Benchmark Holdings Regulatory News (BMK)

23 January 2018

Benchmark Holdings plc

("Benchmark" or the "Company" or the "Group")

Preliminary Results for the Year Ended 30 September 2017

"A year of significant operational and strategic progress"

Benchmark (AIM: BMK), the aquaculture health, nutrition and genetics business, announces its Preliminary Results for the year ended 30 September 2017 (the "period").

Financial summary:

Financial highlights

· Revenue increased by 28% (13% like for like1)

· £21.5m investment in state-of-the-art production capacity in genetics and animal health

· £15.2m investment in R&D

· Adjusted EBITDA2 increased by 9%

· Loss for the year reduced by 61%

· 2017 leverage5 1.8x (excluding £6.0m debt related to new salmon breeding joint venture)

1 Like for like includes 12 month comparative figures for businesses acquired in FY16 using 3 months pre-acquisition results from unaudited management information for INVE and unaudited 11 month proforma figures for Genetica Spring SAS

2 Adjusted EBITDA - Earnings before tax, interest, depreciation and amortisation and before exceptional including and acquisition related items

3Adjusted Profit Before Tax is profit before tax before amortisation, exceptional items and acquisition related expenditure

4 Net debt is cash and cash equivalents less loans and borrowings

5 Leverage is calculated per the facility agreement that governs the Group's principal revolving credit facility which excludes ringfenced non-recourse debt in respect of the new salmon breeding joint venture in Norway

Operational Highlights

· Strengthened Board and team - Structure realigned to deliver synergies and drive accountability

· Pipeline progress - 5 new products launched. Field trials of new sea lice treatment commenced post period end

· Increased capacity - new genetics facility in Norway progressing well. First commercial scale production at Braintree's vaccine manufacturing facilty

· New 10 year agreement with Great Salt Lake Cooperative securing access to high quality artemia

Current trading

· Fundamental drivers remain favourable and outlook for our core species is positive with salmon production growing and shrimp production recovering

· Current trading in line with the Board's expectations and we expect to deliver on strategic and financial objectives for the year 

Divisional Summary

Advanced Nutrition

· Advanced Nutrition like for like1 revenues grew by 21% over the prior year driven by:

o Continued signs of recovery in key shrimp markets

o Increased market share driven by demand for higher margin live feed replacement and health diets

· Significant initiatives undertaken during the year:

o New 10 year sales and marketing agreement to secure continued access to high quality live feed (artemia)

o Launch of new products Sanolife GUT and Sanolife PRO-2

o Development of 100% artemia replacement feed progressing to plan

Genetics

· Strong 47% sales growth in Genetics driven by:

o Increased demand for salmon eggs with sales up in every major market; strong growth in recently launched products

· Significant initiatives undertaken during the year:

o Launch of new salmon and shrimp products

o Integration of Genetics division which now includes salmon, shrimp and tilapia, and has customers in Europe, North and Latin America and Asia

o New land-based production facility in Norway, through joint venture with Salten Stamfisk AS, received first batch of broodstock - post period end

Animal Health (medicines and vaccines)

· Sales in Animal Health decreased from £24.8m to £15.1m as a result of drop in sales of Salmosan, as previously reported

o Salmosan outlook improved in first months of 2018 partly due to a switch to direct distribution in Chile

· Significant initiatives undertaken during the year:

o Development of CleanTreat, an innovative water purification system that avoids contamination of marine waters from medicinal treatments of fish

o First commercial scale production at the new Braintree vaccine antigen manufacturing facility

o Continued progress in animal health pipeline of 41 products of which 7 are in regulatory phase and 10 are in pre-regulatory development trials

o Post period end, commencement of field trials for Ectosan, Benchmark's new sea lice treatment for the salmon industry

Malcolm Pye, Benchmark CEO commented:  

"2017 has been a year of significant operational and strategic progress for Benchmark Holdings. Despite certain challenges, we have continued our focussed investment in the development of the Group's pipeline and have put in place important technological, infrastructure and organisational building blocks. Benchmark is now one of the leading global providers of advanced nutrition, genetics and animal health in the industry.

"The organic growth delivered in the year and the achievement of significant milestones, together with the increased activity in many of our key markets at the end of the year leaves us full of confidence going into the new financial year. The continued growing global demand for aquaculture products, the disease challenges faced, and pressure to limit the use of antibiotics, puts the group in a strong position to drive growth for many years to come."

-ENDS-

A presentation for analysts will be held at 09.30 at the offices of MHP Communications, 6 Agar Street, London, WC2N 4HN. The presentation will also be accessible via a live conference call for registered participants. To register for the call please contact MHP Communications on +44 (0)20 3128 8730 or 8742, or by email on benchmark@mhpc.com.

Notes to Editors:

Benchmark challenges the status quo in aquaculture. Since 2000, Benchmark has consistently worked to build a technology-rich platform in the areas of genetics, advanced nutrition, animal health and knowledge services, to serve its customers, helping them take control of their biological environment to improve yield and efficiency in a sustainable way.

The Company has leading positions in its core markets and established R&D, manufacturing and distribution capabilities to serve all the major aquaculture markets. Benchmark operates in 27 countries in five continents and as at 30 September 2017, it employed 950 people. 

For further information on Benchmark please visit www.benchmarkplc.com

CHAIRMAN'S STATEMENT

A year of significant operational and strategic progress

Introduction

I am pleased to report on another year of significant operational and strategic progress for Benchmark Holdings. Despite certain challenges, we have put in place important technological, infrastructure and organisational building blocks which will allow the Company to deliver substantial shareholder value in the future. At the same time, we continued to develop our leadership position in aquaculture; indeed, Benchmark is now one of the leading global providers of advanced nutrition, genetics and animal health in the industry.

There is an element of unpredictability in the introduction of new and innovative technologies and the nature of biological assets. For example, delays to introducing new products and the impact of both disease and climate have both been challenges for the business over the last year. However, I have been impressed with our ability to overcome these challenges during the year and believe that as the business has become more diversified, in the future it will be more able to mitigate these risks. What is predictable is that the demand for our products, driven by growth in demand for our customers' products, is showing long term growth.

Having built Benchmark into a global leader in the fastest growing segment of the food industry, our task is now to ensure we successfully execute our plans and take advantage of the scale of opportunities that we see ahead, whilst delivering consistent and more predictable financial performance in the coming year and beyond.

Results overview

The year saw significant organic revenue growth; the Advanced Nutrition division grew like for like1 revenue by 21%1 over the prior year and the Genetics division grew sales by 47%. At the same time we have made much progress in marshalling our pipeline of 41 Animal Health products, of which 7 are in regulatory phase, and 10 are in pre-regulatory development trials.

Adjusted EBITDA2 increased by 9% to £10.0m (2016: £9.2m) and this together with a reduction in M&A activity and the associated costs resulted in the reported loss for the year reducing by 61% to (£7.1m) (2016: (£18.3m)). Net debt3 increased, as expected, to £23.9m including £6.0m of ringfenced non-recourse debt used to part fund capital expenditure in the Genetics joint venture with Salten Stamfisk AS in Norway. Net debt is managed within routine leverage parameters to ensure that there is sufficient headroom in the Group's facilities to meet funding requirements in the medium term.

New technologies

Whilst the introduction of new technologies and the nature of biological assets is unpredictable, Benchmark has developed an increasingly diversified, rich seam of technology, which it now deploys across multiple species and in multiple geographies. We have a highly skilled team of people who are creating enduring solutions to address the commercial and environmental challenges facing the global aquaculture industry and the past year has seen the delivery of some of these technologies.

More detail is outlined in the CEO Report but one such example is the recently announced successful first commercial field trials of Ectosan, our new sea lice treatment for the salmon industry, which passed its first field trials showing 100% efficacy and no environmental impact due to our proprietary purification system, CleanTreat®. This marked a breakthrough development for Benchmark and for the salmon industry, for which sea lice is the biggest disease challenge, estimated to have cost the industry c.$500m at current market prices in 2016 (Source: Rabobank). CleanTreat will, we anticipate, set a new standard in environmental protection by allowing marine fish medicines to be delivered safely and without in any way contaminating the marine environment. We are in the process of evaluating additional applications and routes to market for the CleanTreat system.

Integration - the 'Benchmark solution'

Our four divisions are increasingly working together to deliver an integrated "Benchmark Solution" for aquaculture producers across the major species and geographic farming areas. The integration of genetics, advanced nutrition and health products into a complete offering for aquaculture producers will provide the Group with a distinct competitive advantage. Over the past year, the establishment of a key account management strategy has been an important operational focus which will drive our commercial development into the future.

An important part of our integration effort this year was the reorganisation of our management structure to drive efficiency, synergies and accountability. The Board and the CEO in particular have spent a considerable amount of time reorganising the way the business is managed, establishing divisional heads, cross divisional functions and creating a streamlined Operations Board.

Strengthening of Benchmark's Board

One of my commitments to shareholders has been to further strengthen our Board to ensure we have the optimal blend of experience and skills to help deliver our strategy and shareholder value. I am particularly pleased therefore that we added two new and well regarded non-executive directors to our board during the year. Both have extensive global experience in aquaculture and animal health and will provide the Company with strategic frameworks, market intelligence and operational insight.

· Yngve Myhre has many years of operational experience in running and managing salmon farming companies in Norway, as well as wider fin fish executive managerial experience in South America and the Mediterranean.

· Hugo Wahnish was for many years a leading executive for the animal health operations of Merck and brings Benchmark a wealth of knowledge of the global animal health industry and the companies and people at its core.

We welcome them to the Board and look forward to their contribution to the strategic trajectory of the Company over the coming years.

We are well advanced in the process to recruit a Chief Scientific Officer for the Group who will join the Board. This is a key role to ensure Benchmark's technology leadership into the future and support the execution and launch of our rich pipeline of products. We look forward to updating investors in due course.

During the year our colleague Roland Bonney stepped down from the Board and took a temporary leave of absence for medical reasons. We are pleased that Roland has recovered and has since rejoined Benchmark to lead our very important key accounts programme and as a member of the Operations Board.

Sustainability

Our objective is not merely to grow the business; we also aim to do so in a sustainable and environmentally responsible way. I mention this particularly because we take the environmental and social impact of the aquaculture industry as a whole extremely seriously and as we now hold a leadership position in the industry, we must also show leadership in this respect. This is not only ethically responsible, but we believe is also good for the business. We will be therefore outlining our Environmental, Social & Governance (ESG) approach in more detail in this and in future reports.

Summary

We have built a strong platform from which to deliver further progress in 2018 and beyond. We have put a new organisational structure in place with new members of the team ensuring we have the skill set to deliver on the market opportunity and make optimal use of the infrastructure we have built. Our focus is keenly on the execution and delivery of the Group's projects which will drive growth and profitability; this includes the rollout of our highest potential new products in Genetics and Advanced Nutrition as well as the work on the commericalisation of Ectosan, together with the continuous leverage of our Group capabilities in cross-selling and shared development.

I believe we have created a unique group, comprised of a team of the most talented aquaculture professionals to be found anywhere in the world, and which would be impossible to replicate. I therefore thank all of Benchmark's people for their hard work, commitment and enthusiasm which has seen the Group reach many very important milestones allowing it to grow stronger despite a challenging year.

The Hon. Alexander Hambro

Chairman

23 January 2018

1 Like for like includes three months' preacquisition revenue from unaudited INVE Aquaculture Group management information in the comparative period. See Financial Review Section below

2 Adjusted EBITDA - Earnings before tax, interest, depreciation and amortisation and before exceptional including and acquisition related items. See Financial Review Section below

3 Net debt is cash and cash equivalents less loans and borrowings.

CEO STATEMENT

Technology driving growth in aquaculture

Overview

2017 was a transitional year for Benchmark. After three years of heavy investment and acquisitions to build a platform of products and technologies with strong market positions, our focus during the year was on strengthening and aligning the organisation for the next phase of our growth.

The key tasks were:

· reviewing the organisational structure leading to a post year end implementation

· recruiting new team members to complement and upskill the team;

· creating new functions to address key areas including Investor Relations (IR), scientific leadership (CSO) and marketing; and

· integrating the organisation and developing a "One Benchmark" culture to realise the benefits inherent in the Group.

We now have an execution driven team and structure. We have one important gap to fill in terms of our team, namely that of a Chief Scientific Officer (CSO) who will be responsible for leading our R&D effort and for delivering our pipeline. The CSO will join the Board in recognition of the importance of the role for Benchmark as a science-led, technology business, and I hope to report on an appointment in the near future.

Challenges during the year

There were however a few setbacks in the period, notably the delay experienced in the launch of the commercial field trials phase for Ectosan, our new sea lice treatment; this was exacerbated by the impact from the anticipated drop in sales of Salmosan as a result of the development of partial resistance to the product and the industry focus on mechanical treatments. The increased complexity from the addition of the CleanTreatâ system to the Ectosan solution required the delay, but critically has created new opportunities for the Group. We are pleased that commercial trials for Ectosan have now commenced delivering excellent results so far and confirming the very significant potential of this product in the market.

In addition to Ectosan, we faced challenges In Advanced Nutrition, where climate and disease outbreaks affected the shrimp sector during the first half of the year adversely impacting on demand for our products. There was a recovery in the second half and like for like sales for the year were up 21%1, a positive result for the division. Biological disease is a feature of our industry which affects predictability, but our growing, diversified portfolio of products increasingly mitigates this risk.

Sales in our Genetics division grew strongly as well, by 47% to £30.5m (2016: £20.7m), driven by increased demand for our salmon eggs which were up on prior year in every major market. Our new state-of-the-art land-based broodstock facility joint venture in Norway, with capacity to produce over 150 million ova per year, will enable us to continue to develop this market. The first broodstock has been delivered and salmon eggs from this stock will be produced in early Autumn 2018.

Our Advanced Nutrition and Genetics businesses are well established businesses, each with 20 to 30 years' presence in the market. They have been at the forefront of innovation in their sectors and have leading market positions with opportunity for further growth. In Genetics, for example, we see a significant opportunity to strengthen our position in the Chilean salmon market, and to expand our shrimp and tilapia business in Latin America.

We are focused on leveraging our market position to realise opportunities across the group from presenting an integrated product offering to our customers, realising cross-selling opportunities and sharing technology and know-how. An important element of this strategy which was initiated this year is our key accounts programme.

Product Development

In addition to the progress with Ectosan, new products were launched in our genetics and advanced nutrition businesses, some of which represent an addition to our product offering such as the Infectious Salmon Anaemia (ISA) resistant ova, and Sano-life GUT, while others are an upgrade to existing products like Sano-life PRO 2 in the area of advanced nutrition. Technology upgrades are an important part of our product development strategy. They enable us to strengthen our competitive position with limited product adoption risk. Good progress was made with the Group's pipeline of new products during the year and we now have 15 products in the final phase of development across the Group.

Post period end we announced the development of a specific pathogen resistant ("SPR") shrimp to address the challenges in the Asian market including white spot, early mortality syndrome and vibriosis. We are at an early stage, but this is an exciting project with the potential to unlock production capacity in the largest shrimp market by tackling disease. The new SPR shrimp is the result of over 20 years' experience in our teams in Colombia and Norway and will be sold using our Animal Nutrition distribution network in Asia, demonstrating the value of having created a global multi-product platform.

Another element of our strategy is to expand into newly industrialised farmed species. This is an area in which we made good progress in the year signing a deal to supply Thailand's largest tilapia fry and feed provider, Manit Farm, with advanced nutrition and health products, and opening our own tilapia hatchery in Brazil with capacity to supply one million fish per month to the high growth Brazilian market.

Outlook

The fundamental drivers of our market remain favourable and we continue to see new growth opportunities in the sector. The outlook for our core species is positive with salmon production expected to grow strongly in the next two years and shrimp production recovering. We continue to execute our strategy, leveraging the platform we have built in recent years and making steady progress in the development of our pipeline.

Current trading is in line with the Board's expectations and we expect to deliver on our strategic and financial objectives for the year

FINANCIAL REVIEW

Solid financial progress

Financial highlights:

· Revenue increased by 28% to £140.2m (2016: £109.4m).

· Like for like sales, including 12 month comparative figures for businesses acquired in 2016, increased by 13%

· 47% growth in salmon genetics sales resulting from customer demand and the success of new products launched

· Like for like 21% growth in nutrition products driven by increased market share and demand for higher margin live feed replacement and health diets

· Sales of health products reduced by 39% due to lower demand for mature products

· Total investment in R&D increased by £2.1m to £15.2m (of which £13.1m was expensed in the income statement and £1.9m was capitalised) but reduced as a percentage of sales to 11% (2016: 12%) reflecting reduced rate of increase in spend

· Adjusted EBITDA increased by 9% to £10.0m (2016: £9.2m)

· Loss for the year reduced by 61% to (£7.1m) (2016: £18.3m)

· £21.5m investment in state-of-the-art additional production capacity in health products and genetics

· Net debt increased as expected to £23.9m, including £6.0m of ringfenced non-recourse debt used to part fund genetics capital expenditure

We continue to use adjusted results as our primary measures of financial performance as they better reflect our underlying performance. In line with many of our peers in the sector we highlight expensed R&D on the face of the income statement separate from operating expenses. Furthermore, we report earnings before interest, tax, depreciation and amortisation ("EBITDA") and EBITDA before including exceptional and acquisition related items ("Adjusted EBITDA"). We believe that this enables a better understanding of the investment we are making in the future growth of the Group and provides a better measure of our underlying performance of the Group. This is how the Board monitors the progress of the Group.

Like for like

As an acquisitive group, we also make reference to "like-for-like" measures to adjust for the different periods of ownership of new acquisitions and to show the underlying performance of the group. For FY17, like for like includes three months' preacquisition results from unaudited INVE Aquaculture Group management information and unaudited eleven months proforma results for Genetica Spring SAS in FY16 as shown in the tables below:

Like for like - Group

Like for like - Advanced Nutrition

Like for like - Genetics

Revenue

Group revenue increased by 28% to £140.2m in the year (2016: £109.4m). The increase results from:

· £28.6m from growth in our advanced nutrition business driven by increased market share and demand for higher margin live feed replacement and health diets plus the inclusion of a full year's sales of the INVE business (vs nine months of trading post acquisition in 2016);

· strong growth in salmon genetics sales resulting from customer demand and the success of new products launched;

· offset by reduced sales of health products due to lower demand for the now mature sea lice treatment Salmosan.

On a like for like basis sales increased by £16.5m (13%) and the advanced nutrition division delivered an increase of 14.2m (21%).

Adjusted EBITDA

Adjusted EBITDA increased by 9% to £10.0m (2016: £9.2m). On a like for like basis 2016 Adjusted EBITDA was £10.0m.

Benchmark Genetics delivered strong growth in Adjusted EBITDA with increased sales volumes and average sales prices for salmon eggs being the main drivers. The valuation of biological assets increased by £4.2m driven by the growth in sales in the year and strong order book at the year end. This supported strong growth in gross margins for the division, after expensed R&D of £2.7m (2016: £2.2m). Adjusted EBITDA grew by 314% to £5.8m (2016: £1.4m).

Advanced Nutrition experienced lower growth rates in the first half year but key markets continued to recover through the second half. This recovery aided strong growth in higher margin live feed replacement and health diets. Market prices for some live feed products were impacted by significant oversupply in Asia and this resulted in reduced gross margin from this product category. An exceptional bad debt provision of £1.1m was made in the year for a single debtor related to sales made in 2016. After this provision and after expensed R&D of £3m (2016: £1.3m) the division reported Adjusted EBITDA of £17.7m (2016: £15.9m - nine months post acquisition). 2016 like for like Adjusted EBITDA was £17.3m.

Animal Health is in a phase of transition with a targeted increase in investment in new products that will deliver future organic growth set against a backdrop of reduced demand for existing mature products. Investment in expensed R&D reduced to £7.3m (2016: £8.3m) reflecting careful management of spend and the fact that an increasing proportion of R&D has to be capitalised as more pipeline products approach full launch. The division reported an increased Adjusted EBITDA loss of (£11.6m) (2016: loss of (£4.2m)).

Knowledge Services reported a reduced Adjusted EBITDA loss of (£0.9m) (2016: loss of (£1.4m)) as a result of increased R&D trials revenue and cost control.

Total Group operating costs (excluding expensed R&D) increased by 32% to £39.3m (2016: £29.9m). This increase reflects the impact of including a full year of INVE's costs, a reduced credit from forex gains and a key driver of the balance was an increase in average headcount from 703 in 2016 to 881 in 2017. Year end headcount was 952 (2016: 884).

Investment in expensed R&D increased by £1.4m to £13.1m (2016: £11.7m). This represents a lower level of increase than in past years as R&D was carefully managed to ensure it is aligned with revenue growth and an increase in capitalised R&D as investment is more focused on products in the final stages of development. As a consequence R&D as a percentage of sales fell to 9% (2016: 11%). Total investment in R&D (including capitalized development costs) as a percentage of sales also fell to 11% (2016: 12%).

A net credit of £5.6m from exeptionals including acquisition related items is mainly due to the impact of the assessment of the likely level of payment of acquisition earnout liabilities and forex movements on those liabilities. In 2016, exceptional acquisition related items were costs of £13.1m, principally due to the acquisition costs related to the purchase of INVE Aquaculture in December 2015.

As a result of the above, EBITDA was £15.7m for the year (2016: loss of £3.9m).

Net Finance Costs

The Group incurred net finance costs of £0.5m during the year (2016: net finance costs of £2.2m). Interest charged on the Group's revolving credit facility was £1.7m (2016: £0.9m) reflecting both a full year of interest in 2017 (compared to nine months in the previous year) and a higher level of net debt during the year. The facility incurs interest in the range of 1.9% to 3.0% over LIBOR.

During the year, a foreign exchange gain of £1.2m arose due to the movement in exchange rates and has been included within finance costs (2016: £5.0m foreign exchange loss). In 2016, there was also an exchange gain of £3.7m on a foreign currency hedging instrument entered into to fix the US dollar consideration paid on the acquisition of INVE Aquaculture B.V.

Statutory loss before tax

The loss before tax for the year at £8.1m is an improvement of £14.3m on the prior year (2016: loss of £22.4m). The impact of the improved trading outlined above was offset by higher depreciation and amortisation charges of £23.4m (2016: £16.6m) due to a full year of charge on the assets acquired in the prior year.

Taxation

There was a tax credit in the period of £1.0m (2016: credit £4.0m). The largest elements of this relate to overseas tax charges in the Breeding and Genetics division of £1.7m and in the Advanced Nutrition division of £3.7m, offset by deferred tax credits of £5.6m, mainly on intangible assets arising on consolidation from recent acquisitions. No deferred tax assets have been provided on any losses made in the period.

Earnings per share

Basic loss and diluted loss per share were both 1.43p (2016: loss per share -4.39p). The movement year on year is due to a combination of the improved result for the year as noted above, and the higher average number of shares in 2017 due to a full year of the new shares issued in the equity raise used to fund the acquisition of INVE.

Dividends

No dividends have been paid or proposed in the year (2016: £nil) and the Board is not recommending a final dividend in respect of the year ended 30 September 2017.

Biological Assets

A feature of the Group's net assets is its investment in biological assets, which under IAS 41 are stated at fair value. At 30 September 2017, the carrying value of biological assets was £16.5m (2016: £11.9m). The movement in the overall carrying value of biological assets is due principally to the increase in sales of and future orders for the Company's salmon eggs.

Intangibles

Capitalised R&D increased by £0.7m to £2.1m. R&D costs related to products that are close to commercial launch have to be capitalised when they meet the requirements set out under IFRS. As Benchmark goes through a period of an increasing number of new products approaching launch this capitalisation will be an increasing feature in the mid-term.

Capital expenditure

Capital expenditure addtitions of £36.1m (2016: £18.7m) includes £20.5m cash investment on the ongoing construction of the new salmon egg production facility in Norway.

Cash flow

Net cashflow from operations was an increase of £13.4m (2016: outflow £10.5m) due to the improved EBITDA in the period, and the high acquisition costs incurred and a corresponding increase in working capital in the prior year.

Proceeds from increased borrowings of £5.9m were used to part fund some of the capital expenditure outlined above, with total cash outflow on tangible and intangible capital additions totalling £35.2m (2016: £20.2m).

Cash at the period end stood at £18.8m (2016: 38.1m) with net debt finishing the year at £23.9m (2016: net cash £0.4m)

Liquidity and net debt

The Group's finance function is responsible for sourcing and structuring borrowing requirements. The Group had £42.7m in bank borrowings at the end of the year. Reported debt includes £6m in relation to the funding of the Group's new salmon egg production facility in Norway. This is ringfenced debt without recourse to Benchmark. The key revolving credit facility has a maximum drawdown of £54m and a total of £38m had been drawn at the year end leaving sufficient headroom to meet normal funding requirements in the medium term. Net debt increased to £23.9m during the year as planned as available capital was invested in R&D and production capacity.

1 EBITDA - Earnings before interest, tax, depreciation and amortisation

2 Adjusted EBITDA - EBITDA before exceptional and acquisition related items

Consolidated Balance Sheet

as at 30 September 2017

Consolidated Statement of Changes in Equity

for the year ended 30 September 2017

Consolidated Statement of Cash Flows

for the year ended 30 September 2017

1. Basis of preparation

The results for the year ended 30 September 2017, including comparative financial information, have been prepared in accordance with International Financial Reporting Standards ("IFRS"), and their interpretations adopted by the European Union.

Benchmark Holdings plc ("the Company") has adopted all IFRS in issue and effective for the year. While the financial information included in this preliminary announcement has been prepared in accordance with the recognition and measurement criteria of IFRS, this announcement does not itself contain sufficient information to comply with IFRS. The Company expects to publish full financial statements that comply with IFRS in January 2018.

The financial information set out above does not constitute the Company's statutory accounts for the years ended 30 September 2017 or 2016, but is derived from those accounts. Statutory accounts for 2016 have been delivered to the Registrar of Companies. The auditors have reported on those accounts: their reports were unqualified, did not draw attention to any matters by way of emphasis and did not contain statements under s498 (2) or (3) of the Companies Act 2006. The accounts for 2017 will be delivered following the Company's AGM.

The financial information presented in respect of the year ended 30 September 2017 has been prepared on a basis consistent with that presented in the annual report for the year ended 30 September 2016.

2. Accounting policies

The accounting policies adopted are consistent with those of the financial year ended 30 September 2016.

3. Segment information

Operating segments are reported in a manner consistent with the reports made to the chief operating decision maker. It is considered that the role of chief operating decision maker is performed by the Board of Directors.

The Group operates globally and for management purposes is organised into reportable segments as follows:

· Animal Health Division - provides veterinary services, environmental services diagnostics and animal health products to global aquaculture, and manufactures licenced veterinary vaccines and vaccine components;

· Genetics Division - harnesses industry leading salmon breeding technologies combined with state-of-the-art production facilities to provide a range of year-round high genetic merit ova;

· Advanced Animal Nutrition - manufactures and provides technically advanced nutrition and health products to the global aquaculture industry;

· Corporate - the corporate segment represents revenues earned from recharging certain central costs to the operating divisions, together with unallocated central costs.

In addition to the above, reported together as "all other segments" are the following divisions (known collectively as "Knowledge Services"), the results of which are not significant on an individual basis:

· Sustainability Science Division - provides sustainable food production consultancy, technical consultancy and assurance services;

· Technical Publishing Division - promotes sustainable food production and ethics through online news and technical publications for the international agriculture and food processing sectors and through delivery of training courses to the industries.

Measurement of operating segment profit or loss

Inter-segment sales are priced along the same lines as sales to external customers, with an appropriate discount being applied to encourage use of Group resources at a rate acceptable to local tax authorities. This policy was applied consistently throughout the current and prior period.

4. Exceptional items

Items that are material because of their nature, non-recurring or whose significance is sufficient to warrant separate disclosure and identification within the consolidated financial statements are referred to as exceptional items. The separate reporting of exceptional items helps to provide an understanding of the Group's underlying performance.

Acquisition related items are costs incurred in investigating and acquiring new businesses. During the year, the contingent consideration element of the provision for deferred consideration held for previous acquisitions has been recalculated considering up to date performance of those acquisitions and the projected performance for the final 3 months of the earn out period (which ended on 31 December 2017)against the relevant sales volumes and revenue targets. As a result, £7,283,000 (2016: £2,791,000) has been released in the year. Included in 2016 is £9,504,000 relating to the acquisition of INVE Aquaculture B.V.

Exceptional include: costs of £452,000 (2016: £nil) for legal fees incurred in relation to a dispute around building works with the main contractor at premises in Braintree within the Animal Health Division; costs totalling £182,000 (2016: £nil) relating to a restructuring in an Animal Health Division business in Thailand, this included £97,000 of redundancy payments (staff costs) and £85,000 loss on disposal of property, plant and equipment; also included is a £29,000 (2016: £nil) credit in relation to balances written off in preparation for liquidating an entity in the Advanced Animal Nutrition division. In 2016 restructuring costs (staff costs) of £146,000 were incurred on re-organisations within the Sustainability Science Division.

5. Loss per share

Basic loss per share is calculated by dividing the profit or loss attributable to ordinary equity holders of the Company by the weighted average number of ordinary shares in issue during the period.

Diluted loss per share is calculated by adjusting the weighted average number of ordinary shares outstanding to assume conversion of all dilutive potential ordinary shares. This is done by calculating the number of shares that could have been acquired at fair value (determined as the average market price of the Company's shares since admission to AIM) based on the monetary value of the subscription rights attached to outstanding share options and warrants.

Therefore, the Company is required to adjust the loss per share calculation in relation to the share options that are in issue under the Company's share based incentive schemes as follows:

A total of 4,464,413 potential ordinary shares have not been included within the calculation of statutory diluted loss per share for the year (2016: 5,891,889) as they are anti-dilutive. However, these potential ordinary shares could dilute earnings/loss per share in the future.

6. Net finance costs

7. Property, plant and equipment

Group

8. Intangible assets

9. Biological assets

Livestock

The Group operates a commercial and research farming and technology transfer business, and at 30 September 2017 held 2,909 (2016: 3,269) head of sheep, 327 (2016: 447) head of cattle, and 9,011 (2016: 6,940) hens. The Group had farming sales of £346,194 in the year ended 30 September 2017 (2016: £358,000).

The Group is exposed to financial risks arising from changes in the market value of farm animals. The Group does not anticipate that prices will decline significantly in the foreseeable future and, therefore, has not entered into derivative or other contracts to manage the risk of a decline in livestock price. The Group reviews its outlook for livestock prices regularly in considering the need for active financial risk management.