Full Year Results

RNS Number : 6166X

Benchmark Holdings PLC

20 December 2019

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")

Full Year Results for the Financial Year Ended 30 September 2019

Challenging market conditions led to disappointing performance

and accelerating the restructuring of the Group

Good progress towards launch of BMK08 and CleanTreat® and of SPR Shrimp in Asia

Benchmark, the aquaculture health, nutrition and genetics business, announces its audited full year results for the year ended 30 September 2019 (the "period"). A copy of the Company's Annual Report can be found on https://www.benchmarkplc.com

The Company also announces that Septima Maguire is assuming the role of CFO effective today.

£m	2019	Restated* 2018	%
Adjusted
Adjusted EBITDA² from continuing operations	12.1	19.1	-37%
Total Adjusted EBITDA² - incl. discontinued operations	13.7	17.0	-19%
Adjusted Operating Profit³ from continuing operations	3.6	14.2	-75%
Statutory
Revenue from continuing operations	127.3	131.6	-3%
Loss before tax from continuing operations	(73.3)	(8.4)
Loss/profit for the period from continuing operations	(73.3)	0.5
Loss for the period - total incl. discontinued operations	(83.1)	(4.4)
Basic loss per share (p)	(15.03)	(0.94)
Net debt⁴	(87.1)	(55.7)

* 2018 numbers have been restated to reflect the ongoing continuing business. Knowledge Services Division and the veterinary services business within the Animal Health Division have been moved to discontinued operations in line with IFRS 5.

Financial Overview

As announced in the Company's Trading Update of 29 November 2019, the Group has accelerated the disposal and discontinuation of non-core activities. These activities have been excluded from Continuing Operations.

· Revenues from Continuing Operations of £127.3m, 3% below prior year (2018: £131.6m)

· Total revenues including Continuing and Discontinued Operations of £148.7m, down 2% (2018: £151.5m)

· Adjusted EBITDA² from Continuing Operations of £12.1m (2018: £19.1m)

· Total Adjusted EBITDA² including Continuing and Discontinued Operations of £13.7m (2018: £17.0m)

· Total R&D investment of £20.5m (2018: £19.2m) driven by products close to launch and investment in Genetics and Advanced Nutrition to maintain leadership in our core markets

· Net debt⁴ at period end of £87.1m (2018: £55.7m) as a result of investment in R&D and an increase in working capital including that related to growth in biological assets in the new production facilities

· Year end Liquidity⁵ was £28.2m, well within the covenant threshold

· Loss for the period from continuing operations of £73.3m driven by an impairment of intangible assets related to INVE of £44.8m as a result of a reduction in forecasts in Advanced Nutrition due to material change in market outlook.

Current trading:

· Weakness in the shrimp and sea bass/bream markets continues and while some recovery is expected it is unlikely to recover to 2018 levels in 2020. The outlook in the salmon market remains positive

· Overall the Company expects to deliver underlying Adjusted EBITDA from Continuing Operations (before one-off other income) in line with this year in FY2020 and to maintain sufficient liquidity to execute its product development programme and support its Continuing Operations after taking account of the expected timing and proceeds from the planned disposals and cost reductions

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

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

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

(4) Net debt is cash and cash equivalents less loans and borrowings.

(5) Liquidity is defined as undrawn facilities plus cash balances.

(6) Constant Currency reflects 2019 figures in GBP converted using average foreign exchange rates prevalent in 2018

Peter George, Executive Chairman commented:

"Following these disappointing results, and the management changes announced in August, our priorities for the coming year are to deliver the programme of disposals and restructuring, to obtain regulatory approval and prepare for launch of BMK08 and CleanTreat^Ò and to execute our strategy in our core business areas of Genetics and Advanced Nutrition, including the launch of SPR shrimp and the expansion of our health and specialist diets segments in Advanced Nutrition.

"There is a growing need in the market for solutions that improve the sustainability of food production in aquaculture. Benchmark's focus on delivering products and solutions that improve animal health and welfare, and that reduce environmental impact, positions it as a leader in raising the sustainability standards in aquaculture."

Operational Highlights

Progress towards commercial launch of major products

· Next generation sea lice treatment (product candidate BMK08) continued to show c.99% efficacy and excellent environmental and animal welfare credentials. In combination with CleanTreat®, BMK08 is potentially transformative, addressing one of the largest industry challenges.

· Production of specific pathogen resistant (SPR) shrimp commenced in Florida for export into Asia. Establishment of associate in Thailand for local multiplication and distribution.

Growth in core markets

· Opening of state of the art, land-based salmon egg facility in Norway. Ramp-up of production according to plan

· Establishment of wholly owned local production in Chile following dissolution of JV with AquaChile. Recovery of original investment which will be reinvested in the Chilean operation

· Increased capacity at nutrition production plant in Thailand to meet growing long term demand for the Company's specialist diets

Continued Innovation

· Winner of Aquaculture Innovation Award for CleanTreat®, the Company's breakthrough purification system which removes medicinal residues from bath treatments

· Launch of a new Artemia product (D-FENSE) which reduces the risk of infection from vibrio, one of the main industry challenges affecting shrimp and seabass/seabream

Details of analyst / investor call today

There will be a call at 8:30am UK time today for analysts and investors. To register for the call please contact MHP Communications on +44 (0)20 3128 8742, or by email on benchmark@mhpc.com

Enquiries

For further information, please contact:
Benchmark Holdings plc	Tel: 020 3696 0630
Peter George, Executive Chairman
Mark Plampin/Septima Maguire, CFO
Ivonne Cantu, Investor Relations


Numis (Broker and NOMAD)	Tel: 020 7260 1000
James Black, Freddie Barnfield, Duncan Monteith

MHP Communications	Tel: 020 3128 8742

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

About Benchmark

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

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

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

Chairman's Statement

Overview

I am disappointed to be reporting results that are below those expected at the beginning of the financial year, due largely to poor market conditions affecting our largest division, Advanced Nutrition.

Following the management changes announced in August, the Company has accelerated its programme of efficiencies including the disposal and exit from non-core businesses and the implementation of a cost saving plan.

Revenues for the year from continuing operations were down 3% at £127.3m (2018: £131.6m); and Adjusted EBITDA from continuing operations was £12.1m (2018: £19.1m). Total Adjusted EBITDA (including the results of discontinued operations)² was £13.7m (2018: £17.0m). After tax loss for the year from continuing operations was £73.3m (2018: profit of £0.5m) mainly driven by an impairment of intangible assets related to INVE of £44.8m as a result of a reduction in forecasts in Advanced Nutrition due to material change in market outlook.

During the year the Company made good progress towards the launch of its next generation sea lice treatment, product candidate BMK08, which, together with its co-dependent technology CleanTreat^Ò, has the potential to be transformational for the industry, delivering a solution with strong environmental and animal welfare credentials. The Company is considering the optimal strategy to scale up CleanTreat® given its importance to product candidate BMK08 and its broader industry wide applications.

Challenging markets in Advanced Nutrition

2019 was a challenging year for Advanced Nutrition, our largest division, representing more than 50% of the Group's revenues. Our main customers in shrimp faced declining prices and negative margin development, leading to reduced production, and affecting demand for our products. Industry commentators remark that these were the lowest price levels in the shrimp industry in 30 years (inflation adjusted) resulting from overstocking after a record production in 2018. In Artemia, the division's main product, the situation was exacerbated by strong harvests and increased competition which resulted in price pressure.

The Mediterranean sea bass and sea bream markets were also affected by oversupply after a period of high stocking which affected prices, dropping to levels not seen since 2012. In Turkey, the largest producing country, this was exacerbated by the adverse economic environment, including high inflation and limited access to credit. Overall, producers reacted by contracting production reducing demand for our products.

As a result, revenues in Advanced Nutrition were down 10% to £76.8m (2018: £85.7m) and revenues from Artemia (in USD) were down by 23%. The division's specialist diets and health were more resilient to market conditions with sales down by c.5%. Margins in the division were lower than the previous year reflecting the fall in revenues.

Advanced Nutrition is a core business for the Company with leading positions in its markets and opportunities for growth. The Company increased its market share in health and specialist diets in the year and we continue to see an opportunity to expand into the grow-out segment with these products building a new sales channel. However, market conditions are expected to remain difficult during 2020 and as a consequence of the impact of weak markets on trading and constraints on cash investment, the carrying value of the intangible assets related to the acquisition of INVE has been impaired by £44.8m.

Good performance in Genetics and progress towards launch of disease resistant shrimp

Genetics, our second largest division, continued to perform well, delivering growth in revenues and Adjusted EBITDA. Genetics revenues of £39.7m were up 11%, ahead of the reported growth in the global salmon farming sector of 6%. Growth in revenues was driven by an increase in salmon egg sales, and pricing that reflects our continued innovation. Looking forward, the Company's increased capacity, following the opening of the new land-based facility in Norway, and its ongoing innovation programme to introduce new genetic traits, will support future growth.

During the year, we announced the dissolution of the Company's joint venture with AquaChile as a result of AquaChile's acquisition by AgroSuper. We continue to believe that Chile is a strategically important market for our business and our focus during the dissolution process was on recovering our original investment in the JV and on finding an alternative route to establish local production of salmon eggs, in line with our original objective. The dissolution of the JV was successfully completed in FY2019 and the balance of the consideration due was received post year end. The ownership of the Ensenada salmon egg hatchery facility to Benchmark will form the platform for the Group to establish local production. We will reinvest the amount repaid to convert the Ensenada hatchery facility into a full salmon egg production operation over the next 18 months.

The Company made progress towards the launch of its specific pathogen resistant (SPR) shrimp genetics business in Asia which represents a significant growth opportunity for the Company, leveraging its strong market position in shrimp. During the year, the Company commenced production of its SPR shrimp in Florida for export to Asian markets. In addition, the Company entered into an agreement with two partners in Thailand for local multiplication and distribution of our shrimp genetics products. The establishment of the agreement is in line with our strategy to use local partners to accelerate market entry while reducing capital commitments and mitigating risk. We see a very significant opportunity to introduce advanced genetics which improve performance and disease resistance in the shrimp sector, and our competitive genetics and market presence position us strongly to succeed.

Animal Health

Progress towards launch of BMK08

I am pleased with the progress made towards the launch of BMK08 supported by our proprietary water purification system, CleanTreatÒ. During the year the Company conducted additional large-scale trials with new customers which continued to show high levels of efficacy and excellent animal welfare and environmental credentials. The Group is preparing for commercial launch in Q1 2021CY, however regulatory timings are not within the Group's control.

There is increasing recognition in the industry of the breakthrough nature of our sea lice treatment and increasing interest from customers as we approach commercial launch. Sea lice continues to represent the industry's most important biological challenge, resulting in production losses and reputational impact; the market for the treatment and prevention of sea lice is estimated to be £2-£3bn.

Innovation award for CleanTreat^Ò

CleanTreat^Ò, the Company's proprietary system that removes medicinal residues from treatment water, and which is integral to the delivery of BMK08, was awarded a prestigious industry innovation award at the world's largest aquaculture technology exhibition, AquaNor. CleanTreat^Ò addresses one of the biggest concerns in the salmon industry regarding the environmental impact of bath treatments. CleanTreat^Ò has broad potential applications in the aquaculture industry beyond sea lice with the potential to eliminate detectable medicinal residues across bath treatments. The Company is considering the optimal strategy to scale up CleanTreat® given its importance to product candidate BMK08 and its broader applications, including alternative funding strategies with support from its major shareholders.

BMK08 in combination with CleanTreat^Ò is potentially transformative, addressing the urgent need for a highly efficacious treatment that protects the environment and animal welfare.

Streamlining of animal health pipeline and trial facilities

During the year the Company conducted a further review of the health pipeline, led by incoming CSO Alex Raeber, and made the decision to focus efforts on a smaller number of products. We stopped development in projects outside of our core species and in projects that have not passed the proof of concept stage. We also phased out some of our programmes. The Company's main opportunities continue to be product candidate BMK08, and the vaccine portfolios for sea bass/sea bream and salmon. The review extended to the Company's in-house trial facilities and led to the decision to restructure these. The positive impact from this effort will come through from FY2020 onwards.

The Company experienced longer timescales than anticipated in the development of its sea bass/sea bream vaccines, and in establishing the commercial trials of certain pipeline products, which had an impact on Group revenues and on the expected timing of commercial launch of certain products. In addition, it was established that fewer trials of BMK08 were required for its regulatory process than previously anticipated. The Company is adopting a more conservative approach to forecasting development timescales and revenues from new products. It is expected that the first vaccine for the sea bass/sea bream market will be launched in the first half of the calendar year 2020.

Strategy

The Board's annual strategic review with the leadership team took place in September, and focussed on a review of progress against the Company's strategy set out a year ago, including the launch of BMK08 and of SPR shrimp.

Our priorities for the next 12 months are to execute the programme of disposals and restructuring, to obtain regulatory approval and prepare for the commercial launch of BMK08 and CleanTreat^Ò , and to execute our strategy in our core business areas of Genetics and Advanced Nutrition, including the launch of SPR shrimp in Genetics and the expansion of our health and diets segments in Advanced Nutrition.

Board and management changes

The year was marked by significant changes to the Company's senior management team; the Board believes it is the right time in the Company's development to appoint a new management team with the experience and focus to execute the next phase of Benchmark's strategy, deliver growth and accelerate the path to sustained profitability.

Septima Maguire joined the Company on 11 November 2019. Septima replaces Mark Plampin, who after nine years in the role of CFO, decided to step down to pursue other opportunities. Mark has been an integral part of the team that led the Group through its IPO on AIM and the acquisitive and organic growth that followed. Malcolm Pye announced his intention to step down as CEO and he resigned from the Board post period-end on 4 December 2019. The recruitment of a CEO to succeed Malcolm Pye is underway.

I took over as Executive Chairman in August following Malcolm's decision to step down, and since then my priority has been to accelerate the programme of disposals, drive operational and cost efficiencies and bring a sharper focus on the product pipeline.

Liquidity and cash management

Liquidity and cash management continued to be a priority for the Company throughout the year. This is of critical importance while the Company continues to invest in R&D ahead of the launch of product candidate BMK08 and other pipeline products. At year end, the Company had net debt of £87.1m and liquidity⁵ (undrawn facilities plus cash balances) of £28.2m, significantly above the covenant minimum of £10m.

A comprehensive programme to strengthen the Company's balance sheet has been undertaken by the new management, including the disposal of or exit from non-core businesses, a cost reduction/cost containment plan and enhanced working capital management. The timing and proceeds from these actions are fundamental for Benchmark to maintain sufficient liquidity to execute the Group's product development programme and to support its continuing operations.

The disposals primarily relate to businesses in the Knowledge Services division, including veterinary training, publishing, conferences and consultancy services, which are not core to our strategic focus on aquaculture genetics, health and advanced nutrition. The Company has appointed external advisers in order to accelerate the programme of disposals and expects these to conclude in 2020. Discussions with potential partners for the commercialisation of our companion animal products are ongoing.

Going concern

The Board has reviewed the Group's forecast for the period to September 2021 and concluded that, while there is material uncertainty surrounding the timing and value of proceeds from the disposal of discontinued operations and other trading sensitivities, the Group should be able to continue to operate as a going concern subject to successful completion of those disposals or by implementing mitigating actions that significantly reduce the investment and costs related to the product pipeline or by further finance being sought.

Summary and outlook

Weakness in the shrimp and sea bass/bream markets continues and while some recovery is expected they are unlikely to recover to 2018 levels in 2020.

Overall the Company expects to deliver underlying Adjusted EBITDA from continuing operations (before one-off other income) in line with this year in FY2020 and to maintain sufficient liquidity to execute its product development programme and support its continuing operations after taking account of the expected timing and the proceeds from the planned disposals and cost reductions.

The market has a growing need for solutions that improve the sustainability of food production in aquaculture. Benchmark's focus on delivering products and solutions that improve animal health and welfare, and that reduce environmental impact, positions it as a leader in improving sustainability standards in aquaculture.

Financial Review

Revenue and Adjusted EBITDA

Group

The Advanced Nutrition division experienced very challenging market conditions in 2019 that led to a reduction in revenue, which was partially offset by growth in Genetics and as a result Group revenue from continuing operations decreased by 3% to £127.3m in the year (2018: £131.6m). The reduction in sales meant that Gross Profit from continuing operations decreased to £66.0m (2018: £68.5m) and Gross Margin remaining stead at 52% (2018: 52%) as prices remained relatively resilient albeit some price weakness was experienced in certain live feed products. In addition, there was a reduced contribution in Health from commercial scale field trials.

Total Group operating costs of continuing operations increased by 10% to £40.7m (2018: £37.0m). This increase reflects the operating costs of new production sites as they come on stream, increased costs related to currency transfers and a full year impact of increased management headcount to strengthen the Plc and Operations boards. Opex was reduced by other income of £1.8m (2018: £1.0m), mainly from R&D expenditure credits and proceeds from successful IP infringement cases. Expensed R&D of continuing operations increased to £12.8m (2018: £12.0m) with the increase being focussed on protecting the market positions of the more mature Genetics and Advanced Nutrition divisions as well as progressing the main pipeline opportunities in Animal Health.

Adjusted EBITDA from continuing operations decreased by 37% to £12.1m (2018: £19.1m) with the drop driven by lower sales in Advanced Nutrition and lower contribution from commercial scale field trials, offset by an increase in sales and margins in Genetics and one-off other income. Adjusted Operating Profit from continuing operations decreased to £3.6m (2018: £14.2m) due to the lower trading result combined with increased depreciation charges reflecting the contribution of the recently constructed production assets.

Total revenues (including discontinued operations) were £148.7m, down 2% (2018: £151.5m). Using the same foreign exchange rates experienced in 2018 (constant currency⁶) revenue from continuing operations decreased by 3%. Total Adjusted EBITDA (including discontinued operations) decreased by 19% to £13.7m (2018: £17.0m). Using constant currency total Adjusted EBITDA decreased by 17%.

Advanced Nutrition

Revenue of £76.8m down 10% (2018: £85.7m) as a result of weak markets and aggressive price competition from CIS Artemia producers after a strong harvest. By product our live feed products were the most affected with volumes and revenues (in USD) down 23%, whilst specialist diets and health showed relative resilience with revenues (in USD) down 5% and 4%, respectively.

Strategically we maintained our prices and our premium positioning, which reflect our technical superiority. The weak demand environment did result in the division absorbing some increases in cost of sales and, while operating costs were tightly controlled and benefitted from the profit on sale of a property and the proceeds of IP infringement settlements, Advanced Nutrition reported a reduced Adjusted EBITDA result of £15.4m (2018: £21.6m) with a margin of 20% (2018: 25%). The weaker market outlook has resulted in an impairment of £44.8m to the carrying values of goodwill in the INVE business.

Genetics

Good growth in revenue and Adjusted EBITDA driven by an increase in salmon egg volumes (+16%) and prices reflecting our continued innovation and launch of new traits. Revenues of £39.7m were up 11% (2018: £35.8m), ahead of growth in the sector. The Company's ongoing innovation together with its investment in quality, biosecurity and availability of supply through our new production facilities will support future growth. The dissolution of the joint venture with AquaChile is now complete including transfer of ownership of the Ensenada salmon egg hatchery which will form the platform to establish Chilean production. The valuation of biological assets increased by £8.3m (2018: £4.0m) driven by the growth in sales in the year, the strong order book at the year end and the increasing output potential of the new production sites. As the division's new shrimp genetics get closer to market launch the costs of development were capitalised for the first time, with £1.5m capitalised in the year. These factors supported growth in gross margins to 64% (2018: 58%). Operating costs increased in line with the increase in production capacity in salmon and shrimp. As a result, the division delivered strong Adjusted EBITDA growth to £10.1m (2018: £7.9m) with Adjusted EBITDA margin rising to 25% (2018: 22%).

Animal Health

Revenue of £17.7m up 10% (2018: £16.2m). Growth was driven by an increase in sales of Salmosan, the Company's current sea lice treatment. This reflects the challenge of high sea lice levels, particularly in Chile. The Company continued to generate a contribution from commercial scale field trials of its next generation sea lice treatment (BMK08), although at a lower level than the prior year, as we approach commercial launch and the programme of trials in our main market reaches conclusion. Revenues from veterinary and diagnostics services also grew during the year.

Total R&D investment in the division was £11.2m (2018: £12.2m), of which £5.7m was expensed (2018: £5.6m). During the year the Company began a programme to reduce overall R&D spend while continuing to progress the main pipeline opportunities. This involved a streamlining of external R&D spend and a review of in-house trials facilities. The impact from this effort will come through from 2020 onwards.

Adjusted EBITDA loss narrowed for the division to £10.2m (2018: loss of £11.0m).

Knowledge Services

All operations of the division are included within discontinued operations. Revenue in this division in 2019 was £15.9m (2018: £15.8m) with associated Adjusted EBITDA of £1.3m (2018: £0.2m). Revenue was flat with a particularly strong performance in veterinary training offset by reduced sales in other businesses. Despite being broadly complementary to Benchmark's core activities, the Knowledge Services division is not integral to the Group's long-term strategy. Therefore, the disposal of the component businesses is part of the programme of structural efficiencies. The Company is in discussions with a number of interested parties and further announcements will be made in due course.

Exceptional items

Items that are material because of their nature whose significance is sufficient to warrant separate disclosure and identification within the consolidated financial statements are referred to as exceptional items. The separate reporting of exceptional items helps to provide an understanding of the Group's underlying performance. Exceptional expenses related to continuing operations of £0.6m (2018: £1.2m) derive from the changes in Group management. Exceptional expenses relating to discontinued operations of £0.7m (2018: £nil) include costs of closure of operations in the Knowledge Services division.

Depreciation, amortisation and impairments

Depreciation and impairments related to continuing operations of £8.5m (2018: £4.9m) with the increase principally arising from new production facilities coming onstream.

Amortisation and impairments related to continuing operations of £64.3m (2018: £16.8m) with the increase being due to impairments in the carrying value of goodwill related to the INVE business driven by the change in market outlook.

Net finance costs

During the year the Company completed a new senior secured floating rate bond issue of NOK 850m (USD 95.0m equivalent). The bond which matures in June 2023, will be listed on the Oslo market and has a coupon equivalent to the three months Norwegian Interbank Offered Rate + 5.25% p.a. with quarterly interest payments. This new bond issue was applied to refinance Benchmark's previous USD 90m revolving credit facility. In addition, a USD 15.0m revolving credit facility was provided by DNB Bank ASA (50%) and HSBC UK Bank PLC (50%). The revolving credit facility incurs interest in the range of 3.0 to 3.5% over London Interbank Offered Rate. The Group's other ring-fenced facilities remained in place including facilities totalling NOK 291m related to the funding of the new salmon egg production facility in Norway. Interest on these other debt facilities ranges between 2.65% above Norwegian base rates and 5%.

The Group incurred net finance costs from continuing operations of £12.1m during the year (2018: £4.6m). Included within this was interest charged on the Group's interest-bearing debt facilities of £6.0m (2018: £2.4m) reflecting a higher level of net debt during the year and the higher coupon post refinancing. Further, a foreign exchange loss of £4.6m arose due to the movement in exchange rates and there was a charge of £1.7m (2018: £nil) relating to the fair value change in the cross currency hedge taken out during the year.

Statutory loss before tax

The loss before tax from continuing operations for the year at £73.3m is higher than the prior year (2018: loss of £8.4m) due to the impact of the reduced trading result; higher depreciation, amortisation, and in particular impairment charges; and the increase in finance costs and exceptional costs; all as outlined above.

Taxation

There was a tax credit related to continuing operations in the period of £13,000 (2018: credit of £8.9m), mainly due to overseas tax charges in the Genetics division of £1.5m and in the Advanced Nutrition division of £2.6m, offset by deferred tax credits on intangible assets mainly arising on consolidation from acquisitions (the 2018 credit principally related to a reduction in the corporation tax rate in Belgium from 34% to 25%), recognition of a deferred tax asset on losses expected to be recovered.

Loss for the year

The loss for the year from continuing operations was £73.3m (2018: profit of £0.5m) and from discontinued operations the loss was £9.8m (2018: loss of £4.9m).

Earnings per share

Basic loss and diluted loss per share were both -15.03p (2018: loss per share -0.94p). The movement year on year is due to the reduced result for the year as noted above.

Dividends

No dividends have been paid or proposed in the year (2018: £nil) and the Board is not recommending a final dividend in respect of the year ended 30 September 2019.

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 2019, the carrying value of biological assets was £28.5m (2018: £20.4m). 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 £0.5m to £7.7m (2018: £7.2m). 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. Increased activities related to trials of and progress with the marketing authorisation application for BMK08 pushed capitalised development costs higher, together with the first time capitalisation of the new shrimp genetics. As Benchmark goes through a period of an increasing number of new products approaching launch this capitalisation will be an ongoing feature in the mid-term.

The dissolution of the genetics joint venture in Chile, and the consequent transfer of assets to Benchmark to part satisfy return of the original investment, led to an intangible addition representing the IP inherent within the breeding programme in Chile.

The impairment of intangible assets during the year of £47.6m principally relates to impairment of the goodwill from the acquisition of INVE where the change in market outlook has led to a reduction in value of the discounted cash flows for the Advanced Nutrition division.

Capital expenditure

Tangible fixed asset additions of £12.5m (2018: £25.1m) includes £1.0m cash investment in the final phase of the construction of the new salmon egg production facility in Norway, £4.1m initial investment in the new salmon egg production facility in Chile (transferred on dissolution of the previous JV) and £2.2m on improvements to salmon slaughter facilities in Iceland that are a vital part of the egg production process.

Cash flow

Net cash flow from operations was an outflow of £9.2m (2018: outflow of £3.7m) principally due to working capital increases: in Advanced Nutrition from purchase commitments with key live feed suppliers and in general the phasing of sales towards year end in general. In addition, the build of biological assets at new genetics production facilities resulted in an increased outflow in working capital of £8.6m (2018: outflow of £4.1m).

Total outflows to capex of £15.8m (2018: £32.7m) were substantially reduced because investment in the new salmon egg facility concluded at the beginning of the year.

Other cashflow items included the payment of the deferred consideration of £7.0m for the investment in the joint venture with AquaChile which was completed in 2018 and the initial consideration received on the subsequent dissolution of that joint venture in 2019 of £5.9m. The balance of the consideration for the dissolution of the joint venture of £6.9m was received post year end.

As a result of the above free cash flow was an outflow of £23.9m (2018: outflow of £36.2m). Net proceeds from increased borrowings of £21.4m were used to fund this outflow.

Cash at the period end stood at £16.1m (2018: £24.1m).

Liquidity and net debt

The Group's finance function is responsible for sourcing and structuring borrowing requirements.

As detailed under net finance costs above, during the year the Company completed a refinancing including a new senior secured floating rate bond issue of NOK 850m (USD95.0m equivalent) and a USD 15.0m revolving credit facility. The Group's other ring-fenced facilities remained in place including facilities totalling NOK 291m related to the funding of the new salmon egg production facility in Norway.

The Group had £103.2m in bank borrowings at the end of the year (2018: £79.7m). Reported debt includes £27.1m in relation to the funding of the Group's new salmon egg production facility in Norway. This is ring-fenced debt within SalmoBreed Salten without recourse to the rest of the Group. At the year end a maximum of £12.2m was available on the Group's super senior revolving credit facility, of this £nil had been drawn. Net debt increased to £87.1m during the year (2018: £55.7m) as investment in working capital expanded and available long-term capital was invested in R&D and production capacity.

There is an information undertaking within the terms of the NOK bond that requires the Company to publish quarterly financial statements within 60 days of the quarter end. The Company did not satisfy this requirement for the quarter to 30 September 2019 because the year end audit was not sufficiently complete for the publication of what would have effectively been deemed a Preliminary Announcement by reference to the UK Listing Rules. The NOK bond terms include permission for the Company to publish the quarterly financials within 20 business days of the end of the initial 60 day period. The Company satisfied the requirements of the NOK bond terms by announcing its quarterly financials simultaneously with the announcement of its preliminary results for the year ended 30 September 2019 on 20 December 2019.

The facilities combined with the year end cash balance of £16.1m means the Group had total liquidity of £28.2m. This, in conjunction with the expected proceeds from the disposal of non-core businesses and the reduction in cash outflows resulting from closing certain non-core activities is expected by the Directors to provide the Group with sufficient liquidity to fund continuing growth and provide adequate headroom.

Consolidated Income Statement

for the year ended 30 September 2019

	Notes	2019	2018
			Restated
		£000	£000
Continuing operations
Revenue		127,343	131,643
Cost of sales		(61,348)	(63,150)
Gross profit		65,995	68,493
Research and development costs		(12,830)	(12,040)
Other operating costs		(40,700)	(37,012)
Share of profit of equity-accounted investees, net of tax		(414)	(362)
Adjusted EBITDA²		12,051	19,079
Exceptional - restructuring/acquisition related items	4	(581)	(1,239)
EBITDA¹		11,470	17,840
Depreciation and impairment		(8,466)	(4,869)
Amortisation and impairment		(64,254)	(16,802)
Operating loss		(61,250)	(3,831)
Finance cost	3	(12,422)	(4,927)
Finance income	3	368	332
Loss before taxation		(73,304)	(8,426)
Tax on loss		13	8,906
(Loss)/profit from continuing operations		(73,291)	480
Discontinued operations
Loss from discontinued operations, net of tax	5	(9,789)	(4,869)
		(83,080)	(4,389)
Loss for the year attributable to:
- Owners of the parent		(83,857)	(5,009)
- Non-controlling interest		777	620
		(83,080)	(4,389)

Earnings per share
Basic loss per share (pence)	6	(15.03)	(0.94)
Diluted loss per share (pence)	6	(15.03)	(0.94)
Earnings per share - continuing operations
Basic loss per share (pence)	6	(13.28)	(0.03)
Diluted loss per share (pence)	6	(13.28)	(0.03)

		£000	£000
Adjusted EBITDA from continuing operations		12,051	19,079
Adjusted EBITDA from discontinued operations		1,674	(2,061)
Total Adjusted EBITDA		13,725	17,018

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

² Adjusted EBITDA - EBITDA before exceptional and acquisition related items

Consolidated Statement of Comprehensive Income

for the year ended 30 September 2019

	2019	2018
	£000	£000

Loss for the year	(83,080)	(4,389)
Other comprehensive income
Items that are or may be reclassified subsequently to profit or loss
Foreign exchange translation differences	13,919	7,624
Cash flow hedges - changes in fair value	(3,549)	-
Cash flow hedges - reclassified to profit or loss	(17)	-
Total comprehensive income for the period	(72,727)	3,235

Total comprehensive income for the period attributable to:
- Owners of the parent	(73,174)	2,546
- Non-controlling interest	447	689
	(72,727)	3,235

Total comprehensive income for the period attributable to owners of the parent:
- Continuing operations	(63,188)	7,048
- Discontinued operations	(9,986)	(4,502)
	(73,174)	2,546

Consolidated Balance Sheet

as at 30 September 2019

		2019	2018
	Notes	£000	£000
Assets
Property, plant and equipment	7	88,900	99,527
Intangible assets	8	275,744	325,386
Equity-accounted investees		3,453	17,457
Other investments		25	29
Biological and agricultural assets	10	12,469	8,502
Trade and other receivables		-	4,145
Non-current assets		380,591	455,046
Inventories		22,609	20,483
Biological and agricultural assets		16,024	11,892
Trade and other receivables		52,136	41,337
Cash and cash equivalents		16,051	24,090
		106,820	97,802
Assets held for sale		15,970	-
Current assets		122,790	97,802
Total assets		503,381	552,848
Liabilities
Trade and other payables		(35,235)	(45,680)
Loans and borrowings	11	(3,231)	(898)
Corporation tax liability		(2,703)	(2,629)
Provisions		(404)	(70)
		(41,573)	(49,277)
Liabilities directly associated with the assets held for sale		(10,634)	-
Current liabilities		(52,207)	(49,277)
Loans and borrowings		(99,961)	(78,868)
Other payables		(2,004)	(1,219)
Deferred tax		(38,743)	(41,637)
Non-current liabilities		(140,708)	(121,724)
Total liabilities		(192,915)	(171,001)
Net assets		310,466	381,847
Issued capital and reserves attributable to owners of the parent
Share capital		559	557
Additional paid-in capital		358,044	357,894
Capital redemption reserve		5	5
Retained earnings		(110,916)	(28,240)
Hedging Reserve		(3,566)	-
Foreign exchange reserve		60,202	45,953
Equity attributable to owners of the parent		304,328	376,169
Non-controlling interest		6,138	5,678
Total equity and reserves		310,466	381,847

Consolidated Statement of Changes in Equity

for the year ended 30 September 2019

	Share capital	Additional paid-in share capital	Other reserves	Hedging reserve	Retained earnings	Total attributable to equity holders of parent	Non- controlling interest	Total equity
	£000	£000	£000	£000	£000	£000	£000	£000

As at 1 October 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

Comprehensive income for the period
(Loss) for the period	-	-	-	-	(83,857)	(83,857)	777	(83,080)
Other comprehensive income	-	-	14,249	(3,566)	-	10,683	(330)	10,353
Total comprehensive income for the period	-	-	14,249	(3,566)	(83,857)	(73,174)	447	(72,727)

Contributions by and distributions to owners
Share issue	2	150	-	-	-	152	-	152
Share based payment	-	-	-	-	1,181	1,181	-	1,181
Total contributions by and distributions to owners	2	150	-	-	1,181	1,333	-	1,333

Changes in ownership
Disposal of subsidiary with NCI	-	-	-	-	-	-	13	13
Total changes in ownership interests	-	-	-	-	-	-	13	13
Total transactions with owners of the Company	2	150	-	-	1,181	1,333	13	1,346

As at 30 September 2019	559	358,044	60,207	(3,566)	(110,916)	304,328	6,138	310,466

Consolidated Statement of Cash Flows

for the year ended 30 September 2019

		2019	2018
	Notes	£000	£000
Cash flows from operating activities
Loss for the year		(83,080)	(4,389)
Adjustments for:
Depreciation and impairment of property, plant and equipment		17,227	6,841
Amortisation and impairment of intangible fixed assets		66,087	18,002
Loss on sale of property, plant and equipment		(838)	8
Finance income		(368)	(332)
Finance costs		7,773	2,432
Other adjustments for non-cash items		68	(1,931)
Share of profit of equity-accounted investees, net of tax		414	362
Foreign exchange losses		5,620	2,609
Share based payment expense		1,181	1,511
Tax credit		111	(9,270)
		14,195	15,843
Increase in trade and other receivables		(12,516)	(4,355)
Increase in inventories		(2,273)	(815)
Increase in biological and agricultural assets		(8,593)	(4,102)
Increase/(decrease) in trade and other payables		3,968	(4,026)
Increase/(decrease) in provisions		261	(388)
		(4,958)	2,157
Income taxes paid		(4,253)	(5,898)
Net cash flows used in operating activities		(9,211)	(3,741)
Investing activities
Acquisition of subsidiaries, net of cash acquired		(7)	-
Purchase of investments		(7,020)	(6,356)
Receipts from disposal of investments		5,942	-
Purchases of property, plant and equipment		(7,850)	(25,072)
Purchase of intangibles		(7,964)	(7,581)
Proceeds from sale of fixed assets		1,131	233
Interest received		447	261
Net cash flows used in investing activities		(15,321)	(38,515)
Financing activities
Proceeds of share issues		2	18,498
Proceeds from bank or other borrowings		92,578	41,206
Acquisition of NCI		-	(33)
Repayment of bank or other borrowings		(71,224)	(5,815)
Cash advances and loans made to other parties		-	(4,076)
Interest and finance charges paid		(5,366)	(2,442)
Payments to finance lease creditors		(5)	(218)
Net cash inflow from financing activities		15,985	47,120
Net (decrease)/increase in cash and cash equivalents		(8,547)	4,864
Cash and cash equivalents at beginning of year		24,090	18,779
Effect of movements in exchange rate		508	447
Cash and cash equivalents at end of year		16,051	24,090

Notes

1. Basis of preparation

These audited results have been prepared on the basis of the accounting policies which are to be set out in Benchmark Holdings Plc's annual report and financial statements for the year ended 30 September 2019.

The consolidated financial statements of the Group for the year ended 30 September 2019 were prepared in accordance with International Financial Reporting Standards ("IFRSs") as adopted for use in the EU ("adopted IFRSs") and applicable law.

Whilst the financial information included in this preliminary statement has been prepared on the basis of the requirements of IFRSs in issue, as adopted by the European Union and effective at 30 September 2019, this statement does not itself contain sufficient information to comply with IFRS.

The financial information set out above does not constitute the company's statutory accounts for the years ended 30 September 2019 or 2018 but is derived from those accounts. Statutory accounts for 2018 have been delivered to the registrar of companies, and those for 2019 will be delivered in due course. The auditor has reported on those accounts. Their report for 2019 was (i) unqualified, (ii) contains a material uncertainty in respect of going concern to which the auditor drew attention by way of emphasis without modifying their report and (iii) did not contain a statement under section 498(2) or (3) of the Companies Act 2006. Their report for the accounts of 2018 was (i) unqualified, (ii) did not include a reference of any matters to which the auditor drew attention by way of emphasis without qualifying their report and (iii) did not contain a statement under section 498(2) or (3) of the Companies Act 2006.

The financial statements are prepared on the going concern basis.

As at 30 September 2019 the Group had net assets of £310.5m (2018: £381.8m), including cash of £16.1m (2018: £24.1m) as set out in the consolidated balance sheet. The Group made a loss for the year of £83.1m (2018: £4.4m). As at 30 September 2019 the Company had net assets of £304.2m (2018: £341.5m), including cash of £0.8m (2018: £2.3m. The Company made a loss for the year of £35.2m (2018: £8.6m).

The Group was refinanced during the year, and on 24 June 2019 a new four-year senior secured floating rate listed bond issue of NOK 850m was completed and a new three and a half year USD 15m revolving credit facility agreed. As at 20 December total borrowings from the Group's facilities were £102.3m and the most recent month end cash reserves at the end of November were £19.8m.

The Directors have prepared base and sensitised cash flow forecasts for the Group covering the period to September 2021, including forecast compliance with the covenants specified in the new borrowings. Significant elements of the Group continue to be in a growth and investment phase, including the final stages of obtaining Marketing Authority approval for its latest sea lice treatment and the growth and expansion of its genetics business into inland salmon egg production and disease resistant shrimp genetics while riding out the headwinds in the shrimp market. The Directors have taken the decision to divest from a number of smaller or non-core businesses in the Group to help fund this ongoing investment and a structural efficiencies programme is well underway to that end. The business forecasts therefore include key assumptions on the timing and value of these business disposals and asset realisations, as well as other trading uncertainties common in businesses engaged in the aquaculture and research and development industries. The trading uncertainties include the timing of the grant of full licences for the new sea lice treatment, the pace of recovery in global shrimp markets, achieving anticipated growth targets in core Advanced Nutrition and Genetics markets, the supply and pricing of key raw materials and potential distribution partner agreements. However good progress has been made with all of the disposals subject to the non-core divestment programme, with several reaching the non-binding offer stage and offers received reflecting a high level of interest.

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 cash flows, considering the ability and intention of the directors to implement mitigating actions should they be required, provide sufficient headroom in the forecast period. However, should the reasonably possible downside sensitivities from trading occur, alongside a significant delay, or a reduction in the expected disposal proceeds below the low end of the valuation range in some of the larger business disposals, then this could remove all available headroom. In this event, either further financing would have to be sought or additional structural efficiency initiatives be identified and pursued. In the eventuality that further financing is required, the Directors believe that relationships with funders and the expected returns available on the growth areas within the Group in which ongoing investment is being made are sufficiently strong and attractive for the Group to be able to secure adequate additional funding should it be required.

Based on their assessment, the Directors believe it remains appropriate to prepare the financial statements on a going concern basis. However, these circumstances represent a material uncertainty that may cast significant doubt on the Group's and Company's ability to continue as a going concern and therefore to continue realising their assets and discharging its liabilities in the normal course of business. The financial statements do not include any adjustments that would result from the basis of preparation being inappropriate.

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 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 2019	Animal Health	Genetics	Advanced Animal Nutrition	All other segments	Corporate	Inter-segment sales	Total
	£000	£000	£000	£000	£000	£000	£000
Revenue	17,742	39,696	76,776	15,881	6,534	(7,890)	148,739
Cost of sales	(14,112)	(14,376)	(37,502)	(8,059)	(394)	1,515	(72,928)
Gross profit / (loss)	3,630	25,320	39,274	7,822	6,140	(6,375)	75,811
Research and development costs	(5,691)	(3,986)	(3,173)	-	-	-	(12,850)
Operating costs	(8,136)	(10,845)	(20,695)	(6,558)	(8,963)	6,375	(48,822)
Share of profit of equity-accounted investees, net of tax	-	(414)	-	-	-	-	(414)
Adjusted EBITDA	(10,197)	10,075	15,406	1,264	(2,823)	-	13,725
Exceptional - restructuring/acquisition related items	-	(58)	-	(745)	(523)	-	(1,326)
EBITDA	(10,197)	10,017	15,406	519	(3,346)	-	12,399
Depreciation and impairment	(4,400)	(2,807)	(1,878)	(8,025)	(117)	-	(17,227)
Amortisation and impairment	(216)	(2,079)	(61,959)	(1,833)	-	-	(66,087)
Operating profit / (loss)	(14,813)	5,131	(48,431)	(9,339)	(3,463)	-	(70,915)
Finance cost							(12,422)
Finance income							368
Loss before tax							(82,969)

Year ended 30 September 2018	Animal Health	Genetics	Advanced Animal Nutrition	All other segments	Corporate	Inter-segment sales	Total
	£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 - restructuring/acquisition related items	-	(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)

Reconciliation of segmental information to IFRS measures - Revenue and Loss before tax

Revenue
	2019	2018
	£000	£000

Total revenue per segmental information	148,739	151,467
Less: revenue from discontinued operations	(21,396)	(19,824)
Consolidated revenue	127,343	131,643

Loss before tax
		2018
	£000	£000

Loss before tax per segmental information	(82,969)	(13,659)
Less: loss before tax from discontinued operations	9,665	5,233
Consolidated loss before tax	(73,304)	(8,426)

3 Net finance costs

	2019	2018
	£000	£000

Interest received on bank deposits	366	301
Dividend income	2	31
Finance income	368	332


Finance leases (interest portion)	(65)	(5)
Foreign exchange losses on financing activities	(1,594)	(1,054)
Foreign exchange losses on operating activities	(3,055)	(1,441)
Cash flow hedges - reclassified from OCI	17	-
Cash flow hedges - ineffective portion of changes in fair value	(1,696)	-
Interest expense on financial liabilities measured at amortised cost	(6,029)	(2,427)
Finance costs	(12,422)	(4,927)
Net finance costs recognised in profit or loss	(12,054)	(4,595)

4 Exceptional items -restructuring/acquisition related 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.

	2019	2018
	£000	£000

Acquisition related items	(82)	1,239
Exceptional restructuring costs	663	-

Total exceptional items	581	1,239

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 ends on 31 December 2019) against the relevant sales volumes and revenue targets. As a result, £86,000 (2018: £206,000) has been released in the year.

Exceptional expenses include: £214,000 of legal fees and £391,000 of staff costs relating to the board's decision to make significant changes to management team and bring in new management and £58,000 of other items.

5 Discontinued operations

In June 2019 the Group announced a programme of structural efficiencies which focused on the disposal and discontinuation of non-core activities. This programme primarily includes the businesses of Knowledge Services Division and the veterinary services business within Animal Health Division.

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

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

Significant progress to sell the disposal group has been made and sales are expected to complete within the first half of the financial year 2020.

Impairment losses relating to the disposal group

Impairment losses of £7,533,000 for write downs of discontinued operations to the lower of carrying amount and its fair value less costs to sell have been included in the "Depreciation and impairment" and "Amortisation and impairment" headings within discontinued operations. The impairment losses have been applied to reduce the carrying amount of Intangible assets and property, plant and equipment.

Results from discontinued operations
	2019	2018
	£000	£000
Revenue	21,396	19,824
Cost of sales	(11,580)	(14,297)
Gross profit	9,816	5,527
Research and development costs	(20)	-
Other operating costs	(8,122)	(7,588)
Adjusted EBITDA	1,674	(2,061)
Exceptional - restructuring/acquisition related items	(745)	-
EBITDA	929	(2,061)
Depreciation and impairment	(8,761)	(1,972)
Amortisation and impairment	(1,833)	(1,200)
Operating loss / Loss before taxation	(9,665)	(5,233)
Tax on loss	(124)	364
Loss from discontinued operations	(9,789)	(4,869)

Results from discontinued operations by segment
	Animal Health	Knowledge Services	Total Discontinued	Animal Health	Knowledge Services	Total Discontinued
	2019	2019	2019	2018	2018	2018
	£000	£000	£000	£000	£000	£000
Revenue	6,255	15,141	21,396	5,467	14,357	19,824
Adjusted EBITDA	288	1,386	1,674	(1,744)	(317)	(2,061)
Operating loss	(447)	(9,218)	(9,665)	(2,475)	(2,758)	(5,233)

6 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.

		2019			2018
	Continuing	Discontinuing	Total	Continuing	Discontinuing	Total

Loss attributable to equity holders of the parent (£000)	(74,068)	(9,789)	(83,857)	(140)	(4,869)	(5,009)

Weighted average number of shares in issue (thousands)			557,851			531,651

Basic loss per share (pence)	(13.28)	(1.75)	(15.03)	(0.03)	(0.91)	(0.94)

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:

		2019			2018
	Continuing	Discontinuing	Total	Continuing	Discontinuing	Total

Loss attributable to equity holders of the parent (£000)	(74,068)	(9,789)	(83,857)	(140)	(4,869)	(5,009)

Weighted average number of shares in issue (thousands)			557,851			531,651

Diluted loss per share (pence)	(13.28)	(1.75)	(15.03)	(0.03)	(0.91)	(0.94)

A total of 2,962,168 potential ordinary shares have not been included within the calculation of statutory diluted loss per share for the year (2018: 3,724,453) as they are anti-dilutive. However, these potential ordinary shares could dilute earnings/loss per share in the future.

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 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

Balance at 1 October 2018	32,428	40,360	8,537	33,088	247	2,281	116,941
Additions	6,760	1,234	135	3,523	-	804	12,456
Increase/(decrease) through transfers from assets in the course of construction	37,083	(38,376)	2	1,282	-	9	-
Exchange differences	(237)	(1,768)	9	827	-	204	(965)
Reclassification to assets held for resale	(200)	-	(2,096)	(6,228)	(247)	(489)	(9,260)
Disposals	(461)	(146)	(19)	(1,013)	-	(190)	(1,829)
Disposals through sale of subsidiary	-	-	(102)	(67)	-	(9)	(178)
Balance at 30 September 2019	75,373	1,304	6,466	31,412	-	2,610	117,165

Accumulated Depreciation
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

Balance at 1 October 2018	3,855	-	1,989	10,667	246	657	17,414
Depreciation charge for the year	2,372	-	972	4,726	1	486	8,557
Impairment charge for the year	-	295	3,079	4,714	-	9	8,097
Reclassification to assets held for resale	(61)	-	(1,083)	(3,853)	(247)	(241)	(5,485)
Exchange differences	302	-	52	730	-	214	1,298
Disposals	(425)	-	-	(921)	-	(191)	(1,537)
Disposals through sale of subsidiary	-	-	(24)	(49)	-	(6)	(79)
Balance at 30 September 2019	6,043	295	4,985	16,014	-	928	28,265

Net book value
At 30 September 2019	69,330	1,009	1,481	15,398	-	1,682	88,900
At 30 September 2018	28,573	40,360	6,548	22,421	1	1,624	99,527
At 1 October 2017	30,542	27,152	3,070	19,203	3	875	80,845

Following the decision to proceed with the structural efficiencies plan, the carrying value of Property, plant and equipment assets in the relevant businesses has been reviewed for recoverability. A resulting impairment charge of £8,097,000 has been made against the carrying value of the various assets.

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 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

Balance at 1 October 2018	685	152,716	847	138,435	6,933	9,530	35,682	26,186	10,905	381,919
Additions - on acquisition	-	-	-	319	-	-	-	-	-	319
Additions - externally acquired	118	-	62	1,799	-	-	38	-	-	2,017
Additions - internally developed	-	-	-	-	-	-	-	-	7,673	7,673
Disposals through sale of subsidiary	-	(84)	-	-	-	-	-	-	-	(84)
Reclassification to assets held for resale	(689)	(4,657)	(465)	(1,691)	(1,484)	(2,431)	-	-	-	(11,417)
Exchange differences	(2)	5,414	(2)	7,942	323	(284)	1,357	(1,327)	128	13,549
Balance at 30 September 2019	112	153,389	442	146,804	5,772	6,815	37,077	24,859	18,706	393,976

Accumulated amortisation and impairment
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

Balance at 1 October 2018	552	277	800	36,570	1,448	6,940	7,354	2,592	-	56,533
Amortisation charge for the period	40	-	(235)	13,884	608	1,389	1,874	686	-	18,246
Impairment	-	45,346	-	2,209	-	-	-	-	-	47,555
Disposals	-	-	-	-	-	-	-	-	-	-
Reclassification to assets held for resale	(584)	(816)	(445)	(645)	(1,264)	(2,298)	-	-	-	(6,052)
Exchange differences	-	-	(28)	2,562	42	(196)	(305)	(125)	-	1,950
Balance at 30 September 2019	8	44,807	92	54,580	834	5,835	8,923	3,153	-	118,232

Net book value
At 30 September 2019	104	108,582	350	92,224	4,938	980	28,154	21,706	18,706	275,744
At 30 September 2018	133	152,439	47	101,865	5,485	2,590	28,328	23,594	10,905	325,386
At 1 October 2017	66	149,665	180	111,736	5,756	4,004	29,765	24,434	3,531	329,137

9 Impairment testing of goodwill and other intangible assets

Goodwill acquired in a business combination is allocated, at acquisition, to the cash generating units (CGUs) that are expected to benefit from the business combination. The Group tests goodwill annually for impairment, or more frequently if there are indications that goodwill might be impaired.

Goodwill arises across all of the Group's operating segments, and is allocated specifically against the following CGUs:

	Animal Health	Genetics	Advanced Animal Nutrition	Knowledge Services	Total
	2019	2019	2019	2019	2019
	£000	£000	£000	£000	£000
Benchmark Vaccines Limited	432	-	-	-	432
Bencmark Genetics AS (previously Salmobreed AS)	-	7,065	-	-	7,065
Stofnfiskur HF	-	13,146	-	-	13,146
Akvaforsk Genetic Center	-	8,691	-	-	8,691
INVE Aquaculture Group	-	-	79,248	-	79,248
	432	28,902	79,248	-	108,582

*Includes goodwill arising from the joint acquisition of Akvaforsk Genetics Center AS (which was transferred into Benchmark Genetics Norway) in the year and Benchmark Genetics USA (formerly Akvaforsk Genetics Center Inc.)

	Animal Health	Genetics	Advanced Animal Nutrition	Knowledge Services	Total
	2018	2018	2018	2018	2018
	£000	£000	£000	£000	£000
FVG Limited	288	-	-	-	288
Benchmark Vaccines Limited	432	-	-	-	432
Atlantic Veterinary Services Limited	167	-	-	-	167
Salmobreed AS	-	7,435	-	-	7,435
Stofnfiskur HF	-	13,874	-	-	13,874
Akvaforsk Genetic Center*	-	9,194	-	-	9,194
INVE Aquaculture Group	-	-	117,117	-	117,117
FAI do Brasil Criacao Animal Ltda	-	-	-	96	96
FAI Aquaculture Limited	-	-	-	450	450
5M Enterprises Limited	-	-	-	379	379
Improve International Limited	-	-	-	2,995	2,995
Improve International GmbH	-	-	-	12	12
	887	30,503	117,117	3,932	152,439

*Includes goodwill arising from the joint acquisition of Akvaforsk Genetics Center AS and Akvaforsk Genetics Center Inc

The recoverable amounts of the above CGUs, with the exception of the Knowledge Services, the operations of which are discontinued, have been determined from value in use calculations. These calculations used board approved cash flow projections from five-year business plans based on actual operating results and current forecasts. These forecasts were then extrapolated into perpetuity taking account of specific terminal growth rates for future cash flows, using individual business operating margins based on past experience and future expectations in light of anticipated economic and market conditions. The pre-tax cashflows that these projections produced were discounted at pre-tax discount rates based on the Group's beta adjusted cost of capital reflecting management's assessment of specific risks related to each cash generating unit. Specific assumptions used are as follows.

Animal Health

The pre-tax cashflows from the five-year projections were discounted using a pre-tax discount rate of 13.1% (2018: 12.4%). An assumed CAGR of revenue of 49% (2018: 77%) in the five-year plan (2018: three-year plan) reflects the importance of the launch and commercialisation of the division's new sea lice treatment in the forecast period. A long-term growth rate of 2.5% (2018: 2.5%) has been used to extrapolate the terminal year cashflow into perpetuity.

The valuation of the Animal Health cash generating unit indicates sufficient headroom such that a reasonably possible change to key assumptions is unlikely to result in an impairment in related goodwill. However, should the division's new sea lice treatment not be successfully launched and commercialised, then impairment of the goodwill and other intangible assets could be possible.

Genetics

The pre-tax cashflows from the five-year projections were discounted using a pre-tax discount rate of 12.1% (2018: 11.2%). CAGR of revenue of 15% (2018: 18%) is implied by the five-year plan (2018: three-year plan), and a long-term growth rate of 2.5% (2018: 2.5%) has been used to extrapolate the terminal year cashflow into perpetuity.

Sensitivity testing of the recoverable amount to reasonably possible changes in key assumptions has been performed. All other assumptions being unchanged, an increase in the pre-tax discount rate to 15.2% would reduce the headroom on the Genetics CGU to nil. Should the discount rate increase further than this, then an impairment of the goodwill would be likely.

Advanced Animal Nutrition

The continued aggressive shrimp market conditions being experienced during the year and the expectation of a slower longer-term recovery in that market led to a reduction in the recoverable value of the CGU. The pre-tax cashflows from the five-year projections were discounted using a pre-tax discount rate of 11.5% (2018: 11.2%). CAGR of revenue of 12% (2018: 9%) is implied by the five-year plan, with the rate reflecting a particularly low year in FY19 and the recovery back to previous year's levels as well as growth from new products. Long term growth rate of 3.5% (2018: 4.0%) has been used to extrapolate the terminal year cashflow into perpetuity.

Following this review, the value in use calculation for the CGU showed £242m and a resulting impairment charge of £44.8m was made to the carrying value of the goodwill.

The value in use assessment is sensitive to changes in the key assumptions used. Sensitivity analysis was performed and a reasonably likely downside scenario reflecting a slower recovery of the shrimp market and a reduced growth rate in the five-year plan for new products. This reasonably likely downside scenario includes a 5% reduction in FY20 revenue and CAGR of revenue of 10% used in FY20 to FY24. This would likely cause further impairment of £13.2m.

Knowledge Services

Following the decision to pursue the Structural Efficiencies programme, the Knowledge Services CGU is discontinuing. The goodwill for 5M Enterprises Limited, Improve International Limited, Improve International GmbH have been transferred into Assets Held for Sale. The goodwill for FAI do Brasil Criacao Animal Ltda and FAI Aquaculture Limited no longer has any value and has been fully impaired.

10 Biological assets

	2019	2018
Group	£000	£000
Organic sheep	58	123
Organic beef	43	150
Organic hens	23	26
Frozen Milt	477	484
Broodstock, eggs and fingerlings	27,892	19,611
Total biological assets	28,493	20,394
Less: non current broodstock	(12,469)	(8,502)
Total current biological assets	16,024	11,892

Livestock

The Group operates a commercial and research farming and technology transfer business, and at 30 September 2019 held 484 (2018: 2,192) head of sheep, 108 (2018: 299) head of cattle, and 10,256 (2018: 11,088) hens. In addition, livestock valued at £241,000 and comprising 1,366 head of sheep and 197 head of cattle have been reclassified as Assets held for sale. The Group had farming sales of £281,000 in the year ended 30 September 2019 (2018: £443,000), of which £238,000(2018: £349,000) relate to discontinued activities.

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 2019 was £477,000 (2018: £484,000). The decrease in value of £7,000 relates to net 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 2018	11,724	5,772	265	1,585	265	19,611
Increase due to production / purchase	25,463	721	399	4,050	43	30,676
Due to physical changes	(20,165)	21,334	-	-	(53)	1,116
Foreign exchange movements	(521)	(331)	(26)	(58)	(4)	(940)
Reduction due to sales / discarding of stock	-	(20,110)	(355)	(4,357)	(119)	(24,941)
Fair value adjustments	1,416	667	-	287	-	2,370
Biological assets 30 September 2019	17,917	8,053	283	1,507	132	27,892

Broodstock, eggs and fingerlings - non current	12,469	-	-	-	-	12,469
Broodstock, eggs and fingerlings - current	5,448	8,053	283	1,507	132	15,423
	17,917	8,053	283	1,507	132	27,892

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

IAS 41 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 IFRS 13 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 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 £268,000. 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 £1,792,000 and £805,000 respectively.

Total quantities held at 30 September were:

	2019	2018
Salmon broodstock and fingerlings	805 tonnes	612 tonnes
Lumpfish fingerlings	3.2m units	3.4m units
Salmon eggs	66.3m units	51.0m units

11 Loans and borrowings

	2019	2018
	£000	£000
Non-current
2023 850m NOK Loan notes	75,864	-
Bank borrowings	23,576	78,808
Other loans	60	60
Finance lease creditor	461	-
	99,961	78,868
Current
Bank borrowings	3,102	894
Finance lease creditor	129	4
	3,231	898
Total loans and borrowings	103,192	79,766

The fair value of loans and borrowings is not materially different to the carrying value and has not been separately disclosed.

On 30 December 2015, the Group entered into facilities consisting of a five-year revolving credit facility (expiring on 11 December 2020) of up to USD 70m secured on the assets of the parent company, UK subsidiary companies and certain overseas subsidiary companies. On 7 January 2019, the accordion facility within the Group's existing bank facility was activated raising the total facility from USD 70m to USD 90m. Liabilities under this facility were settled on 24 June 2019.

On 21 June 2019, the Group successfully completed a new senior secured floating rate listed bond issue of NOK 850m. The bond which matures in June 2023, has a coupon of three months NIBOR + 5.25% p.a. with quarterly interest payments, and will be listed on the Oslo Stock Exchange. The bond issue refinanced Benchmark's previous USD 90m credit facility. DNB Markets acted as Sole Bookrunner for the bond issue.

A USD 15m RCF has been provided by DNB Bank ASA (50%) and HSBC UK Bank PLC (50%). This was undrawn at 30 September 2019.

SalmoBreed Salten AS had the following loans (which are ringfenced debt without recourse to the remainder of the Group) at 30 September 2019:

· NOK 208.8m term loan provided by Nordea Bank Norge Abp. The loan is a five-year term loan ending November 2023 at an interest rate of 2.65% above 3-month NIBOR

· NOK 20.0m working capital facility provided by Nordea Bank Norge Abp (of which NOK 15.0m had been drawn at 30 September 2019)

· NOK 53.9m term loan provided by Innovasjon Norge. The loan is a twelve-and-a-half-year term loan ending March 2031 at an interest rate of 4.2% above Norges Bank base rate

NOK 19.75m loan provided by Salten Aqua ASA (the minority shareholder). The loan attracts interest at 2.5% above 3-month NIBOR and is repayable in a minimum of 5 years, but not before the Nordea

This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.

END

FR GUBDDRDDBGCG

Companies

Benchmark Holdings (BMK)

Full Archive

UK 100

Latest directors dealings

All directors dealings today