Benchmark Holdings Regulatory News (BMK)

29 May 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")

Second Quarter and Interim results for the six months ended 31 March 2020

Benchmark (LSE: BMK), the aquaculture health, genetics and advanced nutrition business, announces its unaudited interim results for the six months ended 31 March 2020 (the "Period"). The Company also announces its unaudited results for the three months ended 31 March 2020 in compliance with the terms of its senior secured bond. 

· H1 results reflect good performance in Genetics driven by successful ramp-up of Salten facility and continued impact of weak shrimp markets and Artemia oversupply in Advanced Nutrition

· Strong liquidity (cash and available facility) of c.£67.6m as at 27 May 2020 having raised £42m in February 2020 and action taken to conserve cash

· Group restructuring well advanced, refocusing the business on core areas:

o Completed four disposals (including two post period end), exited loss-making areas and closed trial facilities;

o Disposals underway expected to generate £27m-£30m;

o Initiated review of vaccine strategy;

o Restructuring and cost saving plan aiming to deliver a minimum of £10m annual savings;

· Trond Williksen appointed as CEO with effect 1 June, bringing extensive experience in the international aquaculture and seafood industries

· Progress towards commercialisation of BMK08 and CleanTreat® in Q2 2021CY: regulatory process continuing and commissioning of infrastructure commenced

· Continuity of supply and customer service through Covid-19. Salmon markets resilient; shrimp markets impacted - some evidence of recovery in countries emerging from lockdown

*  H1 2019 numbers have been restated to reflect changes to the ongoing continuing business since the previous reporting date (note 5). Q2 2019 figures have not been previously reported and so are not restated.

(1) Adjusted EBITDA is EBITDA (earnings before interest, tax, depreciation and amortisation and impairment), before exceptional items including acquisition related expenditure.

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

(3) Net debt is cash and cash equivalents less loans and borrowings. Net debt includes £9.0m (H1 2019: £nil) relating to operating lease obligations which are now held on balance sheet following the adoption of IFRS 16.

Divisional summary (Continuing and discontinued operations)

· Advanced Nutrition 

o Drop in revenues and Adjusted EBITDA driven by weak shrimp markets, and oversupply and price competition in Artemia

o Implementing plan to reduce cost base; benefit from cost savings to come through in FY21

o Continued supply and customer support through Covid-19

· Genetics 

o Significant increase in margin from successful ramp-up of Salten facility, moving previously outsourced production in-house, and from strong sales into Scotland from biosecure facility in Iceland

o Revenue in line with prior year reflects lower egg volumes as a result of shift from third party production and adverse forex movements, compensated by higher prices achieved from specialist genetic traits and year round supply of eggs from Salten

· Animal Health 

o Revenues (including discontinued operations of veterinary and diagnostics) down on prior year as a result of lower toll manufacturing revenues

o Continued progress towards commercialisation of new sea lice treatment BMK08 and CleanTreat®

Impact from Covid-19 on our end markets and actions taken

· The salmon industry has proven resilient with limited exposure to the food services sector (30%), a longer production cycle and a robust industry structure

· The shrimp industry is being significantly impacted by lower demand with c.60% exposure to food services, a significant drop in prices and disruption to production. There are early signs of recovery in countries where lockdown is easing

· The sea bass/bream market has significant exposure to food services in line with shrimp but a longer production cycle than shrimp and has suffered modest impact

· The Company implemented a business continuity and cash conservation plan to ensure employee safety whilst continuing to supply and service customers

· Actions taken to conserve cash and maintain adequate financial headroom have included reducing variable costs, R&D and capex spend; working capital management; and temporary salary cuts, furloughing, and temporary redundancies for more than 20% of staff

Update on disposal of non-core assets and restructuring

· During the Period, the Company completed two disposals and closed its marketing services business. Post Period-end, the Company completed two further disposals

· The Company has achieved c.£2.4m in cash proceeds from completed disposals and expects to generate c.£27m-£30m from the remaining planned disposals

· In addition to the previously planned disposals, the Company has initiated a review of its vaccine strategy to identify the best route to realise value from its assets and pipeline and reduce the cash burn in this area; discussions with third parties are underway

· The Company's restructuring and cost savings plan aims to deliver a minimum of £10m in annual savings

Progress towards commercialisation of near-term pipeline

· BMK08 sea lice treatment - progress in regulatory process and commissioning of initial infrastructure to support launch in Q2 2021 CY

· SPR shrimp - achieved test market sales into China and commenced construction of facility in Thailand with local partner. Commercial launch pushed back by 12 months to benefit from expected market recovery post Covid-19

Liquidity and net debt

· £42m net proceeds raised in February 2020 through a placing and open offer to fund the scale-up of CleanTreat®, necessary for the commercialisation of BMK08 and for working capital purposes

· Liquidity (defined as cash and undrawn facility) as at 27 May 2020 was c.£67.6m (31 March 2020: £63.2m) against a liquidity covenant of £10m

· Net debt at the half year end was £55.8m (30 September 2019: £87.1m; 31 March 2019: £65.5m). Net debt includes operating lease obligations of £9.0m (30 September 2019: £nil, 31 March 2019: £nil) following the adoption of IFRS 16 in the Period

Current Trading and Outlook - new CEO appointed

· Appointment of Trond Williksen as CEO with effect from 1 June 2020

· Good visibility of order book in Genetics and resilience in the salmon market

· Weakness in shrimp markets expected to continue through the end of the financial year. Early evidence of recovery in countries emerging from lockdown

· Solid financial position supported by existing liquidity and cash conservation plan

· Programme of disposals and restructuring ongoing

· Continued focus on commercial launch of BMK08 and CleanTreat®

Peter George, Executive Chairman, commented:

"Our results for the first half of the year were disappointing reflecting the weakness in the shrimp markets and oversupply of Artemia, and the additional challenges of Covid-19 in the latter part of the Period. Our salmon business has been more robust in the face of the global lockdown with good visibility, and this, together with a solid cash position after our fundraising in February and our cash conservation plan, gives us confidence in managing Benchmark through this crisis.

"Our priority continues to be on completing the restructuring of the Group to focus on our core aquaculture disciplines, reducing our cost base, increasing efficiency and transitioning from R&D investment into profitability. Longer term the fundamentals of our business are very attractive with an increasing need for products and solutions that enable sustainable food production.

"I am delighted to welcome Trond Williksen as CEO of Benchmark who brings deep, relevant aquaculture expertise and has proven operational, strategic, M&A, and managerial experience spanning both producers and technology providers in the industry."

Details of analyst / investor call today

There will be a call at 9:30am UK time today for analysts and investors. To register for the call please contact MHP Communications on 07875 744 070 or 07551 170 451, or by email on benchmark@mhpc.com

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

Overview

The Group reported revenues from continuing operations of £57.0m and an Adjusted EBITDA from continuing operations of £2.8m in H12020 as a result of continued weakness in the shrimp markets, oversupply of Artemia, and the early impact of the Covid-19 pandemic which overshadowed a robust performance in the Genetics business.

An estimated 60% of demand for shrimp derives from the food services sector which has been critically affected by the global lockdown; the sea bass/bream sectors have a similar exposure but the longer production cycle reduces volatility and impact has been modest. In salmon, by contrast, 70% of demand is represented by retail, which has tended to benefit from the lockdown measures with an increase in home consumption of salmon in certain markets including the US. In addition, the two and a half to three year production cycle in salmon means that demand for salmon eggs is less affected by the short term impact from Covid-19.

The Company began to experience the impact from Covid-19 in the Advanced Nutrition business in Asia towards the end of the Period. In addition to the fall in demand for shrimp, which drove down the shrimp price and resulted in reduced production, curfews and regional quarantines in major producing countries affected production volumes. At the same time, the sector experienced transportation lockdowns across the supply chain from hatchery to nursery, grow-out and end markets which increased economic pressure across the value chain, impacting farm gate prices and stocking decisions.

Covid-19 measures

The Group took early action to protect the health and wellbeing of its staff, to ensure continuity of supply and service for its customers and to conserve cash and maintain headroom. We have implemented remote working for office-based employees, adapted shift patterns at manufacturing sites worldwide to reduce employee exposure and enhanced safety procedures.

We continue to serve our customers with limited interruption to date. We have built an inventory of product and key ingredients in response to the risk from border closure and freight and logistical challenges, and are conducting regular customer support webinars and generating online content which will remain a positive addition to our service offering post Covid-19.

From a financial perspective, actions taken by the Company to date to conserve cash include reducing variable costs where possible; cuts and delays to R&D and capex spend; and working capital management. We have initiated a review of our vaccine strategy and pushed back the launch of our SPR shrimp and of our 100% Artemia replacement to align the timing to a market recovery. We have furloughed, reduced working hours or applied temporary salary cuts or temporary redundancy to c.20% of our workforce, with the implementation of these measures corresponding with the areas of our business that are being most impacted. Our Board and our Operations Board have voluntarily taken a temporary 20% salary cut.

Update on programme of disposals and restructuring

Despite the challenges raised by the Covid-19 pandemic, we remain firmly focused on completing the planned disposals and restructuring of the Group to focus on our core aquaculture disciplines and on reducing our cost base in order to transition from R&D investment into profitability.

To-date, we have completed four disposals raising a total of £2.4m and expect to generate £27m-£30m from planned disposals which are underway. In addition to the previously announced disposals, the Company has initiated a review of its vaccines strategy to define the best route to realise value from its technology and assets. The Company aims to deliver a minimum of £10m in annual savings from its restructuring and cost savings plan.

Board changes

Following the Period-end, the Group announced on 7 April 2020 the appointment of Trond Williksen as Chief Executive Officer and Director of the Company, with effect from 1 June 2020. Following Trond Williksen's appointment, Peter George will revert to his former position as Non-Executive Chairman.

Trond Williksen is highly experienced in the international aquaculture and seafood industries, having held senior executive positions and a number of advisory and non-executive director roles in the sector for over 20 years, most recently as CEO of SalMar ASA, the Norwegian fish farm company and one of the world's largest producers of farmed salmon. Prior to this, he was CEO of AKVA group ASA, the leading global aquaculture technology and service provider for six years. He previously held a number of senior roles in Aker ASA's Seafoods, Ocean Harvest and BioMarine divisions.

On 21 April 2020, the Group announced that Alex Raeber is stepping down as Chief Scientific Officer (CSO) and a Director of the Company with effect from 31 July 2020. Alex has played an instrumental role in the execution of the Company's new strategy, leading the review and streamlining of the product pipeline, the integration of Benchmark's innovation teams and the reorganisation of the Group's in-house trial facilities.

Outlook

We expect market conditions in shrimp and the operational and economic effects from the Covid-19 pandemic to continue to impact our Advanced Nutrition business for the rest of the financial year. Encouragingly, Genetics continues to perform robustly reflecting more stable demand for salmon and we have good visibility of the order book for the rest of the year. Our commercialisation plan for BMK08 is progressing and whilst timing is reliant on any potential impact from Covid-19 on the regulatory approval process we remain on track to launch in Q22021 CY.

It is too early to fully assess the level of impact of the Covid-19 pandemic on the current financial year ending 30 September 2020. We recognise the uncertainty regarding the possibility of a second wave of infection and it is too early to assess the speed of economic recovery as markets reopen. In line with the market we expect an average three-month lockdown phased in territories across the globe, followed by a gradual six to twelve month recovery period. In territories coming out of lockdown we are starting to see cautious signs of recovery.

We are in a solid financial position following the net £42m fundraising earlier this year and expect that the measures we are taking to maintain our production and commercial functions, and to conserve cash, will enable us to remain resilient during this period. Longer term the fundamentals of our business are very attractive with an increasing need for products and solutions that enable sustainable food production.

Divisional Commentary

Advanced Nutrition

Advanced Nutrition reported H1 revenues of £31.3m, 23.5% below the prior year (H1 2019: £40.9m) and Q2 revenues of £19.9m, 20.5% below the prior year (Q2 2019: £25.0m). This reflected an ongoing weak shrimp market with low shrimp prices, continued competition in Artemia leading to significantly lower Artemia volumes and prices. The impact from Covid-19 was initially evident in China and Vietnam later extending into India and Indonesia and more recently into Latin America as the pandemic spread across the globe.

Adjusted EBITDA in H1 was £3.3m (H1 2019: £9.6m) and Adjusted EBITDA in Q2 was £3.7m (Q2 2019: £6.9m). By product area in H1, Artemia revenues were down 32% versus prior year as a result of volume and price erosion while Diets were down 23% and Health up 25%. In Q2 by product area Artemia revenues were down 22% versus prior year as a result of volume and price erosion while Diets was down 29% and Health up 21%.

Genetics

Genetics revenues in H1 2020 were £22.5m, in line with the prior year (H1 2019: £22.6m) and £10.4m in Q2, 3.6% below the prior year. Revenues were affected by the shift of volume from third party producers to our own facilities and adverse forex movements compensated for by higher prices achieved from our specialist genetic traits and year round supply of biosecure eggs. Adjusted EBITDA in H1 was £8.6m, 75% above the prior year (H1 2020: £4.9m) and in Q2 was £5.2m, 200.5% above the prior year (Q2 2019: £1.7m). The increase in margin and Adjusted EBITDA is mainly due to in-house egg production at our new Salten facility replacing more expensive outsourced production, higher egg prices noted above and higher royalties from salmon farmers using our genetics in their own production. R&D investment (expensed and capitalised) in the division increased to £3.6m (H1 2019: £1.9m) as a result of higher investment in our breeding programmes in Chile and SPR shrimp.

Production and distribution of salmon eggs has been uninterrupted through the Covid-19 pandemic and we have a good order book for the remainder of the year with 100% of our Salten capacity for off-season eggs sold-out. The longer two and a half to three year production cycle for salmon means that despite short term uncertainty producers continue to stock and plan for the medium term. We continue to benefit from higher demand from Scotland for our highly biosecure and genetically advanced salmon eggs produced at our secure land-based facility in Iceland.

Operationally, in H1 2020 the Company signed a lease on a new grow-out facility in Curacalco, Chile which completes the infrastructure required for local production of salmon eggs. This site is now fully operational and local production of salmon eggs is expected to commence in 2021 when the first-year class of broodstock matures.

During the period, we achieved the first test market sales of SPR shrimp in China and Indonesia. Trials continue in China, Thailand, Vietnam and Peru. In light of Covid-19 we have decided to push back the commercial launch of the SPR shrimp to benefit from a recovery in the shrimp market, delaying capex and opex spend which conserves cash in the short term. Construction of the multiplication centre with our local partner in Thailand is ongoing albeit with some delays and we expect it to be operational by the end of this calendar year.

Animal Health

Revenues in Animal Health in H1 2020 and in Q2 2020 (including Discontinued Operations of veterinary and diagnostics) were £6.7m (H1 2019: £7.2m) and £3.3m (Q2 2019: £3.6m) respectively, with the drop a result of lower revenues from toll manufacturing.

Adjusted EBITDA in H1 including Discontinued Operations was a loss of £7.7m (H1 2019: loss £6.1m) and in Q2 was a loss of £3.7m (Q2 2019: loss £2.7m). Adjusted EBITDA from discontinued operations within these figures for H1 was a loss of £0.1m (H1 2019: loss £0.2m) and in Q2 was a loss of £0.1m (Q2 2019: loss £nil). The performance against the prior year reflects a reduction in revenues from toll manufacturing, an increase in vaccine R&D and related production capability, and activities to prepare for the launch of CleanTreat® and BMK08.

Operationally there was significant progress in the commercial launch plan for BMK08 including the development of the operating model for CleanTreat® and submission of the regulatory dossier for BMK08. Procurement for the next CleanTreat® system also commenced.

We have intiated a review of our vaccine strategy to define the best route to realise value from our technology and assets. As a result of Covid-19 we have furloughed the majority of staff at our vaccine manufacturing facility in Braintree.

Financial Review

H1 2020

Group revenue from continuing operations was £57.0m (H1 2019: £67.4m) and Adjusted EBITDA from continuing operations which is used by management as the primary measure of financial performance was £2.8m (H1 2019: £7.3m) driven by the factors outlined above.

Overall investment in R&D (expensed and capitalised) remained broadly in line with the prior year at £8.7m (H1 2019: £8.5m) with an increase in expensed R&D of £1.2m offset by a reduction in capitalised development costs - the latter despite capitalised development costs of £0.8m in Genetics division for SPR shrimp.

The Group's operating loss was £9.3m (H1 2019: loss of £4.2m) after depreciation and amortisation during the Period of £12.0m (H1 2019: £11.5m). Loss before taxation was £18.9m (H1 2019: £6.2m) after a significant increase in net finance costs to £9.6m (H1 2019: £2.1m). The increase in finance costs was a result of the higher interest charges following the refinancing exercise concluded towards the end of the prior year (up by £1.6m), forex losses (up by £1.9m) and movement in 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 (£3.7m).

The loss for the Period was £18.8m (H1 2019: £9.1m). Loss per share was 3.25p (H1 2019: 1.71p).

Net debt at the half year was £55.8m (FY 2019: £87.1m; H1 2019: £65.5m). Following the adoption of IFRS 16 from 1 October 2019, operating lease obligations of £9.0m (FY 2019: £nil; H1 2019: £nil) have been included in net debt. The movement in the half year arose as cash outflow from operations of £1.8m and capex of £6.1m was offset by the final receipt of £6.9m from the dissolution of the joint venture in Chile and the net proceeds from the equity raise of £42m received in February 2020. Capital additions included £2.1m of capitalised development costs mainly relating to BMK08 and CleanTreat® and SPR shrimp.

Q2 2020

The Group reported revenues of £32.0m and an Adjusted EBITDA from Continuing Operations of £4.6m, 15.2% and 11.2% below the prior year respectively as a result of the previously stated trends in the Company's underlying markets of shrimp and salmon and increased competition and oversupply in Artemia.

Operating costs from Continuing Operations of £12.5m decreased 2.1% against the same period last year. Expensed research and development costs were £2.8m in the quarter (Q2 2019: £2.5m). The Adjusted EBITDA margin was 14.3% against 13.8% in Q2 2019 driven by the higher margin in Genetics.

Net finance costs for the quarter were £11.9m (Q2 2019: net finance income £0.4m). Interest expense increased to £1.7m (Q2 2019: £1.2m) as a result of the higher level of borrowings and increased borrowing rate following the refinancing in June 2019. Other movements relate to forex losses of £5.1m in the Period (Q2 2019: forex gain £1.5m) and a £4.6m loss on the fair value of the instrument taken out to hedge currency and interest volatility in the bond financing for the portion for which hedge accounting has not been adopted.

Consolidated Income Statement for the period ended 31 March 2020

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

2 Adjusted EBITDA - EBITDA before exceptional and acquisition related items

*FY 2019 and YTD Q2 2019 numbers have been restated to reflect changes to the ongoing continuing business since the previous reporting date (note 5). Q2 2019 figures have not been previously reported and so are not restated.

Consolidated Statement of Comprehensive Income for the period ended 31 March 2020

*FY 2019 and YTD Q2 2019 numbers have been restated to reflect changes to the ongoing continuing business since the previous reporting date (note 5). Q2 2019 figures have not been previously reported separately and so are not restated.

Consolidated Balance Sheet as at 31 March 2020

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

Consolidated Statement of Changes in Equity for the period ended 31 March 2020

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

Consolidated Statement of Cash Flows for the period ended 31 March 2020

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

Of the cash balance at 31 March 2020 of £51,563,000, £nil has been classified as held for sale (note 9)

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 six months ended 31 March 2020 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 have been 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 March 2020 the Group had net assets of £306.6m (30 September 2019: £310.5m), including cash of £51.6m (30 September 2019: £16.1m) as set out in the consolidated balance sheet. The Group made a loss for the year to date of £18.8m (12 months ending 30 September 2019: £83.1m). Drawings against the Group's USD 15m revolving credit facility were £nil at 31 March 2020 (30 September 2019: £nil).

As noted in the Management Report, Covid-19 has impacted the Benchmark group's businesses to varying degrees. The ultimate impact of the pandemic on industry, the economy, Benchmark's markets and its businesses is to some extent uncertain, but the Directors have reviewed available market analysis and believe the balance of Benchmark's businesses leave the group well placed to deal with the uncertain future ahead.

The directors have reviewed forecasts covering the period to June 2021 including downside sensitivity assumptions in relation to trading performance across the Group including supply, demand and pricing of key raw materials and products and the timing of trials relating to future products to assess the impact on the Group's trading and cashflow forecasts and on the forecast compliance with the covenants included within the Group's financing arrangements. The ongoing 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 were also sensitised out of the base forecasts in the assessment of the going concern basis of preparation.

The uncertainty relating to the future impact on the Group of the virus outbreak has been separately considered as part of the directors' assessment of the going concern assumption. The directors put in place many positive preventative measures at an early stage in the outbreak in response to the pandemic, including mobilisation of inventories and workforce to ensure safe and continued supply of labour and product and the measures have proven to be effective. In the downside scenario analysis performed, the directors have additionally considered the reasonably plausible impact of Covid-19 on the Group's trading and cashflow forecasts, significant reductions in the revenues in the Advanced Nutrition and Animal Health divisions in the period to June 2021. These assumptions include a potential delay in launch of BMK08, temporary hold on toll manufacturing, delay in the expansion of SPR shrimp and a short-term further reduction in the demand for nutrition products. In mitigation, measures within the control of management have been modelled and subsequently implemented, including reductions in areas of discretionary spend, temporary furlough of certain staff or reduced working hours, deferral of capital projects and temporary hold on R&D for non-imminent products. Furthermore, the Board and Operating Board have voluntarily taken a 20% reduction in salary.

It is difficult to predict the overall outcome and impact of the pandemic, but under all of the above scenario analysis, the Group has sufficient liquidity and resources throughout the period under review whilst still maintaining adequate headroom against the borrowing covenants. The directors therefore remain confident that the Group has adequate resources to continue to meet its liabilities as and when they fall due within 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.

Adoption of new and revised standards

Since 1 October 2019, 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 (see note 13).

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 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 6-month period ended 31 March 2020 for continuing operations has been an increase to operating profit of £0.9m, an increase in finance costs of £0.2m, an in increase in depreciation of £0.7m 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%.

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 March 2020 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.

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.

Primary geographical markets