Acquisition

RNS Number : 1208U

Benchmark Holdings PLC

27 July 2015

 



Benchmark Holdings plc

("Benchmark" or the "Company")

Acquisitions of AFGC and Spring Genetics

Benchmark advances its position in aquaculture genetics and makes strategic move into the tilapia genetics and breeding sector

Benchmark is pleased to announce the acquisitions of the entire issued share capital of Norwegian aquaculture genetics and research business Akvaforsk Genetics Center AS ("AFGC") and 80% of the issued share capital of Akvaforsk Genetics Center Inc. ("Spring Genetics"), a US based tilapia genetics and breeding business (the "Acquisitions") for a combined initial consideration of NOK 140m (c. £11.0m), satisfied from existing cash balances.

Expanding on Benchmark's position as the second largest global player in salmon breeding and genetics, the Acquisitions represent a strategic move into aquaculture genetics across a wider number of the major farmed species, and into breeding in the fast growing tilapia sector.

The Company continues to experience strong performance in its Breeding and Genetics Division and maintained the substantial recovery of its sales of Byelice/Salmosan in Chile as announced in the Interim results. Together with the continued progress of the pipeline, Benchmark remains on track in the delivery of its overall growth strategy.

Highlights

The Acquisitions:

·    Are expected to be earnings accretive (before amortisation of acquired intangibles) in the year ending September 30^th, 2016

·    Enhance Benchmark's position as a leader in the aquaculture genetics space, with new customers across new geographies and species

·    Create multiple opportunities for immediate synergies across the Benchmark Group

AFGC is a leading provider of technical genetic services, with long term customer contracts across many aquaculture species in Norway, Canada, Thailand, China and the USA. Customers include Marine Harvest (salmon), Nireus (sea bream and sea bass), Hainan Progift Aqua-Tech and Manit Farm (tilapia), Stolt Sea Farm (turbot) and SalmoBreed¹ (salmon).

Spring Genetics, which is based in Miami and Mazatlan, Mexico, has built a strong brand in a rapidly growing market as one of only a handful of independent tilapia primary breeding companies. Spring Genetics is predominately focussed on the USA and Latin America where it has multiplier and hatchery customers in Brazil, Mexico, Guatemala, Belize and El Salvador.

Rabobank forecasts global Tilapia production will grow from 4.5m tonnes in 2012 to more than 9.0m tonnes by 2025², with volumes in the key Latin America market forecast to increase nearly five-fold from 453k tonnes in 2012 to 2.0m tonnes by 2025².  For comparison global salmon production was 2.0m tonnes in 2013 and is forecast to be 3.0m tonnes in 2020³.

The combination of AFGC and Spring Genetics with Benchmark's existing activities in this specialist field creates a leading expert in aquaculture genetics and breeding, fulfilling the Company's strategic objective to offer genetic expertise across a more diverse range of species in the aquaculture industry. This is a major step towards building the platform from which Benchmark will provide sustainable food chain solutions which integrate the key components of animal health; genetics, animal husbandry, health products and nutrition.  

Benchmark has identified significant revenue and operational synergies between the Acquisitions and the Benchmark Group, including the existing genetics businesses, SalmoBreed and Stofnfiskur, which were acquired in December 2014. AFGC and Spring Genetics will join these companies as subsidiaries of Benchmark's Breeding & Genetics division.

Benchmark Chief Executive, Malcolm Pye, commented:

"This deal is an opportunity for Benchmark to further advance its position in the aquaculture genetics and breeding sector. The acquisitions bolster our recognised status in the salmon genetics space, and moves Benchmark into the rapidly growing tilapia market."

"The acquisitions of AFGC and Spring Genetics give Benchmark access to new geographies and customers in emerging markets, diversify our offering and fulfil Benchmark's strategic objective of offering our expertise across a range of species within the aquaculture arena. The entrance of the Company into the tilapia market is particularly encouraging, as it is one of the fastest growing sources of protein in the Latin American region."

"This is a very exciting time for the Company, with Benchmark's Breeding & Genetics division going from strength to strength over the past year. We are now positioned as one of the leading global players in the aquaculture genetics sector, and we look forward to further growing this division of the business."

¹ Salmobreed is a member of the Benchmark Group.

² Rabobank Industry note No.471, January 2015 "The Rise of Aquatic Chicken".

³ Rabobank Industry note No.453, August 2014 "This Time It's Different"

Further Information on the Acquisitions

Consideration⁴

·    The consideration for AFGC comprises a payment of NOK 105m (c. £8.3m), to be satisfied in cash.   

·    The consideration for 80% of the issued share capital of Spring Genetics comprises a payment of NOK 35m (c. £2.7m) in cash.

·    The remaining 20% of the issued share capital of Spring Genetics is subject to a put/call option which is automatically exercised in 2022, the value of which will be determined by an earn-out formula linked to the cumulative sales performance of the Spring Genetics business in the period 2016 to 2021. The minimum consideration for these shares is NOK 1 and the maximum consideration is NOK 60m (c. £4.7m), payable in 2022.

·    AFGC and Spring Genetics have been acquired on a debt free basis.

·    The Acquisitions will be financed from the Company's existing cash reserves.

·    The Company's balance sheet remains strong with cash resources of £31.0m at June 30^th 2015.

AFGC  www.veso.no/afgc 

·    AFGC is a leading provider of genetic consulting services to the worldwide aquaculture industry.  Under long term contracts (typically five years in duration) it designs, implements and manages the technical operations of selective breeding programmes. 

·    AFGC provides services to many of the world's major players in aquaculture, based on its long-standing track record and the competence of its highly skilled and dedicated technical team.  In addition to consulting fees, AFGC can also earn turnover based royalty payments.

·    Benchmark has an existing relationship with AFGC for the provision of genetic and genomic R&D work and other consultancy services to SalmoBreed, and pays an increasing royalty based on the value of egg sales by SalmoBreed above a certain volume threshold.

·    AFGC became a recognised research institute in 2014, securing two salmon research licences. Utilising its existing expertise, these licenses allow the company to benefit from research contracts and the ultimate harvesting and sale of the salmon produced. AFGC will be entitled to a share of the profits generated by its production partners without the need for capital investment, with scope to expand these activities over time.  The first harvest of salmon is expected during Benchmark's H1 FY 2016.

·    In the financial year ended December 31^st, 2014, AFGC generated an operating profit before tax of NOK 1.58m (£136k) on revenues of NOK 11.86m (£1.02m) and had net assets of NOK 1.98m (£170k)⁵.

·    Higher royalty income and the profits from the two salmon research licences are expected to have a significant impact on AFGC's revenues and operating profits from FY 2016. In the year ending September 30^th, 2016 AFGC's revenues are expected to exceed NOK 26m (£2.05m) and operating profits NOK 13m (£1.03m)⁴.

Spring Genetics www.spring-genetics.com

·    Spring Genetics is an aquatic breeding company producing tilapia broodstock, larvae and fingerlings through selective breeding programmes. Its tilapia strain is marketed under the brand Spring Tilapia® and is based on the progeny of genetic material originally developed in the Genetic Improvement of Farmed Tilapia (GIFT) project in the 1980s and 90s in Asia and further enhanced by Nicanor in Nicaragua.  

·    Spring Genetics is based in Miami, USA, where it holds the Spring Tilapia® breeding nucleus. It uses genetic selection tools developed by AFGC to achieve superior growth and quality with each new generation.

·    Spring Genetics supplies hatcheries in the fast growing Americas market and the emerging European and African markets, with scientifically selected genetic material in the form of tilapia larvae or tilapia fingerlings which are sold on to grow-out farmers. Additionally, Spring Genetics sells broodstock directly to hatcheries for multiplication, periodically resupplying the latest genetically improved material.  The current breeding nucleus is generally considered to be one of the best in the world.

·    Spring Genetics has a 51% interest in a joint venture company called Genetilapia which operates tilapia hatcheries from three locations in Mexico. The JV partner is Maricultura del Pacifico, a Mexican shrimp genetics business. Genetilapia uses Spring Tilapia® material under licence and pays a turnover based royalty. 

·    Spring Genetics also has a Brazilian subsidiary, which has recently entered into a partnership with a hatchery in Northern Brazil and plans to partner in Southern Brazil with Benchmark's FAI sustainable farming research unit in Sao Paulo state, where a new state-of-the-art hatchery is being constructed.

·    Spring Genetics has invested c. $8.1m (c. £5.2m)⁵ primarily on the construction of an efficient breeding line and bio-secure breeding production facilities, as well as on the establishment of commercial partnerships in the key strategic markets of Mexico and Brazil². This investment phase has largely been completed, the benefits of which should be seen in the coming years. In the financial year ended December 31^st 2014, Spring Genetics and its subsidiaries incurred an operating loss of $1,264k (£810k) on revenues of $939k (£602k)^5,6.

·    Benchmark intends to leverage its sales and marketing expertise, financial resources and experience in breeding and genetics, to dynamically grow the sales of Spring Genetics.

⁴Exchange rates used for the purposes of calculating the consideration for the Acquisitions as set out in this announcement and the FY2016 forecasts are: NOK 12.68 to £1. 

⁵Exchange rates used for the purposes of calculating the 2014 trading results and investment at AFGC and Spring Genetics are the year-end rates at December 31st 2014, being: NOK 11.62 to £1, USD 1.56 to £1, MXN Peso 22.96 to £1.

⁶ based on unaudited management accounts stated after minority interests translated at year end currency rates

-Ends-

For further information, please contact: Benchmark Holdings plc Tel: [phone] Malcolm Pye, CEO Roland Bonney, COO Cenkos Securities PLC Tel: [phone] Ivonne Cantu Russell Kerr (Sales) Tavistock Communications Tel: [phone] Matt Ridsdale/Niall Walsh /Lucia Caprani

 

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