‡
Genetix Group plc Annual Report & Accounts 2005
Focusing on future growth
Genetix Group plc Annual Report & Accounts 2005
Genetix Group plc
Queensway
New Milton
Hampshire
BH25 5NN
United Kingdom
Tel: +44 (0)1425 624600
Fax: +44 (0)1425 624700
www.genetix.com Genetix adds value to scientists working at the 
cutting edge of Cell Biology, Proteomics and 
Genomics through its pioneering development 
of automated systems.
Our core skill is in the design, development and 
manufacture of innovative systems that meet 
the needs of our customers.
Our focus is on systems that reduce the time and 
cost of introducing new biopharmaceuticals.
Our products include instruments and 
consumables that were used in the Human 
Genome Project and are now used in the genetic 
analysis of human diseases, analysing the 
proteins of pathogenic organisms and selecting 
cells for the production of therapeutic proteins.
Genetix has established a broad and strong 
customer base among many of the world’s 
leading academic research groups, biotech 
companies and pharmaceutical corporations.
Genetix Group plc Annual Report & Accounts 2005 01
www.genetix.com
01
Turnover £m
05* 12.1
04* 12.2
03 10.8
02 12.6
01 12.4
Proﬁt before tax £m
05* 2.3
04* 1.3
03 0.8
02 2.3
01 2.6
(2001-2003 excluding goodwill – see page 50)
52% North America
11% United Kingdom
21% Rest of Europe
16% Rest of World
Turnover by: 
geographic region
A year of progress in re-positioning the business 
for future growth 
‡
 Sales of £12.1 million (2004: £12.2 million)
‡
 Pre-tax profit of £2.3 million up 72%
‡
 Earnings per share 2.45p, up 45%
‡
 Significant interest in new cell biology products
‡
 New cell biology products in pipeline
‡
  Cash balance of £24.3 million  
(2004: £21.2 million)
01	 Highlights
02	 Technology 	 for	 Biopharmaceuticals
04	 Chairman’s 	 statement
06	 Chief 	 Executive’s	 review
10	 Financial 	 review	 11	 Directors 	 and	 company	 secretary
12	 Advisers 	 and	 Registered	 Office
13	 Directors’ 	 report
16	 Corporate 	 governance
19	 Directors’ 	 remuneration	 report	 24	 Independent 	 auditors’	 report
25	 Consolidated 	 income	 statement	 (IFRS)
26	 	Consolidated	 statement	 of	 recognised	 income	 and	 expense	 (IFRS)	 26	 	Consolidated	 and	 Company	 reconcilations	 of	 movement	 	 in	 equity	 (IFRS)
27	 	Consolidated	 and	 Company	 balance	 sheets	 (IFRS)	 28	 	Consolidated	 and	 Company	 cash	 flow	 statement	 (IFRS)
29	 Notes 	 to	 the	 accounts
47	 Notice 	 of	 Annual	 General	 Meeting
50	 Five 	 year	 summary
2005	 Highlights
£12. 1m
	Turnover
£2.3m
	Profit 	 before	 tax
£24.3m
Cash	 balance
	 £1 .2m
Gross	 R&D
* Calculated under International Financial 
Reporting Standards (IFRS). 02
Genetix	 Group	 plc	 Annual	 Report	 &	 Accounts	 2005
02
Technology	 for	 Biopharmaceuticals
Our Technology
Genetix is a leader in technologies for cell line 
development in the biopharmaceutical industry. 
Our novel technologies can screen and select for 
the highest producing cell lines, so that the 
biopharmaceutical manufacturing process can 
be optimised. This offers considerable benefits  
in productivity and savings in time compared  
to traditional methods.
How?
The ClonePix
FL
, together with proprietary 
reagents and consumables, can halve the time 
required for the identification of high producing 
cell lines. The reductions in time can give our 
biopharmaceutical customers a major 
competitive advantage as illustrated.
Fluorescence	 correlates	 with	 antibody	 production	 –	 the	 most	 productive	 are	 selected	 by	 the	 ClonePix
FL
Population	 of	 cells	 with	 varying	 fluorescence	 intensity	 producing	 antibodies 03
www.genetix.com
03
Relative	 productivity	 of	 the	 cells	 generated	 by	 the	 	 two	 methods
Market	 analysis	 of	 biotherapeutic	 antibody	 sales	 by	 year,	 actual	 and	 projected	 produced	 from	 published	 market	 data
Manual	 method	 takes	 4-6	 weeks
Biotechnology + Pharmaceutical 
= Biopharmaceutical
Biotechnology is a collection of technologies 
that capitalise on the attributes of cells and 
put biological molecules, such as monoclonal 
antibodies, to work for the development of 
medicines. The success of a number of 
monoclonal therapeutics is driving the 
growth in biopharmaceuticals.  04
Genetix	 Group	 plc	 Annual	 Report	 &	 Accounts	 2005
“ We made significant 
progress in establishing 
our new cell biology 
products in the 
growing area of 
biopharmaceuticals.”
We made significant progress in 
establishing our new cell biology 
products as our key area of focus in  
the growing area of biopharmaceuticals. 
With profit before tax increasing  
by 72% to £2.3 million, results have 
been encouraging as the Group’s new 
products penetrate these exciting new 
markets. This healthy performance, 
being broadly in line with expectations, 
endorses our underlying strategy.
Our new cell biology products, the 
ClonePix
FL
 and CloneSelect range  
of instruments targeted at the 
biopharmaceutical sector, have  
been successfully introduced and are 
now selling throughout the world. 
Customers have responded very 
favourably by engaging with our in-
house scientists carrying out proof  
of principle experiments. These 
collaborations should accelerate  
the uptake of our new products and 
enhance further product development 
opportunities in this emerging area. 
These products from Genetix have 
been shown not only to play an 
important role in the development  
of new healthcare products, but also  
to deliver significant cost benefits to 
our customers when compared to 
existing instrumentation. 
The role of Chief Operating Officer 
recently became redundant and we 
would like to thank Trevor Bell, who 
left Genetix on 11 January 2006, for 
improvements made to the organisation, 
some of which are referred to above.  
In addition, the recruitment of a  
Finance Director to replace Gary Corsi, 
who left the Group at the end of January 
2006, has been completed with the 
appointment of Andrew Kellett who 
joins us from Quest Diagnostics Inc. 
Andrew will take up his appointment  
on 27 March 2006.
We wish Gary and Trevor every success 
for their future careers. 
The Board has considered whether  
the Group’s interests would be better 
placed by having its shares quoted  
on AIM rather than the Official List. 
Following a review of the advantages 
and disadvantages of both exchanges 
the Board has concluded that it  
would be in the best interests of the 
Company’s shareholders as a whole  
for the Company’s stock market 
quotation to be moved to AIM. It is  
the Board’s view that AIM represents a 
more flexible environment in which to 
achieve the Group’s objectives and to 
reduce costs and formalities relating to 
maintaining a market in its shares and 
undertaking transactions in the future.
The process of transferring from the 
Official List to AIM has commenced 
and further details will be included in  
a Circular to be posted to shareholders 
in due course. Our intention is to post 
the requisite Circular to shareholders 
on the same day that the Annual 
Report and Accounts are distributed. 
The approval of the Company’s 
shareholders will be required to effect 
the transfer to AIM and our intention  
is to convene an Extraordinary General 
Meeting for the same day as the 
Annual General Meeting which is 
planned for 3 May 2006.
Finally, we thank all staff for their 
unstinting efforts over the year. 
Genetix is fortunate in having a 
committed, flexible and highly 
professional workforce. We are  
very proud of what they have  
achieved and I would like to  
thank them and acknowledge  
their significant contribution.
John Morgan
Chairman
Chairman’s	 statement www.genetix.com
05 06
Genetix	 Group	 plc	 Annual	 Report	 &	 Accounts	 2005
“ Our cell biology 
instrumentation  
has been shown to 
add real value by 
giving customers a 
significant return on 
their investment.”
Introduction
Genetix achieved an increase in  
profit before tax of 72% compared 
with the previous year, with the Group 
benefiting from the uptake of its cell 
biology instrumentation in the final 
quarter. During this latter part of the 
year interest in these new products 
intensified. Biopharmaceuticals –  
drugs based on large complex protein 
molecules produced in living systems  
in contrast to chemically synthesised 
pharmaceutical drugs – are a major 
advance in modern medicine. It is  
in this area that our cell biology 
instrumentation has been shown to 
add real value by giving customers a 
significant return on their investment 
by increasing productivity of cell lines, 
antibody development and drug  
target validation.
The market/underlying trends
The emphasis in drug research 
continues to shift toward 
immunological and biological 
approaches, which target biochemical 
receptors and signalling pathways and 
it is believed that the emergence of this 
approach, as a major force within drug 
discovery, will provide the Group with 
increased opportunities for its new 
products developed within the field  
of cell biology. As a consequence, the 
number of sales leads generated within 
the biopharmaceutical market is 
expected to increase during 2006. 
Furthermore, we are excited with  
the increased scope to develop our 
consumables and reagents into areas 
which complement our cell biology 
instrumentation. The Group continues 
to maintain its presence within the 
microarraying sector and while  
this market continues to mature, 
opportunities remain to be exploited 
against the background of a 
consolidating market.
Chief	 Executive’s	 review
Performance review
The Group achieved turnover of  
£12.1 million (2004: £12.2 million)  
with a high quality revenue stream  
and profit before tax of £2.3 million 
(2004: £1.3 million). The increase in 
profitability reflects an improvement  
in instrumentation margins together  
with a reduction of operating costs. 
The Group is managed as a single fully 
integrated business at all levels, and 
therefore represents a single business 
line. However, within our single 
business segment we do identify  
our turnover from each part of the 
business. Instrumentation sales were 
£9.3 million, an increase of 1% on 
2004, including a strong performance 
from our picking and cell biology range 
of products. Consumables and services 
turnover was £2.8 million, down 6% 
on 2004. Going forward we have 
adopted a more integrated approach 
with our consumables being 
increasingly complementary with  
our new instruments. New products 
accounted for approximately 20%  
of total sales.
The Group finished the year with a 
cash balance of £24.3 million.
Sales and marketing
New appointments within the  
sales function will take place in 2006 
with the aim of strengthening the 
existing team in key markets such as 
the United States. Emphasis will also  
be given to training and support 
required to address increasingly 
complex and protracted procurement 
processes associated with the 
biopharmaceutical sector. www.genetix.com
07 Genetix	 Group	 plc	 Annual	 Report	 &	 Accounts	 2005
08
New Product development
It has been another productive year for 
Genetix’ product development as the 
Group continues to add to its range of 
products including the following:
 CloneSelect
imager
 – an instrument 
dedicated to cell confluence and 
growth measurement;
 Cell Dispense and CloneFill – new 
bench-top systems for dispensing 
cells and media respectively into  
well plates;
 a new range of plastics, semi-solid 
media and picking reagents 
complementary to the 
instrumentation products  
associated with cell biology; and
 further development of the QPix 
“XT” platform leading to the 
QP
expression
, an integrated colony 
picker, automating bacterial and 
yeast cloning methods.
During 2006 we have a full pipeline of 
projects which will continue to deliver 
analytical instruments for cell biology, 
as well as a stream of reagents and 
consumables.
Research
Our R&D project teams have remained 
focused on broadening our competencies 
in the field of intelligent cell imaging 
and selection with an emphasis on 
illumination, optics, detection and 
quantitative software.
•
•
•
•
The priority has been to advance  
these techniques to continually 
improve the productivity of our cell 
biology products to deliver real 
benefits to the drug discovery process 
for biopharmaceuticals. This work has 
been supported by in-house research 
by our team of molecular biologists 
who are engaged in refining 
methodologies which, when combined 
with our products, will further enhance 
productivity for our customers.
Outlook
We expect that continuing enthusiasm 
from customers for our cell biology 
products will translate into increased 
sales revenue in 2006. This, together 
with a sustainable improvement in 
margins achieved from the new 
product range, gives us increased 
confidence in the Group’s prospects.
Mark Reid
Chief Executive
Chief	 Executive’s	 review www.genetix.com
09 10
Genetix	 Group	 plc	 Annual	 Report	 &	 Accounts	 2005
Results
Group revenue was £12.1 million 
(2004: £12.2 million); instrumentation 
accounted for 77% (2004: 76%)  
and consumables and services 23% 
(2004: 24%) of total sales. Instrument 
sales increased by 1% over last year  
but this masks the progress made  
in re-positioning the business into  
new, growing markets within cell 
biology. Despite a 6% fall in sales,  
the consumables and services should 
benefit from initiatives taken in  
2005 as a range of new products  
in support of our cell biology 
instruments is introduced.
The Group’s gross margin improved  
to 54% (2004: 48%), mainly due  
to the new cell biology products. 
Gross R&D expenditure was £1.2 million 
(2004: £1.5 million); after taking credit 
for grant recoveries and capitalising 
£0.4 million (net of amortisation) of  
cell biology product development  
costs, net expenditure was £0.8 million 
(2004: £0.9 million).
“ The Group generated 
cash of £2.1 million 
during the year 
reflecting improved 
profitability, careful 
control of working 
capital and higher 
interest received.”
Financial	 review
Sales and administrative expenses  
fell mainly due to the reduction in 
headcount which took place at the  
end of 2004. Overall these factors 
combined to produce an operating 
profit of £1.2 million (2004:  
£0.4 million).
Interest receivable was £1.0 million 
(2004: £0.9 million), reflecting the  
cash generated by the business 
together with an increase in  
interest rates.
The Group’s effective tax rate was 
22% (2004: 7%), lower than the 
standard rate of 30% due to the 
continuing benefit of the UK 
government’s R&D tax credit scheme.
Basic earnings per share were 2.45p 
(2004: 1.69p) based on a weighted 
average of 71,698,688 shares in  
issue during 2005. Diluted earnings  
per share were 2.45p (2004: 1.69p) 
based on a weighted average of 
71,709,904 shares.
Cash flow
The Group generated cash of  
£2.1 million during the year reflecting 
improved profitability, careful control 
of working capital and higher interest 
received. Working capital represented 
15% of sales. Cash ended the year at 
£24.3 million (2004: £22.2 million). 
The Group paid tax of £0.4 million 
(2004: £0.1 million net tax paid).
Capital expenditure was £0.4 million 
(2004: £0.4 million) of which  
£0.1 million was on patent applications.  
Cell biology product development 
expenditure of £0.5 million (2004:  
£0.1 million) was capitalised and is 
being amortised over four years.
We employed 104 people worldwide 
as at 31 December 2005 (31 December 
2004: 100) and the average for the 
year was 100 (2004: 108).
International Financial Reporting 
Standards (IFRS)
The Group has adopted IFRS with 
effect from 1 January 2004. 
Reconciliations of all adjustments 
arising from IFRS were disclosed  
within the Interim Report 2005,  
and where applicable are included  
in note 2 to the accounts.
Exchange rates
The results of the Group’s US and 
German subsidiaries were translated 
into sterling at average exchange rates 
of £/$ 1.8129 (2004: 1.8355) and  
£/€ 1.4636 (2004: 1.4725) respectively; 
the balance sheets were translated  
at the year end exchange rates of  
£/$ 1.7168 (2004: 1.9199) and  
£/€ 1.4554 (2004: 1.4125). As at  
31 December 2005, the Group was 
committed to forward exchange 
contracts totalling US$7,000,000  
at an average rate of £/$ 1.7376, all 
maturing before 31 December 2006.  
In accordance with IFRS, these have 
been “marked-to-market” resulting  
in a loss of £18,000 being recorded  
in the accounts as at 31 December 
2005, together with a loss of £169,000 
arising from the IFRS adjustment to the 
accounts as at 31 December 2004.
Mark Reid
Chief Executive 11
www.genetix.com
Directors	 and	 company	 secretary
Mark Reid
Chief	Executive
Aged 50, founded Genetix in 1991, 
formerly with KPMG, London. Former 
director of Plastic Injection Limited 
(now Jarden Plastic Solutions Limited), 
a supplier to the Group.
John Morgan
Non-Executive	Chairman*
Aged 50, currently executive  
chairman of construction group, 
Morgan Sindall plc. 
Professor Julian Burke
Scientific	Director
Aged 53, founded Genpak in 1993. 
Visiting Professor at the University of 
Southampton, specialising in bio-
chemistry and molecular neurobiology. 
Peter Jensen
Non-Executive	Director*
Aged 55, former chairman of SmithKline 
Beecham’s European Consumer 
Healthcare operations and president  
of Worldwide Supply Operations until 
the merger with Glaxo Wellcome plc  
in December 2000. Currently non-
executive director of Domino Printing 
Sciences plc, Newmarket Racecourses 
Trust Limited and Excapsa.
Dr James Hill
Non-Executive	Director*
Aged 60, former head of strategic 
product development and senior vice-
president of corporate affairs of 
SmithKline Beecham until the merger 
with Glaxo Wellcome plc in December 
2000. Currently non-executive director 
of Diplema. 
Simon Hedger
Company	Secretary
Aged 50, former company secretary 
and executive committee member of 
News Communications & Media plc.
* Member of Audit Committee and 
Remuneration Committee
Andrew Kellett
(Appointed 27 March 2006)
Finance	Director
Aged 37, former finance director, 
Europe & Global Controller: clinical 
trials and pharmaceutical business 
development of Quest Diagnostics Inc. 12
Genetix	 Group	 plc	 Annual	 Report	 &	 Accounts	 2005
Advisers	 and	 Registered	 Office
Financial adviser and stockbroker
Piper Jaffray Ltd
1st Floor
18 King William Street
London
EC4N 7US
Auditors  
Deloitte & Touche LLP
Mountbatten House
1 Grosvenor Square
Southampton
SO15 2BZ
Bankers
Barclays Bank plc  
PO Box 612
Ocean Way
Southampton
SO14 2ZP
HSBC Bank plc
Norwich House
Nelson Gate
Commercial Road
Southampton
SO15 1GX
Solicitors
Olswang
90 High Holborn
London
WC1V 6XX
Registrars
Lloyds TSB Registrars
The Causeway
Worthing
West Sussex
BN99 6DA
Financial PR
Financial Dynamics
Holborn Gate
26 Southampton Buildings
London
WC2A 1PB
Registered office
Queensway
New Milton
Hampshire
BH25 5NN
Company number
4024856
Company website
www.genetix.com www.genetix.com
13
Directors’ report
The directors present their annual report on the affairs of  
the Group, together with the financial statements and the 
auditors’ report for the year ended 31 December 2005. 
Reviews of the Company’s and the Group’s activities are given 
in the Chairman’s statement on page 4, the Chief Executive’s 
review on pages 6 to 8 and the Financial review on page 10 
which are to be regarded as part of this report.
Principal activity
The principal activity of the parent Company and its trading 
subsidiaries is the design, development, manufacture and 
marketing of automated systems, services and consumables 
for cell biology, proteomic and genomic research throughout 
the world. 
Results and dividends
The audited financial statements for the year ended 
31 December 2005 are set out on pages 25 to 46. 
Profit on ordinary activities after taxation was £1.8 million 
(2004: £1.2 million). The directors do not recommend  
the payment of a dividend (2004: £nil).
Research and development
The development of new technology is an integral part of  
the Group’s business and the Group continues to carry out 
research and development in response to market needs and 
demand from the scientific community. In line with IAS 38 
Intangible Assets, eligible product development costs are 
capitalised and amortised over a period of four years.
Use of financial instruments
The Company’s use of financial instruments is explained in 
note 27.
Purchase of own shares
At the Annual General Meeting held on 27 April 2005, the 
Company was given authority to purchase its own shares.  
At that time, the directors believed that it would be desirable 
to have flexibility to make such purchases in appropriate 
circumstances, such purchases only being made to improve 
earnings per share for shareholders retaining their shares.  
No transactions for the purchase of the Company’s own 
shares took place during the year. Renewal of the authority 
will be sought from shareholders at the forthcoming Annual 
General Meeting. Details of this resolution are set out in the 
explanatory notes on page 49.
The Board
The directors who served throughout the year were as follows: 
M A Reid
T D Bell (left 11 January 2006)
G S Corsi (left 31 January 2006)
Professor J F Burke
J C Morgan
Dr J F Hill
P S Jensen
A J Kellett (appointed with effect from 27 March 2006)
Biographical details of all directors are provided on page 11.
Professor J F Burke and P S Jensen retire in accordance with 
the Articles of Association and being eligible offer themselves  
for re-appointment.
A J Kellett will retire in accordance with the Articles of 
Association and being eligible offers himself for election.
No director has a service contract of more than one  
year’s duration.
Directors’ and officers’ liability insurance cover is in place. 
Directors’ interests in shares
The directors who held office at 31 December 2005 had the 
following beneficial interests in the Company’s shares:
 31 December  31 December
 2005 2004
 Number  Number
M A Reid 42,551,267 42,551,267
T D Bell 10,000 10,000
G S Corsi 295,508 295,508
Professor J F Burke 1,306,766 1,306,766
J C Morgan 5,000,000 5,000,000
Dr J F Hill 18,796 18,796
P S Jensen 150,000 150,000
There are no non-beneficial interests.
Full details of directors’ interests in approved and unapproved 
share options, other option agreements and savings related 
share options are disclosed in the directors’ remuneration 
report on page 22. No director has an interest in the shares  
of any other Group company.
Notes:
1 The beneficial holdings include holdings of spouses.
2 During the period 31 December 2005 to 20 February 2006 (being one 
month before the date of the notice of the Annual General Meeting) there 
were no directors’ share dealings. Genetix Group plc Annual Report & Accounts 2005
14
Substantial shareholdings
As at 20 February 2006, the Board had not been notified in 
accordance with sections 198 to 208 of the Companies Act 
1985 of any member who had a notifiable interest in the share 
capital of the Company.
Changes in fixed assets
The changes in fixed assets of the Group during the year are 
set out in notes 12 to 14 on pages 39 and 40 of the accounts.
Accountability and audit
Within the Chairman’s statement on page 4 and the detailed 
review of the Group’s performance in the Chief Executive’s 
review on pages 6 to 8, and the Financial review on page 10, 
the directors seek to present a balanced and understandable 
assessment of the Group’s financial position and prospects. 
The directors’ responsibility for the financial statements is 
described below.
Corporate responsibility
The Company has formulated its approach to the ABI’s 
guidelines on corporate responsibility within the Turnbull 
process. These matters have been reviewed as part of the 
Company’s ongoing risk assessment process and as a 
consequence, the significance of social, environmental and 
ethical (SEE) matters to the business of the Group is now 
regularly reviewed. Through this process the Board receives 
adequate information to make an assessment of such matters 
and in this context no significant risks have been identified. 
In view of the relatively small size of the Group and the 
absence of heavy industry within its manufacturing processes, 
the environmental footprint of the Group is not significant. 
Notwithstanding this, the Group is committed to embracing 
sound environmental policies and practices. An environmental 
policy has been issued to all staff and key suppliers. A 
framework has been established allocating responsibilities for 
the implementation of the policy and enabling the 
performance of the Group in adhering to its policy to be 
monitored. Environmental matters may be addressed by staff 
via the Group’s intranet. The Company has also developed 
codes of conduct which have been incorporated within staff 
handbooks which include sections codifying the Company’s 
position on promoting high standards of integrity and ethics in 
business conduct and encouraging diversity in the workplace. 
The Group’s principal operations are located within a single 
light manufacturing unit in the UK and are not exposed to the 
same risks associated with human rights faced by companies 
who operate in developing countries. It is believed that the 
Group’s exposure to risks arising from SEE matters are principally 
reputational and that there are real business advantages to 
enhancing and protecting the reputation of the Group in terms 
of attracting and retaining talented staff and enhancing its profile 
with an increasingly demanding customer base.
The Group recognises that business activities have an influence 
on the community and accepts that it has a duty to carry out 
such activities in a responsible manner. In addition, the Group 
seeks to support education in its field of operations by 
engaging sandwich students during their industrial year and 
offering work experience assignments and educational visits.
While the Group has complied with its policies and procedures 
for managing risks arising from SEE matters, it is the intention 
to continue the development of those relating to the 
environment in the future.
These disclosures have been compiled in conjunction with the 
risk assessment exercise carried out in December 2005 and 
verified as part of that process.
In view of the relatively small size of the Group and the need 
to manage risks proportional to their significance, there is no 
present intention to introduce any remuneration incentive 
relating to the handling of SEE risks or training of directors  
on such matters. 
Statement of directors’ responsibilities
The directors are responsible for preparing the Annual Report 
and the financial statements. The directors are required to 
prepare financial statements for the Group in accordance with 
International Financial Reporting Standards (IFRS) and have 
also elected to prepare financial statements for the Company 
in accordance with IFRS. Company law requires the directors 
to prepare such financial statements in accordance with IFRS, 
the Companies Act 1985 and Article 4 of the IAS Regulation.
International Accounting Standard 1 requires that financial 
statements present fairly for each financial year the Company’s 
financial position, financial performance and cash flows. This 
requires the faithful representation of the effects of 
transactions, other events and conditions in accordance with 
the definitions and recognition criteria for assets, liabilities, 
income and expenses set out in the International Accounting 
Standards Board’s “Framework for the Preparation and 
Presentation of Financial Statements”. In virtually all 
circumstances, a fair presentation will be achieved by 
compliance with all applicable International Financial 
Reporting Standards. Directors are also required to:
properly select and apply accounting policies;
present information, including accounting policies, in a 
manner that provides relevant, reliable, comparable and 
understandable information; and
provide additional disclosures when compliance with the 
specific requirements in IFRS is insufficient to enable users 
to understand the impact of particular transactions, other 
events and conditions on the entity’s financial position and 
financial performance.
•
•
•
Directors’ report www.genetix.com
15
The directors are responsible for keeping proper accounting 
records which disclose with reasonable accuracy at any time the 
financial position of the Company, for safeguarding the assets, 
for taking reasonable steps for the prevention and detection of 
fraud and other irregularities and for the preparation of a 
directors’ report and directors’ remuneration report which 
comply with the requirements of the Companies Act 1985.
The directors are responsible for the maintenance and integrity 
of the Company website. Legislation in the United Kingdom 
governing the preparation and dissemination of financial 
statements may differ from legislation in other jurisdictions.
Supplier payment policy
It is the Group’s policy to pay suppliers in accordance with 
their agreed terms and conditions. Such terms and conditions 
are agreed with the supplier in advance and the Group aims  
to comply with such terms once satisfactory performance is 
achieved. At 31 December 2005 average creditors’ age was  
52 days (2004: 50 days).
Employment of disabled persons
In considering applications for employment from disabled 
people the Company seeks to ensure that fair consideration is 
given to the abilities and aptitudes while having regard to the 
requirements of the job for which he or she has applied. 
Employees who become unable to carry out the job for which 
they are employed are given individual consideration and 
depending on the nature, severity and duration of the 
disability, may be considered for alternative work.
Health, safety and the environment
The Group is committed to the maintenance of high standards 
of practice concerning the health and safety of its employees. 
The Group recognises its legal obligations in this respect and 
compliance with such obligations and a number of policies on 
such matters are monitored through a health and safety 
committee. The Company is sensitive to the needs of the 
environment. Such matters are considered in the context of 
the Company’s environmental policy which is described within 
the section dealing with corporate responsibility. 
Employee involvement
The Company is committed to a policy of developing 
employee involvement and awareness on matters of concern 
to all employees throughout the Group, information being 
disseminated through formal and informal meetings, written 
communications and notices. 
Consultation procedures exist with staff covering such  
matters as health and safety and other areas connected  
with their employment.
The Company has established discretionary and sharesave 
share option schemes with the objective of giving employees 
an opportunity to invest in the future of the Company, 
encouraging a sense of involvement and aligning employees’ 
interests with those of shareholders.
Charitable and political donations
No charitable donations or political donations were made 
during the year.
Annual General Meeting
The notice describing the ordinary and special business at the 
Company’s sixth Annual General Meeting to be held on 
Wednesday 3 May 2006 is set out on pages 47 to 48. Details 
of the special business are set out on page 49. Biographical 
details of directors submitting themselves for reappointment 
are set out on page 11.
Auditors
Deloitte & Touche LLP have expressed their willingness  
to continue in office as auditors and a resolution to  
reappoint them will be proposed at the forthcoming  
Annual General Meeting. 
By order of the Board
S C Hedger
Secretary
1 March 2006 Genetix Group plc Annual Report & Accounts 2005
16
The Company is committed to the principles of corporate 
governance contained in the Combined Code on Corporate 
Governance which is appended to the Listing Rules of the 
Financial Services Authority (“the 2003 FRC Code”) and for 
which the Board is accountable to shareholders. In applying 
these principles the Board has had regard to the size and 
specific requirements of the Company.
Compliance 
Throughout the year ended 31 December 2005, the Company 
has been in compliance with the Code provisions set out  
in Section 1 of the 2003 FRC Code except for the  
following matters:
Code provision A.4.1: In view of the relatively small size of the 
Group and Board a separate nomination committee has not 
been constituted however, the Board will operate under 
specific and formal terms of reference when considering  
Board nomination matters.
Code provision C.3.1: In view of the relatively small size of  
the Group and the consequential transparency of its financial 
affairs and financial statements the Board considers that the 
appointment of an additional non-executive director with 
financial experience, as defined by the Code, to sit on the 
Audit Committee is not necessary. Furthermore, in view of  
the size of Mr Morgan’s shareholding in the Company, he 
would not be regarded as an “independent” non-executive 
director by the definition employed by the Code. It is the 
Board’s view that this does not lessen the value of his 
contribution as a member of the Audit Committee.
Code provision B.2.2: In view of the relatively small size of  
the Group and the absence of management tiers within the 
organisation, the terms of reference for the Remuneration 
Committee include authority to review and advise on 
remuneration for the level of senior managers below  
Board rather than to consider and recommend.
The Board
The Company is controlled through the Board which, at the 
time of compiling this report, comprises two executive and 
three non-executive directors. A third executive director, 
Andrew Kellett will be appointed as Finance Director with 
effect from 27 March 2006. The Board is chaired by Mr John 
Morgan. There is a clear division of responsibilities between 
the Chairman and the Chief Executive. Separate terms of 
reference for these positions have been formally adopted  
by the Board.
During the year the Board held six meetings. There is a formal 
schedule of matters reserved for its consideration. It is 
responsible to shareholders for the strategic development of  
the Group, maximisation of performance by the efficient use  
of resources and the overall control of the operation of the 
business. In fulfilling this responsibility the non-executive 
directors ensure that the strategic plans are rigorously reviewed 
by the Board and that the performance of management in its 
execution of plans to achieve agreed goals is closely monitored. 
The Board approves the Group’s annual operating plan and 
throughout the year reviews the performance of the business 
units and key performance indicators against their budgets, 
targets and objectives. Through terms of reference, the  
Chief Executive has specific responsibilities which include  
the development and implementation of corporate objectives 
and policies consistent with the Company’s strategy and 
development of business plans in relation to these commercial 
aims for which additional members of the management team 
are given responsibilities. The Board has carried out an 
evaluation of its effectiveness and performance and of its 
committees and will carry out this evaluation programme on 
an annual basis. The evaluation took the form of a detailed 
questionnaire which was responded to on an individual basis 
by each director, the results of which being analysed under 
different performance criteria identifying where improvements 
may be made. The evaluation, which was reviewed by the 
Board, included the role and constitution of the Board, agenda 
setting and the quality of the information provided to the 
Board. The Board has extended the annual evaluation to 
individual directors during the year which took the form of 
individual questionnaires and structured one-to-one interviews 
with the Chairman. The senior independent director, Dr James 
Hill, conducts the interview in the case of the Chairman’s own 
performance evaluation. In the case of directors seeking re-
election their continuing effectiveness on the Board and their 
commitment to their roles is confirmed during this process. 
The Chairman holds at least one meeting a year with the other 
non-executive directors without the executive directors 
present. In addition, the senior independent director holds one 
meeting a year with his fellow independent director, Mr Peter 
Jensen, without the Chairman present. 
During the year, the directors attended the following number 
of meetings of the Board and its Committees:
  Audit Remuneration
 Board Committee Committee
Number of meetings   
John Morgan 6 3 4
James Hill 6 3 4
Peter Jensen 6 3 4
Mark Reid 6 – –
Trevor Bell 6 – –
Julian Burke 6 – –
Gary Corsi 6 – –
Corporate governance www.genetix.com
17
Although the directors possess a wealth of diverse business 
experience they attend relevant training courses as 
appropriate. New non-executive directors are offered an 
appropriate induction programme under the direction of  
the Chairman and Chief Executive and subsequent training  
is available to meet particular needs. While there is no  
formal programme for new non-executive directors to  
meet major shareholders there are opportunities for  
them to do so particularly at the time of the Company’s 
Annual General Meeting. 
The Chairman is responsible for ensuring that all directors 
receive accurate, timely and clear information and ensures  
that the Board is able to discharge its duties effectively.  
All directors have access to the advice and services of the 
Company Secretary. There are procedures in place which  
allow directors to take independent professional advice in  
the furtherance of their duties.
There are two independent non-executive directors on the 
Board who are of varied business backgrounds who 
individually and collectively exercise independence and bring  
a diversity of business perspective. Notwithstanding Dr Hill’s 
interest in share options granted on appointment disclosed  
on page 22 the Board considers that, particularly in view of 
the relatively small size of that interest, Dr Hill is independent 
of the management and free from business and other 
relationships that could interfere with his independent 
judgement. Mr Morgan has an interest in the Company 
amounting to approximately 7% of the issued share capital 
and accordingly would not be regarded as an “independent” 
non-executive by the definition employed by the Code. It is 
the view of the Board that this does not lessen the value of  
his contribution on the main Board nor as a member of the 
Board Committees.
The terms and conditions of appointment of non-executive 
directors, which are subject to the terms of the Company’s 
Articles of Association, are available for inspection at the 
Company’s registered office during normal business hours  
and at the AGM (for 15 minutes prior to the meeting and 
during the meeting). The standard terms and conditions  
of appointment are available on the Company’s website 
(www.genetix.com). All non-executive directors have  
indicated that they have sufficient time to meet the 
expectations of their appointments.
The Board has delegated certain responsibilities to the Audit 
Committee and Remuneration Committee. Through the 
Remuneration Committee the Company maintains contact  
as required with principal shareholders on issues relating to 
directors’ remuneration. The Board operates under formal 
terms of reference, which are available on the Company’s 
website, when acting as a nomination committee. The  
Board has operated under such terms when considering  
the appointment of the replacement Finance Director. The 
Board also delegates a number of procedural responsibilities  
in relation to minor drafting requirements associated with 
routine financial statements and announcements to an  
ad hoc Committee of the Board.
Audit Committee
The Audit Committee is chaired by Mr Peter Jensen and during 
the year under review held three meetings. During the year 
the Committee comprised all of the non-executive directors, 
two of which are regarded as “independent” non-executive 
directors by the definition employed by the Code. All directors 
are normally invited to attend Committee meetings together 
with the external auditors and the Company Secretary. 
The Committee’s terms of reference, which are available  
on the Company’s website, set out the Committee’s 
responsibilities, which it has fulfilled during the year under 
review, and include:
reviewing financial statements, the effectiveness of  
the Company’s financial reporting, internal controls  
and risk management;
making recommendations to the Board in relation to  
the appointment, re-appointment and removal of  
external auditors;
reviewing the independence and objectivity of  
external auditors;
reviewing the results of the audit and the effectiveness  
of the audit process;
review consistency of accounting policies and compliance 
with accounting standards; and
review of non-audit services provided by external auditors.
In fulfilling its responsibilities the Committee has:
sought confirmation from the external auditors of the 
absence of any factors which could have a material 
consequence affecting the integrity of the Company’s 
financial statements;
reviewed the methodology and results of the Company’s 
risk assessments;
reviewed the independence of the external auditors by 
examining the contents of a formal letter of independence 
produced by the auditors; and
assessed the effectiveness of the external audit by meeting 
with the auditors for the consideration of a number of 
relevant matters which include the scope of their work, 
matters of materiality, misstatements, key accounting 
practices, taxation issues and accounting and internal 
control systems.
The Committee chairman also holds separate discussions with 
the external auditors without management being present. 
The Committee has a policy whereby if the provision of non-
audit services is likely to cost more than £75,000, or £100,000 
in the event of a single transactional fee, alternative sources 
for those services are considered. 
When considering the recommendation for the continual 
appointment of the existing auditors the Committee has 
regard to the effectiveness of the audit and the relative low 
cost of the audit services for a small company against costs 
associated with changing auditors.
The Committee has reviewed the Company’s whistleblowing 
procedures whereby staff may raise public issue concerns 
including financial improprieties.
•
•
•
•
•
•
•
•
•
• Genetix Group plc Annual Report & Accounts 2005
18
Remuneration Committee
The Director’s remuneration report is set out on pages 19-23.
Internal control
The Board has applied principle C.2 of the Combined Code 
and in so doing has followed the guidelines for directors on 
this requirement which were published in September 1999 
(“the Turnbull Guidelines”). The Board confirms that the 
procedures necessary to implement the guidelines have been 
established for the whole year and up to the date of approval 
of the Annual Report and Accounts.
The Board is responsible for the Group’s systems of internal 
controls and has reviewed their effectiveness. Such systems 
are designed to manage rather than eliminate the risk of 
failure to achieve business objectives and can only provide 
reasonable and not absolute assurance against material 
misstatements or loss. Such systems have been designed to 
meet the Group’s particular needs and circumstances and the 
risks to which it is exposed.
The key procedures that have been established to provide 
effective internal controls are:
Risk assessment 
As part of the Company’s compliance with the Turnbull 
Guidelines, there is an ongoing process for identifying, 
evaluating and managing risks and a system of risk 
assessment. The assessments designed to identify strategic, 
financial, compliance and operational risks across all areas  
of the Company’s business are systematically reviewed  
by the executive management having regard to changes  
to the Group’s business environment. In particular, the  
Chief Executive addresses commercial risks at the time the 
Company’s operating plan is compiled in close consultation 
with senior business managers. The results of this exercise  
are formally reported to the Board.
Control environment
The Board sets the overall risk management policy for the 
Group which is delegated to the executive management. The 
Group has taken the opportunity in adopting the Turnbull 
guidance to more effectively manage the business and embed 
internal controls and risk management further into the 
operations of the business. Given the relatively small size of 
the Group, the senior management is able to demonstrate 
through its own actions, commitment to best business 
practices. In terms of the Group approval framework, there 
are procedures for expenditure matters including the 
authorisation of investments and capital expenditure. The 
Group has in place an organisational structure with defined 
lines of responsibility and delegations of authority. Upon 
joining the Company employees undergo a thorough 
induction programme and receive a staff handbook.
Information and communication
The Group’s procedures include a comprehensive system for 
reporting financial and non-financial information to the Board. 
This includes the preparation and review of annual business 
plans and periodic strategic reviews which are submitted to 
the Board, the comprehensive review of the business at each 
Board meeting, the monthly meeting of the management 
committee and the regular review of risk assessments and 
strategic risk. From time to time the Board receives 
presentations from management about key areas of the 
Group’s operations.
Control procedures
Accounting policies and practices are disseminated throughout 
the Group. Measures taken include comprehensive signing-off 
approvals, physical controls, segregation of duties, reviews by 
management and external auditors. Operational procedures 
are under continual development having particular regard to 
changes in the law and regulations, and managers’ handbooks 
are updated accordingly.
Monitoring process
There are clear procedures for monitoring the system of 
internal controls:
The Chief Executive and members of the management team 
regularly review the results of the risk assessment exercise. The 
impact and likelihood are re-evaluated and priorities reported 
to the Board and, where appropriate, corrective action taken.
Each half-year, the finance director carries out an internal self-
certification of accounting functions requiring staff to actively 
evaluate ongoing compliance with financial control disciplines.
The Audit Committee considers that given the relative small 
size of the Group and the quality of financial controls, the 
appointment of an internal auditor is not merited.
Relations with shareholders
The Company acknowledges the importance of a dialogue 
with its institutional shareholders. The Company makes 
presentations to them and communicates regularly 
throughout the year. All shareholders have an opportunity  
to discuss the Group’s development and performance at the 
Annual General Meeting. The Company’s brokers provide 
briefing notes arising from institutional shareholders’ feedback 
to the Company’s presentations which are provided to all 
members of the Board.
Going concern
After making enquiries, the directors have a reasonable 
expectation that the Group has adequate resources to 
continue operating for the foreseeable future. For this reason, 
the going concern basis continues to be adopted in preparing 
the financial statements.
Corporate governance www.genetix.com
19
Introduction
This report has been prepared in accordance with Schedule 7A 
to the Companies Act 1985. The report also meets the 
relevant requirements of the Listing Rules of the Financial 
Services Authority and describes how the Board has applied 
the principles relating to directors’ remuneration. As required 
by the Act, a resolution to approve the report will be proposed 
at the Annual General Meeting of the Company at which the 
financial statements will be approved.
The Act requires the auditors to report to the Company’s 
members on certain parts of the Directors’ remuneration 
report and to state whether in their opinion those parts of the 
report have been properly prepared in accordance with the 
Companies Act 1985. The report has therefore been divided 
into separate sections for audited and unaudited information.
Unaudited information
Remuneration Committee
The membership of the Remuneration Committee (“the 
Committee”) is wholly made up of non-executive directors 
namely Dr Hill (chairman), Mr Morgan and Mr Jensen.  
Dr Hill and Mr Jensen are regarded as “independent”  
non-executive directors by the definition employed by  
the Code. Members of the Committee are in attendance  
at the Company’s Annual General Meetings. The Committee  
is a committee of the Board and has been established with 
formal terms of reference (available at the Company’s website 
(www.genetix.com)) approved by the Board. The Committee 
has authority to determine the remuneration, benefits and 
employment conditions for executive directors and in this 
connection the Committee meets as required and sets the 
policy for the administration of the Company’s approved  
and unapproved share option schemes. No member of the 
Committee has any personal financial interest, other than  
as shareholders, conflicts of interests arising from cross-
directorships or day-to-day involvement in the running  
of the business. The Chief Executive and Company Secretary 
attend meetings of the Committee at its invitation. The 
Committee met four times during the year and in addition  
the Committee dealt with a number of matters by way of 
telephone conference.
Remuneration policy 
The responsibilities of the Committee include the following: 
to develop a broad remuneration policy for senior 
management;
to determine the total individual remuneration packages 
for each of the executive directors; and
to determine targets for performance related pay schemes.
In addition to the foregoing, in accordance with the rules of 
the schemes, the Committee administers the operation of the 
Approved and Unapproved Share Option Schemes.
The Committee seeks to put into place remuneration packages 
which will enable the Company to motivate, attract and retain 
executive directors of sufficient calibre to contribute to the 
development of the business and the Group’s progress.  
No director plays a part in any discussion about their own 
remuneration. In developing remuneration policy and fixing 
remuneration, consideration is given to remuneration 
•
•
•
packages of executive directors in groups of a comparable 
size. As part of this process, the Company both participates  
in, and subscribes to, relevant independent survey reports.  
The current remuneration policy has regard to the early stage 
in the Group’s development. As the Group grows in size and 
complexity the Committee will consider the introduction of 
broader remuneration packages. The relative importance of 
the component parts of the remuneration packages will be 
determined as the Group grows, until that time the focus of 
relating the remuneration packages to performance is 
performance related share options as described in this report. 
The Committee had established a performance related bonus 
scheme for the former Chief Operating Officer as part of his 
recruitment package, the details of which are set out below. 
The Chief Executive advises the Committee on executive 
directors’ remuneration and on individual performance other 
than for himself. The Committee having regard to the global 
nature of the Group’s markets will, on a case by case basis,  
be mindful of the specific demands of the job market in a 
particular country or region should the Group’s development 
require the international recruitment of senior executives. No 
director is involved in determining their own remuneration. 
The Committee’s present policy is to offer executive directors 
six month rolling contracts being comfortably in accordance 
with best practice. The main Board has established the policy 
for directors’ fees, within the limits provided for by the Articles 
of Association, having regard to the need to attract non-
executive directors of sufficient calibre to provide strategic 
drive and vision for the Group’s ongoing development. In 
appropriate circumstances, non-executive directors will be 
offered shares in lieu of a proportion of their fee entitlement. 
Basic salary
The basic salary for each executive director is established  
by the Committee and is reviewed on an annual basis in 
accordance with the terms of service contracts. Such reviews 
will take into account the responsibilities and experience of 
each individual and have regard to appropriate sources of  
data including independent surveys on similar positions held  
in comparable companies. Reviews would also take place  
in the event of major organisational change.
Benefits in kind
At the date of this report, directors do not receive benefits  
in kind. The Committee will keep this matter under review  
as the Group develops.
Annual bonus
The Committee has decided to introduce a bonus scheme  
for which all executive directors will be eligible to participate. 
The scheme will set targets established with reference to  
the Group’s annual operating plan, giving executive directors 
the opportunity to achieve an annual bonus calculated as a 
percentage of basic salary. In the case of the former Chief 
Operating Officer, the Committee had agreed that as part  
of his recruitment package he should participate in an annual 
bonus scheme on appointment. The scheme provided the Chief 
Operating Officer with an opportunity to achieve an annual 
bonus of up to 50% of his salary payable half-yearly against 
agreed targets established by the Committee. The scheme 
included measurable and quantitative criteria related to the 
financial performance of the Group namely turnover and 
Directors’ remuneration report Genetix Group plc Annual Report & Accounts 2005
20
operating profit targets linked to the annual operating plan.  
In exceptional circumstances, the Committee would consider 
the payment of a special bonus where an individual director’s 
performance merits an award outside the annual bonus scheme.
Compensation for loss of office
During the financial period under review, no payment has 
been made to a former director as compensation for loss of 
office. The duty to mitigate will be taken into consideration  
as appropriate when determining any severance payment. 
Early in the following financial period, as a consequence of  
the position Chief Operating Officer being made redundant,  
Mr Trevor Bell received £88,000 in respect of the notice 
provisions of his service contract together with statutory 
redundancy payments. These payments were paid on  
13 January 2006.
Sums paid to third parties in respect of  
directors’ services
During the financial period under review, no payment was 
made to a third party in respect of directors’ services. 
Pensions 
At the date of this report, there are no pension arrangements 
in force provided by the Company for directors. The 
Committee will continue to keep this under review as the 
Group develops.
Service contracts
Details of service contracts for executive directors who served 
during the financial year can be summarised as follows: 
 Date of  
 commencement  Unexpired term
M A Reid 01/10/00 6 months
T D Bell 15/09/03 left 11/01/06
G S Corsi* 01/08/00 1 month
Professor J F Burke 01/07/01 6 months
* Mr Corsi had given notice to the Company of the termination of his service 
contract with effect from 31 January 2006.
Each contract is for a six month rolling term and subject to a 
six month notice period. 
No fixed contractual sum is payable on termination. Other 
than in cases of gross misconduct and protracted ill-health 
provided for in their individual service contracts, all current 
executive directors would at present have an expectation of  
a termination payment not exceeding six months salary in the 
event of the early termination of their service contract by the 
Company. While no termination payments have been made  
to former directors during the period under review a payment 
in the following period was made to Mr Bell following the 
cessation of his employment as noted above. Non-executive 
directors’ appointments are subject to letters of appointment 
which provide for the terms of appointment to be reviewed  
on an annual basis at the time of their respective anniversary 
of appointment. Prior to that time either party may terminate 
the appointment by giving not less than three months’ notice. 
The commencement dates for non-executive directors’ current 
terms of appointments are as follows:
J C Morgan 11/10/05
Dr J F Hill 05/02/06
P S Jensen  23/12/05
All directorships are subject to the overriding provisions of  
the Company’s Articles of Association and the requirement  
to seek re-election by shareholders at General Meetings  
at required intervals.
The Company recognises that its executive directors may be 
invited to become non-executive directors of other companies 
and that exposure to such non-executive duties can broaden  
a director’s experience to the benefit of the Company. Each 
case is considered on its own merits.
Share options 
The Company believes that share ownership by executive 
directors and other senior and key staff establishes a firm  
link between their personal interests and those of the 
shareholders. The executive directors are eligible to participate 
in the Company’s approved and unapproved share option 
schemes which were established in October 2000. It is 
intended that the granting of the options is phased over the 
life of the schemes. The Committee has, following discussions 
with its advisers, formulated an eligibility policy for executive 
directors which spreads the potential grant of options 
throughout the ten year life of the schemes. At present the 
maximum value of options under this policy which may be 
awarded to executive directors would be subject to a ceiling  
of options to the value, at the time of grant, equating to  
four times salary, with a maximum value of one times salary  
in any one year. Options granted pre-flotation are excluded 
from the calculations. In considering the recruitment needs  
of the Board, the Committee will have regard to the specific 
demands of the job market at the time and in special cases, 
having particular regard to internationally based positions, 
consider the acceleration of such option awards in appropriate 
circumstances. In the case of the recruitment of the former 
Chief Operating Officer, in order to secure the appointment  
of an individual of the required calibre with the appropriate 
depth of commercial experience, it was necessary to waive  
the principle of phasing for both ordinary and super options.
Option awards are normally considered by the Committee 
following the publication of annual results and interim  
results and if appropriate, granted during a 42 day period 
following the announcement of those results. Other  
than on recruitment, option awards outside these time  
frames would not normally take place unless exceptional 
circumstances prevail. 
Directors’ remuneration report www.genetix.com
21
2001 2002 2003 2004 2005
10
20
30
40
50
60
70
80
90
100
1 10
— Genetix – Total return index
— FTSE Techmark All-Share – Total return index
Source: DataStream
The Committee has recently restated the performance 
conditions for all share options adopting a principle of  
a frozen UK GAAP policy. As a consequence the existing  
method of calculating performance conditions has been 
maintained having no regard to the financial reporting 
implications arising from International Financial Reporting 
Standards. This approach avoids the volatility associated with 
foreign exchange contracts, the same performance conditions 
will apply irrespective of when options were granted and the 
method of calculation being reflective of actual management 
contribution to performance. 
Performance graph 
The following graph shows the Company’s performance, 
measured by total shareholder return, compared with the 
performance of the Techmark All-share Index also measured 
by total shareholder return. The Company forms part of this 
index and in the absence of a direct peer group, this index is 
regarded as appropriate for comparative purposes. 
Return index since 1 January 2000 for Techmark All-share 
Index as at 31 December 2005
Super options are subject to more demanding performance 
conditions and are granted on a case-by-case basis to deal 
with specific business needs. These options are subject to a 
maximum ceiling of four times salary during the life of the 
schemes and normally a maximum value of one times salary  
in any one year. As in the case with ordinary options, the 
Committee will have regard to the specific demands of  
the job market and consider the acceleration of such option 
awards in appropriate circumstances. The performance target 
in respect of the super options granted to the former Chief 
Operating Officer was the percentage growth in adjusted EPS 
(adjusted for exceptional items and goodwill) of the Group 
during a performance period of five years to exceed the 
percentage growth in RPI during the period by a minimum  
of 35% p.a. in which case 50% of the options would vest. 
Compound percentage growth of 40% p.a. and 45% p.a.  
was required before 75% and 100% respectively vest. The 
performance in aggregate is calculated over the five year period 
to determine whether the shares under option were exercisable 
whereby under performance in any one year or years may be 
clawed back by over performance in other years during the 
five year period.
The first tranche of options which were granted to executive 
directors and other key staff immediately before admission  
to trade on the London Stock Exchange were not subject  
to performance criteria. The grant of these options was 
considered a necessary step to attract and retain staff during  
a significant period in the Company’s development. Options 
granted subsequently, not regarded as super options, are 
subject to performance criteria which were chosen after 
discussions with the Company’s advisers as being appropriate 
for the Company without a clearly identifiable peer group at 
its early stage of development. The vesting of such options is 
stepped in proportion to the increased performance of the 
Group. The performance target is the percentage growth in 
adjusted EPS (adjusted for exceptional items and goodwill) of 
the Group during the performance period of three years to 
exceed the aggregate percentage growth in RPI during the 
period by a minimum of 9% in aggregate in which case 50% 
of the option will vest. Percentage growth of 12% and 15%  
is required before 75% or 100% respectively vest. If the 
performance conditions are not achieved in the initial three 
year period, the performance period will be extended to  
five years and in such circumstances the performance target  
is increased proportionally to reflect the additional time 
available. If the performance condition is not met within five 
years, the options will lapse. Methods of reviewing whether 
these performance conditions have been met are, in view of 
their simplicity, largely mechanistic in nature and will at the 
appropriate time of potential vesting of options be examined 
in conjunction with the Company’s advisers. Genetix Group plc Annual Report & Accounts 2005
22
Audited information
Directors’ share options
Options granted to directors under the Genetix Group plc (Approved) and (Unapproved) 2000 Share Option Schemes, other 
option agreements and the Sharesave Scheme 2000 are set out as follows:
  At 1 Jan   At 31 Dec Exercise
 Note 2005 Granted Lapsed 2005 price Normal exercise period
M A Reid
Executive (unapproved) 1 66,667 – –  66,667 150p 24 Nov 2003– 23 Nov 2010
Executive (unapproved) 2 97,744  – –  97,744 66.5p 5 Mar 2005–4 Mar 2012
  164,411 – – 164,411  
T D Bell
Executive (approved)  2 58,252 – – 58,252 51.5p 15 Sep 2006–14 Sep 2013
Executive (unapproved)  2 640,777 – – 640,777 51.5p 15 Sep 2006–14 Sep 2013
Executive (unapproved) Super Options  3 1,242,718 – –  1,242,718 51.5p 15 Sep 2008–14 Sep 2013
Sharesave   19,620 – – 19,620 50p 1 Jun 2009–1 Dec 2009
  1,961,367 – – 1,961,367  
G S Corsi
Executive (approved) 1 20,000 – – 20,000 150p 24 Nov 2003–23 Nov 2010
Executive (unapproved) 1 46,667 – – 46,667 150p 24 Nov 2003–23 Nov 2010
Executive (unapproved)  2  97,744  – – 97,744  66.5p  5 Mar 2005–4 Mar 2012
Sharesave   17,757  – 17,757 –  53.5p  lapsed 1 Dec 2005
  182,168 – 17,757 164,411  
Professor J F Burke 
Options  1  66,667  – – 66,667  150p  11 Nov 2003–10 Nov 2010
Executive (approved)  2  45,112  – – 45,112  66.5p  5 Mar 2005–4 Mar 2012
Executive (unapproved)  2  52,632  – – 52,632  66.5p  5 Mar 2005–4 Mar 2012
Sharesave   17,757  – 17,757 – 53.5p  Lapsed 1 Dec 2005
  182,168 – 17,757 164,411  
Dr J F Hill
Options 4 13,856 – – 13,856 216.5p 4 Feb 2002–7 Mar 2011
Notes:
1 Share options granted prior to flotation with no performance conditions. (At this time Professor Burke, while a director, was not an employee and as a 
consequence options were not granted under the rules of the Company’s share option schemes but with reference to a separate option deed, all principal terms 
being based on those contained within the Company’s schemes.) 
2 Share options granted subject to standard performance conditions as set out in the policy statement on share options on page 21. If the performance condition is 
not achieved within the required time scale, the share options will lapse prior to the expiry date. There has been no variation in the performance conditions. The 
normal exercise period shown on the above table ends with the expiry date of the options.
3 Share options granted subject to super option performance conditions as set out in the policy statement on share options on page 21. If the performance 
condition is not achieved within the required time scale the share options will lapse prior to the expiry date. There has been no variation in the performance 
conditions. The normal exercise period shown on the above table ends with the expiry date of the options.
4 Share options granted to non-executive director at time of initial appointment and not subject to performance conditions.
5 No variation has taken place in the terms and conditions of any share option since its grant.
6 Other than Mr Reid (as a substantial shareholder), all executive directors are entitled to participate in the Company’s Sharesave scheme.
7 The share options granted to Mr Bell and Mr Corsi who left the Company on 11 January 2006 and 31 January 2006 respectively lapse on those dates.
8 The market price of the ordinary shares covered by these options as at 31 December 2005 was 55.5p. During the financial year the highest and lowest market 
prices were 58.5p and 44p respectively. 
Directors’ remuneration report www.genetix.com
23
Individual remuneration packages for the year ended 31 December 2005
    Salary Compensation
3
 Fees 2005 2004
    £000 £000 £000 £000 £000
Executive directors     
M A Reid    85 – – 85 82
T D Bell    171 88 – 259 165
G S Corsi    57 – – 57 68
Professor J F Burke    100 – – 100 73
Non-executive directors     
J C Morgan    – – 20 20 20
Dr J F Hill    – – 25 25 25
P S Jensen    – – 25 25 25
Aggregate remuneration    413 88 70 571 458
Notes:
1  The annual review of each executive director’s salary takes place on 31 March in accordance with their individual service contracts. 
2 Directors’ fees payable to non-executive directors are reviewed by the Board in each case on the anniversary of a director’s appointment.
3 Compensation paid in accordance with redundancy terms and provisions of service agreement.
This report was approved by the Board of Directors on 1 March 2006 and signed on its behalf by:
S C Hedger
Secretary Genetix Group plc Annual Report & Accounts 2005
24
We have audited the Group and individual Company financial 
statements (the “financial statements”) of Genetix Group plc  
for the year ended 31 December 2005 which comprise the 
consolidated income statement, the consolidated statement of 
recognised income and expense, the consolidated and Company 
reconciliations of movements in equity, the consolidated and 
individual Company balance sheets, the consolidated and 
individual Company cash flow statements, and the related notes 
1 to 29. These financial statements have been prepared under 
the accounting policies set out therein. We have also audited the 
information in the directors’ remuneration report that is described 
as having been audited.
This report is made solely to the Company’s members, as a 
body, in accordance with section 235 of the Companies Act 
1985. Our audit work has been undertaken so that we might 
state to the Company’s members those matters we are 
required to state to them in an auditors’ report and for no 
other purpose. To the fullest extent permitted by law, we do 
not accept or assume responsibility to anyone other than the 
Company and the Company’s members as a body, for our audit 
work, for this report, or for the opinions we have formed.
Respective responsibilities of directors and auditors
The directors’ responsibilities for preparing the annual report, 
the directors’ remuneration report and the financial 
statements in accordance with applicable United Kingdom  
law and International Financial Reporting Standards (IFRS)  
as adopted for use in the European Union are set out in  
the statement of directors’ responsibilities.
Our responsibility is to audit the financial statements and the 
part of the directors’ remuneration report described as having 
been audited in accordance with relevant United Kingdom 
legal and regulatory requirements and International Standards 
on Auditing (UK and Ireland). 
We report to you our opinion as to whether the financial 
statements give a true and fair view in accordance with the 
relevant framework and whether the financial statements and 
the part of the directors’ remuneration report described as having 
been audited have been properly prepared in accordance with 
the Companies Act 1985 and Article 4 of the IAS Regulation.  
We report to you if, in our opinion, the directors’ report is not 
consistent  with the financial statements. We also report to you if 
the Company has not kept proper accounting records, if we have 
not received all the information and explanations we require for 
our audit, or if information specified by law regarding directors’ 
remuneration and transactions with the Company and other 
members of the Group is not disclosed.  
We also report to you if, in our opinion, the Company has not 
complied with any of the four directors’ remuneration disclosure 
requirements specified for our review by the Listing Rules of the 
Financial Services Authority. These comprise the amount of each 
element in the remuneration package and information on share 
options, details of long term incentive schemes, and money 
purchase and defined benefit schemes. We give a statement,  
to the extent possible, of details of any non-compliance.
We review whether the corporate governance statement 
reflects the Company’s compliance with the nine provisions of 
the 2003 FRC Combined Code specified for our review by the 
Listing Rules of the Financial Services Authority, and we report 
if it does not. We are not required to consider whether the 
Board’s statements on internal control cover all risks and 
controls, or form an opinion on the effectiveness of the 
Group’s corporate governance procedures or its risk and 
control procedures.
 
We read the directors’ report and the other information 
contained in the Annual Report including the unaudited part of the 
directors’ remuneration report and we consider the implications 
for our report if we become aware of any apparent misstatements 
or material inconsistencies with the financial statements. 
Basis of audit opinion
We conducted our audit in accordance with International 
Standards on Auditing (UK and Ireland) issued by the Auditing 
Practices Board. An audit includes examination, on a test basis, of 
evidence relevant to the amounts and disclosures in the financial 
statements and the part of the directors’ remuneration report 
described as having been audited. It also includes an assessment 
of the significant estimates and judgements made by the 
directors in the preparation of the financial statements, and of 
whether the accounting policies are appropriate to the Company’s 
circumstances, consistently applied and adequately disclosed.
We planned and performed our audit so as to obtain all the 
information and explanations which we considered necessary in 
order to provide us with sufficient evidence to give reasonable 
assurance that the financial statements and the part of the 
directors’ remuneration report described as having been audited 
are free from material misstatement, whether caused by fraud or 
other irregularity or error. In forming our opinion we also 
evaluated the overall adequacy of the presentation of information 
in the financial statements and the part of the directors’ 
remuneration report described as having been audited
Opinion
In our opinion:
the Group financial statements give a true and fair view, in 
accordance with IFRS as adopted for use in the European 
Union, of the state of the Group’s affairs as at 31 December 
2005 and of its profit for the year then ended;
the individual Company financial statements give a true 
and fair view, in accordance with IFRS as adopted for use in 
the European Union as applied in accordance with the 
requirements of the Companies Act 1985, of the individual 
company’s affairs as at 31 December 2005; and
the financial statements and the part of the directors’ 
remuneration report described as having been audited have 
been properly prepared in accordance with the Companies 
Act 1985 and Article 4 of the IAS Regulation.
Separate opinion in relation to IFRS 
As explained in note 1, the Group in addition to complying with 
its legal obligation to comply with IFRS as adopted for use in the 
European Union, has also complied with the IFRS as issued by the 
International Accounting Standards Board. Accordingly, in  
our opinion the financial statements give a true and fair view, in 
accordance with IFRS, of the state of the Group’s affairs as at  
31 December 2005 and of its profit for the year then ended.
Deloitte & Touche LLP
Chartered Accountants and Registered Auditors
Southampton
1 March 2006
Notes: An audit does not provide assurance on the maintenance and integrity of 
the website, including controls used to achieve this, and in particular on whether 
any changes may have occurred to the financial statements since first published.  
These matters are the responsibility of the directors but no control procedures 
can provide absolute assurance in this area.
Legislation in the United Kingdom governing the preparation and dissemination 
of financial statements differs from legislation in other jurisdictions.
•
•
•
Independent auditors’ report
to the members of Genetix Group plc www.genetix.com
25
	 	 	 	 	 	 	 Total	 Total
	 	 	 	 	 	 	 2005	 2004
	 	 	 	 	 	 Note	 £000	 £000
Continuing operations
Revenue	 	 	 	 	 	 3	 12,123	 12,217
Cost	 of	 sales	 	 	 	 	 	 	 (5,601)	 (6,339)
Gross profit	 	 	 	 	 	 	 6,522	 5,878
Research	 and	 development	 	 	 	 	 	 	 (796)	 (943)
Sales	 and	 administrative	 expenses	 	 	 	 	 	 	 (4,492)	 (4,539)
Total	 administrative	 expenses	 	 	 	 	 	 	 (5,288)	 (5,482)
Operating profit	 	 	 	 	 	 4	 1,234	 396
Interest	 income	 	 	 	 	 	 7	 1,020	 913
Profit before taxation 	 	 	 	 	 2,254	 1,309
Tax	 	 	 	 	 	 8	 (496)	 (100)
Profit for the year 	 	 	 	 	 23	 1,758	 1,209
Attributed	 to	 equity	 holders	 of	 the	 parent	 	 	 	 	 	 	 1,758	 1,209
Earnings per share
Basic	 	 	 	 	 	 10	 2.45p	 1.69p	 Diluted	 	 	 	 	 	 10	 2.45p	 1.69p
Consolidated income statement (IFRS)
for	 the	 year	 ended	 31	 December	 2005 Genetix Group plc Annual Report & Accounts 2005
26
	 	 	 	 	 	 	 2005	 2004
	 	 	 	 	 	 	 £000	 £000
Exchange	 differences	 on	 translation	 of	 foreign	 operations	 	 	 	 	 39	 (23)
Net income/(expense) recognised directly in equity 	 	 	 	 39	 (23)
Profit	 for	 the	 year	 	 	 	 	 	 	 1,758	 1,209
Total recognised income for the year	 	 	 	 	 	 	 1,797	 1,186
Consolidated and Company reconciliations 
of movement in equity (IFRS)
for	 the	 year	 ended	 31	 December	 2005
	 	 	 	 	 Group	 Company
	 	 	 	 	 2005	 2004	 2005	 2004
	 	 	 	 	 £000	 £000	 £000	 £000
Total	 recognised	 income	 and	 expense	 for	 the	 year	 	 	 	 1,797	 1,186	 1,421	 (23)
Effect	 of	 share-based	 payment	 adjustment	 	 	 	 	 46	 47	 46	 47
Equity	 shareholders’	 funds	 brought	 forward	 	 	 	 32,171	 30,938	 56,698	 56,674
Equity shareholders’ funds carried forward 	 	 	 34,014	 32,171	 58,165	 56,698
Consolidated statement of recognised 
income and expense (IFRS) 
for	 the	 year	 ended	 31	 December	 2005 www.genetix.com
27
 Group Company
	 	 	 	 	 2005	 2004	 2005	 2004
	 	 	 	 Note	 £000	 £000	 £000	 £000
Non-current assets
Goodwill	 	 	 	 11	 6,057	 6,057	 –	 –
Other	 intangible	 assets	 	 	 	 12	 741	 426	 –	 –
Property,	 plant	 and	 equipment	 	 	 	 13	 2,223	 2,240	 –	 –
Available-for-sale	 investments	 	 	 	 14	 2	 2	 –	 –
Investments	 in	 subsidiaries	 	 	 	 14	 –	 –	 37,232	 37,232
	 	 	 	 	 9,023	 8,725	 37,232	 37,232
Current assets
Inventories	 	 	 	 15	 1,476	 1,677	 –	 –
Trade	 and	 other	 receivables	 	 	 	 16	 2,546	 2,726	 19	 17
Cash	 and	 cash	 equivalents	 	 	 	 24,27 24,262	 22,153	 21,209	 20,228
	 	 	 	 	 28,284	 26,556	 21,228	 20,245
Total assets	 	 	 	 	 37,307	 35,281	 58,460	 57,477
Current liabilities
Trade	 and	 other	 payables	 	 	 	 17	 (2,111)	 (2,096) (260)	 (725)
Current	 tax	 liabilities	 	 	 	 18	 (461)	 (452)	 (35)	 (54)
Provisions	 	 	 	 19	 (114)	 (152)	 –	 –
	 	 	 	 (2,686)	 (2,700)	 (295)	 (779)
Net current assets	 	 	 	 25,598	 23,856	 20,933	 19,466
Non-current liabilities
Deferred	 service	 income	 	 	 	 20	 (116)	 –	 –	 –
Deferred	 tax	 liabilities	 	 	 	 21	 (491)	 (410)	 –	 –
Total liabilities	 	 	 	 (3,293)	 (3,110)	 (295)	 (779)
Net assets	 	 	 	 34,014	 32,171 58,165 56,698
Equity
Share	 capital	 	 	 	 22	 35,849	 35,849	 35,849	 35,849
Share	 premium	 account	 	 	 	 23	 16,376	 16,376	 16,376	 16,376
Capital	 redemption	 reserve	 	 	 	 23	 2,925	 2,925	 2,925	 2,925
Merger	 reserve	 	 	 	 23	 (29,686)	 (29,686) –	 –
Other	 reserves	 	 	 	 23	 58	 (27)	 105	 59
Retained	 earnings	 	 	 	 23	 8,492	 6,734	 2,910	 1,489
Total equity attributable to equity shareholders	 	 	 	 34,014	 32,171 58,165	 56,698
Approved	 by	 the	 Board	 on	 1	 March	 2006
M A Reid  Professor J F Burke
Director  Director
Consolidated and Company balance 
sheets (IFRS)
at	 31	 December	 2005 Genetix Group plc Annual Report & Accounts 2005
28
	 	 	 	 	 Group	 Company
	 	 	 	 	 2005	 2004	 2005	 2004
	 	 	 	 Note	 £000	 £000	 £000	 £000
Operating activities
Cash	 generated	 by/(used	 in)	 operations	 	 	 	 24	 	 2,303	 (252)	 (1,495)	 (723)
Tax	 refunded	 	 	 	 	 –	 95	 –	 –
Tax	 paid	 	 	 	 	 (409)	 (157)	 (5)	 –
Net cash inflow/(outflow) from operating activities	 	 	 1,894	 (314)	 (1,500)	 (723)
Investing activities
Proceeds	 on	 disposal	 of	 property,	 plant	 and	 equipment		 	 	 51	 27	 –	 –
Purchases	 of	 property,	 plant	 and	 equipment	 	 	 	 (277)	 (345)	 –	 –
Expenditure	 on	 patents	 	 	 	 	 (122)	 (57)	 –	 –
Expenditure	 on	 product	 development	 	 	 	 	 (496)	 (142)	 –	 –
Intra-Group	 dividend	 received	 	 	 	 	 –	 –	 1,500	 –
Interest	 received	 	 	 	 	 1,020	 913	 981	 899
Net cash inflow from investing activities	 	 	 	 176	 396	 2,481	 899
Net increase in cash and cash equivalents 	 	 	 2,070	 82	 981	 176
Cash	 and	 cash	 equivalents	 at	 beginning	 of	 year	 	 	 	 22,153	 22,094	 20,228	 20,052
Effect	 of	 foreign	 exchange	 rate	 changes	 	 	 	 	 39	 (23) 	 –	 –
Cash and cash equivalents at end of year 	 	 	 24,262	 22,153	 21,209	 20,228
Consolidated and Company cash flow 
statements (IFRS)
for	 the	 year	 ended	 31	 December	 2005 www.genetix.com
29
1. Accounting policies
General information
Genetix	 Group	 plc	 is	 a	 company	 incorporated	 in	 the	 United	 Kingdom	 under	 the	 Companies	 Act	 1985.	 The	 address	 of	 the	 registered	 office	 is	 given	 on	 page	 12.	 The	 nature	 of	 the	 Group’s	 operations	 and	 its	 principal	 activities	 are	 set	 out	 on	 page	 13.
Basis of accounting
The	 2005	 financial	 statements	 have	 been	 prepared	 in	 accordance	 with	 International	 Financial	 Reporting	 Standards	 (IFRS)	 for	 the	 first	 time.	 The	 disclosures	 required	 by	 IFRS	 1	 concerning	 the	 transition	 from	 UK	 GAAP	 to	 IFRS	 are	 given	 in	 note	 2.	 The	 financial	 statements	 have	 been	 prepared	 in	 accordance	 with	 IFRS	 adapted	 for	 use	 in	 the	 European	 Union	 and	 therefore	 comply	 with	 Article	 4	 of	 EU	 IAS	 Regulation.	 The	 financial	 statements	 have	 also	 been	 prepared	 under	 the	 historical	 cost	 basis,	 except	 for	 the	 revaluation	 of	 financial	 instruments,	 which	 are	 valued	 at	 fair	 value.	 The	 principal	 accounting	 policies	 adopted	 are	 set	 out	 below.
Basis of consolidation
The	 consolidated	 financial	 statements	 incorporate	 the	 financial	 statements	 of	 the	 Company	 and	 entities	 controlled	 by	 the	 Company	 (its	 subsidiaries)	 made	 up	 to	 31	 December	 each	 year.	 Control	 is	 achieved	 where	 the	 Company	 has	 the	 power	 to	 	 govern	 the	 financial	 and	 operating	 policies	 of	 an	 investee	 entity	 so	 as	 to	 obtain	 benefits	 from	 its	 activities.	 On	 acquisition,	 the	 assets	 and	 liabilities	 and	 contingent	 liabilities	 of	 a	 subsidiary	 are	 measured	 at	 their	 fair	 values	 at	 the	 date	 	 of	 acquisition.	 Any	 excess	 of	 the	 cost	 of	 acquisition	 over	 the	 fair	 values	 of	 the	 identifiable	 net	 assets	 acquired	 is	 recognised	 as	 goodwill.	 Any	 deficiency	 of	 the	 cost	 of	 acquisition	 below	 the	 fair	 values	 of	 the	 identifiable	 net	 assets	 (i.e.	 discount	 on	 acquisition)	 is	 credited	 to	 the	 income	 statement	 in	 the	 period	 of	 acquisition.	 Where	 necessary,	 adjustments	 are	 made	 to	 the	 financial	 statements	 of	 subsidiaries	 to	 bring	 the	 accounting	 policies	 into	 line	 with	 those	 used	 by	 the	 Group.
All	 intra-group	 transactions,	 balances,	 income	 and	 expenses	 are	 eliminated	 on	 consolidation.	 Goodwill
Goodwill	 arising	 on	 consolidation	 represents	 the	 excess	 cost	 of	 acquisition	 over	 the	 Group’s	 interest	 in	 the	 fair	 value	 of	 the	 identifiable	 assets	 and	 liabilities	 of	 a	 subsidiary,	 associate	 or	 jointly	 controlled	 entity	 at	 the	 date	 of	 acquisition.	 Goodwill	 is	 initially	 recognised	 as	 an	 asset	 at	 cost	 and	 is	 subsequently	 measured	 at	 cost	 less	 any	 accumulated	 impairment	 losses.	 Goodwill	 is	 reviewed	 for	 impairment	 at	 least	 annually.	 Any	 impairment	 is	 recognised	 immediately	 in	 the	 income	 statement	 and	 	 is	 not	 subsequently	 reversed.	 Goodwill	 arising	 on	 acquisitions	 before	 the	 date	 of	 transition	 to	 IFRS	 has	 been	 retained	 at	 the	 previous	 UK	 GAAP	 amounts	 subject	 to	 being	 tested	 for	 impairment	 at	 that	 date.	 On	 disposal	 of	 a	 subsidiary,	 associate	 or	 jointly	 controlled	 entity,	 the	 attributable	 amount	 of	 goodwill	 is	 included	 in	 the	 determination	 of	 the	 profit	 or	 loss	 on	 disposal.	 Revenue recognition
Revenue	 is	 measured	 at	 the	 fair	 value	 of	 the	 consideration	 received	 or	 receivable	 and	 represents	 amounts	 receivable	 for	 goods	 and	 services	 provided	 in	 the	 normal	 course	 of	 business,	 net	 of	 discounts,	 VAT	 and	 other	 sales-related	 taxes.
Sales	 of	 instruments	 are	 accounted	 for	 as	 long-term	 contracts	 being	 recognised	 when	 the	 final	 outcome	 can	 be	 assessed	 with	 reasonable	 certainty.	 Profit	 is	 recognised	 on	 long-term	 contracts	 if	 the	 final	 outcome	 can	 be	 assessed	 with	 reasonable	 certainty,	 by	 including	 in	 the	 income	 statement	 revenue	 and	 related	 costs	 as	 contract	 activity	 progresses.	 Revenue	 is	 calculated	 by	 reference	 to	 the	 value	 of	 work	 performed	 to	 date	 as	 a	 proportion	 of	 total	 contract	 value.	 Sales	 of	 consumables	 are	 recognised	 	 on	 delivery	 of	 product,	 and	 service	 contracts	 evenly	 over	 the	 contractual	 period.	 Other income
Interest	 income	 is	 accrued	 on	 a	 time	 basis,	 by	 reference	 to	 the	 principal	 outstanding	 and	 at	 the	 effective	 interest	 rate	 applicable,	 which	 is	 the	 rate	 that	 discounts	 estimated	 future	 cash	 receipts	 through	 the	 expected	 life	 of	 the	 financial	 asset	 to	 that	 asset’s	 net	 carrying	 amount.
Dividend	 income	 from	 investments	 is	 recognised	 when	 the	 shareholders’	 rights	 to	 receive	 payment	 have	 been	 established.
Foreign currencies
Transactions	 in	 currencies	 other	 than	 pounds	 sterling	 are	 recorded	 at	 the	 rates	 of	 exchange	 prevailing	 on	 the	 dates	 of	 the	 transactions.	 At	 each	 balance	 sheet	 date,	 monetary	 assets	 and	 liabilities	 that	 are	 denominated	 in	 foreign	 currencies	 are	 retranslated	 at	 the	 rates	 prevailing	 on	 the	 balance	 sheet	 date.	 Non-monetary	 assets	 and	 liabilities	 carried	 at	 fair	 value	 that	 are	 denominated	 in	 foreign	 currencies	 are	 translated	 at	 the	 rates	 prevailing	 at	 the	 date	 when	 the	 fair	 value	 was	 determined.	 Gains	 and	 losses	 arising	 on	 retranslation	 are	 included	 in	 net	 profit	 or	 loss	 for	 the	 period,	 except	 for	 exchange	 differences	 arising	 on	 non-monetary	 assets	 and	 liabilities	 where	 the	 changes	 in	 fair	 value	 are	 recognised	 directly	 in	 equity.	 In	 order	 to	 hedge	 its	 exposure	 to	 certain	 foreign	 exchange	 risks,	 the	 Group	 enters	 into	 forward	 exchange	 contracts	 (see	 below	 for	 details	 of	 the	 Group’s	 accounting	 policies	 in	 respect	 of	 such	 derivative	 financial	 instruments).	 Notes to the accounts
for	 the	 year	 ended	 31	 December	 2005 Genetix Group plc Annual Report & Accounts 2005
30
1. Accounting policies continued
Foreign currencies continued
On	 consolidation,	 the	 assets	 and	 liabilities	 of	 the	 Group’s	 overseas	 operations	 are	 translated	 at	 exchange	 rates	 prevailing	 on	 the	 balance	 sheet	 date.	 Income	 and	 expense	 items	 are	 translated	 at	 the	 average	 exchange	 rates	 for	 the	 period	 unless	 exchange	 rates	 fluctuate	 significantly.	 Exchange	 differences	 arising,	 if	 any,	 are	 classified	 as	 equity	 and	 transferred	 to	 the	 Group’s	 translation	 reserve.
The	 Group	 has	 elected	 to	 treat	 goodwill	 and	 fair	 value	 adjustments	 arising	 on	 acquisitions	 before	 the	 date	 of	 transition	 to	 IFRS	 	 as	 sterling-denominated	 assets	 and	 liabilities.
Government grants
Government	 grants	 relating	 to	 property,	 plant	 and	 equipment	 are	 treated	 as	 deferred	 income	 and	 released	 to	 the	 income	 statement	 over	 the	 expected	 useful	 lives	 of	 the	 assets	 concerned.	 Other	 grants	 are	 credited	 to	 the	 income	 statement	 as	 the	 related	 expenditure	 is	 incurred.
Operating profit
Operating	 profit	 is	 stated	 after	 charging	 restructuring	 costs	 but	 before	 interest	 income	 and	 finance	 costs.
Retirement benefit costs
The	 Group	 administers	 a	 stakeholder	 retirement	 benefit	 scheme	 for	 its	 UK	 employees	 and	 contributes	 to	 a	 401K	 insurance	 scheme	 for	 its	 US	 employees.	 Payments	 are	 charged	 as	 an	 expense	 as	 they	 fall	 due.
Taxation
The	 tax	 expense	 represents	 the	 sum	 of	 the	 tax	 currently	 payable	 and	 deferred	 tax.
The	 tax	 currently	 payable	 is	 based	 on	 taxable	 profit	 for	 the	 year.	 Taxable	 profit	 differs	 from	 net	 profit	 as	 reported	 in	 the	 income	 statement	 because	 it	 excludes	 items	 of	 income	 or	 expense	 that	 are	 taxable	 or	 deductible	 in	 other	 years	 and	 it	 further	 excludes	 items	 that	 are	 never	 taxable	 or	 deductible.	 The	 Group’s	 liability	 for	 current	 tax	 is	 calculated	 using	 tax	 rates	 that	 have	 been	 enacted	 or	 substantively	 enacted	 by	 the	 balance	 sheet	 date.
Deferred	 tax	 is	 the	 tax	 expected	 to	 be	 payable	 or	 recoverable	 on	 differences	 between	 the	 carrying	 amounts	 of	 assets	 and	 liabilities	 in	 the	 financial	 statements	 and	 corresponding	 tax	 bases	 used	 in	 the	 computation	 of	 taxable	 profit,	 and	 is	 accounted	 for	 using	 the	 balance	 sheet	 liability	 method.	 Deferred	 tax	 liabilities	 are	 generally	 recognised	 for	 all	 taxable	 temporary	 differences	 and	 deferred	 tax	 assets	 are	 recognised	 to	 the	 extent	 that	 it	 is	 probable	 that	 taxable	 profits	 will	 be	 available	 against	 which	 deductible	 temporary	 differences	 can	 be	 utilised.	 Such	 assets	 and	 liabilities	 are	 not	 recognised	 if	 the	 temporary	 difference	 arises	 from	 goodwill	 or	 from	 the	 initial	 recognition	 (other	 than	 in	 a	 business	 combination)	 of	 other	 assets	 and	 liabilities	 in	 a	 transaction	 that	 affects	 neither	 the	 tax	 profit	 nor	 the	 accounting	 profit.
Deferred	 tax	 liabilities	 are	 recognised	 for	 taxable	 temporary	 differences	 arising	 on	 investments	 in	 subsidiaries	 and	 associates,	 and	 interests	 in	 joint	 ventures,	 except	 where	 the	 Group	 is	 able	 to	 control	 the	 reversal	 of	 the	 temporary	 difference	 and	 it	 is	 probable	 that	 the	 temporary	 difference	 will	 not	 reverse	 in	 the	 foreseeable	 future.
The	 carrying	 amount	 of	 deferred	 tax	 assets	 is	 reviewed	 at	 each	 balance	 sheet	 date	 and	 reduced	 to	 the	 extent	 that	 it	 is	 no	 longer	 probable	 that	 sufficient	 taxable	 profits	 will	 be	 available	 to	 allow	 all	 or	 part	 of	 the	 asset	 to	 be	 recovered.
Deferred	 tax	 is	 calculated	 at	 the	 tax	 rates	 that	 are	 expected	 to	 apply	 in	 the	 period	 when	 the	 liability	 is	 settled	 or	 the	 asset	 is	 realised.	 Deferred	 tax	 is	 charged	 or	 credited	 in	 the	 income	 statement,	 except	 when	 it	 relates	 to	 items	 charged	 or	 credited	 directly	 to	 equity,	 in	 which	 case	 the	 deferred	 tax	 is	 also	 dealt	 with	 in	 equity.
Deferred	 tax	 assets	 and	 liabilities	 are	 offset	 when	 there	 is	 a	 legally	 enforceable	 right	 to	 set	 off	 current	 tax	 assets	 against	 current	 tax	 liabilities	 and	 when	 they	 relate	 to	 income	 taxes	 levied	 by	 the	 same	 taxation	 authority	 and	 the	 Group	 intends	 to	 settle	 its	 current	 tax	 assets	 and	 liabilities	 on	 a	 net	 basis.
Notes to the accounts
for	 the	 year	 ended	 31	 December	 2005 www.genetix.com
31
1. Accounting policies continued
Property, plant and equipment
Property,	 plant	 and	 equipment	 is	 stated	 at	 cost	 less	 accumulated	 depreciation	 and	 any	 recognised	 impairment	 loss.	 Depreciation	 is	 charged	 so	 as	 to	 write	 off	 the	 cost	 of	 assets	 over	 their	 estimated	 useful	 lives,	 using	 the	 straight-line	 method,	 	 on	 the	 following	 rates:
Freehold	 buildings	 2%	 per	 annum
Plant	 and	 machinery	 25-50%	 per	 annum
Motor	 vehicles	 25%	 per	 annum
Office	 fixtures	 and	 fittings	 25%	 per	 annum
Freehold	 land	 is	 not	 depreciated.
The	 gain	 or	 loss	 arising	 on	 the	 disposal	 or	 retirement	 of	 an	 asset	 is	 determined	 as	 the	 difference	 between	 the	 sales	 proceeds	 and	 the	 carrying	 amount	 of	 the	 asset	 and	 is	 recognised	 in	 income.	 Internally-generated intangible assets – research and development expenditure
Expenditure	 on	 research	 activities	 is	 recognised	 as	 an	 expense	 in	 the	 period	 in	 which	 it	 is	 incurred.	 Development	 expenditure,	 where	 it	 meets	 certain	 criteria	 (given	 below),	 is	 capitalised	 and	 amortised	 on	 a	 straight-line	 basis	 over	 its	 useful	 life	 which	 is	 estimated	 to	 be	 four	 years.	 Asset	 lives	 are	 subject	 to	 regular	 review	 and	 an	 impairment	 exercise	 carried	 out	 at	 least	 once	 a	 year.	 Where	 no	 internally-generated	 intangible	 asset	 can	 be	 recognised,	 development	 expenditure	 is	 expensed	 in	 the	 period	 in	 which	 it	 is	 incurred.
An	 asset	 is	 recognised	 only	 if	 all	 of	 the	 following	 conditions	 are	 met:
the	 product	 is	 technically	 feasible	 and	 marketable;
the	 company	 has	 adequate	 resources	 to	 complete	 the	 development	 of	 the	 product;
it	 is	 probable	 that	 the	 asset	 created	 will	 generate	 future	 economic	 benefits;	 and
the	 development	 cost	 of	 the	 asset	 can	 be	 measured	 reliably.
Patents and licences
Patents	 and	 licences	 are	 measured	 initially	 at	 cost	 on	 acquisition	 and	 are	 amortised	 in	 equal	 annual	 instalments	 over	 their	 estimated	 useful	 lives	 of	 four	 to	 10	 years.	 Impairment of tangible and intangible assets excluding goodwill
At	 each	 balance	 sheet	 date,	 the	 Group	 reviews	 the	 carrying	 amounts	 of	 its	 tangible	 and	 intangible	 assets	 to	 determine	 whether	 there	 is	 any	 indication	 that	 those	 assets	 have	 suffered	 an	 impairment	 loss.	 If	 any	 such	 indication	 exists,	 the	 recoverable	 amount	 of	 the	 asset	 is	 estimated	 in	 order	 to	 determine	 the	 extent	 of	 the	 impairment	 loss	 (if	 any).	 Where	 the	 asset	 does	 not	 generate	 cash	 flows	 that	 are	 independent	 from	 other	 assets,	 the	 Group	 estimates	 the	 recoverable	 amount	 of	 the	 cash-generating	 unit	 to	 which	 the	 asset	 belongs.	 An	 intangible	 asset	 with	 an	 indefinite	 useful	 life	 is	 tested	 for	 impairment	 annually	 and	 whenever	 there	 is	 an	 indication	 that	 the	 asset	 may	 be	 impaired.
Recoverable	 amount	 is	 the	 higher	 of	 fair	 value	 less	 costs	 to	 sell	 and	 value	 in	 use.	 In	 assessing	 value	 in	 use,	 the	 estimated	 future	 cash	 flows	 are	 discounted	 to	 their	 present	 value	 using	 a	 pre-tax	 discount	 rate	 that	 reflects	 current	 market	 assessments	 of	 the	 time	 value	 of	 money	 and	 the	 risks	 specific	 to	 the	 asset	 for	 which	 the	 estimates	 of	 future	 cash	 flows	 have	 not	 been	 adjusted.
If	 the	 recoverable	 amount	 of	 an	 asset	 (or	 cash-generating	 unit)	 is	 estimated	 to	 be	 less	 than	 its	 carrying	 amount,	 the	 carrying	 amount	 of	 the	 asset	 (cash-generating	 unit)	 is	 reduced	 to	 its	 recoverable	 amount.	 An	 impairment	 loss	 is	 recognised	 as	 an	 	 expense	 immediately,	 unless	 the	 relevant	 asset	 is	 carried	 at	 a	 revalued	 amount,	 in	 which	 case	 the	 impairment	 loss	 is	 treated	 	 as	 a	 revaluation	 decrease.
Where	 an	 impairment	 loss	 subsequently	 reverses,	 the	 carrying	 amount	 of	 the	 asset	 (cash-generating	 unit)	 is	 increased	 to	 the	 revised	 estimate	 of	 its	 recoverable	 amount,	 but	 so	 that	 the	 increased	 carrying	 amount	 does	 not	 exceed	 the	 carrying	 amount	 	 that	 would	 have	 been	 determined	 had	 no	 impairment	 loss	 been	 recognised	 for	 the	 asset	 (cash-generating	 unit)	 in	 prior	 years.	 	 A	 reversal	 of	 an	 impairment	 loss	 is	 recognised	 as	 income	 immediately,	 unless	 the	 relevant	 asset	 is	 carried	 at	 a	 revalued	 amount,	 	 in	 which	 case	 the	 reversal	 of	 the	 impairment	 loss	 is	 treated	 as	 a	 revaluation	 increase.
•
•
•
• Genetix Group plc Annual Report & Accounts 2005
32
1. Accounting policies continued
Investments in subsidiaries
Investments	 in	 subsidiaries	 are	 stated	 at	 cost	 less,	 where	 appropriate,	 provisions	 for	 impairment.
Investments – Available-for-sale
Available-for-sale	 investments	 are	 measured	 at	 subsequent	 reporting	 dates	 at	 fair	 value.	 Gains	 and	 losses	 arising	 from	 changes	 	 in	 fair	 value	 are	 recognised	 directly	 in	 equity,	 until	 the	 security	 is	 disposed	 of	 or	 is	 determined	 to	 be	 impaired,	 at	 which	 time	 	 the	 cumulative	 gain	 or	 loss	 previously	 recognised	 in	 equity	 is	 included	 in	 the	 profit	 or	 loss	 for	 the	 period.	 Impairment	 losses	 recognised	 in	 profit	 or	 loss	 for	 equity	 investments	 classified	 as	 available-for-sale	 are	 not	 subsequently	 reversed	 through	 profit	 	 or	 loss.
Inventories
Inventories	 are	 stated	 at	 the	 lower	 of	 cost	 and	 net	 realisable	 value.	 Cost	 comprises	 direct	 materials,	 and	 where	 applicable,	 direct	 labour	 costs	 and	 those	 overheads	 that	 have	 been	 incurred	 in	 bringing	 the	 inventories	 to	 their	 present	 location	 and	 condition.	 Cost	 is	 calculated	 using	 the	 first	 in	 first	 out	 (FIFO	 basis).	 Net	 realisable	 value	 represents	 the	 estimated	 selling	 price	 less	 all	 estimated	 costs	 of	 completion	 and	 costs	 to	 be	 incurred	 in	 marketing,	 selling	 and	 distribution.	 Financial instruments
Financial	 assets	 and	 financial	 liabilities	 are	 recognised	 on	 the	 Group’s	 balance	 sheet	 when	 the	 Group	 becomes	 a	 party	 to	 the	 contractual	 provisions	 of	 the	 instrument.
Trade receivables
Trade	 receivables	 do	 not	 carry	 any	 interest	 and	 are	 stated	 at	 their	 nominal	 value	 as	 reduced	 by	 appropriate	 allowances	 for	 estimated	 irrecoverable	 amounts.	 Cash and cash equivalants
Cash	 and	 cash	 equivalents	 comprises	 cash	 in	 hand	 and	 demand	 deposits,	 and	 other	 short-term	 highly	 liquid	 investments	 	 that	 are	 readily	 convertible	 to	 a	 known	 amount	 of	 cash	 and	 are	 subject	 to	 an	 insignificant	 risk	 of	 changes	 in	 value.
Financial liability and equity
Financial	 liabilities	 and	 equity	 instruments	 are	 classified	 according	 to	 the	 substance	 of	 the	 contractual	 arrangements	 entered	 	 into.	 An	 equity	 instrument	 is	 any	 contract	 that	 evidences	 a	 residual	 interest	 in	 the	 assets	 of	 the	 Group	 after	 deducting	 all	 of	 	 its	 liabilities.
Trade payables
Trade	 payables	 are	 not	 interest-bearing	 and	 are	 stated	 at	 their	 nominal	 value.
Equity instruments
Equity	 instruments	 issued	 by	 the	 Company	 are	 recorded	 at	 the	 proceeds	 received,	 net	 of	 direct	 issue	 costs.
Derivative financial instruments 
The	 Group	 has	 applied	 the	 requirements	 of	 IAS	 32	 Financial	 Instruments:	 Disclosure	 and	 Presentation	 as	 of	 1	 January	 2004.	 	 The	 Group’s	 activities	 expose	 it	 primarily	 to	 the	 financial	 risks	 of	 changes	 in	 foreign	 currency	 exchange	 rates.	 The	 Group	 uses	 foreign	 exchange	 forward	 contracts	 to	 hedge	 these	 exposures.	 The	 Group	 does	 not	 use	 derivative	 financial	 instruments	 for	 speculative	 purposes.
The	 use	 of	 financial	 derivatives	 is	 governed	 by	 the	 Group’s	 policies	 approved	 by	 the	 Board	 of	 directors,	 which	 provide	 written	 principles	 on	 the	 use	 of	 financial	 derivatives.	 Changes	 in	 the	 fair	 value	 of	 derivative	 financial	 instruments	 are	 recognised	 in	 the	 income	 statement	 as	 they	 arise.	 Provisions
Provision	 is	 made	 for	 the	 anticipated	 cost	 of	 expected	 claims	 against	 product	 warranties	 on	 products	 sold.	 Provisions	 are	 recognised	 when	 the	 Group	 has	 a	 present	 obligation	 as	 a	 result	 of	 a	 past	 event,	 and	 it	 is	 probable	 that	 the	 Group	 will	 	 be	 required	 to	 settle	 that	 obligation.
Share-based payments
The	 Group	 has	 applied	 the	 requirements	 of	 IFRS	 2	 Share-based	 Payments.	 In	 accordance	 with	 the	 transitional	 provisions,	 	 IFRS	 2	 has	 been	 applied	 to	 all	 grants	 of	 equity	 instruments	 after	 7	 November	 2002	 that	 were	 unvested	 as	 of	 1	 January	 2004.
The	 Group	 issues	 equity-settled	 share-based	 payments	 to	 certain	 employees.	 Equity-settled	 share-based	 payments	 are	 measured	 at	 fair	 value	 at	 the	 date	 of	 grant.	 The	 fair	 value	 determined	 at	 the	 grant	 date	 of	 the	 equity-settled	 share-based	 payments	 is	 expensed	 on	 a	 straight-line	 basis	 over	 the	 vesting	 period,	 based	 on	 the	 Group’s	 estimate	 of	 shares	 that	 will	 eventually	 vest.	 	 Fair	 value	 is	 measured	 by	 use	 of	 the	 Black-Scholes	 model.
Notes to the accounts
for	 the	 year	 ended	 31	 December	 2005 www.genetix.com
33
2. Explanation of transition to IFRS
This	 is	 the	 first	 year	 the	 Company	 has	 presented	 its	 financial	 statements	 under	 IFRS.	 The	 following	 disclosures	 are	 required	 in	 the	 year	 of	 transition.	 The	 last	 financial	 statements	 under	 UK	 GAAP	 were	 for	 the	 year	 ended	 31	 December	 2004	 and	 the	 date	 of	 transition	 to	 IFRS,	 was	 therefore	 1	 January	 2004.	 The	 Group	 has	 applied	 IFRS	 1	 “First	 Time	 Adoption	 of	 International	 Financial	 Reporting	 Standards”	 as	 a	 starting	 point	 for	 reporting	 under	 IFRS.	 The	 comparative	 information	 has	 been	 restated	 to	 reflect	 the	 Group’s	 adoption	 of	 IFRS	 except	 where	 otherwise	 required	 or	 permitted	 by	 IFRS	 1.
IFRS	 1	 requires	 an	 entity	 to	 comply	 with	 each	 IFRS	 and	 IAS	 effective	 at	 the	 reporting	 date	 for	 its	 first	 financial	 statements	 prepared	 under	 IFRS.	 As	 a	 general	 rule,	 IFRS	 1	 requires	 such	 standards	 to	 be	 applied	 retrospectively.	 However,	 the	 standard	 allows	 several	 optional	 exemptions	 from	 full	 retrospective	 application.	 The	 Group	 has	 elected	 to	 take	 advantage	 of	 the	 following	 exemptions:
business	 combinations	 made	 prior	 to	 1	 January	 2004	 will	 not	 be	 accounted	 for	 under	 IFRS	 3	 “Business	 Combinations”	 and	 as	 such	 the	 value	 of	 goodwill	 in	 the	 balance	 sheet	 at	 that	 date	 will	 be	 the	 same	 amount	 under	 IFRS	 as	 that	 recorded	 in	 the	 UK	 GAAP	 financial	 statements,	 subject	 to	 the	 completion	 of	 an	 annual	 impairment	 review;	 and
the	 provisions	 of	 IFRS	 2	 “Share-based	 Payment”	 will	 be	 applied	 to	 share	 options	 issued	 after	 7	 November	 2002.
The	 reconciliations	 of	 equity	 for	 the	 Group	 and	 the	 Company	 at	 1	 January	 2004	 (date	 of	 transition	 to	 IFRS)	 and	 at	 31	 December	 2004	 (date	 of	 last	 UK	 GAAP	 financial	 statements)	 and	 the	 reconciliation	 of	 profit	 for	 the	 Group	 for	 2004,	 as	 required	 by	 IFRS	 1,	 are	 given	 below.	 References	 to	 UK	 GAAP	 for	 the	 year	 ended	 31	 December	 2004	 are	 to	 the	 Group’s	 policies	 as	 applied	 in	 its	 financial	 statements	 for	 the	 year	 ended	 31	 December	 2004.	 Reconciliation of equity for the Group as at 1 January 2004 (date of transition to IFRS) and 31 December 2004
	 As	 at	 1	 January	 2004	 As	 at	 31	 December	 2004
	 	 	 Effect 	 of	 	 	 	 	 Effect 	 of	 	 	 	 transition	 	 	 	 transition	 	 	 UK 	 GAAP	 to 	 IFRS	 IFRS	 	 UK 	 GAAP	 to 	 IFRS	 IFRS
	 Note	 £000	 £000	 £000 Note	 £000	 £000	 £000
Non-current assets
Goodwill	 a	 6,057	 –	 6,057	 a	 5,695	 362	 6,057
Other	 intangible	 assets	 b	 363	 –	 363	 b	 294	 132	 426
Property,	 plant	 and	 equipment	 	 2,181	 –	 2,181	 	 2,240	 –	 2,240
Available-for-sale	 investments	 	 2	 –	 2	 	 2	 –	 2
	 	 8,603	 –	 8,603	 	 8,231	 494	 8,725
Current assets
Inventories	 	 1,679	 –	 1,679	 	 1,677	 –	 1,677
Trade	 and	 other	 receivables	 c	 1,974	 162	 2,136	 c	 2,557	 169	 2,726
Cash	 and	 cash	 equivalents	 	 22,094	 –	 22,094	 	 22,153	 –	 22,153
	 	 25,747	 162	 25,909	 	 26,387	 169	 26,556
Total assets	 	 34,350	 162	 34,512	 	 34,618	 663	 35,281
Current liabilities
Trade	 and	 other	 payables	 	 (2,625)	 –	 (2,625) 	 (2,096)	 –	 (2,096)
Current	 tax	 liabilities	 	 (469)	 –	 (469) 	 (452)	 –	 (452)
Provisions	 	 (124)	 –	 (124) 	 (152)	 –	 (152)
	 	 (3,218)	 –	 (3,218) 	 (2,700)	 –	 (2,700)
Net current assets	 	 22,529	 162	 22,691 	 23,687	 169	 23,856
Non-current liabilities
Deferred	 tax	 liabilities	 d	 (307)	 (49)	 (356) d	 (319)	 (91)	 (410)
Total liabilities	 	 (3,525)	 (49)	 (3,574) 	 (3,019)	 (91)	 (3,110)
Net assets	 	 30,825	 113	 30,938	 	 31,599	 572	 32,171
Equity
Share	 capital	 	 35,849	 –	 35,849	 	 35,849	 –	 35,849
Share	 premium	 account	 	 16,376	 –	 16,376	 	 16,376	 –	 16,376
Capital	 redemption	 reserve	 	 2,925	 –	 2,925 	 2,925	 –	 2,925
Merger	 reserve	 	 (29,686)	 –	 (29,686)	 	 (29,686)	 –	 (29,686)
Other	 reserves	 e	 (63)	 12	 (51) e	 (86)	 59	 (27)
Retained	 earnings	 c,d,e	 5,424	 101	 5,525	 a,b,c,d,e	 6,221	 513	 6,734
Total equity	 	 30,825	 113	 30,938	 	 31,599	 572	 32,171
•
• Genetix Group plc Annual Report & Accounts 2005
34
2. Explanation of transition to IFRS continued
Reconciliation of profit for the Group for the year ended 31 December 2004
	 	 	 	 	 	 	 Effect 	 of	 	 	 	 	 	 	 	 transition	 	 	 	 	 	 	 UK 	 GAAP	 to 	 IFRS	 IFRS
	 	 	 	 	 Note	 £000	 £000	 £000
Continuing operations 
Revenue	 	 	 	 	 	 12,217	 – 12,217
Cost	 of	 sales	 	 	 	 	 c	 (6,346)	 7 	 (6,339)
Gross profit	 	 	 	 	 	 5,871	 7 	 5,878
Research	 and	 development	 	 	 	 	 b	 (1,075)	 132 	 (943)
Sales	 and	 administrative	 expenses	 	 	 	 	 a,e	 (4,854)	 315 	 (4,539)
Total	 administrative	 expenses	 	 	 	 	 	 (5,929)	 447 	 (5,482)
Operating (loss)/profit	 	 	 	 	 	 (58)	 454 	 396
Interest	 income	 	 	 	 	 	 913	 – 	 913
Profit before taxation 	 	 	 	 	 855	 454 	 1,309
Tax	 	 	 	 	 d	 (58)	 (42) 	 (100)
Profit for the year	 	 	 	 	 	 797	 412 	 1,209
a. IAS 38 – Goodwill 
IAS	 38	 requires	 goodwill	 to	 be	 frozen	 as	 at	 the	 date	 of	 transition	 to	 IFRS,	 1	 January	 2004,	 and	 to	 be	 subject	 to	 review	 for	 impairment	 rather	 than	 regular	 amortisation.	 The	 previously	 amortised	 amount	 for	 the	 year	 ended	 31	 December	 2004	 of	 £362,000	 has	 been	 reversed	 in	 the	 transition	 to	 IFRS	 in	 the	 income	 statement.	 The	 effect	 of	 the	 transition	 on	 the	 balance	 	 sheet	 is	 £362,000.
b. IAS 38 – Intangible assets
IAS	 38	 requires	 the	 Group	 to	 capitalise	 and	 amortise	 those	 development	 costs	 which	 comply	 with	 the	 guidelines	 laid	 out	 in	 	 IAS	 38.	 The	 effect	 of	 the	 transition	 to	 IFRS	 has	 been	 in	 2004	 to	 reverse	 out	 those	 development	 costs,	 which	 comply	 and	 had	 previously	 been	 expensed	 to	 the	 income	 statement,	 and	 then	 to	 capitalise	 them	 on	 the	 balance	 sheet	 and	 amortise	 them	 over	 	 a	 period	 of	 four	 years,	 which	 the	 directors	 consider	 to	 be	 the	 useful	 life.	 The	 effect	 of	 the	 transition	 on	 the	 balance	 sheet	 and	 income	 statement	 after	 accounting	 for	 amortisation	 at	 31	 December	 2004	 is	 £132,000.
c. IAS 32 and 39 – Financial instruments
The	 Group	 has	 applied	 IAS	 32	 and	 39	 from	 1	 January	 2004.	 The	 Group	 uses	 forward	 exchange	 contracts	 to	 hedge	 currency	 transaction	 exposures.	 These	 contracts	 do	 not	 qualify	 for	 hedge	 accounting	 under	 IFRS.	 The	 fair	 value	 movements	 for	 these	 derivatives	 have	 been	 accounted	 for	 through	 the	 income	 statement.	 The	 effect	 of	 the	 transition	 on	 the	 income	 statement	 	 for	 the	 year	 ended	 31	 December	 2004	 is	 a	 credit	 of	 £7,000.	 The	 effect	 of	 the	 transition	 on	 the	 opening	 balance	 sheet	 as	 at	 	 1	 January	 2004	 and	 the	 balance	 sheet	 as	 at	 31	 December	 2004	 is	 £162,000	 and	 £169,000	 respectively.
d. IAS 12 – Income taxes
Under	 IAS	 12,	 deferred	 tax	 liabilities	 are	 recognised	 for	 all	 taxable	 temporary	 differences.	 With	 the	 transition	 from	 UK	 GAAP	 to	 IFRS,	 further	 taxable	 temporary	 taxable	 differences	 have	 been	 identified	 in	 respect	 of	 the	 capitalisation	 of	 development	 costs	 and	 the	 fair	 valuing	 of	 derivative	 financial	 instruments.	 The	 effect	 on	 the	 balance	 sheet	 as	 at	 1	 January	 2004	 and	 31	 December	 2004	 has	 been	 to	 increase	 the	 deferred	 tax	 liability	 by	 £49,000	 and	 £91,000	 respectively.	 The	 effect	 on	 the	 income	 statement	 for	 the	 year	 ended	 31	 December	 2004	 is	 a	 charge	 of	 £42,000.	 e. IFRS 2 – Share-based payments
IFRS	 2	 is	 applied	 from	 1	 January	 2004.	 Share	 options	 granted	 after	 7	 November	 2002	 that	 were	 unvested	 as	 of	 1	 January	 2004	 are	 measured	 at	 the	 fair	 value	 of	 the	 equity	 instruments	 granted.	 The	 fair	 value	 of	 these	 equity	 instruments	 is	 measured	 at	 	 grant	 date	 and	 is	 recognised	 over	 the	 vesting	 period,	 adjusted	 to	 reflect	 actual	 and	 expected	 levels	 of	 vesting.	 The	 fair	 value	 	 is	 expensed	 on	 a	 straight-line	 basis.	 The	 effect	 on	 the	 income	 statement	 for	 the	 year	 ended	 31	 December	 2004	 is	 a	 charge	 	 of	 £47,000.	 The	 effect	 on	 the	 Group	 and	 Company	 balance	 sheets	 as	 at	 1	 January	 2004	 and	 31	 December	 2004	 is	 an	 increase	 	 in	 equity	 of	 £12,000	 and	 £59,000	 respectively.	 Adjustments to cash flow statement
Apart	 from	 changes	 in	 format,	 the	 main	 changes	 in	 presentation	 relate	 to	 the	 capitalisation	 of	 R&D	 costs	 which	 increases	 cash	 from	 operations,	 offset	 by	 an	 increase	 in	 expenditure	 on	 product	 development	 (“investing	 activity”),	 and	 the	 inclusion	 of	 derivative	 gains	 in	 cash	 from	 operating	 activities.
Notes to the accounts
for	 the	 year	 ended	 31	 December	 2005 www.genetix.com
35
2. Explanation of transition to IFRS continued
Reconciliation of equity for the Company as at 1 January 2004 (date of transition to IFRS) and 31 December 2004
	 As	 at	 1	 January	 2004	 As	 at	 31	 December	 2004
	 	 	 	 Effect 	 of	 	 	 Effect 	 of	 	 	 	 	 transition	 	 	 transition	 	 	 UK	 GAAP	 to 	 IFRS	 IFRS UK	 GAAP to	 IFRS IFRS
	 	 Note £000	 £000	 £000 £000 £000 £000
Non-current assets
Investments	 in	 subsidiaries	 	 	 37,232	 – 	 37,232 37,232	 – 	 37,232
	 	 	 37,232	 – 	 37,232 37,232	 – 	 37,232
Current assets
Trade	 and	 other	 receivables	 	 	 23	 – 	 23 17	 – 	 17
Cash	 and	 cash	 equivalents	 	 	 20,052	 – 	 20,052 20,228	 – 	 20,228
	 	 	 20,075	 – 	 20,075 20,245	 – 	 20,245
Total assets	 	 	 57,307	 – 	 57,307 57,477	 – 	 57,477
Current liabilities
Trade	 and	 other	 payables	 	 	 (599)	 – 	 (599) (725)	 – 	 (725)
Current	 tax	 liabilities	 	 	 (34)	 – 	 (34) (54)	 – 	 (54)
	 	 	 (633)	 – 	 (633) (779)	 – 	 (779)
Net current assets	 	 	 19,442	 – 	 19,442 19,466	 – 	 19,466
Net assets	 	 	 56,674	 – 	 56,674 56,698	 – 	 56,698
Equity
Share	 capital	 	 	 35,849	 – 	 35,849 35,849	 –	 35,849
Share	 premium	 account	 	 	 16,376	 – 	 16,376 16,376	 – 	 16,376
Capital	 redemption	 reserve	 	 	 2,925	 – 	 2,925 2,925	 – 	 2,925
Other	 reserves	 	 e	 –	 12 	 12	 –	 59 	 59
Retained	 earnings	 	 e	 1,524	 (12) 	 1,512	 1,548	 (59) 	 1,489
Total equity	 	 	 56,674	 – 	 56,674	 56,698	 – 	 56,698 Genetix Group plc Annual Report & Accounts 2005
36
3.Revenue
The	 revenue	 recognised	 during	 the	 year	 arising	 from	 the	 sale	 of	 goods	 was	 £10.9m	 (2004:	 £11.0m)	 and	 revenue	 arising	 from	 the	 rendering	 of	 services	 was	 £1.2	 million	 (2004:	 £1.2	 million).
The	 Group	 operates	 only	 one	 class	 of	 business,	 namely	 the	 provision	 of	 instrumentation,	 consumables	 and	 services	 for	 cell	 biology,	 proteomic	 and	 genomic	 research.	 The	 manufacturing	 operations,	 workforce	 and	 associated	 costs	 are	 fully	 integrated,	 and	 represent	 a	 single	 business	 line.	 The	 Group	 sells	 its	 products	 to	 customers	 in	 the	 UK,	 North	 America,	 Europe	 and	 the	 rest	 of	 the	 world,	 but	 all	 manufacturing	 operations	 are	 fully	 integrated	 and	 are	 located	 in	 the	 UK.	 Accordingly,	 all	 the	 Group’s	 assets,	 liabilities,	 capital	 additions	 and	 depreciation	 relate	 to	 a	 single	 business	 segment.
Within	 our	 single	 business	 segment	 we	 do	 identify	 our	 turnover	 from	 each	 part	 of	 the	 business,	 as	 follows:
	 	 	 	 	 	 	 	 2005
Group	 	 	 	 	 	 	 	 £000
By geographic destination
UK	 	 	 	 	 	 	 	 1,303
Rest	 of	 Europe	 	 	 	 	 	 	 	 2,556
North	 America	 	 	 	 	 	 	 	 6,288
Rest	 of	 World	 	 	 	 	 	 	 	 1,976
	 	 	 	 	 	 	 	 12,123
	 	 	 	 	 	 	 	 2005
Group	 	 	 	 	 	 	 	 £000
By type
Instrumentation	 	 	 	 	 	 	 	 9,319
Consumables	 	 	 	 	 	 	 	 2,804
        12,123
4. Operating profit
	 	 	 	 	 	 	 2005	 2004
Group	 	 	 	 	 	 	 £000	 £000
Operating profit is stated after charging/(crediting):
Depreciation	 of	 property,	 plant	 and	 equipment	 	 	 	 	 	 251	 260
Amortisation	 of	 intangible	 assets	 	 	 	 	 	 	 199	 136
Impairment	 of	 intangible	 assets	 	 	 	 	 	 	 104	 –
Gain	 on	 disposal	 of	 property,	 plant	 and	 equipment	 	 	 	 	 	 (2)	 (4)
Cost	 of	 inventories	 recognised	 as	 expense	 	 	 	 	 	 	 3,527	 4,149
Auditors’	 remuneration:
	 Audit services
	 	 Statutory	 audit	 	 	 	 	 	 	 33	 27
	 	 Audit-related	 regulatory	 reporting	 	 	 	 	 	 	 17	 11
	 Tax services
	 	 Compliance	 services	 	 	 	 	 	 	 7	 9
	 	 Advisory	 services	 	 	 	 	 	 	 8	 22
Research	 and	 development	 (including	 salaries)	 before	 capitalisation	 of	 development	 costs	 	 	 1,229	 1,500
Grant	 recoveries	 	 	 	 	 	 	 (7)	 (425)
Exchange	 gain	 on	 foreign	 currency	 transactions	 	 	 	 	 	 (124)	 (133)
Auditors’	 remuneration	 paid	 by	 the	 Company	 in	 respect	 of	 services	 as	 auditors	 was	 £35,000	 (2004:	 £21,000).
Notes to the accounts
for	 the	 year	 ended	 31	 December	 2005 www.genetix.com
37
5. Employee costs and numbers
Group Company
	 	 	 	 	 2005	 2004	 2005	 2004
	 	 	 	 	 £000	 £000	 £000	 £000
Costs (including directors)
Wages	 and	 salaries	 	 	 	 	 3,695	 3,984	 550 575
Social	 security	 costs	 	 	 	 	 403	 422	 65 68
Pension	 costs	 	 	 	 	 20	 17	 – –
	 	 	 	 4,118	 4,423	 	 615 643
Average number employed
Sales	 and	 marketing	 	 	 	 	 25	 30	 –	 –
Research	 and	 development	 	 	 	 	 25	 23	 –	 –
Production	 and	 technical	 support	 	 	 	 	 31 33	 –	 –
Administration	 	 	 	 	 16	 16	 8	 8
Laboratory	 	 	 	 	 3	 6	 –	 –
	 	 	 	 	 100	 108	 8	 8
6. Directors’ remuneration
The	 tables	 relating	 to	 directors’	 remuneration	 and	 share	 options	 are	 included	 in	 the	 audited	 part	 of	 the	 directors’	 remuneration	 report	 on	 pages	 22	 and	 23.
7. Interest income
	 	 	 	 	 	 	 2005	 2004
Group	 	 	 	 	 	 	 £000	 £000
Interest income	 	 	 	 	 	 	 1,020	 913
8. Tax
	 	 	 	 	 	 	 2005	 2004
Group	 	 	 	 	 	 	 £000	 £000
Current	 tax	 	 	 	 	 	 	 415	 46
Deferred	 tax	 (note	 21)	 	 	 	 	 	 	 81	 54
Total tax charge	 	 	 	 	 	 	 496	 100
Corporation	 tax	 is	 calculated	 at	 30%	 (2004:	 30%)	 of	 the	 estimated	 assessable	 profit	 for	 the	 year.	 Taxation	 for	 other	 jurisdictions	 is	 calculated	 at	 the	 rates	 prevailing	 in	 the	 respective	 jurisdictions.
The	 applicable	 tax	 rate	 of	 30%	 (2004:	 30%)	 can	 be	 reconciled	 to	 the	 effective	 tax	 rate	 as	 follows:
	 	 	 	 	 	 	 2005	 2004
	 	 	 	 	 	 	 %	 %
Applicable	 tax	 rate	 	 	 	 	 	 	 30	 30
Tax	 effect	 of	 expenses	 that	 are	 not	 deductible	 	 	 	 	 	 1	 2
Tax	 effect	 of	 research	 and	 development	 tax	 relief	 	 	 	 	 	 (8)	 (11)
Prior	 year	 adjustments	 	 	 	 	 	 	 (1)	 (13)
Effective tax rate for the year	 	 	 	 	 	 	 22	 8 Genetix Group plc Annual Report & Accounts 2005
38
9. Profit for year attributable to Genetix Group plc
As	 permitted	 by	 section	 230	 of	 the	 Companies	 Act	 1985,	 the	 profit	 and	 loss	 of	 the	 parent	 Company	 is	 not	 individually	 	 presented	 as	 part	 of	 these	 accounts.	 The	 parent	 Company’s	 profit	 for	 the	 year	 ended	 31	 December	 2005	 was	 £1,421,000	 	 (2004:	 £23,000	 loss).
10. Earnings per share from continuing operations
The	 calculation	 of	 the	 basic	 and	 diluted	 earnings	 per	 share	 is	 based	 on	 the	 following	 data:
	 	 	 	 	 	 	 2005	 2004
Group	 	 	 	 	 	 	 £000	 £000
Earnings
Earnings	 for	 the	 purpose	 of	 basic	 and	 diluted	 earnings	 per	 share	 being	 	 net	 profit	 attributable	 to	 equity	 shareholders	 of	 the	 parent	 	 	 	 1,758	 1,209
	 	 	 	 	 	 	 No. 000	 No. 	 000
Number of shares
Weighted	 average	 number	 of	 ordinary	 shares	 for	 the	 purpose	 of	 basic	 earnings	 per	 share	 	 	 71,699	 71,699
Effect	 of	 dilutive	 potential	 ordinary	 shares:
Share	 options	 	 	 	 	 	 	 11	 31
Weighted	 average	 number	 of	 ordinary	 shares	 for	 the	 purpose	 of	 diluted	 earnings	 per	 share	 	 71,710	 71,730
	 	 	 	 	 	 	 Pence	 Pence
Earnings per share
Basic	 earnings	 per	 share	 	 	 	 	 	 	 2.45	 1.69
Diluted	 earnings	 per	 share	 	 	 	 	 	 	 2.45	 1.69
11. Goodwill
	 	 	 	 	 	 	 	 Total
Group	 	 	 	 	 	 	 	 £000
Cost and carrying amount
At	 1	 January	 2004,	 1	 January	 2005,	 31	 December	 2005	 	 	 	 	 	 6,057
Goodwill	 acquired	 in	 a	 business	 combination	 is	 allocated,	 at	 acquisition,	 to	 the	 cash	 generating	 unit	 (CGU)	 that	 is	 expected	 to	 benefit	 from	 that	 business	 combination.
The	 Group	 tests	 goodwill	 annually	 for	 impairment	 or	 more	 frequently	 if	 there	 are	 indications	 that	 goodwill	 might	 be	 impaired.
The	 recoverable	 amount	 of	 the	 CGU	 is	 determined	 from	 value	 in	 use	 calculations.	 The	 key	 assumptions	 for	 the	 value	 in	 use	 calculations	 are	 those	 regarding	 the	 discount	 rates,	 growth	 rates	 and	 expected	 changes	 to	 selling	 prices	 and	 direct	 costs	 during	 the	 period.	 Management	 estimates	 discount	 rates	 using	 pre-tax	 rates	 that	 reflect	 current	 market	 assessments	 of	 the	 time	 value	 of	 money	 and	 the	 risks	 specific	 to	 the	 CGU.	 The	 growth	 rates	 are	 based	 on	 industry	 growth	 forecasts.	 Changes	 in	 selling	 prices	 and	 direct	 costs	 are	 based	 on	 past	 practices	 and	 expectations	 of	 future	 changes	 in	 the	 market.
The	 Group	 prepares	 cash	 flow	 forecasts	 derived	 from	 the	 most	 recent	 financial	 budgets	 approved	 by	 management	 for	 the	 next	 five	 years	 and	 extrapolates	 cash	 flows	 for	 the	 following	 five	 years	 based	 on	 an	 estimated	 growth	 rate	 of	 2.5%.	 This	 rate	 does	 not	 exceed	 the	 average	 long-term	 growth	 rate	 for	 the	 relevant	 markets.
The	 rate	 used	 to	 discount	 the	 forecast	 cash	 flow	 is	 9%	 for	 the	 first	 10	 years	 and	 10%	 thereafter.
Notes to the accounts
for	 the	 year	 ended	 31	 December	 2005 www.genetix.com
39
12. Other intangible assets
	 	 	 	 	 	 Patents 	 and	 Development
	 	 	 	 	 	 licences	 expenditure	 Total
Group	 	 	 	 	 	 £000	 £000	 £000
Cost
At	 1	 January	 2004	 	 	 	 	 	 559	 – 	 559
Additions	 	 	 	 	 	 57	 142 	 199
At	 1	 January	 2005	 	 	 	 	 	 616	 142	 758
Additions	 	 	 	 	 	 122	 496	 618
At 31 December 2005      738 638 1,376
Amortisation
At	 1	 January	 2004	 	 	 	 	 	 196	 – 	 196
Charge	 for	 the	 year	 	 	 	 	 	 126	 10 	 136
Impairment	 losses	 for	 the	 year	 	 	 	 	 	 –	 – 	 –
At	 1	 January	 2005	 	 	 	 	 	 322	 10	 332
Charge	 for	 the	 year	 	 	 	 	 	 138	 61	 199
Impairment	 losses	 for	 the	 year	 	 	 	 	 	 104	 –	 104
At 31 December 2005      564 71 635
Carrying amount
At 31 December 2005      174 567 741
At	 31	 December	 2004	 	 	 	 	 	 294	 132	 426
13. Property, plant and equipment
	 	 	 	 Freehold	 	 	 Office
	 	 	 	 land 	 and	 Plant 	 and	 Motor	 fixtures 	 and
	 	 	 	 buildings	 machinery	 vehicles	 fittings	 Total
Group	 	 	 	 £000	 £000	 £000	 £000	 £000
Cost
At	 January	 2004	 	 	 	 2,025	 788	 82	 261 	 3,156
Additions	 	 	 	 –	 306	 –	 39 	 345
Disposals	 	 	 	 –	 (8)	 (47)	 – 	 (55)
Exchange	 adjustment	 	 	 	 –	 –	 –	 (5) 	 (5)
At	 1	 January	 2005	 	 	 	 2,025	 1,086	 35	 295	 3,441
Additions	 	 	 	 –	 248	 23	 6	 277
Disposals	 	 	 	 –	 (62)	 (14)	 –	 (76)
Exchange	 adjustment	 	 	 	 –	 1	 –	 10	 11
At 31 December 2005    2,025 1,273 44 311 3,653
Accumulated depreciation
At	 1	 January	 2004	 	 	 	 141	 587	 46	 201 	 975
Charge	 for	 the	 year	 	 	 	 40	 165	 11	 44 	 260
Disposals	 	 	 	 –	 (4)	 (28)	 – 	 (32)
Exchange	 adjustment	 	 	 	 –	 –	 –	 (2) 	 (2)
At	 1	 January	 2005	 	 	 	 181	 748	 29	 243	 1,201
Charge	 for	 the	 year	 	 	 	 40	 178	 12	 21	 251
Disposals	 	 	 	 –	 (13)	 (14)	 –	 (27)
Exchange	 adjustment	 	 	 	 –	 –	 –	 5	 5
At 31 December 2005    221 913 27 269 1,430
Carrying amount
At 31 December 2005    1,804 360 17 42 2,223
At	 31	 December	 2004	 	 	 	 1,844	 338	 6	 52	 2,240 Genetix Group plc Annual Report & Accounts 2005
40
14. Investments
 Group Company
	 	 	 	 	 2005	 2004	 2005	 2004
	 	 	 	 	 £000	 £000	 £000	 £000
Cost and net book value
Available-for-sale	 investments	 	 	 	 	 2 2	 –	 –
Investment	 in	 subsidiary	 undertakings	 	 	 	 	 –	 –	 37,232	 37,232
At 31 December 2004 and 2005	 	 	 	 	 2	 2	 37,232 37,232
Details	 of	 the	 subsidiary	 companies	 are	 as	 follows:
	 	 	 Percentage	 	 	 	 of	 equity	 Subsidiary	 undertaking	 Country	 of	 incorporation	 Principal 	 activity	 shares	 held
Genetix	 Limited	 United	 Kingdom	 Manufacture 	 and	 sale	 of	 robotics	 and	 consumable	 products	 100%
Genescreen	 Limited	 United 	 Kingdom	 Provision 	 of	 biological	 services	 100%
Genpak	 Limited	 United	 Kingdom	 Dormant	 100%
Genetix	 USA	 Inc.	 USA	 Manufacture	 and	 sale	 of	 reagents;	 marketing	 company	 100% 	 	 	 for	 Genetix	 Limited	 products	 for	 North	 America
Genetix	 GmbH	 Germany	 Marketing	 company	 for	 Germany,	 Austria	 and	 Switzerland	 100%
Note:	 Genetix	 Group	 plc	 holding	 company	 for	 subsidiary	 undertaking.
15. Inventories
	 	 	 	 	 	 	 2005	 2004
Group	 	 	 	 	 	 	 £000	 £000
Raw	 materials	 	 	 	 	 	 	 792	 907
Work	 in	 progress	 	 	 	 	 	 	 111 42
Finished	 goods	 	 	 	 	 	 	 573	 728
	 	 	 	 	 	 	 1,476	 1,677
16. Trade and other receivables
 Group Company
	 	 	 	 	 2005	 2004	 2005	 2004
	 	 	 	 	 £000	 £000	 £000	 £000
Trade	 debtors	 	 	 	 	 2,278 2,251	 –	 –
Other	 debtors	 	 	 	 	 152 355	 – –
Prepayments	 	 	 	 	 116 120	 19	 17
	 	 	 	 2,546 2,726	 19	 17
The	 average	 credit	 period	 taken	 on	 sales	 of	 goods	 is	 1.5	 months.	 No	 interest	 is	 charged	 on	 the	 receivables.	 An	 allowance	 has	 been	 made	 for	 estimated	 irrecoverable	 amounts	 from	 the	 sale	 of	 goods	 of	 £120,000	 (2004:	 £60,000).	 This	 allowance	 is	 considered	 to	 be	 reasonable.
The	 directors	 consider	 that	 the	 carrying	 amount	 of	 trade	 and	 other	 receivables	 approximates	 their	 fair	 value.
Credit risk
The	 Group’s	 principal	 financial	 assets	 are	 bank	 balances	 and	 cash,	 trade	 and	 other	 receivables.
The	 Group’s	 credit	 risk	 is	 primarily	 attributable	 to	 its	 trade	 receivables.	 The	 amounts	 presented	 in	 the	 balance	 sheet	 are	 net	 of	 allowances	 for	 doubtful	 receivables.	 An	 allowance	 for	 impairment	 is	 made	 where	 there	 is	 an	 identified	 loss	 event	 which,	 based	 on	 previous	 experience,	 is	 evidence	 of	 a	 reduction	 in	 the	 recoverability	 of	 the	 cash	 flows.
The	 credit	 risk	 on	 liquid	 funds	 and	 derivative	 financial	 instruments	 is	 limited	 because	 the	 counterparties	 are	 banks	 with	 high	 credit-ratings	 assigned	 by	 international	 credit-rating	 agencies.
The	 Group	 has	 no	 significant	 concentration	 of	 credit	 risk,	 with	 exposure	 spread	 over	 a	 large	 number	 of	 counterparties	 and	 customers.
Notes to the accounts
for	 the	 year	 ended	 31	 December	 2005 www.genetix.com
41
17. Trade and other payables
 Group Company
	 	 	 	 	 2005	 2004	 2005	 2004
	 	 	 	 	 £000	 £000	 £000	 £000
Trade	 creditors	 	 	 	 	 604 861	 – –
Amounts	 owed	 to	 subsidiary	 undertakings	 (note	 26)	 	 	 	 – –	 101	 679
Taxation	 and	 social	 security	 	 	 	 	 111	 105	 –	 –
Other	 creditors	 	 	 	 	 47 183	 – –
Accruals	 and	 deferred	 income	 	 	 	 	 1,349 947 159	 46
	 	 	 	 	 2,111 2,096	 260	 725
Trade	 creditors	 and	 accruals	 principally	 comprise	 amounts	 outstanding	 for	 trade	 purchases	 and	 ongoing	 costs.	 The	 average	 credit	 paid	 taken	 for	 trade	 purchases	 is	 52	 days.	 The	 directors	 consider	 that	 the	 carrying	 amount	 of	 trade	 payables	 approximates	 to	 their	 fair	 value.
18. Current tax liabilities
 Group Company
	 	 	 	 	 2005	 2004	 2005	 2004
	 	 	 	 	 £000	 £000	 £000	 £000
Corporation	 tax	 	 	 	 	 441	 448	 35	 54
Foreign	 taxation	 	 	 	 	 20	 4	 –	 –
	 	 	 	 	 461	 452	 35	 54
19. Provisions
	 	 	 	 	 	 	 	 2005
Group	 	 	 	 	 	 	 	 £000
At	 1	 January	 2005	 	 	 	 	 	 	 	 152
Utilised	 during	 year	 	 	 	 	 	 	 	 (55)
Profit	 and	 loss	 charge	 	 	 	 	 	 	 	 17
At 31 December 2005        114
Product warranties
A	 provision	 has	 been	 recognised	 for	 expected	 claims	 against	 product	 warranties	 on	 products	 sold	 during	 the	 year.	 It	 is	 expected	 that	 most	 of	 this	 expenditure	 will	 be	 incurred	 in	 the	 next	 financial	 year.	 20. Deferred service income
	 	 	 	 	 	 	 2005	 2004
Group	 	 	 	 	 	 	 £000	 £000
Deferred	 service	 income	 	 	 	 	 	 	 116 –
These	 amounts	 are	 due	 after	 more	 than	 one	 year.
21. Deferred tax liabilities
The	 following	 are	 the	 major	 deferred	 tax	 assets	 and	 liabilities	 recognised	 by	 the	 Group,	 and	 the	 movements	 thereon,	 during	 the	 current	 and	 prior	 reporting	 periods.
	 	 	 	 	 Accelerated	 Deferred	 Other 	 short	 	 	 	 	 	 tax	 development	 term 	 timing	 Total
	 	 	 	 	 depreciation	 costs	 differences	 2005
Group	 	 	 	 	 £000	 £000	 £000	 £000
At	 1	 January	 2004	 	 	 	 	 341	 –	 16 	 357
Charge/(credit)	 to	 profit	 for	 the	 year	 	 	 	 	 23	 40	 (10) 	 53
At	 1	 January	 2005	 	 	 	 	 364	 40	 6 	 410
Charge/(credit)	 to	 profit	 for	 the	 year	 	 	 	 	 4	 130	 (53) 	 81
At 31 December 2005     368 170 (47) 491 Genetix Group plc Annual Report & Accounts 2005
42
22. Share capital
	 	 	 	 	 	 	 2005	 2004
	 	 	 	 	 	 	 £000	 £000
Authorised share capital:
130,000,000	 ordinary	 shares	 of	 50p	 each	 	 	 	 	 	 	 65,000	 65,000
Issued and fully paid share capital:
71,698,688	 (2004:	 71,698,688)	 ordinary	 shares	 of	 50p	 each	 	 	 	 35,849	 35,849	 The	 Company	 has	 one	 class	 of	 ordinary	 shares	 which	 carry	 no	 right	 to	 fixed	 income.
Under	 the	 Company’s	 Executive	 Approved	 and	 Unapproved	 2000	 Share	 Option	 Schemes,	 directors	 and	 employees	 held	 options	 at	 31	 December	 2005	 for	 4,894,260	 (2004:	 5,272,420)	 unissued	 ordinary	 shares	 as	 follows:
	 At	 1	 Jan	 	 	 	 At 31 Dec	 Exercise	 Scheme	 2005	 Granted	 Exercised	 Lapsed	 2005	 price	 Normal	 exercise	 period
Approved	 378,665	 –	 –	 (27,333)	 351,332	 150p	 24 	 Nov	 2003–23	 Nov	 2010
Approved	 55,363	 –	 –	 (17,824)	 37,539	 158.5p	 1 	 Aug	 2004–31	 Jul	 2011
Approved	 238,796	 –	 –	 (55,715)	 183,081	 66.5p	 5 	 Mar	 2005–4	 Mar	 2012
Approved	 108,434	 –	 –	 (7,000)	 101,434	 50p	 30 	 Jul	 2005–29	 Jul	 2012
Approved	 125,600	 –	 –	 (5,000)	 120,600	 50p	 5 	 Mar	 2006–4	 Mar	 2013
Approved	 10,000	 –	 –	 (10,000)	 –	 50p	 30 	 Jul	 2006–29	 Jul	 2013
Approved	 58,252	 –	 –	 –	 58,252	 51.5p	 15 	 Sep	 2006–14	 Sep	 2013
Approved	 239,744	 –	 –	 (106,838)	 132,906	 58.5p	 3 	 Mar	 2007–2	 Mar	 2014
Approved	 23,000	 –	 –	 (11,000)	 12,000	 51.5p	 28 	 Jul	 2007–27	 Jul	 2014
Approved	 –	 70,736	 –	 –	 70,736	 50p	 2 	 Mar	 2008–1	 Mar	 2015
Approved	 –	 30,000	 –	 –	 30,000	 50p	 15 	 Sep	 2008–14	 Sep	 2015
Unapproved	 593,336	 –	 –	 (40,000)	 553,336	 150p	 24 	 Nov	 2003–23	 Nov	 2010
Unapproved	 19,716	 –	 –	 –	 19,716	 158.5p	 1 	 Aug	 2004–31	 Jul	 2011
Unapproved	 994,774	 –	 –	 (72,632)	 922,142	 66.5p	 5 	 Mar	 2005–4	 Mar	 2012
Unapproved	 125,000	 –	 –	 –	 125,000	 50p	 5 	 Mar	 2006–4	 Mar	 2013
Unapproved	 145,000	 –	 –	 (145,000)	 –	 50p	 30 	 Jul	 2006–29	 Jul	 2013
Unapproved	 640,777	 –	 –	 –	 640,777	 51.5p	 15 	 Sep	 2006–14	 Sep	 2013
Unapproved	 1,242,718	 –	 –	 –	 1,242,718	 51.5p	 15 	 Sep	 2008–14	 Sep	 2013
Unapproved	 228,239	 –	 –	 (105,162)	 123,077	 58.5p	 3 	 Mar	 2007–2	 Mar	 2014
Unapproved	 45,006	 –	 –	 (45,006)	 –	 51.5p	 28 	 Jul	 2007–27	 Jul	 2014
Unapproved	 –	 134,154	 –	 –	 134,154	 50p	 2 	 Mar	 2008–1	 Mar	 2015
Unapproved	 –	 35,460	 –	 –	 35,460	 50p	 15 	 Sep	 2008–14	 Sep	 2015
 5,272,420 270,350 – (648,510) 4,894,260
Under	 the	 Company’s	 Approved	 Sharesave	 Scheme,	 directors	 and	 employees	 held	 options	 at	 31	 December	 2005	 for	 194,076	 (2004:	 408,554)	 unissued	 ordinary	 shares	 as	 follows:
	 At	 1	 Jan	 	 	 	 At 31 Dec	 Exercise	 Scheme	 2005	 Granted	 Exercised	 Lapsed	 2005	 price	 Normal	 exercise	 period
Sharesave	 190,350	 –	 –	 (190,350)	 –	 53.5p	 1 	 Jun	 2005–1	 Dec	 2005
Sharesave	 30,934	 –	 –	 –	 30,934	 53.5p	 1 	 Jun	 2007–1	 Dec	 2007
Sharesave	 154,570	 –	 –	 (24,128)	 130,442	 50.0p	 1 	 Jun	 2007–1	 Dec	 2007
Sharesave	 32,700	 –	 –	 –	 32,700	 50.0p	 1 	 Jun	 2009–1	 Dec	 2009
	 408,554 – – (214,478) 194,076
Notes to the accounts
for	 the	 year	 ended	 31	 December	 2005 www.genetix.com
43
22. Share capital continued
Under	 other	 option	 agreements,	 certain	 directors	 and	 employees	 held	 options	 at	 31	 December	 2005	 for	 967,047	 	 (2004:	 967,047)	 unissued	 ordinary	 shares	 as	 follows:
	 At	 1	 Jan	 	 	 	 At 31 Dec	 Exercise	 Scheme	 2005	 Granted	 Exercised	 Lapsed	 2005	 price	 Normal	 exercise	 period
4	 Oct	 2000	 886,524	 –	 –	 –	 886,524	 67.68p	 29 	 Nov	 2000–3	 Oct	 2010
11	 Nov	 2000	 66,667	 –	 –	 –	 66,667	 150p	 11 	 Nov	 2003–10	 Nov	 2010
8	 Mar	 2001	 13,856	 –	 –	 –	 13,856	 216.5p	 4 	 Feb	 2002–7	 Mar	 2011
 967,047 – – – 967,047
The	 share	 price	 at	 31	 December	 2005	 was	 55.5p.	 The	 range	 during	 the	 year	 was	 44p–58.5p.
23. Reserves
	 	 	 Share 	 	 Capital
	 	 	 premium 	 	 redemption	 Merger	 Other	 Retained
	 	 	 account	 reserve	 reserve	 reserves	 earnings	 Total
Group	 	 	 £000	 £000	 £000	 £000	 £000	 £000
At	 1	 January	 2005	 	 	 16,376	 2,925	 (29,686)	 (27)	 6,734 	 (3,678)
Retained	 profit	 for	 the	 year	 	 	 –	 –	 –	 –	 1,758 	 1,758
Share-based	 payment	 adjustment	 	 	 –	 –	 –	 46	 – 	 46
Currency	 translation	 differences	 	 	 –	 –	 –	 39	 – 	 39
At 31 December 2005   16,376 2,925 (29,686) 58 8,492 (1,835)
	 	 	 Share 	 	 Capital
	 	 	 premium 	 	 redemption	 Merger	 Other	 Retained
	 	 	 account	 reserve	 reserve	 reserves	 earnings	 Total
Company	 	 	 £000	 £000	 £000	 £000	 £000	 £000
At	 1	 January	 2005	 	 	 16,376	 2,925	 –	 59	 1,489 	 20,849
Retained	 profit	 for	 the	 year	 	 	 –	 –	 –	 46	 1,421 	 1,467
At 31 December 2005   16,376 2,925 – 105 2,910 22,316
Share	 premium	 account	 represents	 the	 premium	 on	 the	 issue	 of	 equity	 shares.
Capital	 redemption	 reserve	 is	 a	 statutory	 reserve	 arising	 from	 the	 Company’s	 purchase	 of	 its	 own	 shares.
The	 merger	 reserve	 arises	 from	 the	 combination	 of	 Group	 companies.
Other	 reserves	 relate	 to	 share-based	 payment	 adjustment	 and	 currency	 translation	 differences.
24. Note to the consolidated and Company cash flow statements
 Group Company
	 	 	 	 	 2005	 2004	 2005	 2004
	 	 	 	 	 £000	 £000	 £000	 £000
Operating	 profit/(loss)	 	 	 	 	 1,234	 396	 (1,074)	 (920)
Adjustments	 for:
Depreciation	 of	 property,	 plant	 and	 equipment	 	 	 	 251	 260	 –	 –
Amortisation	 of	 intangible	 assets	 	 	 	 	 199	 136	 –	 –
Impairment	 of	 intangible	 assets	 	 	 	 	 104	 –	 –	 –
Gain	 on	 disposal	 of	 property,	 plant	 and	 equipment	 	 	 (2)	 (4)	 –	 –
Other	 non-cash	 items	 	 	 	 	 44	 75	 46	 47
Operating	 cash	 flows	 before	 movements	 in	 working	 capital	 	 1,830	 863	 (1,028)	 (873)
Decrease	 in	 inventories	 	 	 	 	 201	 2	 –	 –
Decrease/(increase)	 in	 receivables	 	 	 	 	 60	 (567)	 (2)	 6
Increase/(decrease)	 in	 payables	 	 	 	 	 212	 (550)	 (465)	 144
Cash generated by/(used in) operations	 	 	 	 2,303	 (252)	 (1,495)	 (723)
Cash	 and	 cash	 equivalents	 (which	 are	 presented	 as	 single	 class	 of	 assets	 on	 the	 face	 of	 balance	 sheet)	 comprise	 cash	 at	 bank	 and	 other	 short-term	 highly	 liquid	 investments	 with	 a	 maturity	 of	 three	 months	 or	 less. Genetix Group plc Annual Report & Accounts 2005
44
25. Capital commitments
There	 were	 capital	 commitments	 of	 £30,000	 as	 at	 31	 December	 2005	 (2004:	 £nil).
26. Related party transactions
Transactions	 between	 the	 Company	 and	 its	 subsidiaries,	 which	 are	 related	 parties,	 have	 been	 eliminated	 on	 consolidation.
Transactions	 between	 the	 Company	 and	 its	 subsidiaries	 are	 disclosed	 below.
Trading transactions
During	 the	 year,	 the	 Company	 entered	 into	 the	 following	 transactions	 with	 its	 subsidiaries,	 which	 are	 related	 parties:
	 Amounts	 recharged	 Amounts 	 owed	 to
	 from	 subsidiaries	 subsidiaries
	 	 	 	 2005	 2004	 2005	 2004
	 	 	 	 	 £000	 £000	 £000	 £000
Genetix	 Limited	 	 	 	 	 1,027	 873	 101	 679
	 	 	 	 Remuneration of key management personnel
The	 remuneration	 of	 the	 directors,	 who	 are	 the	 key	 management	 personnel	 of	 the	 Group,	 is	 set	 out	 below	 in	 aggregate	 for	 each	 of	 the	 categories	 specified	 in	 IAS	 24	 Related	 Party	 Disclosures.	 Further	 information	 about	 the	 remuneration	 of	 individual	 directors	 is	 provided	 in	 the	 audited	 part	 of	 the	 Directors’	 Remuneration	 Report	 on	 pages	 22	 to	 23.
	 	 	 	 	 	 	 2005	 2004
	 	 	 	 	 	 	 £000	 £000
Short-term	 employee	 benefits	 	 	 	 	 	 	 483	 458
Post-employment	 benefits	 	 	 	 	 	 	 –	 –
Other	 long-term	 benefits	 	 	 	 	 	 	 –	 –
Termination	 benefits	 	 	 	 	 	 	 88	 –
Share-based	 payment	 	 	 	 	 	 	 –	 –
	 	 	 	 	 	 	 571	 458
27. Derivatives and other financial instruments
The	 Group’s	 financial	 instruments	 comprise	 cash,	 forward	 foreign	 exchange	 contracts	 and	 various	 non-derivative	 financial	 instruments	 such	 as	 trade	 receivables	 and	 trade	 payables.
The	 main	 risks	 arising	 from	 financial	 instruments	 of	 the	 Group	 are	 interest	 risk	 and	 foreign	 exchange	 risk.	 The	 Group’s	 policies	 	 in	 respect	 of	 the	 management	 of	 these	 risks	 are	 as	 follows:
Interest risk
The	 Group	 does	 not	 have	 any	 long-term	 debt	 and	 it	 finances	 its	 operations	 through	 a	 mixture	 of	 retained	 earnings,	 cash	 balances	 and	 receipts	 from	 share	 issues.	 The	 majority	 of	 the	 Group’s	 cash	 is	 invested	 with	 the	 Bank	 of	 Scotland	 currently	 	 earning	 interest	 at	 UK	 Base	 Rate	 plus	 0.1%.
Foreign exchange risk
The	 Group	 does	 not	 engage	 in	 speculative	 transactions	 and	 its	 policy	 is	 to	 minimise	 its	 exposure	 to	 exchange	 rate	 fluctuations	 	 by	 using	 forward	 contracts.	 Exchange	 exposure	 is	 reviewed	 on	 at	 least	 a	 quarterly	 basis	 and	 cover	 taken	 based	 on	 expected	 net	 cash	 flows	 within	 the	 next	 12	 months.	 The	 Group	 translates	 overseas	 profits	 and	 net	 assets	 in	 accordance	 with	 the	 accounting	 policy	 in	 note	 1.	 Translation	 differences	 are	 dealt	 with	 through	 the	 Group’s	 statement	 of	 recognised	 income	 and	 expense.	 	 At	 31	 December	 2005,	 the	 Group	 was	 committed	 to	 forward	 exchange	 contracts	 totalling	 US$7,000,000	 (2004:	 US$4,000,000	 and	 €1,200,000)	 at	 an	 average	 rate	 of	 £/$	 1.7376	 (2004:	 £/$	 1.754	 and	 £/€	 1.4030),	 all	 maturing	 before	 31	 December	 2006.	 As	 mentioned	 in	 note	 2	 above,	 these	 contracts	 do	 not	 qualify	 for	 hedge	 accounting	 under	 IFRS	 and	 so	 the	 fair	 value	 movements	 on	 them	 are	 accounted	 for	 through	 the	 income	 statement.	 As	 at	 31	 December	 2005,	 a	 loss	 of	 £18,000	 on	 the	 US	 dollar	 contracts	 was	 recognised	 in	 the	 income	 statement	 (2004:	 US	 dollar	 £176,000	 gain,	 euro	 £7,000	 loss).	 Due	 to	 the	 volatility	 of	 exchange	 rates,	 the	 change	 in	 accounting	 treatment	 as	 a	 result	 of	 IFRS	 will	 increase	 risk	 that	 income	 may	 be	 adversely	 affected	 at	 the	 end	 of	 each	 financial	 year	 by	 the	 “marking-to-market”	 of	 forward	 exchange	 contracts.
Notes to the accounts
for	 the	 year	 ended	 31	 December	 2005 www.genetix.com
45
27. Derivatives and other financial instruments continued
The	 interest	 rate	 risk	 profile	 of	 the	 Group’s	 financial	 assets	 and	 liabilities	 is	 as	 follows:
Financial assets
	 	 	 	 Total	 	 	 	 Total
	 Sterling US$ Euro 2005	 Sterling	 US$	 Euro	 2004
	 £000 £000 £000 £000	 £000	 £000	 £000	 £000
Floating	 rate	 23,073 919 5 23,997	 21,333	 150	 5	 21,488
Non-interest	 bearing	 – – 265 265	 10	 403	 252	 665
	 23,073 919 270 24,262	 21,343	 553	 257	 22,153
Disclosed	 as:
Cash	 at	 bank	 and	 in	 hand	 	 	 24,262	 	 	 	 22,153
Weighted	 average	 interest	 rate	 4.59% 0.81% 0.20% 4.40%	 4.31%	 0.45%	 0.21%	 4.16%
Bank	 balances	 and	 cash	 comprise	 cash	 held	 by	 the	 Group	 and	 short-term	 bank	 deposits	 with	 an	 original	 maturity	 of	 three	 months	 or	 less.	 The	 carrying	 amount	 of	 these	 assets	 approximates	 their	 fair	 value.
Other	 financial	 assets	 constitute	 trade	 and	 other	 receivables	 which	 are	 disclosed	 in	 note	 16.
Financial liabilities
Trade	 and	 other	 payables	 are	 disclosed	 in	 note	 17.	 There	 were	 no	 other	 financial	 liabilities	 as	 at	 31	 December	 2005	 or	 	 31	 December	 2004.
The	 main	 functional	 currencies	 of	 the	 Group	 are	 sterling,	 the	 US	 dollar	 and	 the	 euro.	 Currency	 exposures	 comprise	 the	 cash	 	 and	 debtor	 balances	 of	 the	 Group	 that	 are	 not	 denominated	 in	 the	 functional	 currency	 of	 the	 operating	 unit	 involved,	 after	 	 the	 effects	 of	 forward	 contracts.	 As	 at	 31	 December	 2005,	 these	 exposures	 were	 as	 follows:
Currency profile
	 	 	 	 Total	 	 	 	 Total
	 Sterling US$ Euro 2005	 Sterling	 US$	 Euro	 2004
	 £000 £000 £000 £000	 £000	 £000	 £000	 £000
Functional	 currencies:
Sterling	 – – – –	 –	 –	 –	 –
US$	 – – – –	 –	 –	 –	 –
Euro	 – – 926 926	 –	 –	 –	 –
	 – – 926 926	 –	 –	 –	 –
In	 the	 opinion	 of	 the	 Board,	 the	 fair	 value	 of	 the	 Group’s	 financial	 assets	 is	 equal	 to	 the	 book	 value.	 Interest	 on	 floating	 rate	 assets	 and	 liabilities	 is	 based	 upon	 the	 relevant	 national	 inter	 bank	 rates.
28. Share based payments
Equity-settled share option scheme
Full	 details	 of	 the	 operation	 of	 the	 Company’s	 discretionary	 share	 option	 schemes	 are	 set	 out	 in	 the	 Director’s	 Remuneration	 Report	 on	 pages	 19	 to	 23.	 Options	 granted	 under	 these	 schemes	 are	 exercisable	 at	 an	 option	 price	 established	 at	 the	 time	 	 of	 grant	 which	 equates	 to	 the	 closing	 middle	 market	 quotation	 for	 the	 Company	 shares	 on	 the	 Daily	 Official	 List	 on	 the	 	 date	 of	 grant.	 Other	 than	 in	 exceptional	 circumstances	 the	 normal	 vesting	 period	 is	 between	 three	 and	 five	 years.	 In	 the	 case	 	 of	 options	 granted	 after	 the	 flotation	 of	 the	 Company	 such	 vesting	 is,	 other	 than	 in	 exceptional	 circumstances,	 contingent	 	 on	 the	 achievement	 of	 performance	 conditions.	 Other	 than	 in	 exceptional	 circumstances	 options	 will	 lapse	 in	 the	 event	 that	 performance	 conditions	 are	 not	 achieved	 and	 also	 in	 the	 case	 of	 termination	 of	 employment.	 The	 Company	 also	 operates	 a	 savings-related	 share	 option	 scheme.	 Options	 awarded	 under	 this	 scheme	 are	 contingent	 on	 an	 employee	 entering	 into	 and	 maintaining	 an	 approved	 savings	 contract	 for	 either	 three	 or	 five	 years.	 Options	 granted	 under	 this	 scheme	 are	 exercisable	 at	 an	 option	 price	 established	 at	 the	 time	 of	 invitation	 which	 equates	 to	 the	 middle	 market	 quotation	 for	 a	 share	 on	 the	 Daily	 Official	 List	 on	 the	 day	 immediately	 preceding	 the	 invitation	 date	 and	 subject	 to	 a	 discount	 permitted	 by	 the	 rules	 of	 the	 scheme.	 Other	 than	 in	 exceptional	 circumstances,	 set	 out	 in	 the	 rules	 of	 the	 scheme,	 options	 will	 lapse	 in	 the	 case	 of	 termination	 of	 employment. Genetix Group plc Annual Report & Accounts 2005
46
28. Share based payments continued
Certain	 other	 options	 have	 been	 granted	 to	 directors	 and	 staff	 outside	 the	 Company’s	 schemes.	 The	 option	 prices	 of	 these	 options	 granted	 after	 the	 flotation	 of	 the	 Company	 were	 established	 at	 the	 time	 of	 grant	 which	 equated	 to	 the	 closing	 middle	 market	 quotation	 for	 the	 Company	 shares	 on	 the	 Daily	 Official	 List	 on	 the	 date	 of	 grant.	 In	 respect	 of	 the	 options	 granted	 prior	 to	 the	 flotation	 of	 the	 Company	 the	 option	 price	 was	 established	 with	 reference	 to	 a	 fair	 value	 of	 the	 Company	 at	 that	 time.	 	 In	 all	 cases	 the	 options	 vest	 on	 the	 dates	 set	 out	 in	 the	 table	 summarising	 other	 options	 in	 note	 22.	 In	 all	 cases	 other	 than	 in	 exceptional	 circumstances,	 options	 lapse	 with	 termination	 of	 appointment	 or	 employment.
Details	 of	 the	 options	 outstanding	 during	 the	 year	 which	 in	 view	 of	 their	 similarity	 are	 summarised	 together	 as	 follows:
	 	 	 	  2005	 	 2004
	 	 	 	 	 Weighted	 	 Weighted
	 	 	 	 	 average	 	 average
	 	 	 	 	 Number exercise	 Number	 exercise
	 	 	 	 	 of share price	 of 	 share	 price
	 	 	 	 options (p)	 options	 (p)
Outstanding	 at	 beginning	 of	 period	 	 	 	 	 6,648,021 62.8	 6,484,957	 75.2
Granted	 during	 the	 period	 	 	 	 	 270,350 50.0	 797,714	 55.6
Expired	 during	 the	 period	 	 	 	 	 (862,988) (65.5)	 (634,650)	 (64.9)
Outstanding	 at	 the	 end	 of	 the	 period	 	 	 	 6,055,383 61.9	 6,648,021	 62.8
Exercisable	 at	 the	 end	 of	 the	 period	 	 	 	 	 3,135,627 94.5	 2,014,127	 114.5
There	 were	 no	 share	 options	 forfeited	 or	 exercised	 during	 the	 years	 ended	 31	 December	 2005	 and	 31	 December	 2004.	 The	 exercisable	 options	 outstanding	 at	 31	 December	 2005	 had	 a	 weighted	 average	 exercise	 price	 of	 94.5p	 and	 a	 weighted	 average	 remaining	 contractual	 life	 of	 5.6	 years.	 In	 2005,	 options	 were	 granted	 on	 2	 March	 and	 15	 September.	 The	 aggregate	 of	 the	 estimated	 fair	 values	 of	 the	 options	 granted	 on	 those	 dates	 is	 £14,000.	 In	 2004,	 options	 were	 granted	 on	 3	 March,	 8	 April	 	 and	 28	 July.	 The	 aggregate	 of	 the	 estimated	 fair	 values	 of	 the	 options	 granted	 on	 those	 dates	 is	 £47,000.
The	 inputs	 into	 the	 Black-Scholes	 model	 (only	 applied	 to	 options	 granted	 post-7	 November	 2002)	 are	 as	 follows:
	 	 	 	 	 	 	 2005	 2004
Weighted	 average	 share	 price	 	 	 	 	 	 	 50.8p	 50.8p
Weighted	 average	 exercise	 price	 	 	 	 	 	 	 51.8p	 52.3p
Expected	 volatility	 	 	 	 	 	 	 35%	 35%
Expected	 life	 	 	 	 	 	 5–7 years	 5–7	 years
Risk-free	 rate	 	 	 	 	 	 	 4.25%	 4.25%
Expected	 dividends	 	 	 	 	 	 	 –	 –
Expected	 volatility	 was	 determined	 by	 reference	 to	 data	 for	 the	 technology	 sector	 and	 the	 Group’s	 share	 price	 volatility	 over	 the	 last	 five	 years.	 The	 charge	 is	 adjusted,	 based	 on	 management’s	 best	 estimate,	 for	 the	 effects	 of	 achieving	 the	 earnings	 per	 share	 targets	 for	 exercise	 of	 options.
The	 Group	 and	 Company	 recognised	 total	 expenses	 of	 £46,000	 for	 the	 year	 (2004:	 £47,000)	 relating	 to	 equity-settled	 share-
based	 payment	 transactions.
29. Ultimate controlling party
M	 A	 Reid,	 Director	 and	 Chief	 Executive,	 is	 the	 ultimate	 controlling	 party	 of	 the	 Company.
Notes to the accounts
for	 the	 year	 ended	 31	 December	 2005 www.genetix.com
47
Notice	 is	 hereby	 given	 that	 the	 sixth	 Annual	 General	 Meeting	 of	 the	 Company	 will	 be	 held	 at	 the	 offices	 of	 Financial	 Dynamics,	 Holborn	 Gate,	 26	 Southampton	 Buildings,	 London	 WC2A	 1PB	 at	 11.30am	 on	 Wednesday	 3	 May	 2006	 for	 the	 transaction	 of	 the	 following	 business:
Ordinary business
1	 To 	 receive	 and	 adopt	 the	 accounts,	 the	 directors’	 report,	 and	 the	 auditors’	 report	 for	 the	 year	 ended	 31	 December	 2005.
2	 To 	 approve	 the	 directors’	 remuneration	 report	 for	 the	 year	 ended	 31	 December	 2005.
3	 To 	 re-appoint	 Professor	 J	 F	 Burke	 as	 a	 director	 of	 the	 Company,	 retiring	 in	 accordance	 with	 the	 Company’s	 Articles	 of	 Association.
4	 To 	 re-appoint	 Mr	 P	 S	 Jensen	 as	 a	 director	 of	 the	 Company,	 retiring	 in	 accordance	 with	 the	 Company’s	 Articles	 of	 Association.
5	 To 	 elect	 Mr	 A	 J	 Kellett	 as	 a	 director	 of	 the	 Company	 in	 accordance	 with	 the	 Company’s	 Articles	 of	 Association.
6	 To 	 re-appoint	 Deloitte	 &	 Touche	 LLP	 as	 auditors	 and	 authorise	 the	 directors	 to	 determine	 their	 remuneration.
Special business
To	 consider	 and,	 if	 thought	 fit,	 pass	 resolution	 7	 as	 an	 ordinary	 resolution	 and	 resolutions	 8,	 9	 and	 10	 as	 special	 resolutions.	 7	 That 	 the	 Board	 be	 and	 it	 is	 hereby	 generally	 and	 unconditionally	 authorised	 to	 exercise	 all	 powers	 of	 the	 Company	 to	 allot	 relevant	 securities	 (within	 the	 meaning	 of	 Section	 80	 of	 the	 Companies	 Act	 1985)	 up	 to	 an	 aggregate	 nominal	 amount	 of	 £13,914,583	 provided	 that	 this	 authority	 is	 in	 substitution	 for	 any	 existing	 authorities	 conferred	 on	 the	 directors	 pursuant	 to	 section	 80	 of	 the	 said	 Act	 and	 (unless	 previously	 revoked	 or	 varied	 by	 the	 Company	 in	 general	 meeting)	 shall	 expire	 at	 the	 conclusion	 of	 the	 next	 Annual	 General	 Meeting	 of	 the	 Company	 save	 that	 the	 Company	 may	 before	 such	 expiry	 make	 an	 offer	 or	 agreement	 which	 would	 or	 might	 require	 relevant	 securities	 to	 be	 allotted	 after	 such	 expiry	 and	 the	 Board	 may	 allot	 relevant	 securities	 in	 pursuance	 of	 such	 an	 offer	 or	 agreement	 as	 if	 the	 authority	 conferred	 hereby	 had	 not	 expired.
8	 That 	 subject	 to	 the	 passing	 of	 the	 previous	 resolution	 the	 Board	 be	 and	 it	 is	 hereby	 empowered	 pursuant	 to	 Section	 95	 of	 the	 Companies	 Act	 1985	 to	 allot	 equity	 securities	 (within	 the	 meaning	 of	 Section	 94	 of	 the	 said	 Act)	 for	 cash	 either	 pursuant	 to	 the	 authority	 conferred	 by	 the	 previous	 resolution	 or	 by	 an	 allotment	 of	 equity	 securities	 such	 as	 is	 referred	 to	 in	 section	 94(3A)	 of	 the	 Act,	 as	 if	 sub-section	 (1)	 of	 Section	 89	 of	 the	 said	 Act	 did	 not	 apply	 to	 any	 such	 allotment	 provided	 that	 this	 power	 shall	 be	 in	 addition	 to	 any	 existing	 powers	 conferred	 on	 the	 directors	 pursuant	 to	 section	 95	 of	 the	 said	 Act	 and	 shall	 be	 limited	 to:
(i)	 the 	 allotment	 of	 equity	 securities	 in	 connection	 with	 a	 rights	 issue	 or	 open	 offer	 or	 otherwise	 in	 favour	 of	 ordinary	 shareholders	 where	 the	 equity	 securities	 respectively	 attributable	 to	 the	 interests	 of	 all	 ordinary	 shareholders	 are	 proportionate	 (as	 nearly	 as	 may	 be)	 to	 the	 respective	 numbers	 of	 ordinary	 shares	 held	 by	 them	 subject	 to	 such	 exclusions	 as	 the	 directors	 may	 deem	 fit	 to	 deal	 with	 fractional	 entitlements	 or	 with	 legal	 or	 practical	 problems	 arising	 in	 any	 overseas	 territory	 or	 with	 the	 requirements	 of	 any	 regulatory	 body	 or	 stock	 exchange;	 and
(ii)	the 	 allotment	 (otherwise	 than	 pursuant	 to	 sub-paragraph	 8(i)	 above)	 of	 equity	 securities	 up	 to	 an	 aggregate	 nominal	 value	 of	 £1,792,467	 	 and 	 shall	 expire	 at	 the	 conclusion	 of	 the	 next	 Annual	 General	 Meeting	 of	 the	 Company	 after	 the	 passing	 of	 this	 resolution	 save	 that	 the	 Company	 may	 before	 such	 expiry	 make	 an	 offer	 or	 agreement	 which	 would	 or	 might	 require	 equity	 securities	 	 to	 be	 allotted	 after	 such	 expiry	 and	 the	 Board	 may	 allot	 equity	 securities	 in	 pursuance	 of	 such	 an	 offer	 or	 agreement	 as	 if	 the	 power	 conferred	 hereby	 had	 not	 expired.
9	 That 	 the	 Company	 be	 and	 is	 hereby	 unconditionally	 and	 generally	 authorised	 in	 accordance	 with	 section	 166	 of	 the	 Companies	 Act	 1985	 (the	 “Act”)	 to	 make	 market	 purchases	 (as	 defined	 in	 Section	 163	 of	 the	 Act)	 of	 a	 maximum	 of	 2,000,000	 ordinary	 shares	 of	 50p	 each	 in	 the	 capital	 of	 the	 Company	 on	 such	 terms	 and	 in	 such	 manner	 as	 the	 directors	 may,	 from	 time	 to	 time,	 determine	 provided	 that:
(i)	 the 	 minimum	 price	 which	 may	 be	 paid	 for	 each	 share	 is	 1p;
(ii)	the 	 maximum	 price	 which	 may	 be	 paid	 for	 each	 share	 is	 an	 amount	 equal	 to	 105%	 of	 the	 average	 of	 the	 middle	 market	 quotations	 for	 an	 ordinary	 share	 of	 the	 Company	 as	 derived	 from	 the	 London	 Stock	 Exchange	 Daily	 List	 for	 the	 five	 business	 days	 immediately	 preceding	 the	 day	 on	 which	 such	 share	 is	 contracted	 to	 be	 purchased;	 and
(iii)	this 	 authority	 shall	 expire	 at	 the	 conclusion	 of	 the	 next	 Annual	 General	 Meeting	 of	 the	 Company	 or	 if	 earlier	 on	 	 30	 September	 2007	 unless	 such	 authority	 is	 renewed	 prior	 to	 such	 time,	 provided	 that	 the	 Company	 may	 make	 a	 contract	 to	 purchase	 ordinary	 shares	 under	 the	 authority	 conferred	 prior	 to	 the	 expiry	 of	 such	 authority	 which	 will	 or	 may	 be	 executed	 wholly	 or	 partly	 after	 the	 expiry	 of	 such	 authority	 and	 may	 make	 a	 purchase	 of	 ordinary	 shares	 pursuant	 to	 	 any	 such	 contract	 as	 if	 such	 authority	 had	 not	 expired.	 Notice of Annual General Meeting Genetix Group plc Annual Report & Accounts 2005
48
10	That 	 the	 Articles	 of	 Association	 of	 the	 Company	 be	 amended	 as	 follows:
(i)	 That 	 Article	 159	 be	 deleted	 and	 replaced	 with	 the	 following	 new	 Article	 159:
	 “159 	 Indemnity
	 Subject 	 to	 the	 provisions	 of,	 and	 so	 far	 as	 may	 be	 consistent	 with,	 the	 Statutes,	 every	 director	 and	 officer	 (other	 than	 an	 auditor)	 of	 the	 Company	 and	 of	 any	 associated	 company	 (as	 defined	 in	 section	 309A	 of	 the	 1985	 Act)	 of	 the	 Company	 shall	 be	 indemnified	 out	 of	 the	 assets	 of	 the	 Company	 against	 all	 liabilities	 attaching	 to	 him	 in	 connection	 with	 any	 negligence,	 default,	 breach	 of	 duty	 or	 breach	 of	 trust	 by	 him	 in	 relation	 to	 the	 Company	 or	 any	 associated	 company	 of	 the	 Company	 other	 than	 any	 liability	 as	 is	 referred	 to	 in	 section	 309B(2)(3)	 or	 (4)	 of	 the	 1985	 Act.”
(ii)	That 	 the	 following	 new	 Article	 161	 be	 inserted	 after	 the	 existing	 Article	 160:	 	 “161 	 Funding	 of	 director’s	 expenditure	 on	 defending	 proceedings
	 Subject 	 to	 the	 provisions	 of,	 and	 so	 far	 as	 may	 be	 consistent	 with,	 the	 Statutes,	 the	 board	 shall	 have	 the	 power	 to:
161.1	 provide 	 a	 director	 with	 funds	 to	 meet	 expenditure	 incurred	 or	 to	 be	 incurred	 by	 him	 in	 defending	 any	 criminal	 or	 civil	 proceedings	 or	 in	 connection	 with	 any	 application	 under	 any	 of	 the	 provisions	 mentioned	 in	 section	 337A(2)	 of	 the	 1985	 Act;	 or
161.2	 	do	 anything	 to	 enable	 a	 director	 to	 avoid	 incurring	 expenditure	 of	 the	 kind	 referred	 to	 in	 article	 161.1,	 	 provided	 that	 any	 loan	 or	 other	 thing	 done	 under	 article	 161	 shall	 be	 made	 or	 done	 on	 terms	 which	 result	 in	 	 the	 loan	 falling	 to	 be	 repaid,	 or	 any	 liability	 of	 the	 Company	 under	 any	 transaction	 connected	 with	 the	 thing	 in	 question	 falling	 to	 be	 discharged,	 in	 the	 circumstances	 set	 out	 in	 section	 337A(4)(a)	 (b)	 and	 (c)	 of	 the	 1985	 Act,	 not	 later	 than	 the	 date	 referred	 to	 in	 the	 relevant	 part	 of	 that	 section,	 as	 interpreted	 pursuant	 to	 section	 337A(5)	 and	 (6)	 of	 the	 1985	 Act.”
By	 order	 of	 the	 Board	 	 	 S C Hedger     
Secretary      
20	 March	 2006
Registered	 office:
Queensway,	 New	 Milton,	 Hants	 BH25	 5NN
Registered	 in	 England	 and	 Wales
Registered	 Number	 4024856
Notes to the notice of the Annual General Meeting
1	 A 	 member	 entitled	 to	 attend	 and	 vote	 at	 the	 meeting	 is	 also	 entitled	 to	 appoint	 one	 or	 more	 proxies	 to	 attend	 and,	 on	 a	 poll,	 vote	 instead	 of	 him.	 The	 proxy	 need	 not	 be	 a	 member	 of	 the	 Company.	 2	 A 	 form	 of	 proxy	 is	 enclosed	 with	 this	 notice.	 To	 be	 effective,	 the	 instrument	 appointing	 a	 proxy	 (together	 with	 any	 power	 of	 attorney	 or	 other	 authority	 under	 which	 it	 is	 executed	 or	 a	 duly	 certified	 copy	 of	 such	 power)	 must	 be	 sent	 to	 the	 Company’s	 registrars,	 Lloyds	 TSB	 Registrars,	 The	 Causeway,	 Goring-by-Sea,	 Worthing,	 West	 Sussex,	 BN99	 6ZL,	 not	 less	 than	 48	 hours	 before	 the	 time	 for	 holding	 the	 meeting	 or	 adjourned	 meeting	 as	 the	 case	 may	 be.	 A	 corporation	 may	 execute	 a	 proxy	 under	 its	 common	 seal	 or	 by	 the	 hand	 of	 a	 duly	 authorised	 officer	 or	 other	 agent.	 Completion	 and	 return	 of	 the	 form	 of	 proxy	 will	 not	 preclude	 shareholders	 from	 attending	 and	 voting	 in	 person	 at	 the	 meeting.
3	 In 	 accordance	 with	 Regulation	 41	 of	 the	 Uncertificated	 Securities	 Regulations	 2001,	 only	 those	 members	 entered	 on	 the	 register	 of	 members	 of	 the	 Company	 as	 at	 6.00pm	 on	 1	 May	 2006	 shall	 be	 entitled	 to	 attend	 or	 vote	 at	 the	 meeting	 in	 respect	 of	 the	 number	 of	 shares	 registered	 in	 their	 name	 at	 that	 time.	 Changes	 to	 entries	 on	 the	 register	 of	 members	 after	 6.00pm	 on	 1	 May	 2006	 shall	 be	 disregarded	 in	 determining	 the	 rights	 of	 any	 person	 to	 attend	 or	 vote	 at	 the	 meeting.
4	 The 	 register	 of	 directors’	 interests	 kept	 by	 the	 Company	 under	 section	 325	 of	 the	 Companies	 Act	 1985	 will	 be	 available	 for	 reference	 at	 the	 commencement	 and	 remain	 open	 until	 the	 conclusion	 of	 the	 Annual	 General	 Meeting.
Notice of Annual General Meeting www.genetix.com
49
Explanatory notes
Directors’ remuneration report – resolution 2
The	 Directors’	 Remuneration	 Report	 Regulations	 2002	 (“the	 Regulations”)	 came	 into	 force	 on	 1	 August	 2002	 and	 it	 is	 a	 requirement	 of	 the	 Regulations	 that	 all	 quoted	 companies	 produce	 a	 board-approved	 report	 on	 directors’	 remuneration	 for	 financial	 years	 ending	 on	 or	 after	 31	 December	 2002.	 This	 report	 is	 set	 out	 on	 pages	 19	 to	 23	 of	 the	 Annual	 Report	 and	 Accounts.	 It	 is	 a	 further	 requirement	 of	 the	 Regulations	 that	 at	 the	 general	 meeting	 of	 the	 Company	 before	 which	 the	 Company’s	 annual	 accounts	 for	 the	 financial	 year	 are	 laid,	 an	 ordinary	 resolution	 be	 put	 to	 shareholders	 seeking	 approval	 for	 the	 remuneration	 report.	 Authority to allot shares – resolution 7
This	 resolution	 set	 out	 in	 the	 notice	 of	 the	 Annual	 General	 Meeting	 will	 be	 proposed	 to	 give	 the	 directors	 a	 new	 and	 unconditional	 authority,	 for	 the	 purposes	 of	 Section	 80	 of	 the	 Act,	 to	 allot	 relevant	 securities	 up	 to	 an	 aggregate	 nominal	 amount	 of	 £13,914,583.	 This	 amount	 is	 the	 maximum	 authority	 recommended	 by	 the	 ABI	 guidelines	 and	 approximates	 to	 one-third	 of	 the	 existing	 issued	 ordinary	 share	 capital	 of	 the	 Company,	 together	 with	 the	 relevant	 securities	 which	 may	 be	 issued	 pursuant	 to	 outstanding	 options.	 There	 is	 no	 present	 intention	 of	 exercising	 this	 authority.
Disapplication of pre-emption rights – resolution 8
Section	 89	 of	 the	 Act	 grants	 existing	 members	 pre-emption	 rights	 i.e.	 it	 provides	 that	 on	 the	 allotment	 of	 new	 shares	 for	 cash	 they	 must	 first	 be	 offered	 to	 existing	 members	 in	 proportion	 to	 the	 number	 of	 shares	 already	 held	 by	 such	 members.	 The	 directors	 believe	 that	 it	 is	 in	 the	 best	 interests	 of	 the	 Company	 that	 the	 Board	 should	 have	 limited	 power	 to	 allot	 part	 of	 the	 Company’s	 authorised	 but	 unissued	 equity	 share	 capital,	 or	 to	 transfer	 shares	 out	 of	 treasury	 for	 cash,	 without	 first	 having	 to	 offer	 such	 shares	 to	 existing	 shareholders.	 There	 is	 no	 present	 intention	 of	 using	 these	 powers.	 The	 power	 if	 granted	 will	 relate	 to	 allotments	 of	 equity	 securities	 having	 an	 aggregate	 nominal	 value	 not	 exceeding	 £1,792,467,	 being	 approximately	 5%	 of	 the	 existing	 issued	 ordinary	 share	 capital	 of	 the	 Company.
General authority to buy back shares – resolution 9
The	 directors	 of	 Genetix	 seek	 authority	 to	 purchase	 up	 to	 2,000,000	 ordinary	 shares	 (representing	 approximately	 2.8%	 of	 the	 current	 issued	 ordinary	 share	 capital	 	 of	 the	 Company).	 The	 maximum	 price	 per	 share	 which	 may	 be	 paid	 on	 any	 exercise	 of	 this	 authority	 will	 not	 exceed	 105%	 of	 the	 average	 of	 the	 middle	 market	 quotations	 for	 an	 ordinary	 share	 of	 the	 Company	 for	 the	 five	 business	 days	 immediately	 preceding	 the	 date	 on	 which	 such	 share	 is	 contracted	 to	 be	 purchased.	 	 The	 minimum	 price	 will	 be	 1p	 per	 ordinary	 share.	 This	 authority	 is	 a	 renewal	 of	 the	 authority	 previously	 granted	 on	 27	 April	 2005.
The	 directors	 do	 not	 intend	 to	 exercise	 the	 Company’s	 power	 to	 purchase	 its	 own	 shares	 other	 than	 in	 circumstances	 where,	 in	 the	 light	 of	 market	 conditions	 prevailing	 at	 the	 time,	 they	 consider	 this	 to	 be	 in	 the	 shareholders’	 best	 interests	 and	 where	 this	 would	 result	 in	 an	 increase	 in	 earnings	 per	 share.	 In	 exercising	 the	 authority	 to	 purchase	 ordinary	 shares,	 the	 directors	 may	 treat	 the	 shares	 that	 have	 been	 bought	 back	 as	 either	 cancelled	 (thereby	 reducing	 the	 number	 of	 shares	 in	 issue	 accordingly)	 or	 held	 in	 treasury	 (or	 a	 combination	 of	 both)	 and,	 to	 the	 extent	 that	 any	 such	 shares	 are	 held	 in	 treasury,	 earnings	 per	 share	 will	 only	 be	 increased	 on	 a	 temporary	 basis	 until	 such	 time	 as	 the	 shares	 are	 re-sold	 out	 of	 treasury.	 In	 deciding	 whether	 or	 not	 to	 exercise	 this	 authority,	 the	 directors	 will	 continue	 to	 take	 into	 account	 other	 investment	 opportunities	 including	 acquisitions.	 The	 Company	 would	 use	 its	 distributable	 reserves	 to	 effect	 the	 purchase	 of	 the	 ordinary	 shares.	 The	 authority,	 if	 granted,	 will	 expire	 on	 the	 earlier	 of	 the	 conclusion	 of	 the	 next	 Annual	 General	 Meeting	 or	 30	 September	 2007.
On	 17	 March	 2006,	 being	 the	 latest	 practicable	 date	 prior	 to	 the	 publication	 of	 this	 document,	 there	 were	 options	 outstanding	 over	 3,929,605	 ordinary	 shares,	 such	 options	 having	 been	 granted	 under	 the	 rules	 of	 the	 Genetix	 Executive	 and	 Sharesave	 Option	 Schemes	 or	 otherwise.	 In	 total	 these	 represent	 approximately	 5.5%	 of	 the	 Company’s	 issued	 share	 capital	 as	 at	 17	 March	 2006	 and	 would	 represent	 approximately	 5.6%	 of	 the	 adjusted	 issued	 share	 capital	 if	 the	 full	 proposed	 authority	 to	 buy	 back	 shares	 is	 used	 (and	 assuming	 that	 all	 such	 shares	 bought	 back	 by	 the	 Company	 are	 cancelled	 rather	 than	 held	 in	 treasury).
Amendment of the Company’s Articles of Association in relation to the indemnification of directors – resolution 10
In	 response	 to	 concerns	 about	 directors	 being	 added	 as	 defendants	 in	 legal	 actions	 and	 their	 increased	 exposure	 to	 personal	 claims	 by	 third	 parties,	 the	 Companies	 (Audit,	 Investigations	 and	 Community	 Enterprise)	 Act	 2004,	 which	 came	 into	 force	 on	 6	 April	 2005,	 made	 certain	 changes	 in	 relation	 to	 the	 indemnification	 	 of	 directors.
By	 the	 insertion	 of	 new	 sections	 309A	 and	 309B	 into	 the	 Companies	 Act	 1985,	 the	 legislation	 now	 allows	 companies	 to	 grant	 wider-ranging	 indemnities	 so	 that,	 broadly,	 directors	 can	 be	 indemnified	 against	 liability	 to	 third	 parties	 arising	 through	 negligence,	 default,	 breach	 of	 duty	 or	 breach	 of	 trust	 by	 the	 directors	 in	 	 relation	 to	 the	 company.	 However,	 this	 is	 subject	 to	 certain	 exceptions	 which	 prevent	 a	 company	 from	 indemnifying	 a	 director	 against	 liability	 to	 the	 company	 or	 	 any	 associated	 company,	 or	 against	 the	 costs	 of	 any	 unsuccessful	 defence	 in	 criminal	 proceedings,	 or	 for	 penalties	 imposed	 in	 criminal	 proceedings	 or	 by	 any	 regulatory	 authority.	 In	 addition,	 a	 new	 section	 337A	 has	 been	 inserted	 into	 the	 Companies	 Act	 1985,	 in	 relation	 to	 the	 funding	 of	 director’s	 defence	 costs.	 Previously,	 a	 director	 could	 	 only	 receive	 reimbursement	 of	 his	 or	 her	 defence	 costs	 from	 the	 company	 once	 final	 judgement	 in	 the	 director’s	 favour	 had	 been	 made;	 however,	 the	 new	 legislation	 allows	 a	 company	 to	 provide	 funds	 to	 directors	 to	 cover	 defence	 costs	 as	 they	 are	 incurred	 (through	 the	 granting	 of	 a	 loan)	 in	 both	 civil	 and	 criminal	 cases.	 If	 the	 director	 is	 not	 exonerated,	 the	 loan	 must	 be	 repaid	 (although	 the	 costs	 incurred	 in	 civil	 cases	 involving	 third	 parties	 could	 be	 paid	 by	 the	 company	 under	 the	 indemnity	 discussed	 above).	 The	 Board	 believes	 that	 providing	 appropriate	 indemnities	 to	 directors	 and	 funding	 directors’	 defence	 costs	 as	 they	 are	 incurred	 in	 accordance	 with	 the	 new	 legislation	 affords	 reasonable	 protection	 for	 the	 directors	 and	 is	 also	 essential	 in	 order	 to	 recruit	 and	 retain	 directors	 of	 the	 highest	 calibre.
The	 Company’s	 Articles	 of	 Association	 already	 provide	 a	 form	 of	 indemnity	 and	 reimbursement	 for	 costs	 in	 proceedings	 where	 judgement	 is	 given	 in	 favour	 of	 the	 director;	 however,	 the	 Board	 proposes	 that	 the	 Company’s	 Articles	 of	 Association	 be	 amended	 to	 reflect	 the	 new	 statutory	 provisions.
The	 proposed	 resolution	 is	 a	 special	 resolution	 to	 amend	 Article	 159	 and	 to	 insert	 a	 new	 Article	 161	 to	 reflect	 these	 new	 provisions. Genetix Group plc Annual Report & Accounts 2005
50
	 	 	 	 IFRS	 UK	 GAAP
	 	 	 	 	 2005	 2004	 2003	 2002	 2001
    £000	 £000	 £000	 £000	 £000
Income statement
Revenue	 	 	 	 12,123	 12,217	 10,849	 12,572	 12,419
Operating	 profit	 	 	 1,234	 396	 23	 1,513	 1,605
Goodwill	 	 	 	 –	 –	 (361)	 (362)	 (362)
Net	 interest	 receivable	 	 	 	 1,020	 913	 759	 799	 990
Profit	 before	 tax	 	 	 2,254	 1,309	 421	 1,950	 2,233
Tax	 	 	 (496)	 (100)	 (67)	 (585)	 (752)
Profit for year	 	 	 	 1,758	 1,209	 354	 1,365	 1,481
Operating	 margin	 	 	 	 10.2%	 3.2%	 0.2%	 12.0%	 12.9%
Earnings	 per	 share	 	 	 	 2.45p	 1.69p	 0.99p	 2.23p	 2.38p
Balance Sheet     
Non-current	 assets	 –	 goodwill	 	 	 	 6,057	 6,057	 6,057	 6,418	 6,780
Non-current	 assets	 –	 other	 	 	 2,966	 2,668	 2,546	 2,738	 2,761
Working	 capital	 	 	 1,911	 2,307	 1,028	 1,890	 1,688
Net	 cash	 	 	 	 24,262	 22,153	 22,094	 20,867	 20,142
Taxation	 	 	 (952)	 (862)	 (776)	 (1,058)	 (460)
Other	 	 	 	 (230)	 (152)	 (124)	 (110)	 (158)
Net assets	 	 	 	 34,014	 32,171	 30,825	 30,745	 30,753
Cash flow	 	 	 	 	 Net	 cash	 inflow/(outflow)	 from	 operating	 activities	 	 	 	 1,894	 (314)	 734	 1,247	 1,034
Purchases	 of	 patents,	 property,	 plant	 and	 equipment	 	 	 (399)	 (402)	 (206)	 (350)	 (758)
Acquisitions	 and	 disposals	 	 	 	 51	 27	 7	 –	 827
Expenditure	 on	 product	 development	 	 	 	 (496)	 (142)	 –	 –	 –
Interest	 received	 	 	 	 1,020	 913	 759	 799	 990
Re-purchase	 of	 shares	 	 	 	 –	 –	 (241)	 (1,366)	 –
Proceeds	 on	 issue	 of	 shares	 	 	 	 –	 –	 –	 21	 4
Decrease	 in	 bank	 loans	 	 	 	 –	 –	 –	 –	 (1,699)
Increase	 in	 cash	 	 	 	 2,070	 82	 1,053	 351	 398
Cash	 at	 beginning	 of	 year	 	 	 22,153	 22,094	 20,867	 20,142	 19,805
Effect	 of	 foreign	 exchange	 rate	 changes	 	 	 	 39	 (23)	 174	 374	 (61)
Cash at end of year	 	 	 	 24,262	 22,153	 22,094	 20,867	 20,142
The	 amounts	 disclosed	 for	 2003	 and	 earlier	 periods	 are	 stated	 on	 the	 basis	 of	 UK	 GAAP	 as	 applicable	 in	 relation	 to	 each	 year	 end	 because	 it	 is	 not	 practicable	 to	 re-state	 amounts	 prior	 to	 the	 date	 of	 transition	 to	 IFRS.	 The	 principal	 differences	 between	 UK	 GAAP	 and	 IFRS	 are	 explained	 in	 note	 2	 to	 the	 financial	 statements.
Five year summary www.genetix.com
51
Notes Genetix Group plc Annual Report & Accounts 2005
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Notes Genetix adds value to scientists working at the 
cutting edge of Cell Biology, Proteomics and 
Genomics through its pioneering development 
of automated systems.
Our core skill is in the design, development and 
manufacture of innovative systems that meet 
the needs of our customers.
Our focus is on systems that reduce the time and 
cost of introducing new biopharmaceuticals.
Our products include instruments and 
consumables that were used in the Human 
Genome Project and are now used in the genetic 
analysis of human diseases, analysing the 
proteins of pathogenic organisms and selecting 
cells for the production of therapeutic proteins.
Genetix has established a broad and strong 
customer base among many of the world’s 
leading academic research groups, biotech 
companies and pharmaceutical corporations.
Genetix Group plc Annual Report & Accounts 2005 ‡
Genetix Group plc Annual Report & Accounts 2005
Focusing on future growth
Genetix Group plc Annual Report & Accounts 2005
Genetix Group plc
Queensway
New Milton
Hampshire
BH25 5NN
United Kingdom
Tel: +44 (0)1425 624600
Fax: +44 (0)1425 624700
www.genetix.com