Full Year Results

RNS Number : 9462N

Benchmark Holdings PLC

24 January 2019

 

24 January 2019

Benchmark Holdings plc

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

Full Year Results for the Year Ended 30 September 2018

A successful year of revenue growth, improving margins, and strategic and innovative progress

 Benchmark (AIM: BMK), the aquaculture health, nutrition and genetics business, announces its full year results for the year ended 30 September 2018 (the "period").

£m	2018	2017	Change %	Constant Currency5 Change %
Adjusted
Revenue	151.5	140.2	8%	13%
Adjusted EBITDA1	17.0	10.1	68%	86%
Adjusted Operating Profit2	10.2	5.2	96%	126%
Adjusted Profit Before Tax3	5.6	4.7	19%
Statutory
Revenue	151.5	140.2	8%	13%
Loss before tax	(13.7)	(8.1)	(69%)
Loss for the period	(4.4)	(7.1)	38%
Basic loss per share (pence)	(0.94)	(1.43)	34%
Net Debt4	(55.7)	(23.9)

Financial Highlights

·      Revenue increased by 13% in constant currency to £151.5m

o  Genetics up 21% in constant currency; Advanced Nutrition up 9% in constant currency; and Animal Health up 7% in constant currency

·      Gross margin for the Group increased to 49% (2017: 45%)

·      Adjusted EBITDA up 68% to £17.0m (86% in constant currency) reflecting 36% increase in Genetics, a 22% increase in Advanced Nutrition

·      Adjusted EBITDA margin increased to 11% (2017: 7%), with Genetics and Advanced Nutrition achieving margins of 23% and 25% respectively

·      Total investment in R&D of £19.4m, of which £12.0m was expensed; lower expensed R&D in the period reflects increased spend on later stage products including the next generation sea lice treatment

·      Net debt increased to £55.7m (2017: £23.9m) with year end bank covenant leverage⁶ 2.7x against threshold of 3.25x and interest cover of 8.3x against a threshold of 4.0x.

·      £32.7m capital expenditure in new production facilities completed in the period and investment associated with field trials of next generation sea lice treatment

1 Adjusted EBITDA which reflects underlying profitability, is earnings before interest, tax, depreciation, amortisation, impairment, exceptional items and 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 Adjusted profit before tax is earnings before tax, amortisation and impairment of acquired intangibles, exceptional items and acquisition related expenditure

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

5 Constant Currency reflects the movement after retranslating 2018 figures using the same foreign exchange rates experienced in 2017.

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

Operational highlights

Continued innovation and pipeline delivery:

·      Successful field trials of next generation sea lice treatment with three of the world's largest salmon producers showing close to 99%+ efficacy, excellent fish welfare and no environmental impact

·      Six new products launched across the Group of which two are in Genetics and four in Advanced Nutrition

·      Successful trials of disease resistant shrimp in Thailand, Vietnam and China

·      Progress in development of sea bass/bream vaccines with good performance in large scale trials

·      Substantial progress in establishing a partnership for commercialisation of companion animal products

Capacity increased and expanded into new markets:

·      Start of production at new land-based salmon egg facility in Norway, increasing capacity by 75% to meet growing demand for our products

·      Joint Venture with AquaChile to penetrate world's second largest salmon market

Progress with strategic review:

·      Decision to exit certain non-core activities

·      Re-prioritisation of R&D effort

Strengthened the Board and Management Team:

·      Peter George joined as Chairman

·      Recruitment of Chief Scientific Officer and Group Marketing Director

Malcolm Pye, Benchmark CEO commented on current trading and outlook:

"2018 was a successful year for Benchmark. The Group achieved good growth in revenues and underlying earnings, and made substantial progress in implementing its strategy. Particular highlights in the year included the successful commercial scale trials for our next generation sea lice treatment, the opening of our state of the art salmon egg facility in Norway, and the successful trials for our disease resistant shrimp in three Asian markets.

 "The growth drivers for our business remain strong, with the increasing need for solutions that improve productivity in the growing aquaculture sector to support sustainable food production meaning that the areas of the market we address are growing considerably faster than the overall aquaculture market.

 "The Group has started the current financial year trading ahead of the same period last year, and is trading in line with expectations for the full year. Trading has commenced strongly in Genetics, with high demand for our disease and sea lice resistant salmon eggs.  Our Advanced Nutrition business in shrimp has started relatively slowly due to temporary volatility in the global shrimp market, but the outlook from spring onwards is positive.  In Animal Health, we are planning to extend trials of our next generation sea lice treatment into new markets in 2019 and we are making substantial progress towards establishing a partnership for our companion animal products.

"Over the next 18 months we expect to see our investment in a number of areas, such as our next generation sea lice treatment, our disease resistant shrimp, new aquaculture vaccines and probiotics, together with our new facility in Norway, starting to deliver, resulting in high growth in revenues, attractive margins and cash generation, which will increase our financial flexibility and deliver attractive shareholder returns."

-       ENDS -

A presentation for analysts will be held today at 09.30 at the offices of Numis Securities, London Stock Exchange Building, 10 Paternoster Square, London, EC4M 7LT. To register your interest, please contact [e-mail]. The presentation will also be accessible via a live conference call for registered participants. To register for the call please contact MHP Communications on [phone] or by email on [e-mail].

Enquiries

For further information, please contact:
Benchmark Holdings plc	Tel:  [phone]
Malcolm Pye, CEO
Mark Plampin, CFO
Ivonne Cantu, Investor Relations
Numis	Tel:  [phone]
Michael Meade, Freddie Barnfield (NOMAD)
James Black (Corporate Broking)
MHP Communications	Tel:  [phone]

 

Chairman's Statement

Commercial delivery of pipeline continues to be strategic priority

"I am confident that we are well positioned to be aquaculture's leading provider of solutions in genetics, health and specialist nutrition. Our medium-term target is to generate double digit compound annual growth in revenues and underlying profits and to deliver a 25% Group Adjusted EBITDA¹ margin."  - Peter George, Chairman

Introduction

I am pleased to present my first report as Chairman having joined the Board in May 2018.  I was excited to join the Group given its prospects, and since joining I have seen first-hand the excellent market positions, people and technology across the Group.

The year under review has been a successful one for Benchmark with growth in revenues and underlying profits alongside good progress in developing our strategy, completing major projects and strengthening the management team.

Strategy review

My first priority as Chairman was to conduct a detailed review of our strategy, the results of which are very encouraging.  We have strong positions in each of our established markets, with capacity to grow.

In salmon, where we are the world's leading provider of salmon eggs and genetic services to the aquaculture industry, our new facility in Norway and our Joint Venture in Chile will help us to grow organically in all our key markets. In shrimp, where we are the leaders in specialist nutrition for hatchery, we are uniquely positioned to introduce our disease resistant shrimp, leveraging our capabilities in genetics - unlike in salmon, development of genetic improvement for disease resistance in shrimp is at an early stage. Combined with the scale of shrimp aquaculture, this represents a very significant opportunity for Benchmark.

In Animal Health, our youngest business, commercial delivery of our pipeline continues to be a strategic priority to drive investment returns.  Our continued success with commercial-scale field trials for our next generation sea lice treatment combined with our breakthrough CleanTreat system gives us confidence in the potential of our solution.   With Alex Raeber joining Benchmark as Chief Scientific Officer we have greatly strengthened our leadership team, particularly with regards to the aquaculture health opportunity. Alex's focus will be on delivery of the key elements of the pipeline and on taking full advantage of our R&D capabilities across the Group. 

Our review has brought clarity to our strategy in our Knowledge Services division. We have identified certain non-core activities from which we are exiting or disposing, and have refocused our efforts on areas that position us as key opinion leaders in our markets and strengthen and differentiate our offering - data services, education and training, and veterinary consulting.

Early in the year we announced the review of the activities that fall outside of aquaculture. As a result we decided to pursue a licensing agreement for our companion animal products in the pipeline. The out-licensing process is ongoing with substantial progress being made. We have received strong interest, and expect to provide an update in the coming months.

Going forward, the Group's strategy will focus upon improving delivery of shareholder returns, by focusing on the efficient use of capital and implementing strategic KPIs that will drive our growth, profitability and cashflow. Our medium term target is to generate double digit compound annual growth in revenues and to deliver a 25% Group Adjusted EBITDA¹ margin.

Summary - strong market drivers and opportunities 

There are very strong drivers in our markets, including the increasing consolidation and professionalisation of our aquaculture customers; the regulatory emphasis on environmental impact and biosecurity; and consumer trends, such as interest in provenance and in reducing the use of antibiotics. 

We are extremely well placed to be aquaculture's leading provider of solutions in genetics, health and specialist nutrition taking advantage of the significant opportunities these markets segments, which are growing considerably faster than the overall aquaculture market, present. These three complementary areas contribute significantly to increase yield, quality and animal health and welfare for our customers, which is our primary aim.

In the next three years we expect to deliver commercial success for our next generation sea lice treatment and CleanTreat building up to peak revenues of at least £45m; deliver double digit returns on the Salten capital investment of £40m and establish ourselves as a leading global provider of shrimp genetics.

I believe that Benchmark is a highly valuable and attractive asset given its skilled team, market leading positions, well invested platform and growth strategy. Our business model is already delivering high margins and cash generation is expected to come through, which will enable us to both de-gear and continue to invest. 

My job is to support the management team by helping them focus on making this happen.

¹ see financial review for definition of adjusted measures 

CEO Statement

2018 was a successful year

"We are looking forward to bringing further important new products and disruptive technologies into the market in the next phase of our growth" - Malcolm Pye, Chief Executive Officer

2018 was a successful year for Benchmark. The Group achieved good growth in revenues, delivered Adjusted EBITDA¹ ahead of market expectations and made substantial progress in implementing its strategy. Particular highlights in the year included the joint venture with AquaChile to accelerate penetration in the world's second largest salmon market; the opening of a new state-of-the-art salmon egg production facility in Norway; the continued success of commercial-scale trials for our next generation sea lice treatment with CleanTreatâ; and the successful field trials for our disease-resistant shrimp in three key Asian markets. These strategic projects will drive future growth and profitability.

In addition, we made good progress in our product pipeline and launched six new products across the Group. We are well placed to capture the significant opportunities in our markets, which have stronger drivers than ever before amid increasing recognition from consumers, producers and regulators of the need for sustainable solutions for the aquaculture industry.

Our clear focus remains on aquaculture.  Our strategy for the companion animal products in our pipeline is to establish a licensing agreement with a suitable partner. We have made substantial progress towards this during the year, with strong interest received from industry leaders. I look forward to providing a further update in the coming months.

Group Performance

The Group performed well during the year, with revenue and Adjusted EBITDA up by 8% to £151.5m and 68% to £17.0m respectively. Our target is to generate double-digit compound annual growth in revenues and Adjusted EBITDA, reaching a 25% Adjusted EBITDA margin for the Group within five years. Genetics and Advanced Nutrition, two of our three core divisions delivered Adjusted EBITDA margins above 20% this year. In Animal Health, our third division, there is increasing visibility of future profitability as we progress our field-scale trials for our sea lice treatment and for our sea bass/bream vaccines. We have also re-focussed our Knowledge Services division which delivered positive Adjusted EBITDA during the year. This, together with our ongoing work to realise efficiencies and reduce our cost base, gives us confidence in our ability to reach our target.

Genetics

Our Genetics division delivered another robust performance with revenues and Adjusted EBITDA increasing by 17% and 36% to £35.8m and £7.9m respectively, achieving an Adjusted EBITDA margin of 22%. This is a result of our technology leadership and strong position in our key markets and growing demand for salmon eggs with a superior genetic profile.

We are continuously working to offer incremental genetic improvements to our customers, particularly in the area of disease resistance. During the year we launched new cardiomyopathy syndrome (CMS) resistant eggs which were very well received with demand outstripping supply and demand for our sea lice resistant eggs also exceeded supply. Our new facilities in Salten, Norway, and Chile, through the JV with AquaChile, enable us to meet that demand and underpin our future growth and profitability in salmon genetics.

In shrimp, the first field trials with our new Specific Pathogen Resistant (SPR) shrimp breeding stock also got underway during the year in the key markets of Vietnam, China and Thailand.  I am very pleased that these trials reported very encouraging initial results, regarding disease resistance and growth performance, which we believe will enable us to build a very significant new business in shrimp genetics.

Advanced Nutrition

Advanced Nutrition also performed strongly with revenues rising by 2% to £85.8m and Adjusted EBITDA by 22% to £21.6m, and an Adjusted EBITDA margin of 25%. There was increasing demand for our higher margin, specialist replacement diets and health products as shrimp producers increasingly recognise the benefits that our products have on their yield and profitability. We expect this trend to continue benefitting from the ongoing consolidation and professionalisation in the shrimp production industry which favours our innovative products.

During the year we launched four new products in Advanced Nutrition, completed upgrades on well-established brands and continued the development of our artemia replacement diets according to plan. Post period end, we announced the successful defence of a patent infringement in Asia relating to our artemia technologies. We have a strong patent portfolio across the Group with a portfolio of 240 patents which we will continue to robustly defend in each of our markets.

Animal Health

In Animal Health our focus has been on delivering the products in our pipeline that are in the later stages of development, particularly our highly innovative next generation sea lice treatment.  This is in commercial-scale field trials with three of the world's largest salmon producers and these are progressing well, having delivered almost 100% efficacy with improved animal welfare and no environmental impact. We are continuing trials in Norway and are preparing for field trials in other markets. Feedback from customers so far points to a high acceptance of our new treatment as sea lice continues to be recognised as the biggest challenge for the salmon aquaculture industry.

In our seabream and seabass vaccine portfolio, recent trials show strong performance of our products and as a result, we have prioritised their development with commercial field trials expected to commence during 2019. Aquaculture vaccines is a fast-growing market which is forecast to double by 2025. We continue to progress our portfolio of new vaccines across the major finfish species.

During the year we conducted a review of our pipeline of new products in Animal Health. This has resulted in a more efficient and streamlined approach to R&D spend and a focus on those opportunities where we can achieve the highest risk-adjusted return. It has also resulted in the deceleration of some less strategic products that target longer term market opportunities.

Knowledge Services

Knowledge Services, our smallest division, performed well with revenues rising by 14% to £15.8m and Adjusted EBITDA improving from a loss of £0.9m to a profit of £0.2m During the year we conducted a review of the division with particular focus on those activities that fall outside of our core markets. As a result, we disposed of certain elements of our publishing business and closed two sites in our veterinary services practice. This review has identified other opportunities which we expect to deliver on during the coming period.  These changes are expected to improve our focus and profitability.

Knowledge Services, which includes our aquaculture veterinary consulting services, data services, education and training, is an important component of our differentiated offering, contributing to the success of our customers in maximising yield and managing disease, and helping us to take a thought leadership position in our industry. Knowledge Services will play an important role as we continue to integrate our aquaculture solutions, developing protocols across genetics, health and nutrition to address our customers' needs. Our recently launched health portal, a data collaboration tool for salmon, is now being trialled by 70% of the fish veterinary practices in Norway.

Our Markets and Strategy

During the year we concluded an in-depth strategic review of our business. Our strategy is guided by our mission to drive improvements in sustainability in aquaculture production that lead to profitable outcomes for our customers. We seek to achieve this by developing innovative products that improve yield, quality and fish health.

Over the past years, through acquisitions and organically, we have built a scalable, technology-rich platform with leading market positions. Looking forward, our strategy is to grow organically by leveraging the capabilities across the Group taking advantage of the very significant opportunities facing us in the fast evolving aquaculture sector. Further integration of the Group will be an important enabler of our strategy.

Our Markets

Our markets in Genetics, Advanced Nutrition and Aqua Health complement each other and play a critical role in aquaculture production. They drive biological performance which in turn drives productivity. They also have the potential to address consumers' growing concerns on animal welfare, use of antibiotics and sustainability.  Animal welfare is intrinsically linked to productivity; poor animal welfare reduces biological performance and raises the cost of production. A good example of how our three areas of technology complement each other is Benchmark's approach to sea lice, where we are developing a holistic solution that maximises resistance through genetics and vaccines, and that, in the case of an outbreak, offers a treatment which has no impact on animal welfare or on the environment. We are also developing probiotics for salmon which are designed to increase resilience in the fish overall. We believe our platform across the three critical technology areas gives us a unique position in the market.

We estimate our markets in salmon and shrimp, our two main target species, to be c. £1bn each in size, and growing faster than the aquaculture industry itself. They provide significant opportunity for Benchmark to grow and to generate attractive shareholder returns through a combination of growth in our key markets and organic expansion into new areas.

Strategy

Our five-year strategy can be summarised in four main components which are aimed at delivering growth and profitability and at positioning Benchmark as aquaculture's leading provider of solutions in genetics, aqua health and advanced nutrition.

 1. Grow in established markets

There is significant potential for organic growth in our business in established markets where we have a strong market position. During the year we built additional capacity in Genetics and made excellent progress in the development of our artemia replacement diets which will support future growth in our core markets. Going forward we see an opportunity to expand from our strong position in hatchery and nursery into the shrimp farm grow-out segment with a targeted offering from our Advanced Nutrition portfolio.

2. Commercial delivery of pipeline products

The commercial delivery of our animal health products continues to be a key priority for the Group as a driver of future profitability and industry leadership. We made good progress towards the commercialisation of our next generation sea lice treatment and of our sea bass/bream portfolio of vaccines with more to follow.

3. Focused investment in new markets that leverage the Group's platform

SPR Shrimp

Shrimp genetics is an attractive growth opportunity for the Group which leverages our capabilities and experience in salmon and our leading position in shrimp hatchery diets, where we believe we can achieve a high return on our R&D investment to date. Shrimp genetics that provide disease resistance is an unmet need which we are well placed to address. In late 2017, we commenced trials of our SPR shrimp in Vietnam, Thailand and China. The results to date show our stock performing strongly both in terms of survival and growth.

Our SPR shrimp has genetic resistance to a number of diseases including white spot and early mortality syndrome (EMS) which have been responsible for high mortality rates in Asia and Latin America in recent years. We plan to roll out our product in the five main shrimp producing countries in Asia with the first markets coming onstream in late 2019. Our strategy envisages leveraging our strong relationships in these markets by establishing joint ventures to accelerate the roll-out and reduce our capital commitment. Over time we anticipate disease resistant shrimp genetics to follow the experience of the salmon industry where the penetration of professional genetics is estimated to be more than 90%.

Probiotics

Probiotics improve the animal's gut health and prevent the establishment of invasive bacteria. This reduces the need for treatment with antibiotics. Probiotics also increase food conversion efficiency and improve sustainability of production. This is a fast developing area of technology with great potential. 

Benchmark has an established portfolio of probiotics for shrimp and sea bass and bream which it continues to develop.  Our five-year strategy envisages leveraging our technology expertise and our strong position in salmon to develop and launch a range of probiotics for salmon.

4. Position Benchmark in areas of future growth

We believe that our technology platforms together with our international footprint and network, uniquely position us to establish a strong position in emerging aquaculture markets as they develop, including tilapia. Our experience and involvement in genetics of setting up and managing breeding programmes across more than 12 species and technologies in health and nutrition provide a solid platform for future growth in new species.

Outlook and Current Trading

The growth drivers for our business remain strong, with an increasing need for solutions that improve productivity in the growing aquaculture sector to support sustainable food production meaning that the areas of the market we address are growing considerably faster than the overall aquaculture market.

The Group has started the current financial year trading ahead of the same period last year, and is trading in line with expectations for the full year.  Trading has commenced strongly in Genetics, with high demand for our disease and sea lice resistant salmon eggs.  Our Advanced Nutrition business in shrimp has started relatively slowly due to temporary volatility in the global shrimp market, but the outlook from spring onwards is positive. In Animal Health, we are planning to extend trials of our next generation sea lice treatment into new markets in 2019. We are making substantial progress towards establishing a partnership for our companion animal products.

The Group continues to monitor developments regarding the UK's forthcoming exit from the European Union and any potential impact on the Group's business. The Group has developed mitigating actions and contingency preparations which will enable it to maintain the supply of its products to customers, and remains confident in its strategy and flexibility to adapt to changes.

Over the next 18 months we expect to see our investment in a number of areas, such as our next generation sea lice treatment, our disease resistant shrimp and our new facility in Norway, starting to deliver, resulting in high growth in revenues, attractive margins and cash generation, which will increase our financial flexibility and deliver attractive shareholder returns.

1 See financial review for definition of adjusted measures 

Financial Review

Growth in revenue and Adjusted EBITDA

"Our strategy to focus on added value products coupled with recent significant investment in production capacity and in new products in the final stages of development will drive further increased Adjusted EBITDA margins and cash generation."

-    Mark Plampin, Chief Financial Officer

£m	2018	2017	Change %
Revenue	151.5	140.2	8%
EBITDA1	15.8	15.7	1%
Adjusted EBITDA2	17.0	10.1	68%
Adjusted Operating Profit3	10.2	5.2	96%
Operating loss	(9.1)	(7.6)	(20%)
Loss before tax	(13.7)	(8.1)	(69%)
Loss for the period	(4.4)	(7.1)	38%
Basic loss per share (p)	(0.94)	(1.43)	34%
Net debt 4	(55.7)	(23.9)	-

1.        EBITDA is earnings before interest, tax, depreciation and amortisation and impairment - see income statement

2.        Adjusted EBITDA which reflects underlying profitability, is earnings before interest, tax, depreciation, amortisation, impairment, exceptional items and acquisition related expenditure - see income statement

3.        Adjusted Operating Profit is operating loss before exceptional items including acquisition related items and amortisation and impairment of intangible assets excluding development costs - see below

4.        Net debt is cash and cash equivalents less loans and borrowings - see below

Financial highlights: 

·      Revenue increased by 8% to £151.5m (2017: £140.2m). Using the same foreign exchange rates experienced in 2017 (constant currency), revenue increased by 13%

·      17% growth (21% using constant currency) in salmon genetics revenues driven by increased volumes and average prices resulting from customer demand, the success of new products launched and winning market share

·      2% (9% using constant currency) growth in sales of nutrition products driven by ongoing increased demand for higher value live feed replacement and health diets, growth in sales volumes of live feeds not reflected in revenue due to low market prices for some products

·      7% growth in animal health sales driven by first commercial field trials of Benchmark's next generation sea lice treatment and CleanTreat coupled with stable Salmosan revenues

·      Significant strengthening in gross margin to 49% (2017: 45%) reflecting the Group's strategic focus on added value products and services

·      Total operating costs increased by 13% to £44.6m (2017: £39.3m) due to staff bonuses reflecting improved performance, strengthening of management and of sales and product support teams.

·      Expensed R&D reduced by £1.1m to £12.0m reflecting focus on progressing products nearest to market for which costs are capitalised

·      Investment in field trials for nearer to market products, particularly Benchmark's next generation sea lice treatment and CleanTreat, meant that total investment in R&D increased to £19.4m (2017: £15.2m) or 13% (2017: 11%) of revenue

·      Adjusted EBITDA increased by 68% to £17.0m (2017: £10.1m) reflecting growth in sales volumes and prices coupled with lower expensed R&D

·      Adjusted EBITDA margin increased to 11% (2017: 7%) 

·      Operating Loss increased to £(9.1m) (2017 £(7.6m)) influenced by improved trading and:

o  Higher depreciation following recent investment in production capacity

o  Acquisition related expenditure of £1.2m, whereas 2017 benefited from a £5.6m credit

·      Reported loss for the period reduced to £(4.4m) (2017: £(7.1m)) due to:

o  £9.3m tax credit (2017: credit £1.0m) principally due a large credit arising from a reduction in the corporate tax rate in Belgium which reduced the deferred tax liability on intangibles arising from the acquisition of INVE

o  Offset by the impact of foreign exchange movements in finance costs, £2.5m expense (2017: credit of £1.2m)

·      £40m investment in state-of-the-art additional genetics production capacity at Salten which was completed shortly after the year end

·      Net debt increased to £55.7m (2017: £23.9m), primarily due to £32.7m capital expenditure (including £17.9m investment in Salten facility and investment associated with the field trials of the new sea lice treatment). Net debt includes £27m ringfenced non-recourse debt to fund the Salten facility  

·      Investment in working capital resulting from top line growth and strategy to secure key supplier and key customer relationships

·      Subsequent to the year end, the Group's bankers agreed to provide an additional $20m under the existing facility and relax the leverage covenant to provide additional liquidity

·      The $20m additional facility combined with the year end cash balance of £24.1m provides the Group with funding for continuing growth and additional headroom

Adjusted measures

We continue to use adjusted results as our primary measures of financial performance. In line with many of our peers in the sector we highlight expensed R&D on the face of the income statement separate from operating expenses. Furthermore, we report earnings before interest, tax, depreciation and amortisation ("EBITDA") and EBITDA before including exceptional and acquisition related items ("Adjusted Operating Profit").  The activities of the Group's equity accounted investees are closely aligned with the Group's principal activities, as these arrangements were set up to exploit opportunities from the intellectual property held within the Group.  As a result, to ensure that adjusted performance measures are more meaningful, the Group's share of the results of these entities is included within Adjusted EBITDA.  We are also reporting this adjusted measure after depreciation and amortisation of capitalised development costs ("Adjusted EBITA") for the first time as the board consider this reflects the result after taking account of the utilisation of the recently expanded production capacity. We believe that these adjusted measures enable a better evaluation of our underlying performance. This is how the Board monitors the progress of the Group.

	Revenue				Adjusted EBITDA
	Actual currency			Constant Currency	Actual currency			Constant Currency
	2018	2017	Movement	Movement	2018	2017	Movement	Movement
	£m	£m	%	%	£m	£m	%	%
Animal Health	16.2	15.1	7%	7%	(11.0)	(11.6)	(5)%	(4)%
Genetics	35.8	30.5	17%	21%	7.9	5.8	36%	40%
Advanced Nutrition	85.7	83.7	2%	9%	21.6	17.7	22%	31%
Knowledge Services	15.8	13.8	14%	18%	0.2	(0.9)	(123)%	(102)%
Other/intersegment	-2.0	-2.9	-31%	-16%	(1.7)	(0.9)	78%	64%
Total	151.5	140.2	8%	13%	17.0	10.1	69%	86%

Constant currency represents the movement retranslating FY18 figures using the same foreign exchange rates experienced during FY17.

			Average
Exchange rates			2018	2017
US Dollar			1.35	1.27
Euro			1.13	1.15
Icelandic Krona			139.86	137.57
Norwegian Krone			10.90	10.56
Thai Baht			43.58	43.86

Adjusted Operating Profit	2018	2017
	£000	£000
Revenue	151.5	140.2
Cost of sales	(77.5)	(77.8)
Gross profit	74.0	62.4
Research and development costs	(12.0)	(13.1)
Other operating costs	(44.6)	(39.2)
Depreciation	(6.8)	(4.9)
Amortisation of capitalised development costs	-	-
Share of profit of equity-accounted investees, net of tax	(0.4)	0.0
Adjusted Operating Profit	10.2	5.2
Exceptional including acquisition related items	(1.2)	5.6
Amortisation of intangible assets excluding development costs	(18.1)	(18.4)
Operating Loss	(9.1)	(7.6)

Net debt	2018	2017
	£m	£m
Cash and cash equivalents	24.1	18.8
Bank borrowings and other loans - current	(0.9)	(6.0)
Obligations under finance leases - current	-	(0.2)
	(0.9)	(6.2)
Bank borrowings and other loans - non-current	(78.9)	(36.5)
Net debt	55.7	23.9

Revenue and Adjusted EBITDA

Group revenue increased by 8% to £151.5m in the year (2017: £140.2m). Using the same foreign exchange rates experienced in 2017 (constant currency) revenue increased by 13%.

Adjusted EBITDA increased by 68% to £17.0m (2017: £10.1m).  Using constant currency Adjusted EBITDA increased by 86%. Adjusted Operating Profit increased to £10.2m (2017: £5.2m) as the improved trading result was partially offset by increased depreciation charges reflecting the contribution that recently constructed production assets have begun to deliver.

Benchmark Genetics delivered strong revenue growth in salmon genetics.  This was driven by increased volumes and higher prices, the success of new higher value products, and winning an increased market share.  The valuation of biological assets increased by £4.0m (2017: £4.2m) driven by the growth in sales in the year, the strong order book at the year end and the first year of production at the new land-based broodstock facility in Norway.  This supported growth in gross margins which combined with operating leverage resulted in a 36% growth in Adjusted EBITDA to £7.9m (2017: £5.8m) with a margin of 22% (2017: 19%).

Advanced Nutrition experienced strong growth in higher value live feed replacement and health diets. Sales volumes of live feed products also increased (+9%) but significant oversupply in Asia resulted in soft market prices for some products and revenue growth for this product category was restricted as a result.  The consequent change in revenue mix delivered strong overall improvement in gross margin.  The division reported Adjusted EBITDA of £21.6m (2017: £17.7m) with a margin of 25% (2017: 21%).

Animal Health sales increased following the successful commencement of field trials of Benchmark's next generation sea lice treatment and CleanTreat.  In addition, underlying sales volumes of the division's existing mature sea lice treatment, Salmosan, were up whilst revenues were held back by the previously reported one off credits related to buy back of distributor inventory.  Expensed R&D reduced by £1.7m to £5.6m reflecting focus on progressing products nearest to market for which costs are capitalised.  Costs related to field trials are capitalised and will be amortised once the relevant product achieves its Marketing Authorisation (full licence).  Total investment in R&D for the Animal Health division including capitalised costs increased to £12.2m (2017: £8.9m). Operating costs increased due to investment in sales and product support teams to ensure successful launch of the pipeline of new products.  The division delivered a reduced Adjusted EBITDA loss of (£11.0m) (2017: loss of (£11.6m)).

Following management reorganisation Knowledge Services reported an improved Adjusted EBITDA profit of £0.2m (2017: loss of (£0.9m)). Progress with the division's data and education based strategy delivered increased sales alongside a largest ever Aquaculture UK conference which, when coupled with cost control, sets the course for improving results and delivered the anticipated move into profitability.

Total Group operating costs increased by 13% to £44.6m (2017: £39.3m).  This increase reflects the impact of  staff bonuses reflecting improved performance, increase in sales and product support headcount to deliver growth, strengthening of Plc and Operations boards and an increase in professional fees due to an enhanced focus on protecting the IP of our products. 

Total investment in expensed R&D reduced by £1.1m to £12.0m (2017: £13.1m).  This reduction reflects the fact that an increasing number of new products in the pipeline are reaching the final stages of development and consequently the proportion of total R&D investment that is capitalised is increasing.  Expensed R&D as a percentage of sales fell to 8% (2017: 9%).  Total investment in R&D increased to £19.4m (2017: £15.2m) or 13% (2017: 11%) of revenue.

Acquisition related items relate largely to the costs associated with completing the genetics JV with Empresas AquaChile.

Net Finance Costs

The Group incurred net finance costs of £4.6m during the year (2017: £0.5m).  Interest charged on the Group's interest bearing debt facilities was £2.4m (2017: £2.0m) reflecting a higher level of net debt during the year.  The revolving credit facility incurs interest in the range of 1.9% to 3.5% over LIBOR.  Interest on other debt facilities ranges from 2.65% to 4.2% above Norwegian base rates.

During the year, a foreign exchange loss of £2.5m arose due to the movement in exchange rates and has been included within finance costs (2017: £1.2m foreign exchange gain). 

Statutory loss before tax

The loss before tax for the year at £13.7m is higher than the prior year (2017: loss of £8.1m) due to the impact of the improved trading outlined above being offset by higher depreciation, amortisation and impairment charges of £24.8m (2017: £23.4m) principally from the new production facilities coming on stream, coupled with the increase in finance costs as outlined above and a credit in exceptional costs in the prior year of £5.6m (£1.2m cost in 2018) relating to the release of a provision for deferred consideration on previous acquisitions.

Taxation

There was a tax credit in the period of £9.3m (2017: credit £1.0m), mainly due to a reduction in the corporation tax rate in Belgium from 34% to 25%.  The largest elements of the remainder of the charge relate to overseas tax charges in the Genetics division of £1.6m and in the Advanced Nutrition division of £4.5m, offset by deferred tax credits on intangible assets arising on consolidation from recent acquisitions.  No deferred tax assets have been provided on any losses made in the period.

Earnings per share

Basic loss and diluted loss per share were both -0.94p (2017: loss per share -1.43p). The movement year on year is due to a combination of the improved result for the year as noted above, and the higher average number of shares in 2018 due to the new shares issued in the equity raise used to fund the Genetics JV with AquaChile in June 2018.

Dividends

No dividends have been paid or proposed in the year (2017: £nil) and the Board is not recommending a final dividend in respect of the year ended 30 September 2018.

Biological Assets

A feature of the Group's net assets is its investment in biological assets, which under IAS 41 are stated at fair value. At 30 September 2018, the carrying value of biological assets was £20.4m (2017: £16.5m). The movement in the overall carrying value of biological assets is due principally to the increase in sales of and future orders for the Company's salmon eggs as well as expansion of own production.

Intangibles

Capitalised R&D increased by £5.1m to £7.2m (2017: £2.1m).  R&D costs related to products that are close to commercial launch have to be capitalised when they meet the requirements set out under IFRS.  As Benchmark goes through a period of an increasing number of new products approaching launch this capitalisation will be an increasing feature in the mid-term.

Capital expenditure

Tangible fixed asset additions of £25.1m (2017: £36.1m) includes £17.9m cash investment in the construction of the new salmon egg production facility in Norway which concluded post year end.

Cash flow

Net cash flow from operations was an outflow of £3.7m (2017: inflow of £13.4m) principally due to working capital increases related to growth in trading and the strategy to secure key supplier and key customer relationships and also because prior year capital expenditure creditors were settled on completion of the new Salten facility. Proceeds from increased borrowings of £41.2m were used to part fund some of the capital expenditure outlined above, with total cash outflow on tangible and intangible capital additions totalling £32.7m (2017: £35.2m). Cash at the period end stood at £24.1m (2017: £18.8m) with net debt finishing the year at £55.7m (2017: £23.9m).

Liquidity and net debt

The Group's finance function is responsible for sourcing and structuring borrowing requirements. The Group had £79.8m in bank borrowings at the end of the year. Reported debt includes £27.3m in relation to the funding of the Group's new salmon egg production facility in Norway. This is ringfenced debt without recourse to Benchmark. At the year-end a maximum of £54m was available on the Group's key revolving credit facility, of this £53m had been drawn.  Net debt increased to £55.7m during the year as investment in working capital expanded and available long-term capital was invested in R&D and production capacity. 

As outlined in the Basis of Preparation in Note 1 to the financial statements,  a limit within the borrowing facility in relation to the amount of development funding provided to certain subsidiary companies ("leakage") has been exceeded, which could have caused the outstanding loan of £52.3m (2017: £36.4m) to become repayable on demand by the lenders. A waiver from this leakage condition was received from the  lenders on 7 January 2019 subject to the position being remedied by 31 March 2019.  The process agreed with the lenders to reduce total leakage is underway and will be completed within the required timescale.

Subsequent to the year end the Group's lenders agreed to advance a further $20m using the accordion clause in the existing revolving credit facility and to relax the leverage covenant over the remaining term of the facility to provide additional liquidity.  Simultaneously DNB joined the group banking syndicate, their significant experience of the aquaculture sector complements the global food and agri business expertise of the existing banks.

The available maximum drawdown therefore increased to £69m post year end.  The additional facility combined with the year end cash balance of £24.1m provides the Group with funding for continuing growth and additional headroom.
 

Consolidated Income Statement for the year ended 30 September 2018

	Notes	2018	2017
		£000	£000
Revenue		151,467	140,172
Cost of sales		(77,447)	(77,781)
Gross profit		74,020	62,391
Research and development costs		(12,040)	(13,055)
Other operating costs		(44,600)	(39,297)
Share of profit of equity-accounted investees, net of tax		(362)	27
Adjusted EBITDA²		17,018	10,066
Exceptional including acquisition related items	4	(1,239)	5,649
EBITDA¹		15,779	15,715
Depreciation	7	(6,841)	(4,877)
Amortisation and impairment	8	(18,002)	(18,473)
Operating loss		(9,064)	(7,635)
Finance cost	6	(4,927)	(1,960)
Finance income	6	332	1,495
Loss before taxation		(13,659)	(8,100)
Tax on loss		9,270	980
Loss for the year		(4,389)	(7,120)
Loss for the year attributable to:
- Owners of the parent		(5,009)	(7,440)
- Non-controlling interest		620	320
		(4,389)	(7,120)
Basic loss per share (pence)	5	(0.94)	(1.43)
Diluted loss per share (pence)	5	(0.94)	(1.43)

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

² Adjusted EBITDA - EBITDA before exceptional and acquisition related items

EBITDA and Adjusted EBITDA have been amended to include Share of profit of equity-accounted investees, which in the prior year was included after Operating loss, as this is how the Directors now monitor the progress of the Group

Consolidated Statement of Comprehensive Income for the year ended 30 September 2018
		2018	2017
		£000	£000
Loss for the year		(4,389)	(7,120)
Other comprehensive income
Items that are or may be reclassified subsequently to profit or loss
Movement on foreign exchange reserve		7,624	(7,128)
Total comprehensive income for the year		3,235	(14,248)
Total comprehensive income for the year attributable to:
- Owners of the parent		2,546	(14,407)
- Non-controlling interest		689	159
		3,235	(14,248)

Consolidated Balance Sheet

as at 30 September 2018

		2018	2017
	Notes	£000	£000
Assets
Non-current assets
Property, plant and equipment	7	99,527	80,845
Intangible assets	8	325,386	329,137
Equity-accounted investees		17,457	2,512
Other investments		29	237
Biological and agricultural assets	9	8,502	5,745
Trade and other receivables		4,145	-
Total non-current assets		455,046	418,476
Current assets
Inventories		20,483	20,053
Biological and agricultural assets	9	11,892	10,798
Trade and other receivables		41,337	38,530
Cash and cash equivalents		24,090	18,779
Total current assets		97,802	88,160
Total assets		552,848	506,636
Liabilities
Current liabilities
Trade and other payables		(45,680)	(44,498)
Loans and borrowings		(898)	(6,234)
Corporation tax liability		(2,629)	(2,844)
Provisions		(70)	(450)
Total current liabilities		(49,277)	(54,026)
Non-current liabilities
Loans and borrowings		(78,868)	(36,453)
Other payables		(1,219)	(1,213)
Deferred tax		(41,637)	(56,359)
Total non-current liabilities		(121,724)	(94,025)
Total liabilities		(171,001)	(148,051)
Net assets		381,847	358,585
Issued capital and reserves attributable to owners of the parent
Share capital		557	522
Additional paid-in capital		357,894	339,431
Capital redemption reserve		5	5
Retained earnings		(28,240)	(24,742)
Foreign exchange reserve		45,953	38,398
Equity attributable to owners of the parent		376,169	353,614
Non-controlling interest		5,678	4,971
Total equity and reserves		381,847	358,585

Consolidated Statement of Changes in Equity

for the year ended 30 September 2018

	Share capital	Additional paid-in share capital*	Other reserves	Retained  earnings	Total attributable  to equity holders of parent	Non- controlling interest	Total equity
	£000	£000	£000	£000	£000	£000	£000
As at 1 October 2016	521	339,431	45,370	(18,904)	366,418	1,281	367,699
Comprehensive income for the period
(Loss) for the period	-	-	-	(7,440)	(7,440)	320	(7,120)
Other comprehensive income	-	-	(6,967)	-	(6,967)	(161)	(7,128)
Total comprehensive income for the period	-	-	(6,967)	(7,440)	(14,407)	159	(14,248)
Contributions by and distributions to owners
Share issue	1	-	-	-	1	-	1
Share based payment	-	-	-	1,602	1,602	-	1,602
Total contributions by and distributions to owners	1	-	-	1,602	1,603	-	1,603
Changes in ownership
Investment in subsidiary by NCI	-	-	-	-	-	3,531	3,531
Total changes in ownership interests	-	-	-	-	-	3,531	3,531
Total transactions with owners of the Company	1	-	-	1,602	1,603	3,531	5,134
As at 30 September 2017	522	339,431	38,403	(24,742)	353,614	4,971	358,585
Comprehensive income for the period
(Loss) for the period	-	-	-	(5,009)	(5,009)	620	(4,389)
Other comprehensive income	-	-	7,555	-	7,555	69	7,624
Total comprehensive income for the period	-	-	7,555	(5,009)	2,546	689	3,235
Contributions by and distributions to owners
Share issue	35	18,463	-	-	18,498	-	18,498
Share based payment	-	-	-	1,511	1,511	-	1,511
Total contributions by and distributions to owners	35	18,463	-	1,511	20,009	-	20,009
Changes in ownership
Acquisition of NCI without a change in control	-	-	-	-	-	18	18
Total changes in ownership interests	-	-	-	-	-	18	18
Total transactions with owners of the Company	35	18,463	-	1,511	20,009	18	20,027
As at 30 September 2018	557	357,894	45,958	(28,240)	376,169	5,678	381,847

Consolidated Statement of Cash Flows

for the year ended 30 September 2018

		2018	2017
	Notes	£000	£000
Cash flows from operating activities
Loss for the year		(4,389)	(7,120)
Adjustments for:
Depreciation of property, plant and equipment	7	6,841	4,877
Amortisation and impairment of intangible fixed assets	8	18,002	18,473
Loss on sale of property, plant and equipment		8	19
Finance income	6	(332)	(1,495)
Finance costs	6	2,432	1,960
Other adjustments for non-cash items		(1,931)	-
Share of profit of equity-accounted investees, net of tax		362	(27)
Foreign exchange losses/(gains)		2,609	(1,434)
Share based payment expense		1,511	1,602
Tax credit		(9,270)	(980)
		15,843	15,875
Increase in trade and other receivables		(4,355)	(1,250)
(Increase)/decrease in inventories		(815)	3,247
Increase in biological and agricultural assets		(4,102)	(4,500)
(Decrease)/increase in trade and other payables		(4,026)	3,665
Decrease in provisions		(388)	(643)
		2,157	16,394
Income taxes paid		(5,898)	(3,015)
Net cash flows used in operating activities		(3,741)	13,379
Investing activities
Proceeds from investment by NCI		-	188
Purchase of investments		(6,356)	(2,032)
Purchases of property, plant and equipment		(25,072)	(32,740)
Purchase of intangibles		(7,581)	(2,423)
Proceeds from sale of fixed assets		233	245
Interest received		261	270
Net cash flows used in investing activities		(38,515)	(36,492)
Financing activities
Proceeds of share issues		18,498	1
Proceeds from bank or other borrowings		41,206	5,921
Acquisition of NCI		(33)	-
Repayment of bank or other borrowings		(5,815)	-
Cash advances and loans made to other parties		(4,076)	-
Interest and finance charges paid		(2,442)	(1,869)
Payments to finance lease creditors		(218)	(301)
Net cash inflow from financing activities		47,120	3,752
Net decrease/(increase) in cash and cash equivalents		4,864	(19,361)
Cash and cash equivalents at beginning of year		18,779	38,140
Effect of movements in exchange rate		447	-
Cash and cash equivalents at end of year		24,090	18,779

1.     Basis of preparation

The principal accounting policies adopted in the preparation of the financial statements are set out below.  The policies have been consistently applied to all the years presented, unless otherwise stated.  The Group's business activities, together with the factors likely to affect its future development, performance and position are set out in the Chairman's Statement, the Strategic Report, the FY18 Financial Review and the Audit Committee report. 

As at 30 September 2018 the Group had net assets of £381.8m (2017: £358.6m), including cash of £24.1m (2017: £18.8m) as set out in the consolidated balance sheet.  The Group made a loss for the year of £4.4m (2017: £7.1m).  As at 30 September 2018 the Company had net assets of £341.5m (2017: £330.1m), including cash of £2.3m (2017: £1.8m) as set out on the Company balance sheet. The Company made a loss for the year of £8.6m (2017: profit £0.7m).  The Group has started the current financial year trading ahead of the same period last year. 

The company funds the development of its subsidiaries by way of intercompany loans, drawn on the revolving credit facility. The loan documentation includes limits on the level of this intercompany funding to subsidiaries that are not obligors under the facility ('leakage restriction').  In December 2018 the Group identified that this limit had been exceeded both historically and at the year end, which could have caused the outstanding loan of £52.3m (2017: £36.4m) to become repayable on demand by the lenders.  The facility agreement allows the company 15 business days in which to rectify the position from the point of identification to prevent the loan becoming due on demand.  The directors have concluded that as the Company always had the intention and ability to rectify the position within the 15 business day period it remains appropriate to classify the loan as non-current at the reporting date.  On 7 January 2019, the Directors of the Company received a waiver from its lenders in relation to the leakage condition not being met and consequently the lenders cannot demand repayment of the loan.

This waiver is subject to a condition that the Company must rectify the position by 31 March 2019.  The process agreed with the lenders to reduce total inter-company debt with non-obligor companies is underway. The required execution documents are in preparation for approval by certain directors within the Group.  All of these directors have signed statements to confirm agreement to the process.  At the date of approval of these financial statements, the directors have therefore concluded that rectification is under their control as this is a procedural matter with no approvals required from any third parties, and they have taken legal advice to confirm that there are no reasons why the position will not be rectified in the required timeframe.   

Details of bank borrowings are disclosed in note 22.  On 7 January 2019, the accordion facility within the Company's existing bank facility has been activated raising the total facility from USD70m to USD90m (c£69m) and certain covenants have been revised appropriately.  As at 24 January 2019 drawings against the facility were USD75.2m (c£58m) and the most recent month end cash reserves at 31 December 2018 were £14.5m. 

The Directors have prepared trading and cash flow forecasts for the Group covering the period to September 2020, including forecast compliance with the revised covenants and other undertakings relating to the external financing facilities.  These forecasts include a number of assumptions in relation to trading performance across the Group including availability and timing of licences associated with sea lice treatment field trials, supply and pricing of key raw materials and the out-licensing of certain products in development.  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 and working capital management.  These forecast cashflows, considering the ability and intention of the directors to implement mitigating actions should they need to, provide sufficient headroom in the forecast period.

The Directors have considered all of the factors noted above and confirm that the Group and Company have adequate resources to continue to meet all liabilities as and when they fall due for the foreseeable future and at least for the period of 12 months from the date of signing these financial statements.  Accordingly, the financial statements have been prepared on a going concern basis.

These financial statements have been prepared in accordance with International Financial Reporting Standards, International Accounting Standards and Interpretations (collectively IFRSs) issued by the International Accounting Standards Board (IASB) as adopted by the European Union ("adopted IFRSs") and those parts of the Companies Act 2006 that are applicable to companies that prepare financial statements in accordance with IFRS. The Group reports earnings before interest, depreciation and amortisation ("EBITDA") and EBITDA before exceptional and acquisition related items ("Adjusted EBITDA") to enable a better understanding of the investment being made in the Group's future growth and provide a better measure of our underlying performance. During the current year these measures have been amended to include Share of profit of equity accounted investees which had previously been shown after Operating loss. This is how the Directors now monitor the progress of the Group. The activities of the Group's equity accounted investees are closely aligned with the Group's principal activities and are integral part of the Group's operations and strategy, as these arrangements were set up to exploit opportunities from the intellectual property held within the Group.  As a result, it is more meaningful to include the Group's share of the results of these entities within Adjusted EBITDA.

The preparation of financial statements in compliance with adopted IFRS requires the use of certain critical accounting estimates.  It also requires Group management to exercise judgement in applying the Group's accounting policies.  The areas where significant judgements and estimates have been made in preparing the financial statements and their effect are disclosed in note 2.

2.     Accounting policies

The accounting policies adopted are consistent with those of the financial year ended 30 September 2017.

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, this was created on 1 October 2017 by a combination of Sustainability Science Division and Technical Publishing Division, the results of which were not significant on an individual basis. 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.

Year ended 30 September 2018		Animal Health	Genetics	Advanced Animal Nutrition	All other segments	Corporate	Inter-segment sales	Total
	Notes	£000	£000	£000	£000	£000	£000	£000
Revenue		16,153	35,755	85,746	15,786	5,277	(7,250)	151,467
Cost of sales		(13,494)	(14,822)	(40,998)	(9,811)	(440)	2,118	(77,447)
Gross profit / (loss)		2,659	20,933	44,748	5,975	4,837	(5,132)	74,020
Research and development costs		(5,593)	(3,611)	(2,836)	-	-	-	(12,040)
Operating costs		(8,058)	(9,089)	(20,285)	(5,772)	(6,632)	5,236	(44,600)
Share of profit of equity-accounted investees, net of tax		-	(362)	-	-	-	-	(362)
Adjusted EBITDA		(10,992)	7,871	21,627	203	(1,795)	104	17,018
Exceptional including acquisition related items	4	-	(1,013)	-	-	(226)	-	(1,239)
EBITDA		(10,992)	6,858	21,627	203	(2,021)	104	15,779
Depreciation		(2,459)	(1,330)	(1,679)	(1,242)	(131)	-	(6,841)
Amortisation and impairment		(108)	(2,171)	(14,523)	(1,200)	-	-	(18,002)
Operating profit / (loss)		(13,559)	3,357	5,425	(2,239)	(2,152)	104	(9,064)
Finance cost								(4,927)
Finance income								332
Loss before tax								(13,659)
Year ended 30 September 2017		Animal Health	Genetics	Advanced Animal Nutrition	All other segments	Corporate	Inter-segment sales	Total
	Notes	£000	£000	£000	£000	£000	£000	£000
Revenue		15,149	30,530	83,659	13,770	4,300	(7,236)	140,172
Cost of sales		(13,882)	(13,842)	(42,789)	(9,405)	(359)	2,496	(77,781)
Gross profit / (loss)		1,267	16,688	40,870	4,365	3,941	(4,740)	62,391
Research and development costs		(7,343)	(2,682)	(3,030)	-	-	-	(13,055)
Operating costs		(5,527)	(8,221)	(20,159)	(5,240)	(4,890)	4,740	(39,297)
Share of profit of equity-accounted investees, net of tax		-	-	27	-	-	-	27
Adjusted EBITDA		(11,603)	5,785	17,708	(875)	(949)	-	10,066
Exceptional including acquisition related items	4	(631)	7,005	(19)	(51)	(655)	-	5,649
EBITDA		(12,234)	12,790	17,689	(926)	(1,604)	-	15,715
Depreciation		(851)	(1,217)	(1,630)	(1,053)	(126)	-	(4,877)
Amortisation		(523)	(2,113)	(14,950)	(887)	-	-	(18,473)
Operating profit / (loss)		(13,608)	9,460	1,109	(2,866)	(1,730)	-	(7,635)
Finance cost								(1,960)
Finance income								1,495
Loss before tax								(8,100)

4.     Exceptional items

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

		2018	2017
		£000	£000
Acquisition related items		1,239	(6,254)
Exceptional restructuring costs		-	605
Total exceptional items		1,239	(5,649)

Acquisition related items are costs incurred in investigating and acquiring new businesses. During the year, the contingent consideration element of the provision for deferred consideration held for previous acquisitions has been recalculated considering up to date performance of those acquisitions and the projected performance for the final 3 months of the earn out period (which ended on 31 December 2017) against the relevant sales volumes and revenue targets. As a result, £206,000 (2017: £7,283,000) has been released in the year.

Exceptional include: costs of £nil (2017: £452,000) for legal fees incurred in relation to a dispute around building works with the main contractor at premises in Braintree within the Animal Health Division; costs totalling £nil (2017: £182,000) relating to a  restructuring in an Animal Health Division business in Thailand, this included £nil (2017: £97,000) of redundancy payments (staff costs) and £nil (2017: £85,000) loss on disposal of property, plant and equipment; also included is a £nil (2017: £29,000) credit in relation to balances written off in preparation for liquidating an entity in the Advanced Animal Nutrition division.

5.     Loss per share

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

	2018	2017
Loss attributable to equity holders of the parent (£000)	(5,009)	(7,440)
Weighted average number of shares in issue (thousands)	531,651	522,092
Basic loss per share (pence)	(0.94)	(1.43)

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

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

	2018	2017
Loss attributable to equity holders of the parent (£000)	(5,009)	(7,440)
Weighted average number of shares in issue (thousands)	531,651	522,092
Diluted loss per share (pence)	(0.94)	(1.43)

A total of 3,724,453 potential ordinary shares have not been included within the calculation of statutory diluted loss per share for the year (2017: 4,464,413) as they are anti-dilutive. However, these potential ordinary shares could dilute earnings/loss per share in the future.

6.     Net finance costs

		2018	2017
		£000	£000
Interest received on bank deposits		301	258
Foreign exchange gains on financing activities		-	1,225
Dividend income		31	12
Finance income		332	1,495
Finance leases (interest portion)		(5)	(5)
Foreign exchange losses on financing activities		(1,054)	-
Foreign exchange losses on operating activities		(1,441)	-
Interest expense on financial liabilities measured at amortised cost		(2,427)	(1,955)
Finance costs		(4,927)	(1,960)
Net finance costs recognised in profit or loss		(4,595)	(465)

7.     Property, plant and equipment

	Freehold Land and Buildings	Assets in the course of construction	Long Term Leasehold Property Improvements	Plant and Machinery	E commerce Infra-structure	Office Equipment and Fixtures	Total
Group	£000	£000	£000	£000	£000	£000	£000
Cost
Balance at 1 October 2016	12,448	21,807	4,847	15,512	247	1,136	55,997
Additions	5,147	21,708	893	7,993	-	309	36,050
Reclassification	15,047	(16,118)	(1,188)	2,254	-	5	-
Exchange differences	310	(245)	(54)	150	-	19	180
Disposals	4	-	(217)	(318)	-	(242)	(773)
Balance at 30 September 2017	32,956	27,152	4,281	25,591	247	1,227	91,454
Balance at 1 October 2017	32,956	27,152	4,281	25,591	247	1,227	91,454
Additions	1,678	17,705	874	3,593	-	1,222	25,072
Reclassification	(2,450)	-	(99)	2,610	-	(61)	-
Increase/(decrease) through transfers from assets in the course of construction	71	(5,060)	3,534	1,455	-	-	-
Exchange differences	196	573	10	475	-	117	1,371
Disposals	(23)	(10)	(63)	(636)	-	(224)	(956)
Balance at 30 September 2018	32,428	40,360	8,537	33,088	247	2,281	116,941
Accumulated Depreciation
Balance at 1 October 2016	956	-	916	3,601	242	259	5,974
Depreciation charge for the year	1,029	-	759	2,817	2	270	4,877
Reclassification	245	-	(305)	22	-	37	(1)
Exchange differences	184	-	(36)	108	-	12	268
Disposals	-	-	(123)	(160)	-	(226)	(509)
Balance at 30 September 2017	2,414	-	1,211	6,388	244	352	10,609
Balance at 1 October 2017	2,414	-	1,211	6,388	244	352	10,609
Depreciation charge for the year	1,269	-	843	4,410	2	317	6,841
Reclassification	-	-	(5)	25	-	(20)	-
Exchange differences	193	-	34	359	-	93	679
Disposals	(21)	-	(94)	(515)	-	(85)	(715)
Balance at 30 September 2018	3,855	-	1,989	10,667	246	657	17,414
Net book value
At 30 September 2018	28,573	40,360	6,548	22,421	1	1,624	99,527
At 30 September 2017	30,542	27,152	3,070	19,203	3	875	80,845
At 30 September 2016	11,492	21,807	3,931	11,911	5	877	50,023

8.     Intangible assets

	Websites	Goodwill	Patents and Trademarks	Intellectual Property	Customer Lists	Contracts	Licences	Genetics	Development costs	Total
	£000	£000	£000	£000	£000	£000	£000	£000	£000	£000
Cost or valuation
Balance at 1 October 2016	561	153,184	1,075	138,390	6,783	9,648	35,578	26,189	1,440	372,848
Additions - on acquisition	-	12	-	-	157	-	-	-	-	169
Additions - externally acquired	36	-	30	26	-	18	-	-	-	110
Additions - internally developed	-	-	-	-	-	-	-	-	2,144	2,144
Exchange differences	-	(3,255)	(294)	(3,778)	(156)	(156)	(914)	56	(53)	(8,550)
Balance at 30 September 2017	597	149,941	811	134,638	6,784	9,510	34,664	26,245	3,531	366,721
Balance at 1 October 2017	597	149,941	811	134,638	6,784	9,510	34,664	26,245	3,531	366,721
Additions - on acquisition	-	51	-	-	-	-	-	-	-	51
Additions - externally acquired	86	-	30	118	-	-	-	-	139	373
Additions - internally developed	-	-	-	-	-	-	-	-	7,178	7,178
Disposals	-	(447)	-	-	-	-	-	-	-	(447)
Exchange differences	2	3,171	6	3,679	149	20	1,018	(59)	57	8,043
Balance at 30 September 2018	685	152,716	847	138,435	6,933	9,530	35,682	26,186	10,905	381,919
Accumulated amortisation and impairment
Balance at 1 October 2016	518	279	607	10,290	491	4,123	2,858	1,144	-	20,310
Amortisation charge for the period	13	-	79	13,544	552	1,443	2,162	680	-	18,473
Exchange differences	-	(3)	(55)	(932)	(15)	(60)	(121)	(13)	-	(1,199)
Balance at 30 September 2017	531	276	631	22,902	1,028	5,506	4,899	1,811	-	37,584
Balance at 1 October 2017	531	276	631	22,902	1,028	5,506	4,899	1,811	-	37,584
Amortisation charge for the period	21	-	158	12,631	403	1,399	2,161	782	-	17,555
Impairment	-	447	-	-	-	-	-	-	-	447
Disposals	-	(447)	-	-	-	-	-	-	-	(447)
Exchange differences	-	1	11	1,037	17	35	294	(1)	-	1,394
Balance at 30 September 2018	552	277	800	36,570	1,448	6,940	7,354	2,592	-	56,533
Net book value
At 30 September 2018	133	152,439	47	101,865	5,485	2,590	28,328	23,594	10,905	325,386
At 30 September 2017	66	149,665	180	111,736	5,756	4,004	29,765	24,434	3,531	329,137
At 1 October 2016	43	152,905	468	128,100	6,292	5,525	32,720	25,045	1,440	352,538

9.     Biological assets

	2018	2017
Group	£000	£000
Organic sheep	123	214
Organic beef	150	201
Organic hens	26	24
Frozen Milt	484	876
Broodstock, eggs and fingerlings	19,611	15,228
Total biological assets	20,394	16,543
Less: non-current broodstock	(8,502)	(5,745)
Total current biological assets	11,892	10,798

Livestock

The Group operates a commercial and research farming and technology transfer business, and at 30 September 2018 held 2,192 (2017: 2,909) head of sheep, 299 (2017: 327) head of cattle, and 11,088 (2017: 9,011) hens. The Group had farming sales of £443,144 in the year ended 30 September 2018 (2017: £346,194).

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

Frozen Milt

Where we have identified individual salmon carrying particular traits or disease resistance, semen (milt) can be extracted and deep frozen using cryopreservation techniques (the process of freezing biological material at extreme temperatures in liquid nitrogen). The calculation of the fair value of milt is based on production and freezing costs and, where appropriate, an uplift to recognise the additional selling price that can be achieved from eggs fertilised by premium quality milt. The estimated fair value of Frozen Milt at 30 September 2018 was £484,000 (2017: £876,000).  The decrease in value of £392,000 relates to usage during the year.

Broodstock, eggs and fingerlings

	Salmon Broodstock	Salmon eggs	Salmon fingerlings	Lumpfish eggs and fingerlings	Tilapia and Shrimp	Total
	£000	£000	£000	£000	£000	£000
Biological assets 1 October 2017	9,273	3,913	292	1,661	89	15,228
Increase due to production / purchase	17,521	1,952	262	2,639	222	22,596
Due to physical changes	(15,595)	19,812	397	328	-	4,942
Foreign exchange movements	(150)	(49)	(3)	(16)	3	(215)
Reduction due to sales / discarding of stock	-	(19,910)	(767)	(3,108)	(2)	(23,787)
Fair value adjustments	675	54	84	81	(47)	847
Biological assets 30 September 2018	11,724	5,772	265	1,585	265	19,611
Broodstock, eggs and fingerlings - non-current	8,502	-	-	-	-	8,502
Broodstock, eggs and fingerlings - current	3,222	5,772	265	1,585	265	11,109
	11,724	5,772	265	1,585	265	19,611

Assumptions used for determining fair value of broodstock, eggs and fingerlings

IAS41 requires that biological assets are accounted for at the estimated fair value net of selling and harvesting costs.  Fair value is measured in accordance with IFRS13 and is categorised into level 3 in the fair value hierarchy as the inputs include unobservable inputs in the valuation of broodstock, eggs and fingerlings for which there are no published market data available.

The calculation of the estimated fair value of salmon broodstock is primarily based upon its main harvest output being salmon eggs, which are priced upon our current seasonally adjusted selling prices for salmon eggs.  These prices are reduced for harvesting costs, freight costs, incubation costs and market capacity to arrive at the net value of broodstock.  The valuation also reflects the internally generated data to arrive at the biomass. This includes the weight of the broodstock, the yield that each kilogram of fish will produce and mortality rates. The fish take approximately four years to reach maturity, and the age and biomass of the fish is taken into account in the fair value.

The calculation of the fair value of the salmon eggs is based upon the current seasonally adjusted selling prices for salmon eggs less transport and incubation costs, and taking account of the market capacity. The valuation also takes account of the mortality rates of the eggs and expected life as sourced from internally generated data.

The calculation of the fair value of the salmon and lumpfish fingerlings is valued on current selling prices less transport costs. Internally generated data is used to incorporate mortality rates and the weight of the fish.

The lumpfish eggs are valued at cost. Internally generated data is used to calculate mortality rates.

The valuation models by their nature are based upon uncertain assumptions on sales prices, market capacity, weight, mortality rates, yields and assessment of the discounts to reflect the stages of maturity. The Group has a degree of expertise in these assumptions but these assumptions are subject to change. Relatively small changes in assumptions would have a significant impact on the valuation.  A 1% increase/decrease in assumed selling price would increase/decrease the fair value of biological assets by £183,000. A 10% increase/decrease in the biomass of salmon broodstock and the quantity of salmon eggs valued would increase/decrease the fair value of those biological assets by £1,172,000 and £577,000 respectively.

Total quantities held at 30 September were:

	2018	2017
Salmon broodstock and fingerlings	612 tonnes	538 tonnes
Lumpfish fingerlings	3.4m units	2.1m units
Salmon eggs	51.0m units	37.2m units

 

END

 

 

FR GGGDBCSDBGCS