Genus Regulatory News (GNS)

('Genus' or 'the Company')

Interim Results for the six months ended 31 December 2011

"Good first half performance, with strong growth in emerging markets"

Genus, a leading global animal genetics company, announces its unaudited results for the six months ended 31 December 2011. These results are reported under International Financial Reporting Standards ('IFRS').

FINANCIAL HIGHLIGHTS

* Adjusted operating profit, adjusted profit before tax and adjusted basic earnings per share are before net IAS 41 valuation movement on biological assets, amortisation of acquired intangible assets, share-based payment expense and exceptional items. These are the measures used by the Board to monitor underlying performance.

** Regional operating profit represents adjusted operating profit before research & product development costs and central costs.

+ Constant currency percentage movements are calculated by restating 2011 results at the exchange rates applied in 2010.

BUSINESS HIGHLIGHTS

·; Revenue up 9% to £166.9m (2010: £153.2m):

o Bovine sales volumes 8% higher, with strong increases in China and India

o Porcine volumes up 13%, driven by growth in Asia

·; Adjusted operating profit up 7% to £23.0m (2010: £21.4m):

o Regional operating profit** rose 12% to £41.9m including particularly strong growth in Asia

o Expenditure on research and product development rose 18% to £14.6m (9% of sales) driven by the expanded bull development programme and higher feed costs to run the genetic nucleus farms

·; Adjusted profit before tax increased by 22% to £23.3m (2010: £19.1m):

o Finance costs £2.7m lower at £1.1m principally reflecting the benefits of refinancing in 2011 and lower interest rates

·; Interim dividend introduced as planned of 4.5p per share payable in March 2012

·; Strategic review well advanced:

o Substantial growth potential confirmed in core markets of swine, dairy and beef genetics

o Focus on increasing resources to accelerate growth in emerging markets

o Organisation structure strengthened and streamlined to enhance market place responsiveness, support people development and increase prominence of research and development

Karim Bitar, Chief Executive, commented:-

"Genus has continued to perform well and it is pleasing to see strong growth in emerging markets.

Global population growth and increased urbanisation in developing countries is accelerating demand for protein in diets. This demand increase and pressure on prices, driven by higher feed costs, can only be met through improved efficiency and greater application of technology in farming. Genus' market-leading genetics are key ingredients in this quest for improved productivity.

I am excited by the enormous growth prospects this creates in our existing markets. As we complete our strategic review, we are developing plans to ensure we seize these opportunities and enable Genus to accelerate its growth in the years ahead."

For further information please contact:

Genus plc Tel: 01256 345970

Karim Bitar, Chief Executive

John Worby, Group Finance Director

Buchanan Tel: 0207 466 5000

Charles Ryland

Suzanne Brocks

Catherine Breen

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

 About Genus

Genus creates advances to animal breeding through biotechnology and sells added value products for livestock farming and food producers. Its non-genetically modified organism technology is applicable across all livestock species but is only commercialised by Genus in the bovine and porcine farming sectors.

Genus' worldwide sales are made in seventy countries under the trademarks "ABS" (dairy and beef cattle) and "PIC" (pigs) and comprise semen and breeding animals with superior genetics to those animals currently in production. Customers' animals produce offspring with greater production efficiency, milk and meat output 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 production and distribution network.

With headquarters in Basingstoke, England, Genus companies operate in thirty countries on six continents, with research laboratories located in Madison, Wisconsin, USA.

GROUP PERFORMANCE

We are pleased to report a strong performance in the six months to 31 December 2011. Revenue rose by 9% and adjusted operating profits, after increased investment in research and product development, was up 7%. This combined with lower interest costs produced a 22% increase in adjusted profit before tax to £23.3m.

In addition, the business delivered a robust cash performance with net debt being held to a level similar to that at June 2011 despite seasonal working capital outflows and bringing forward payment of the annual dividend to the first half of the year.

Results

Revenue increased by 9% to £166.9m driven by robust underlying volume growth. Porcine volumes increased by 13% and bovine volumes were up 8%.

Adjusted operating profit rose 7% to £23.0m (2010: £21.4m). Regional operating profit increased by 12% with a particularly strong improvement in Asia, an area targeted for growth which benefited from strong underlying demand and favourable market conditions. Both North America and Latin America also produced very solid profit growth. In Europe, profits were impacted by weak demand in a depressed European pig market. The growth in regional profits was balanced by increased investment in research and product development where costs rose by 18%.

Finance costs were substantially lower at £1.1m (2010: £3.8m). This reflects the benefits of the refinancing completed in March 2011 and lower interest costs due to lower borrowing and the maturing of interest rates swaps taken out in 2006 following the Sygen acquisition.

Adjusted profit before tax was up 22% at £23.3m (2010: £19.1m) and, with the benefit of a lower tax rate of 31% compared to 34% last year, adjusted earnings per share rose 27% to 26.7p (2010: 21.1p).

The statutory results show a 13% increase in profit before tax to £26.0m (2010: £23.0m) and 18% increase in earnings per share to 30.2p (2010: 25.7p). These statutory results are stated after a number of non-cash items including the fair value credit on biological assets of £8.1m which was at a similar level to last year's credit of £7.8m.

Cash Flow and Net Debt

Cash flow for the first half reflected a seasonal working capital outflow of £4.8m and capital expenditure of £4.1m. In addition, as previously announced, the payment of last year's dividend was brought forward from January to November and therefore fell in the first half. Despite these outflows, the improved profit generation of the business resulted in a cash inflow for the half year of £1.2m.

Net debt including currency derivatives at 31 December 2011 was £69.6m compared to £78.0m at 31 December 2010 and £67.9m at 30 June 2011.

Dividend

As announced at the time of last year's full year results, the Board is introducing an interim dividend for the first time in the current year. In this respect, the Board has approved an interim dividend of 4.5p payable on 30 March 2012 to shareholders on the register at 16 March 2012. The interim dividend has been based on one third of the previous year's full year dividend.

Strategy

Following my appointment as Chief Executive in September 2011, I initiated a strategic review to assist in the development of our plans to sustain and accelerate the successful growth that Genus has achieved over the last five years.

Whilst the review is not fully completed, the work to date has confirmed the enormous growth opportunity that is available to Genus in its existing markets. World population growth and increasing urbanisation will continue to drive increased demand for food products. This in turn will place increased demand on finite land, water and energy resources. It is clear that these trends will accelerate the move towards greater productivity in farming. Genus is exceptionally well-placed to play an important social and economic role in meeting the increasing demands that will arise.

The opportunity to perform this role in the pork, beef and dairy markets is very significant indeed, especially in developing markets in general and the BRIC countries in particular. So whilst we will continue to review opportunities to expand into a third species, our primary focus will be on seizing the growth opportunities in our core markets. It is also clear that some of these markets, such as the swine market in China, are at an inflection point. Therefore it is important that we act promptly to take full advantage of the opportunities and as a result accelerate the long term growth that the Group is able to achieve.

Our strategic review work has also reinforced the importance of ensuring we better align our research and development programme to meet the needs of our customers.

We are working diligently on finalising our plans and, once completed, we look forward to sharing them with shareholders at or shortly after our third quarter market update in early May.

People

Ensuring we develop the right organisational capabilities and talent to seize the opportunities identified in our strategic review will be a key part of our strategy going forward. With this in mind, we have already made a number of important organisational changes to strengthen and streamline the management team.

In January 2012, Catherine Glickman joined the Genus Executive Leadership Team in the new position of Group HR Director. Catherine was previously Head of HR at Tesco Plc and brings a great deal of experience and knowledge in talent and leadership development.

In order to ensure we improve our responsiveness to the differing market place needs, we have flattened the reporting structure. Denny Funk Ph.D, the Company's Chief Scientific Officer has taken full responsibility for the Company's research & development ('R&D') programme reporting directly to me. This will ensure that R&D has a key and highly visible role as Genus pursues its ambitious plans for the future.  In addition, in the future, our Asia and Europe regions will report directly to me given the very different profiles of these strategically important regions.  

Following these changes Ian Biggs and Philip Acton have left the business. We thank them for their contribution and wish them well for the future.

Outlook

The Group is continuing to trade well in market conditions that remain favourable in most markets. As a result, the Board expects the Group to make further progress in the second half of the year in line with market expectations.

Karim Bitar

Chief Executive

REVIEW OF OPERATIONS

The North America operations performed well with adjusted operating profit increasing by 11% to £19.0m on sales of £56.7m.

In porcine, customer demand has been positive in the light of firm pig prices and more recently falling feed costs. As a result, the business has continued to grow steadily both via expansion in existing accounts and through winning new business. Overall, volumes were up 5% and market share improved in North America to 36%. Profitability also benefited from improved royalty rates and from the continued expansion of the CBVPlus programme. This programme, initiated last year, uses progeny from higher quality sires to deliver more value to our customers.

In the bovine sector, sales were impacted by reduced demand following bad weather at the start of the year. However, volumes increased in the second quarter and overall were only slightly down for the half year. Pricing has firmed and this together with tightened cost control has resulted in an improvement in performance.  

Good growth was achieved across Latin America, resulting in an 8% increase in revenue to £25.1m and a 10% increase in adjusted operating profit (excluding joint venture) to £7.6m.

Market conditions were generally favourable across the region other than in porcine in Brazil, where oversupply, partly due to export restrictions, forced down pig prices. This adversely impacted the performance of the joint venture in Brazil. With pig prices rising recently, we expect improved performance from the joint venture in the second half of the year. The conversion of customers to royalty contracts has progressed so that future profits will be more stable as they are in our business in North America.

Elsewhere in porcine, our operations have been focused on key account management and strengthening our technical support services and supply arrangements. New contracts were secured in Venezuela and continued growth achieved in Mexico and Chile.

In bovine, volumes across the region grew by 8% with particular strong sales in beef in Brazil and sexed semen across the region. Market share improvements were achieved in Argentina, Uruguay and Chile. 

Revenue in Europe rose 2% to £58.9m and adjusted operating profit fell 7% to £9.5m.

Pig prices in Europe rose modestly but not enough to offset higher feed costs. As a result, European pig production remained unprofitable and demand for Genus' products was weak. Volumes were at similar levels to last year but margins were impacted. In Germany, a restructuring of the sales force was implemented to address the weak market and further restructuring in Europe remains under review.

In bovine, market conditions improved with milk prices rising by 4% across Europe and semen demand has been reasonable. Volumes rose by 6% with good growth in Italy reflecting the strength of the bull line-up and increased volumes in Turkey and Saudi Arabia. In the UK, trading was affected by mild autumn weather that delayed customer breeding programmes. Nevertheless, volumes rose modestly and revenue benefited from increased sales of Reproduction Management Services ('RMS').

A strong performance was achieved across the region aided by buoyant market conditions in the porcine sector in China and Russia.

In porcine, volumes were up over 70%. In China, good progress was made in establishing relationships with major pig producers. Volumes increased and profitability benefited from the high pig prices that prevailed for most of the period. Improved access to funding for customers enabled significant sales to new farms in Russia. Higher sales volumes were also achieved in other countries including a large stocking in South Korea.

In bovine, volumes grew by over 30%. This included a doubling of imported semen shipped to China from Genus' North American studs as well as increased volumes of locally sourced semen produced from the 67 Genus bulls now located in the country. Volumes of locally produced semen sold in India also increased and in Russia, higher sales of imported semen were supplemented with the initial sales of semen produced locally from the new Genus stud that became fully operational in August 2011. Prices across the region were firm and as a result profits were considerably higher.

Research and product development costs for the six months to 31 December 2011 increased as planned by 18% to £14.6m. Porcine product development costs rose as a result of higher feed costs, net of increased slaughter revenues to run the genetic nucleus farms. Bovine product development costs were also higher reflecting the additional costs to operate the increased size of the bull development programme necessary to provide capacity for anticipated future growth. Additional expenditures were also applied to increase the focus on key research platforms.

Bovine Product Development

Genus' bull development programme combined with the increasing use of genomics in the selection process has reinforced the strong position of its bovine products in the industry league tables. Genus remains the leading producer with 34 bulls in the top 100 of the internationally important US rankings. In addition, we have had the strongest line up for many years of Holstein bulls in our studs in the UK and Italy.

In order to ensure we have the appropriate bulls to support our growth in China a further shipment of bulls was made from Australia to bring the number of Genus bulls now in China to 67. We also made good progress with introducing Holstein genes into India through the shipment of embryos.

As part of our ongoing investment programme, we are expanding our Canadian facilities involving a total expenditure of £1.6m on an additional rearing barn and a new distribution facility. During the period we also completed a new young bull collection facility in the UK.

Porcine Product Development

We have further increased our utilisation of genomics. We now incorporate genetic information from 60,000 genomic regions across all chromosomes of the pig into our genetic assessment programmes for reproduction traits in our female lines. This combined with our extensive `PICtraq' database is enabling us to increase the accuracy of selection of animals in our breeding programme by 30%, yielding further potential profit improvements for our customers. Our unique PICtraq repository of porcine data has now grown to more than 14 million pedigreed animals with detailed performance records, and we have DNA samples available for genomic testing on nearly 3 million pigs in our DNA storage facilities.

Research

As part of our strategic review, we are looking to focus our research activities on a reduced number of higher impact initiatives centred on clearly defined market place needs and core technology platforms.

We continue to make progress in the core research platforms of genomics and semen physiology, including semen sexing and disease resistance.

REVIEW OF OPERATIONS (CONTINUED)

Genus Products

Genus manages its global operations on a regional basis and monitors product performance globally.

Porcine revenue grew strongly with volume growth of 13%, driven by strong growth in Asia. The increased revenue resulted in improved profits, up 12% to £19.0m (2010: £17.0m).

In bovine, revenues were up 7%. Volumes rose 8% with particularly strong growth in China and India. Selling prices were firm and as a result profits rose by 8% to £10.7m compared to £9.9m last year.

Principal Risks and Uncertainties

Genus operates a structured risk management system that identifies, evaluates and prioritises risks and uncertainties and actively reviews control and mitigation activities. The Genus plc 2011 Annual Report (a copy of which is available on the Genus plc website at www.genusplc.com) sets out a number of risks and uncertainties that might impact upon the performance of the Group and these are summarised below. There has been no material change to the principal risks and uncertainties that might affect the performance of the Group in the second half of the financial year.