
“
Understanding our customers’ needs and taking their feedback
is central to validating the performance of our genetics within
their production systems, and allows us to share in the value
created.
> Board visits to key customers
> Regular Board updates on targeted
customers and customer wins
> US customer visits as part of the May Board
> The Board discussed customer feedback
meeting
following US customer site visits and
> Engagement with key customers on the
validated the Company’s strategy in light
communications around PRRSv-resistant pigs
of the discussions
KARIM BITAR
CHIEF EXECUTIVE
BOB LAWSON
CHAIRMAN
“
We recognise the realities of climate change, and are exploring
the ways that Genus can take positive action for the future
whilst continuing to fulfil our purpose.
> Supported Women in Dairy
> University internships
> Supported charities close to local businesses
> The Board agreed to develop a Climate
Change policy including long-term targets
for overall emissions reduction within our
operations
061
In May 2019 the Board travelled to the US for a week.
The visit comprised Board and Committee meetings, along with
updates on the North America PIC business at Hendersonville in
Tennessee and the IntelliGen and ABS Beef and Dairy businesses at
Deforest in Wisconsin. During these site visits, the Board also hosted
lunches with PIC, ABS and R&D employees and local management,
and the Workforce Engagement Directors hosted breakfast meetings
with employees without management present.
The Board was able to visit key customer facilities including the
Tyson Foods meat packing plant in Sioux City, Iowa where the Board
discussed collaboration opportunities for the Beef business.
KEY STAKEHOLDER ENGAGEMENT
BOARD REPRESENTATIVE
ENGAGEMENT IN FY19
ACTIONS ARISING
SHAREHOLDERS
OVERVIEW
Genus looks to maintain strong relationships
with shareholders, ensuring they understand
our strategy, progress and performance
and that we understand how they view our
business.
We had constructive conversations on the way we seek to
align our Remuneration Policy to our business strategy, and
the importance of driving strategic evolution in our business
in pursuit of long-term value creation for shareholders.
Comments from shareholders indicated support for our
strategy and recognition for the progress that had been
made over the life of the current Policy in evolving Genus
into a technology-led organisation.
LESLEY KNOX
REMUNERATION COMMITTEE CHAIR
> Results announcements, presentations and
> Regular news flow on key developments
> Changes to our proposed Remuneration
live webcasts
> Investor roadshows, led by the Chief
Executive and Group Finance Director
> AGM and trading update in November 2018
> Annual report
in the business
> Investor discussions in relation to the
proposed Remuneration Policy led by the
Chair of the Remuneration Committee
Policy were made in response to shareholder
feedback received
> The Remuneration Committee considered
cases where feedback was specific to one
single shareholder or where shareholders
held diverging views and determined the
most appropriate way forward
There were some searching questions from some clearly
committed employees. We answered them and also asked for
their views and ideas. That’s a key part of our role: we want to
hear what employees themselves think, so we can share that
feedback and discuss as a Board what the Company can do
LYKELE VAN DER BROEK
WORKFORCE ENGAGEMENT DIRECTOR
about it.
> The Board has appointed Lesley Knox and
Lykele van der Broek as its designated
Employee Engagement Directors. During the
year site visits were held, including employee
town hall meetings with NEDs
> Chief Executive video update, manager-led
updates and updates via intranet following
results announcements
> Leadership calls and quarterly manager
> The Board received updates from the
Employee Engagement Directors following
the employee town hall meetings and
discussed the feedback received
briefings
> Regular intranet communications on business
development transactions
Understanding our customers’ needs and taking their feedback
is central to validating the performance of our genetics within
their production systems, and allows us to share in the value
created.
> Board visits to key customers
> Regular Board updates on targeted
customers and customer wins
> US customer visits as part of the May Board
meeting
> Engagement with key customers on the
communications around PRRSv-resistant pigs
> The Board discussed customer feedback
following US customer site visits and
validated the Company’s strategy in light
of the discussions
We recognise the realities of climate change, and are exploring
the ways that Genus can take positive action for the future
whilst continuing to fulfil our purpose.
> Supported Women in Dairy
> University internships
> Supported charities close to local businesses
> The Board agreed to develop a Climate
Change policy including long-term targets
for overall emissions reduction within our
operations
“
“
“
“
EMPLOYEES
OVERVIEW
Our people play a crucial role in helping us
pursue our strategic goals and uphold the core
values that underpin our organisation. We
engage, equip and support them to achieve
their full potential while building our business.
CUSTOMERS
OVERVIEW
Our customers depend on our genetics to
improve their businesses and their profitability.
We look to understand their needs and to
help them make the most of our products
and services.
COMMUNITIES
OVERVIEW
We look to be a responsible citizen within our
communities, supporting local recruitment,
responding to crises and supporting charities.
KARIM BITAR
CHIEF EXECUTIVE
BOB LAWSON
CHAIRMAN
CORPORATE GOVERNANCE
062
Genus plc / Annual Report 2019
NOMINATION COMMITTEE REPORT
Focused on
succession
LESLEY KNOX
CHAIR OF
THE NOMINATION COMMITTEE
“
The Board is
committed to
building recruitment
and leadership
development
programmes that
capture inclusivity in
our succession
planning and talent
development.
Dear Shareholder
The Nomination Committee has a vital role in ensuring
the Company has an effective and well-balanced Board.
It reviews the Board’s structure, size and composition and
manages appointments to the Board. The Committee, in
consultation with the Board, has focused on succession
planning for the Chief Executive, following Karim Bitar’s
decision in March 2019 to step down from the Board.
LESLEY KNOX
Chair of the Nomination Committee
4 September 2019
COMMITTEE COMPOSITION
Chair
Members
Lesley Knox
Bob Lawson
Karim Bitar
Ian Charles
Lysanne Gray
Lykele van der Broek
Committee members’ biographies, along with information
on Genus’ other Board members, can be found on pages
50 to 51.
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 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.
FOCUS AREAS FOR FY19
During the year, the Committee continued to focus on the
following priorities:
> succession planning for the Directors and in particular the
Chief Executive and Group Finance Director. Succession
for the Chairman and the Senior Independent Director was
also considered;
> the evaluation of the Committee as part of the Board
evaluation procedure, the results of which can be seen on
page 58 of this report;
> the ongoing review of the Board’s diversity; and
> the ongoing review of the Board’s mix of skills, to identify
any gaps that need to be filled.
THE COMMITTEE’S MAIN ACTIVITIES DURING THE YEAR
The Committee had one formal meeting during the year,
primarily to discuss Board and executive succession
planning, the Board’s current skills and experience and the
recruitment of a new Chief Executive, following Karim Bitar’s
decision to step down, which was announced in March
2019. Immediately after this announcement, the Committee
initiated an executive recruitment search, through Egon
Zehnder, using pre-existing job specifications. Since that
time, the Committee has received numerous updates on the
process and progress of the executive recruitment at Board
and ad hoc Committee meetings.
063
SUCCESSION PLANNING
The Committee has a formal three-phase succession planning process:
Assessment
Approach
Execution
> The Committee reviews the Board’s
current skills and experiences across
a range of relevant areas.
> This results in a skills matrix (see
below), which identifies the skills
coverage across all Board members.
> Potential skills gaps are identified, so
they can be incorporated into future
succession planning at Board and
Executive level.
> The Committee applies engagement
rules for succession planning,
including:
> ensuring succession planning is
in line with the Committee’s terms
of reference;
> considering the need to replace
the skills of any departing NED; and
> filling any missing skills required for
the Company’s strategic direction.
> Areas for ongoing Board upskilling
> Job specifications for the Non-
are identified and discussed.
Executives and Executives are kept
up to date.
> The Committee identifies the desired
skills for any new NED, for use in filling
any future vacancies on the Board.
> Potential internal candidates for
promotion to Executive Director
are identified.
BOARD SKILLS MATRIX
The table below shows the key experience and skills the Committee has identified as desirable
and indicates their depth on the Genus Board.
General Experience
and Skills
Board and corporate governance
Strategy
Finance, banking and capital markets
Risk, culture change and change management
Politics and public affairs
Stakeholder and Customer Communications
Human resources
IT systems, transformation and data/cyber security
Specific Experience and Skills
Science and biotechnology
Food sector
FDA Regulated products
International business
US market
EMEA market
Asian market
Latin American market
Majority of Directors with
Medium to High Experience
~
~
~
~
~
CORPORATE GOVERNANCE
064
Genus plc / Annual Report 2019
NOMINATION COMMITTEE REPORT CONTINUED
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.
COMMITTEE EFFECTIVENESS AND FOCUS AREAS
FOR FY20
Alongside the Board evaluation process described
on page 58, we reviewed the performance of the
Nomination Committee. This identified a number of
important areas of focus for the coming year, including
a robust process for the recruitment and transition to
the new Chief Executive, the identification of a new
Group Finance Director, and subsequently consideration
of the succession of the Chairman of the Board.
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 14 November 2019, and at the AGM from at least 15
minutes prior to the meeting until its conclusion.
APPOINTMENTS
The Committee appointed Egon Zehnder, an independent
search consultancy with no other links to the Company,
to lead the search for the new Chief Executive.
DIVERSITY POLICY
Genus shares the aspirations of the Davies Review and
the Hampton-Alexander Review to promote greater
representation of females and people from a minority
ethnic background on company Boards. Genus makes
all Board appointments on individual merit, while
recognising the benefits of Board diversity. Our Board
diversity policy aims to ensure that we consider diversity
in its broadest sense. A diverse Board has members
with different skills, backgrounds, regional and industry
experiences, races, genders and other qualities. The
different viewpoints represented on a diverse Board can
help Genus to maintain its competitive advantage. The
Board is committed to building recruitment and leadership
development programmes that capture inclusivity
in our succession planning and talent development,
including a focus on appropriate representation from
female and minority ethnic candidates. Diversity
also links to our values, by being people-focused and
responsible, and by encouraging new ideas which deliver
for our customers and ultimately drive our results.
The Board, with the support of the Nomination Committee:
> considers all aspects of diversity when reviewing the
Board’s composition and conducting the annual Board
effectiveness evaluation;
> encourages the development of high-calibre employees,
to create a pipeline of potential Executive Directors;
> considers a wide pool of candidates for appointment
as NEDs, including those with little company board
experience;
> ensures a significant portion of the long list for NED
positions are women and candidates from a minority
ethnic background;
> considers candidates against objective criteria and with
regard to the benefits of Board diversity; and
> only engages executive search firms which have signed up
to the voluntary Code of Conduct on gender and ethnic
diversity and best practice.
The Board complied with the policy throughout the period.
The Committee reviewed the policy during the year and
concluded that it remained appropriate. More information
about diversity across Genus can be found in the Strategic
Report on pages 34 to 35.
AUDIT & RISK COMMITTEE REPORT
Ensuring integrity
065
Dear Shareholder
COMMITTEE COMPOSITION
The Audit & Risk 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.
Chair
Lysanne Gray
Members
Lesley Knox
Ian Charles
Lykele van der Broek
LYSANNE GRAY
CHAIR OF THE AUDIT & RISK
COMMITTEE
We have an annual work programme that is designed to
deliver these commitments, which was followed during
the year.
The Committee’s biographies, along with information on
Genus’ other Board members, can be found on pages 50
to 51.
“
The members
bring a sound
range of financial,
commercial and
scientific expertise
to the Committee.
Last year I welcomed two new members to the Committee,
Lesley Knox and Ian Charles. This year has seen two changes
to the Committee’s membership with the departure of Nigel
Turner and Duncan Maskell. On behalf of the Committee
I would like to thank both Nigel and Duncan for their years
of service to Genus and for ensuring a smooth transfer of
knowledge to the new members. 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 who bring a sound range of financial,
commercial and scientific expertise to the Committee.
In addition, all members received regular updates from
the external auditor, to ensure that they continue to have
current knowledge of the accounting and financial reporting
standards relevant to the Group’s operations.
We have carefully considered the critical accounting
policies and judgements, the quality of disclosures and
compliance with financial reporting standards, and reviewed
the half-year and Annual Report, together with the related
external audit reports. We also supported the Board in
reviewing the going concern and viability statements and
supporting analysis. In addition to this annual work, we have
overseen the preparation for the adoption of and on-going
compliance with IFRS 9 (Financial Instruments), IFRS 15
(Revenue from Contracts with Customers) in 2019 and IFRS
16 (Leases) in 2020.
Risk management requires continuous focus and during the
year we discussed existing and emerging risks. We ensured
that the Committee and the Board received and discussed
detailed input from management on key risks and mitigation
action plans as appropriate. We also discussed the Group’s
continuing programme to monitor and improve internal
controls and received regular updates on the development
of a Group-wide enterprise system, which will further
strengthen the control environment and support control
standardisation across the Group.
Based on assessments of the effectiveness of internal
and external audit, the Committee was satisfied with the
performance of both internal and external auditors, while
taking opportunities to further enhance the audit services
provided during the year.
LYSANNE GRAY
Chair of the Audit & Risk Committee
4 September 2019
In addition to all of the Committee members being NEDs,
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. The Committee’s annual review
of these terms took place during the year.
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.
COMMITTEE EFFECTIVENESS
Every three years the Board appoints an external
consultant to perform an independent review to evaluate
its performance, and that of its Committees. The last
review was performed in 2019 and concluded that the
Committee was effective in meeting its objectives. The
review recommended that the Audit Committee be renamed
the Audit & Risk Committee, and its risk management focus
increase from oversight of operational and financial risks
CORPORATE GOVERNANCE
066
Genus plc / Annual Report 2019
AUDIT & RISK COMMITTEE REPORT CONTINUED
to include risks associated with innovation and future
opportunities. A summary of the Board effectiveness review
can be found on page 58 of this report.
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 also held separate private
sessions during the year with the Head of Risk Management
and Internal Audit and the external audit lead 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
BIOLOGICAL ASSETS VALUATION
GOODWILL
PRESENTATION AND DISCLOSURE OF
EXCEPTIONAL AND ADJUSTING ITEMS
In compliance with IAS 41, Genus records its biological assets at fair value in the Group
balance sheet (£366.7m), 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. The
methodology remained unchanged during the year and the Committee discussed the
estimates used as inputs to the bovine model, to ensure they appropriately reflect the
business and market in which Genus operates. The Committee debated and considered
management’s assumptions and estimates, through the current period, and discussed
and reviewed the external auditor’s report on this area, before concurring with
management’s proposals. The Committee was satisfied with management’s accounting
treatment, including the income statement reduction of £1.9m in the value of porcine
biological assets and the reduction of £12.8m in the value of bovine biological assets.
Genus has £106.3m of goodwill (tested annually for impairment) and £80.1m of intangible
assets (tested for any indications of impairment) on the Group balance sheet. 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 £19.0m of capitalised development expenses in respect of IntelliGen. The
Committee discussed management’s goodwill and intangible asset impairment reviews,
as well as the external auditor’s report on this area, including its assessment of
management’s models underpinning the estimates and judgements. After due challenge
and debate, the Committee was satisfied with management’s assumptions and
judgements.
Genus had £49.0m of adjusting items, including £21.8m of exceptional items in the Group
income statement. The Committee considered the presentation of these items in the
financial statements, due to the nature of these items and the 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.
NEW ACCOUNTING STANDARDS
The Audit & Risk Committee reviewed updates on the impact of the new international
accounting standard relating to leases (IFRS 16) on the Group’s financial statements.
The Group will adopt the IFRS 16 ‘Leases’ standard from 1 July 2019 using the modified
retrospective approach. It will recognise the cumulative effect of applying IFRS 16 at the
1 July 2019 transitional date and the prior period will not be restated. The impact on the
opening balance sheet as at 1 July 2019 will be to recognise a right of use asset and
corresponding lease liability in the region of £28.0m. Operating profit in FY20 is expected
to increase in the region of £1m due to the depreciation expense being lower than the
lease expense it replaces. Profit before tax is not expected to change materially as
increased finance charges will offset the increase in operating profit. IFRS 16 also requires
a reclassification of cash flow from operations to net cash used in financing activities,
however the overall impact to the Group is cash flow neutral. The Audit & Risk Committee
reviewed the disclosure contained in this Annual Report regarding the anticipated impact
of the standard on the Group’s financial results and position (see note 3 to the
consolidated financial statements) and concluded that the presentation of the financial
statements is appropriate.
067
MONITORING BUSINESS RISKS
The Committee discussed the principal risks identified with
management and the external and internal auditors, along
with management’s plans to mitigate them, and received
regular detailed updates from the risk owners and their
direct reports.
In addition to reviewing the principal risks, the Committee
received detailed updates on the following risk areas:
> Enterprise system: the Committee received regular
updates on the project to implement a new enterprise-
wide business system. The Committee also considered
the approach adopted by the project for controls design
and integration.
> Cyber security: the Committee requested and received
updates from the Chief Information Officer on the cyber
security risk faced by the Group and the activities being
undertaken to strengthen infrastructure and systems
security.
> Brexit: the Committee was updated on the Company’s
assessment of the uncertainty surrounding Brexit, the
impact on operations and the mitigation plans developed
by management to mitigate the risks.
INTERNAL CONTROL SYSTEM
Our risk management process and system of internal control
are described in detail on page 46. The Committee reviewed
the approach to internal control standardisation and the
results of the key financial controls self-assessment process,
which is performed every six months. The Committee
also reviewed internal audit’s findings at each scheduled
meeting and received updates on the implementation of
management’s remedial actions.
The Committee further reviewed the Group’s whistleblowing
policy and bribery prevention procedures.
The Committee conducted its annual review of the
effectiveness of the Group’s internal controls and
disclosures. The review 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.
GOING CONCERN AND VIABILITY STATEMENTS
The Committee supported the Board in performing its
assessment of the going concern and long-term viability
of the Group, with input from management. The viability
assessment, which was based on the Group’s operating,
capital and funding plans, included consideration of the
principal risks, as detailed on pages 44 to 45, and the
liquidity and capital projections over the period. The
Committee was satisfied that the viability statement could
be provided and advised the Board that three years was a
suitable period of review. The going concern and viability
statement is disclosed on page 46 of the report.
OVERSIGHT OF INTERNAL AUDIT AND EXTERNAL AUDIT
INTERNAL AUDIT
The Committee received and reviewed the results of a
benchmarking assessment of the internal audit function,
which covered its reporting lines, resources, and areas
covered by the function. The Committee concluded that the
function’s set up and coverage were consistent with peer
companies of similar size.
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
Deloitte LLP, was first appointed as the Company’s external
auditor for the period ended 30 June 2006. Following a
formal tender process, Deloitte was reappointed for the
audit of the financial year ended 30 June 2016 with Andrew
Bond as the lead audit partner. This year’s audit concluded
his five year term (four as lead audit partner and one as
partner for a significant component for the Group). A new
Deloitte lead audit partner, Mark Tolley, will be appointed
for the audit of the financial year ending 30 June 2020. The
Company has complied with the Statutory Audit Services
Order for the financial year under review.
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 10% 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 2018 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.
CORPORATE GOVERNANCE
068
Genus plc / Annual Report 2019
AUDIT & RISK COMMITTEE REPORT CONTINUED
Risk management and internal controls
RISK MANAGEMENT
The Board is responsible for our risk management system,
which is designed to identify, evaluate and prioritise the risks
and uncertainties we face. The Board sets our risk appetite,
monitors the Group’s risk exposure for our principal risks
and ensures appropriate executive ownership for all risks.
This on-going risk management process for the Group’s
significant 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 how we mitigate them are
summarised on pages 44 and 45.
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.
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.
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.
The Board performed its annual risk review in May 2019.
This involved a fresh review of the types and levels of risk
facing Genus, as it executes its strategy and was designed
to identify and evaluate any new or emerging risks and
ascertain whether the risk register covered all relevant risks.
INTERNAL CONTROL
The key elements of our internal control system 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.
INDEPENDENT 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 & Risk Committee. The Audit & Risk 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 & Risk Committee.
The Board, with the help of the Audit & Risk Committee,
reviewed the effectiveness of our internal control system, as
well as our financial, operational and compliance controls
and our risk management. The review considered our
internal control self-assessment process, 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.
069
REMUNERATION COMMITTEE REPORT
Section A – Annual statement
Continued alignment
with business strategy
LESLEY KNOX
SENIOR INDEPENDENT
NON‑EXECUTIVE DIRECTOR
AND CHAIR OF THE
REMUNERATION COMMITTEE
Dear Shareholder
On behalf of the Board I am pleased to present the Directors’
Remuneration Report for 2019. This is my first report as Chair
of the Committee following the retirement of Nigel Turner at
the AGM in 2018.
Genus continues to evolve as an organisation which
underlines the importance of ensuring we have a
Remuneration Policy designed to fit the business and that
enables us to attract and retain key talent. In 2018, we
increased the base pay of the Chief Executive as a reflection
of the evolution of Genus from a traditional agriculture
company into an agricultural biotechnology business.
We were disappointed with the overall response to the
implementation of the Policy in 2018 and the final voting
outcome received. We have taken time to understand the
cause of our shareholders concerns, which were focussed
on the method and pace of the increase rather than the
resulting level of fixed pay.
This year as we have approached a full policy review we
have engaged closely with many of our shareholders
to gain feedback on our existing Policy and on our new
Policy proposals. I would like to record my thanks to all
shareholders who participated in the review and gave us
their thoughts and feedback in a constructive manner.
In March we announced that our Chief Executive, Karim
Bitar, had chosen to resign and he leaves the business on
13 September 2019. As a Board we believe that the strategy
of the business is robust, and the focus and efforts of the
wider team in evolving the business into a technology driven
organisation has created solid foundations for the future,
focussed on customer led innovation. We are delighted to
confirm that Stephen Wilson will move from his existing
role as Group Finance Director to become our new Chief
Executive from this date. Under his leadership we will seek
to enable the company to leverage and develop what is in
place, for the benefits of our customers and ultimately to
the creation of additional shareholder value. Full details of
future reward arrangements for Stephen are outlined within
the disclosure on page 76, reflecting the changes we propose
within our revised Remuneration Policy.
Genus is a global organisation where future Executive
Director appointments could be sourced from outside of
the UK where the reward profile may differ from UK norms,
both in terms of overall quantum and package structure.
We have developed a Policy capable of enabling us to
secure the level of talent needed, while recognising the
reward structures that potential candidates may be used to,
along with expectations from shareholders. These points
may not always fully align, and we have sought to strike an
appropriate balance in the future design. Areas where we
have identified potential differences and sought through our
Policy to find an appropriate position are highlighted later in
the report.
OUR APPROACH TO THE NEW POLICY
Our assessment is that the essence of the current Policy
has served the business well and driven alignment with
shareholder interests. The use of Company Milestones
enabled a focus on developing the key strategic foundations
under which we now operate, such as gaining legal
freedom to launch our sexed semen technology and
successfully achieving the BCA collaboration in China to
research, develop and market PRRS-resistant pigs which we
announced in May 2019. We now want to use the Policy that
will apply for the next three years to ensure we build upon
these foundations and take Genus to the next stage.
Our proposals simplify the annual bonus structure, with a
strategic element included within the annual bonus design
each year. Therefore 2019 will be the last year that we utilise
Company Milestones and these will not form part of our new
Policy. The amended structure continues to place emphasis
on core financial metrics, while focussing executives on a
small number of key strategic objectives, aligned with our
business strategy and in pursuit of the creation of long-term
shareholder value.
In 2018 the new Governance Code was published which
includes clear principles that govern the operation of
remuneration and the role of the Committee. These are fully
supported by the Committee. Many aspects of our existing
Policy already aligned with these, and you will see within
our proposed Policy some additions or modifications in
response to the expectations of the Code. These include
areas such as amendments to our pension policy and the
introduction of a post-cessation shareholding policy.
We have always sought to drive consistency through the
organisation in our approach to reward, so that our people
share a common focus and are united in moving the
business forward in a collaborative way. We have highlighted
the application of our new Policy across the business
within our disclosure. We believe that we should have a
common reward framework, which is underpinned by our
organisational values, and many aspects of our proposed
Policy are items we will continue to cascade through the
organisation.
The shareholder consultation process indicated broad
support for our planned Policy, but in some areas we heard
a range of responses to our proposals. In Section c of the
report we highlight these themes, any modifications that
we determined were appropriate in response, and the
associated rationale.
We believe the proposed Policy demonstrates our role in
ensuring that reward structures align with the evolution of
the business and the underlying strategy and will enable
us to attract and retain talent that reflects the global
organisation that Genus has become.
CORPORATE GOVERNANCE
070
Genus plc / Annual Report 2019
REMUNERATION COMMITTEE REPORT CONTINUED
Section A – Annual statement
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 Independent Auditor’s
Report states whether, in
the auditor’s opinion, the
parts of the Report that
are subject to audit have
been properly prepared
in accordance with the
legislation. We have
highlighted the parts of
this Report which have
been audited.
CONSIDERATION OF THE WIDER WORKFORCE
Further details on our people and the culture are described
within the Annual Report. As a Committee we discussed
overall satisfaction with reward and the routes we employ
to get insights into how people feel about working in the
business. This included our global engagement survey
(‘YourVoice’), and the way that feedback from the survey
drives and influences future plans and priorities. As a
Board we will review in 2020 the outputs of the next global
engagement survey that will run this Autumn. Lykele van
der Broek and I were pleased to be designated as the Board
directors charged with understanding the ‘employee voice’
as cited within the Code, and we have held a number of
working sessions with team members on the employee
experience at Genus. All Board Directors have engaged with
the wider workforce through visits during the year and we
look forward to more of these in the future.
Over the past year we discussed the wider reward framework
within the business, and the way that the philosophy and
values that underpin the remuneration for senior leaders
is cascaded through the wider business. We also reviewed
the actions taken to ensure understanding of reward
by employees, focussing on both what this means at an
individual level, but also the underlying rationale for the way
we structure reward.
We also reviewed the gender pay outcomes for Genus
Breeding Limited, our largest UK subsidiary. This showed
a median pay gap of 12.9%, broadly consistent with the
previous year and reflecting the current gender profile of the
business and proportion of men in more senior roles rather
than equal pay differences. We considered the changing
gender balance of people joining the organisation and the
way we expect the gap to fall over time, as more females
come into the business, particularly in our research roles and
through our leadership pipeline.
REWARD OUTCOMES FOR 2019
Consistent with our existing Remuneration Policy, Karim
Bitar will forfeit any entitlement to a bonus in respect of
2019. Any unvested share awards will also lapse in full
following cessation of employment.
Awards were made to Stephen Wilson reflecting attainment
against targets set, which are disclosed in detail within the
report. The Committee was comfortable that the formulaic
outcome was representative of underlying performance
of the business over the period and is a fair reflection of
achievement against the financial and individual objectives
that were set. The Core Bonus element (based on a
combination of financial and non-financial metrics) means
that 42.6% of the bonus opportunity is payable, of which one
quarter is made in shares under the Deferred Share Bonus
Plan (‘DSBP’) which are deferred for three years.
We set Company Milestones in 2019 against two specific
initiatives, one of which we cannot disclose at this stage due
to commercial sensitivity reasons, but where we continue
to make progress. The other was the strategic collaboration
in China with BCA which is explained in depth elsewhere in
the Annual Report. This is a highly significant and important
step in our PRRSv resistance commercialisation programme,
which validates our technology and gives us an excellent
partner to advance work on PRRSv resistance in China.
The innovative nature of the arrangement is an excellent
example of how the business is placing itself to grow
strategically in a key market. In recognition of the outcomes
achieved through the China collaboration we determined
that share awards of 40% of salary would be made through
the Company Milestones element to Stephen Wilson.
Awards under the Performance Share Plan (‘PSP’) granted in
September 2016 vest in September 2019. These awards were
linked to our EPS performance over the three-year period.
Average annual EPS growth of 12.4% means that 78.9%
of these shares will vest. Under our Policy, recipients are
obliged to retain the post-tax number of shares for a further
two years post vesting.
SUMMARY
We have focused over the past year in ensuring that our
Remuneration Policy aligns with our pay for performance
philosophy. We hope that the accompanying disclosure
demonstrates both how we have operated our existing
Policy, but also that through a wider review and
comprehensive engagement with shareholders, we have
defined a new Policy that both reflects wider expectations
from shareholders while ensuring we can attract and retain
key talent, irrespective of where those candidates may be
located in the world.
I look forward to your support at our forthcoming AGM, both
in respect of the implementation of our existing Policy in
2019 and the design of our future Remuneration Policy for
the coming three years. If you have any feedback I can be
contacted at remunerationchair@genusplc.com.
LESLEY KNOX
Senior Independent Non-Executive Director and Chair of the
Remuneration Committee
KEY CHANGES IN OUR NEW POLICY
Our proposed new Policy draws upon the key elements in place now, continuing to align with the business strategy and our
pay for performance philosophy.
Theme
Key Change
ALIGNMENT WITH SHAREHOLDER
EXPERIENCE
SIMPLIFICATION
> Extended malus and clawback provisions and introduction of a post-cessation
holding period
> Greater weighting towards key financial metrics within core bonus
> Increased deferral levels
> Consolidation of company milestone into the core design of the Annual Bonus
> Simplification of overall bonus design
BEST PRACTICE
> Reduction in pension contribution levels for appointment of new Executive
Directors in line with wider workforce
071
Section B – At a glance 2019/20
(For more detail please see pages 83 to 94)
What executive directors were paid in 2019:
1
2
3
BASE SALARY AND BENEFITS
> Salaries were increased effective from
1 September 2018
> Benefits include a car allowance for each
Executive Director and a pension allowance
of 25% of base salary for the Chief Executive
and 15% for the Group Finance Director
ANNUAL BONUS – CORE BONUS
> Maximum opportunity 125% of salary
comprising 80% adjusted profit before tax,
20% cash generation and 25% personal
objectives
> Overall award 42.6% of maximum for
Stephen Wilson
> 25% of the total award under this element
made in shares deferred for three years
CHIEF EXECUTIVE KARIM BITAR
GROUP FINANCE DIRECTOR STEPHEN WILSON
BASE SALARY
£625,878
BENEFITS
£189,061
BASE SALARY
£389,560
BENEFITS
£71,553
COMPANY PERFORMANCE
TARGET 50%
PROFIT BEFORE TAX
38.5%
CASH GENERATION 0%
PERSONAL OBJECTIVES
OVERALL
0%
42.6%
% OF MAXIMUM AWARD
100%
90%
No annual bonus was payable to Karim on account of
his notice to resign which was received in March 2019
ahead of scheduled payment in September 2019. This is
in line with the Remuneration Policy agreed in 2016 by
shareholders.
CORE ELEMENT
£208,975
MAX OPPORTUNITY
£490,093
ANNUAL BONUS – COMPANY MILESTONES
> Maximum opportunity of 75% of salary for
COMPANY PERFORMANCE
COMPANY MILESTONES
the Chief Executive and 50% of salary for the
Group Finance Director
0%
ACTUAL 80%
% OF MAXIMUM AWARD
100%
> Company Milestones linked to strategic
progress resulted in share awards made to
the Group Finance Director of 40% of salary
> Awards will be made in shares deferred for
three years
No awards under the company milestone element
of the bonus will be made to Karim on account of his
notice to resign which was received in March 2019
ahead of the scheduled award date in September
2019.
COMPANY MILESTONE
£156,830
MAX OPPORTUNITY
£196,037
4
PSP
> Awards granted in September 2016 vested at
78.9% of maximum based on average annual
adjusted earnings per share growth achieved
of 12.4%
TOTAL REMUNERATION BREAKDOWN
5
COMPANY PERFORMANCE
5%
20%
ANNUAL ADJUSTED EPS
20%
ACTUAL 12.4%
ACTUAL 78.9%
% OF AWARD VESTING
100%
TOTAL SHARES RELEASED NIL
TOTAL SHARES RELEASED 27,220
INDICATIVE VALUE
NIL
INDICATIVE VALUE
£681,329
1 Calculated based on the average share price for the final quarter of financial year ended 30 June 2019
(2,503p).
2 No shares vested for Karim on account of his employment ending before the scheduled vesting date, in line
with the rules of the 2014 PSP Plan.
TOTAL
PERFORMANCE
SHARES
COMPANY
MILESTONES
CORE BONUS
NIL
NIL
NIL
BASE SALARY
AND BENEFITS
£814,938
TOTAL
PERFORMANCE
SHARES
COMPANY
MILESTONES
CORE BONUS
BASE SALARY
AND BENEFITS
£156,830
£208,975
£461,113
£814,938
£1,508,247
£681,329
CORPORATE GOVERNANCE
072
Genus plc / Annual Report 2019
REMUNERATION COMMITTEE REPORT CONTINUED
Section B – At a glance 2019/20
(For more detail please see pages 83 to 94)
What executive directors can earn in 2020 and how:
1
BASE SALARY AND
BENEFITS
> Stephen will become
Chief Executive from
13 September 2019
CHIEF EXECUTIVE: KARIM BITAR
(TO 13 SEPT 2019)
CHIEF EXECUTIVE: STEPHEN WILSON
(FROM 13 SEPT 2019)
Karim Bitar will cease employment on
13 September. His pay and benefits will continue
at the current rate through to his date of departure
in line with the previous market disclosure.
Stephen Wilson will be appointed as Chief Executive
on 13 September and his salary will change to
£590,000 upon appointment into the role.
Benefits such as car allowance and private healthcare
will remain unchanged. The pension allowance for
Stephen will be reduced to 10% (currently 15% of
salary).
The forecast salary and benefits for the year will
therefore be as follows, reflecting the transition
between roles part-way through our financial year.
BASE SALARY
£549,865
1
Including pension.
BENEFITS1
£71,962
GROUP FINANCE DIRECTOR
We will announce the details
of this Executive Director
appointment of this role
in due course and confirm
remuneration details at
that time.
Any payments will be in
line with the prevailing
Remuneration Policy in
place.
ANNUAL BONUS –
CORE BONUS
> Subject to Shareholder
approval the structure
of the Annual Bonus
will change for 2020
and beyond as shown
in the table. The
weightings between
measures will be as
shown in the table to
the right
PSP (SEPTEMBER 2017
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
2020
PSP (SEPTEMBER 2019
AWARDS)
2
3
4
Karim Bitar will not be eligible for a bonus in respect
of 2020.
STEPHEN WILSON: MAXIMUM OF 175% OF SALARY,
TARGET AWARD OF 87.5% OF SALARY
ADJUSTED PROFIT BEFORE
TAX GROWTH 50% OF SALARY
CASH GENERATION 15% OF SALARY
STRATEGIC MEASURES 35% OF SALARY
The salary reflecting his appointment as Chief Executive
(£590,000) will be used to determine calculation of
annual bonus awards for 2020.
Karim Bitar – Not Applicable – Awards will lapse
in full upon cessation of employment.
SHARES
33,443
5%
20%
AWARD TO STEPHEN WILSON OF 200% OF SALARY
ANNUAL ADJUSTED EPS
% OF AWARD VESTING
15%
100%
The vesting of these awards will be subject to an
adjusted earnings per share growth, with the 2022
adjusted earnings per share being compared to the
2019 adjusted earnings per share (excluding gene
editing costs). Vesting levels will be calculated on
a straight-line basis between the values shown.
Section C – Our Remuneration Policy
073
We are seeking shareholder approval for a new Directors’
Remuneration Policy at our 2019 AGM which would apply for
awards made from this date. In line with legislation, this is a
policy that would be expected to apply for three years from
November 2019.
In developing our proposed new Remuneration Policy, we
carried out a full review to consider the effectiveness of
the existing Policy and the extent to which the stated aims
of the Policy agreed in 2016 had been achieved through
implementation and remain applicable for the business.
We discussed our subsequent proposals through a
comprehensive shareholder engagement process,
approaching our largest 20 shareholders and shareholder
representative bodies. Feedback indicated broad support
for the alignment of the Policy to the business. It also
highlighted a small number of specific themes which are
summarised below. We have explained how we considered
shareholder responses and any changes to we have made to
the proposed Policy in response to the feedback received.
KEY DESIGN/PHILOSOPHY OF OUR PROPOSED POLICY
WHAT WE ARE TRYING TO ACHIEVE
HOW WE ARE LOOKING TO ACHIEVE IT
> Continued transformation into a global agricultural
> Draw upon the aspects of our current policy that are already
biotechnology pioneer
working
> Pursuit of leading-edge technology and focus on long term
innovation and opportunity to enable future value creation
for shareholders
> Include strategic measures within annual bonus assessment
whilst increasing the focus on financial metrics
> Reduction to pension contribution levels permitted within
> Sustainable robust short-term delivery of financial
the policy
performance as we invest in the future
> Introduction of a post-cessation shareholding requirement
> Ability to recognise innovation and progress, which are
crucial to securing long-term bottom-line performance
> Ability to attract and motivate a high-quality leadership
team and drive focus and behaviours on long term
achievement in a global market for talent
> Recognise expectations of shareholders on reward and
governance
and enhanced malus and clawback provisions
CORPORATE GOVERNANCE
074
Genus plc / Annual Report 2019
REMUNERATION COMMITTEE REPORT CONTINUED
Section C – Our remuneration policy continued
KEY AREAS OF FEEDBACK THROUGH SHAREHOLDER CONSULTATION
The full policy that is being tabled to shareholders is provided on pages 76 to 82, indicating changes from our existing Policy.
Area
Theme
Discussion Point
Shareholder Perspective
ANNUAL BONUS
Desire to understand
the use of strategic and
individual metrics
within the assessment.
ANNUAL BONUS
Level of deferral within
Policy.
We want metrics that build upon
the firm foundations set for the
business and demonstrate
tangible progress in evolving
Genus towards the identified
strategy.
Support for metrics that take
a broader perspective. Desire
for quantifiable assessment
(where possible) and an
opportunity for further
simplification of our Policy.
We want to drive alignment
through shareholding but
recognise that potential recruits
may be used to a structure with no
deferral (e.g. if previously based in
the US).
A clear belief that alignment
through shareholding is a
positive aspect of the policy,
and a desire for an increased
level of deferral, with one-third
being frequently cited.
ANNUAL BONUS
Potential to make
bonus awards to an
executive who has
resigned.
Ability to make a bonus award to
an executive who had resigned but
was still actively employed at the
scheduled payment date.
PERFORMANCE
SHARE PLAN (PSP)
Whether other metrics
or a combination of
metrics had been
considered?
We believe EPS has served us well
and delivered an appropriate
alignment in outcomes between
reward and performance.
We have considered other metrics
(in particular TSR) and have
rejected this metric due to
difficulties in application and the
potential for inconsistent
performance outcomes.
Concerns about situations
where this could occur and a
belief from shareholders that
the Policy should not allow for
this circumstance.
Shareholders highlighted
other potential metrics
through discussion. The
conclusion was that EPS was
working well, and that other
metrics had risks of
unintended consequences
in practice.
Summary of proposed change as a result
of consultation.
We will consolidate these into a
single Strategic category, with a
small number of key metrics for
each executive linked to an
identified strategic aim.
We have increased the level of
mandatory deferral from 25%
to 33%.
We have amended our proposed
Policy such that bonus awards
cannot be made to Executive
Directors who have resigned but
remain employed at the payment
date.
No Change.
075
Area
Theme
Discussion Point
Shareholder Perspective
Summary of proposed change as a result
of consultation.
GENE EDITING
COSTS
Questions as to the
timeframes behind the
exclusion of these costs
in determining reward
outcomes.
POST CESSATION
HOLDING PERIOD
Question as to the level
of holding required and
intended application of
the Policy.
PENSION
CONTRIBUTIONS
How level determined
within Policy for future
hires.
Shareholders indicated
support for this adjustment
and the rationale behind it.
No Change.
Some questioned the point at
which we believed that these
costs should be included as
part of normal business
activity, and we will review
this as part of our next Policy
Review, when the rate of
progress in this area will
be clearer.
Support for establishment of a
Policy and ongoing alignment
of executives to company
performance beyond
cessation of employment.
Increase in holding period for
Executives to be 100% of
shareholding requirement for
2 years beyond cessation, forward
looking in application.
Many were comfortable with
our position and rationale.
Others took the stance that it
would be simpler to align to a
UK number, and ensure that
the overall package was
competitive.
We will amend our policy such
that future hires will have a
contribution in line with those
available for the wider workforce.
We propose to continue to exclude
these costs in setting annual bonus
targets, and in the determination
of vesting of PSP awards through
the life of our next Remuneration
Policy. This is consistent with our
approach since 2016 and continues
to encourage management to take
a long-term view. (We remain
committed to continue to full and
transparent disclosure of the
impact of this adjustment.)
We want to balance the
introduction of a Policy with
recognition of existing
commitments we have made to
executives under our existing
Policy. We are committed to a
change calculated based on future
awards made under our variable
plans.
We want flexibility to consider
potential candidates and their
pension level. This may differ
depending on where they are
located in the world.
15% is within the range of
contributions offered in the UK
(not an average number). The UK
is a subset of our Global workforce
where we see a range of rates
and practice.
CORPORATE GOVERNANCE
076
Genus plc / Annual Report 2019
REMUNERATION COMMITTEE REPORT CONTINUED
Section C – Our remuneration policy continued
EXECUTIVE DIRECTORS’ POLICY TABLE
Base Salary
Benefits
Pension
Annual Bonus
Performance Share Plan
Shareholding
PURPOSE
To provide competitive
fixed remuneration
that will attract and
retain employees
with the experience
necessary to develop
and execute our
strategy.
OPERATION
Payable in cash.
Reviewed annually by
the Committee with
any change effective
from 1 September.
Factors considered
when reviewing salary
include:
> Salary increases
awarded to other
employees in the
country where the
individual is based
> Comparable salaries
when benchmarked
against relevant
market comparators
(both in the UK and
internationally)
> The experience of
the individual and
the nature of the
contribution they
are making and their
responsibilities
> Overall Group
performance and
wider economic
conditions.
To provide a
competitive range of
benefits to drive
engagement and
commitment to
Genus.
To provide a
competitive
Company
contribution that
enables effective
retirement
planning.
To motivate and incentivise
delivery of annual performance
targets covering a combination of
financial and strategic measures.
To incentivise Executives to
achieve superior returns to
shareholders over a three-year
period, to retain key individuals
and align with shareholder
interests.
To align executives and
shareholders.
Directors may
participate in the
Company Pension
Plan (a defined
Contribution
arrangement) or an
alternative pension
saving vehicle that
the Company may
provide.
Alternatively, the
Company may
provide a cash
supplement in lieu
of pension
contributions into
a scheme.
Only base salary is
pensionable.
One third of the annual bonus is
deferred into company shares for
a period of three years, subject to
continued service. The remaining
award is payable in cash.
Awards scheduled to vest three
years from grant, subject to
continued employment and
satisfaction of challenging
three-year performance targets.
Malus and clawback provisions
exist for awards made under the
Annual Bonus.
A dividend equivalent provision
enables dividends to be paid
(in cash or shares) on deferred
shares that vest.
See explanatory notes for further
details on the operation including
leaver provisions.
Following vesting the post-tax
number of vested shares must be
held for at least a further
two-year period.
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.
See explanatory notes for further
details on the operation including
leaver provisions.
Benefits generally
include a car
allowance and
insured benefits
(e.g. life assurance
and private medical
insurance).
Where additional
benefits are offered in
a particular location
(or across the Group)
Executive Directors
are typically eligible
to receive those
benefits on similar
terms. These could
include access to
employee discounts
or salary sacrifice
benefits.
Directors may
participate in a Share
Incentive Plan (SIP) or
any other all
employee share
scheme on the same
terms as other
employees.
Where Executive
Directors are
recruited from
overseas or required
to relocate (including
on an international
assignment), benefits
such as travel and
relocation costs and
tax equalisation
arrangements may
be provided.
Executives are required to
achieve a shareholding of
200% of salary. It is
expected that this is
achieved within five years
of appointment, and that
this shareholding is
generated through
retention of at least half of
the shares that vest under
the Deferred Share Bonus
Plan and Performance
Share Plans.
Once met, individuals
are expected to maintain
at least this level of
shareholding and it will
be reviewed by the
Committee annually.
A post cessation
shareholding policy will
apply for executive
directors that requires
100% of shareholding for
24 months following
cessation (or actual
applicable shareholding
in place at point of leaving
if lower).
This will apply considering
shares awarded in respect
of 2020 and beyond
(including to any new
appointments), and we
will not amend existing
conditions for current
awards. Malus and
clawback provisions exist
beyond cessation of
employment, and in
certain leaver situations
the expected share
treatment would continue
to drive ongoing alignment
between the individual and
share price performance.
077
Base Salary
Benefits
Pension
Annual Bonus
Performance Share Plan
Shareholding
An allowance will
be made available
in line with the rate
available to the
wider workforce.
Maximum
permitted under
the Policy will be
10% of salary.
The car allowance is
capped under the
Policy at £20,000
per annum.
The value of insured
benefits will vary
each year, based on
the cost of the
premiums paid, and
will be reflected
within the respective
single figure table for
the year.
MAXIMUM
There is no set
maximum, but changes
are typically in line
with the wider
workforce.
Individual changes
may be made at the
discretion of the
Committee outside of
these levels by
exception. This could
include the following
situations:
> Significant change in
responsibility
> Change in the
Group’s size and
complexity
> To enable salary
progression for
newly appointed
directors as they
develop in role.
PERFORMANCE CONDITIONS
n/a
n/a
n/a
Maximum opportunity of 200%.
Maximum annual award of 200%
of salary (300% of salary in
exceptional circumstances,
such as recruitment).
n/a
n/a
Bonus awards are subject to
achievement against a sliding
scale of challenging financial and
strategic objectives, which the
Committee sets each year to reflect
priorities for the year ahead.
The specific performance
measures are reviewed every year
to ensure they continue to
support the Company’s strategy.
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.
Financial measures govern the
majority of the bonus and are
typically linked to key
performance indicators
(e.g. profit and cash generation).
The threshold level of vesting
is 20% of the maximum. For
performance between threshold
and maximum, awards vest on
a straight-line basis.
The Committee has discretion
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 strategic
business targets.
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.
Strategic measures reflect key
areas of importance identified
by the Committee in advance.
For financial performance targets
are based on a graduated scale.
The level of payment at threshold
is set annually but will not exceed
25% of maximum. Full awards are
for substantial outperformance
against targets set.
The Committee has discretion to
adjust the bonus outcome in light
of overall underlying
performance. Any adjustment will
be disclosed within the following
Annual Report on Remuneration.
Once set, performance measures
and targets are expected to
remain unaltered. The exception
would be if events were to occur
which, in the opinion of the
Committee, made it appropriate
to make adjustments to ensure
that the scheme operates as
originally intended.
KEY CHANGE
Change:
> No change.
Change:
> No change.
Change:
> Contribution
aligned to wider
workforce for
new hires.
Change:
> Strategic element included
within annual bonus design
> Greater weighting towards
financial metrics
> Increased level of core deferral
(to 33%).
Change:
> Enhanced malus and
clawback provisions.
Change:
> Introduction of
post-cessation
holding period.
CORPORATE GOVERNANCE
078
Genus plc / Annual Report 2019
REMUNERATION COMMITTEE REPORT CONTINUED
Section C – Our remuneration policy continued
Explanatory Notes to Policy Table
HOW PAY OF THE WIDER ORGANISATION IS TAKEN INTO ACCOUNT WHEN DETERMINING AND IMPLEMENTING THE POLICY?
We have a consistent philosophy that underpins reward at all levels of the organisation, which aligns pay with performance. The structure for the Genus
Executive Leadership Team (‘GELT’) follows the same approach but with lower maximum variable opportunity. Metrics are consistent in nature and
include an element linked to the specific individual business unit where applicable.
Below this leadership group many of our employees have access to variable compensation plans. These may directly replicate those in place for GELT
members or may be linked to the specific job of the individual. This could include production type bonuses (linked to the individual performance and
success of a production site) or commission structures for some of our sales teams.
The Company does not formally consult with employees on the remuneration policy. However, each year the Committee is provided with a detailed
update on reward across the organisation, any changes we are making to remuneration design across the business, and feedback from staff on
satisfaction with reward in the business.
HOW ARE VIEWS OF SHAREHOLDERS CONSIDERED?
We are committed to constructive ongoing dialogue with the Company’s shareholders on remuneration. We recognise the cause of concern by some
shareholders in 2018 and over the past year we have had conversations with many of our largest shareholders (covering over 60% of our issued share
capital) on remuneration and undertook a comprehensive consultation exercise to gain feedback on the proposed Policy. We are grateful to all
shareholders who took the time to engage with us, and for their comments and perspectives. We were pleased with the support indicated through this
consultation process, the response to the changes we are proposing, and the challenges that can be faced in setting remuneration in Genus, given the
evolution of the business and the international scope of its activities.
OPERATION OF THE ANNUAL BONUS AND PERFORMANCE SHARE PLAN WITHIN THE POLICY
The Committee operates the annual bonus and Performance Share Plan in accordance with the Listing Rules and HMRC requirements. To support ongoing
operation of the Policy we will be seeking approval for new Share Plans for both the Deferred Share Bonus Plan (DSBP) and Performance Share Plan (PSP)
at the forthcoming AGM. Subject to approval from shareholders, any future awards made after the AGM will be made under these revised Plans.
MALUS AND CLAWBACK PROVISIONS
Malus and clawback provisions exist covering both the annual bonus and long-term incentives which give the ability for the Company to reclaim cash
payments made to participants or adjust or reduce to nil grants of awards over company shares. These provisions enable the Company to reduce
the payout and vesting levels or to recover the relevant value from cash bonus payout or vesting of shares. Any adjustment is at discretion of the
Committee and includes (but is not limited) to the following factors.
> erroneous or misstated financial accounts or other performance indicators
> calculation error leading to inaccurate award or vesting level
> misconduct of a participant (which could reasonably have resulted in dismissal as a result).
We have increased the range of possible situations where clawback or malus provisions could exist compared to the previous Policy, and these are
reflected within the associated revised Plan rules also being tabled for approval at our 2019 AGM. These situations (which would apply to Performance
Periods beginning on or after 1 July 2019) include:
> Corporate failure
> Material business event or events leading to significant reputational damage.
These provisions could take effect in respect of events or other performance indicators raised within two years of the reporting date. The Committee
also has the ability to reduce future awards such that the full value of any identified overpayment is recouped from the individual. The table below
summarises the potential application of malus and clawback provisions within the incentive plans.
Annual Bonus (cash)
Annual Bonus (Deferred shares)
PSP
MALUS
CLAWBACK
Up to the date of payment
of a cash bonus
Two years from the reporting date to
which the award relates in event of
restatement of financial accounts
Over vesting period
Over vesting period
Three years from the date of grant
of a deferred award
Third anniversary of date of vest or third
set of audited accounts following vesting
MINOR CHANGES
The Committee has the ability to make minor changes to the Policy for situations such as changes in regulatory requirements, exchange control,
tax or administration needs, or to take account of a change in legislation without seeking shareholder approval for such a change.
079
POTENTIAL AWARDS UNDER DIFFERENT PERFORMANCE SCENARIOS
The table below illustrates the total remuneration for a single year under different performance scenarios. This year we have included an additional
scenario illustrating the impact of an increase in share price of 50% for awards under the PSP. The table shows the total indicative value of awards
under the Policy as opposed to timing of access to value by the executive, which will differ due to both mandatory deferral and holding periods.
£4,000
£3,500
£3,000
£2,500
£2,000
£1,500
£1,000
£500
£0
FIXED PAY
SHORT TERM INCENTIVES
LONG TERM INCENTIVES
£3,465
51%
£2,875
41%
36%
30%
£1,768
33%
29%
£662
100%
37%
23%
19%
£2,317
49%
39%
£1,940
39%
39%
33%
22%
19%
£1,096
30%
30%
39%
£431
100%
FIXED
TARGET
MAXIMUM
MAXIMUM +
50% SHARE
PRICE GROWTH
FIXED
TARGET
MAXIMUM
MAXIMUM +
50% SHARE
PRICE GROWTH
CHIEF EXECUTIVE (£K)
GROUP FINANCE DIRECTOR (£K)
ASSUMPTIONS
Fixed – Shows the value of fixed pay using a salary
value of £590k for Chief Executive and £380k for Group
Finance Director, with benefits as per the 2019 single
figure value. Pension contributions are shown based on
10% of salary for illustration. Assumes no awards under
variable plans.
Target – Calculation as per fixed with awards of 50% of
maximum under the Annual Bonus (assuming 175% of
salary opportunity) and 50% vesting under the PSP.
Maximum – Calculation as per fixed with full awards
under the Annual Bonus and maximum vesting under
the PSP.
Maximum plus share price growth – As maximum, but
assumes a 50% share price increase between award
and vesting of PSP awards.
CORPORATE GOVERNANCE
080
Genus plc / Annual Report 2019
REMUNERATION COMMITTEE REPORT CONTINUED
Section C – Our remuneration policy continued
Recruitment Policy
Area
OVERALL
BASE SALARY
BENEFITS
PENSION
ANNUAL BONUS
Policy and Operation
When hiring a new Executive Director or making internal promotions to the Board, the Committee will apply the same policy
as for existing Executive Directors, as detailed in the Remuneration Policy. The rationale for the package offered will be
explained in the next Annual Report on Remuneration.
For internal promotions, commitments made prior to appointment will typically be honoured, as the executive transitions to
the new remuneration arrangements. Awards made in the transition year would be pro-rated to reflect the remaining period
of the vesting period or financial year. Any award will take into consideration awards granted prior to promotion.
Base salary would be set at an appropriate level, to recruit the best candidate based on their skills, experience and current
remuneration, and determined against the context of market rates for equivalent roles in companies of similar size and
complexity. The base salary is used to determine an overall expected package level, and it is this that is considered for
candidates appointed from other geographies where the underlying structure of reward packages may differ to that typically
seen in the UK.
If the salary is initially set at a discount to those offered in companies of a similar size, geographical reach and complexity, the
salary will be increased over a period of time to bring the salary to the desired level, subject to individual performance.
Benefits provisions would be in line with the normal policy. In addition, we retain flexibility to reimburse reasonable legal fees
that an individual may incur as part of recruitment. Where appropriate, the executive may also receive relocation benefits or
other benefits reflecting normal market practice in the territory in which the Executive Director is employed.
Pension provision would be in line with provision for wider workforce as outlined in our Policy table.
Incentive awards would be made under the annual bonus, in line with the normal policy. The maximum award under the
Policy is 200% of salary.
Where an individual joins after the start of a performance year, awards may be pro-rated for the portion of the financial year
that they were employed.
LONG‑TERM INCENTIVES
Awards under the Performance Share Plan would be granted in line with the policy outlined for the current Executive Directors.
In the event of internal promotion, existing awards made under the Plan will continue over their original vesting period and
remain subject to their terms at the date of grant. The Committee may choose to make an additional award (on the same
basis as other Executive Directors), subject to the overall limit permitted under the Plan in any year.
Where an individual joins after the start of the incentive grant, an award may be made to bring the executive onto the
‘in-flight’ cycle, subject to the limits set out in the policy. Awards may be pro-rated for the portion of vesting period served.
BUY‑OUT AWARDS
In addition to normal incentive awards, the Committee will assess whether it is necessary to buy-out remuneration which
would be forfeited by an individual from their previous employer.
If required, the Committee would seek to reflect the nature, timing and value of awards forgone in any replacement awards.
Awards may be made in cash, shares or any other method as deemed appropriate by the Committee. Where possible, share
awards will be replaced with share awards. Where performance conditions apply to the forfeited awards, performance
conditions will be applied to the replacement award or the reward size adjusted downwards.
In establishing the appropriate value of any buy-out, the Committee would also take into account the value of the other
elements of the new remuneration package. The Committee would aim to minimize the cost to the Company. However,
buy-out awards are not subject to a formal maximum. Any awards would be no more valuable than those being replaced.
The Committee will use existing remuneration plans where applicable, although it may be required to grant outside of these
using exemptions as permitted under the Listing Rules. Full disclosure of any remuneration arrangements for a new hire
would be disclosed.
The Committee recognises that Executive Directors joining the business may be non-executive Directors of other organisations, or that existing
Executive Directors may be invited to accept such a position in the future. The Committee acknowledges that these appointments can develop
experience and knowledge that is to the benefit of the Company. Subject to approval from the Board, Executive Directors are allowed to accept
a non-executive appointment and retain any fees payable for such services they offer to another organisation.
081
SERVICE CONTRACTS AND POLICY ON TERMINATION
Under the Executive Directors’ service contracts, the Company is required to give 12 months’ notice of termination of employment, while Executive
Directors are required to give six months’ notice. If either party services notice, the executives can continue to receive basic salary, benefits and any
pension allowance for the duration of their notice period, during which time the Company may require the individual to fulfil their duties or assign a
period of garden leave.
The Company may elect to make a payment in lieu of notice for up to 12 months’ base salary and benefits, in the event of the Company terminating
employment. These payments would be made on a monthly basis and the executive would be required to take all reasonable steps to find alternative
employment. The principle of mitigation applies whereby the Company may reduce the monthly payments based on actual earnings received by the
executive or the Company’s assessment of the earnings that the executive could have received had they sought alternative employment.
The Company retains discretion to settle other amounts reasonably payable to the Executive Director including (but not limited to)
> Legal fees incurred by the individual linked to the termination of employment; and
> Outplacement and relocation costs for the Executive Director and their family.
In certain circumstances, such as gross misconduct, the Company may terminate employment immediately without notice or payment. In certain
circumstances the Committee may make any statutory entitlements or payments to settle or compromise claims in connection with a termination of
any existing or future Executive Director as necessary. The Company also retains the discretion to meet any outplacement costs, if deemed necessary.
Executive Directors’ service contracts, which include details of remuneration, will be available for inspection at the AGM or at the Company’s
registered office.
REMUNERATION ON CESSATION OF EMPLOYMENT (INCLUDING SHARE TREATMENT)
The Committee makes a distinction between the reason for leaving of an Executive for the purposes of operating the Remuneration Policy. This is done
in the context of the overarching pay for performance philosophy and that poor performance (either in terms of business or individual performance)
should not lead to inappropriate reward outcomes. The reason for leaving will be determined by the Committee and the rationale for this decision will
be explained in the Annual Report on Remuneration.
Any share entitlement on cessation of employment granted to an Executive Director under the DSBP or PSP will be determined in accordance with the
relevant plan rules. These describe the standard approach linked to circumstances as to why a Director may cease employment with the Company, and
an overview of the range of discretion available to the Committee. A summary of the overall default approach for all aspects of reward in the event of
termination of employment is provided below:
Salary in lieu of notice
Pension and benefits
Bonus (in year)
Leaver Reason
Any other reason not covered by the column to the right
Salary for proportion of notice period
employed.
Pension and benefits for proportion of notice
period employed.
No bonus payable to an Executive Director if
they have given notice to resign from the
business (even if they continue to be employed
at the scheduled payment date).
Leaver Reason:
Death, Retirement or IIl-health Retirement, Redundancy, Change of Control,
any other reason as determined by the Committee
Payment of up to 12 months’ salary and benefits.
Payment of up to 12 months’ pension and benefits.
Awards will be prorated for the time employed during the
respective performance period. Part of any award is made
in shares which are deferred and released after three years.
Genus plc Deferred Share Bonus Plan 2014
Awards lapse if cessation of employment is
before vesting date.
Awards will ordinarily vest in full at cessation of employment
(albeit the Committee has ability to apply proration).
Genus plc Deferred Share Bonus Plan 20191
Genus plc Performance Share Plan (PSP) 2014
Awards will ordinarily vest at the scheduled vesting date
with no proration (albeit the Committee has ability to apply
proration).
Awards will ordinarily vest at the scheduled vesting date
subject to performance achieved, with proration to reflect
the time period employed during the performance period.
Genus plc Performance Share Plan (PSP) 20191
As above
1 As being tabled for approval by shareholders at the November 2019 AGM.
CORPORATE GOVERNANCE
082
Genus plc / Annual Report 2019
REMUNERATION COMMITTEE REPORT CONTINUED
Section C – Our remuneration policy continued
NON-EXECUTIVE DIRECTORS’ REMUNERATION POLICY
The table below outlines the approach to remuneration for the Chairman and non-executive directors. Neither the Chairman nor other non-executive
directors participate in any bonus or share plans. All Non-Executive Directors have specific terms of engagement. Their appointment is for a fixed term
of three years and is subject to one month’s notice of termination by either the Company or the Non-Executive Director, and to annual re-election at
the Company’s AGM in accordance with the UK Corporate Governance Code.
PURPOSE
OPERATION
Fees
To provide compensation that attracts high-calibre individuals and reflects their experience and knowledge.
Payable in cash.
The Committee determines the Chairman’s fee.
The Board periodically reviews Non-Executive Directors’ fees.
Additional fees are paid to non-executive directors who chair a Board Committee and to the Senior Independent Director
(‘SID’).
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 employees, given that they are only
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 the Company may settle any tax incurred in relation to these. The fees payable for 2020 are stated on page
90.
PERFORMANCE CONDITIONS
None
KEY CHANGE
Change:
None
083
Section D – Remuneration and Performance Statement
GENUS’S STRATEGY AND ITS LINK TO PERFORMANCE-RELATED PAY
See pages 73 to 82 for the details of our Proposed Remuneration Policy. Our strategy and the way this is linked to variable reward is shown below.
INCREASE GENETIC
CONTROL AND
PRODUCT
DIFFERENTIATION
TARGETING KEY
MARKETS AND
SEGMENTS
SHARING IN
THE VALUE
DELIVERED
SUCCESS
MEASURED BY
R&D AND BUSINESS
INNOVATION
LINK TO
REMUNERATION
POLICY
Strategic measures within the annual bonus
focus on key activities in pursuit of our
defined longer-term strategy
PROPRIETARY GENETIC
IMPROVEMENT AND
DISSEMINATION
POSITIONS
VOLUME GROWTH
OPERATING PROFIT
CASH CONVERSION
Personal objectives 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
2018
2019
Movement
%
Impact on remuneration
Adjusted results
Revenue
£470.3m
£488.5m
Adjusted profit before tax
£58.5m
Generation of free cash flow
Adjusted earnings per share
Dividend per share
£24.3
75.9p
26p
£61.0m
£10.0m
73.2p
27.7p
4
4
Input to annual bonus profit and earnings per share in PSP.
Annual bonus measure.
(59)
Annual bonus measure.
(4)
PSP performance condition.
6.5
Executives rewarded via dividend equivalent feature of deferred bonuses and
PSP awards.
Share price at year end
2,636p
2,648p
0
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 in this report and in line with our Remuneration Policy.
EXECUTIVE DIRECTORS’ ALIGNMENT TO SHARE PRICE
The table below shows the value of shares currently held by the Executive Directors and those awarded under the Deferred Share Bonus Plan (‘DSBP’),
but not yet released (on a post-tax basis). It does not include those awards under the PSP which are scheduled to vest in the future subject to Company
earnings per share performance, which have the potential to significantly increase the alignment of the Executives, subject to the resulting level
of vesting.
Karim Bitar
Stephen Wilson
Shares
awarded under
the DSBP
(post-tax)
Indicative value
on 30 June
2019
(£)1
Consequence
of a +/- £2 share
price change
(£)
Total share
exposure
Conclusion
22,026
11,923
118,487
2,965,723
68,677
1,718,996
236,973
137,355
Executives remain aligned
to share price
Shares
owned
96,461
56,754
1
Value calculated using the average share price for the final quarter of the financial year ended 30 June 2019 (2,503p).
CORPORATE GOVERNANCE
084
Genus plc / Annual Report 2019
REMUNERATION COMMITTEE REPORT CONTINUED
Section E – Annual Report on Remuneration
INTRODUCTION
This section of the Directors’ Remuneration Report is subject to an advisory vote at the 2019 AGM. Remuneration in respect of 2019 is determined by
our Remuneration Policy agreed by 96.1% of shareholders at the 2016 AGM. This can be found in our 2016 Annual Report which is available from our
website at www.genusplc.com.
We have split this section into the following chapters to balance our formal disclosure obligations with our desire to have a clear and understandable
report:
1. What the Executive Directors Were Paid in 2019.
2. What the Executive Directors Can Earn in 2020.
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 Ten 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 2019
EXECUTIVE DIRECTORS’ SINGLE TOTAL REMUNERATION FIGURE (AUDITED)
The following table shows a single total figure of remuneration for the 2019 financial year for each of the Executive Directors and compares this figure to
the prior year.
Karim Bitar
Stephen Wilson
Salary and fees
£000s
Benefits1
£000s
Benefits2
£000s
Subtotal for
fixed pay
£000s
Annual bonus3
(Core Bonus)
£000s
Annual bonus
(Company
Milestone)4
£000s
626
555
390
376
33
23
13
13
156
138
58
57
815
716
461
446
Nil
515
209
349
Nil
195
157
88
Year
2019
2018
2019
2018
PSP5
£000s
Nil
1,1236
6815
6666
Subtotal for
variable pay
£000s
Nil
1,833
1,047
1,103
Total
£000s
815
2,549
1,508
1,549
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. The
increase in benefits value for the Chief Executive relates to a change in the costs of private healthcare provision.
Executive Directors receive a cash allowance in lieu of pension, which is shown in the Pension column.
2
3 Bonus earned includes the 25% of the Core Bonus element which is deferred into Company shares.
All awards under the Company Milestone element are made in shares deferred for three years.
4
The value of the PSP is determined by the number of awards vesting in relation to performance in the period ended 30 June 2019. Dividend equivalents are not added to awards made under
5
the PSP. The value shown for 2019 is based on the average share price for the final three months of the 2019 financial year (which was 2,503p). This compares to the share price at grant of
1,884p (+33%).
The 2018 values shown as estimated in the previous Annual Report have been restated to reflect the actual value at vesting. The share price was 2,544p on 14 September 2018 when awards
vested for the Chief Executive and Group Finance Director.
6
HOW THE BONUSES FOR 2019 WERE CALCULATED
ANNUAL BONUS: CORE BONUS ELEMENT
The 2019 bonuses for Executive Directors were calculated by reference to performance against a challenging sliding scale of profit, cash flow and
personal targets. Targets were set by the Committee to exclude the costs of gene editing in line with our Remuneration Policy. This was a decision by
the Committee (as was the case in 2017 and 2018) to ensure that management’s reward was not unfairly affected by decisions to make the right long-
term investment decisions on behalf of the business.
The following results were achieved for each element of the annual bonus incentive.
Bonus target1
Strategic objective
Adjusted profit before tax2
Year-on-year profit growth
Generation of free cash flow
Personal objectives
Generate cash for
reinvestment and dividend
To build the foundation
for future growth
Proportion of
salary
(maximum)
Actual 2019
performance
Threshold
(0% Award)
Target
(50% award)
Stretch
(Full Award)
Extent to which targets were met
(%)
80%
20%
£68.4m
£10.0m
£63.5m
£12.4m
£69.8m
£15.4m
£73.0m
£18.4m
38.5%
0%
25%
See table
Chief Executive n/a
Group Finance Director 90%
1
2
The financial elements of the bonus are payable on a straight-line basis between each threshold, target and stretch level.
Adjusted profit before tax in constant currency was £61.3m (actual currency was £61m).
085
PERSONAL OBJECTIVES
Performance against personal objectives related to targets set in a number of areas that included customers, people, and product and service
improvement. Performance against these targets is disclosed retrospectively, as follows:
Executive Director
Key achievements in the year
Payout against
maximum of
25% of salary
Stephen Wilson
Customer/ stakeholders
> Strong performance in capital placement process and associated reaction
90%
from shareholders. 5% equity placement raised a net £66.5m.
> Role in negotiating and steering business development and commercial
activity to a successful conclusion.
> Active participation in driving new business development within IntelliGen.
People
> Continuing strengthening of the Finance and IT functions including
deepening of succession planning.
Product and service improvement
> Go-live of our HR and financial reporting modules within our new
enterprise system (‘GenusOne’). Continued progression of developing and
implementing against wider roll-out plans.
> Improvements to delivery of IT support through the business, and
enhancements to IT hardware and software across the Group.
No bonus was payable to Karim Bitar as he resigned from the business in March 2019. Under our Remuneration Policy no bonus is payable if an
executive has resigned and is under notice at the point of payment. The award for Stephen Wilson under our Core Bonus was an award of 42.6% of
maximum, which represents 53.3% of salary.
ANNUAL BONUS: COMPANY MILESTONES
The Committee included this element of the annual bonus for 2019 as disclosed in our 2018 Directors’ Remuneration Report.
The maximum opportunity under the Company Milestone element of the bonus was an award of shares deferred for three years and worth up to 75%
of salary for the Chief Executive and 50% of salary for the Group Finance Director. As was the case with our Core Bonus, no award was payable to Karim
Bitar following his decision to resign from the business earlier in 2019. The performance criteria and resulting award for Stephen Wilson as determined
by the Committee is as follows:
Performance criteria
Outcome/progress made
Resulting award
Securing a technology partnership in China in
connection with our PRRS programme
Innovative strategic collaboration with BCA announced in May 2019
– a key step in our PRRS commercialisation programme.
Initial agreed phase to focus on research, development and
regulatory approval of PRRSv resistant pigs.
Agreed schedule of upfront and milestone cash payments
(as disclosed elsewhere within the Annual Report).
Agreed terms to create joint venture combining existing
PIC China with BCA Future Bio-Tech.
Award of shares deferred for
three years for Group Finance
Director of 40% of salary.
Confidential Project
Intellectual property royalties from the joint venture on sales in
China of PRRSv resistant pigs.
We have continued to make good progress against a second project
that cannot be disclosed for commercial sensitivity reasons1.
1
Committee will disclose the nature of this project at a point where it is deemed no longer commercially sensitive.
As a result of this performance, the total annual bonus (comprising both the Core Bonus and Company Milestone elements) awarded to the Executive
Directors was:
Annual bonus:
Core Bonus
Annual bonus:
Company Milestone
Extent to which
targets were
met
(75%) Cash
bonus
(25%) Deferred
shares
Extent to which
targets were
met Deferred shares
Total cash
Total bonus
Deferred
shares1
Nil
Total
Nil
Nil
Nil
£156,830
£156,732
£209,074
£365,805
Karim Bitar
Stephen Wilson
n/a
Nil
Nil
42.6%
£156,732
£52,244
n/a
80%
1
The number of shares will be calculated in September 2019 when bonuses are paid.
CORPORATE GOVERNANCE
086
Genus plc / Annual Report 2019
REMUNERATION COMMITTEE REPORT CONTINUED
Section E – Annual Report on Remuneration continued
1.WHAT THE EXECUTIVE DIRECTORS WERE PAID IN 2019 CONTINUED
HOW THE PERFORMANCE SHARE PLAN FIGURE WAS CALCULATED IN THE SINGLE TOTAL REMUNERATION TABLE
The award made to Karim Bitar will lapse in full (and no corresponding value is shown in the single figure table) reflecting his leave date from Genus of
13 September, ahead of when these awards are scheduled to vest.
Stephen Wilson’s PSP award granted on 14 September 2016 was subject to a performance condition, based on the growth in adjusted earnings per
share from 2016 to 2019. The range of targets applicable to the award, which had a value of 175% of salary at grant was as follows:
Average annual growth in adjusted earnings per share1
Less than 5% per annum
5% per annum
15% per annum
1
Straight line vesting between the points in the above table.
% of award
Vesting
Nil
20%
100%
The Committee set targets 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 whilst making long-term decisions in support of value creation. This is consistent with the
approach previously communicated to shareholders within our Policy and as taken in each of the last three years.
The adjusted 2019 earnings per share after the cost of share-based payments and adjusting for costs relating to gene editing was 78.3p. This represents
an average annual growth in adjusted earnings per share of 12.4% compared to the comparable 2016 adjusted earnings per share figure (after the
cost of share-based payments). The resulting level of vesting is therefore 78.9% of maximum1. Stephen Wilson’s award was over a maximum of 34,500
shares, so the actual level of vesting is 27,220 shares and these will vest on 14 September 2019.
The Company’s average share price for the period from 1 April 2019 to 30 June 2019 was 2,503p, meaning that the values shown for these awards within
the single figure table are £nil for Karim Bitar and £681,329 for Stephen Wilson.
1
The average annual earnings per share growth including gene editing costs after share-based payments was 8% and the associated vesting level would have been 44.4% of maximum.
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. Karim Bitar is a Non-Executive Director of Spectris Plc and received fees totalling £60,000 during
the year.
2. WHAT THE EXECUTIVE DIRECTORS CAN EARN IN 2020
A summary of this chapter is given on page 72.
BASE SALARY
In line with other UK employees, the date of salary review is 1 September 2019. No change will be made to the salary for Karim Bitar and we will
continue to pay existing base salary and benefits through to the cessation of his employment on 13 September 2019. Stephen Wilson will be appointed
as Chief Executive on 13 September with an annual salary of £590,000.
BENEFITS
The Executive Directors receive benefits including a car allowance, life assurance, an annual medical screen and private medical insurance.
PENSION
In lieu of Company pension contributions, the Company pays the outgoing Chief Executive and Group Finance Director a taxable pension allowance of
25% and 15% of basic salary per annum respectively. On appointment to the Chief Executive role the value paid to Stephen Wilson will be reduced to
10% of salary. Any future appointments to Executive Director roles will have an allowance aligned to that available to the wider workforce.
PERFORMANCE‑RELATED ANNUAL BONUS
Attached with this disclosure is our proposed Remuneration Policy that we will table to shareholders at our forthcoming AGM in November 2019.
Subject to approval by Shareholders the structure for variable remuneration for executive directors for 2020 will be as follows:
087
ANNUAL BONUS
Value of bonus
A maximum of 175% for the Chief Executive Officer based on profit, cash generation and strategic measures. On-target
value of 87.5% of salary. The salary reflecting Stephen Wilson’s appointment as Chief Executive (£590,000) will be used
to determine calculation of annual bonus awards, consistent with how we operate our annual bonus plan across the
business.
Performance measures
Adjusted profit before tax
Cash generation
Strategic Measures
50% of opportunity
15% of opportunity
35% of opportunity
Calibration of profit target
No bonus is payable in respect of profit unless the prior year’s result is exceeded. Thereafter, the Bonus award is
determined on the following basis:
Growth on prior year adjusted before tax1
0%
10% growth delivers
15% growth delivers
Straight-line payout between performance points.
1
In constant currency and excluding gene editing costs.
Pay-out
(profit element)
0%
50%
100%
Calibration of cash generation target
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.
Calibration of strategic measure
Specific measurable targets have been set against this category linked to our strategic priorities identified by the Board
for the year ahead. It would be commercially sensitive to disclose them in advance. We will retrospectively disclose
performance against these targets.
Bonus deferral
Malus and clawback
33% of any bonus award will be deferred by way of shares for three years and will vest subject to continued
employment, other than in certain leaver circumstances.
The Committee can apply malus to deferred bonuses and clawback 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 or other substantive
reason.
LONG‑TERM INCENTIVES
Awards to be granted in 2020 will be granted under the 2014 PSP Plan. Stephen Wilson will be granted an award over shares worth 200% of salary.
Grants will be determined in line with the Plan Rules, using annual salary as at the point of grant to determine awards. Awards granted will continue
to require the Executive to retain the after-tax number of shares vesting in 2023 for two years. Enhanced Clawback and malus provisions will apply to
these awards as outlined within our Remuneration Policy, including reputational damage and corporate failure. Future awards would be expected to
be made under the 2019 PSP Plan, subject to approval of this Plan by shareholders at the 2019 AGM.
The performance targets for the awards to be granted in 2020 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 2020.
The range of targets for the 2020 awards is as follows:
Average annual growth in adjusted earnings per share1
Less than 5% per annum
5% per annum
15% per annum
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
excluding gene editing costs.
The Committee continues to believe that using adjusted earnings per share is an appropriate measure of long-term performance of the business, and
this is consistent with awards granted over the past few years. The Committee believes the above performance range is 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.
The Committee will be able 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.
CORPORATE GOVERNANCE
088
Genus plc / Annual Report 2019
REMUNERATION COMMITTEE REPORT CONTINUED
Section E – Annual Report on Remuneration continued
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 2019, the Committee comprised:
Director
Nigel Turner1 (Chairman)
Lesley Knox2
Duncan Maskell3
Lykele van der Broek
Lysanne Gray
Ian Charles
Bob Lawson
Independent
Attendance at
meetings
Yes
Yes
Yes
Yes
Yes
Yes
Yes
4/4
6/6
2/4
6/6
6/6
4/6
6/6
1 Nigel retired from the Board following the AGM on 15 November 2018.
2 Lesley was appointed Chair of the Remuneration Committee on 15 November 2018.
3 Duncan retired from the Board following the AGM on 15 November 2018.
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 Committee’s invitation
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 £71,125 for its remuneration advice to the Committee. PwC were appointed by the Committee following a competitive tender process and
their performance and independence as advisers is regularly reviewed. PwC is a member of the Remuneration Consultants Group and complies with
its Code of Conduct. Separate teams within PwC provide unrelated advisory service to the Group, including taxation, international assignments and
actuarial advice to the Group.
During the year to 30 June 2019, the Committee met six times and considered the following matters:
JULY 2018
> Pay review for GELT members.
> Discussion of Company
Milestones.
JULY 2018
> Review of Directors’
Remuneration Report.
SEPTEMBER 2018
> Approval of the Directors’
Remuneration Report for 2018.
> Determination of Annual Bonus
awards in respect of 2018.
> Testing of the performance
conditions and approval of the
vesting levels of long-term share
incentive awards granted in
2015.
> Approval of long-term share
incentive awards under the
Company’s 2015 PSP and the
associated performance targets.
> Review of shareholdings by
Executive Directors and GELT.
> Approval of PSP for senior
leadership and review of share
dilution.
NOVEMBER 2018
> Discussion of shareholder voting
on the Annual Remuneration.
Report and follow up actions.
> Review of remuneration
reporting trends for 2018.
MAY 2019
> Follow up discussion on
policy review and approach to
shareholder consultation.
> Update on approach to reward for
all employees in Genus and read
across to executives.
APRIL 2019
> Discussion of policy review
analysis and proposed changes.
> Review of shareholder
perspectives and trends in
corporate governance and
discussion of AGM season.
> Discussion of gender pay
findings within Genus Breeding
Limited.
089
HOW SHAREHOLDERS’ VIEWS ARE TAKEN INTO ACCOUNT
We consulted with shareholders ahead of proposing our existing Remuneration Policy to shareholders at our 2016 AGM, where over 96% of
shareholders voted in support of the Policy. In 2019 we have undertaken a comprehensive engagement exercise in determining our new Policy
contained within this report.
In our 2018 Annual Report we described the change that we were making to the pay arrangements of our Chief Executive. This followed a consultation
process with our largest shareholders, and the associated rationale was described in the Report. A number of shareholders chose not to support the
way we had implemented the Policy, resulting in around 32% voting against the resolution. The results of the most recent vote was as follows:
For
Against
Total number of shares in respect of which votes were validly made
Votes withheld
Vote on Directors’ Remuneration
Report (advisory)
Total number
of votes
% of
votes cast
26,732,450
12,621,755
39,354,205
3,288,952
67.9
32.1
100
We believe that the actions taken were appropriate, to retain and motivate a very high calibre leader who was steering the transformation of
the business, creating significant long-term stakeholder value, and setting the future strategic direction of the Company as it transforms into an
agricultural biotechnology pioneer.
Following the vote we engaged again with shareholders and offered to meet with them to discuss the vote and the concerns raised, and published
updates on this point following our AGM and within six months of our AGM on our website.
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 Reward 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 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 our UK business and the wider
Group.
4. HOW THE CHIEF EXECUTIVE’S PAY COMPARES TO SHAREHOLDER RETURNS OVER THE PAST TEN 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.
TEN YEARS OF TOTAL SHAREHOLDER RETURN
TEN YEARS OF TOTAL SHAREHOLDER RETURN
700
600
500
400
300
200
100
)
£
(
)
d
e
s
a
b
e
r
(
R
S
T
0
June 09
June 10
June 11
June 12
June 13
June 14
June 15
June 16
June 17
June 18
June 19
Genus
FTSE 250
This graph shows the value, by 30 June 2019, 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.
CORPORATE GOVERNANCE
090
Genus plc / Annual Report 2019
REMUNERATION COMMITTEE REPORT CONTINUED
Section E – Annual Report on Remuneration continued
4. HOW THE CHIEF EXECUTIVE’S PAY COMPARES TO SHAREHOLDER RETURNS OVER THE PAST TEN YEARS AND TO EMPLOYEES’ PAY CONTINUED
As required under the reporting regulations, the table below shows the ‘single figure’ pay for the Chief Executive over the same period, to allow
comparison between variability in reward and the shareholder experience over the same period.
Richard Wood
2010
20111
Total remuneration (£000s)
£2,034
£2,383
Annual bonus (% of max)
Total PSP vesting (% of max)
64%
100%
94%
88%
Year ending 30 June 2019
Karim Bitar
2012
£231
88%
–
20122
£1,776
77%
–
2013
£868
31%
–
2014
£877
32%
–
2015
2016
2017
2018
£1,622
£1,704
£2,856
£2,549
99%
26%
78%
34%
59%3
79%
64%3
56%
2019
£815
Nil4
Nil5
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
4 No awards are payable in respect of 2019 following the decision of Karim to resign from the business.
5
Vesting will be nil as Karim’s employment cessation date (13 September 2019) is before the scheduled vesting of the 2016 PSP award.
CHIEF EXECUTIVE PAY COMPARED TO GENUS EMPLOYEES
REMUNERATION RECEIVED (% CHANGE FROM 2018 TO 2019)
Chief Executive
UK comparators2
Salary
%
13%
3.9%
Benefits3
%
43%
0%
Annual bonus
%
(100%)1
(21%)
Includes the award made under the Company Milestone element of the annual bonus.
A subset of the UK workforce comprising employees with a bonus structure based on Group performance. This is considered the most relevant comparator group for these purposes.
1
2
3 Excludes pension. The increase for the Chief Executive relates to costs of provision of private healthcare under our agreed Policy.
DISTRIBUTION STATEMENT
Employee costs (£m)
Distributions to shareholders1
1
Includes dividends and share buy-backs.
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
2018
2019
% change
£148.4m
£14.9m
£157m
£16.8m
5.8%
12.8%
2017 fees
2018 fees
2019 fees
£160,000
£160,000
£160,000
£60,000
£60,000
£60,000
n/a
£65,000
£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 the coming year.
TOTAL SINGLE FIGURE OF REMUNERATION (AUDITED) FOR 2018 AND 2019 ARE AS FOLLOWS:
Non-Executive Directors
Bob Lawson
Nigel Turner1
Duncan Maskell2
Lykele van der Broek
Lysanne Gray
Ian Charles3
Lesley Knox4
Total
Fees
£000s
160
160
25
60
27
65
55
55
60
60
55
–
55
5
437
405
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
Taxable
expenses
£000s
Benefits
£000s
–
–
5
–
3
–
4
3
–
–
–
–
–
–
11
3
2
2
1
2
1
1
1
1
0
–
2
–
18
9
12
3
467
417
091
Total
£000s
171
163
32
62
31
67
60
59
61
61
55
–
57
5
1 Nigel Turner stepped down from the Board on 15 November 2018.
2 Duncan Maskell stepped down from the Board on 15 November 2018.
3
4 Lesley Knox joined the Board on 1 June 2018.
Ian Charles joined the Board on 1 July 2018.
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.
6. DETAILS OF THE DIRECTORS’ SHAREHOLDINGS AND RIGHTS TO SHARES
DIRECTORS’ SHAREHOLDINGS (AUDITED)
At the year-end, the Directors had the following interests in the Company’s shares:
Bob Lawson
Karim Bitar
Stephen Wilson
Ian Charles
Lykele van der Broek
Lysanne Gray
Lesley Knox
Duncan Maskell3
Nigel Turner3
Total
% of salary
held1
Shareholding
guideline2
Unvested
DSBP awards
at
30 June 2019
Number
Unvested
PSP awards
held at
30 June 2019
Number
At
30 June 2018
Number
n/a
464%
438%
n/a
n/a
n/a
n/a
n/a
n/a
n/a
200%
200%
n/a
n/a
n/a
n/a
n/a
n/a
n/a
41,558
22,497
n/a
169,815
97,556
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
64,055
267,371
8,557
68,213
39,528
–
3,750
0
2,000
0
15,000
137,048
At 30 June
2019
Number
8,557
96,461
56,754
0
3,750
0
2,000
0
15,000
182,522
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 2019 of 2,503p.
2
3
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.
Value shown as at their date of ceasing to be a Director of the Company.
There were no changes in the Directors’ interests between 30 June 2019 and the date of this report.
CORPORATE GOVERNANCE
092
Genus plc / Annual Report 2019
REMUNERATION COMMITTEE REPORT CONTINUED
Section E – Annual Report on Remuneration continued
6. DETAILS OF THE DIRECTORS’ SHAREHOLDINGS AND RIGHTS TO SHARES CONTINUED
COMPANY SHARE PRICE
The market price of the Company’s shares on 30 June 2019 was 2,648p and the lowest and highest share prices during the financial year were 2,098p
and 2,992p respectively.
PERFORMANCE SHARE AWARDS GRANTED IN 2019 (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
Performance period
55,225
£1,279,563 (200%)
29,613
£686,133 (175%)
20
20
01.07.18–30.06.21
01.07.18–30.06.21
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 2,317p for Karim Bitar and
Stephen Wilson (award granted on 9 October 2018).
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 share1
Less than 5% per annum
5% per annum
15% per annum
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 in line with previous awards.
DEFERRED BONUS AWARDS GRANTED IN 2019 (AUDITED)
The following DSBP awards were granted in relation to the 2018 annual bonus. The basis of the awards’ calculation is described in more detail on
page 85:
Executive
Karim Bitar
Stephen Wilson
Number of
shares
comprising
award
Face value of
awards at
grant date1
13,956
£323,361
7,559
£175,142
These awards are not subject to any further performance conditions and will normally vest in full on 9 October 2021, subject to continued service. The
award for Karim will lapse on 13 September 2019 on cessation of employment with Genus.
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 2,317p for Karim Bitar and
Stephen Wilson (award granted on 9 October 2018).
093
SUMMARY OF SCHEME INTERESTS (AUDITED)
At 30 June 2019, the Executive Directors had the following beneficial interests in share awards and share options:
KARIM BITAR
Grant date
Award
Vesting period
14 September 2015
DSBP
14 September 2015 to 14 September 2018
14 September 2015
14 September 2016
PSP
PSP
14 September 2015 to 14 September 2018
14 September 2016 to 14 September 2019
14 September 2016
DSBP
14 September 2016 to 14 September 2019
13 September 2017
PSP
13 September 2017 to 13 September 2020
13 September 2017
DSBP
13 September 2017 to 13 September 2020
PSP
DSBP
9 October 2018 to 9 October 2021
9 October 2018 to 9 October 2021
09 October 2018
09 October 2018
Total
STEPHEN WILSON
Grant date
Award
Vesting period
14 September 2015
DSBP
14 September 2015 to 14 September 2018
14 September 2015
14 September 2016
PSP
PSP
14 September 2015 to 14 September 2018
14 September 2016 to 14 September 2019
14 September 2016
DSBP
14 September 2016 to 14 September 2019
13 September 2017
PSP
13 September 2017 to 13 September 2020
13 September 2017
DSBP
13 September 2017 to 13 September 2020
09 October 2018
09 October 2018
Total
PSP
DSBP
09 October 2018 to 09 October 2021
09 October 2018 to 09 October 2021
Share price
at grant
At
30 June 2018
Number
Granted
in year
Number
Lapsed
in year
Number
Exercised
in year
Number
At
30 June 2019
Number
1,363p
1,363p
1,884p
1,884p
1,973p
1,973p
2,317p
2,317p
11,927
78,850
58,186
6,973
56,404
20,629
–
–
–
–
–
–
–
–
55,225
13,956
–
(11,927)
(34,694)
(44,156)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
58,186
6,973
56,404
20,629
55,225
13,956
232,969
69,181
(34,694)
(56,083)
211,373
Share price
at grant
At
30 June 2018
Number
Granted
in year
Number
Lapsed
in year
Number
Exercised
in year
Number
At
30 June 2019
Number
1,363p
1,363p
1,884p
1,884p
1,973p
1,973p
2,317p
2,317p
7,980
46,753
34,500
4,725
33,443
10,213
–
–
–
–
–
–
–
–
29,613
7,559
–
(7,980)
(20,572)
(26,181)
–
–
–
–
–
–
–
–
–
–
–
–
0
–
34,500
4,725
33,443
10,213
29,613
7,559
137,614
37,172
(20,572)
(34,161)
120,053
In relation to the share awards granted on 9 October 2018, the closing average share price over the three days prior to 9 October 2018 (the grant date for
the PSP awards) of 2,317p was used to determine the number of shares comprising individual awards.
The performance targets applying to the 09 October 2018 awards are as described above. An earnings per share range also applied to awards made in
2017 and 2016. No further performance conditions apply to the DSBP awards other than continued employment with the business.
DILUTION
The aggregate dilution of all relevant share incentives is 4.30% as at 30 June 2019, which is less than the permissible 10% in ten years dilution limit.
CORPORATE GOVERNANCE
094
Genus plc / Annual Report 2019
REMUNERATION COMMITTEE REPORT CONTINUED
Section E – Annual Report on Remuneration continued
7. DETAILS OF THE EXECUTIVE DIRECTORS’ CONTRACTS AND NON-EXECUTIVE DIRECTORS’ LETTERS OF APPOINTMENT
Director
Executives
Karim Bitar
Stephen Wilson
Non-Executives
Bob Lawson
Lykele van der Broek
Lysanne Gray
Lesley Knox
Ian Charles
Appointment date
Current contract date
Expiry date
Notice period (Months)
24 May 2011
24 May 2011
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
1 July 2014
1 April 2016
1 June 2018
1 July 2018
1 July 2017
1 April 2019
1 June 2018
1 July 2018
1 July 2020
1 April 2022
1 June 2021
1 July 2021
1
1
1
1
1
Approved by the Board and signed on its behalf by:
LESLEY KNOX
Chair of the Remuneration Committee
4 September 2019
DIRECTORS’ REPORT
095
DAN HARTLEY
GROUP GENERAL COUNSEL
AND COMPANY SECRETARY
DIRECTORS
The Directors and the dates of their respective appointments
are listed on pages 50 and 51.
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 18.8 pence per ordinary share, resulting in a total dividend
for the year of 27.7 pence per ordinary share, an increase of
7% for the year. It is proposed that the final dividend will be
paid on 29 November 2019 to shareholders on the register at
the close of business on 8 November 2019.
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
2018 AGM and a new authority is being sought at the 2019 AGM
within the limits set out in the notice of meeting, that is up to a
nominal value of £4,337,116.33 (representing two-thirds of the
Company’s current issued share capital).
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 28. 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 2018 AGM and a new authority
is being sought at the 2019 AGM within the limits set out
in the notice of meeting, that is up to a nominal value of
£650,567 (representing 10% of the Company’s current issued
share capital). No shares were bought back by the Company
under the authority granted at the 2018 AGM, from the date
of that AGM up to the date of this report.
SUBSTANTIAL SHAREHOLDINGS
As at 2 September 2019, we were aware of the following
material interests in the Company’s ordinary shares:
Fund Manager
Baillie Gifford & Co Limited
Lansdowne Partners
Columbia Threadneedle
Investments
Shareholding
5,485,304
4,691,947
3,066,838
Wellington Management Company
2,629,187
Legal & General Investment
1,998,716
Management
%
8.43
7.21
4.71
4.04
3.07
There have been no material changes in shareholding since
30 June 2019.
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 or she ought to
have taken as a Director in order to make himself or herself
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 69
to 94.
Approved by the Board and signed on its behalf by:
DAN HARTLEY
Group General Counsel and Company Secretary
4 September 2019
CORPORATE GOVERNANCE
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 position, performance, business model
and strategy.
Approved by the Board and signed on its behalf by:
KARIM BITAR
Chief Executive
4 September 2019
STEPHEN WILSON
Group Finance Director
4 September 2019
096
Genus plc / Annual Report 2019
DIRECTORS’ 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.
INDEPENDENT AUDITOR’S REPORT
To the Members of Genus plc
097
REPORT ON THE AUDIT OF THE FINANCIAL STATEMENTS
OPINION
In our opinion:
> the financial statements of Genus plc (the ‘Parent Company’) and its subsidiaries (the ‘Group’) give a true and fair view of the state of the
Group’s and of the Parent Company’s affairs as at 30 June 2019 and of the Group’s profit for the year then ended;
> the Group financial statements have been properly prepared in accordance with International Financial Reporting Standards (‘IFRSs’) as
adopted by the European Union;
> 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 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 38 and C1 to C17.
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 European Union. 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 Financial Reporting Council’s (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:
> key estimates and assumptions used in determining the fair value of biological assets under IAS 41 ‘Agriculture’; and
> consideration of the key assumptions used in the impairment model for the ABS cash-generating unit.
Materiality
Scoping
The materiality that we used for the Group financial statements was £2,300,000 (2018: £2,300,000) which was
determined as 5.0% (2018: 5.4%) of pre-tax profit before exceptional items and changes in fair value in biological
assets.
Our audit scope covered 14 components (2018: 15). Of these, nine were subject to a full audit (2018: seven), whilst the
other five (2018: eight) were subject to specified audit procedures. The coverage of key account balances was 75% of
revenue (2018: 75%), 84% pre-tax profit before exceptional items and changes in fair value in biological assets (2018:
75%) and 79% of net assets (2018: 84%).
Significant changes in our
approach
There have been no significant changes in our audit approach in 2019; our key audit matters remain consistent with
prior year.
FINANCIAL STATEMENTS
098
Genus plc / Annual Report 2019
INDEPENDENT AUDITOR’S REPORT CONTINUED
To the Members of Genus plc
CONCLUSIONS RELATING TO GOING CONCERN, PRINCIPAL RISKS AND VIABILITY STATEMENT
GOING CONCERN
We have reviewed the Directors’ statement in note 2 to the financial statements 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’s and 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.
We considered as part of our risk assessment the nature of the Group, its business model and related
risks, including where relevant, the impact of Brexit, the requirements of the applicable financial reporting
framework and the system of internal control. We evaluated the Directors’ assessment of the Group’s ability
to continue as a going concern, including challenging the underlying data and key assumptions used to
make the assessment, and evaluated the Directors’ plans for future actions in relation to their going concern
assessment.
We are required to state whether we have anything material to add or draw attention to in relation to that
statement required by Listing Rule 9.8.6R(3) and report if the statement is materially inconsistent with our
knowledge obtained in the audit.
PRINCIPAL RISKS AND VIABILITY STATEMENT
Based solely on reading the Directors’ statements and considering whether they were consistent with the
knowledge we obtained in the course of the audit, including the knowledge obtained in the evaluation of
the Directors’ assessment of the Group’s and the Company’s ability to continue as a going concern, we are
required to state whether we have anything material to add or draw attention to in relation to:
> the disclosures on pages 44 and 45 that describe the principal risks and explain how they are being
managed or mitigated;
> the Directors’ confirmation on page 46 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; or
> the Directors’ explanation on page 46 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.
We are also required to report whether the Directors’ statement relating to the prospects of the Group
required by Listing Rule 9.8.6R(3) is materially inconsistent with our knowledge obtained in the audit.
Going concern is the basis of
preparation of the financial
statements that assumes an entity
will remain in operation for a period
of 12 months from the start of the
financial statements.
We confirm that we have nothing
material to report, add or draw attention
to in respect of going concern.
Viability means the ability of the
Company to continue over the time
horizon considered appropriate by
the Directors.
We confirm that we have nothing
material to report, add or draw attention
to in respect of the Directors’ disclosure
of principal risks and viability.
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.
KEY ESTIMATES AND ASSUMPTIONS USED IN DETERMINING THE 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 2019, the total fair value of biological assets is £348m (2018: £343m).
Certain assumptions contain high levels of estimation and therefore represent potential areas where management
could fraudulently manipulate the financial statements. We focused specifically on the following key assumptions for
each species, being the most sensitive assumptions applied in the valuation models.
For bovine asset valuations: the future growth rates of semen volumes; the forecast average age of bulls producing
saleable semen; and the discount rates applied.
For porcine asset valuations: the expected useful breeding life of pigs; the number of future generations attributable
to the current herds; 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 key audit matter on page 66 and it is included in the key accounting estimates and judgements on
page 134.
099
How the scope of our audit
responded to the key audit
matter
We considered the separate elements of the fair value calculations, including specifically the basis for management’s
key estimates and assumptions. For both species’ valuation models, we evaluated the design and implementation of
key controls relevant to the valuation model.
For the bovine asset valuations we challenged management’s assumptions by assessing the historical forecasting
accuracy of management’s model, compared management’s assumptions to third party data, applied sensitivities
to the assumptions, and reviewed the model logic.
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 transaction data.
For both species’ valuation models, we used internal valuation experts in our testing of the discount rates applied to
the cash flows.
For all other key assumptions in each model, we challenged the significant estimates with reference to third party or
historical transaction data as appropriate.
Key observations
From the work performed, we are satisfied that the key assumptions applied in respect of the fair value
determination of biological assets are reasonable, and were overall in the middle of our acceptable range.
CONSIDERATION OF THE KEY ASSUMPTIONS USED IN THE IMPAIRMENT MODEL FOR THE ABS CASH-GENERATING UNIT
Key audit matter description The Group has £32.2m of goodwill (2018: £31.2m) on its balance sheet in relation to the ABS cash-generating unit
(‘CGU’). Management is required to perform an impairment assessment over this goodwill at least once a year, or
more frequently if an indicator of impairment exists.
We considered there to be a risk of material misstatement, whether due to error or fraud, in this balance. This
is because of the significant judgements and estimates that are applied by management in setting the key
assumptions used in their impairment assessment.
In the current period we focused specifically on the goodwill associated with the ABS business due to the more
limited headroom associated with this cash-generating unit. The key assumptions in testing the carrying value of
the ABS CGU for impairment include the short-term and long-term growth rates and the discount rate.
The associated disclosure is included in note 14. The Audit Committee has included their assessment of this key
audit matter on page 66.
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. We analysed
historical budgeting accuracy to assess the reliability of the growth rates used in management’s forecasts. Where
available, we reviewed third party market data to challenge the assumptions used, including benchmarking the
long-term growth rate against the applicable industry and regional long-term growth rates which Genus operate in.
We considered whether management’s sensitivity analysis relating to the Group’s key impairment assumptions, as
identified above, covered a range of reasonably possible changes and considered the 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 the ABS CGU.
Key observations
We are satisfied with management’s conclusions that the ABS CGU is not impaired and a reasonably possible change
in a key assumption does not give rise to an impairment. The base case impairment model results in significant
headroom, whilst reasonably possible sensitivity scenarios also result in significant headroom.
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.
FINANCIAL STATEMENTS
100
Genus plc / Annual Report 2019
INDEPENDENT AUDITOR’S REPORT CONTINUED
To the Members of Genus plc
Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:
Materiality
Group financial statements
£2,300,000 (2018: £2,300,000)
Parent Company financial statements
£1,840,000 (2018: £1,820,000)
Basis for determining
materiality
5.0% of pre-tax profit before exceptional items and
changes in fair value of biological assets (2018: 5.4%)
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.
1% of net assets, capped at 80% of Group materiality
which was lower than this benchmark (2018: 1% of net
assets which was lower than our benchmark of 80% of
Group materiality)
Genus plc (Company only) does not generate any external
income and therefore we deem that net assets is a more
appropriate basis for determining materiality.
Pre-tax profit
before exceptional
items and IAS 41
movements £46.4m
Group materiality
£2.3m
Component
materiality range
£1.8m to £0.9m
Audit Committee
reporting threshold
£0.115m
Some of the tests in our audit are based on a sampling approach. Given that it is possible there may be undetected errors in the population not
sampled, we set performance materiality at a lower level to reduce the probability that, in aggregate, uncorrected and undetected misstatements
exceed the materiality for the financial statements as a whole. Group performance materiality was set at 70% of Group materiality for the 2019 audit
(2018: 70%). In determining performance materiality, we considered the level of engagement risk, the low level of uncorrected misstatements identified
in the prior year, our understanding of the entity and its environment and the willingness of management to investigate and correct misstatements.
We agreed with the Audit Committee that we would report to the Committee all audit differences in excess of £115,000 (2018: £115,000), 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 14
components (2018: 15). Of these, nine were subject to a full audit (2018: seven), whilst the remaining five (2018: eight) 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.
These 14 components represent the principal business units and account for 75% (2018: 75%) of the Group’s revenue, 84% (2018: 75%) of the Group’s
pre-tax profit before exceptional items and changes in fair value of biological assets, and 79% (2018: 84%) of the Group’s net assets.
REVENUE
ADJUSTED PROFIT BEFORE TAX*
NET ASSETS
3
2
1
3
2
1
3
2
1
1 Full audit scope
2 Specified audit procedures
3 Revenue at Group level
68%
7%
25%
1 Full audit scope
2 Specified audit procedures
3 Revenue at Group level
74%
10%
16%
1 Full audit scope
2 Specified audit procedures
3 Revenue at Group level
77%
2%
21%
* Adjusted PBT in this graphic represents pre-tax profit before exceptional items and changes in fair value of biological assets.
101
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. Senior members of the Group audit team visited the USA, Brazil, Chile and
the UK during the current year, and in the previous year visited the USA and UK. 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. As well as
component reporting, in the current year we have reviewed a selection of audit papers for all in scope components.
We elected not to rely on IT controls as part of our audit. Instead we tested the completeness and accuracy of all relevant information produced by the
entity as part of our audit. At two full scope components, we relied on the operating effectiveness of controls for certain areas of our testing. We did not
rely on controls at the other component audits, and instead performed a fully substantive audit.
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 position and 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.
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.
Details of the extent to which the audit was considered capable of detecting irregularities, including fraud, are set out on the following page.
A further description of our responsibilities for the audit of the financial statements is located on the FRC’s website at:
www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report.
FINANCIAL STATEMENTS
102
Genus plc / Annual Report 2019
INDEPENDENT AUDITOR’S REPORT CONTINUED
To the Members of Genus plc
EXTENT TO WHICH THE AUDIT WAS CONSIDERED CAPABLE OF DETECTING IRREGULARITIES, INCLUDING FRAUD
We identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, and then design and perform audit
procedures responsive to those risks, including obtaining audit evidence that is sufficient and appropriate to provide a basis for our opinion.
IDENTIFYING AND ASSESSING POTENTIAL RISKS RELATED TO IRREGULARITIES
In identifying and assessing risks of material misstatement in respect of irregularities, including fraud and non-compliance with laws and regulations,
we considered the following:
> the nature of the industry and sector, control environment and business performance, including the design of the Company’s remuneration policies;
> the Company’s own assessment of the risks that irregularities may occur either as a result of fraud or error was approved by the Board;
> results of our enquiries of management, internal audit and the Audit Committee about their own identification and assessment of the risks of
irregularities;
> the discussion amongst the engagement team, including significant component audit teams and involving relevant internal specialists, including tax,
valuations, pensions, IT, financial instrument specialists regarding how and where fraud might occur in the financial statements and any potential
indicators of fraud;
> our understanding of the legal and regulatory frameworks that the Group operates in, focusing on those laws and regulations that had a direct
effect on the financial statements or that had a fundamental effect on the operations of the Group. The key laws and regulations we considered in
this context included the UK Companies Act, Listing Rules, pensions legislation, tax legislation, Bribery Act, and the UK Corporate Governance Code.
In addition, compliance with regulations in respect of animal health, disease control, environmental control, health and safety (farm and nitrogen
related), and transport related (live animals and semen) were fundamental to the Group’s ability to operate on a going concern basis.
As a result of these procedures, we considered the opportunities and incentives that may exist within the organisation for fraud and identified the
greatest potential for fraud in the following areas:
> The significant management judgements exercised in relation to certain assumptions used in determining the fair value of biological assets.
> The historic adverse variance against budget of the ABS cash-generating unit results in a risk of fraud in relation to inappropriate overstatement of
ABS goodwill.
> In common with all audits under ISAs (UK), there is a presumed risk of fraud due to management override of controls.
AUDIT RESPONSE TO RISKS IDENTIFIED
As a result of performing the above we identified key audit matters in relation to: (1) key estimates and assumptions used in determining the fair value
of biological assets under IAS 41 ‘Agriculture’; and (2) consideration of the key assumptions used in the impairment model for the ABS cash-generating
unit. The key audit matters section of our report explains the matters in more detail and also describes the specific procedures we performed in
response to those key audit matters.
In addition to the above, our procedures to respond to risks identified included the following:
> reviewing the financial statement disclosures and testing to supporting documentation to assess compliance with relevant laws and regulations
discussed above;
> enquiring of management, the Audit Committee and legal counsel concerning actual and potential litigation and claims;
> performing analytical procedures to identify any unusual or unexpected relationships that may indicate risks of material misstatement due to fraud;
> reading minutes of meetings of those charged with governance, reviewing internal audit reports and reviewing correspondence with relevant
regulatory authorities;
> evaluating the financial reporting process and the controls over journal entries and other adjustments made in the preparation of the financial
statements, and testing the appropriateness of a sample of such entries and adjustments;
> challenging adjustments made to the Group accounts by the head office team, primarily through the review of the key audit matters and other
consolidation adjustments;
> reviewing accounting estimates for bias that could result in material misstatement due to fraud, including whether any differences between
estimates best supported by evidence and those in the financial statements if individually reasonable, indicate possible bias on the part of
management;
> assessing significant remuneration/incentive plans and linkage with key management judgements;
> obtaining and understanding of the business rationale of significant transactions that we became aware of that are outside the normal course of
business or that otherwise appear to be unusual given our understanding of the Group and its environment; and
> in addressing the risk of fraud through management override of controls, testing the appropriateness of journal entries and other adjustments;
assessing whether the judgements made in making accounting estimates are indicative of a potential bias; and evaluating the business rationale of
any significant transactions that are unusual or outside the normal course of business.
We also communicated relevant identified laws and regulations and potential fraud risks to all engagement team members, including internal
specialists and significant component audit teams, and remained alert to any indications of fraud or non-compliance with laws and regulations
throughout the audit.
103
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 the Directors’ Report for the financial year for which the financial statements are prepared is
consistent with the financial statements; and
> the Strategic Report and the 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 the 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 of Directors 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 14 years, covering the years ending 30 June 2006 to 30 June 2019.
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).
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.
ANDREW BOND, FCA (SENIOR STATUTORY AUDITOR)
For and on behalf of Deloitte LLP
Statutory Auditor
Reading, United Kingdom
4 September 2019
FINANCIAL STATEMENTS
104
Genus plc / Annual Report 2019
GROUP INCOME STATEMENT
For the year ended 30 June 2019
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
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 PERFORMANCE MEASURES
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
2019
£m
488.5
57.7
(14.7)
(9.5)
(3.0)
(27.2)
(15.2)
(5.0)
(0.7)
(0.9)
(21.8)
(49.0)
8.7
5.1
(4.7)
0.8
9.9
(3.2)
6.7
7.8
(1.1)
6.7
2018
£m
470.3
57.7
(28.7)
(9.5)
(5.4)
(43.6)
–
(5.0)
(1.2)
0.3
(5.9)
(49.5)
8.2
4.2
(4.8)
0.2
7.8
33.8
41.6
42.7
(1.1)
41.6
12.4p
11.9p
69.7p
68.7p
57.7
(0.4)
7.6
64.9
(3.9)
61.0
57.7
(0.8)
6.2
63.1
(4.6)
58.5
73.2p
70.7p
75.9p
74.9p
GROUP STATEMENT OF COMPREHENSIVE INCOME
For the year ended 30 June 2019
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 (loss)/gain on retirement benefit obligations
Movement on pension asset recognition restriction
Release/(recognition) of additional pension liability
Tax relating to components of other comprehensive income
OTHER COMPREHENSIVE INCOME/(EXPENSE) FOR THE YEAR
TOTAL COMPREHENSIVE INCOME FOR THE YEAR
ATTRIBUTABLE TO:
Owners of the Company
Non-controlling interest
105
2018
£m
41.6
(17.8)
1.2
(16.6)
25.0
26.1
(1.1)
25.0
Note
11
27
27
27
11
2019
£m
19.7
(1.6)
(2.2)
(2.5)
(5.4)
(10.1)
34.5
(3.2)
2018
£m
(22.4)
1.3
1.1
2.2
43.4
(2.5)
(39.4)
(0.3)
2019
£m
6.7
13.4
15.8
29.2
35.9
37.1
(1.2)
35.9
FINANCIAL STATEMENTS
106
Genus plc / Annual Report 2019
GROUP STATEMENT OF CHANGES IN EQUITY
For the year ended 30 June 2019
Called up
share
capital
£m
Share
premium
account
£m
Note
BALANCE AT 30 JUNE 2017
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
BALANCE AT 30 JUNE 2018
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
Release of additional pension liability, net of tax
Other comprehensive income/(expense) for the year
Profit for the year
Total comprehensive income/(expense) 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 2019
13
6.1
–
–
–
–
–
–
–
–
–
–
–
–
0.1
6.2
–
–
–
–
–
–
–
–
–
–
–
–
0.3
6.5
112.8
–
–
–
–
–
–
–
–
–
–
–
–
–
112.8
–
–
–
–
–
–
–
–
–
–
–
–
66.2
Own
shares
£m
(0.1)
–
–
–
–
–
–
–
–
–
–
–
–
–
(0.1)
–
–
–
–
–
–
–
–
–
–
–
–
–
Trans-
lation
reserve
£m
Hedging
reserve
£m
Retained
earnings
£m
39.2
(19.7)
1.0
–
–
–
–
(18.7)
–
(18.7)
–
–
–
–
20.5
16.6
(1.3)
–
–
–
–
15.3
–
15.3
–
–
–
–
1.1
–
–
0.9
–
–
–
0.9
–
0.9
–
–
–
–
2.0
–
–
(1.8)
–
–
–
(1.8)
–
(1.8)
–
–
–
–
240.2
–
–
–
36.0
(2.1)
(32.7)
1.2
42.7
43.9
6.0
–
(14.9)
–
275.2
–
–
–
(4.6)
(8.3)
28.7
15.8
7.8
23.6
0.2
–
(16.8)
–
Total
£m
399.3
(19.7)
1.0
0.9
36.0
(2.1)
(32.7)
(16.6)
42.7
26.1
6.0
–
(14.9)
0.1
416.6
16.6
(1.3)
(1.8)
(4.6)
(8.3)
28.7
29.3
7.8
37.1
0.2
–
(16.8)
66.5
Non-
controlling
interest
£m
2.8
–
–
–
–
–
–
–
(1.1)
(1.1)
–
0.8
–
–
2.5
(0.1)
–
–
–
–
–
(0.1)
(1.1)
(1.2)
–
(2.6)
–
–
(1.3)
Total
equity
£m
402.1
(19.7)
1.0
0.9
36.0
(2.1)
(32.7)
(16.6)
41.6
25.0
6.0
0.8
(14.9)
0.1
419.1
16.5
(1.3)
(1.8)
(4.6)
(8.3)
28.7
29.2
6.7
35.9
0.2
(2.6)
(16.8)
66.5
502.3
179.0
(0.1)
35.8
0.2
282.2
503.6
GROUP BALANCE SHEET
As at 30 June 2019
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
Deferred consideration
Obligations under finance leases
Current tax liabilities
Derivative financial liabilities
TOTAL CURRENT LIABILITIES
Interest-bearing loans and borrowings
Retirement benefit obligations
Provisions
Deferred consideration
Non-current income tax liability
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
The Financial Statements were approved and authorised for issue by the Board of Directors on 4 September 2019.
Signed on behalf of the Board of Directors
KARIM BITAR
Chief Executive
STEPHEN WILSON
Group Finance Director
107
Note
2019
£m
2018
£m
14
14
15
16
17
18
24
11
19
15
20
21
24
22
25
23
36
26
24
25
27
23
36
11
24
26
29
29
29
29
37
24
106.3
80.1
307.6
86.0
23.6
7.4
0.4
3.5
614.9
36.0
40.1
98.0
30.5
3.3
1.1
0.2
209.2
824.1
(87.7)
(2.1)
(3.1)
(2.0)
(2.2)
(6.1)
(1.0)
102.0
78.7
305.8
76.9
19.9
5.9
0.3
4.3
593.8
34.2
37.0
91.0
29.1
1.4
2.5
0.2
195.4
789.2
(83.7)
(13.4)
(2.8)
(19.3)
(1.4)
(4.4)
(0.3)
(104.2)
(125.3)
(101.9)
(24.2)
(5.7)
(4.2)
–
(72.0)
(5.7)
(3.9)
(217.6)
(321.8)
502.3
6.5
179.0
(0.1)
35.8
0.2
282.2
503.6
4.2
(5.5)
(1.3)
502.3
(120.7)
(33.9)
(4.5)
(4.2)
(0.9)
(74.8)
(3.7)
(2.1)
(244.8)
(370.1)
419.1
6.2
112.8
(0.1)
20.5
2.0
275.2
416.6
5.7
(3.2)
2.5
419.1
FINANCIAL STATEMENTS
108
Genus plc / Annual Report 2019
GROUP STATEMENT OF CASH FLOWS
For the year ended 30 June 2019
NET CASH FLOW FROM OPERATING ACTIVITIES
CASH FLOWS FROM INVESTING ACTIVITIES
Dividends received from joint ventures and associates
Joint venture loan repayment
Acquisition of trade and assets
Disposal of subsidiary
Payment of deferred consideration
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
Issue of ordinary shares
NET CASH INFLOW/(OUTFLOW) FROM FINANCING ACTIVITIES
NET INCREASE IN CASH AND CASH EQUIVALENTS
Cash and cash equivalents at start of the year
Net increase in cash and cash equivalents
Effect of exchange rate fluctuations on cash and cash equivalents
TOTAL CASH AND CASH EQUIVALENTS AT 30 JUNE
Note
30
36
21
2019
£m
33.4
2.7
0.7
(2.0)
0.4
(21.1)
(17.1)
(11.2)
1.5
–
(46.1)
104.8
(138.9)
(2.0)
(16.8)
66.5
13.6
0.9
29.1
0.9
0.5
30.5
2018
£m
43.2
2.8
–
–
–
(1.8)
(17.8)
(4.7)
0.4
0.3
(20.8)
64.4
(66.5)
(2.2)
(14.9)
0.1
(19.1)
3.3
26.5
3.3
(0.7)
29.1
NOTES TO THE GROUP FINANCIAL STATEMENTS
For the year ended 30 June 2019
109
1. REPORTING ENTITY
Genus plc (the ‘Company’) is a public company limited by shares and 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 2019 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 10 and 11 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 (‘IFRS’) 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 Strategic Report on page 46 and forms part of these statements.
FUNCTIONAL AND PRESENTATIONAL 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 recognised in the Financial Statements.
ALTERNATIVE PERFORMANCE MEASURES
In reporting financial information, the Group presents alternative performance measures (‘APMs’) which are not defined or specified under the
requirements of IFRS and which are not considered to be a substitute for, or superior to, IFRS measures.
The Group believes that these APMs provide stakeholders with additional helpful information on the performance of the business. The APMs are
consistent with how we plan our business performance and report on it in our internal management reporting to the Board and the executive
leadership team. Some of these measures are also used to set remuneration targets.
The key APMs that the Group uses include: adjusted operating profit, adjusted profit before tax from continuing operations, adjusted earnings per
share, net debt and adjusted EBITDA (as calculated under our financing facilities and includes cash received from joint ventures and historical cost
depreciation of biological assets).
The Group reports certain financial measures, on both a reported and constant currency basis. The constant currency basis, which is an APM,
retranslates the current year’s results at the average actual exchange rates used in the previous financial year. This measure eliminates the effects of
exchange rate fluctuations when comparing 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 it considers to be significant in nature and/or quantum and where treatment as an adjusted item provides stakeholders with additional useful
information to assess the Group’s year-on-year trading performance. On this basis, the following were included within adjusted items for the year
ended 30 June 2019:
> net IAS 41 valuation movements on biological assets – these 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 projections rather than current trading;
> amortisation of acquired intangible assets – excluding this improves the comparability between acquired and organically grown operations, as the
latter cannot 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 not fully reflective of the current period trading, as the performance
criteria are based on EPS performance over a three-year period and include estimates of future performance; and
> exceptional items – these are items which due to either their size or their nature are excluded to improve the understanding of the Group’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.
FINANCIAL STATEMENTS
110
Genus plc / Annual Report 2019
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 Statements, 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 distribution costs and selling expenses; and 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 that 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/£
2019
1.29
1.13
4.99
25.04
Average
2018
1.35
1.13
4.51
25.37
2017
1.27
1.16
4.11
24.61
2019
1.27
1.12
4.89
24.40
Closing
2018
1.32
1.13
5.12
26.30
2017
1.30
1.14
4.30
23.51
REVENUE
The Group recognises revenue from the following sources:
> sale of bovine and porcine semen, porcine breeding animals, embryos and ancillary products;
> royalties;
> consulting;
> installation and maintenance of IntelliGen technology; and
> slaughter animal sales.
Revenue is measured based on the consideration the Group expects to be entitled to under a contract with a customer and excludes amounts
collected on behalf of third parties. The Group recognises revenue when it transfers control of a product or service to a customer.
THE SALE OF BOVINE AND PORCINE SEMEN, PORCINE BREEDING ANIMALS, EMBRYOS AND ANCILLARY PRODUCTS
Revenue from the sale of bovine and porcine semen, porcine breeding animals, embryos and ancillary products is recognised when the control of the
goods has transferred to the customer or distributor. This is either when we ship to customers or on delivery, depending on the terms of sale. Payment
of the transaction price is due immediately, or within a short period of time, from the point the customer or distributor controls the goods.
NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUEDFor the year ended 30 June 2019 111
3. SIGNIFICANT ACCOUNTING POLICIES APPLIED IN THE CURRENT REPORTING PERIOD THAT RELATE TO THE FINANCIAL STATEMENTS
AS A WHOLE CONTINUED
INSTALLATION AND MAINTENANCE OF INTELLIGEN TECHNOLOGY
Revenue from the installation of IntelliGen technology is recognised by reference to the stage of completion of the installation and is based on
milestones being met. Maintenance is provided as a distinct service to customers and is recognised over the period of the service agreement.
SLAUGHTER OF ANIMALS
Revenue from the slaughter of animals is recognised when control of the goods has transferred to the slaughter house, which is generally on the
delivery of animals to the slaughter house. Payment of the transaction price is due immediately, or within a short period of time, from the point the
slaughter house controls the goods.
ROYALTIES
Royalties are recognised 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, and from IntelliGen
customers based on the number of sexed straws produced. This amount is confirmed directly to Genus by the customer. Payment of the transaction
price is due immediately from the customer, or within a short period of time, once the performance obligation is satisfied.
CONSULTING
Revenue from consulting represents the amounts we charged for services we provided during the year, including recoverable expenses. We recognise
consulting 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.
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 it is
incurred.
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 development activities, as required by IAS 38 (see note 8).
NEW STANDARDS AND INTERPRETATIONS
In the current period, the Group has applied a number of amendments to IFRS issued by the International Accounting Standards Board that are
mandatorily effective for an accounting period that begins after 1 January 2018 and have been implemented with effect from 1 July 2018. Their
application has not had any material impact on the disclosures or the amounts reported in the Group Financial Statements.
> IFRS 15 – ‘Revenue from Contracts with Customers’;
> IFRS 9 – ‘Financial Instruments’;
> Amendments to IFRS 2 – ‘Classification and Measurement of Share-based Payments Transactions’;
> IFRIC 22 – ‘Foreign Currency Transactions and Advance Consideration’; and
> Annual Improvements to IFRSs 2014–2016.
IFRS 15 ‘Revenue from Contracts with Customers’ replaces IAS 18 ‘Revenue’. It is effective for periods beginning on or after 1 January 2018 and has
therefore been implemented with effect from 1 July 2018. The standard establishes a principles-based approach for revenue recognition and is based
on the concept of recognising revenue for performance obligations only when they are satisfied, and the control of goods or services is transferred. In
doing so, the standard applies a five-step approach to the timing of revenue recognition and applies to all contracts with customers, except those in
the scope of other standards. It replaces the separate models for goods, services and construction contracts under the previous accounting standard.
Following an assessment of the impact of IFRS 15 and based on the straightforward nature of the Group’s revenue streams and the absence of
significant judgement required in determining the timing of transfer of control, the adoption of IFRS 15 has not had a material impact on the timing or
nature of the Group’s revenue recognition.
IFRS 9 ‘Financial Instruments’ replaces IAS 39 ‘Financial Instruments: Recognition and Measurement’. The standard is effective for periods beginning on
or after 1 January 2018 and has been implemented with effect from 1 July 2018. The standard introduces changes to three key areas:
> new requirements for the classification and measurement of financial instruments;
> a new impairment model based on expected credit losses for recognising provisions; and
> simplified hedge accounting through closer alignment with an entity’s risk management methodology.
The adoption of IFRS 9 has not had a material impact on either the Consolidated Income Statement or the Consolidated Statement of Financial
Position.
All equity financial instruments classified as available for sale under IAS 39 were irrevocably re-designated as fair value through other comprehensive
income under IFRS 9 whereby gains or losses will never recycle to the profit and loss, and instead are recognised as movements within retained
earnings in other comprehensive income only. The classification was considered appropriate as the investments are expected to be held for the long
term and are not expected to be sold in the short to medium term.
FINANCIAL STATEMENTS
112
Genus plc / Annual Report 2019
3. SIGNIFICANT ACCOUNTING POLICIES APPLIED IN THE CURRENT REPORTING PERIOD THAT RELATE TO THE FINANCIAL STATEMENTS
AS A WHOLE CONTINUED
On the date of initial application, 1 July 2018, the Group’s Financial Instruments were classified as follows, with any reclassification noted:
Financial instrument
Other investments
Classification under IFRS 9
Fair value through other comprehensive income (previously Available for sale)
Trade and other receivables, excluding prepayments and accrued income
Trade and other payables, excluding other taxes and social security
Amortised cost (previously Amortised cost)
Loans and overdrafts
Derivative instruments
Fair value through profit and loss (previously Fair value through profit and loss)
On initial application there were no changes to carrying value of the Group’s financial instruments. The carrying values on the date of initial application
are equivalent to the amounts reported in note 24 for 30 June 2018.
NEW STANDARDS AND INTERPRETATIONS NOT YET ADOPTED
At the date of the Annual Report, the following standards and interpretations were in issue but not yet effective (and in some cases had not yet been
adopted by the EU) and have therefore not been applied in the report.
> IFRS 16 – ‘Leases’;
> Amendments to IFRS 9 – ‘Prepayment Features with Negative Compensation’;
> Amendments to IAS 28 – ‘Long-term Interests in Associates and Joint Ventures’;
> IFRIC 23 – ‘Uncertainty over Income Tax Treatments’;
> Amendments to IAS 19 – ‘Plan Amendment, Curtailment or Settlement’;
> Amendments to IAS 1 and IAS 8 – ‘Definition of Material’;
> Amendments to IFRS 3 – ‘Definition of a Business’;
> Annual Improvements to IFRS 2015–2017 Cycle; and
> Conceptual Framework for Financial Reporting.
IFRS 16
IFRS 16 ‘Leases’ is effective for periods beginning on or after 1 January 2019. The Group will therefore adopt the standard from 1 July 2019 and
the Group Financial Statements for the year ending 30 June 2020 will be the first prepared under IFRS 16. The Group has adopted the modified
retrospective approach and will recognise the cumulative effect of applying IFRS 16 at the 1 July 2019 transitional date. The prior period will not be
restated.
As a lessee, IFRS 16 removes distinctions between operating and finance leases and requires the recognition of a right of use asset and corresponding
liability for future lease payables. The right of use asset will be subsequently depreciated on a straight-line basis over the life of the lease. Interest will
be recognised on the lease liability. This will result in earlier recognition of expense for leases currently classified as operating leases, although over
the life of a lease the total expense recognised will not change. Right of use assets recognised by the Group comprise property, motor vehicles and
equipment.
The Group has elected not to recognise right of use assets and lease liabilities for leases of low-value assets, and lease payments associated with those
assets will be recognised as an expense on a straight-line basis. The Group will make use of the practical expedient available on transition to IFRS 16
not to reassess whether a contract is or contains a lease. Therefore, the definition of a lease in accordance with IAS 17 ‘Leases’ will continue to apply to
those leases entered into or modified before 1 July 2019. For leases entered into or modified on or after 1 July 2019, a contract will be determined as a
lease if the Group has control of the leased asset, as defined by IFRS 16.
In addition, the Group will utilise the following practical expedients, permitted by IFRS 16:
> the right of use asset for each lease will be measured as the present value of the lease liability adjusted for any prepaid or accrued lease payments
prior to application;
> for leases that were previously classified as an operating lease under IAS 17, the lease liability on 1 July 2019 will be calculated as the present value of
the remaining lease payments using the incremental borrowing rate as at 1 July 2019;
> for existing leases that incurred initial direct costs, these will be excluded from the measurement of the right of use asset as at 1 July 2019;
> we will apply the use of hindsight for existing leases in determining options to extend or terminate the lease;
> we will elect not to separate lease components from non-lease components; and
> we will elect to apply a single discount rate to a portfolio of leases with similar characteristics.
There will be a significant impact on the balance sheet as at 1 July 2019 whereby, on a pre-tax basis, a right of use asset and corresponding lease
liability in the region of £28.0m will be recognised. Additionally, fixed assets of £7.2m relating to existing finance leases will be re-designated as right of
use assets.
Operating profit is expected to increase in the region of £1m due to the depreciation expense being lower than the lease expense it replaces. Profit
before tax is not expected to change materially as increased finance charges will offset the increase in operating profit.
The application of IFRS 16 requires a reclassification of cash flow from operations to net cash used in financing activities; however, the overall impact
to the Group is cash flow neutral.
NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUEDFor the year ended 30 June 2019 113
4. CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY
The preparation of consolidated financial statements requires the Group to make estimates and judgements that affect the application of policies and
reported amounts.
Critical judgements represent key decisions made by management in the application of the Group’s accounting policies where a significant risk of
materially different outcomes exists due to management assumptions or sources of estimation uncertainty. Estimates and judgements are continually
evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under
the circumstances. Actual results may differ from these estimates.
The estimates which have a significant risk of causing a material adjustment to the carrying amount of assets and liabilities within the next 12 months
are discussed below.
CRITICAL ACCOUNTING JUDGEMENTS
ADJUSTING ITEMS
The Directors believe that the adjusted profit and earnings per share measures provide additional information to shareholders on the performance of
the business. These measures are consistent with how business performance is measured internally by the Board and the executive leadership team.
The profit before tax and adjusting items measures are not recognised profit measures under IFRS and may not be directly comparable with adjusted
profit measures used by other companies. The classification of adjusting items requires significant judgement after considering the nature and
intentions of a transaction. The Group’s definitions of adjusting items are outlined within the Group accounting policies and have been applied
consistently year on year.
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 the application of a number of estimates and assumptions.
Below is a list of these 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’.
Estimates and assumptions
Observable/Unobservable
Source
Bovine
Porcine (general)
Porcine
(pure line herds)
Long-term dairy volume growth rate
Short-term dairy volume growth rate
Value at point of production1
Unit prices
Animals’ useful lifespan1
Percentage of new dairy bulls to be produced
internally each year1
Age profile of bulls1
Risk-adjusted discount rate1
Animals’ useful lifespan
The proportion of animals that go to slaughter
The mix of boars and gilts
Risk-adjusted discount rate
Number of future generations attributable to the
current herds
Fair value prices achieved on sales
Animals’ expected useful lifespan and productivity
Risk-adjusted discount rate1
Unobservable
Unobservable
Unobservable
Observable
Observable
Unobservable
Unobservable
Unobservable
Observable
Observable
Observable
Unobservable
Observable
Observable
Observable
Unobservable
1 Key sources of estimation uncertainty.
n/a
n/a
n/a
Readily obtainable
Readily obtainable
n/a
n/a
n/a
Readily obtainable
Readily obtainable
Readily obtainable
n/a
Readily obtainable
Open market prices
Readily obtainable
n/a
FINANCIAL STATEMENTS
114
Genus plc / Annual Report 2019
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 Chief Executive and the Board to allocate resources to the segments and to assess their performance. 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 segmental analysis of revenue, operating profit, depreciation, amortisation, non-current asset additions, segment assets and liabilities and
geographical information is provided below. We do not include our adjusting items in the segments, as we believe these do not reflect the underlying
performance 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
Porcine Product Development
Bovine Product Development
Gene Editing
Other Research and Development
2019
£m
253.7
222.6
9.4
2.8
–
–
12.2
488.5
2018
£m
247.7
210.6
9.8
2.2
–
–
12.0
470.3
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 face of the Group Income Statement.
Adjusted operating profit
Genus PIC
Genus ABS
Research and Development
Porcine Product Development
Bovine Product Development
Gene Editing
Other Research and Development
Adjusted segment operating profit
Central
Adjusted operating profit
2019
£m
93.1
29.9
(18.4)
(19.7)
(7.3)
(9.0)
(54.4)
68.6
(10.9)
57.7
2018
£m
88.7
26.2
(17.0)
(16.6)
(5.0)
(7.6)
(46.2)
68.7
(11.0)
57.7
Our business is not highly seasonal and our customer base is diversified, with no individual customer generating more than 2% of revenue.
Exceptional items of £21.8m expense (2018: £5.9m expense) relate to Genus ABS (£5.1m expense), Genus PIC (£0.1m income) and our Central segment
(£16.8m expense). 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.
NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUEDFor the year ended 30 June 2019 5. SEGMENTAL INFORMATION CONTINUED
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
115
Depreciation
Amortisation
Additions to non-current assets
2019
£m
0.7
2.3
0.5
2.3
3.4
6.2
9.2
3.4
2018
£m
0.8
2.3
0.3
2.0
2.1
4.4
7.5
2.9
12.6
10.4
2019
£m
7.2
2.4
1.2
–
2.9
4.1
13.7
–
13.7
2018
£m
7.0
2.1
1.1
–
3.6
4.7
13.8
–
13.8
2019
£m
1.3
6.8
0.8
3.0
11.5
15.3
23.4
9.4
32.8
2018
£m
2.9
9.7
–
0.8
8.9
9.7
22.3
5.5
27.8
Segment assets
Segment liabilities
2019
£m
262.1
157.1
7.4
200.5
161.5
369.4
788.6
35.5
824.1
2018
£m
235.9
160.6
12.5
209.5
152.8
374.8
771.3
17.9
789.2
2019
£m
(51.6)
(41.9)
(0.6)
(56.1)
(32.8)
(89.5)
(183.0)
(138.8)
(321.8)
2018
£m
(48.3)
(41.2)
(1.3)
(76.5)
(31.1)
(108.9)
(198.4)
(171.7)
(370.1)
(Restated1)
2018
£m
208.6
75.1
60.9
76.7
49.0
470.3
(Restated1)
2018
£m
450.2
37.4
42.2
41.0
18.4
589.2
GEOGRAPHICAL INFORMATION
The Group’s revenue by geographical segment is analysed below. This analysis is stated on the basis of where the customer is located.
Revenue
North America
Latin America
Rest of Europe, Middle East, Russia and Africa
UK
Asia
2019
£m
211.8
81.1
67.7
83.7
44.2
488.5
Non-current assets (excluding deferred taxation and financial instruments)
The Group’s non-current assets by geographical segment are analysed below and are stated on the basis of where the assets are located.
North America
Latin America
Rest of Europe, Middle East, Russia and Africa
UK
Asia
2019
£m
420.7
45.7
59.3
70.6
14.7
611.0
1
Following a change in our internal reporting, the revenue and non-current assets attributable to Russia, which were previously included within ‘Asia’, have been reclassified to
the ‘Rest of Europe, Middle East, Russia and Africa’ geographical segment in the year. In accordance with IFRS 8 the comparatives have been restated.
FINANCIAL STATEMENTS
116
Genus plc / Annual Report 2019
6. REVENUE
Sale of animals, semen, embryos, products and services
Royalties – animal and semen
Consulting services
2019
£m
358.9
122.0
7.6
488.5
(Restated1)
2018
£m
352.2
110.7
7.4
470.3
1
Revenue of £11.7m reported at 30 June 2018 has been reclassified from ‘Royalties – animal and semen’ to ‘Sale of animals, semen, embryos, products and services’. There is no
impact to the overall revenue reported.
REVENUE FROM CONTRACTS WITH CUSTOMERS
The Group’s revenue is analysed below and stated by the timing at which it is recognised.
Genus PIC
Genus ABS
Research and Development
Recognised at a point in time
Genus PIC
Genus ABS
Research and Development
Recognised over time
Total revenue
2019
£m
251.3
200.3
12.2
463.8
2.4
22.3
–
24.7
2018
£m
245.5
192.3
12.0
449.8
2.2
18.3
–
20.5
488.5
470.3
The transaction price allocated to partially unsatisfied performance obligations at 30 June 2019 is £8.4m. It is expected that the Group will recognise
this revenue over the next five years.
7. EXCEPTIONAL ITEMS
ACCOUNTING POLICY
We present exceptional items separately, as we believe it helps to improve the understanding of the Group’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 has been directly incurred as the result of either an acquisition, 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.
For the tax and cash impact of exceptional items see notes 11 and 30, respectively.
Operating (expense)/income:
Pension related
Litigation
Acquisition and integration
Other
2019
£m
(15.2)
(5.0)
(0.7)
(0.9)
(21.8)
2018
£m
–
(5.0)
(1.2)
0.3
(5.9)
PENSION RELATED
In October 2018, the High Court handed down judgment in the Lloyds Bank pensions case, requiring pension schemes to equalise Guaranteed
Minimum Pensions (‘GMPs’). Genus’s legacy pension schemes are affected by this ruling, resulting in an aggregate past service charge of £16.1m in the
period, partially offset by a settlement gain of £0.9m (net of fees).
The judgment also confirmed the range of permissible equalisation methods to calculate the costs and that the sponsoring company may direct
the trustees to use the lowest cost method. There is some uncertainty about the final calculation of GMP equalisation costs, due to the treatment of
certain past events which are still to be determined. Accordingly, we have not made any allowances for additional costs that could potentially arise
once the treatment of backdated claims and transfers has been agreed (see note 27).
NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUEDFor the year ended 30 June 2019
117
7. EXCEPTIONAL ITEMS CONTINUED
LITIGATION
Litigation includes legal fees of £5.0m (2018: £5.0m) related to the actions between ABS Global, Inc. (‘ABS’) and Inguran, LLC (aka Sexing
Technologies (‘ST’)).
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, which ST later claimed were infringed by ABS.
On 11 January and 15 April 2016, the Patent Trial and Appeal Board (‘PTAB’) ruled that US Patent No. 7,195,920 (the ‘‘920 patent’) and US Patent No.
7,820,425 (the ‘‘425 patent’) were unpatentable. ST appealed these decisions, and on 23 May 2018, the federal court of appeals confirmed that the
‘920 and ‘425 patents were unpatentable. On 14 July 2015 and 2 October 2017, PTAB declined to revoke US Patent No. 8,206,987 (the ‘‘987 patent’) and
US Patent No. 8,198,092 (the ‘‘092 patent’) respectively. ABS appealed the ‘092 patent decision, and the court of appeals affirmed the decision on
7 February 2019. The validity of the ‘987 patent was considered as part of the ABS Action appeal, addressed below.
On 31 March 2017, the Court entered a judgment in the ABS Action 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
$750,000 and an ongoing royalty of $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 upfront payment of $500,000 and an ongoing royalty of $0.50 per straw for the use of ST’s ’092 patent in
the US; (iii) ABS should pay XY LLC damages of $750,000 for the use of certain XY trade secrets; and (iv) ABS had breached the confidentiality obligations
under the 2012 semen sorting agreement.
Damages of $1,250,000 were paid by ABS to ST shortly after the Court’s decision in the ABS Action, and ABS has subsequently amended its technology
such that it does not infringe the ‘092 patent claims. ABS has informed ST that it does not intend to pay the $0.50 royalty going forward. Claims for legal
fees and costs (and post-judgment interest) already incurred in connection with the ABS Action were filed by both parties.
On 27 September 2018, the court awarded ABS legal fees of approximately $4.8 million and ST legal costs of approximately $22,000. ST appealed this
decision, and on 4 June 2019, the Court of Appeals vacated the original award for further consideration after the final resolution of the entire 2014
action, as discussed below. No credit has been accounted for this award pending the appeal.
ABS also appealed the ‘987 patent and the breach of contract decisions and the appeal hearing was heard on 20 February 2018. On 29 January 2019,
the Court of Appeals accepted, in part, ABS’s appeal and reversed the decision of the district court not to allow a new ‘987 patent trial. A date for the
new ‘987 trial is identified below, and the district court will revisit the question of legal costs and fees following the resolution of the new trial.
On 7 June 2017, ST, XY LLC and Cytonome/ST, LLC filed proceedings against ABS, 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 alleged that ABS and the Company infringe seven
further patents and asserts trade secret and breach of contract claims. ABS and the Company have filed an Answer and Counterclaim confirming that
they do not infringe any valid patent and alleging, among other things, that ST has breached its 2012 semen sorting agreement with ABS by failing to
produce sorted semen that complies with the contractual specifications. In addition, ABS has filed six IPRs seeking to revoke the additional patents
raised in the New Litigation. PTAB instituted hearings in relation to three IPRs and refused to institute hearings on two other IPRs. In relation to the final
IPR, relating to U.S. Patent No. 7,208,265 (‘‘265 patent’), ST requested an adverse judgment. ST has subsequently dismissed its ‘265 patent infringement
claim from the New Litigation and ABS has also dismissed its anti-trust and unfair competition counter-claims. ABS filed Motions for Rehearing in
relation to the IPRs that were not instituted, and these Motions were denied on 14 December 2018.
The hearing date for the New Litigation had been set for 1 April 2019. However, on 21 February 2019, the Court noted that it intended to issue multiple
opinions on the parties’ summary judgment motions, and while those opinions were not wholly dispositive of the issues in dispute, for the reasons to
be explained in the Court’s opinions, the 1 April hearing date was struck. On 26 February 2019, the Court issued a summary judgment opinion finding
that: (i) ST’s trade secret misappropriation and breach of contract claims were barred by the decision in the ABS Action; (ii) the asserted claims of US
patent 6,524,860 were invalid; and (iii) the asserted claim of US patent 9,365,822 was invalid.
In early April 2019, PTAB held that all of the relevant claims of ST’s US patent 9,446,912 (“912 patent’) were unpatentable and that some of the claims
of US patent 8,529,161 (“161 patent’) were also unpatentable, while others were patentable. On 29 April 2019, the Court issued its second summary
judgment opinion, granting in part and denying in part ABS’s motions. In summary, the Court: (i) confirmed ABS’ non-infringement of the ’161 and ’912
patents; (ii) confirmed non-infringement by ABS under most of ST’s theories of infringement in relation to the US patents 7,311,476 (“476 patent’) and
7,611,309 (“309 patent’); and (iii) denied all of ST’s motions for partial summary judgment.
FINANCIAL STATEMENTS
118
Genus plc / Annual Report 2019
7. EXCEPTIONAL ITEMS CONTINUED
The Court scheduled a trial for 3 September 2019, for the remaining theories of infringement, and the parties agreed to consolidate this hearing with
the ‘987 re-trial on invalidity. From the seven patents initially asserted against ABS in the New Litigation, only the ‘476 and ‘309 patents remain. The
five other ST patents, along with the trade secrets claim, initially asserted by ST, have either been struck out, found invalid, found not to be infringed
or been withdrawn. The Company and ABS will continue to pursue vigorously their breach of contract counter-claim, defend the remaining patent
infringement claims and seek the invalidity of the ‘987 patent.
ACQUISITIONS AND INTEGRATION
During the year, £0.7m of expenses were incurred in relation to acquisitions and integration, principally of Møllevang and Progenex S.L. (see note 36).
OTHER
Included within ‘Other’ are £1.5m of expenses which relate to our strategic porcine collaboration in China and an insurance receipt of £0.6m from a
legacy environmental claim.
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 and impairment of technology, software 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
Profit on disposal of fixed assets
Profit on disposal of intangible fixed assets
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 its associates for the audit of the Company’s Annual Report and Financial Statements
Fees payable to the Company’s auditor and its associates for 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
2019
£m
(204.8)
(14.7)
(0.3)
(219.8)
(97.7)
(6.5)
(104.2)
(54.9)
(6.0)
(60.9)
(68.0)
(3.0)
(2.1)
(21.8)
(94.9)
2018
£m
(196.6)
(28.7)
(0.3)
(225.6)
(91.0)
(6.2)
(97.2)
(45.5)
(5.9)
(51.4)
(75.2)
(5.4)
(1.4)
(5.9)
(87.9)
(479.8)
(462.1)
2019
£m
0.4
10.6
2.0
–
(0.1)
3.2
3.0
154.1
88.8
2019
£m
0.3
0.5
0.8
0.1
–
0.1
0.9
–
2018
£m
0.2
8.5
1.9
(0.1)
–
4.0
4.3
147.4
92.6
2018
£m
0.3
0.5
0.8
0.1
–
0.1
0.9
–
Non-audit tax services principally comprise tax compliance support services. These services fall within the non-audit services policy approved by the
Company’s Audit Committee.
NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUEDFor the year ended 30 June 2019 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)
119
2019
£m
136.6
13.3
4.4
2.7
157.0
2018
£m
127.5
12.7
3.6
4.6
148.4
The employee costs above include £2.9m (2018: £1.0m) which has been capitalised into intangible assets as part of the development of GenusOne (see
note 14).
The average monthly number of employees and full-time equivalent employees, including Directors, was as follows:
Genus PIC
Genus ABS
Research and Development
Central
Included in the totals above:
UK
No. of employees
Full-time equivalent
2019
Number
2018
Number
2019
Number
2018
Number
705
1,803
329
127
2,964
707
1,749
219
112
2,787
655
1,707
324
122
2,809
658
1,665
215
104
2,642
818
766
753
707
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 expense 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
Net settlement income on derivative financial instruments
Total interest income
Net finance costs
2019
£m
(3.3)
(0.4)
(0.1)
(0.9)
–
(4.7)
0.2
0.6
0.8
(3.9)
2018
£m
(3.0)
(0.4)
(0.2)
(1.0)
(0.2)
(4.8)
0.2
–
0.2
(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.
FINANCIAL STATEMENTS
120
Genus plc / Annual Report 2019
11. TAXATION AND DEFERRED TAXATION CONTINUED
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.
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 credit in the Group Income Statement
Total income tax expense/(credit) excluding share of income tax of equity accounted investees
Share of income tax of equity accounted investees (see note 17)
Total income tax expense/(credit) 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 19.0% (2018: 19.0%)
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
Change in provisions
Tax on undistributed reserves
Total income tax expense in the Group Income Statement
2019
%
19.0
52.3
14.3
(43.3)
(3.5)
6.2
(1.8)
(14.9)
11.5
0.9
40.7
2019
£m
9.9
1.4
11.3
2.2
5.9
1.6
(4.9)
(0.4)
0.7
(0.2)
(1.7)
1.3
0.1
4.6
2019
£m
12.6
(0.9)
11.7
(7.7)
(0.8)
(8.5)
3.2
1.4
4.6
2018
%
19.0
–
25.3
(27.8)
(350.4)
(2.3)
(1.4)
(2.8)
1.4
(8.3)
(347.3)
2018
£m
11.7
0.9
12.6
(45.3)
(1.1)
(46.4)
(33.8)
1.5
(32.3)
2018
£m
7.8
1.5
9.3
1.8
–
2.3
(2.6)
(32.6)
(0.2)
(0.1)
(0.2)
0.1
(0.8)
(32.3)
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.
In the prior year, the effective tax rate of (347.3)% was lower than the UK corporation tax rate of 19% primarily due to the impact of the Tax Cuts and
Jobs Act (US Tax Reform), enacted on 22 December 2017, which reduced the US Federal corporate income tax rate from 35% to 21%. This resulted in a
one-off non-cash tax credit of £32.5m as a result of the remeasurement of the Group’s US deferred tax liabilities in the prior period.
NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUEDFor the year ended 30 June 2019 121
11. TAXATION AND DEFERRED TAXATION CONTINUED
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.
In October 2017, the European Commission announced that it would be conducting a State Aid investigation into the Group Financing Partial
Exemption (‘FINCO exemption’) contained within the UK’s controlled foreign company (‘CFC’) legislation. The Commission’s decision was announced
in April 2019 and found that this exemption constituted partial state aid in situations where profits previously availing of the FINCO exemption were
attributable to Significant People Functions (‘SPFs’) in the UK.
The UK government has appealed the Commission’s decision and there is still considerable uncertainty as to how any final liability under this ruling
and attribution to UK SPFs will be determined in practice. The maximum potential exposure if all the relief previously claimed by the Group was
repayable would be £4.3m, but the Commission’s final decision that the aid is limited to profits attributable to UK SPFs and the potential availability
of alternative reliefs will likely result in a substantially lower liability arising. Based on our current interpretation of the relevant legislation and
management’s judgement, the Group has partially provided in the current year against these previously claimed reliefs based on an initial assessment.
The tax credit attributable to exceptional items is £3.9m (2018: credit of £1.6m).
INCOME TAX RECOGNISED DIRECTLY IN THE STATEMENT OF COMPREHENSIVE INCOME AND STATEMENT OF CHANGES IN EQUITY
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 Comprehensive Income
Share-based payment expense
Change of non-controlling interest deferred tax on biological assets and intangibles
Income tax recognised directly to the Statement of Changes in Equity
2019
£m
0.4
(0.3)
(3.2)
(2.6)
(5.7)
–
–
–
2018
£m
0.2
0.2
0.3
(2.6)
(1.9)
(1.4)
(0.8)
(2.2)
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 £14.4m
(2018: £14.5m). We have recognised a deferred tax asset in respect of £2.9m (2018: £2.2m) 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 £11.5m
(2018: £12.3m), due to uncertainty about the availability of future taxable profits in the relevant jurisdictions.
At 30 June 2019, 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
1–10
years
£m
–
0.2
0.2
11–20
years
£m
0.2
0.1
0.3
Unlimited
£m
2.7
11.2
13.9
At 30 June 2018, 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
1–10
years
£m
–
–
–
11–20
years
£m
0.1
–
0.1
Unlimited
£m
2.1
12.3
14.4
Total
£m
2.9
11.5
14.4
Total
£m
2.2
12.3
14.5
FINANCIAL STATEMENTS
122
Genus plc / Annual Report 2019
11. TAXATION AND DEFERRED TAXATION CONTINUED
The gross value of losses for which deferred tax assets are recognised is £16.7m (2018: £12.7m). The gross value of losses for which deferred tax assets
are not recognised is £37.9m (2018: £42.3m).
We have not recognised deferred tax liabilities totalling £2.3m (2018: £2.0m) 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 analysis of deferred tax balances is set out below:
Deferred tax assets
Deferred tax liabilities
2019
£m
(3.5)
72.0
68.5
2018
£m
(4.3)
74.8
70.5
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.
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
Changes in
tax rate
recognised
in income
statement
£m
Prior year
adjustments
recognised in
income
statement
£m
Recognised
in income
statement
£m
(0.5)
(1.5)
(3.2)
(1.4)
0.2
(0.6)
(0.6)
(7.6)
(0.1)
(0.2)
(0.1)
–
–
0.2
0.1
(0.1)
–
0.2
–
–
–
(0.9)
(0.1)
(0.8)
Recognised
in income
statement
£m
Changes in tax
rate recognised
in income
statement
£m
Prior year
adjustments
recognised in
income
statement
£m
(0.8)
(2.4)
(10.2)
1.1
(0.1)
(0.7)
0.4
(12.7)
(3.0)
(3.6)
(29.3)
0.7
–
2.6
–
(32.6)
0.3
(0.5)
0.6
0.3
–
(1.6)
(0.2)
(1.1)
As at
1 July
2018
£m
4.9
13.0
70.7
(6.0)
(3.4)
(6.5)
(2.2)
70.5
As at
1 July
2017
£m
8.6
20.8
111.7
(8.5)
(2.6)
(7.2)
(2.4)
120.4
Recognised
in equity
£m
Acquisitions
£m
Foreign
exchange
difference
£m
–
–
3.0
3.1
0.5
(0.8)
–
5.8
–
(1.1)
1.5
–
–
–
–
0.4
0.2
0.3
–
(0.1)
–
(0.1)
–
0.3
Recognised
in equity
£m
Acquisitions
£m
Foreign
exchange
difference
£m
–
(1.3)
(2.1)
0.3
(0.7)
0.2
–
(3.6)
–
–
–
–
–
–
–
–
(0.2)
–
–
0.1
–
0.2
–
0.1
As at
30 June
2019
£m
4.5
10.7
71.9
(4.4)
(2.7)
(8.7)
(2.8)
68.5
As at
30 June
2018
£m
4.9
13.0
70.7
(6.0)
(3.4)
(6.5)
(2.2)
70.5
NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUEDFor the year ended 30 June 2019 123
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
2019
(pence)
12.4
2018
(pence)
69.7
The calculation of basic earnings per share from continuing operations for the year ended 30 June 2019 is based on the net profit attributable to
owners of the Company from continuing operations of £7.8m (2018: £42.7m) and a weighted average number of ordinary shares outstanding of
63,141,000 (2018: 61,234,000), 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
Share placement
Shares issued on exercise of stock options
Shares issued in relation to Employee Benefit Trust
Weighted average number of ordinary shares in year
DILUTED EARNINGS PER SHARE FROM CONTINUING OPERATIONS
Diluted earnings per share
2019
000s
61,542
(405)
1,697
6
301
63,141
2019
(pence)
11.9
2018
000s
61,162
(180)
–
20
232
61,234
2018
(pence)
68.7
The calculation of diluted earnings per share from continuing operations for the year ended 30 June 2019 is based on the net profit attributable to
owners of the Company from continuing operations of £7.8m (2018: £42.7m) and a weighted average number of ordinary shares outstanding, after
adjusting for the effects of all potential dilutive ordinary shares, of 65,304,000 (2018: 62,120,000), which is calculated as follows:
WEIGHTED AVERAGE NUMBER OF ORDINARY SHARES (DILUTED)
Weighted average number of ordinary shares (basic)
Dilutive effect of share options
Impact of share placement
Weighted average number of ordinary shares for the purposes of diluted earnings per share
ADJUSTED EARNINGS PER SHARE FROM CONTINUING OPERATIONS
Adjusted earnings per share
Diluted adjusted earnings per share
2019
000s
63,141
763
1,400
65,304
2019
(pence)
73.2
70.7
2018
000s
61,234
886
–
62,120
2018
(pence)
75.9
74.9
Adjusted earnings per share is calculated on profit before the 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 £46.2m (2018: £46.5m), 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
2019
£m
9.9
14.7
9.5
3.0
21.8
1.1
1.4
(0.4)
61.0
(14.8)
46.2
2018
£m
7.8
28.7
9.5
5.4
5.9
0.5
1.5
(0.8)
58.5
(12.0)
46.5
24.3%
20.5%
FINANCIAL STATEMENTS
124
Genus plc / Annual Report 2019
12. EARNINGS PER SHARE CONTINUED
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
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
2019
Profit
£m
11.3
14.7
9.5
3.0
21.8
1.1
(0.4)
61.0
2018
Profit
£m
9.3
28.7
9.5
5.4
5.9
0.5
(0.8)
58.5
2019
Tax
£m
4.6
3.3
2.1
0.5
3.9
0.4
–
14.8
2018
Tax
£m
(32.3)
38.8
3.1
0.9
1.6
–
(0.1)
12.0
13. DIVIDENDS
Dividends are one type of shareholder return, historically paid to our shareholders in late November/early December and late March.
AMOUNTS RECOGNISED AS DISTRIBUTIONS TO EQUITY HOLDERS IN THE YEAR
Final dividend
Final dividend for the year ended 30 June 2018 of 17.9 pence per share
Final dividend for the year ended 30 June 2017 of 16.2 pence per share
Interim dividend
Interim dividend for the year ended 30 June 2019 of 8.9 pence per share
Interim dividend for the year ended 30 June 2018 of 8.1 pence per share
2019
£m
11.0
–
5.8
–
16.8
2019
%
40.7
22.4
22.1
16.7
17.9
36.4
–
24.3
2018
%
(347.3)
135.2
32.6
16.7
27.1
–
12.5
20.5
2018
£m
–
9.9
–
5.0
14.9
The Directors have proposed a final dividend of 18.8 pence per share for 2019. 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
IntelliGen development project.
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.
NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUEDFor the year ended 30 June 2019
125
14. INTANGIBLE ASSETS CONTINUED
We state goodwill at cost less any accumulated impairment losses. We allocate goodwill to cash-generating units (‘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 ‘The Effects of Changes in Foreign Exchange Rates’ 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.
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
Multiplier contracts
Customer relationships
IntelliGen
Patents and licences
Software
20 years
15 years
10 to 17 years
10 years
term of agreement (4 years)
2 to 10 years
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, which is derived from the Group’s weighted average cost of capital (‘WACC’). 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 the CGU, 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.
FINANCIAL STATEMENTS
126
Genus plc / Annual Report 2019
14. INTANGIBLE ASSETS CONTINUED
Cost
Balance at 1 July 2017
Additions
Reclassified from tangible fixed assets
Transfer between classes
Disposals
Effect of movements in exchange rates
Balance at 30 June 2018
Additions
Acquisitions (note 36)
Disposals
Effect of movements in exchange rates
Balance at 30 June 2019
Amortisation and impairment losses
Balance at 1 July 2017
Reclassified from tangible fixed assets
Amortisation for the year
Effect of movements in exchange rates
Balance at 30 June 2018
Impairment
Disposals
Amortisation for the year
Effect of movements in exchange rates
Balance at 30 June 2019
Carrying amounts
At 30 June 2019
At 30 June 2018
At 30 June 2017
Brand,
multiplier
contracts and
customer
relationships
£m
Separately
identified
acquired
intangible
assets
£m
Software
including
assets under
construction
£m
Technology
£m
Patents,
licences
and other
£m
IntelliGen
£m
Total
£m
Goodwill
£m
53.4
–
–
(1.3)
–
(0.4)
51.7
–
–
–
1.3
53.0
24.8
–
3.0
(0.1)
27.7
–
–
2.7
0.4
30.8
22.2
24.0
28.6
82.3
–
–
–
–
(1.8)
80.5
–
1.8
–
2.8
135.7
–
–
(1.3)
–
(2.2)
132.2
–
1.8
–
4.1
85.1
138.1
47.9
–
6.5
(0.7)
53.7
–
–
6.8
1.3
61.8
23.3
26.8
34.4
72.7
–
9.5
(0.8)
81.4
–
–
9.5
1.7
92.6
45.5
50.8
63.0
8.8
3.6
1.9
1.3
–
(0.2)
15.4
10.2
–
(0.1)
0.2
25.7
7.5
0.4
1.4
–
9.3
1.2
(0.1)
1.0
0.2
11.6
14.1
6.1
1.3
21.3
1.1
–
–
–
(0.2)
22.2
1.0
–
–
0.8
24.0
0.4
–
2.1
–
2.5
–
–
2.1
0.4
5.0
19.0
19.7
20.9
4.1
–
–
–
(0.2)
–
3.9
0.5
–
(0.1)
0.1
4.4
1.0
–
0.8
–
1.8
–
–
1.1
–
2.9
1.5
2.1
3.1
169.9
4.7
1.9
–
(0.2)
(2.6)
173.7
11.7
1.8
(0.2)
5.2
104.7
–
–
–
–
(2.7)
102.0
–
1.1
–
3.2
192.2
106.3
81.6
0.4
13.8
(0.8)
95.0
1.2
(0.1)
13.7
2.3
112.1
80.1
78.7
88.3
–
–
–
–
–
–
–
–
–
–
106.3
102.0
104.7
Included within the software class of assets is £11.0m of costs capitalised in relation to software assets that are in the course of construction. Of this,
£9.8m relates to the ongoing development of GenusOne, a single global enterprise system.
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
2019
£m
73.0
33.3
2018
£m
70.8
31.2
106.3
102.0
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 IntelliGen technologies.
NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUEDFor the year ended 30 June 2019 127
14. INTANGIBLE ASSETS CONTINUED
We have estimated the pre-tax discount rate using the Group’s WACC. We risk-adjusted the discount rate for risks specific to each market, adding
between nil and 10% to the WACC as appropriate. The post-tax WACC of 9.8% (2018: 8.7%) we applied to our cash flow projections equates to a
pre-tax rate of approximately 13.0% (2018: 11.4%). 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. A growth rate of 2.5% (2018: 2.5%) has been used to extrapolate cash flows beyond this period. Short-term
profitability and growth rates are based on past experience, current trading conditions and our expectations of future changes in the market.
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 premium used to adjust
discount rate
Short-term growth rates (CAGR)
Long-term growth rates
2019
2018
2019
nil–10%
nil–10%
nil–10%
nil–10%
6–29%
9–19%
2018
6–23%
8–20%
2019
2.5%
2.5%
2018
2.5%
2.5%
Weighted average risk-adjusted
discount rate
Weighted average short-term
growth rates (CAGR)
2019
10%
10%
2018
9%
9%
2019
13%
14%
2018
10%
11%
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
Management has performed sensitivity analysis on the key assumptions with other variables held constant, with other variables simultaneously
changed and incorporating the potential impact of the principal risks and uncertainties outlined on pages 44 to 45, in particular the impacts of
biosecurity, market down turns, continuity of supply and increased competition taking into account the likely degree of available mitigating actions.
Management has concluded that there are no reasonably possible changes in any one of the key assumptions that would cause the carrying amounts
of goodwill to exceed the value in use of PIC and ABS.
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 and milk and meat quality, for the global dairy and meat supply chain. We recognise that
accounting for biological assets is an area which includes key sources of estimation uncertainty. These are outlined in 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.
FINANCIAL STATEMENTS
128
Genus plc / Annual Report 2019
15. BIOLOGICAL ASSETS CONTINUED
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.
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 all bulls, on the net cash flows we expect to receive from selling their semen, discounted at a current risk-adjusted
market-determined pre-tax rate. The significant assumptions determining the fair values are the expected future demand for semen, the estimated
biological value, and the marketable life of bulls. The biological value is the estimated value at the point of production. We adjust the fair value of
the bovine herd and semen inventory where a third party earns a royalty from semen sales from a particular bull. 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.
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 THE GROUP DOES NOT RETAIN A CONTRACTUAL INTEREST
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.
NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUEDFor the year ended 30 June 2019 15. BIOLOGICAL ASSETS CONTINUED
Fair value of biological assets
Non-current biological assets
Current biological assets
Balance at 30 June 2017
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 2018
Non-current biological assets
Current biological assets
Balance at 30 June 2018
Increases due to purchases
Decreases attributable to sales
Decrease due to harvest
Changes in fair value less estimated sale costs
Effect of movements in exchange rates
Balance at 30 June 2019
Non-current biological assets
Current biological assets
Balance at 30 June 2019
129
Total
£m
309.3
43.8
353.1
126.4
(194.7)
(55.5)
95.7
25.1
(7.3)
342.8
305.8
37.0
342.8
126.7
(191.5)
(47.5)
104.4
12.8
347.7
307.6
40.1
347.7
Bovine
£m
137.5
–
137.5
9.1
–
(35.5)
(4.2)
–
(2.9)
104.0
104.0
–
104.0
9.2
–
(25.3)
7.2
3.6
98.7
98.7
–
98.7
Porcine
£m
171.8
43.8
215.6
117.3
(194.7)
(20.0)
99.9
25.1
(4.4)
238.8
201.8
37.0
238.8
117.5
(191.5)
(22.2)
97.2
9.2
249.0
208.9
40.1
249.0
Bovine biological assets include £3.9m (2018: £6.7m) representing the fair value of bulls owned by third parties but managed by the Group, net of
expected future payments to such third parties, which are therefore treated as assets held under finance leases.
There were 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 weighted risk-adjusted
cost of capital. This has been assessed as 8.7% (2018: 8.7%).
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.
In porcine, included in increases due to purchases is the aggregate increase arising during the year on initial recognition of biological assets in respect
of multiplier purchases, other than parent gilts, of £36.3m (2018: £47.7m).
Decreases attributable to sales during the year of £191.5m (2018: £194.7m) include £71.4m (2018: £71.9m) 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.
Also included is £85.4m (2018: £88.2m) relating to the fair value of the retained interest in the genetics in respect of animals, other than parent gilts, sold
to customers under royalty contracts in the year.
Total revenue in the year, including parent gilts, includes £179.6m (2018: £159.6m) in respect of these contracts, comprising £57.6m (2018: £48.9m) on
initial transfer of animals and semen to customers and £122.0m (2018: £110.7m) in respect of royalties received.
For pure line porcine herds, the net cash flows from the expected output of the herds are discounted at the Group’s required rate of return, adjusted for
the greater risk implicit in including output from future generations. This risk-adjusted rate has been assessed as 11.0% (2018: 11.0%). The number of
future generations which have been taken into account is seven (2018: seven) and their estimated useful lifespan is 1.4 years (2018: 1.4 years).
FINANCIAL STATEMENTS
130
Genus plc / Annual Report 2019
15. BIOLOGICAL ASSETS CONTINUED
YEAR ENDED 30 JUNE 2019
Net IAS 41 valuation movement on biological assets1
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
YEAR ENDED 30 JUNE 2018
Net IAS 41 valuation movement on biological assets1
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
7.2
(20.0)
–
(12.8)
–
(12.8)
97.2
(22.2)
(77.2)
(2.2)
0.3
(1.9)
Bovine
£m
Porcine
£m
(4.2)
(29.8)
–
(34.0)
–
(34.0)
99.9
(20.0)
(75.1)
4.8
0.5
5.3
104.4
(42.2)
(77.2)
(15.0)
0.3
(14.7)
Total
£m
95.7
(49.8)
(75.1)
(29.2)
0.5
(28.7)
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.
FAIR VALUE MEASUREMENT
All of the biological assets' inputs fall under Level 3 of the hierarchy defined in IFRS 13. Significant increases/(decreases) in any of these inputs in
isolation would result in a significantly lower or higher fair value measurement.
UNOBSERVABLE INPUTS
Bovine
Risk-adjusted discount rate
Value at point of production
% of new dairy bulls to be produced
internally in future years
Age profile of Holstein bulls generating
future sales
Age profile of US beef on dairy bulls
generating future sales
Long-term dairy volume growth rate
Short-term dairy volume growth rate
Porcine
Risk-adjusted discount rate – upfront
prices
Risk-adjusted discount rate – pure line
herd
2019 Sensitivity
8.7% 1 percentage point increase in the discount rate would result in
approximately a £2.9m reduction in value.
37.5% 1 percentage point decrease in the rate would result in
FY20 49%
FY21 61%
FY22 72%
FY23 and thereafter 79%
FY20 – avg age 4.0 yrs
FY21 – avg age 3.9 yrs
FY22 – avg age 3.9 yrs
FY23 and thereafter – avg age 3.8 yrs
FY20 – avg age 5.1 yrs
FY21 – avg age 5.6 yrs
FY22 – avg age 5.2 yrs
FY23 and thereafter – avg age 5.3 yrs
approximately a £4.2m reduction in value.
If % remained at FY19 level of 48% there would be a decrease in
value of approximately £4.4m.
If age profile remains at FY19 average age of 4.1 years, there would
be an increase in value of approximately £4.3m.
If age profile remains at FY19 average age of 4.2 years, there would
be a decrease in value of approximately £1.9m.
1.4% 1 percentage point decrease in the growth rate would result in
approximately a £0.2m reduction in value.
4.4% 1 percentage point decrease in the growth rate would result in
approximately a £1.6m reduction in value.
8.8% 1 percentage point increase in the discount rate would result in
approximately a £0.3m reduction in value.
11% 1 percentage point increase in the discount rate would result in
approximately a £3.1m reduction in value.
NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUEDFor the year ended 30 June 2019
15. BIOLOGICAL ASSETS CONTINUED
Additional information
BOVINE
Quantities at year end
Number of bulls in production
Number of bulls under development (including calves)
Total number of bulls
Number of doses of semen valued in inventory
Amounts during the year
Fair value of agricultural produce – semen harvested during the year
PORCINE
Quantities at year end
Number of pigs (own farms)
Number of pigs, excluding parent gilts, despatched on a royalty basis and valued at fair value
Amounts during the year
Fair value of agricultural produce – semen harvested during the year
131
2019
2018
644
982
1,626
628
979
1,607
10.9m
10.2m
£25.3m
£35.5m
97,468
88,091
80,992
87,431
£22.2m
£20.0m
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.
FINANCIAL STATEMENTS
132
Genus plc / Annual Report 2019
16. PROPERTY, PLANT AND EQUIPMENT CONTINUED
Cost or deemed cost
Balance at 1 July 2017
Additions
Reclassification to intangible assets
Transfer
Disposals
Effect of movements in exchange rates
Balance at 30 June 2018
Additions
Transfer
Disposals
Effect of movements in exchange rates
Balance at 30 June 2019
Depreciation and impairment losses
Balance at 1 July 2017 (restated)1
Depreciation for the year
Reclassification to intangible assets
Disposals
Effect of movements in exchange rates
Balance at 30 June 2018
Depreciation for the year
Disposals
Effect of movements in exchange rates
Balance at 30 June 2019
Carrying amounts
At 30 June 2019
At 30 June 2018
At 30 June 2017 (restated)1
Land and
buildings
£m
Plant, motor
vehicles and
equipment
£m
Assets under
construction
£m
51.7
4.7
–
2.0
(0.3)
(1.6)
56.5
1.0
3.5
(1.6)
2.7
62.1
16.5
2.5
–
(0.3)
(0.6)
18.1
3.0
(1.5)
1.2
20.8
41.3
38.4
35.2
66.4
10.6
(0.7)
7.3
(4.2)
(1.3)
78.1
10.1
6.0
(6.0)
3.1
91.3
41.0
7.9
(0.4)
(3.9)
(1.0)
43.6
9.6
(4.7)
2.8
51.3
40.0
34.5
25.4
6.9
7.8
(1.2)
(9.3)
–
(0.2)
4.0
10.0
(9.5)
(0.1)
0.3
4.7
–
–
–
–
–
–
–
–
–
–
4.7
4.0
6.9
Total
£m
125.0
23.1
(1.9)
–
(4.5)
(3.1)
138.6
21.1
–
(7.7)
6.1
158.1
57.5
10.4
(0.4)
(4.2)
(1.6)
61.7
12.6
(6.2)
4.0
72.1
86.0
76.9
67.5
1 Accumulated depreciation of £3.2m reported at 30 June 2017 has been reclassified from ‘Plant, motor vehicles and equipment’ to ‘Land and buildings’ in the year with £nil impact
on the net book value of property, plant and equipment.
LEASED PLANT AND MACHINERY
At 30 June 2019, plant, motor vehicles and equipment included assets held under finance leases with a carrying value of £7.2m (2018: £7.6m, 2017:
£7.3m). The associated depreciation charge for the year was £2.0m (2018: £1.9m, 2017: £1.7m).
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.
NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUEDFor the year ended 30 June 2019 133
17. EQUITY ACCOUNTED INVESTEES CONTINUED
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 the sale of products and services. As each arrangement is a separate
legal entity and control rights are substantially equal with the other parties, no significant judgements are required.
The Group’s share of profit after tax in its equity accounted investees for the year was £5.1m (2018: £4.2m).
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)
Loan repayment
Effect of other movements including exchange rates
Balance at 30 June
2019
£m
19.9
5.1
(2.7)
(0.7)
2.0
23.6
2018
£m
22.7
4.2
(2.8)
–
(4.2)
19.9
During the year, under the subscription agreement with Avlscenter Møllevang A/S (‘Møllevang’), Genus purchased 49% of the Danish porcine genetics
company and obtained economic control of its elite genetics. Under this agreement, the majority shareholders have a call option to purchase the
entire shares held by Genus, after a three-year period, for a consideration which is capped at Genus’s share of total retained profits during the period
of ownership. As a result of this call option, Genus will receive no economic benefit from the net assets of the entity other than its share of retained
interest, and therefore has restricted the net assets to nil.
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’s jurisdiction.
RELATED PARTY TRANSACTIONS WITH JOINT VENTURES AND ASSOCIATES
Purchase of goods and services from joint ventures and associates
Transaction value
Balance outstanding
2019
£m
2.0
2018
£m
3.5
2019
£m
(2.6)
2018
£m
(1.3)
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 Group’s percentage ownership, is shown below:
JOINT VENTURES AND ASSOCIATES – YEAR ENDED 30 JUNE 2019
Net assets
Ownership
Agroceres – PIC Genética de Suínos Ltda (Brazil)
HY-CO Hybridschweine-Cooperations GmbH
(Germany)
Xianyang Yongxiang Agriculture Technology Co.,
Ltd.(China)1
Chitale Genus ABS (India) Private Limited (India)
49%
50%
49%
50%
1 Classified as an associate.
Current
assets
£m
Non-current
assets
£m
Biological
assets
£m
9.1
0.2
2.1
0.3
8.1
0.1
3.7
0.8
11.7
12.7
3.6
–
(0.1)
–
3.5
Total
assets
£m
20.8
0.3
5.7
1.1
27.9
Current
liabilities
£m
Total
liabilities
£m
Net assets
£m
(2.8)
(0.1)
(1.4)
–
(4.3)
(2.8)
(0.1)
(1.4)
–
(4.3)
18.0
0.2
4.3
1.1
23.6
Joint ventures and associates have a December year end, except Chitale Genus ABS (India) Private Limited, which has a March year end.
FINANCIAL STATEMENTS
134
Genus plc / Annual Report 2019
17. EQUITY ACCOUNTED INVESTEES CONTINUED
Income statement
Ownership
Revenue
£m
Agroceres – PIC Genética de Suínos Ltda (Brazil)
HY-CO Hybridschweine-Cooperations GmbH (Germany)
Xianyang Yongxiang Agriculture Technology Co., Ltd. (China)1
Chitale Genus ABS (India) Private Limited (India)
49%
50%
49%
50%
25.1
1.3
3.1
0.3
29.8
JOINT VENTURES AND ASSOCIATES – YEAR ENDED 30 JUNE 2018
Net IAS 41
valuation
movement on
biological
assets
£m
(1.2)
–
0.1
–
(1.1)
Net assets
Ownership
Agroceres – PIC Genética de Suínos Ltda (Brazil)
HY-CO Hybridschweine-Cooperations GmbH
(Germany)
Xianyang Yongxiang Agriculture Technology Co.,
Ltd. (China)1
Chitale Genus ABS (India) Private Limited (India)
49%
50%
49%
50%
Current
assets
£m
Non-current
assets
£m
Biological
assets
£m
4.9
0.3
2.1
0.4
7.7
8.0
–
3.6
1.0
12.6
4.3
–
0.7
–
5.0
Net IAS 41
valuation
movement on
biological
assets
£m
Expenses
£m
Operating
profit
£m
Taxation
£m
Profit
after tax
£m
(18.1)
(1.3)
(2.5)
(0.3)
(22.2)
Total
assets
£m
17.2
0.3
6.4
1.4
25.3
5.8
–
0.7
–
6.5
(1.5)
–
0.1
–
(1.4)
Current
liabilities
£m
Total
liabilities
£m
(2.8)
(0.1)
(2.2)
(0.3)
(5.4)
(2.8)
(0.1)
(2.2)
(0.3)
(5.4)
Expenses
£m
Operating
profit
£m
Taxation
£m
4.3
–
0.8
–
5.1
Net
assets
£m
14.4
0.2
4.2
1.1
19.9
Profit
after tax
£m
4.7
0.1
(0.6)
–
4.2
Income statement
Ownership
Revenue
£m
Agroceres – PIC Genética de Suínos Ltda (Brazil)
HY-CO Hybridschweine-Cooperations GmbH (Germany)
Xianyang Yongxiang Agriculture Technology Co., Ltd. (China)1
Chitale Genus ABS (India) Private Limited (India)
49%
50%
49%
50%
22.2
0.7
2.3
0.3
25.5
–
–
(0.5)
–
(0.5)
(16.0)
(0.6)
(2.4)
(0.3)
(19.3)
6.2
0.1
(0.6)
–
5.7
(1.5)
–
–
–
(1.5)
1 Classified as an associate.
Joint ventures and associates have a December year end, except Chitale Genus ABS (India) Private Limited, which has a March year end.
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
Other investments are classified as 'fair value through other comprehensive income' ('available for sale' for periods before 1 July 2018). Financial assets
held at fair value through other comprehensive income are initially measured at fair value, including transaction costs directly attributable to the
acquisition of the financial asset. For equity investments at 'fair value through comprehensive income', gains or losses arising from changes in fair value
are recognised in other comprehensive income, until the security is disposed of, at which time the cumulative gain or loss previously recognised in
other comprehensive income is included directly in retained earnings and is not recycled to the income statement.
NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUEDFor the year ended 30 June 2019
18. OTHER INVESTMENTS CONTINUED
INVESTMENTS CARRIED AT FAIR VALUE
Unlisted equity shares – Caribou Biosciences, Inc.
Unlisted equity shares
Listed equity shares – NMR
135
2018
£m
3.7
0.3
1.9
5.9
2019
£m
3.7
1.1
2.6
7.4
We hold a strategic non-controlling interest of 5% in Caribou Biosciences, Inc.
As part of the NMR pension agreement, we acquired 2,120,000 ordinary shares in NMR.
During the year, we acquired a strategic non-controlling interest in a herd management software company for £1.1m.
19. INVENTORIES
Our inventory primarily consists of bovine semen, raw materials and ancillary products.
ACCOUNTING POLICIES
Inventory (excluding biological assets’ harvest) 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 our biological assets accounting policies, see note 15.
Biological assets’ harvest classed as inventories
Raw materials and consumables
Goods held for resale
2019
£m
19.0
0.8
16.2
36.0
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
2019
£m
82.8
5.1
8.2
1.9
98.0
2018
£m
20.2
0.6
13.4
34.2
2018
£m
73.9
5.3
10.3
1.5
91.0
TRADE RECEIVABLES
The average credit period our customers take on the sales of goods is 62 days (2018: 58 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 on 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 (2018: nil).
At 30 June 2019, £64.7m (2018: £55.4m) of trade receivables were not yet due for payment.
FINANCIAL STATEMENTS
136
Genus plc / Annual Report 2019
20. TRADE AND OTHER RECEIVABLES CONTINUED
Included in the Group’s trade receivables balance, net of provision, are debtors with a carrying amount of £21.5m (2018: £18.0m) 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 49 days (2018: 42 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
2019
£m
11.4
6.6
2.3
1.2
21.5
At 30 June 2019, trade receivables of £23.8m (2018: £22.4m) 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
The Directors consider that the carrying amount of trade and other receivables approximates their fair value.
At 30 June 2019, trade receivables are shown net of an allowance for expected credit losses of £2.6m (2018: £4.4m).
MOVEMENT IN THE ALLOWANCE FOR EXPECTED CREDIT LOSSES (‘ECL’)
Balance at the start of the year
Impairment losses recognised
Amounts written off as uncollectible
Impairment losses reversed
Effect of movements in exchange rates
Balance at the end of the year
2019
£m
11.4
6.7
2.8
2.9
23.8
2019
£m
4.4
1.7
(2.2)
(1.4)
0.1
2.6
2018
£m
9.6
6.3
1.7
0.4
18.0
2018
£m
9.6
6.4
2.4
4.0
22.4
2018
£m
4.4
1.0
(0.2)
(0.8)
–
4.4
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.
The Group always recognises lifetime ECL for trade receivables. The expected credit losses on these are estimated using a provision matrix based on
the Group’s historical credit loss experience, adjusted for factors that are specific to the debtors, general economic conditions and an assessment of
both the current as well as the forecast direction of conditions at the reporting date, including time value of money where appropriate.
The Group writes off a trade receivable when there is information indicating that the debtor is in severe financial difficulty and there is no realistic
prospect of recovery, e.g. when the debtor has been placed under liquidation or has entered into bankruptcy proceedings, or when the trade
receivables are over two years past due, whichever occurs earlier.
Receivables denominated in currencies other than Sterling comprise £31.4m denominated in US Dollars (2018: £31.6m), £12.3m denominated in Euros
(2018: £11.0m) and £34.3m denominated in other currencies (2018: £29.8m).
NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUEDFor the year ended 30 June 2019 137
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
2019
£m
30.5
2018
£m
29.1
The carrying amount of these assets approximates to their fair value. Included within bank balances above is £nil (2018: £11.4m) which was 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
2019
£m
24.5
56.2
7.0
87.7
2018
£m
23.6
53.7
6.4
83.7
The average credit period taken for trade purchases is 31 days (2018: 31 days).
Payables denominated in currencies other than Sterling comprise £32.8 m denominated in US Dollars (2018: £33.6m), £11.3m denominated in Euros
(2018: £10.2m) and £22.4m denominated in other currencies (2018: £18.9m). The carrying values of these liabilities are a reasonable approximation of
their fair values.
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 relate to contingent deferred consideration and share forfeiture.
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 2017
Additional provision in the year
Utilisation of provision
Release of provision
Balance at 30 June 2018
Additional provision in the year
Utilisation of provision
Release of provision
Balance at 30 June 2019
Contingent
deferred
consideration
£m
Share
forfeiture
£m
Other
provisions
£m
5.1
–
(0.8)
(0.3)
4.0
0.9
(0.4)
–
4.5
–
2.2
–
–
2.2
–
(0.2)
–
2.0
1.3
0.6
(0.7)
(0.1)
1.1
1.7
(0.3)
(0.2)
2.3
Total
£m
6.4
2.8
(1.5)
(0.4)
7.3
2.6
(0.9)
(0.2)
8.8
FINANCIAL STATEMENTS
138
Genus plc / Annual Report 2019
23. PROVISIONS CONTINUED
Current
Non-current
2019
£m
3.1
5.7
8.8
2018
£m
2.8
4.5
7.3
Additions to contingent deferred consideration of £0.9m, primarily relates to the acquisition of Progenex S.L. (note 36) and is subject to certain
conditions being met by the seller.
The share forfeiture provision of £2.0m relates to potential claims that could be made by untraced members over the next two years, relating to the
resale proceeds of shares that were identified during the prior year as being forfeited.
Other provisions mainly relate to legal provisions and customers' claims. The timing and cash flows associated with the 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 and are disclosed as such.
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, co-ordinates 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.
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 Group’s
assets 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 exchanging a fixed amount of cash or other 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.
NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUEDFor the year ended 30 June 2019 139
24. FINANCIAL INSTRUMENTS CONTINUED
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 going concerns, 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.
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
2019
£m
110.1
(30.5)
79.6
502.3
16%
2018
£m
137.6
(29.1)
108.5
419.1
26%
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 STATEMENTS
140
Genus plc / Annual Report 2019
24. FINANCIAL INSTRUMENTS CONTINUED
Financial assets
Other investments
Trade receivables and other debtors, excluding prepayments and accrued income (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)
Loans and overdrafts (see note 25)
Leasing obligations (see note 26)
Derivative instruments in non-designated hedge accounting relationships
Derivative instruments in 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.
2019
Carrying
value
£m
2018
Carrying
value
£m
7.4
89.8
30.5
0.9
0.2
0.6
(80.7)
(104.0)
(6.1)
(0.6)
(0.6)
(5.5)
5.9
80.7
29.1
0.3
0.2
2.5
(77.3)
(134.1)
(3.5)
(0.3)
(0.6)
(3.2)
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
Chinese Yuan Renminbi
Liabilities
Assets
2019
£m
(83.3)
(11.5)
–
2018
£m
(92.9)
(11.9)
–
2019
£m
11.6
0.5
1.2
2018
£m
8.8
–
1.9
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. Ten percent 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
Euro
US Dollar
Brazilian Real
Mexican Peso
Chinese Yuan Renminbi
2019
£m
1.1
1.9
0.8
1.3
0.2
2018
£m
0.9
1.7
1.0
1.2
0.8
NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUEDFor the year ended 30 June 2019 141
24. FINANCIAL INSTRUMENTS CONTINUED
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
Contract value
Fair value
Outstanding contracts
Buy DKK
Sell CAD
Sell CNY
Buy AUD
Buy RON
Sell CLP
Buy BRL
Sell PHP
Sell RUB
Buy EUR
Sell PLN
Buy MXN
Buy USD
Sell USD
Buy EUR/Sell CHF
Buy EUR/Sell CAD
Buy USD/Sell COP
Buy USD/Sell BRL
Buy CLP/Sell USD
Buy ARS/Sell USD
Buy USD/Sell ARS
Buy USD/Sell CNY
Buy PHP/Sell USD
Buy CAD/Sell USD
Buy USD/Sell CAD
Buy MXN/Sell USD
Buy USD/Sell EUR
Buy USD/Sell RUB
Buy USD/Sell INR
Buy USD/Sell ZAR
2019
2018
Foreign
currency
2019
£m
–
1.71
8.80
1.87
5.48
879.4
4.90
65.35
81.65
1.13
4.79
24.86
–
1.27
1.13
1.51
3,253
3.88
686.20
45.83
–
6.91
52.67
–
1.33
19.25
1.14
64.99
69.65
14.90
8.40
–
8.90
1.76
–
–
–
71.40
83.20
1.13
4.79
–
1.33
–
1.15
–
2,924
–
–
–
26.35
6.42
53.15
1.30
–
–
1.18
62.57
68.45
13.72
DKK
CAD
CNY
AUD
RON
CLP
BRL
PHP
RUB
EUR
PLN
MXN
USD
USD
CHF
CAD
COP
BRL
CLP
ARS
ARS
CNY
PHP
CAD
CAD
MXN
EUR
RUB
INR
ZAR
–
0.2
1.3
1.2
0.3
–
0.2
–
0.6
3.9
0.7
0.4
–
1.6
0.3
0.2
0.6
1.7
0.2
0.3
–
0.8
3.4
–
0.8
0.2
0.9
0.2
2.4
0.2
2018
£m
19.5
–
2.2
1.5
–
–
–
0.5
1.0
8.8
0.3
–
7.6
–
0.3
–
0.6
–
–
–
0.3
1.0
2.7
1.0
–
–
1.0
0.1
1.2
0.1
2019
£m
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
0.1
–
–
–
–
–
–
–
0.1
2018
£m
(0.1)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
0.1
–
–
–
–
–
–
–
–
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.
FINANCIAL STATEMENTS
142
Genus plc / Annual Report 2019
24. FINANCIAL INSTRUMENTS CONTINUED
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 percentage point 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 percentage higher or lower and all other variables were held constant, the Group’s profit for the year ended 30 June 2019
would have decreased or increased by £0.1m (2018: decrease/increase by £0.3m). 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
Less than one year
One to five years
GBP interest rate swaps
One to five years
Average contract fixed
interest rate
Notional
principal amount
Fair
value
2019
%
1.10
1.22
2018
%
–
1.04
1.07
0.73
2019
£m
35.4
35.5
70.9
25.0
2018
£m
–
83.3
83.3
35.0
2019
£m
0.1
0.4
0.5
(0.2)
2018
£m
–
2.3
2.3
0.2
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 using Chicago Mercantile Exchange lean hog, corn and soybean meal commodity futures
contracts.
Commodity hedge
Open commodity contracts as at June 2019
Lean hog
Corn
Soybean meal
Average
price
Notional
principal amount
Fair
value
2019
US$
0.74
4.06
314
2018
US$
0.67
3.77
353
2019
£m
6.0
(4.0)
(2.8)
(0.8)
2018
£m
6.8
(3.0)
(2.9)
0.9
2019
£m
–
0.3
0.1
0.4
2018
£m
0.2
(0.1)
(0.1)
–
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.
NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUEDFor the year ended 30 June 2019 143
24. FINANCIAL INSTRUMENTS CONTINUED
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.
2019
Variable interest rate instruments
2018
Variable interest rate instruments
Weighted
average
effective
interest rate
%
Less than
1 month
£m
1–3 months
£m
3 months –
1 year
£m
1–5 years
£m
5+ years
£m
3.13
0.2
3.1
5.2
119.8
2.80
3.4
11.4
4.1
139.1
–
–
Total
£m
128.3
158.0
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.
2019
Variable interest rate instruments
2018
Variable interest rate instruments
Weighted
average
effective
interest rate
%
Less than
1 month
£m
1–3 months
£m
3 months –
1 year
£m
1–5 years
£m
5+ years
£m
1.04
30.5
0.66
29.1
–
–
–
–
–
–
–
–
Total
£m
30.5
29.1
The Group has financing facilities with a total unused amount of £125.6m (2018: £99.3m) 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.
2019
Interest rate swaps
2018
Interest rate swaps
Less than
1 month
£m
1–3 months
£m
3 months -
1 year
£m
1–5 years
£m
5+ years
£m
(0.1)
(0.2)
(0.4)
–
–
0.5
–
2.0
–
–
Total
£m
(0.7)
2.5
FINANCIAL STATEMENTS
144
Genus plc / Annual Report 2019
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)
Other unsecured borrowings
2019
£m
101.9
3.9
105.8
2.1
2.2
–
4.3
2018
£m
120.7
2.1
122.8
10.6
1.4
2.8
14.8
Total interest-bearing liabilities
110.1
137.6
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
Other unsecured borrowings
Total interest-bearing liabilities
Currency
GBP
USD
EUR
USD
Other
USD
Interest
rate
1.8%
3.5%
–
4.0%
1.3%
–
2019
£m
25.0
77.2
–
6.1
1.8
–
2018
£m
33.5
90.1
0.9
3.5
6.8
2.8
110.1
137.6
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
2019
£m
2.5
–
102.2
104.7
(0.7)
104.0
(2.1)
101.9
2018
£m
13.8
–
121.4
135.2
(1.1)
134.1
(13.4)
120.7
At the balance sheet date, the Group’s credit facilities comprised a £95m multi-currency revolving credit facility and a US$165m revolving credit facility.
£45m of the Group’s credit facilities expire in February 2021, with the remaining facilities expiring in February 2022.
As part of its interest rate strategy, the Group has entered into interest rate swaps to hedge floating LIBOR rates. As a result, bank loan and overdrafts
include borrowings of US$90m (£70.9m) fixed at 1.16% and GBP £25m fixed at 1.07%, excluding applicable bank margin.
NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUEDFor the year ended 30 June 2019 145
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
2019
£m
2.2
3.9
6.1
Interest
2019
£m
Principal
2019
£m
0.4
0.7
1.1
2.6
4.6
7.2
Minimum
lease
payments
2018
£m
1.4
2.1
3.5
Interest
2018
£m
Principal
2018
£m
0.1
0.1
0.2
1.5
2.2
3.7
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 and the Dalgety Pension Fund in the UK, which are defined benefit schemes. The assets of these funds are held separately from
the Group’s assets, are administered by trustees and managed professionally.
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 the Group’s assets.
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 Milk Pension Fund’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.
FINANCIAL STATEMENTS
146
Genus plc / Annual Report 2019
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 Milk Pension Fund – Genus’s share
The Dalgety Pension Fund
Other retirement benefit obligations and other unfunded schemes
Overall net pension liability
2019
£m
14.1
–
10.1
24.2
2018
£m
24.2
–
9.7
33.9
Overall, we expect to pay £7.7m (2018: £7.5m) in contributions to defined benefit plans in the 2020 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 expose 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 HM Revenue & Customs 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 benefit pension schemes, taking into account local
regulatory requirements.
On 26 October 2018, the High Court issued a judgment in a claim involving Lloyds Banking Group’s defined benefit pension schemes. This judgment
concluded the schemes should be amended in order to equalise pension benefits for men and women in relation to guaranteed minimum pension
benefits. The issues determined by the judgment have reduced the value of the assets in the Group’s defined benefit pension schemes by £16.1m. This
increase has been reflected in the results as a past service cost.
THE MILK PENSION FUND (‘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), National Milk Records plc, 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 86%
of the MPF (2018: 86%). 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.
The most recent actuarial triennial valuation of the MPF was at 31 March 2018 and was carried out by qualified actuaries. The valuation has been
agreed by the trustees.
The principal actuarial assumptions adopted in the 2018 valuation were that:
> investment returns on existing assets would exceed fixed interest gilt yields by 1.6% per annum until 31 March 2030, then by 0.5% per annum
thereafter;
> Consumer Price Index (‘CPI’) price inflation is expected to be 0.9% per annum lower than Retail Price Index (‘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 2018, the market value of the fund’s assets was £454m. This represented approximately 95% of the value of the uninsured liabilities, which
were £480m at that date.
NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUEDFor the year ended 30 June 2019 147
27. RETIREMENT BENEFIT OBLIGATIONS CONTINUED
The deficit in the fund as a whole, by reference to the 31 March 2018 valuation, was £26m (of which Genus’s notional share was £22m). This shortfall
is being addressed by additional contributions from the participating employers. Under the trustee-prepared schedule of contributions, Genus is
required to make deficit repair contributions of £6.0m per annum commencing 1 April 2018, and rising thereafter by 3.4% per annum until 30 September
2021, in addition to funding the scheme’s operating expenses.
The disclosures required under IAS 19 have been calculated by an independent actuary, based on accurate calculations carried out as at 31 March 2018
and updated to 30 June 2019.
Genus has assessed its additional pension liability under IFRIC 14 by reference to this schedule of contributions, resulting in an amount of £26.7m (2018:
£59.5m) being recognised in the Group Statement of Comprehensive Income.
DALGETY PENSION FUND (‘DPF’)
The most recent actuarial valuation of the DPF was at 31 March 2018 and was carried out by qualified actuaries.
The principal actuarial assumptions adopted in the 2018 valuation were that:
> investment returns on existing assets would exceed fixed interest gilt yields by 1.6% per annum until 31 March 2028, then equal the gilt yield per
annum thereafter;
> CPI price inflation is expected to be 0.7% per annum 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.
The market value of the available assets at 31 March 2018 was £32.9m. The value of those assets represented approximately 109% of the value
of the uninsured liabilities, which were £30.2m at 31 March 2018. 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 2018
and updated to 30 June 2019.
As at 30 June 2019, the DPF, which includes a £22.5m separate reserve held against future unknown liabilities materialising, was in an overall net
pension asset position of £19.1m. 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.
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 almost all of the fund’s current and deferred pension liabilities at that time. The value of the policy and related liabilities at
30 June 2019 was £727m (2018: £698m).
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 2019, under the provisions of IAS 19, were £5.7m (2018: £5.2m) and £6.5m (2018: £6.3m),
respectively.
OTHER UNFUNDED SCHEMES
When the Group acquired Sygen International plc in 2005, 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 £7.9m (2018: £7.9m), 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 (2018: £0.2m).
The principal assumptions used to calculate the scheme liabilities were that the discount rate would be 2.35% (2018: 2.90%) and that inflation and
pension payment increases would be 3.2% per annum (2018: 3.1%).
The scheme liabilities for the unfunded retirement health benefit plan amounted to £0.6m (2018: £0.7m), 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 (2018: £nil).
The principal assumptions used to calculate the plan liabilities were that the discount rate would be 2.35% (2018: 2.90%) and that the long-term rate of
medical expense inflation would be 7.2% (2018: 7.1%).
FINANCIAL STATEMENTS
148
Genus plc / Annual Report 2019
27. RETIREMENT BENEFIT OBLIGATIONS CONTINUED
AGGREGATED POSITION OF DEFINED BENEFIT SCHEMES
Present value of funded obligations (includes Genus’s 86% share of MPF (2018: 86%))
Present value of unfunded obligations
Total present value of obligations
Fair value of plan assets (includes Genus’s 86% share of MPF (2018: 86%))
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
2019
£m
443.5
9.2
452.7
(474.3)
19.1
26.7
24.2
2019
£m
60.7
122.5
139.1
105.8
5.4
40.8
474.3
2018
£m
388.6
8.6
397.2
(431.8)
9.0
59.5
33.9
2018
£m
78.9
100.9
91.8
59.6
22.0
78.6
431.8
Each of the defined benefit schemes manages risks through a variety of methods and strategies, including equity protection, to limit the 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/(gains) recognised on fund liabilities arising from changes in financial assumptions
Actuarial losses recognised on fund liabilities arising from experience (other)
Gains on curtailments and settlements
Past service cost
Reclassified from accruals
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
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
2019
£m
397.2
(22.6)
11.2
(0.2)
43.7
13.2
(6.0)
16.1
–
0.1
452.7
2019
£m
431.8
(0.9)
(4.9)
7.6
(22.6)
12.0
51.3
474.3
2018
£m
433.2
(18.6)
11.2
(10.4)
(22.0)
3.4
–
–
0.5
(0.1)
397.2
2018
£m
418.4
(0.4)
–
7.3
(18.6)
10.7
14.4
431.8
NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUEDFor the year ended 30 June 2019 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
Exceptional cost of GMP equalisation
Exceptional gain on settlement
Contributions paid into the plans
Net pension finance cost
Actuarial (losses)/gains recognised during the year
Movement in restriction of assets
Recognition of additional liability
Reclassified from accruals
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
Exceptional cost of GMP equalisation
Exceptional gains on settlement and past service
THE EXPENSE IS RECOGNISED IN THE FOLLOWING LINE ITEMS IN THE INCOME STATEMENT
Administrative expenses
Exceptional cost of GMP equalisation
Exceptional gains on settlement and past service
Net finance charge
ACTUARIAL LOSSES/(GAINS) RECOGNISED IN THE GROUP STATEMENT OF COMPREHENSIVE INCOME
Cumulative loss at the start of the year
Actuarial losses/(gains) recognised during the year
Movement in restriction of assets
(Release)/recognition of additional liability
Exchange rate adjustment
Cumulative loss at the end of the year
149
2018
£m
(40.9)
(0.4)
–
–
7.3
(1.0)
43.4
(2.5)
(39.4)
(0.5)
0.1
(33.9)
2018
£m
0.4
11.2
(10.7)
0.5
–
–
1.4
2018
£m
0.4
–
–
1.0
1.4
2018
£m
82.4
(43.4)
2.5
39.4
(0.1)
80.8
2019
£m
(33.9)
(0.9)
(16.1)
1.1
7.6
(0.9)
(5.4)
(10.1)
34.5
–
(0.1)
(24.2)
2019
£m
0.9
11.2
(12.0)
1.7
16.1
(1.1)
16.8
2019
£m
0.9
16.1
(1.1)
0.9
16.8
2019
£m
80.8
5.4
10.1
(34.5)
0.1
61.9
FINANCIAL STATEMENTS
150
Genus plc / Annual Report 2019
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')
2019
2.35%
2.15%
3.15%
2018
2.90%
1.95%
3.05%
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 2019 and 2018, the mortality tables used are 97% of the S2NA tables, with birth year and 2017 CMI
projections with a smoothing parameter of Sk = 7.5, 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
2019
Years
22.4
24.7
23.8
26.2
2018
Years
22.4
24.6
23.8
26.1
Male
Female
Male
Female
DURATION OF BENEFIT OBLIGATIONS
The weighted average duration of the defined benefit obligations at 30 June 2019 was 17.4 years (2018: 17.3 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 2019.
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
17.8
(15.8)
(12.8)
12.0
(19.5)
19.5
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 funds’ assets remain unchanged. However, in practice changes in interest rates and inflation will also affect the value of
the funds’ assets. The funds’ 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 (%)
2019
£m
452.7
(474.3)
45.8
24.2
12.5
6.3
2018
£m
397.2
(431.8)
68.5
33.9
7.1
2.8
2017
£m
433.2
(418.4)
26.1
40.9
7.1
7.6
2016
£m
356.8
(334.0)
21.7
44.5
5.3
4.1
2015
£m
386.1
(329.2)
6.2
63.1
4.9
3.7
NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUEDFor the year ended 30 June 2019 151
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 £3.0m (2018: £5.4m), including National Insurance contributions of £0.3m (2018: £0.8m).
SHARE AWARDS
There were 933,772 conditional share awards outstanding at 30 June 2019. These conditional shares were awarded to Executive Directors and
senior management under the 2014 Performance Share Plan on 20 November 2014, 14 September 2015, 14 September 2016, 13 September 2017 and
9 October 2018. In accordance with the plan’s 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 2019, 325,814 awards were granted on 9 October 2018, with an aggregate fair value of £6,522,000. 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 £21.63, based on an expected dividend yield of 0.95%.
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
2019
980,421
(190,812)
(181,651)
325,814
933,772
36,359
Number of
awards
2018
1,089,391
(336,949)
(108,709)
336,688
980,421
9,986
BONUS AND RESTRICTED STOCK SHARE AWARDS
In addition to the outstanding share awards above, there were 138,633 bonus and restricted stock share awards outstanding at 30 June 2019. 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 2019, 47,338 bonus share awards were granted on 9 October 2018, with an aggregate fair value of £1,097,000, and 19,600
restricted stock share awards were granted, with an aggregate fair value of £457,000.
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
2019
128,843
(50,909)
(6,239)
66,938
138,633
1,833
Number of
awards
2018
102,731
(35,092)
–
61,204
128,843
–
FINANCIAL STATEMENTS
152
Genus plc / Annual Report 2019
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
Total share options
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
Grant date
Number of
instruments
Vesting
conditions
Option
exercise price
Contractual
life of options
15 September 2009
10 September 2010
9 September 2011
7 September 2012
26 September 2013
7,196
18,068
30,239
29,186
35,999
Exercisable
Exercisable
Exercisable
Exercisable
Exercisable
654.50p
729.83p
977.83p
1,334.00p
1,413.00p
10 years
10 years
10 years
10 years
10 years
120,688
Weighted
average
exercise price
2019
1,121p
–
1,128p
987p
1,137p
1,137p
Number of
options
2019
145,828
–
(10,248)
(14,892)
120,688
120,688
Weighted
average
exercise price
2018
1,118p
703p
1,232p
1,078p
1,121p
1,121p
Number of
options
2018
223,365
(8,199)
(38,493)
(30,845)
145,828
145,828
The options at 30 June 2019 had a weighted average remaining contractual life of 2.6 years (2018: 3.4 years). No share options were granted during the
year (2018: nil). The weighted average share price at the date of exercise during the year was £25.21 (2018: £20.95).
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 a share placement
and the 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
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
Issued at share placement
2019
Number
2018
Number
65,054,559
61,542,467
2019
Number
14,892
400,000
3,097,200
3,512,092
2018
Number
30,845
350,000
–
380,845
2019
£m
6.5
2019
£m
–
–
0.3
0.3
2018
£m
6.2
2018
£m
–
–
–
–
NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUEDFor the year ended 30 June 2019 29. CAPITAL AND RESERVES CONTINUED
Shares issued under the Executive Share Option Plans were issued at option prices as follows:
Executive Share Option Plan
153
2019
Number
–
3,932
2,106
1,915
1,463
3,685
1,791
14,892
Price
582.00p
776.00p
654.50p
729.83p
977.83p
1,334.00p
1,413.00p
2018
Number
2,721
2,970
3,268
2,034
4,580
4,145
11,127
30,845
Price
582.00p
776.00p
654.50p
729.83p
977.83p
1,334.00p
1,413.00p
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
The shares have a nominal value of £40,546 (2018: £17,960).
2019
Number
313,125
92,334
405,459
2018
Number
87,265
92,334
179,599
2019
£m
8.3
2.4
10.7
2018
£m
2.3
2.4
4.7
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 reserves. 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 2017
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 2018
Exchange differences on translation of overseas operations
Gain recognised on net investment hedges
Gain recognised on cash flow hedges – interest swaps
Income tax related to net gains/losses recognised in other comprehensive income
Balance at 30 June 2019
Hedging
reserve
£m
Translation
reserve
£m
1.1
–
–
1.1
(0.2)
2.0
–
–
(2.2)
0.4
0.2
39.2
(22.4)
1.3
–
2.4
20.5
19.8
(1.6)
–
(2.9)
35.8
FINANCIAL STATEMENTS
154
Genus plc / Annual Report 2019
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/(income)
Exceptional items
Adjusted operating profit from continuing operations
Depreciation of property, plant and equipment
Profit on disposal of plant and equipment
Profit on disposal of intangible assets
Amortisation and impairment of intangible assets
Adjusted earnings before interest, tax, depreciation and amortisation
Cash impact of exceptional items
Other movements in biological assets and harvested produce
Increase in provisions
Additional pension contributions in excess of pension charge
Other
Operating cash flows before movement in working capital
Increase in inventories
Increase in receivables
Increase 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
2019
£m
6.7
14.7
9.5
3.0
(5.1)
3.9
3.2
21.8
57.7
12.6
–
(0.1)
5.4
75.6
(7.3)
(5.5)
1.5
(6.7)
(4.1)
53.5
(3.2)
(6.6)
4.7
48.4
0.2
(3.3)
0.6
(12.5)
33.4
2018
£m
41.6
28.7
9.5
5.4
(4.2)
4.6
(33.8)
5.9
57.7
10.4
(0.1)
–
4.3
72.3
(4.9)
(1.9)
1.7
(6.9)
(2.0)
58.3
(4.2)
(5.7)
9.9
58.3
0.2
(3.9)
0.2
(11.6)
43.2
At 1 July
2018
£m
29.1
(13.4)
(1.4)
(14.8)
(120.7)
(2.1)
(122.8)
(108.5)
Net cash
flows
£m
Foreign
exchange
£m
Non-cash
movements
£m
At 30 June
2019
£m
0.9
12.1
2.0
14.1
22.0
–
22.0
37.0
0.5
(0.4)
(0.1)
(0.5)
(3.2)
(0.3)
(3.5)
(3.5)
–
(0.4)
(2.7)
(3.1)
–
(1.5)
(1.5)
(4.6)
30.5
(2.1)
(2.2)
(4.3)
(101.9)
(3.9)
(105.8)
(79.6)
Included within non-cash movements is £4.6m in relation to new finance leases and unwinding of debt issue costs.
NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUEDFor the year ended 30 June 2019 155
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:
In less than one year
Between one and five years
In more than five years
2019
£m
9.2
18.2
5.3
32.7
2018
£m
2.1
12.4
6.3
20.8
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 2019, outstanding contracted capital expenditure amounted to £2.2m and related to the purchase of property, plant and equipment
(2018: £1.8m).
A software agreement was signed on 23 June 2017, with a minimum five-year term, with an annual cost of £0.8m.
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 86% (2018: 86%) 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 from the most recent triennial valuation can
be found in note 27.
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. Further information can be found in
note 11.
At 30 June 2019, we had entered into bank guarantees totalling £4.0m.
34. DIRECTORS AND KEY MANAGEMENT COMPENSATION
In accordance with IAS 24 ‘Related Party Disclosures’, key management personnel are those having authority and responsibility for planning, directing
and controlling the activities of the Group, directly or indirectly. Key management personnel comprise the Directors and the other members of the
Executive Management Committee.
Salaries and short-term employee benefits
Post-employment benefits
Share-based payment expense
DIRECTORS
Further 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.
2019
£m
5.4
0.3
1.3
7.0
2018
£m
7.0
0.3
3.4
10.7
FINANCIAL STATEMENTS
156
Genus plc / Annual Report 2019
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 2019 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 Polska Sp. z o.o.
ABS Progen Ireland Limited
Bovec SASU
Chitale Genus ABS (India) Private
Limited
De Novo Genetics LLC
Genus ABS Colombia SAS
Genus Australia Pty Ltd
Genus (Beijing) International Trade
Co., Ltd.
Genus Breeding India Private
Limited
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
Szafirowa 22A, 82–300 Gronowo Górne,
Poland
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, Maharashtra, India
1286 Oriole Drive, New Albin IA 52160,
Untied States
Avenida Carrera 70, No. 105–51, Bogotá,
Colombia
15 Scholar drive, Bundoora VIC 3063,
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
Genus Breeding Limited (01192037)2 Matrix House, Basing View, Basingstoke,
‘Genus Ukraine’ LLC
Hampshire, RG21 4DZ, United Kingdom
Pidlisna str., 1, KYIV 03164, Ukraine
GIFCO (Ireland) Designated Activity
Company
Inimex Genetics Limited (01315335)2 Matrix House, Basing View, Basingstoke,
Suite 6, Rineanna House, Shannon Free
Zone, Co. Clare, Ireland
In Vitro Brasil México, S.A. de C.V.
In Vitro Russia LLC
Pecplan ABS Imp. e Exp. Ltda.
St Jacobs Animal Breeding Corp.
Zitery S.A
Hampshire, RG21 4DZ, United Kingdom
Plaza Comercial Punto Colorines,
Boulevard Independencia #746, Interior 6,
CP. 27140, Cidade Torreon – Estado,
Coahuila, Mexico
188671, Distrito De Leningrado Região De
Vsevolojskiy, Vilarejo De Lepsar, Russian
Federation
Rod. BR 050 Km 196 + 150metros, Zona
Rural, Delta, MG – 38108-000, Brazil
1525 River Road, De Forest WI 53532,
United States
Maximo Tajes 7189, Uruguay
Country of
incorporation
Direct/indirect
Group interest
Argentina
Direct
Share class
ARS1 Ordinary
Chile
Direct
CLP1 Common Stock
South Africa
Indirect
ZAR1 Ordinary
Canada
Indirect
CAD1 Ordinary
United States
Indirect
USD0.01 Common
Italy
Indirect
€1 Quota
Mexico
Direct
Poland
Indirect
MXN10 Class 1
MXN10 Class 2
PLN1,000 Ordinary
Ireland
Indirect
€1.25 Ordinary
France
Indirect
€10 Ordinary
% of share
capital/voting
rights held by
Group companies
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
India
Indirect
INR100 Ordinary
50%¹
United States
Indirect
No Par Value LLC Units
Colombia
Indirect
COP10,000 Ordinary
Australia
Indirect
No Par Value Ordinary
China
Indirect
India
Indirect
United
Kingdom
Ukraine
Direct
Indirect
Ireland
Indirect
United
Kingdom
Mexico
Indirect
Indirect
No Par Value
Common Stock
INR1 Ordinary
£1 Ordinary
No Par Value
Common Stock
USD1 Ordinary
£1 Ordinary
MXN1 Ordinary
51%
100%
100%
100%
100%
100%
100%
100%
100%
99%
Russia
Indirect
RUB1 Ordinary
50%
Brazil
Indirect
BRL1 Ordinary
United States
Indirect
No Par Value Common
Uruguay
Indirect
UYU0.54 Provisional
Certified Registered
UYU1.00 Registered
100%
100%
100%
1 Associated undertakings including joint venture interests.
2 UK subsidiaries taking advantage of the audit exemption within section 479A of the Companies Act 2006.
NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUEDFor the year ended 30 June 2019 157
% of share
capital/voting
rights held by
Group companies
49%1
49%1
49%1
100%
100%
100%
100%
50%1
100%
100%
100%
100%
100%
100%
100%
50%1
100%
100%
100%
100%
85%
100%
Country of
incorporation
Direct/indirect
Group interest
Brazil
Indirect
Share class
BRL1 Ordinary
Brazil
Indirect
BRL1 Ordinary
Denmark
United States
Indirect
Indirect
DKK 1 Ordinary
No Par Value Ordinary
Mexico
Indirect
MXN1 Ordinary
United States
Indirect
USD100 LLC units
China
Indirect
Germany
Indirect
Russia
Indirect
No Par Value
Common Stock
No Par Value
Common Stock
RUB1 Ordinary
Ireland
Indirect
€1 Ordinary
China
Indirect
USD1 Ordinary
Chile
Indirect
USD65.449 Ordinary
Canada
Indirect
CAD1 Ordinary
France
Indirect
€17 Ordinary
Ireland
Indirect
Mexico
Indirect
Germany
Indirect
Spain
Indirect
€1.27 Ordinary
€1.27 Redeemable
preference shares
No Par Value
Common Stock
No Par Value
Common Stock
No Par Value
Common Stock
€25 Ordinary
UK
Indirect
£0.10 Ordinary
Italy
Indirect
€1 Ordinary
Philippines
Indirect
PHP100 Ordinary
Romania
Indirect
RON2,983.10 Ordinary
100%
United States
Indirect
USD1 Ordinary
100%
35. GROUP ENTITIES CONTINUED
PORCINE
Name of undertaking
Registered address
Agroceres PIC Genética de Suínos
Ltda
Agroceres PIC Suínos Ltda
Avlscenter Mollevang A/S
Birchwood Genetics, Inc.
Génétiporc México, S.A. de C.V.
Génétiporc USA, LLC
Genus China Limited Company
HY-CO Hybridschweine-
Cooperations GmbH
PIC Genetics LLC
Morganite Investments Limited
PIC (Zhangjiagang) Pig
Improvement Co., Ltd.
PIC Andina SpA
PIC Canada Ltd.
PIC France SA
PIC Genetics Designated Activity
Company
Rua 1 JN, n˚ 1411, Sala 16 – Jardim Novo,
Rio Claro/SP – CEP, 13.502-741, Brazil
Rua 1 JN, n˚ 1411, Sala 17 – Jardim Novo,
Rio Claro/SP – CEP, 13.502-741, Brazil
Mollevej 3, 6670 Holsted, Denmark
465 Stephens Road, West Manchester OH
45382, 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
Tegelberg 19–21, 24576 Bad Bramstedt,
Germany
79 Narodnyy Boulevard, 308000,
Belgorod, Russian Federation
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
Borden Ladner Gervais LLP, 1900-520, 3rd
Avenue, S.W., Calgary, Alberta T2P OR3,
Canada
69 Chemin des Molieres, 69210, Lentilly,
France
Riverside One, Sir John Rogerson’s Quay,
Dublin 2, Ireland
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 (00716304)2
PIC Italia S.r.l.
PIC Philippines, Inc.
PIC Romania S.R.L.
PIC USA, Inc.
Wenceslao de la Barquera No.7, Col. Villas
del Sur, 76040 Queretaro, Queretaro,
Mexico
Jathostraße 11a, D-30163 Hannover,
Germany
C/Pau Vila, 22 2ᵒ 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
Str. Regele Ferdinand nr 22–26, Centrul
comercial Central, nivel 3, Cluj-Napoca,
Cluj, Romania
100 Bluegrass Commons Blvd, Suite 2200,
Hendersonville, TN 37075 United States
PIG Datendienst GmbH
Ratsteich 31, 24837 Schleswig, Germany
Germany
Indirect
1 Associated undertakings including joint venture interests.
2 UK subsidiaries taking advantage of the audit exemption within section 479A of the Companies Act 2006.
FINANCIAL STATEMENTS
158
Genus plc / Annual Report 2019
35. GROUP ENTITIES CONTINUED
Name of undertaking
Registered address
RenOVAte Biosciences, Inc.
Reprodutores PIC, Lda
Shaanxi PIC Pig Improvement Co.,
Ltd.
Xianyang Yongxiang Agriculture
Technology Co., Ltd.
3500 South Dupont Highway, Dover,
Delaware 19901, United States
Av. Eng. Duarte Pacheo, Amoreiras,
Torre 2–14ºA, 1070-102 Lisboa, Portugal
12105, 21st floor, Yun tian Building, 12
Feng Cheng Second Street, Xian Economic
Development District, Xian City, Shaanxi
Province, China
Qiaojiaguan Village, Jianjun Town,
Yongshou County, Xianyang, Shaanxi
Province, China
OTHER
Name of undertaking
Registered address
Accounting & Managerial Services S.
de R.L. de C.V.
ABS International, Inc.
ABS Pecplan Ltda.
Agence Spillers N.V.
Bellapais Farm Limited
Bellapais Hatcheries Limited
Brazilian Holdings Limited
(00479048)2
Brazilian Properties Limited
Busby Participações Ltda.
Cannavarro Participações Ltda.
Dalco Exportadora Ltda.
Dalgety Pension Trust Limited
Elmira ABC Ltd.
Fyfield (SM) Limited (01026475)2
Fyfield Dormant
Fyfield Holland B.V.
Fyfield Ireland Limited
Génétiporc Servicios Tecnicos S.A.
de C.V.
Genus Investments Limited
(02028517)2
Kansas No. 2028, Quintas Campestre,
31214, Chihuahua, Chih., Mexico
1525 River Road, De Forest WI 53532,
United States
Rod. BR 050 Km 196 + 150metros, Zona
Rural, Delta, MG – 38108-000, Brazil
Place Saint-Lambert 14, 1200 Woluwe-
Saint-Lambert, Belgium
Julia House, 3 Th Dervis Street, Nicosia,
Ch 1066, Cyprus
Julia House, 3 Th Dervis Street, Nicosia,
Ch 1066, Cyprus
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
Av. Leopoldino de Oliveira, 4.113, Sala 303,
Centro, CEP: 38010-000, UBERABA-MG
Av. Leopoldino de Oliveira, 4113 – Sala
303, Uberaba, Minas Gerais, CEP
38010-000, Brazil
Matrix House, Basing View, Basingstoke,
Hampshire, RG21 4DZ, United Kingdom
1525 Floradale Road, Elmira ON N3B 2Z1,
Canada
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
One Spencer Dock, North Wall Quay,
Dublin 1, Ireland
Wenceslao de la Barquera No.7, Col. Villas
del Sur, 76040 Queretaro, Queretaro,
Mexico
Matrix House, Basing View, Basingstoke,
Hampshire, RG21 4DZ, United Kingdom
Country of
incorporation
Direct/indirect
Group interest
United States
Direct
Portugal
Indirect
China
Indirect
Share class
USD0.001 Series Seed
Preferred
No Par Value
Common Stock
No Par Value
Common Stock
China
Indirect
No Par Value
Common Stock
Country of
incorporation
Direct/indirect
Group interest
Mexico
Indirect
Share class
MXN1 Class 1
United States
Indirect
USD1 Ordinary
Brazil
Direct
BRL1 Ordinary
Belgium
Indirect
Cyprus
Indirect
Cyprus
Indirect
UK
UK
Indirect
Direct
No Par Value
Common Stock
No Par Value
Common Stock
No Par Value
Common Stock
£1 Ordinary
£1 Ordinary
Brazil
Indirect
BRL1 Ordinary
Brazil
Indirect
BRL1 Ordinary
Brazil
Indirect
BRL1 Ordinary
UK
Indirect
£1 Ordinary
Canada
Indirect
UK
UK
Indirect
Indirect
NPV Class 'A' special shares
NPV Class 'B' special shares
NPV Common shares
£1 Ordinary
£1 Ordinary
Netherlands
Indirect
NLG100 Ordinary
Ireland
Indirect
Mexico
Indirect
€1.25 ‘A’ Ordinary
€1.25 ‘B’ Ordinary
MXN 1 Ordinary
% of share
capital/voting
rights held by
Group companies
50%
100%
100%
49%1
% of share
capital/voting
rights held by
Group companies
100%
100%
100%
100%
34.1%1
34.1%1
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
UK
Direct
£1 Ordinary
100%
1 Associated undertakings including joint venture interests.
2 UK subsidiaries taking advantage of the audit exemption within section 479A of the Companies Act 2006.
NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUEDFor the year ended 30 June 2019 159
% of share
capital/voting
rights held by
Group companies
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
Country of
incorporation
Direct/indirect
Group interest
UK
UK
Direct
Direct
Share class
£1 Ordinary
£1 Ordinary
Luxembourg
Indirect
USD1 Ordinary
UK
Indirect
£1 Ordinary
Brazil
Indirect
BRL0.01 Ordinary
UK
Indirect
£1 Ordinary
Mexico
Indirect
MXN1,000 Ordinary
UK
UK
UK
Indirect
Indirect
Indirect
£1 Ordinary
£1 Ordinary
£0.10 Ordinary
Ireland
Indirect
€1.27 Ordinary
UK
UK
Indirect
Direct
£1 Ordinary
£1 Ordinary
Brazil
Indirect
BRL1 Ordinary
UK
UK
Indirect
Indirect
£0.25 Ordinary
£1 Preference
£0.25 Ordinary
United States
Indirect
USD1 Common
United
Kingdom
Brazil
Direct
Indirect
£0.10 Ordinary
BRL0.63 Ordinary
Switzerland
Indirect
CHF1,000 Ordinary
100%
35. GROUP ENTITIES CONTINUED
Name of undertaking
Registered address
Genus Quest Trustees Limited
Genus Trustees Limited
GIL Finance S.à.r.l.
PIC (UK) Limited
PIC Do Brasil Empreendimentos e
Participações Ltda.
PIC Fyfield Limited (00019739)2
PIC Servicios Agropecuarios, S.A.
de C.V.
Pig Improvement Company
Overseas Limited (00716304)2
Pigtales Limited (01809650)2
Premium Genetics (UK) Limited
(08461779)2
Premium Genetics Limited
Progen Ltd
Promar International Limited
(03004562)2
Skogluno Participações Ltda.
Spillers Limited (00024021)2
Spillers Overseas Limited
Sygen, Inc.
Sygen International Limited
(03215874)2
Sygen Investimentos Ltda.
Usicafé SA
Matrix House, Basing View, Basingstoke,
Hampshire, RG21 4DZ, United Kingdom
Matrix House, Basing View, Basingstoke,
Hampshire, RG21 4DZ, United Kingdom
121 Avenue de la Faiencerie, L – 1511,
Luxembourg
Matrix House, Basing View, Basingstoke,
Hampshire, RG21 4DZ, United Kingdom
Rua 1 JN, no. 1411, Sala 13, Jardim Novo,
Rio Claro, Estado De Sao Paulo, CEP
13.502.741, Brazil
Matrix House, Basing View, Basingstoke,
Hampshire, RG21 4DZ, United Kingdom
Wenceslao de la Barquera No.7, Col. Villas
del Sur, 76040 Queretaro, Queretaro,
Mexico
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
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
Matrix House, Basing View, Basingstoke,
Hampshire, RG21 4DZ, United Kingdom
Matrix House, Basing View, Basingstoke,
Hampshire, RG21 4DZ, United Kingdom
100 Bluegrass Commons Blvd, Suite 2200,
Hendersonville, TN 37075 United States
Matrix House, Basing View, Basingstoke,
Hampshire, RG21 4DZ, United Kingdom
Av. Leopoldino de Oliveira, 4113 – Sala
303, Uberaba, Minas Gerais, CEP
38010-000, Brazil
c/o Cabinet Mayor, avocats, Rue
Jean-Gabriel Eynard 6, 1205 Genève
2 UK subsidiaries taking advantage of the audit exemption within section 479A of the Companies Act 2006.
FINANCIAL STATEMENTS
160
Genus plc / Annual Report 2019
36. BUSINESS COMBINATIONS AND DEFERRED CONSIDERATION
During the year, we acquired the trade and assets of Progenex S.L., a distributor of bovine genetics operating in Spain, and made deferred
consideration payments totalling £21.1m in respect of our previous acquisitions of De Novo Genetics, Hermitage Genetics and Møllevang.
PROGENEX S.L.
On 20 July 2018, the Group acquired the trade and assets of Progenex S.L., a distributor of bovine genetics operating in Spain, to further our growth in
the Spanish bovine genetics market.
The amounts recognised in respect of the identifiable assets and liabilities acquired are set out as follows:
Inventory
Intangible assets identified – customer relationships (note 14)
Deferred tax liability
Total identifiable assets
Goodwill (note 14)
Total consideration
Satisfied by:
Cash
Contingent consideration arrangement
Total consideration
£m
0.1
1.8
(0.4)
1.5
1.1
2.6
2.0
0.6
2.6
The goodwill of £1.1m arising from the acquisition consists of the future synergies and market opportunities expected from combining the acquired
operations with existing Genus operations. None of the goodwill is expected to be deductible for income tax purposes.
The contingent consideration arrangement requires certain sales targets to be achieved. The total that Genus could be required to pay under the
contingent consideration agreement will not exceed £0.6m.
Acquisition-related costs of £0.1m were recognised within exceptional costs (see note 7).
The operations acquired contributed revenues of £1.6m and £0.2m to the Group’s profit, for the period between the date of acquisition and the balance
sheet date. Had the transaction occurred on 1 July 2018, the contribution to revenue and profit would not be materially different.
AVLSCENTER MØLLEVANG A/S (‘MØLLEVANG’)
On 2 July 2018, Genus PIC and Møllevang, a leading Danish porcine genetics company, signed an exclusive distribution agreement for Denmark,
entered into a sireline nucleus agreement and Genus PIC purchased 49% of Møllevang. In accordance with the subscription agreement, Genus PIC paid
£19.3m on 2 July 2018. Møllevang is an elite porcine genetics production partner for Genus PIC in Denmark and will continue to distribute elite genetics
to the Danish market and certain other countries.
37. NON-CONTROLLING INTEREST
Non-controlling interest
Put option over non-controlling interest (see note 24)
Total non-controlling interest
2019
£m
4.2
(5.5)
(1.3)
2018
£m
5.7
(3.2)
2.5
Summarised financial information in respect of each of the Group’s subsidiaries that has a material non-controlling interest is set out below 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
No dividends were paid to non-controlling interests (2018: £nil).
2019
£m
11.6
1.2
0.8
(6.1)
7.5
(3.5)
4.0
0.2
4.2
2018
£m
10.7
0.7
3.1
(4.2)
10.3
(5.2)
5.1
0.6
5.7
NOTES TO THE GROUP FINANCIAL STATEMENTS CONTINUEDFor the year ended 30 June 2019 161
38. RELATED PARTY TRANSACTIONS
Bomaz, Inc. and Bogz Dairy, LLC are well recognised breeders in the industry, and are related parties to the Group as these entities are under the
control of relatives of Nate Zwald, our ABS Dairy COO.
We transact with Bomaz, Inc. and Bogz Dairy, LLC as part of our bull product development effort, under a variety of contracts and agreements. Costs in
FY19 amounted to £1.25m (2018: £0.3m). As at 30 June 2019, the balance owing to these entities was £nil; all amounts were settled in cash.
These related party transactions were made on terms equivalent to those that prevail in arms’ length transactions.
FINANCIAL STATEMENTS
162
Genus plc / Annual Report 2019
PARENT COMPANY BALANCE SHEET
As at 30 June 2019
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
Non-current liabilities
Creditors: amounts falling due after more than one year
Provisions
Net assets
Capital and reserves
Called up share capital
Share premium account
Own shares
Retained earnings
Hedging reserve
Shareholders’ funds
The Company recognised a total comprehensive profit for the year of £16.8m (2018: £21.6m profit).
The financial statements were approved and authorised for issue by the Board of Directors on 4 September 2019.
Signed on behalf of the Board of Directors
KARIM BITAR
Chief Executive
STEPHEN WILSON
Group Finance Director
Company number: 02972325
Note
C3
C4
C5
C6
C12
C7
C9
C10
C10
C13
2019
£m
11.3
0.5
109.3
2.6
0.4
124.1
443.7
2.0
445.7
(216.7)
229.0
353.1
(102.1)
(2.0)
(104.1)
249.0
6.5
179.0
(0.1)
63.4
0.2
249.0
2018
£m
4.9
0.6
87.2
2.2
0.3
95.2
461.7
–
461.7
(249.8)
211.9
307.1
(121.3)
(2.2)
(123.5)
183.6
6.2
112.8
(0.1)
62.7
2.0
183.6
PARENT COMPANY STATEMENT OF CHANGES IN EQUITY
For the year ended 30 June 2019
Balance at 1 July 2017
Total comprehensive profit for the financial year
Actuarial gain on retirement benefits obligations
Movement on pension asset recognition restriction
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 2018
Total comprehensive profit for the financial year
Actuarial loss on retirement benefits obligations
Movement on pension asset recognition restriction
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 2019
Called up
share capital
£m
Share
premium
account
£m
Own
shares
£m
Retained
earnings
£m
Hedging
reserve
£m
6.1
–
–
–
0.1
–
–
–
6.2
–
–
–
0.3
–
–
–
6.5
112.8
–
–
–
–
–
–
–
112.8
–
–
–
66.2
–
–
–
(0.1)
–
–
–
–
–
–
–
(0.1)
–
–
–
–
–
–
–
179.0
(0.1)
51.5
21.6
2.8
(2.8)
–
(14.9)
4.5
–
62.7
16.8
(2.2)
2.6
–
(16.8)
0.3
–
63.4
1.1
–
–
–
–
–
–
0.9
2.0
–
–
–
–
–
–
(1.8)
0.2
For information on dividends see note 13, cash flow hedges see note 24 and share-based payment expense see note 28, to the Group financial
statements.
163
Total
equity
£m
171.4
21.6
2.8
(2.8)
0.1
(14.9)
4.5
0.9
183.6
16.8
(2.2)
2.6
66.5
(16.8)
0.3
(1.8)
249.0
FINANCIAL STATEMENTS
164
Genus plc / Annual Report 2019
NOTES TO THE PARENT COMPANY FINANCIAL STATEMENTS
For the year ended 30 June 2019
C1. 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, the 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.
There are no areas of critical accounting judgement or key sources of estimation uncertainty.
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, details of which are given in note 27 to
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.
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.
165
C1. ACCOUNTING INFORMATION AND POLICIES CONTINUED
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.
C2. EMPLOYEES
Staff costs including Directors’ remuneration during the year amounted to:
Wages and salaries
Social security costs
Pension costs
Share-based payment expense
2019
£m
5.6
0.7
0.1
0.6
7.0
2018
£m
5.5
0.9
0.1
2.4
8.9
The employee costs above are inclusive of £0.2m (2018: £0.1m) which has been capitalised into intangible assets as part of the development of
GenusOne (see note C3).
The Directors’ Remuneration Report sets out details of the Directors’ remuneration, pensions and share options.
The average monthly number of employees, including Directors, during the year was as follows:
Administration
2019
Number
34
2018
Number
38
FINANCIAL STATEMENTS
166
Genus plc / Annual Report 2019
C3. 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.
See note 14 to the Group financial statements for useful economic life.
Cost
Balance at 1 July 2018
Additions
Transfers
Balance at 30 June 2019
Amortisation
Balance at 1 July 2018
Amortisation for the year
Balance at 30 June 2019
Carrying amounts
At 30 June 2019
At 30 June 2018
Software
£m
Patents and
licences
£m
Asset under
construction
£m
1.5
–
0.2
1.7
1.1
0.2
1.3
0.4
0.4
3.7
–
–
3.7
1.9
1.0
2.9
0.8
1.8
2.7
7.6
(0.2)
10.1
–
–
–
10.1
2.7
Total
£m
7.9
7.6
–
15.5
3.0
1.2
4.2
11.3
4.9
Assets under construction primarily relate to the on-going development of GenusOne, a unified enterprise-wide business system.
C4. 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
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 2018
Balance at 30 June 2019
Depreciation
Balance at 1 July 2018
Depreciation for the year
Balance at 30 June 2019
Carrying amounts
At 30 June 2019
At 30 June 2018
Short
leasehold
improvements
£m
Equipment
£m
Total
£m
0.5
0.5
0.1
0.1
0.2
0.3
0.4
0.6
0.6
0.4
–
0.4
0.2
0.2
1.1
1.1
0.5
0.1
0.6
0.5
0.6
NOTES TO THE PARENT COMPANY FINANCIAL STATEMENTS CONTINUEDFor the year ended 30 June 2019
167
C5. 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 amount 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 2018
Additions
Balance at 30 June 2019
Provision for impairment
Balance at 1 July 2018
Provided during the year
Balance at 30 June 2019
Carrying amounts
At 30 June 2019
At 30 June 2018
Shares in
subsidiary
undertakings
£m
280.4
22.1
302.5
193.2
–
193.2
109.3
87.2
Additions relate to increasing our investment in ABS Argentina S.A., ABS Pecplan Ltda. and Genus Investments Limited.
PRINCIPAL SUBSIDIARY UNDERTAKINGS
The Company’s principal subsidiaries and their main activities are given in note 35 to the Group financial statements.
C6. 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
C7. 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
2019
£m
2.6
–
2.6
2019
£m
438.3
0.9
0.3
1.6
1.5
1.1
443.7
2018
£m
1.9
0.3
2.2
2018
£m
453.9
2.0
–
1.8
1.5
2.5
461.7
Note
C8
C12
At the balance sheet date, the amounts owed by Group undertakings were £438.3m (2018: £453.9m). The carrying amount of these assets approximates
their fair value. There are impaired receivable balances of £nil (2018: £nil). Of the amounts owed by Group undertakings, £320.9m (2018: £333.3m) is
interest-bearing.
FINANCIAL STATEMENTS
168
Genus plc / Annual Report 2019
C8. 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 the income statement
Released in equity
At the end of the year
The amounts provided are as follows:
Share-based payment expense
Other timing differences
Losses
2019
£m
1.5
–
–
1.5
2019
£m
0.9
0.3
0.3
1.5
2018
£m
1.5
–
–
1.5
2018
£m
1.5
–
–
1.5
At the balance sheet date, the Company had unused tax losses available for offset against future profits, with a potential tax benefit of £0.3m (2018:
£nil). We have recognised a deferred tax asset in respect of this benefit, as we expect these losses to be offset against future profits of the UK tax group
in the near term.
C9. 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
C11
C12
2019
£m
2.1
2.0
0.3
208.2
3.1
1.0
216.7
2018
£m
10.6
2.5
1.0
233.1
2.3
0.3
249.8
Included within amounts owed to Group undertakings are amounts of £192.4m (2018: £207.5m) 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 (2018: £nil).
C10. CREDITORS: AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR
Bank loans and overdrafts
Derivative financial liabilities
Provisions – share forfeiture
Note
C11
C12
2019
£m
101.9
0.2
2.0
104.1
2018
£m
120.7
0.6
2.2
123.5
The share forfeiture provision of £2.0m relates to potential claims that could be made by untraced members over the next two years, relating to the
resale proceeds of shares that were identified during the prior year as being forfeited (see note 23 to the Group financial statements).
NOTES TO THE PARENT COMPANY FINANCIAL STATEMENTS CONTINUEDFor the year ended 30 June 2019 169
C11. 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
2019
£m
2.5
–
102.2
104.7
(0.7)
104.0
(2.1)
101.9
2018
£m
11.0
–
121.4
132.4
(1.1)
131.3
(10.6)
120.7
At the balance sheet date, the Company’s credit facilities comprised a £95m multi-currency revolving credit facility and a US$165m revolving credit
facility. £45m of the Group’s credit facilities expire in February 2021, with the remaining facilities expiring in February 2022.
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$90m (£70.9m) fixed at 1.16% and £25m fixed at 1.07%, excluding applicable bank margin.
TERMS AND DEBT REPAYMENT SCHEDULE
The 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.
Currency
Interest rate
GBP
USD
EUR
Other
1.8%
3.5%
–
1.3%
2019
£m
25.0
77.2
–
1.8
2018
£m
33.5
90.1
0.9
6.8
104.0
131.3
C12. DERIVATIVES AND OTHER FINANCIAL INSTRUMENTS
Additional disclosures on financial instruments can be found in note 24 to the Group financial statements.
C13. CAPITAL AND RESERVES
SHARE CAPITAL
Issued and fully paid
Ordinary shares of 10 pence
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
Issued at share placement
2019
Number
2018
Number
65,054,559
61,542,467
2019
Number
14,892
400,000
3,097,200
3,512,092
2018
Number
30,845
350,000
–
380,845
2019
£m
6.5
2019
£m
–
–
0.3
0.3
2018
£m
6.2
2018
£m
–
–
–
–
FINANCIAL STATEMENTS
170
Genus plc / Annual Report 2019
C13. CAPITAL AND RESERVES CONTINUED
Shares issued under the Executive Share Option Plans were issued at the following option prices:
Executive Share Option Plan
2019
Number
–
3,932
2,106
1,915
1,463
3,685
1,791
14,892
Price
582.00p
776.00p
654.50p
729.83p
977.83p
1,334.00p
1,413.00p
2018
Number
2,721
2,970
3,268
2,034
4,580
4,145
11,127
30,845
Price
582.00p
776.00p
654.50p
729.83p
977.83p
1,334.00p
1,413.00p
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
The shares have a nominal value of £40,546 (2018: £17,960).
2019
Number
313,125
92,334
405,459
2018
Number
87,265
92,334
179,599
2019
£m
8.3
2.4
10.7
2018
£m
2.3
2.4
4.7
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.
C14. 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:
In less than one year
Between one and five years
In more than five years
Operating lease rentals charged in the year:
Other
The leases have various terms and renewal rights. There are no other restrictions imposed by these lease agreements.
2019
£m
0.9
2.1
0.4
3.4
2019
£m
0.9
2018
£m
0.9
3.8
0.8
5.5
2018
£m
0.2
NOTES TO THE PARENT COMPANY FINANCIAL STATEMENTS CONTINUEDFor the year ended 30 June 2019 171
C15. RELATED PARTY TRANSACTIONS
The Company is exempt under FRS 101 from disclosing transactions with other members of the Group.
C16. CAPITAL AND OTHER COMMITMENTS
At 30 June 2019, outstanding contracted capital expenditure amounted to £nil (2018: £nil).
A software agreement was signed on 23 June 2017, with a minimum five-year term, with an annual cost of £0.8m.
C17. PENSIONS, GUARANTEES AND CONTINGENCIES
The NMR pension assigned to Genus plc under the Flexible Apportionment Agreement recorded an actuarial loss of £2.2m, which has reduced the
asset restriction made in the previous year. As the Company does not have unilateral right to this surplus, as required in accordance with IFRIC 14 it is
restricted to £nil. For additional information on the MPF pension scheme, of which NMR was one of the participating employers, please see note 27 to
the Group financial statements.
The retirement benefit obligations referred to in note 27 to the Group financial statements 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 86% (2018: 86%) 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.
Certain UK subsidiaries, which are detailed in note 35 to the Group financial statements, will take advantage of the audit exemption set out within
section 479A of the Companies Act 2006 for the year ended 30 June 2019. The Company has assessed the probability of loss under the guarantee as
remote.
At 30 June 2019, the Company had entered into bank guarantees totalling £nil (2018: £1.0m).
FINANCIAL STATEMENTS
172
Genus plc / Annual Report 2019
FIVE-YEAR RECORD – CONSOLIDATED RESULTS
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
2019
£m
488.5
57.7
64.9
61.0
73.2p
70.7p
8.7
9.9
6.7
12.4p
11.9p
502.3
79.6
2018
£m
470.3
57.7
63.1
58.5
75.9p
74.9p
8.2
7.8
41.6
69.7p
68.7p
419.1
108.5
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
388.3
49.3
54.3
49.7
60.7p
60.1p
58.6
60.9
50.3
81.1p
80.3p
368.1
89.7
2015
£m
398.5
47.2
51.2
46.6
56.8p
56.1p
59.5
57.8
40.5
65.7p
64.9p
305.1
71.8
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.
GLOSSARY
173
AGM – Annual General Meeting.
Artificial insemination (‘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.
ASF – African Swine Fever.
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.
CPI – Consumer Price Index.
CRISPR-Cas 9 – Technology which accurately targets and cuts DNA to
produce precise and controllable changes to the genome.
CSR – Corporate Social Responsibility.
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.
In vitro fertilisation (‘IVF’) – The fertilisation of an oocyte with semen
(outside an animal) in a laboratory for transfer into a surrogate.
Index/Indices – A formula incorporating economically important
traits for ranking the genetic potential of animals as parents of the next
generation.
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.
IntelliGen – The technology platform used to process sexed bovine
semen for ABS and third-party customers and commercialised by ABS
globally as Sexcel.
DSBP – Deferred Share Bonus Plan.
IP – Intellectual property.
EPS – Earnings per share.
IPR – Inter Partes Review before the US Patent and Trademarks Office.
Farrow – When a sow gives birth to piglets.
GELT – Genus Executive Leadership Team.
IVB – In Vitro Brasil S.A.
JV – Joint venture.
Gender skew – The ability to influence the proportion of offspring being
of a particular sex.
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.
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.
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.
Market pig equivalents (‘MPE’) – Refers to a standardised measure of
our customers’ production of slaughter animals that contain our genetics
with genes from each of the sow and boar counting for half of the animal.
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.
NuEra – The ABS beef breeding programme and index designed to drive
the customer’s genetic improvement and deliver total system profitability
for the beef supply chain.
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.
ADDITIONAL INFORMATION
174
Genus plc / Annual Report 2019
GLOSSARY CONTINUED
PRRSv – Porcine Reproductive and Respiratory Syndrome Virus.
PSP – Performance Share Plan.
PTAB – Patent Trail and Appeal Board before the US Patent and
Trademarks Office.
R&D – Research and development.
RMS – ABS’s Reproductive Management System, which is a systematic
approach to maximising pregnancy production and its contribution to
herd profitability.
RPI – Retail Price Index.
RWD – ABS’s Real World Data System of observed performance data from
many dairy herds.
Sexcel – The ABS brand of sexed bovine genetics produced using
IntelliGen.
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.
Terminal boars – The male pig that is used to mate with a parent female
to produce a terminal pig.
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.
NOTICE OF ANNUAL GENERAL MEETING
175
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 2019 Annual General Meeting of Genus plc (the ‘Company’) will be held at Buchanan Communications, 107 Cheapside,
London EC2V 6DN on Thursday, 14 November 2019 at 11.00 am for the following purposes:
To consider and if thought fit, to pass the following resolutions, of which numbers 1 to 16 will be proposed as ordinary resolutions and numbers 17 to
20 as special resolutions.
ORDINARY RESOLUTIONS
1.
To receive the Company’s audited Financial Statements and the Directors’ Reports for the year ended 30 June 2019.
2.
3.
4.
5.
6.
7.
To approve the Directors’ Remuneration Report for the year ended 30 June 2019, as set out on pages 69 to 94 of the Company’s Annual Report
2019.
To approve the Directors’ Remuneration Policy, as set out on pages 72 to 82 of the Company’s Annual Report 2019, to take effect immediately after
the end of the AGM on 14 November 2019.
To approve the rules of the Genus plc Performance Share Plan (the ‘PSP’), in the form produced to the AGM and initialled by the Chair for the
purposes of identification (a summary of which is set out in the Explanatory Notes to the Notice of AGM; and to authorise the Directors of the
Company to establish further plans based on the PSP for the benefit of Directors and employees of the Company and/or its subsidiaries who are
located outside the United Kingdom, with such modifications as may be necessary or desirable in order to take account of local tax, exchange
control or securities laws as they consider appropriate provided that any ordinary shares made available under such plans shall be treated as
counting against any individual or overall limits contained in the PSP.
To approve the rules of the Genus plc Deferred Share Bonus Plan (the ‘DSBP’), in the form produced to the AGM and initialled by the Chair for the
purposes of identification (a summary of which is set out in the Explanatory Notes to the Notice of AGM); and to authorise the Directors of the
Company to establish further plans based on the DSBP for the benefit of Directors and employees of the Company and/or its subsidiaries who are
located outside the United Kingdom, with such modifications as may be necessary or desirable in order to take account of local tax, exchange
control or securities laws as they consider appropriate provided that any ordinary shares made available under such plans shall be treated as
counting against any individual or overall limits contained in the DSBP.
To approve the amendments to the rules of the Genus plc 2014 Deferred Share Bonus Plan, in the form produced to the AGM and initialled by the
Chair for the purposes of identification (a summary of which is set out in the Explanatory Notes to the Notice of AGM).
To declare a final dividend of 18.8 pence per ordinary share, payable on 29 November 2019 to shareholders on the register of members at the close
of business on 8 November 2019.
8.
To re-elect Bob Lawson as a Director of the Company who, being eligible, offers himself for re-election.
9.
To re-elect Stephen Wilson as a Director of the Company who, being eligible, offers himself for re-election.
10. To re-elect Lysanne Gray as a Director of the Company who, being eligible, offers herself for re-election.
11. To re-elect Lykele van der Broek as a Director of the Company who, being eligible, offers himself for re-election.
12. To re-elect Lesley Knox as a Director of the Company who, being eligible, offers herself for re-election.
13. To re-elect Ian Charles as a Director of the Company who, being eligible, offers himself for re-election.
14. To reappoint Deloitte LLP as auditor of the Company to hold office from the conclusion of the AGM until the conclusion of the next general meeting
of the Company at which Financial Statements are laid.
15. To authorise the Audit Committee of the Board to determine the remuneration of the auditor.
ADDITIONAL INFORMATION
176
Genus plc / Annual Report 2019
NOTICE OF ANNUAL GENERAL MEETING CONTINUED
16. 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:
16.1. £2,168,994.10 being 21,689,941 ordinary shares of 10 pence each (‘Ordinary Shares’) representing one third of the issued share capital of the
Company; and
16.2. £2,168,994.10 being 21,689,941 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 requirements of any 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 AGM 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 save 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.
SPECIAL RESOLUTIONS
17. That subject to and conditional on the passing of resolution 16, the Directors be authorised, pursuant to sections 570 and 573 of the Companies
Act 2006 (the ‘Act’), to allot equity securities (within the meaning of section 560 of the Act) for cash pursuant to the authority conferred by
resolution 16 and 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 (and sale of treasury shares):
17.1. in connection with an offer of securities (but in the case of the authority granted under paragraph 16.2 of resolution 16 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
17.2. other than pursuant to paragraph 17.1 above, to any person or persons up to an aggregate nominal amount of £162,674.50 representing not
more than 2.5% of the issued share capital of the Company as at 30 September 2019 (being the latest practicable date prior to the publication
of this Notice),
such authority to expire upon the expiry of the general authority conferred by resolution 16 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.
18. That subject to and conditional on the passing of resolution 16, and in addition to any authority granted by resolution 17, the Directors be
authorised, pursuant to sections 570 and 573 of the Companies Act 2006 (the ‘Act’), to allot equity securities (within the meaning of section 560 of
the Act) for cash pursuant to the authority conferred by that resolution and by way of a sale of treasury shares as if section 561(1) of the Act did not
apply to any such allotment and sale, provided that this power shall be:
18.1. limited to the allotment of equity securities, or sale of treasury shares, up to an aggregate nominal amount of £325,349.10 representing not
more than 5% of the issued share capital of the Company as at 30 September 2019 (being the latest practicable date before publication of
this Notice); and
18.2. 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,
such authority to upon the expiry of the general authority conferred by resolution 16 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.
177
19. That the Company be generally and unconditionally authorised to make market purchases (within the meaning of section 693(4) of the Companies
Act 2006) of Ordinary Shares on such terms and in such manner as the Directors think fit provided that:
19.1. the maximum aggregate number of Ordinary Shares hereby authorised to be purchased is 6,506,982 (representing 10% of the Company’s
issued ordinary share capital as at 30 September 2019, being the latest practicable date before publication of this Notice);
19.2. the minimum price, exclusive of any expenses, which may be paid for an Ordinary Share is 10 pence;
19.3. 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 20 will be carried out; and
19.4. the authority conferred by this resolution shall expire on the conclusion of the Company’s AGM 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.
20. 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 AGM next following.
The Board considers that all the resolutions to be considered at the AGM 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 85,186 shares
representing approximately 0.131% 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
30 September 2019
ADDITIONAL INFORMATION
178
Genus plc / Annual Report 2019
NOTICE OF ANNUAL GENERAL MEETING CONTINUED
EXPLANATORY NOTES
This section contains an explanation of each of the resolutions to be put
to the AGM. Resolutions 1 to 16 are ordinary resolutions requiring the
approval of a simple majority of shareholders present (in person or by
proxy) and voting at the AGM. Resolutions 17 to 20 are special resolutions
requiring the approval of 75% of shareholders present (in person or by
proxy) and voting at the AGM.
RESOLUTION 4 – ADOPTION OF THE GENUS PLC PERFORMANCE SHARE
PLAN (THE ‘PSP’)
The Remuneration Committee has determined that it is appropriate to
seek shareholder approval for the implementation of a performance
share plan to replace the existing plan, which has been prepared
taking account of the significant updates to best practice in corporate
governance since the existing plan was adopted by shareholders in 2014.
RESOLUTION 1 – TO RECEIVE THE ANNUAL REPORT
The Chairman will present the Annual Report to the AGM.
A summary of the PSP rules is set out in the Explanatory Notes to this
document on pages 182 to 184.
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’).
Resolution 2 seeks shareholder approval for the Directors’ Remuneration
Report (other than the part containing the Directors’ Remuneration
Policy) as set out on pages 69 to 94 of the Company’s Annual Report
2019. The Directors’ Remuneration Report gives details of the Directors’
remuneration for the year ended 30 June 2019. 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 2019.
The current Directors’ Remuneration Policy was approved at the
Company’s Annual General Meeting held in November 2016 and is set
out in our 2016 Annual Report which is available from our website at
www.genusplc.com. The 2016 remuneration policy does not form part
of the Directors’ Remuneration Report for the purposes of resolution 2.
RESOLUTION 3 – APPROVAL OF THE DIRECTORS’ REMUNERATION
POLICY
The Company is required to offer a 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 3 seeks shareholder approval for the Directors’ Remuneration
Policy given the changes made to it as outlined in the letter from
the Chairman of the Remuneration Committee within the Directors’
Remuneration Report (the ‘Revised Policy’). The Revised Policy is set out
on pages 72 to 82 of the Company’s Annual Report 2019. The Revised
Policy is designed to support the continued transformation of the
Company into a global agricultural biotechnology pioneer by allowing
the Company to recognise innovation and progress and to attract and
motivate a high quality leadership team and drive focus and behaviours
on long term achievement.
Subject to such approval, the proposed effective date of the Directors’
Remuneration Policy is 14 November 2019, being the date of the AGM,
and all payments from that date from the Company to the Directors and
any former Directors must be made in accordance with such policy if
approved (unless a revision to the policy has been separately approved
by a shareholder resolution to allow for such a payment).
If the Directors’ Remuneration Policy is not approved for any reason, the
Company will, if and to the extent permitted by the Act, continue to make
payments to Directors in accordance with the existing Remuneration
Policy until a new Directors’ Remuneration Policy is approved by
shareholders.
RESOLUTION 5 – ADOPTION OF THE GENUS PLC DEFERRED SHARE
BONUS PLAN (THE ‘DSBP’)
The Remuneration Committee has determined that it is appropriate
to seek shareholder approval for the implementation of a deferred
share bonus plan to replace the existing plan which has been prepared
taking account of the significant updates to best practice in corporate
governance since the existing plan was adopted by the Board in 2014.
A summary of the DSBP rules is set out in the Explanatory Notes to this
document on pages 182 to 184.
RESOLUTION 6 – APPROVAL OF AMENDMENTS TO THE GENUS PLC 2014
DEFERRED SHARE BONUS PLAN (THE ‘2014 DSBP’)
The Remuneration Committee has determined that it is appropriate
to seek shareholder approval to amend the 2014 DSBP, so that existing
awards made under the 2014 DSBP can be satisfied using newly issued or
treasury shares. Allowing the use of new issue or treasury shares will give
the Company greater flexibility in satisfying existing awards and ensures
that Company cash need not be used to acquire existing shares in the
market to satisfy awards if it is determined that there are other uses for
such cash.
The 2014 DSBP will also be amended so that awards may not be satisfied
by newly issued or treasury shares where to do so would cause the
number of shares which may be issued pursuant to outstanding awards
granted within the previous 10 years under the 2014 DSBP:
> and any other employees’ share scheme adopted by the Company,
when added to the number of shares issued for the purpose of any such
2014 DSBP awards, to exceed 10 per cent. of the Company’s ordinary
share capital in issue immediately prior to the proposed date of grant;
and
> and any other executive (discretionary) employees’ share scheme
adopted by the Company, when added to the number of shares issued
for the purpose of any such 2014 DSBP awards, to exceed 5 per cent. of
the Company’s ordinary share capital in issue immediately prior to the
proposed date of grant. For these purposes, the Committee interprets
this 5 per cent. limit as applying to awards granted to Executive
Directors and executive committee members only.
RESOLUTION 7 – 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 7. An interim dividend of 8.9 pence per Ordinary Share was paid
on 4 April 2019 to shareholders on the register at 8 March 2019, resulting in
a total dividend for the year of 27.7 pence per Ordinary Share.
RESOLUTIONS 8 TO 13 – 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
50 to 51 of the Company’s Annual Report 2019 together with reasons why
their contributions are, and continue to be, important to the Company’s
long term sustainable success. 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.
179
The Board recognises that Robert Lawson will have served nine years
as Chairman of the Company at the date of the AGM. He recognises the
requirement to move on from the role of Chairman in due course, but the
Board has postponed this change, to ensure a smooth transition to the
new Chief Executive. Robert Lawson continues to make an outstanding
contribution to the Board and provides continuity during the transition,
given his significant knowledge of the business.
RESOLUTIONS 14 AND 15 – 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 16 – AUTHORITY TO ALLOT SHARES
Resolution 16 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 16.
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 £4,337,988.30
representing two-thirds of the Company’s issued ordinary share capital as
at 30 September 2019 (the latest practicable date prior to publication of
this Notice). If the Company wishes to allot more than a nominal amount
of £2,168,994.10 (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 AGM of the
Company or, if earlier, on the close of business on the day which is 15
months after the date on which resolution 16 is passed.
The Directors have no current intention to allot new Ordinary Shares
(other than in relation to the Company’s employee share schemes)
however they consider it appropriate to maintain the flexibility that this
resolution provides. As at the date of this Notice, no shares are held by the
Company in treasury.
RESOLUTIONS 17 AND 18 – DISAPPLICATION OF PRE‑EMPTION RIGHTS
Resolutions 17 and 18 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 16 above for cash
without complying with the pre-emption rights in the Act in certain
circumstances.
The Pre-Emption Group’s Statement of Principles (the ‘Pre-Emption
Group Principles’) allow the Company to seek authority for an issue of
shares for cash otherwise than in connection with a pre-emptive offer of
up to 10% of the Company’s issued share capital, provided that:
(a) shares are not allotted 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; and
(b) 5% of the authority can only be used 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’).
In line with Pre-Emption Group guidance, the annual disapplication of
pre-emption rights is being proposed as two separate resolutions.
Resolution 17 will permit the Directors to allot:
17.1 equity securities for cash and sell treasury shares up to a nominal
amount of 4,337,988.30, representing two-thirds of the Company’s
issued share capital as at 30 September 2019 (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
17.2 equity securities for cash and sell treasury shares up to a maximum
nominal value of £162,674.50, representing approximately 2.5% of
the issued ordinary share capital of the Company as at 30 September
2019 (the latest practicable date prior to publication of this Notice)
otherwise than in connection with a pre-emptive offer to existing
shareholders.
The authority contained in resolution 17.2 above is limited to
approximately 2.5% of the issued ordinary share capital of the Company
as at 30 September 2019 (the latest practicable date prior to publication
of this Notice) following the allotment by the Company in December 2018
of 3,097,000 Ordinary Shares of 10p each by way of an equity placing.
Resolution 18 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 £325,349.10, representing a
further 5% of the issued ordinary share capital of the Company (as at
30 September 2019, 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 Principles.
The authorities contained in resolutions 17 and 18 will expire upon
the expiry of the authority to allot shares conferred in resolution 18
(that is at the end of the next AGM 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
AGM.
RESOLUTION 19 – AUTHORITY TO PURCHASE OWN SHARES
Resolution 19 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.
ADDITIONAL INFORMATION
180
Genus plc / Annual Report 2019
NOTICE OF ANNUAL GENERAL MEETING CONTINUED
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 19, the Company will have
the option of holding repurchased shares in treasury.
If resolution 19 is passed at the AGM, 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.
At 30 September 2019 (the latest practicable date prior to the publication
of this Notice), options were outstanding to subscribe for 993,099
Ordinary Shares, representing 1.53% of the issued share capital at that
date. If the full authority to purchase such shares (existing and sought)
was exercised, they would represent 1.7% of the Company’s issued share
capital as at that date. The authority sought at the AGM will expire at the
conclusion of the AGM next following, or the close of business on the day
which is 15 months from the date of this resolution (whichever is earlier).
RESOLUTION 20 – NOTICE PERIOD FOR GENERAL MEETINGS
Resolution 20 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 AGM, 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 AGM, 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 AGM. 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 AGM 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 AGM.
To be valid, a duly executed form of proxy for use at the AGM 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 AGM 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 AGM 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.
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 AGM is 6.30pm on 12 November 2019 (or if the AGM 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 AGM). 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 AGM 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 AGM, and at the place of the AGM for at least 15 minutes
prior to the AGM until its conclusion.
The PSP, DSBP and the amended 2014 DSBP rules are available for
inspection during normal business hours (Saturdays, Sundays and public
holidays excepted) at the offices of Herbert Smith Freehills LLP, Exchange
House, Primrose Street, EC2A 2EG up until the close of the AGM. The PSP,
DSBP and the amended 2014 DSBP rules will also be available at the place
of the meeting for at least 15 minutes prior to the AGM until its conclusion.
181
QUESTIONS
Under section 319A of the Act, the Company must cause to be answered
at the AGM any question a member asks relating to the business being
dealt with at the AGM unless answering the question would interfere
unduly with the preparation for the AGM 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 AGM that the question be
answered.
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 AGM; 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
AGM 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 AGM 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 AGM
should call Equiniti registrars on 0371 384 2290. If calling from overseas,
please call the Equiniti overseas helpline number of +44 121 415 7047.
Lines open 8.30am to 5.30pm, Monday to Friday (excluding UK public
holidays). No other methods of communication will be accepted. You may
not use any electronic address provided either in this Notice of AGM, or
any related documents (including the proxy form) to communicate with
the Company for any purposes other than those expressly stated.
CREST
CREST members who wish to appoint a proxy or proxies through the
CREST electronic proxy appointment service may do so for this AGM
to be held on 14 November 2019 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 AGM. 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 that 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 30 September 2019 (being the latest practicable date before
publication of this Notice), the Company’s issued share capital comprised
65,069,825 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 30 September 2019 is 65,069,825. 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.
ADDITIONAL INFORMATION
182
Genus plc / Annual Report 2019
NOTICE OF ANNUAL GENERAL MEETING CONTINUED
APPENDIX 1: SUMMARY OF THE PSP AND THE DSBP
The Board believes that it is important to attract, motivate and retain
employees of the appropriate calibre and to align their interests
with those of shareholders in the Company. Following review by the
Remuneration Committee (the ‘Committee’), it has been determined
to introduce the new PSP and DSBP, which have been prepared
taking account of the significant updates to best practice in corporate
governance since the existing performance share plan and deferred
share bonus plan were adopted in 2014. Accordingly, the Board is seeking
shareholder approval for the new PSP and DSBP to replace the existing
Genus plc Performance Share Plan and Deferred Share Bonus Plan.
The PSP incentivises executives to deliver superior returns to
shareholders over a three year period, by providing them with the
opportunity to acquire ordinary shares in the Company (‘Shares’)
dependent on satisfying performance conditions.
The DSBP provides that a proportion of an employee’s annual cash
bonus is deferred into shares over a three year period, conditional upon
remaining in employment.
TERMS COMMON TO THE PSP AND DSBP (TOGETHER THE ‘PLANS’)
1. ADMINISTRATION
Awards may be granted, and the Plans will be administered, by the Board,
or a duly authorised committee of the Board. The current intention is that
the Plans will be administered and awards granted by the Committee
(and this will always be the case in respect of awards for Executive
Directors of the Company (‘Executive Directors’)).
2. ELIGIBILITY
Awards may be granted to any of the employees of the Company or its
subsidiaries, including the Executive Directors (‘Participants’). In respect
of the DSBP only, where an employee or Executive Director ceases to
hold office or employment with the Company or any company which
from time to time is a subsidiary of the Company (the ‘Group’), the Board
may determine that a proportion of any annual bonus payable to such
employee or Director following such cessation shall be deferred in
accordance with the rules of the DSBP.
EXECUTIVE DIRECTORS
Participation by the Executive Directors shall, unless and until approved
otherwise by shareholders, be in accordance with the terms of the
Company’s remuneration policy as approved by shareholders from time
to time (the ‘Remuneration Policy’).
FORM OF AWARDS
Under the Plans, awards (‘Awards’) will take the form of either:
(a) a conditional right to receive Shares which will be automatically
transferred to the Participant following vesting (a ‘Conditional
Award’); or
(b) a nil-cost option, exercisable by the Participant following vesting
during a permitted exercise period (extending not later than the
tenth anniversary of the date of grant) (an ‘Option’).
NON-TRANSFERABLE AND NON-PENSIONABLE
Awards are non-transferable, save to personal representatives following
death, and do not form part of pensionable earnings.
PLAN LIMITS
Shares may be newly issued, transferred from treasury or market
purchased for the purposes of the Plans.
Awards may not be granted under the Plans on terms capable of being
satisfied by newly issued Shares where to do so would cause the number
of Shares which may be issued pursuant to outstanding Awards granted
within the previous 10 years under the Plans and any other employees’
share scheme adopted by the Company, when added to the number of
Shares issued for the purpose of any such Awards, to exceed 10 per cent.
of the Company’s ordinary share capital in issue immediately prior to the
proposed date of grant.
Awards may not be granted under the Plans on terms capable of being
satisfied by newly issued Shares where to do so would cause the number
of Shares which may be issued pursuant to outstanding Awards granted
within the previous 10 years under the Plans and any other discretionary
employees’ share scheme adopted by the Company, when added to the
number of Shares issued for the purpose of any such Awards, to exceed
5 per cent. of the Company’s ordinary share capital in issue immediately
prior to the proposed date of grant. For these purposes, the Committee
interprets this 5 per cent. limit as applying to Awards granted to Executive
Directors and executive committee members only.
These limits do not include rights to Shares which have been released,
lapsed or otherwise become incapable of exercise or vesting.
Treasury shares will count as new issue Shares for the purpose of these
limits for so long as institutional investor bodies consider that they
should be so counted.
RETENTION PERIOD
If the Committee so determines, Awards may be subject to a retention
period of two years following the vesting of an Award granted under
either Plan during which a Participant shall not be permitted to dispose
of the Shares acquired on vesting (other than to cover tax liabilities,
following a cessation of employment or in the event of a corporate
action).
DIVIDEND EQUIVALENTS
Participants may receive additional Shares with equal value to the
dividends which would have been paid during the vesting period on the
number of Shares that vest.
CASH ALTERNATIVE
If the Committee so determines, an Award may be satisfied in whole or in
part by a cash payment as an alternative to the issue or transfer of Shares.
LEAVERS
An Award granted under either Plan will normally lapse where the
Participant ceases to hold office or employment with the Group. Awards
will not lapse where the cessation of office or employment with the
Group is due to injury, disability, redundancy, retirement, the transfer of
the Participant’s employment in connection with a business sale, the
company with which the Participant holds office or employment ceasing
to be a member of the Group, death, or any other reason if the Committee
so determines (a ‘Good Leaver’).
Where a Participant ceases employment for a Good Leaver reason before
the normal vesting date, the Award will continue to remain capable of
vesting on its normal vesting date, provided that the Committee may
determine that the Award will instead vest on or at any time following the
date of cessation.
Where an Award remains outstanding in circumstances where the
Participant has become a Good Leaver, the Committee may impose
additional terms on the vesting of such Award including terms preventing
awards vesting in whole or in part if the Participant takes up a new
executive role with another company.
An Option will be exercisable during a period of six months from the
vesting date (or such other period as the Committee may permit).
183
CLAW-BACK
In respect of the PSP, the Committee may apply claw-back where at
any time before vesting or at any time prior to the third set of audited
accounts being published following the date on which an Award vests if it
determines that the financial results of the Company were misstated, an
error was made in any calculation or in assessing performance, in each
case resulting in the number of Shares in respect of which the Award was
granted or vested being more than it should have been.
In respect of the DSBP, the Committee may apply claw-back where at
any time before vesting it determines that the financial results of the
Company were misstated or an error was made in any calculation, which
resulted in the number of Shares in respect of which the Award was
granted or vested being more than it should have been.
In respect of Awards granted under both Plans, the Committee may also
apply claw-back at any time where it determines that, at any time prior
to the vesting of a Conditional Award (or exercise of an Option) either the
Participant committed misconduct that justified, or could have justified,
dismissal, the Participant committed an act or omission which had a
significant detrimental impact on the reputation of any Group Company,
a material failure of risk management occurred for which the Participant
was directly or indirectly responsible or which occurred in the part of the
business in which the Participant performs a role or has responsibility or
in the event of corporate failure.
A claw-back may be satisfied in a number of ways, including by reducing
the amount of any future bonus, by reducing the vesting of any subsisting
or future Awards, by reducing the number of Shares under any vested
but unexercised Option and/or by either one or both of a requirement to
make a cash payment or transfer of Shares to the Company.
The claw-back provisions will not apply following the occurrence of a
takeover or similar corporate event.
OVERSEAS PLANS
Each of the Plans contains provisions which permit the Board to establish
further plans for the benefit of overseas Participants based on the
relevant plan but modified as necessary or desirable to take account of
overseas tax, exchange control or securities laws. Any new Shares issued
under such plans would count towards the individual and overall plan
limits outlined above.
EMPLOYEE BENEFIT TRUST (THE ‘EBT’)
The Company may use the existing EBT, or may establish a new EBT,
to operate in conjunction with the Plans and otherwise to benefit
Participants and former Participants of the Company and its subsidiaries.
The Company and its subsidiaries may fund the EBT by loan or gift to
acquire Shares by market purchase, by subscription or from treasury.
Any Shares issued to the EBT (where the trust does not acquire Shares
by market purchase) will be treated as counting against the Plan limits
contained in the rules of the Plans.
The EBT is, or will be, constituted by a trust deed between the Company
and an offshore independent professional trustee. The power to appoint
and remove the trustee rests with the Company. The EBT will not, without
prior shareholder approval, be able to make an acquisition of Shares
where it would then hold more than 5 per cent. of the Company’s issued
share capital from time to time.
Any exercise of discretion in respect of Awards granted to Executive
Directors shall be undertaken in accordance with the terms of the
prevailing Directors’ Remuneration Policy.
CORPORATE ACTIONS
In the event of a change of control, Conditional Awards will normally vest
and Options may be exercised for a period of six months. In the event of
the passing of a resolution for the voluntary winding-up of the Company,
Conditional Awards will vest and Options will be exercisable for a period
of two months. In the event of a demerger of a substantial part of the
Group’s business, a special dividend or a similar event affecting the value
of the Shares to a material extent, Awards may be adjusted as set out
below or the Committee may allow Awards to vest, in which case Options
may be exercised for a period of two months, or such longer period as
the Committee may permit. Where the corporate action forms part of an
internal re-organisation, unless the Committee determines otherwise,
an Award shall not vest, and instead will be replaced with an Award of
equivalent value over shares in the new controlling company and, in the
case of the PSP, will continue to be subject to performance conditions.
INTERNATIONAL TRANSFERS
If a Participant is transferred to work in another country as a result of
which the Participant or a Group Company will suffer a tax disadvantage
or the Participant will become subject to restrictions on his ability to
receive or deal in Shares, or to exercise an Option, the Committee may
determine that an Award will vest prior to the date of such transfer, in
which case an Option may be exercised during a period of six months.
EXTENT OF VESTING
Where, prior to the normal vesting date, a Participant ceases
employment, or gives or receives notice, for a Good Leaver reason,
is subject to an international transfer on which Awards vest, or there
is a corporate action, the number of Shares in respect of which an
Award vests will, unless the Committee determines otherwise, be
pro-rated on the basis of the number of whole months which have
elapsed from the date of grant to the date of cessation (or, unless
the Board determines otherwise, notice) or the corporate action (as
applicable) and, in the case of the PSP, be based on satisfaction of
the performance condition. The Committee may adjust the extent
to which a PSP Award shall vest (negatively or positively, but never
to more than the original number of Shares subject to the Award)
if it determines that it is appropriate to do so to reflect the broader
circumstances of the Group. In respect of Awards granted to Executive
Directors, any such adjustment shall be undertaken in accordance
with the terms of the prevailing Directors’ Remuneration Policy.
VARIATION OF CAPITAL
The number of Shares subject to Awards and, where applicable, any
Option exercise price may be adjusted, in such manner as the Committee
may determine, following any variation of share capital of the Company
or a demerger of a substantial part of the Group’s business, a special
dividend or a similar event affecting the value of Shares to a material
extent.
ALTERATIONS
The Committee may amend the rules of the Plans as it considers
appropriate, subject to any relevant legislation, provided that no
modification may be made which confers any additional advantage
on Participants relating to eligibility, plan limits, the basis of individual
entitlement, the price payable for the acquisition of Shares and the
provisions for the adjustment of Awards without prior shareholder
approval, except in relation to performance conditions or for
amendments which are minor amendments to benefit the administration
of the Plans, to take account of a change in legislation, or to obtain or
maintain favourable tax, exchange control or regulatory treatment for
Participants or the Company (or other Group Companies).
ADDITIONAL INFORMATION
184
Genus plc / Annual Report 2019
NOTICE OF ANNUAL GENERAL MEETING CONTINUED
TERMS SPECIFIC TO THE PSP
3. INDIVIDUAL LIMIT
The maximum market value of the Shares over which a Participant may
be granted an Award under the PSP in any financial year shall not exceed
an amount equal to 200 per cent. of the Participant’s gross annual basic
salary as at the date of grant. In exceptional circumstances, this limit may
be increased to 300 per cent. at the discretion of the Committee. The PSP
may, in addition, be used to facilitate ‘buy-out’ Awards granted on the
recruitment of a Participant.
TERMS SPECIFIC TO THE DSBP
5. BONUS DEFERRAL
Before the amount of a Participant’s annual bonus is determined, the
Board may specify that a proportion of the Employee’s annual bonus
that shall be deferred. A Participant has no entitlement to receive the
proportion of the annual bonus that is deferred.
The Committee will grant to a Participant whose bonus is subject
to deferral an Award over the number of Shares which have a value
equivalent to the proportion of the Participant’s bonus which is deferred.
TIMING OF GRANT OF AWARDS
Awards under the DSBP may be granted at any time, provided that
there is no dealing restriction. In circumstances where there is a dealing
restriction, the Board may determine that the grant date of the Award
shall be the date on which the Award would have been granted but for
such a restriction having arisen.
VESTING
Awards will normally vest on the third anniversary of the date of grant.
The Committee may specify a shorter vesting period (or multiple
vesting periods) only where an Award is granted in connection with the
recruitment of a Participant or in circumstances which the Committee
determines to be exceptional. Where an Award is granted with multiple
vesting dates, the DSBP rules will apply separately to each part of
the Award.
For Executive Directors, unless or until otherwise approved by
shareholders, Award levels will always be in accordance with the
Company’s prevailing Remuneration Policy.
PERFORMANCE CONDITIONS
The Committee will determine the performance conditions which will
apply to PSP Awards and which will ordinarily be measured over a period
(the ‘Performance Period’) of not less than three years. The Committee
may specify a shorter Performance Period where an Award is granted
in connection with the recruitment of a Participant or in circumstances
which the Committee considers to be exceptional. There will be no
provision for re-testing.
The Committee may alter the performance conditions attaching to an
Award if events happen after the date of grant that cause the Committee
to consider that any element of the performance conditions is no longer
a fair measure of the Company’s performance, provided that the revised
target is not considered to be materially less challenging than was
intended in setting the original conditions. Where an Award vests prior to
the normal vesting date, the Committee will assess performance using
such information as it determines to be appropriate.
Performance conditions for Executive Directors will be set in line with
the Remuneration Policy, and will be set out in the annual report on
Directors’ remuneration.
4. TIMING OF GRANT OF AWARDS
Awards under the PSP may, save in exceptional circumstances, only be
granted within a period of 42 days following the date of announcement
by the Company of its interim or final results (or as soon as practicable
thereafter if the Company is restricted from being able to grant Awards,
or make invitations, during such period). Awards under the PSP made in
connection with the recruitment of a Participant can be made as soon as
reasonably practicable thereafter.
In circumstances where there is a dealing restriction, the Board may
determine that the grant date of the Award shall be the date on which the
Award would have been granted but for such a restriction having arisen.
VESTING
PSP Awards will normally vest on the third anniversary of the date of
grant.
The Committee may specify a shorter vesting period only where an
Award is granted in connection with the recruitment of a Participant or in
circumstances which the Committee determines to be exceptional.
Awards will vest to the extent that the relevant performance conditions
have been met, provided that the Committee may adjust the vesting level
(either positively or negatively) where it considers it appropriate to do so
to reflect the Company’s broader circumstances. For the avoidance of
doubt, any upwards adjustment of an Award will not result in such Award
vesting in respect of a greater number of Shares than in respect of which
the Award was originally granted.
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
STATUTORY AUDITOR
DELOITTE LLP
Abbots House
Abbey Street
Reading RG1 3BD
STOCKBROKERS
PEEL HUNT
Moor House
120 London Wall
London EC2Y 5ET
Liberum Capital Limited
Ropemaker Place
Level 12
25 Ropemaker Street
London EC2Y 9LY
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
Genus plc
Matrix House, Basing View, Basingstoke, Hampshire RG21 4DZ
T: +44 (0)1256 347100 F: +44 (0)1256 477385
www.genusplc.com