Second Quarter and Interim results

18 May 2021

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 2021

Good performance in the first half of the year and strategic progress in all business areas

Benchmark (LSE: BMK), the aquaculture biotechnology company, announces its unaudited interim results for the six months ended 31 March 2021 (the "Period"). The Company also announces its unaudited results for the three months ended 31 March 2021 in compliance with the terms of its senior secured bond.

· Good H1 2021 performance with growth in revenues (+11% CER) and Adjusted EBITDA (+13% CER) reflecting a strong performance in Advanced Nutrition and solid trading in Genetics and Health

· Q2 2021 results reflect seasonal fluctuations in Genetics and a lower contribution from biological asset movements due to normalised biomass growth

· Significant progress towards commercialisation of BMK08 and CleanTreat® with first customer contracts and ratification of MRL ("Maximum Residue Level") opinion achieved in Q2

· Positive outlook and trading in line with market expectations, with good visibility of revenues for the second half of the year

*  H1 2020 and Q2 2020 numbers have been restated to reflect changes to the ongoing continuing business since the previous reporting date (note 5).

** Constant exchange rate (CER) figures derived by retranslating current year figures using previous year's foreign exchange rates

(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.

Divisional summary (Continuing and discontinued operations)

* H1 2020 and Q2 2020 numbers have been restated to reflect changes to the ongoing continuing business since the previous reporting date (note 5).

** Constant exchange rate (CER) figures derived by retranslating current year figures using previous year's foreign exchange rates.

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

· Advanced Nutrition 

o H1 2021: revenue 12% up (+17% CER) reflecting the success of improved commercial effort and improvement in certain shrimp markets

o H1 2021: Adjusted EBITDA 82% up (+93% CER) as a result of revenue growth and reduced operating costs

o Q2 2021: revenue in line with prior year (+7% CER) and Adjusted EBITDA 41% up (+51% CER)

· Genetics 

o H1 2021: revenue marginally below prior year but ahead on a constant currency basis (+3% CER) with higher salmon egg sales (+5%) offset by lower revenue from harvested fish and royalties; drop in Adjusted EBITDA against prior year reflects lower contribution from fair value movements in biological assets due to normalised biomass growth

o Q2 2021: revenue down due to seasonal fluctuations affecting the timing of egg deliveries against prior year and lower royalty income. Adjusted EBITDA reflects lower sales and lower contribution from fair value movements in biological assets

o Good visibility of revenues for H2 2021

· Animal Health 

o H1 2021: revenue and Adjusted EBITDA in line with prior year

o Q2 2021: lower revenue and Adjusted EBITDA reflect normalised sales against the same period in the prior year which benefitted from customer stockpiling due to Covid-19 uncertainty

o Significant progress towards commercialisation of new sea lice treatment BMK08 and CleanTreatâ - first customer agreements signed and ratification of MRL opinion achieved in Q2 2021

Cash generation; liquidity and net debt

· H1 2021 operating cash outflow of £1.5m including £7.2m from increase in working capital in line with expectations; net cash outflow of £17.3m includes £9.1m outflow from investing activities in the period and a £6.8m outflow from financing activities

· Liquidity (defined as cash and undrawn facility) as at 14 May 2021 was c.£62.5m (30 September 2020: £83.2m) against a liquidity covenant of £10m

· Net debt at the half year end was £56.5m (30 September 2020: £37.6m), including lease obligations of £14.0m (30 September 2020: £10.4m)

Good strategic progress

· Significant progress towards commercialisation of new sea lice treatment BMK08 and CleanTreatâ - first customer agreements signed and EU ratification of MRL opinion achieved in Q2

· Land based salmon farming - new customer wins with selected clients building a leading position in genetics

· Construction of new incubation centre in Iceland to increase genetics capacity progressing as planned

· SPR shrimp - Expansion of breeder capacity in Fellsmere progressing as planned, test market ongoing and construction of multiplication centre in Thailand advancing after delays caused by Covid-19

· "One Benchmark"- further actions undertaken to integrate the Group and streamline the organisation including co-location of Genetics and Health activities in Norway and Chile

· ESG (Environmental Social and Governance) continues to be an important focus through the positive impact of our products and solutions on the sustainability of aquaculture, and through our commitment as a responsible operator to reduce greenhouse gas emissions and improve the sustainability of our supply chain

Current trading and outlook

· Current trading in line with management expectations with good visibility of revenues for the second half of the year

· Progress towards commercialisation of BMK08 & CleanTreatâ, subject to marketing authorisation in Norway

Trond Williksen, CEO, commented:

"Benchmark has performed well in the first half and has made good strategic progress across our three business areas. This reflects our successful restructuring and the new focus and discipline on delivering on our strategic priorities to create profitable growth.

"Our financial discipline including cost containment and strict cash management enables us to invest selectively in our core business, strengthen our position in our markets and deliver on the growth opportunities ahead.

"As a leading aquaculture biotechnology company focused on delivering sustainable solutions, we are well positioned to make a positive impact on our industry and create value for all our stakeholders."

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 +44 (0)20 3128 8990 or 8742, or by email on benchmark@mhpc.com

Enquiries

Katie Hunt, Reg Hoare, Alistair de Kare-Silver [email protected]

About Benchmark 

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

We are a leading aquaculture biotechnology company developing innovative products and solutions 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 with specialist genetic traits, shrimp broodstock, tilapia fry, technology enhanced live feed (Artemia), specialist diets, probiotics and sea lice treatments. Find out more at www.benchmarkplc.com

Management Report

Benchmark performed well in the first half of the year with revenue from continuing operations increasing by 6% to £59.5m (11% in constant currency, i.e., retranslating current period results using last year's foreign exchange rates), and Adjusted EBITDA from continuing operations up 3% to £7.9m (+13% in constant currency). Excluding biological asset movements, Adjusted EBITDA increased by 17% (31% in constant currency).

Notably, Advanced Nutrition had a strong performance in Q2 2021 and H1 2021, showing the benefits of our enhanced commercial effort and focus over the past 12 months, as well as improvement in certain shrimp markets with lockdown easing. From the outset of the Covid-19 pandemic we launched new digital means to communicate with our customers, including webinars and technical briefings which have proven effective and will continue. These initiatives, together with our commercial focus and operational continuity in the face of logistical challenges, have enabled us to maintain and strengthen our position in the market. We intend to build on this momentum to take advantage of the market recovery as we emerge from the pandemic.

Our Genetics business area continues to perform well and make good strategic progress. While Q2 results show a drop against last year, this is the result of expected fluctuations in the order profile of salmon eggs in Q2 and a lower contribution from the movement in fair value of biological assets due to normalised biomass growth. We have good revenue visibility for the remainder of the year. During the period we continued to win new contracts with selected clients in the emerging land-based salmon sector, establishing a leading position in that market.

Following the restructuring conducted last year, results in Health derive primarily from sales of Salmosan and the investment in the launch of BMK08 and CleanTreatâ. Salmosan revenues in the first half were below H1 2020 which had benefitted from stockpiling in certain high margin markets driven by the uncertainty of Covid-19. In this context, Salmosan sales were normalised and in line with management expectations.

We maintain our focus on cost containment, cash management and disciplined investment. Operating expenses in H1 2021 of £18.7m were 2% below the prior year and R&D expenses of £3.6m were 23% down. Total R&D investment was £5.8m (H1 2020: £6.7m).

Our cash position at the end of the period of £53.6m reflects a net cash outflow of £17.3m. Cash outflow from operating activities in H1 2021 of £1.5m includes a £7.2m increase in working capital to support growth and £2m tax payments. This means our core established business is generating cash to invest in organic growth.

We have a disciplined investment programme to support our new growth vectors including BMK08 and CleanTreatâ, the expansion of our incubation capacity in Iceland and the roll-out of SPR shrimp in Genetics. In addition, we are making investments to upgrade some of our facilities which have been underinvested in recent years, including installing new fire safety equipment in our main production facility in Thailand. Under our new disciplined approach, investments are made supported by a solid assessment of commercial prospects and return on investment. During the period we invested £9.1m including £6.6m in PPE capex and £2.2m in capitalised R&D.

Net debt at the half year was £56.5m (FY 2020: £37.6m; H1 2020: £55.8m), including finance lease liabilities of £14.0m under IFRS 16 (FY 2020: £10.4m; H1 2020: £9.4m).

The Group's operating loss was £4.6m (H1 2020: loss of £3.9m) after depreciation and amortisation during the period of £11.7m (H1 2020: £11.4m). Loss before taxation was £3.3m (H1 2020: £13.4m) after a significant reduction in net finance costs; net finance income in H1 2021 was £1.4m (H1 2020: £9.6m cost) with the main difference being a credit of £2.4m in the fair value of financial derivatives (H1 2020: £3.7m charge) and forex gains of £3.3m (H1 2020: £1.8m loss). The loss for the period was £3.1m (H1 2020: £18.8m). Loss per share was 0.57p (H1 2020: 3.25p).

Q2 2021 Commentary

The Group reported revenue of £30.4m, 3% below prior year of £31.5m, but 2% higher on a constant currency basis (£32.0m CER). This was driven by revenue growth in Advanced Nutrition (+7% CER) offset by a drop in Genetics and Health in the quarter. As previously explained the drop in Genetics is the result of seasonal fluctuations which drove the timing of delivery of salmon eggs into H2 2021, whilst Health revenues were below last year's strong result.

Adjusted EBITDA of £4.9m (£5.3m CER) was lower than the prior year (Q2 2020: £7.3m) reflecting a strong performance in Advanced Nutrition offset by a lower contribution from Genetics and Health. This was partially driven by lower sales and a lower contribution from biological assets in Genetics and increased expenditure in Health related to the preparations for the commercial launch of BMK08 and CleanTreatâ.

Operating costs including R&D expenses of £11.2m were up 3% on the prior year (Q2 2020: £10.9m).

Net finance costs for the quarter of £1.4m were £10.5m lower than the same quarter last year (Q2 2020: £11.9m). The main reasons for the significant reduction were smaller movements in fair value of financial derivatives (Q2 2021: £0.1m credit; Q2 2020: £4.6m charge) and forex gains in the period of £0.7m versus forex losses of £5.0m in the comparative quarter.

Progress on strategic priorities

At the beginning of the year we established five strategic priorities for the Group. These form part of a Group-wide strategic priority framework which allows us to prioritise, allocate resources and manage performance. Delivery against strategic priorities in the first half of the year has been good with particular progress towards the delivery of our top priority - the launch of BMK08 and CleanTreatâ.

· Launch of BMK08 and CleanTreatâ - significant progress with signing of first customer agreements and ratification under European Law of the MRL (Maximum Residue Level), an important food safety standard

· Launch of Specific Pathogen Resistant shrimp - expansion of production capacity in Fellsmere, US progressing to plan; ongoing test market in Asia; progress towards completion of multiplication centre in Thailand after delays caused by Covid-19

· Maintain leadership in hatchery by regaining Artemia position - +18.3% Artemia revenues in H1 2021 driven by targeted marketing and technical support activities, enhanced commercial effort which has been upskilled, and adjustment of pricing strategy

· Implement simplified structure toward further integration as "One Benchmark" - organisation streamlining including co-location of Genetics and Health activities in Norway and Chile

· Align culture, values and people processes towards delivery of strategy - development of new company values to drive change in culture from R&D centric to commercially focused, and implementation of new remuneration policy aligning incentives to delivery of targets across the Group

Covid-19

Many of the countries in which we operate continue to be affected by the Covid-19 pandemic. We continue to operate remotely where possible and have rigorous protocols in place to safeguard our employees. Mindful of the overall wellbeing of our people, during H1 2021 we delivered a wellbeing programme to support our people and trained additional mental health first aiders. Our teams around the world have shown great commitment and dedication which have allowed us to maintain operational continuity and service for our customers and to continue to make progress on our strategic priorities. We recognise each individual contribution and extend our gratitude on behalf of the Board.

Outlook

The salmon market is expected to remain stable with salmon prices having recovered in recent months. There has been some improvement in certain shrimp markets and this is expected to continue through the remainder of the year as restrictions ease in many territories, although a high level of uncertainty remains as currently seen in India. The sea bass and bream markets have also shown some recovery and are expected to remain stable for the rest of the year.

We have had a positive start to Q3 2021 to date and have good visibility of revenues for H2 2021 which, together with our ongoing cost and cash management discipline, supports a positive outlook for the year. We therefore expect to deliver results in line with management expectations for the full year.

Longer term our fundamentals are strong and our opportunities are significant. Aquaculture is a growth industry supported by strong megatrends. Like in most industries growth creates sustainability challenges and the focus on these challenges is growing as the industry expands. The answer to sustainability lies in innovation - bringing forward new sustainable solutions. As a focused aquaculture biotechnology company and proactive industry leader, Benchmark is well positioned to play an important role, helping to improve sustainability across the aquaculture value chain from genetics to grow-out and the quality of the end product.

Divisional Commentary

Advanced Nutrition

Advanced Nutrition reported significant growth in H1 2021 with revenues of £35.0m, 12% ahead of the prior year (H1 2020: £31.3m) and Q2 2021 revenues of £19.9m in line with the prior year (Q2 2020: £19.9m) Q2 2021 but up in constant currency (+7% CER).

The strong H1 2021 performance reflects the initial benefits of our enhanced commercial effort and some improvement in certain shrimp markets. By product area, revenues from Artemia in H1 2021 were 18% higher than the prior year mainly driven by India, Vietnam and Turkey. Diet sales were up 26% driven by India and Indonesia while sales from Health products were down 11%.

Adjusted EBITDA in H1 was £6.2m (H1 2020: £3.4m) and Adjusted EBITDA in Q2 was £5.2m (Q2 2020: £3.7m) reflecting increased sales and successful cost containment.

Genetics

Genetics revenues in H1 2021 were £22.1m, broadly in line with the prior year (H1 2020: £22.5m) and £9.5m in Q2 2021, 8% below the same period in the prior year (Q2 2020: £10.4m). By source of income, egg sales in H1 2021 were higher than the prior year, but these were offset by lower revenue from harvested fish due to lower salmon prices in the period and lower royalty income. Lower revenues in Q2 2021 were driven by lower egg sales due to expected fluctuations in the order profile against prior year and lower royalty income.

The lower Adjusted EBITDA in H1 2021 of £6.0m against prior year (H1 2020: £8.6m) reflect a smaller contribution from fair value movements of biological assets due to normalised biomass growth and lower margin from a different sales mix. Q2 2021 Adjusted EBITDA of £2.1m (Q2 2020: £5.2m) reflects lower sales due to normal seasonal fluctuations and lower contribution from biological assets as above.

R&D investment (expensed and capitalised) in the division was in line with the prior year at £3.5m (H1 2020: £3.5m) as investment continues in our breeding programmes in Chile and SPR shrimp.

Health

Health revenues in H1 2021 of £2.3m were below the prior year (H1 2020: £2.5m) which benefitted from customer stockpiling of Salmosan due to the uncertainty caused by Covid-19. Adjusted EBITDA was in line with the prior year with a loss of £2.6m (H2 2020: £2.7m). Q2 2021 results show a similar trend in revenues and the impact of investment associated with the launch of CleanTreat® and BMK08.

Benchmark Holdings plc

Consolidated Income Statement for the period ended 31 March 2021

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

2 Adjusted EBITDA - EBITDA before exceptional and acquisition related items

* Q2 2020 and YTD Q2 2020 numbers have been restated to reflect changes to the ongoing continuing business since it was previously reported (note 5)

Benchmark Holdings plc

Consolidated Statement of Comprehensive Income for the period ended 31 March 2021

* Q2 2020 and YTD Q2 2020 numbers have been restated to reflect changes to the ongoing continuing business since it was previously reported (note 5).

Benchmark Holdings plc

Consolidated Balance Sheet as at 31 March 2021

The accompanying notes are an integral part of this consolidated financial information.

Benchmark Holdings plc

Consolidated Statement of Changes in Equity for the period ended 31 March 2021

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

Benchmark Holdings plc

Consolidated Statement of Cash Flows for the period ended 31 March 2021

The Consolidated Statement of Cash Flows presents cash flows from both Continuing and Discontinued operations in the comparatives. There were no Discontinued operations in the current period.

Benchmark Holdings plc

1. Basis of preparation

Benchmark Holdings plc (the 'Company') is a company incorporated domiciled in the United Kingdom. These consolidated quarterly financial statements as at and for the six months ended 31 March 2021 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 consolidated financial statements as at and for the year ended 30 September 2020. 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 2020 were approved by the Directors on 27 November 2020 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.

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 2021 the Group had net assets of £283.5m (30 September 2020: £295.4m), including cash of £53.6m (30 September 2020: £71.6m) as set out in the consolidated balance sheet. The Group made a loss for the period of £2.8m (30 September 2020: £31.9m).

As noted in the Management Report, the impact of the Covid-19 pandemic has continued to affect parts of the Group's businesses to varying degrees. The ultimate lasting impact of the pandemic on industry, the economy, Benchmark's markets and its businesses remains to some extent uncertain. Our main markets have experienced mixed fortunes, with weak shrimp markets, resilient salmon markets and sea bass/bream which have experienced modest impact from Covid-19. The Directors monitor available market analysis as this situation has continued into 2021. Whilst the outlook for the shrimp market retains some uncertainty in certain territories still suffering from the ongoing pandemic, the outlook for the salmon sector (underpinning the Genetics and Health businesses) remains positive and the Directors therefore believe that large parts of the Group are well placed to deal with the uncertain global economic future ahead.

The Directors prepared cash flow projections covering the period to September 2022 to assess the Group's trading and cash flow forecasts and the forecast compliance with the covenants included within the Group's financing arrangements. Year to date performance has been in line with these forecasts. Cash resources were boosted by non-core business disposals during the previous year and the ongoing cost base following these transactions has been significantly reduced.

The uncertainty relating to the future impact on the Group of the pandemic has been considered as part of the Directors' assessment of the going concern assumption. The positive preventative measures implemented by the Directors at an early stage in response to the pandemic continue to be in force where necessary. In the downside scenario analysis performed, the Directors considered severe but plausible impacts of Covid-19 on the Group's trading and cash flow forecasts, modelling reductions in the revenues and cash flows in Advanced Nutrition, being the segment most impacted by Covid-19 because of its exposure to global shrimp markets, alongside modelling delays to new product launches in the Health business area. Key downside sensitivities modelled include assumptions that there is limited recovery in global shrimp markets in FY21, affecting demand for Advanced Nutrition products and a three-month potential delay in the launch of BMK08, pushing commercial launch back to September 2021. As noted in the Management Report, the Directors have observed some recovery in the shrimp markets in the performance of the Advanced Nutrition business during the period and have noted significant and expected progress towards the commercialisation of BMK08 and CleanTreat. Nevertheless, mitigating measures within the control of management were implemented early in the pandemic and remain in place and have been factored into the downside analysis performed. These measures include 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.

It remains difficult to predict the overall outcome and lasting impact of the pandemic, but under the severe but plausible downside scenarios modelled, which the Group has so far outperformed, 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, these interim financial statements have been prepared on a going concern basis.

1. Accounting policies

The accounting policies adopted are consistent with those used in preparing the consolidated financial statements for the financial year ended 30 September 2020.

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

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, Adjusted Profit Before Tax and Adjusted EBITDA excluding fair value movement on biological assets 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 11). Furthermore, the Directors also refer to current period results using constant currency, which are derived by retranslating current period results using prior year's foreign exchange rates.

Use of estimates and judgements

The preparation of quarterly 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 quarterly 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 2020.

2. 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 based on the following business areas:

· Genetics - 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 Nutrition - manufactures and provides technically advanced nutrition and health products to the global aquaculture industry.

· Health - provided veterinary services, environmental services diagnostics and health products to the global aquaculture market, and manufactures licenced veterinary vaccines and vaccine components; following the divestment programme the segment now focusses on providing health products to the global aquaculture market.

In addition to the above, reported as "all other segments" is the Knowledge Services business area, the operations of which were disposed of or discontinued in the two previous years. The business area provided 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 (continued)

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 2020. 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 (continued)

Sale of goods and provision of services (continued)

Primary geographical markets

*See note 5.

4. Revenue (continued)

Primary geographical markets (continued)