Genus Regulatory News (GNS)

For immediate release 23 February 2017

Genus plc

('Genus', the 'Company' or the 'Group')

Interim Results for the six months ended 31 December 2016

GOOD STRATEGIC PROGRESS ACHIEVED - GROWING INVESTMENT IN R&D

Genus, a leading animal genetics company, announces its unaudited interim results for the six months ended 31 December 2016.

* Adjusted results are before net IAS 41 valuation movement on biological assets, amortisation of acquired intangible assets, share-based payment expense and exceptional items. Adjusted results are the measures used by the Board to monitor underlying performance at a Group and operating segment level.

**  Constant currency percentage movements are calculated by restating FY17 results at the average exchange rates applied in FY16.

BUSINESS HIGHLIGHTS

· Overall Group performance expected to be in line with expectations for FY17

· Revenue 3% higher in constant currency (18% in actual currency) primarily due to increased porcine breeding stock sales in China and continued PIC royalty growth

· Planned increase in research and development expenditure to drive strategic progress (up £3.3m in constant currency; £6.2m actual currency) contributed to a 10% decline in adjusted profit before tax (5% higher in actual currency)

o Genus PIC performed well with profits up 9% in constant currency (28% in actual currency) with particular strength in PIC China. Alongside revenue and volume growth in all regions, Genus achieved 7% growth in constant currency (24% in actual currency) in strategically important royalty revenues

o Genus ABS profits 30% lower in constant currency (down 22% in actual currency) due to lower volumes as tough market conditions continued particularly in North America and Asia. Performance was below management expectations and a leadership change has been made with the appointment in January 2017 of a new ABS Dairy Chief Operating Officer ('COO') to sharpen sales execution and drive the strategic initiatives of ABS

· Adjusted earnings per share 9% lower in constant currency (6% higher in actual currency)

· Statutory profit before tax 12% lower, reflecting non-cash fair value reductions in biological assets

· Net cash flow from operating activities of £8.3m (2015: £5.6m) reflects typical first half cash conversion1 of adjusted operating profit of 55% (2015: 58%) and lower cash taxes in the period

· Net debt of £109.0m (2015: £88.2m), including adverse foreign exchange translation of £15.0m year to year, represented 1.6 times EBITDA (2015: 1.5 times)

· Continued successful progress in implementation of strategy:

o As separately announced today: Strategic partnership with Hermitage and acquisition of Hermitage's porcine genetics to further strengthen PIC's presence in Europe

o Completion and integration of majority-owned De Novo genetics to create a world-leading Holstein breeding programme

o IVB operations in Mexico successfully launched and additional major US dairy enterprise customer signed

o Genus Sexed Semen ('GSS') is ready for commercial launch while awaiting the Court's decision on an injunction

o Preparations completed to start producing first batches of elite gene edited pigs to scale up development under the Porcine Respiratory and Reproductive Syndrome virus ('PRRSv') programme

· Interim dividend increased 10% to 7.4 pence per share payable on 31 March 2017

Karim Bitar, Chief Executive, commented:

"PIC continued to perform strongly but results in ABS were disappointing in challenging market conditions, particularly in North America and Asia. As communicated in our full year 2016 results, we increased our research and development investment significantly in the period to drive our long-term growth strategy, although as expected this held back financial performance during the first half.

"The completion of De Novo Genetics to create a world-leading Holstein dairy development programme and our transaction announced today with Hermitage to further strengthen PIC's presence in Europe, demonstrate our drive to continually build the strategic position of Genus as we seek to pioneer animal genetic improvement globally.

"We expect to make further progress during the second half of the year and anticipate that our full year performance will be in line with expectations."

1 Cash conversion is the cash generated by operations £13.5m (2015: £13.9m) divided by adjusted operating profit from continuing operations £24.5m (2015: £23.9m).

An analyst meeting will be held at 9.30am today at Buchanan's offices (107 Cheapside, London EC2V 6DN). A live audio feed will be available to those unable to attend this meeting in person. To connect to the web cast facility, please go to the following link:

http://vm.buchanan.uk.com/2017/genus230217/registration.htm approximately 10 minutes (9.20am) before the start of the meeting.

For further information please contact:

This announcement is available on the Genus website www.genusplc.com

About Genus

Genus creates advances to animal breeding and genetic improvement by applying biotechnology and sells added value products for livestock farming and food producers. Its technology is applicable across all 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 seventy-five 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 production. Genus's customers' animals produce offspring with greater production efficiency, and quality, and use these to supply the global dairy and meat supply chain.

The Group's competitive edge has been created 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.

With headquarters in Basingstoke, United Kingdom, Genus companies operate in over twenty-five countries on six continents, with research laboratories located in Madison, Wisconsin, USA.

GROUP PERFORMANCE

As previously indicated, Genus increased research and development expenditure to drive progress against its long-term strategic objectives during the first half of the year. As a result, adjusted profit before tax was 10% lower in constant currency for the six months to 31 December 2016 (5% higher in actual currency) and earnings per share were 9% lower in constant currency (6% higher in actual currency). Actual currencies had a £3.7m positive effect on profit due to the weakness of Sterling, primarily against the US Dollar.

Results

Revenue of £222.1m for the six months to 31 December 2016 (2015: £188.3m) was 18% higher in actual currency and 3% higher in constant currency. PIC revenue growth of 7% in constant currency was the main factor; PIC China had a very strong first half, with a buoyant market helping to drive strong up-front breeding stock sales. PIC Philippines and PIC Mexico also performed well, increasing royalty revenue by 27% and 21% respectively. In contrast, Genus ABS revenue declined 4%, with semen volume related declines in North America and Asia being partially offset by revenue growth in Latin America and in IVB. Adjusted operating profit including joint ventures was 2% higher in actual currency but 12% lower in constant currency.

Porcine volume growth of 4% was helped in particular by the strong performance in China. The percentage of volumes under strategically important royalty contracts grew 1pt to 77%. Bovine volumes were 6% lower with US, Brazil and China particularly affected by the weak markets and intense price competition. However, a return to growth in Europe of 3% was encouraging.

Genus PIC performed strongly with a profit increase of 9% in constant currency (28% in actual currency) helped by solid volume performance across all regions, particularly in Asia, and continued focus on growing royalty business with key large accounts. Genus ABS's 30% decline in profit in constant currency (22% in actual currency) was disappointing and impacted by tough trading conditions in North America and deferred sales in Asia. Management actions taken continued to improve efficiency, increase the pace of strategic initiatives and increase value capture in Latin America. To improve performance further and sharpen execution, a new ABS Dairy Chief Operating Officer, Nate Zwald, a highly accomplished commercial leader with deep industry expertise and a PhD in dairy genetics, was appointed in January 2017. IVB made another strong contribution, ahead of expectations, delivering double digit profit growth. Research and development spending was increased by £3.3m or 21% in constant currency (£6.2m or 39% in actual currency) as planned strategic innovation continued to be prioritised, particularly in the PRRSv resistance project and GSS.

Net finance costs were £1.7m (2015: £2.5m), reflecting lower pension interest. Adjusted profit before tax increased 5% in actual currency to £25.1m (2015: £23.8m), but was 10% lower in constant currency. The tax rate on adjusted profits was 25.9% (2015: 26.5%), and adjusted earnings per share were up 6% to 30.5 pence (2015: 28.8 pence).

The Group monitors performance principally through these adjusted measures which exclude certain non-cash items, including the fair value movement on biological assets, share-based payments and exceptional items which can be volatile period to period. In this period the bovine biological assets fair value reduced as a result of lower semen volumes and an increase in the assumed percentage of genomic semen sales in the future, partially offset by an increase in the porcine biological assets. Fair value movements on biological assets also reduced the statutory results of the Group's joint ventures compared with the prior year. The statutory results, including these and other adjusting items, show a 12% reduction in profit before tax to £11.4m (2015: £12.9m) and a 24% reduction in earnings per share to 13.3 pence (2015: 17.4 pence). The Board believes that the adjusted results give a better view of underlying performance.

Cash Flow and Net Debt

The net cash flow from operating activities of £8.3m (2015: £5.6m) reflected expected seasonal working capital outflows and higher exceptional items, but benefited from lower cash tax payments. Investments in the period included the acquisition of De Novo Genetics and planned payments to Caribou Biosciences. The Besun joint venture repaid £1.7m of shareholder loans in the period, which were part of the initial investment to establish the venture in 2013.

Net debt as at 31 December 2016 was £109.0m (2015: £88.2m), reflecting seasonal cash flows, continuing investment and £15.0m adverse impact of exchange movements, as Group borrowings are denominated primarily in US Dollars. The balance sheet remains healthy with net debt to EBITDA of 1.6 times (2015: 1.5 times).

Dividend

Based on its confidence in the Group's strategy and growth prospects, the Board has approved an interim dividend of 7.4 pence per share, an increase of 10% on last year's interim dividend of 6.7 pence per share. The interim dividend is payable on 31 March 2017 to those shareholders on the register at 2 March 2017.

Post Balance Sheet Events

On 22 February 2017 the Group signed an agreement to acquire the genetic assets and related intellectual property of Hermitage, and engage Hermitage as a distributor and multiplier of PIC genetics. Hermitage is an Irish-based porcine genetics business with high-health, efficient operations in several countries including in Europe and Russia. The transaction and ongoing relationship with Hermitage will further strengthen PIC in Europe. The completion of the transaction is subject to a number of conditions, which are expected to be fulfilled by the end of March 2017.

The majority of the Group's financing facilities have also been extended by an additional year to now run through to 22 February 2022.

Progress on Strategy

Genus's business model is founded on owning and controlling elite animals, employing technology to improve continuously their value as breeding animals for meat and dairy farmers, and delivering these improvements to Genus's customers quickly and efficiently.

During the period, the Group continued to drive genetic improvement at accelerated rates in its porcine and bovine businesses. The Group completed and integrated the majority-owned acquisition of De Novo Genetics to create a world-leading dairy genetic improvement programme in partnership with DeSu, the leading independent Holstein breeder. While the biological results will take time to be fully evident, the Group is encouraged by the early signs of the genetic quality of the matings being made.

The agreement with Hermitage outlined above will further strengthen PIC's presence in the European market where it has been successfully growing in recent years. Hermitage will benefit from access to PIC's leading genetics, while PIC will gain access to Hermitage's efficient multiplication and distribution capability to smaller customers in certain markets.

GSS, Genus's proprietary semen sexing technology, is fully operational and ready for commercial launch. Processing bovine semen has begun in preparation for full commercial launch, which is expected to take place during 2017. Genus still awaits a decision by the Court in Wisconsin on its request for an injunction to terminate early its current contract with Sexing Technologies which expires on August 31, 2017.

The Group's long-term PRRSv-resistance programme made good progress in the development of the technology. Genus has been working with its strategic partner, Caribou Biosciences, to screen and refine the CRISPR-Cas 9 editing reagent to be used in the first generation edits of elite pig embryos. In November, the Group co-founded RenOVAte Biosciences, a biotech company focused on creating gene edited livestock for agricultural and other applications. The company, which was co-founded with Assistant Professor Bhanu Telugu (University of Maryland), will work with Genus over the next 18 months to produce batches of elite pigs edited with the Caribou reagents. These animals will form the foundation of the next stage of development and performance testing.

IVB, Genus's bovine embryo business, grew strongly as customers look to harness the benefit of selecting both elite male and female parent donors. The recently launched Mexican embryo laboratory has successfully ramped up production in the period from a standing start at the beginning of the financial year. The outlook for IVB is positive, following the signing of another large dairy enterprise customer in the US in the period.

Outlook

Market conditions in the coming months are expected to be broadly favourable in porcine, and gradually improving in dairy, though with continuing intense competition between bovine genetics providers. With the actions taken, the Group expects to make continued positive progress in the second half, while funding the increased research and development spending. Currencies are projected to remain favourable, and for the full year, performance is anticipated to be in line with management's expectations.

REVIEW OF OPERATIONS

Genus PIC

Genus PIC comprises the Group's porcine business globally, including Asia which was reported separately in previous years.

Market

Global pork prices overall recovered in the latter half of 2016 and all four of the major global pork exporting countries (US, Canada, Europe and Brazil) saw price increases through the year. In the US, lean hog carcass prices appreciated more than 30% from a deep low point in October 2016, which had been driven by concerns about available slaughter capacity. Processors in the US achieved very robust margins throughout the year, capturing historically high value on wholesale cuts. Additional slaughter capacity is coming on stream in the US in 2017 which is positive for pork producers. Mexico is a major export market for the US pork industry, however there is no indication at this point of pork trade disruption in 2017.

Pig prices in the EU began a steady recovery in the second quarter of 2016, improving 32% from the March low to a peak in September, helped by over a 70% share of China's pork imports. Brazil faced inflation, high input costs and poor domestic demand. It did however, see a 33% growth in exports and a late pig price rally to give producers their first profitable month of the year in December.

Continuing tight supply and high pig prices in China stimulated aggressive import demand that more than doubled in 2016 and provided the primary stimulus to the global pork trade. High producer profits will likely encourage domestic expansion by large scale producers in China, although stricter environmental controls will constrain backyard expansion.

The USDA World Agriculture Supply and Demand report is predicting a 5.1% growth in US pork production in 2017. Global pork production is projected to be 3% higher in 2017, with China (+3.6%), Brazil (+3.1%) and Russia (+4.7%), potentially leading to a global supply that will outstrip demand in the coming months. However, the USDA project total world cereal production to also reach record levels which should translate into lower costs of production for PIC's customer base.

Performance

During the period, Genus PIC performed well with volumes up 4% and revenue up 7% in constant currency with royalty revenue growth of 7% and breeding stock sales into royalty contracts up 19%, supporting this strategically important trend in the future. Operating profits including joint ventures of £46.1m was up 9% in constant currency, primarily from strong growth in Asia, particularly China, and margins were increased by over a percentage point.

After several years of sustained growth across the Americas, PIC made significant investments to prepare the business to continue to expand value to a growing customer base. These initiatives included: an expansion of the supply chain for maternal and terminal products; updating of PIC's owned nucleus facilities; and continually increasing the quality and quantity of the staff available to help deliver on the PIC value proposition for customers.

These investments led to slightly lower profits in North America in constant currency on volume growth of 2%. Performance benefited from moderate industry growth and productivity. Greater customer uptake of very high genetic merit terminal boars through PIC's premium-priced CBV Plus and CBV Max programmes further contributed to performance.

Latin American profits improved on a 3% volume increase, helped by a strong operating profit performance in Mexico which was up 21%. In Brazil, joint venture income declined by 16% in constant currency due to the prolonged negative margins producers have been facing. In the Andean region, profit declined by 6% due to economic instability in Venezuela.

In Europe, volumes were slightly lower as we continued to shift the distribution model, however, revenues increased by 4% driven by higher royalty fees and operating profit improved by 22%. The transformation of PIC Europe to focus on royalty business with larger producers has been underway over the last few years and is continuing to show benefits, along with price to value initiatives and overall better market conditions for producers. The acquisition of Hermitage's genetics and future partnership is anticipated to further accelerate the growth and contribution of PIC Europe.

In Asia, volumes increased 17% with a 26% increase in royalty volumes and a 8% increase in upfront volumes. Profits in Asia more than doubled with good growth in all countries. In China, profits grew over 150% in constant currency, due to increased up-front breeding stock sales, helped by strong market conditions. Strong double digit growth in Russia, Philippines, and franchises further underpinned performance across Asia.

Overall, the PIC business performed well despite varying global market conditions and continued global investment to enhance product supply and differentiation. These investments will enable Genus PIC to serve customers better, mitigate market risks, and support future growth.

Genus ABS

Genus ABS comprises the Group's global dairy and beef businesses, including Asia which was reported separately in previous years.

Market

During the second half of 2016, milk prices started to recover globally after more than 24 months at depressed levels. This was initially driven by constrained supply within European markets such as the UK where the dairy cow population reduced by almost 7% between July and October and the Netherlands slowing growth in anticipation of a 10% reduction in cow numbers in the first half of 2017 to comply with environmental legislation. The improved prices enabled the European Commission to start releasing stocks of powdered milk built during the past year.

The US has sustained milk output levels with the 2016 milk output beating prior year levels as ongoing genetic improvement, herd health and feed quality supported improved yields per cow. High feed prices and a period of under-investment in Brazil saw a reduction in milk production of 10% from mid-2015 to mid-2016 resulting in a sharp milk price rise to September, however, more recent production increases have helped bring prices back down. New Zealand milk output was slowed with a particularly wet spring which will limit annual milk production and subsequent exports.

Demand for dairy imports appears to be increasing in China once more, with low milk prices to Chinese dairy farmers restricting output while demand for quality dairy products is improving, albeit only at a moderate pace. Overall it appears that milk prices will continue to rise in the early part of 2017 but may level off after the first quarter, depending on how quickly dairy farmers respond to these improved prices and whether Russia begins importing globally again.

Domestic demand was the major challenge to the beef sector in Brazil. High inflation and growing unemployment are suppressing beef consumption, resulting in lower prices throughout the supply chain. After a strong start, exports also weakened during the calendar year and were down 22% in October, however, recent access to the US market and to Japan should be supportive in 2017. In the United States, cattle prices trended down, 20% less than the prior year, while production increased by 6%. Exports increased by 9%, with a sharp improvement in the second half of the year.

Performance

Adjusted operating profits for Genus ABS were 30% lower in constant currency, on the back of a 6% volume decrease and a 4% decline in revenues. Asia and North America were key contributors to the lower performance. Global beef volumes declined 3%, however, beef semen revenues increased 4% on increasing pricing in Latin America and other factors. Market conditions remained challenging for customers and competition amongst genetic providers reached new levels of intensity. ABS continued to execute plans to improve efficiency globally, to raise prices in Latin America and to drive strategic initiatives even faster. To accelerate strategic initiatives and improve sales execution a new global COO for the ABS Dairy business has been appointed, Nate Zwald, who joined in January 2017.

In North America, profits decreased by 27% in constant currency, driven by an 11% conventional dairy volume decrease, although this was partially offset by increased sorted semen volumes (up 17%), a higher blend and lower cost base. Beef had a difficult start to the year, with volumes down 15% over the prior year, reflecting the steep drop in cattle prices which impacted customers.

In Europe, profits were up 5% in constant currency despite conventional dairy volumes declining 2%, helped by strong growth in the Promar consulting business, the UK's largest Agricultural and Agri-food consultancy. Beef volumes increased by 13% as customers continued to trim dairy herd sizes by producing beef cross-bred offspring for slaughter. Strong cost reduction actions taken last year helped to increase profit margins in the first half of the year, even as markets showed only slow growth.

In Latin America, profits were up 26% in constant currency, despite volumes declining 7% in tough dairy markets. As a response to inflation, Genus ABS continues to take the market lead in increasing selling prices in key markets such as Brazil and Argentina, where prices were on average 23% higher. Reduced domestic demand in Brazil and lower exports reduced Latin America beef volumes by 9%.

Performance was weak in Asia with profits down 70%. Poor demand in China due to difficult market conditions, phasing of shipments to distributor markets and the impact on demand of demonetisation in India all contributed to the result. In January 2017, Jerry Thompson resumed leadership of the Asia ABS business, in addition to his role as COO of ABS Beef, to leverage his experience in the region to drive an improved performance.

IVB performed well and continued to exceed expectations. Embryo shipments were up 16% and IVB continued to deliver strong double digit revenue and profit growth. Operations in Mexico successfully ramped up in the half year and another major US dairy enterprise customer was contracted towards the end of the period, giving an opportunity for significant growth in 2017 and beyond.

Conditions in dairy and beef markets have remained very challenging during the first half and although there are signs of improvement, particularly in Europe, the second half will continue to be difficult. The longer-term transformation in ABS continues and with the announcement of the new Dairy leader, Nate Zwald, the Board believes we have the right person to leverage our strong strategic competitive position and drive commercial execution.

Research and Development

Total research and development spending increased as planned by 39% to £21.9m (up 21% in constant currency) for the half year, as Genus pursued key strategic initiatives to further strengthen its proprietary differentiated offerings. Genus expects to continue increasing investment in this area particularly in research and development connected to gene editing pigs under the PRRSv programme.

Research expenditure increased 96% in the period in constant currency. Key components included expenses associated with the investigational PRRSv resistance project, where work was undertaken with Caribou Biosciences to screen editing reagents and established a collaborative venture called RenOVAte to produce first generation elite gene edited pigs. These costs will continue to grow as the Group pursues the next stages of development and start to produce the initial gene edited animals.

Genus continued to invest in GSS to ensure readiness for commercialisation, incurring expenses to scale up product manufacturing for commercial launch. Industry-leading research continued in developing genomic selection and gene editing technologies to drive genetic improvement and differentiation even faster, and spending increased on intellectual property creation and protection.

The execution of single-step genomic evaluation on all porcine pure line populations, retail products and all traits of economic importance, is continuing to exceed the aim of a 35% increase in the rate of genetic gain compared with the period before its implementation. Spending growth in porcine product development was a result of increased animal volumes and related operating expenses in PIC's nucleus herds and lower market prices for by-product pigs. These cost increases were partially offset by lower costs due to project phasing on genetic testing fees and global genetic dissemination.

Bovine product development has integrated De Novo Genetics, a majority owned company created in September 2016 with DeSu Holsteins. The ABS internal heifer nucleus and the De-Su elite genetic herd were combined in De Novo Genetics to create a world-leading genetic improvement programme to produce differentiated Holstein genetics for ABS. Internal heifer breeding produced 20% of the Group's North American Holstein bull intake in the period (2016: 18%) with encouraging quality of animals focused on economically important traits. Genus continues to grow its genomic database and expertise in Real World Data and are exploring new proprietary traits. There was also continued investment in building a beef nucleus herd to develop unique customer products to enable value capture in the beef supply chain through genetic improvement and differentiation.

PRINCIPAL RISKS AND UNCERTAINTIES

The Genus approach to risk management is to identify, evaluate and prioritise risks and uncertainties and actively manage actions to mitigate them. The Genus plc Annual Report 2016 (a copy of which is available on the Genus plc website at www.genusplc.com) sets out on pages 18-19 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 year.

GENUS PLC

CONDENSED CONSOLIDATED INCOME STATEMENT

For the six months ended 31 December 2016

GENUS PLC

CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

For the six months ended 31 December 2016

GENUS PLC

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

For the six months ended 31 December 2016

GENUS PLC

CONDENSED CONSOLIDATED BALANCE SHEET

As at 31 December 2016

GENUS PLC

GROUP STATEMENT OF CASH FLOWS

For the six months ended 31 December 2016