Genus Regulatory News (GNS)

Genus plc

Interim results for the six months ended 31 December 2023

CHALLENGING MARKETS - MANAGEMENT ACTIONS TAKEN

Resilient revenue delivery amidst challenging markets

· Low growth and prices in protein production across several markets, China the most impactful

· Decisive management actions taken:

o  Value Acceleration Programme underway in ABS to improve profitability and returns from investments

o  R&D strategic review completed to sharpen alignment to strategic and commercial goals

· Commercialisation of the PRP (PRRS Resistant Pig) remains on track; US FDA regulatory progress, genotypic and phenotypic durability submissions accepted. Engagement has shifted to the post-product approval compliance procedures with PRP approval now expected in fiscal year 2025

As expected, first half adjusted profit performance lower year on year

· Group revenue increased by +1%2 in constant currency (5% decrease in actual currency)

· Adjusted operating profit including joint ventures decreased 17%2 in constant currency (21% decrease in actual currency)

· Adjusted profit before tax (PBT) decreased 26%2 (31% decrease in actual currency) as lower profit performances in China of PIC and ABS, and higher net finance costs were partially offset by profit growth in the rest of the Group

· Statutory PBT 5% lower at £14.3m, with a £2.6m increase in the non-cash fair value IAS41 valuation of biological assets of the Group, offset by exceptional expenses of £7.5m

· Stable free cash outflow1 of £3.3m (2022: £3.3m outflow) as lower adjusted profit performance, higher exceptional expenses and interest costs were offset by positive working capital management

· Cash conversion increased to 69%1 (2022: 62%), in line with expectations

· Net debt1 increased to £250.1m, as expected, with a net debt to EBITDA ratio of 2.1x1

· Adjusted earnings per share 32% lower and interim dividend of 10.3p per share unchanged, with 2.2x1 adjusted earnings cover

Reporting format change

Product Development costs now being allocated to PIC and ABS, having previously been reported within the R&D division; management has determined that this better aligns the costs as well as the opportunities of this activity with the businesses; no change to group adjusted operating profit.

Divisional headlines

· PIC - Resilient trading ex-China continuing to gain market share, ongoing challenging environment in China

o  Strategically important royalty revenue growth of 2%2 with volumes also growing 2% demonstrating the strength of the royalty model

o  Adjusted operating profit including joint ventures decreased by 10%2; PIC trading regions ex-China grew adjusted operating profit by 5%, but was impacted primarily by China's decrease in adjusted operating profit, PRP commercialisation costs and higher product development costs due to expansion into PIC's Atlas farm

o  Enhanced commercial focus in China gaining traction; new royalty customers won in the period demonstrating the attractiveness of PIC's royalty model and genetics

· ABS - Challenging trading across all regions; significant action taken to improve performance

o  Volumes decreased 6% (ABS ex-China down 2%) with sexed volumes up 2% and beef volumes down 5%

o  Revenue increased 3% in constant currency supported by robust price increases and product mix

o  Adjusted operating profit decreased 15%, due to lower trading volumes in all regions except Europe partially offset by growth in IntelliGen third party contracts and management's mitigating price and cost actions

o  Comprehensive Value Acceleration Programme; leadership change and targeted restructuring. Focused price action, production rationalisation and other cost efficiencies delivered £1.3m in FY24 H1 with a further £5m of savings expected in FY24 H2, resulting in £10m annualised savings expected for FY25. Exceptional restructuring costs of £2.9m recognised through the FY24 H1 condensed income statement. Further ABS restructuring to continue in the second half and additional exceptional restructuring costs are anticipated in FY24 H2

o  In January 2024, US and NZ litigations with ST were settled outside the courts, details in the condensed financial statements.

· R&D - Investment decreased by 8%2 as planned

o  Sharpened focus on key priorities that aligns to our strategy, has a compelling commercial opportunity, is deliverable, and leads to a portfolio that is balanced overall

o  Strategic review completed and expected to give rise to annual cost savings of £5m in FY25. We expect to recognise c£1m of associated exceptional cost in FY24 H2.

Commenting on the performance and outlook, Jorgen Kokke, Chief Executive, said:

"Genus faced challenging markets which impacted performance in the first half of the year. We have taken rapid action including initiating a comprehensive programme to accelerate the value delivery from our bovine operations. We have also completed a strategic review of R&D activities. The Company is benefitting from savings achieved in the first half and will benefit further in the second half of the year and into FY25, as we optimise resource allocation to best deliver our growth objectives.

In North America, Europe and Latin America PIC continued to achieve growth in royalty revenues and operating profit, illustrating the strength of PIC's business model. China continues to be a challenging porcine market, however enhanced commercial focus is delivering results. New royalty customers were signed in the first half which gives us more confidence that our sales approach is effective. The opportunity in China remains significant and given the success of the relationship with our local partner, BCA, we are jointly exploring ways to accelerate our collaboration going forward. 

ABS saw weakness across most markets. China dairy was particularly challenging; not only did conventional volumes suffer from a double-digit decline in the dairy herd, but mix was also impacted as demand for sexed genetics reduced.

As described in our recent trading update, taking into account management actions taken, and assuming that present market conditions persist for the balance of the fiscal year, management expects fiscal year 2024 adjusted profit before tax to be not less than £58m in actual currency. We are seeing the positive impact of our actions to accelerate value delivery which will deliver further benefit in the second half and in subsequent years."

Results presentation today

A pre-recorded analysts and bankers briefing to discuss the interim results for the six months ended 31 December 2023 will be held via a video webcast facility and will be accessible via the following link from 7:01am today:

https://stream.buchanan.uk.com/broadcast/65a7b66cc5ec665c02ecf7b9

This will be followed by a live face to face Q&A session to be held at Buchanan at 10:30am. A Zoom alternative will also be available. Please contact Verity Parker at Buchanan for details: verityp@buchanan.uk.com

Enquiries:

About Genus

Genus advances animal breeding and genetic improvement by applying biotechnology and sells added value products for livestock farming and food producers. Its technology is applicable across livestock species and is currently commercialised by Genus in the dairy, beef and pork food production sectors.

Genus's worldwide sales are made in over 85 countries under the trademarks 'ABS' (dairy and beef cattle) and 'PIC' (pigs) and comprise semen, embryos and breeding animals with superior genetics to those animals currently in farms. Genus's customers' animals produce offspring with greater production efficiency and quality, and our customers use them to supply the global dairy and meat supply chains.

Genus's competitive edge comes from the ownership and control of proprietary lines of breeding animals, the biotechnology used to improve them and its global supply chain, technical service and sales and distribution network.

Headquartered in Basingstoke, United Kingdom, Genus companies operate in over 24 countries on six continents, with research laboratories located in Madison, Wisconsin, USA.

1 Adjusted results are the Alternative Performance Measures ('APMs') used by the Board to monitor underlying performance at a Group and operating segment level, which are applied consistently throughout. These APMs should be considered in addition to, and not as a substitute for or as superior to statutory measures. For more information on APMs, see APM Glossary.

2 Constant currency percentage movements are calculated by restating the results for the six months ended 31 December 2023 at the average exchange rates applied to adjusted operating profit for the year ended 30 June 2023. Percentages are calculated on prior period restated figures. Please see Note 1 on the notes to the condensed set of Financial Statements changes of reportable segments

3 n/m = not meaningful

Group Performance

Genus had a challenging first half of the year with a number of markets, most notably China, proving to be difficult. PIC ex-China performed resiliently, with North America, Latin America and Europe achieving adjusted operating profit growth in constant currency. PIC adjusted operating profit from Asia, however, halved due to weak trading in China as well as higher supply chain costs and lower by-product revenue. ABS, faced into a number of difficult markets, which led to volumes decreasing 6% in the period.

During the period the Group initiated a comprehensive Value Acceleration Programme at ABS and completed a strategic review of R&D activities. These actions have delivered £1.3m of efficiencies in FY24 H1, a further £5m of benefit expected in FY24 H2, and full year combined benefits of £15m in FY25 across both programmes. Exceptional costs of £2.9m have been recognised through the FY24 H1 condensed income statement in respect of ABS restructuring. 

Group revenue increased by 1% in constant currency (5% decrease in actual currency) to £333.6m (FY23 H1: £350.2m). PIC revenue decreased by 1%2 but strategically important royalty revenue increased 2%2 and volumes grew by 2%. ABS revenue increased by 3%2 despite volumes decreasing 6%. Sexed genetic volumes continued to grow, up 2%, albeit beef volumes fell 5%.

Adjusted operating profit, including joint ventures, was £38.1m (FY23 H1: £48.3m), down 17% in constant currency. Within this, Genus's share of adjusted joint venture operating profits was £4.7m (FY23 H1: £6.9m) with profits from PIC Agroceres impacted by hyperinflation in Argentina. Net finance costs were higher at £8.9m (FY23 H1: £6.1m), due predominantly to higher interest rates year on year.

Statutory profit before tax was £14.3m (FY23 H1: £15.0m), and reflected a £2.6m non-cash increase (FY23 H1: £17.2m decrease) in the net IAS 41 biological assets fair value. Porcine biological assets increased by £30.6m principally due to the restocking of Aurora, our genetic nucleus farm in Canada, following an upgrade to the farm facilities and health status, along with stocking of the Ankang and LuoDian farms in China. Bovine biological assets reduced by £28.0m primarily reflecting lower forecast sales volumes and rationalisation of bulls. Exceptional items in the period were an expense of £7.5m which was primarily legal fees related to the litigation disputes with ST and ABS restructuring charges. In January 2024, US and NZ litigations with ST were settled outside the courts. Further details are provided in note 21 of the condensed financial statements.

The tax charge on adjusted profits for the period was £7.3m (2022: £10.2m), which represented a tax rate on adjusted profits of 25.0% (2022: 24.2%). The adjusted tax rate increased due to the full year impact of the UK tax rate increase to 25%, that took effect from April 2023, and a change in profit mix to higher tax rate jurisdictions. The statutory profit after tax was £10.3m (2022: £12.0m).

The effect of exchange rate movements on the translation of Genus's overseas profits was a negative impact of £2.7m compared with the prior period, primarily from weaker Sterling against Latin American currencies.

Free cash outflow of £3.3m (2022: £3.3m outflow) reflected the lower profit performance in the period offset by improved working capital. Cash generated by operations of £22.8m (2022: £25.7m), which is seasonally weaker in H1, represented a 69% conversion (2022: 62%) of adjusted operating profit of £33.0m (2022: £41.2m) into cash. Our medium-term objective is to achieve an annual conversion of at least 90%, and we are on track to achieve it this fiscal year.

Net debt increased to £250.1m (June 2023: £195.8m), as expected, reflecting the payment of the final dividend, free cash outflow, new farm leases in China and foreign exchange movements. The net debt to EBITDA ratio increased to 2.1x (June 2023: 1.6x), reflecting the higher net debt, and we expect our leverage ratio to be similar at June 2024.

The Board has declared an unchanged interim dividend of 10.3 pence per share, which is payable on 28 March 2024 to shareholders on the register at 1 March 2024.

Strategic Priorities

Genus is a leading genetics player with a long track record of investing behind its businesses. Amongst others, these investments span Product Development, R&D, supply chain and talent. We are resolute in our commitment to deliver the resources our businesses need to prosper in the medium-term, in-line with our strategic and commercial goals.

Our strategic priorities are to:

1) Continue growing in porcine, with more stable growth in China

2) Deliver successful commercialisation of PRP, the PRRS gene edited pig

3) Deliver greater value from bovine; and

4) Continue to generate returns from R&D investments

In porcine, North America, Latin America and Europe continue to grow. Asia trading, however, was weak, driven by the challenging Chinese porcine market. Here, we have enhanced our commercial focus which is already bearing fruit with new royalty customers signed in FY24 H1. Financial performance from royalty customers takes time to build but our experience shows that a greater mix of royalty business will deliver more stability over the longer-term. Our relationship with local Chinese partner, BCA, is close and collaborative. Given the success of the partnership to date, we are jointly exploring ways to accelerate our collaboration going forward.

With regards to our PRP gene edit, progress has been made with the US FDA's acceptance of our animal characterisation submissions in respect to phenotypic and genotypic durability. Recent engagement with the FDA has shifted to the post-product approval compliance procedures. This has clarified the data submissions and monitoring that will be required on an ongoing basis post PRP approval. Validation of our procedures to comply with these monitoring requirements is expected to take several months. We therefore now expect FDA PRP approval in FY25. Our dialogue shifting to the post-product approval compliance procedures reinforces our view that product approval will be forthcoming. There are no changes to our commercialisation timeline or financial projections.

To drive greater value from bovine we initiated a comprehensive Value Acceleration programme. These actions have delivered commercial and efficiency benefits in the first half. We have taken targeted action to increase cost recovery on our value-added services through price increases. We have rationalised our production and integrated our beef, dairy and IntelliGen leadership to drive efficiencies in supply chain and resource allocation. We will go further in the second half with additional action being taken to improve structural profitability in the future.

During the period we completed a strategic review of our R&D activities and portfolio. The goal was to ensure that all early-stage projects align to our strategy, have a compelling commercial opportunity, are deliverable, and lead to a portfolio that is balanced overall. Through this review, we have sharpened our focus on key workstreams and improved our innovation processes and governance. There were some projects that did not meet our criteria, and we have stopped further work. We expect this to result in £5m of ongoing annualised savings from FY25.

Aqua

During the period, we exercised our option to take full ownership of Xelect, the leading global aquaculture genetic services company, following the purchase of a minority stake in 2021. Xelect's small team of specialists are helping us explore opportunities for accelerating genetic improvement within aqua.

People

We foster an inclusive and ethical culture that challenges, inspires and supports our people to perform to their best and fulfil their potential. During the period, we began a project to explore key components of that culture and ensure they are embedded consistently across the company. This has included work to refresh our core values, which have been in place for more than 12 years, to better reflect the business we are now. This process has involved gaining input from colleagues across the company and the refreshed values will be introduced later this year. 

We also ran our latest global employee engagement survey, which attracted a record number of responses. This gave us positive feedback on our culture and helped us identify areas for improvement, which leaders and managers are currently working on with their teams.

In February 2024, ABS Chief Operating Officer Dr Nate Zwald left the business. After a comprehensive search process, Jim Low has been appointed as the new Chief Operating Officer of ABS and will join the business on 15 April 2024. He has spent 25 years in the nutrition and food industries, most recently as Chief Commercial Officer for Glanbia's $1 billion global, dairy based, nutritional solution business.

Outlook

Conditions remain challenging for our customers in several parts of the world and we have driven acceleration of our value delivery initiatives to improve performance in the first half, with further action being taken in the second half. Our focus is on driving commercial excellence and efficiency improvements at ABS as well as concentrating our R&D efforts on projects with the most attractive commercial outcomes.

With management actions taken, and assuming that present market conditions persist for the balance of the fiscal year, management expects fiscal year 2024 adjusted profit before tax to be not less than £58m in actual currency1. Management remains committed to strong profit growth in the medium-term.

1 This is a forward looking statement. Although Genus believes that the expectations reflected in this forward-looking statement are reasonable, it can give no assurance that these expectations will prove to be correct. Because these statements involve risks and uncertainties, actual results may differ materially from those expressed or implied by these forward-looking statements. Adjusted profit before tax is as defined in our Alternative Performance Measures glossary.

Genus PIC - Operating Review

1 Prior year period restated. Please see Note 1 of the notes to the condensed set of Financial Statements changes of reportable segments

Pork producers were faced with contrasting market conditions in different parts of the world over the period. In North America, pork producers are suffering their worst period of financial losses since the 2008-2010 financial crisis. Weak market prices in China, caused by weaker demand and the slow exit of inefficient supply, are also causing significant producer financial losses in the region. Meanwhile in Europe, producers generally operated at positive margins as a significant contraction of the sow herd over the last few years supported prices.

Against this mixed producer profitability backdrop, PIC delivered a 1% decrease in constant currency revenue (6% decrease in actual currency) compared with the same period last year but a 2% increase in constant currency strategically important royalty revenue (2% decrease in actual currency) as it continued to gain market share. Volumes increased 2% across the business. Adjusted operating profit including JVs decreased 14% year on year (10% decrease in constant currency) albeit this was due to PIC Asia's performance as North America, Latin America and Europe all reported growth in adjusted operating profit in constant currency.

NB: Growth rates compared to the same period last year

Regional Trading Commentary

North America: The U.S. breeding herd declined slightly, but stable health and higher productivity drove a net increase in production. Low prices throughout 2023, as well as rising input costs, have seen producers suffering some of their worst financial losses in 15 years. Against this backdrop, PIC North America performed resiliently due to its high penetration of royalty volumes. Adjusted operating profit increased 1% in constant currency compared with the same period last year, supported by a 2% increase in strategically important royalty revenues. Total revenue decreased 14% year on year in constant currency due to a decrease in low margin breeding stock sales.

Latin America: In Brazil, declining feed costs drove further increases in production and enhanced margins for producers. Pork faced competition from other proteins in the domestic market but benefitted from lower prices. Exports continued to grow strongly, particularly shipments to China, although these showed signs of slowing down towards the end of the period. In Mexico, feed costs also declined but increasing domestic production, rising imports and slowing domestic consumption all put pressure on prices and impacted producer margins. The strength of the Mexican peso undermined exports, with volumes to all major markets declining. Argentinian currency instability and hyperinflation resulted in a £1.0m decrease in income year on year from our Agroceres JV. In aggregate, Latin America's performance in the period was resilient with a 1% increase in adjusted operating profit compared with the same period last year on royalty revenue growth of 6% in constant currency.

Europe: Pork production contracted sharply, with the resultant lower supply combined with growing consumer demand leading to increased prices across the region. Producers generally operated at positive margins, leading to a slowing rate of decline in the breeding herd towards the end of the period. High prices relative to other regions meant that exports to most countries declined. PIC Europe performed strongly during the period with royalty revenues growing particularly strongly in Spain and Germany. PIC Europe adjusted operating profit increased 26% compared with the same period last year with royalty revenues growing 13% in constant currency.

Asia: Pig prices in China remained low over the period, averaging 15 RMB/kg, as demand continued to lag behind expectations. Pressure on prices was further exacerbated by the relatively slow exit of inefficient supply. Most Chinese producers made significant losses in the period, resulting in slow herd replenishment. ASF continued to be the greatest challenge for producers in the Philippines, although PIC's business there performed well. PIC Asia's adjusted operating profit decreased 50% compared with the same period last year in constant currency, impacted by the aforementioned difficult trading in China as well as higher supply chain costs as our by-product revenues reduced and the business absorbed costs from two additional farms (Ankang and LuoDian) which PIC took on during the period. Excluding China, the rest of Asia performed resiliently with adjusted operating profits increasing 5% on royalty revenue growth of 5% in constant currency.

Porcine product development

Porcine product development costs increased to £19.9m in the first half (2023 H1: £17.0m), an increase of 17% compared with the same period last year (31% increase in constant currency). Within this, PRP commercialisation costs increased to £5.1m (2023 H1: £4.0m) as marketing and supply chain activity increased. In conventional product development, we continued to strengthen our genomic selection and accelerated progress on target traits for our customers. We also took further steps to embed digital phenotyping tools across our facilities. Production costs also rose as a result of costs at our new elite farm, Atlas.

Genus ABS - Operating Review

1 Prior year period restated. Please see Note 1 of the notes to the condensed set of Financial Statements changes of reportable segments

2 Excluding loss attributable to non-controlling interest

Bovine producers experienced a challenging period across all regions, leading to lower demand for genetics and a 6% decline in ABS's volumes compared with the same period last year. Low milk prices were a challenge across most regions with beef prices proving more robust.

Against this backdrop, management took significant action to accelerate value creation. Targeted price increases were aimed at driving greater recovery rates on our value-added service provisions and resulted in minimal customer attrition. Cost efficiency programmes were completed including production rationalization, operating model changes and the delivery of other cost savings. In total, these actions delivered a £1.3m benefit in the first half with a further £5m expected in the second half. A full year benefit of £10m is expected in FY25. Exceptional costs of £2.9m have been recognised through the FY24 H1 condensed income statement in respect of ABS restructuring. Further ABS restructuring will continue in the second half and additional exceptional restructuring costs are anticipated in FY24 H2.

The impact of challenging markets saw ABS revenue decrease 3% compared with the same period last year (3% increase in constant currency) and adjusted operating profit decrease 28% year on year (15% decrease in constant currency). Every region, except Latin America, saw adjusting operating profit decrease. Asia was particularly challenging, driven by a sharp double-digit decline in the Chinese dairy herd. IntelliGen third party sexing performed well, with strong growth in India and Thailand, but this was insufficient to offset declines elsewhere in the business.

NB: Growth rates compared to the same period last year

Regional Trading Commentary

North America: Milk production contracted, as low milk prices early in the period forced producers to cut costs and cull herds. Prices subsequently rose and profitability improved, but the dairy recovery is still tenuous with producer profits being aided by high beef prices and alternative revenue streams. Market prices for beef cattle and calves remained considerably higher than the previous period following a significant herd reduction. Beef retail prices reached record levels as a result of strong consumer demand. Constant currency revenue increased 4% compared with the same period last year but adjusted operating profit decreased 2% as lower volumes were only partially offset by growth in IntelliGen third party business. Mitigating management action included implementing price rises to increase service cost recovery as well as cost reductions.

Latin America: Milk production in Brazil continued to recover, aided by stable input costs and favourable weather conditions, helping producer margins to improve despite lower milk prices. Weaker export demand from China and reduced internal consumption meant that an increased Brazilian beef supply led to lower prices. Beef production in Mexico reached record levels and the beef herd is now more than 30% larger than 10 years ago. Latin America delivered year on year constant currency revenue growth of 6% driven by an 11% increase in sexed volumes. Adjusted operating profit increased 4% compared with the same period last year in constant currency; management action in the region included a turnaround of the embryo business in Brazil with embryo production costs decreasing 15% through a combination of cost control and volume increases.

Europe: Milk production was undermined by challenging weather conditions in parts of the region and milk prices declined faster than input costs, putting pressure on producer margins. However, milk prices started to rise towards the end of the period. Beef production continued to decline in most major producing countries and the beef herd contracted, but carcass prices held firm due to limited supply. Overall beef exports from the region declined. Revenue growth was 5% compared with the same period last year but adjusted operating profit decreased 6% reflecting phasing of IntelliGen upgrades with third party customers. Within Europe, the UK has been a pioneer market in terms of driving better commercial excellence. Service cost recovery actions in the UK contributed to a 15% improvement in the UK's adjusted operating profit.

Asia: Milk prices in China fell below breakeven costs for most producers, driving a double-digit reduction of the dairy herd. Sexed semen volumes were particularly impacted as Chinese dairy farmers tend to source sexed semen foremostly for expansion. As a result, ABS China adjusted operating profit decreased £2.6m compared with the same period last year. In Australia, milk production improved but high prices relative to other markets hindered competitiveness, contributing to a double-digit decline in exports. Australia and New Zealand dairies were also impacted by the rapid decline of heifer exports to China which negatively impacted product mix. Australian beef production increased with competitive prices helping to significantly increase exports to the US and China. In India and Thailand, new IntelliGen business contributed very positively albeit outweighed by China's challenging trading overall. Asia revenues over the period decreased 11% compared with the same period last year and adjusted operating profit decreased 11% year on year in constant currency.

Bovine product development

We continued to develop our proprietary beef and dairy genetics. Our polled and beef-on-dairy genetics continue to have a leading market position. Ongoing advancements in our IntelliGen technology continue to be made.

Research and Development - Operating Review

1 Prior year period restated. Please see Note 1 of the notes to the condensed set of Financial Statements changes of reportable segments

During the period, we completed a strategic review of our R&D activities. The goal was to ensure that all early-stage projects align to our strategy, have a compelling commercial opportunity, are deliverable, and lead to a balanced portfolio overall. Through this review, we have sharpened our focus on key workstreams and improved our innovation processes and governance. There were some projects that did not meet our criteria, and we have stopped further work. We expect this to result in £5m of ongoing annualised savings in FY25 and expect to recognise approximately £1m of associated exceptional cost in FY24 H2.

We made further progress across our research programmes. Net expenditure in R&D decreased by 8% compared with the same period last year in constant currency, as planned, to support this work.

Principal Risks and Uncertainties

Genus's approach to risk management is to identify, evaluate and prioritise risks and uncertainties so we can take action to mitigate them. The Genus plc Annual Report 2023 (a copy of which is available on the Genus plc website at www.genusplc.com) sets out on pages 61-64 the principal risks and uncertainties that might impact the performance of the Group.

Some of these risks relate to our business operations, 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 attributed to the ongoing Russia-Ukraine conflict and slow economic recovery in China post COVID-19. Additionally, we monitor evolving risks such as the continued impact of the Russia-Ukraine conflict, geopolitical tensions across the globe, macro-economic conditions, impacts of climate change, carbon pricing and cyber security.

There has been no material change to the principal risks that might affect the performance of the Group in the current financial year.

GENUS PLC

CONDENSED CONSOLIDATED INCOME STATEMENT

For the six months ended 31 December 2023

Adjusted results are the Alternative Performance Measures ('APMs') used by the Board to monitor underlying performance at a Group and operating segment level, which are applied consistently throughout. These APMs should be considered in addition to statutory measures, and not as a substitute for or as superior to them. For more information on APMs, see APM Glossary.

GENUS PLC

CONDENSED CONSOLIDATED Statement of Comprehensive Income

For the six months ended 31 December 2023

GENUS PLC

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

For the six months ended 31 December 2023

GENUS PLC

CONDENSED CONSOLIDATED BALANCE SHEET

As at 31 December 2023

GENUS PLC

Condensed consolidated Group Statement of Cash Flows

For the six months ended 31 December 2023

GENUS PLC

ANALYSIS OF NET DEBT

For the six months ended 31 December 2023

Included within non-cash movements is £36.0m in relation to net new leases and £0.5m in the unwinding of debt issue cost.

Net debt is gross debt, made up of unsecured bank loans and overdrafts and obligations under finance leases, with a deduction for cash and cash equivalents.

GENUS PLC

NOTES TO THE CONDENSED SET OF FINANCIAL STATEMENTS

For the six months ended 31 December 2023

1. BASIS OF PREPARATION

The unaudited Condensed Set of Financial Statements for the six months ended 31 December 2023:

· were prepared in accordance with International Accounting Standard 34 'Interim Financial Reporting' ('IAS 34') and thereby have been prepared in conformity with the requirements of the Companies Act 2006 and the International Financial Reporting Standards ('IFRSs') adopted in the United Kingdom;

· are presented on a condensed basis as permitted by IAS 34 and therefore do not include all disclosures that would otherwise be required in a full set of financial statements; these should be read, therefore, in conjunction with the Genus plc Annual Report 2023;

· includes all adjustments, consisting of normal recurring adjustments, necessary for a fair statement of the results for the periods presented;

· do not constitute statutory accounts within the meaning of section 435 of the Companies Act 2006; and

· were approved by the Board of Directors on 21 February 2024.

The information relating to the year ended 30 June 2023, with exception of note 2, is an extract from the published financial statements for that year, which have been delivered to the Registrar of Companies. The auditor's report on those financial statements was not qualified and did not contain statements under section 498(2) or (3) of the Companies Act 2006.

The unaudited Condensed Set of Financial Statements for the six months ended 31 December 2023 has not been reviewed by our Auditor.

The unaudited condensed set of financial statements have been prepared on the basis of the accounting policies set out in the Annual Report 2023. The Genus plc Annual Report 2023 (a copy of which is available on the Genus plc website at www.genusplc.com) sets out on pages 61-64 a number of risks and uncertainties that might impact upon the performance of the Group. There has been no material change to the principal risks that might affect the performance of the Group in the current financial period.

The preparation of the Condensed Set of Financial Statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the balance sheet date, and the reported amounts of revenue and expenses during the period. Actual results could vary from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period or in the period of revision and future periods if the revision affects both current and future periods.

Functional and presentational currency

The principal exchange rates were as follows:

Impact of Russian Sanctions

The Group has two group operating companies that are incorporated in Russia - Limited Liability Co. Genus ABS Russia and PIC Genetics LLC ('Russian-based subsidiaries/entities'). Following the sanctions that have been put in place by the UK and other governments, the Group implemented a comprehensive screening process with external counsel to ensure that its Russian entities do not trade with sanctioned individuals or entities controlled by them. The main impact of the sanctions regime on our business has been to categorise the banks in Russia into sanctioned and non-sanctioned banks. Where we receive money from sanctioned banks we are unable to use the cash without a licence from His Majesty's Treasury ('HMT'). For cash receipts from non-sanctioned banks into the entities' non-sanctioned banks we are able to use the cash in Russia for day-to-day operations.

The Group applied to HMT for a licence on 25 April 2022, to allow the use of payments from sanctioned banks by non-sanctioned Russian customers for the delivery of porcine and bovine genetics; to allow the use of money in a non-sanctioned Russian bank account in the name of Genus Russia to pay Russian suppliers who continue to use sanctioned Russian bank accounts; and to remit any excess money in Genus Russia's non-sanctioned Russian bank account (regardless of whether it was received from a sanctioned or non-sanctioned Russian bank account) to other Genus Group company UK bank accounts.

The UK Office of Financial Sanctions Implementation ('OFSI') issued a general licence for trading in agricultural commodities in Russia effective on the 4 November 2022 which provides exemptions to the sanctions regime in connection with the export, production and transport of agricultural commodities. This definition includes reproductive materials such as are supplied by Genus. Under this general licence, receipts from non-sanctioned customers received from and before 4 November 2022 from sanctioned banks no longer need to be frozen and can be freely used. Also receipts from a sanctioned customer, if made through a non-sanctioned bank, no longer need to be frozen and can be freely used. If any customer is or becomes sanctioned and pays through a sanctioned bank, these funds would still need to be frozen even after 4 November 2022.

Under the requirements of IAS 7, where there is cash that is not available to be used by the rest of the Group this needs to be disclosed. As at 31 December 2023, we had a cash balance of £3.6m (30 June 2023 £3.1m) in the Russian entities of which £0.8m (30 June 2023: £0.8m) is not currently available to be used by the Group due to being received from sanctioned banks and held in a sanctioned bank.

Management has reviewed the operations and cash flow over a period of 18 months from 31 December 2023 to 30 June 2025, based upon the 2025 plans, to determine whether the Russian entities have sufficient non-sanctioned cash flow to enable them to continue day-to-day operations and to meet liabilities as they fall due. The analysis indicates they do have sufficient non-sanctioned cash flow to enable them to meet their day-to-day operational needs.

Critical accounting judgement - exercise of control

Management has assessed whether the actions of the UK and Russian Governments have caused the Group to lose control of these Russian-based subsidiaries.

Genus PLC applied for a licence to the Department for International Trade ('DIT') on 22 September 2022, to allow for UK-based employees within the Genus group to provide accounting, business and management consulting services to the Russian-based subsidiaries, for the purpose of helping them carry out business operations in Russia, delivery of humanitarian assistance activity and for the production or distribution of food, provided that it is for the benefit of the civilian population.

The licence was authorised by the DIT and came into force on 11 January 2023. It authorises the following services:

> The fullest possible range of accounting services, business and management consulting services, to include advisory, guidance and operational assistance services provided for business policy and strategy, and the overall planning, structuring, and control of the organisation.

> The oversight that a parent company would typically provide to its subsidiaries in the areas of accounting, financial controls, tax, treasury, finance and human resources, along with similar oversight in the areas of information technology, supply chain and other types of technology.

The licence expires on 11 January 2025 and, provided the facts and circumstances surrounding the issuance of the licence currently in place do not change materially we do not foresee or are aware any reasons at this time why the licence could not be renewed.

We have concluded that we do have control over the Russian-based subsidiaries for the half year ended 31 December 2023, as defined under IFRS 10 'Consolidated financial statements', and we are still able to consolidate them despite short-term restrictions on extracting cash. We have also assessed each of the asset balances for impairment. The material areas that could give rise to impairment are:

> PIC Russia farm: £2.4m (30 June 2023: £2.4m) - the value of the farm is predicated on the future economic benefit of the animals that are being reared there. We would need to assess if the property's open market price (less cost to sell) would support the carrying value.

> Trade receivables: £2.4m (30 June 2023: £2.7m) - the ongoing financial sanctions may affect our customers' ability to pay us for their goods. If determined that our customers are unlikely to repay these amounts, then they should be provided for.

> IAS 41 valuation: £1.8m (30 June 2023: £3.9m) - the ongoing impacts of both the local economic outlook and our customers' ability to pay us could result in a reversal of the fair value of the Russian biological assets in the December valuation.

Management's impairment analysis indicates that, under the current business environment and based on the plans for the Financial Year 2025 no impairment is required as at 31 December 2023.

Management will continue to monitor the situation closely to see if any further changes require additional analysis that may result in a different conclusion.

In the event of changes in legislation, such as more restrictive sanctions imposed by the UK Government or actions taken by the Russian Government, we may determine that we do not exercise control, as defined under IFRS 10 'Consolidated financial statements', over the assets and operations of the Russian entities and we would not be able to consolidate these companies into the Financial Statements. The deconsolidation would mean that we would reclassify the Russian entities as investments and we would need to assess for impairment. A charge of up to £9.3m (30 June 2023: £11.7m) may need to be recognised in the Income Statement, representing the total net assets of the two Russian entities. Dependent on the nature of the events leading to the decision to deconsolidate the entities, there may be additional expenses incurred which we are unable to estimate at this time. In addition, revenues would not be consolidated into the Financial Statements from the date of any deconsolidation. Revenues from the Russian entities were £7.2m in the half year ended 31 December 2023 (30 June 2023: £21.7m).

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 2023 and have been implemented with effect from 1 July 2023. These are:

> Amendments to IAS 1 and IFRS Practice Statement 2 - 'Disclosure of Accounting Policies';

> Amendments to IAS 8 - ' Definition of Accounting Estimates';

> Amendments to IAS 12 - ' Deferred Tax related to Assets and Liabilities arising from a Single Transaction'; and

> Amendments to IAS 12 - 'International Tax Reform Pillar Two Model Rules - application of the exception and disclosure of that fact'.

Their addition has not had any material impact on the disclosures, or amounts reported in the Group Financial Statements.

New standards and interpretations not yet adopted

At the date of the interim report, the following standards and interpretations which have not been applied in the report were in issue but not yet effective (and in some cases had not yet been adopted by the UK). The Group will continue to assess the impact of these amendments prior to their adoption. These are:

> IFRS S1 'General Requirements for Disclosure of Sustainability-related Financial Information';

> IFRS S2 'Climate-related Disclosures';

> Amendments to IAS 1 - ' Classification of Liabilities as Current or Non-Current';

> Amendments to IAS 7 and IFRS 7 - 'Disclosures: Supplier Finance Arrangements';

> Amendments to IAS 12 - 'International Tax Reform Pillar Two Model Rules - other disclosure requirements';

> Amendments to IAS 21 - 'Lack of Exchangeability'; and

> Amendments to IFRS 16- ' Lease Liability in a Sale and Leaseback'.

Going Concern

The Genus plc Annual Report 2023 (a copy of which is available on the Genus plc website at www.genusplc.com) sets out on pages 62-64 several risks and uncertainties that might impact upon the performance of the Group. There has been no material change to the principal risks that might affect the performance of the Group in the current fiscal year.

In assessing the appropriateness of adopting the going concern basis of preparing the financial statements, the Board have considered: -

> Genus's Budget, Forecasts and Strategic Plan which forms management's best estimate of the future performance and position of the Group

> Genus's credit facility agreement which consists of a £190m multi-currency RCF, a 150m US dollar RCF and a US 20m USD bond guarantee. The term of the facility is for four years to 23 August 2025 having already exercised both extension options. Additionally, there is an uncommitted £40m accordion option which can be requested a further two occasions over the remaining lifetime of the facility.

> The availability of mitigating actions that could be utilised if needed; including reduction in dividends and postponing certain capital spend and investments.

As part of the directors' consideration of the appropriateness of adopting the going concern basis in preparing the financial statements, the Board considered several key factors, including our business model and our strategic framework. In addition, all principal risks identified by the Group were considered in a downside scenario within the viability assessment with specific focus paid to those that could reasonably have a material impact within our outlook period including;

> Growing in emerging markets, which we have modelled through reductions to short term growth expectations, particularly in China;

> Managing agricultural market and commodity prices volatility; modelled through reductions in price expectations, particularly in China;

> Developing products with competitive advantage, modelled through reductions to short term growth expectations because of failing to produce best genetics for our customers or to secure elite genetics;

> Ensuring biosecurity or continuity of supply, which is modelled through one off impacts of disease outbreaks and border closures; and

> Impact of the war in Ukraine, modelled through reduction in profit expectations and cash restrictions.

The Directors have considered the position if each of the identified principal risks materialised individually and where multiple risks occur in parallel. In addition, we have overlaid this downside scenario, net of mitigating actions.

Based on this assessment our headroom under these sensitivities, including our mitigating actions, remain adequate and 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 half-yearly report and the Condensed Set of Financial Statements.

Alternative Performance Measures ('APMs')

In reporting ?nancial information, the Group presents APMs, which are not de?ned or speci?ed 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 GELT. Some of these measures are also used for the purpose of setting remuneration targets.

For a full list of all APMs please see the Alternative Performance Measures Glossary section at the end of this release.

Change of reportable segments

During the review of the Company's interim Financial Statements, management determined that product development revenues, costs and attributable assets and liabilities are more accurately presented as part of each trading unit's profit and loss account. This adjustment aligns our external reporting with our internal reporting structure, reflecting how the performance of the trading units is assessed and managed. As a result, the prior periods comparatives in note 2 have been restated to reflect the change.