Benchmark Holdings Regulatory News (BMK)

28 February 2020

Information within this announcement is deemed by the Company to constitute inside information under the Market Abuse Regulations (EU) No. 596/2014.

Benchmark Holdings plc

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

Q1 Results

(3 months ended 31 December 2019)

In compliance with the terms of Company's senior secured bond which requires it to publish quarterly financial information, Benchmark, the aquaculture health, nutrition and genetics business, announces its unaudited results for the 3 months ended 31 December 2019 (the "period"). All Q1FY20 and Q1FY19 figures quoted in this announcement are based on unaudited accounts.

(1) EBITDA is earnings/(loss) before interest, tax, depreciation and amortisation and impairment.

(2) Adjusted EBITDA is EBITDA1, before exceptional items and acquisition related expenditure.

(3) Adjusted Operating Profit is operating loss before exceptional items including acquisition related items and amortisation of intangible assets excluding development costs

(4) Net debt is cash and cash equivalents less loans, borrowings and lease obligations excluding balances held for sale (note 15)

* FY2019 numbers have been restated to reflect changes to the ongoing continuing business since the previous reporting date (note 5). Q1 2019 figures have not been previously reported and so are not restated.

Q1 Overview

·; Q1 results were impacted by continuing market weakness in Advanced Nutrition. As a result, Group revenues from continuing operations were 15.5% below the prior year and Adjusted EBITDA from continuing operations a loss of £2.0m. Positive performance and outlook in Genetics.

·; The Company is accelerating its restructuring and cost savings plan to offset the continuing impact from adverse shrimp markets and overall the Company expects to deliver on expectations for the full year.

·; The Company is monitoring the potential impact of the Coronavirus on its business. To date, the coronavirus has led to a suspension of shrimp imports to China, affecting shrimp producers principally in Ecuador and India. In addition, shrimp production in Vietnam and Thailand has decreased as a result of preventative measures constraining activities and consumption across Asian markets has declined.

·; Post period end, the Company:

o raised £42m net proceeds through a placing and open offer with existing and new shareholders to fund the scale up of CleanTreat® necessary for the commercialisation of the Company's new sea lice treatment BMK08 and for working capital purposes;

o completed the sale of its conferences business, completed the sale of a small non-core nutrition business, and closed its marketing services business; and

o submitted the regulatory dossier for BMK08.

·; Liquidity (defined as cash and undrawn facility) as at 27 February 2020 was c.£67m (31 December 2019: £24.8m).

Divisional overview

·; Advanced Nutrition reported a £4.5m reduction in revenues to £11.4m (Q1 2019: £15.9m) as a result of market weakness, the global oversupply of Artemia and stocking patterns in Q4 2019. Adjusted EBITDA was a loss of (£0.4m) (Q1 2019: £2.7m).

·; Genetics reported revenues of £12.1m, 2.5% ahead of the same period last year and Adjusted EBITDA of £3.5m, 9% ahead of the prior year (Q1 2019: £3.2m), with the increase in Adjusted EBITDA margin to 29% driven by production at the new Salten facility replacing previous outsourcing.

·; Revenues in Animal Health (including Discontinued Operations of veterinary and diagnostics) in Q4 were £3.4m (Q1 2019: £3.5m). Adjusted EBITDA was a loss of £4.0m (Q1 2019: loss of £3.5m).

Peter George, Executive Chairman, commented:

"As expected, our first quarter saw a continuation of the trends reported at year end, with weak shrimp and Mediterranean seabass/bream markets affecting Advanced Nutrition and outweighing a good performance in Genetics.

"So far the impact from coronavirus has been minimal but we remain cautious given our exposure to the Asian end markets."

"The submission of our regulatory dossier for BMK08, our novel sea lice treatment is a significant milestone. Following the recent fundraise we are in a strong financial position to prepare for the commercial launch."

"We remain on track to complete our planned disposals in 2020 and are accelerating our restructuring and cost savings programme which will help us offset the ongoing adverse conditions in Advanced Nutrition and deliver on expectations for the full year."

Enquiries

Katie Hunt, Reg Hoare, Alistair de Kare-Silver. benchmark@mphc.com

About Benchmark 

Benchmark's mission is to enable food producers to improve their sustainability and profitability.

We bring together biology and technology, to develop innovative products which improve yield, quality and animal health and welfare for our customers. We do this by improving the genetic make-up, health and nutrition of their stock - from broodstock and hatchery through to nursery and grow out.

Benchmark has a broad portfolio of products and solutions, including salmon eggs, live feed (Artemia), diets and probiotics and sea lice treatments. Find out more at www.benchmarkplc.com

Management Report

Group

Q1 2020 saw a continuation of the trends seen in Q4 2019, with weak shrimp and Mediterranean seabass/bream markets and oversupply of Artemia impacting sale volumes and margins in Advanced Nutrition. As a result, the Group reported revenues of £25.0m and an Adjusted EBITDA loss of (£2.0m). Gross margin for the Group in the period was 48% (Q1 2019: 52%).

Operating costs increased 5% against the same period in the prior year mainly driven by staff costs. Research and development costs increased to £4.0m in the quarter (Q1 2019: £3.0m) with increases in Animal Health and Genetics being offset by lower spend in Advanced Nutrition.

Net finance income for the quarter was £2.4m (Q1 2019: net finance costs £2.4m). Interest expense has increased to £1.7m (Q1 2019: £1.1m) as a result of the higher level of borrowings and increased borrowing rate following refinancing in 2019. Other movements relate to forex gains of £3.4m in the period (Q1 2019: forex loss £1.4m) and a gain on the fair value of the instrument taken out to hedge currency and interest volatility in the bond financing for which hedge accounting has not been adopted.

This quarter is the first period in which IFRS 16 'Leases' has been adopted. The impact of the standard has been to increase operating profit in the quarter by £0.4m, increase finance costs by £0.1m and increase depreciation by £0.3m. The right-of-use assets recognised on the balance sheet, measured at the discounted net present value of the future lease payments, have a net book value of £4.4m. The resulting lease liabilities are included within loans and borrowings, and total £4.5m at 31 December 2019.

There was a net increase in cash in the quarter of £2.2m (Q1 2019: £9.6m outflow). Net cash outflow from operating activities was £3.6m (Q1 2019: £5.3m outflow) which included the unwind of high year end debtors and creditors balances resulting from high year end activity. There were further cash inflows of £6.9m from the receipt of the final part of the consideration from the dissolution of the joint venture with AquaChile and £4.2m drawn against the revolving credit facility. Net debt at the end of the period was £91.3m and liquidity was £24.8m, above our £10m minimum liquidity covenant. Liquidity post period end fundraising of £42m (net proceeds) was c. £67m (as at 27 February 2020).

As stated in our full year results, a key priority for 2020 is the delivery of our programme of disposals and cost savings. Post period end we completed the sale of our conferences business, completed the sale of a small non-core nutrition business, and closed our marketing services business. The disposals will generate initial cash consideration of £1.5m, and up to £0.5m of additional consideration.

Divisional Commentary

Advanced Nutrition

Advanced Nutrition delivered revenues of £11.4m, 28% below the prior year (Q1 2019: £15.9m) as a result of weak shrimp and bass/bream markets, the oversupply in global Artemia, and the restocking pattern seen in Q4 2019. Consequently Adjusted EBITDA was a loss of (£0.4m) (Q1 2019: £2.7m).

By product area, Artemia was most affected, down 45% versus prior year while Diets was down 9% and Health up 4%. By geography, India was the most impacted market in shrimp, although it is expected to show some recovery later in the year. The Mediterranean seabass/bream hatchery season has had a slow start. Faced with challenging market conditions, our focus is on strengthening our customer technical support and leveraging our proprietary technologies to retain and regain Artemia market share, controlling costs, and expanding in the shrimp grow-out segment. As part of this strategy, we completed successful trials of our grow-out protocols with the leading shrimp producer in Vietnam to support the scaling up of their farming capacity.

Genetics

Genetics revenues in Q1 2020 were £12.1m, 2.5% above the prior year (Q1 2019: £11.8m) and Adjusted EBITDA was £3.5m, 9% above the prior year (Q1 2019: £3.1m). The Adjusted EBITDA margin in the period was 29% (Q1 2019: 27%).

The margin improvement reflects the slightly higher revenues and lower cost of sales as a result of in-house egg production at Salten replacing more expensive outsourced production. Following the opening of the Salten facility, this is the first year we are able to supply salmon eggs year round from Norway, a significant benefit for our customers.

The Company took operational control of Ensenada, the salmon egg hatchery and incubation facility in Chile, and post period end the Company signed a lease on a new grow-out facility in Curacalco to complete the infrastructure required for local production of salmon eggs in Chile.

Animal Health

Revenues in Animal Health in Q1 2020 (including Discontinued Operations of veterinary and diagnostics) were £3.4m, 3% below the prior year (Q1 2019: £3.5m). Revenues from Continuing Operations were £1.8m, £0.4m below the prior year (Q1 2019: £2.2m) as a result of lower Salmosan sales in the Faroes and Canada and lower toll manufacturing sales.

Adjusted EBITDA including Discontinued Operations was a loss of (£4.0m) (Q1 2019: loss £3.5m). Adjusted EBITDA loss from Continuing Operations was £4.2m (Q1 2019: loss £3.3m). The lower performance against the prior year reflects a reduction in revenues from higher margin areas or markets, as well as increased expenditure related to launch preparations for BMK08 and investment in vaccine development.

Operationally there was significant progress in the commercial launch plan for BMK08 including development of the operating model for CleanTreat®, as well as activity to compile the regulatory dossier for BMK08 which was submitted post period end. Procurement for the next CleanTreat® system also commenced post period end. In vaccines, the regulatory dossier for the first seabream/seabass vaccine was submitted.

Outlook

Conditions in our Advanced Nutrition business continue to be adverse into Q2. However, the outlook in the salmon sector which underpins our Genetics and Health business continues to be positive. Our priority for 2020 remains to deliver on our programme of disposals, restructuring and cost savings, which we have accelerated in light of the adverse conditions in Advanced Nutrition.

Following completion of the £42m (net proceeds) fundraising on 27 February 2020, we are in a stronger financial position both to prepare for the commercial launch of BMK08 and to accelerate our restructuring programme.

So far the impact from coronavirus has been minimal but we remain cautious given our exposure to the Asian end markets. To date the coronavirus has led to a suspension of shrimp imports to China, the world's largest consumer of shrimp, which has affected producers in Ecuador and India.

Benchmark Holdings plc

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

2 Adjusted EBITDA - EBITDA before exceptional and acquisition related items

*FY 2019 numbers have been restated to reflect changes to the ongoing continuing business since the previous reporting date (note 5). Q1 2019 figures have not been previously reported and so are not restated.

Benchmark Holdings plc

Consolidated Statement of Comprehensive Income for the period ended 31 December 2019

*FY 2019 numbers have been restated to reflect changes to the ongoing continuing business since the previous reporting date (note 5). Q1 2019 figures have not been previously reported separately and so are not restated.

Benchmark Holdings plc

The notes to these financial statements are an integral part of this interim consolidated financial information

Benchmark Holdings plc

Consolidated Statement of Changes in Equity for the period ended 31 December 2019

Other reserves in this statement is an aggregation of Capital redemption reserve and Foreign exchange reserve.

Benchmark Holdings plc

The Consolidated Statement of Cash Flows presents cash flows from both Continuing and Discontinued operations

Of the cash balance at 31 December 2019 of £17,264,000, £244,000 has been classified as held for sale (note 9).

Benchmark Holdings plc

1. Basis of preparation

Benchmark Holdings plc (the 'Company') is a company incorporated domiciled in the United Kingdom. These consolidated interim financial statements as at and for the three months ended 31 December 2019 represents that of the Company and its subsidiaries (together referred to as the 'Group').

These interim financial statements have been prepared in accordance with IAS 34 Interim Financial Reporting, and should be read in conjunction with the Group's last annual consolidated financial statements as at and for the year ended 30 September 2019 ('last annual financial statements'). They do not include all of the information required for a complete set of IFRS financial statements. However, selected explanatory notes are included to explain events and transactions that are significant to an understanding of the changes in the Group's financial position and performance since the last annual financial statements. Statutory accounts for the year ended 30 September 2019 were approved by the Directors on 20 December 2019 and will be delivered to the Registrar of Companies. The audit report received on those accounts was unqualified and did not make a statement under section 498 of the Companies Act 2006 but did contain an emphasis of matter paragraph in relation to going concern.

Going concern

The Group's business activities, together with the factors likely to affect its future development, performance and position are set out in the Management Report.

As at 31 December 2019 the Group had net assets of £280.0m (30 September 2019: £310.5m), including cash of £17.0m (30 September 2019: £16.1m) as set out in the consolidated balance sheet. The Group made a loss for the period of £5.4m (12 months ending 30 September 2019: £83.1m). Drawings against the Group's USD15m revolving credit facility were USD4.9m (c.£4.0m) at 31 December 2019 (30 September 2019: £nil).

During February 2020, net proceeds of £41.9m were received following an issue of share capital (note 12).

The Directors have reviewed trading and cash flow forecasts for the Group covering the period to September 2021, including forecast compliance with covenants on borrowings. These forecasts include a number of assumptions in relation to trading performance across the Group including supply, demand and pricing of key raw materials and products, and the out-licensing of certain products in development. The forecasts also contain a number of board approved initiatives ("Structural Efficiencies programme") relating to structural and operational efficiencies to reallocate capital, reduce costs, grow margins, prioritise R&D spend, and exit from non-core activities.

The Directors have considered reasonably possible downside sensitivity scenarios, including mitigating actions within their control should these occur around deferring and reducing non-essential capital and revenue expenditure. Together with the proceeds from the proceeds from the equity raise, these forecast cashflows provide sufficient headroom in the forecast period.

The Directors have considered all of the factors noted above and are confident that the Group has adequate resources to continue to meet its liabilities as and when they fall due the period of 12 months from the date of approval of these interim financial statements. Accordingly, the interim financial statements have been prepared on a going concern basis.

In the last annual financial statements it was disclosed that although the Directors believed it remained appropriate to prepare the financial statements on a going concern basis, a material uncertainty existed that may have cast significant doubt on the Group's and Company's ability to continue as a going concern and therefore to continue realising their assets and discharging its liabilities in the normal course of business. The last annual financial statements did not include any adjustments that would result from the basis of preparation being inappropriate. Based on the review and financing activities described above, and the cash reserves now available, the Directors no longer believe this material uncertainty exists.

Accounting policies

The accounting policies adopted are consistent with those used in preparing the consolidated financial statements for the financial year ended 30 September 2019.

Taxes on income in the interim periods are accrued using the tax rate that would be applicable to expected total earnings.

1. Basis of preparation

Adoption of new and revised standards

This is the first set of the Group's financial statements in which IFRS 16 Leases has been applied. The effects of this are set out in note 2 - Changes in significant accounting policies.

The Group does not consider that any other standards, amendments or interpretations issued by the IASB, but not yet applicable, will have a significant impact on the financial statements.

Alternative performance measures ('APMs')

The Directors measure the performance of the Group based on a range of financial measures, including measures not recognised by EU-adopted IFRS. These APMs may not be directly comparable with other companies' APMs and the Directors do not intend these as a substitute for, or superior to, IFRS measures.

Directors have presented the performance measures Adjusted EBITDA, Adjusted Operating Profit and Adjusted Profit Before Tax because it monitors performance at a consolidated level using these and believes that these measures are relevant to an understanding of the Group's financial performance.

Use of estimates and judgements

The preparation of interim financial information requires management to make certain judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expense. Actual amounts may differ from these estimates.

In preparing these interim financial statements the significant judgements made by management in applying the Group's accounting policies and the key sources of estimation uncertainty were the same as those applied to the consolidated financial statements for the year ended 30 September 2019.

2. Changes in significant accounting policies

The Group has adopted IFRS 16 Leases from 1 October 2019.

IFRS 16 superseded the previous lease guidance including IAS 17: "Leases" and related interpretations. It requires all leases to be recognised on the Balance Sheet, with certain exceptions for low-value leases and leases with a term of less than 12 months.

The impact of IFRS 16 on the Group has been be to recognise a lease liability representing its obligation to make lease payments and a corresponding right-of-use asset representing its right to use the underlying asset in the Balance Sheet for leases currently classified as operating leases, except for short-term leases and leases of low value assets. The nature of expenses related to these leases has now changed because the Group now recognises a depreciation charge for right of use assets and interest expense on lease liabilities.

IFRS 16 has been adopted for the year ending 30 September 2020 using the modified retrospective approach. The right-of-use asset recognised on transition has been measured at an amount materially equal to the lease liability, which has been measured at the present value of the future lease payments discounted using the discount rate implicit in the lease (or if that rate could not be readily determined, the lessee's incremental borrowing rate). Therefore, no adjustment to the opening balance of retained earnings at 1 October 2019 has been necessary along with no restatement of comparative information.

The impact of IFRS 16 on the Income Statement for the 3-month period ended 31 December 2019 for continuing operations has been an increase to operating profit of £0.4m, an increase in finance costs of £0.1m, an in increase in depreciation of £0.3m and no change in loss on discontinued operations.

For arrangements previously classified as finance leases, where the Group is a lessee, as the Group had already recognised an asset and a related finance lease liability for the lease arrangement, there has been no impact on the amounts recognised in the Group's Consolidated Financial Statements, at 1 October 2019.

When measuring lease liabilities that were previously classified as operating leases, the Group discounted lease payments using relevant incremental borrowing rates at 1 October 2019. The weighted average applied is 5.6%.

2. Changes in significant accounting policies

Reconciliation of right of use assets and liabilities

The Group presents lease liabilities within Loans and Borrowings. The carrying amount included within these at 31 December 2019 is as follows:

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;

·; Benchmark 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 Division - manufactures and provides technically advanced nutrition and health products to the global aquaculture industry.

In addition to the above, reported as "all other segments" is the Knowledge Services division. The division provides sustainable food production consultancy, technical consultancy and assurance services and 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.

In order to reconcile the segmental analysis to the Consolidated Income Statement, Corporate and Inter-segment sales are also shown. Corporate represents revenues earned from recharging certain central costs to the operating divisions, together with unallocated central costs.

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.

3. Segment information

Reconciliations of segmental information to IFRS measures

*See note 5.

4. Revenue

The Group's operations and main revenue streams are those described in its financial statements to 30 September 2019. The Group's revenue is derived from contracts with customers.

Disaggregation of revenue

In the following tables, revenue is disaggregated by primary geographical market and by sales of goods and services. The table includes a reconciliation of the disaggregated revenue with the Group's reportable segments (see note 3).

Sale of goods and provision of services

*See note 5.

4. Revenue

Primary geographical markets

4. Revenue

Primary geographical markets

* See note 5.

5. Discontinued activities

In June 2019 the Group announced a programme of structural efficiencies which focused on the disposal and discontinuation of non-core activities. This programme primarily includes the businesses of Knowledge Services Division and the veterinary services business within Animal Health Division. During the quarter, a small non-core business within Advanced Animal Nutrition was put up for sale and a business within the Corporate category was closed. FY 2019 numbers have been restated to reflect these changes to the continuing business since the previous reporting date. Q1 2019 figures have not been previously reported separately and so are not restated. 

Consequently, these operations have been classified as discontinued and part of the disposal group is presented as held for sale (See note 9). The disposal group includes assets and liabilities within the Knowledge Services, Animal Health and Advanced Animal Nutrition segments. The comparative consolidated statement of profit or loss and OCI has been represented to show the discontinued operations separately from continuing operations.

The disposals, together with the cost reduction/cost containment plan and enhanced working capital management will allow the Company to reallocate resources to priority revenue generating strategic projects and to maintain adequate headroom. The timing and proceeds from these actions remain part of the plant to maintain sufficient liquidity to execute the Group's product development programme and to support its Continuing Operations.

Significant progress in selling the disposal group has been made with post quarter-end sale of the Group's conference business and the small non-core Advanced Animal Nutrition business, and further sales are expected to complete within the second quarter of the financial year 2020.

5. Discontinued activities

Results from discontinued operations

Exceptional - restructuring/acquisition related items - discontinued operations

Results from discontinued operations by segment

5. Discontinued activities

6. Exceptional - restructuring/acquisition related items

Items that are material because of their size or nature, non-recurring and 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.

Exceptional expenses in Q1 2020 include: £128,000 of staff costs and £6,000 of legal costs relating to the ongoing restructuring of the group.

7. Taxation