25 August 2022

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")

Q3 Results

(Three months ended 30 June 2022)

Continued business momentum and growth in Adjusted EBITDA

Trading in-line with expectations for FY22

Transition to new strategic model for Ectosan® Vet and CleanTreat®

In compliance with the terms of the Company's senior secured bond, which requires it to publish quarterly financial information, Benchmark, the aquaculture biotechnology business, announces its unaudited results for the three months ended 30 June 2022 (the "Period"), which constitutes the third quarter for the fiscal year ("FY") 2022. All Q3 FY22, Q3 FY21, Q3 YTD FY22 and Q3 YTD FY21 figures quoted in this announcement are based on unaudited accounts.

Financial highlights - Fifth consecutive quarter of year-on-year and quarter-on-quarter growth in Adjusted EBITDA on a rolling twelve month basis

·    Q3 FY22 revenues were £36.3m, 28% ahead of the prior year (+20% CER)

o  Genetics delivered an excellent performance with revenues 50% above Q3 FY21 driven primarily by higher sales of salmon eggs and harvest revenues. Q3 YTD FY22 revenues up 29%

o  Advanced Nutrition reported revenues 5% above the prior year in-line with anticipated seasonal pattern. Q3 YTD FY22 revenues up 15%

o  Health revenues were 213% above Q3 2021 driven by Ectosan® Vet and CleanTreat® revenues. Q3 YTD FY22 revenues up 308%  

·    Q3 FY22 Adjusted EBITDA excluding fair value movements from biological assets increased 26% (+18% CER) as a result of higher revenues, higher asset utilisation and cost discipline

o  Adjusted EBITDA margin of 14% (excluding fair value movements from biological assets) for the Period

·    Q3 YTD FY22, Group revenues were 32% higher (+28% CER) and Adjusted EBITDA excluding fair value movements from biological assets was 99% higher (+92% CER) than the prior year

o  Increase in Adjusted EBITDA margin (excluding fair value movements from biological assets) to 17% (Q3 YTD FY21: 11%) - notable in a global inflationary environment

o  Increase in operating loss due to depreciation and amortisation from CleanTreat® units and leased vessels, and first amortisation of Ectosan® Vet and CleanTreat® development costs

o  Increase in statutory loss before tax due to significant £5.9m increase in net finance costs due to:

§ £3.1m forex loss (Q3 FY21: £0.7m gain) mainly driven by the translation of USD denominated loan balances; and

§ £2.3m loss in the fair value of financial instruments (Q3 FY21: £nil) related to hedging of the Company's NOK bond.

§ The YTD impact of these caused a negative movement of £10.7m increasing net finance costs to £10m YTD.

·    Cash of £37.3m and liquidity of c.£50.3m (cash and available facility) as at 23 August 2022

·    Net debt excluding lease liabilities of £59.3m (31 March 2022: £50.6m)

Operational highlights

·    Advanced Nutrition - continued good performance

o  Driven by commercial focus and cost discipline with good resilience to inflationary environment through better productivity and asset utilisation

o  Positive market environment

·    Genetics - recent investments delivering growth in core areas

o  Continued growth in salmon egg sales: 59.4m eggs sold in Q3 FY22 (Q3 FY21: 45.2m eggs) demonstrating success of investment in incubation unit in Iceland

o  Commercialisation of shrimp genetics (SPR shrimp) exceeding plan in Q3 FY22 and Q3 YTD FY22

·    Health - Ectosan® Vet and CleanTreat®

o  Capacity utilisation was low in Q3 FY22 after spring delousing with less sea lice pressure faced by existing and potential customers

o  Post period end there has been significant and growing customer interest ahead of the peak sea lice treatment season

o  Progress in the development of a new configuration and business model for CleanTreat®

§ New CleanTreat® configuration based on the next generation of large wellboats which make it feasible to install CleanTreat® systems onboard customer wellboats

§ Enables a new sale and licencing business model, eliminates need for PSVs (platform supply vessels) and reduces capital investment

§ Commercial discussions are ongoing

§ Transition in FY23 will result in limited growth in Adjusted EBITDA for Health but will result in a less capital intensive solution thereafter.

o  Obtained variation to the Company's Marketing Authorisation from the Norwegian Medicines Agency ("NoMA") enabling a second use of treatment water

o  Obtained Marketing Authorisation in the Faroe Islands

·    Group integration - enhanced customer-centric approach by combining the commercial function across Genetics and Health for salmon

Progress made towards the planned listing on Euronext Growth Oslo in Q4 calendar year 2022

·    First step towards a listing on Oslo Børs, the leading seafood and aquaculture listing venue globally

·    The Company plans to execute a limited share issue to satisfy the regulatory requirements of a listing on Euronext Growth Oslo

·    Intention to uplist to the Oslo Børs in H1 of calendar year 2023 from Euronext Growth Oslo. In tandem, the Board intends to consult with shareholders on whether to maintain its admission of the Company's shares to trading on AIM

·    The potential limited share issue and the timing of the Company's intended listings on the Euronext Growth and the Oslo Børs are subject to market conditions

Current trading and outlook

·    Trading in-line with expectations for FY22:

o  Strong outlook for Genetics and Advanced Nutrition sales for remainder of the year

o  Continued effort to embed Ectosan® Vet and CleanTreat® into customers' sea lice strategies and infrastructure

·    FY23 is expected to be a transitional year for the Health business area as the Company assumes transfer of some CleanTreat® capacity to the new business model, removing some supply from the market for a period of time

·    Medium term targets for the Group and for Health remain unchanged

Business Area summary

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

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

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

(3) Net debt is cash and cash equivalents less loans and borrowings 

Trond Williksen, CEO, commented

"Q3 represents a continuation of the operational and financial progress reported consistently by Benchmark over the quarters following the 2020 restructuring.  We continue our dedicated work to realise the potential of the well invested and well positioned platform that Benchmark has become.

"We are excited about the development of a new configuration and business model for CleanTreat®, which although reducing our growth rate for next year, increases our confidence in the solution and enhances Benchmark's long term prospects.

"Overall, we expect to continue to deliver further underlying progress in the coming quarters, with the aim of becoming a profitable company supporting the global aquaculture industry with sustainable solutions." 

Details of analyst / investor call today

There will be a call at 9.00am UK time today for analysts and investors. To attend the call, please register via Investor Meet Company: https://www.investormeetcompany.com/benchmark-holdings-plc-analyst-meeting/register-investor. 

Enquiries

Katie Hunt, Reg Hoare                                                                                                   benchmark@mhpc.com

About Benchmark 

Benchmark is a market leading aquaculture biotechnology company. Benchmark's mission is to drive sustainability in aquaculture by delivering products and solutions in genetics, advanced nutrition and health which improve yield, growth and animal health and welfare.

Through a global footprint in 26 countries and a broad portfolio of products and solutions, Benchmark addresses many of the major aquaculture species - salmon, shrimp, sea bass and sea bream, and tilapia -   in all the major aquaculture regions around the world. Find out more at www.benchmarkplc.com

Management Report

Q3 YTD FY22 Commentary

The Group continued to perform well in Q3 translating into a 32% growth in revenue and 99% growth in Adjusted EBITDA excluding fair value movements from biological assets for the first nine months of the year. Performance was strong across all business areas, with each business area reporting improved revenues and Adjusted EBITDA when compared to the same period last year. On a constant exchange rate basis, Group revenue and Adjusted EBITDA excluding fair value movements were up 28% and 92% respectively.

Operating costs were £31.4m, a 12% increase from the prior year (Q3 YTD FY21: £28.0m) due to higher activity levels, cost inflation and the impact of forex movements, while R&D expenses of £4.7m were 10% lower than the comparative period in the previous year (Q3 YTD FY21: £5.2m). Total R&D investment including capitalised development costs was £6.3m, £2.3m below the prior year (Q3 YTD FY21: £8.6m) reflecting the transition to the commercial phase of Ectosan® Vet and CleanTreat®.

Adjusted EBITDA (excluding fair value movement from biological assets) was £20.0m (Q3 YTD FY21: £10.0m) driven by higher revenues, increased asset utilisation and ongoing cost control. As a result, the Group achieved an Adjusted EBITDA margin (excluding fair value movement from biological assets) of 17% (Q3 YTD FY21: 11%).  Depreciation and amortisation increased from the comparative period last year to £29.0m (Q3 YTD FY21: £17.2m) due to the depreciation of the CleanTreat® units and the leased vessels used in their operation, and the commencement of amortisation of the capitalised development costs relating to Ectosan® Vet and CleanTreat® following the commercial launch.  These higher costs offset the improved Adjusted EBITDA leaving a slightly higher operating loss in the period of £6.1m (Q3 YTD FY21: operating loss of £5.9m).

There was a significant increase in net finance costs for the nine month period to £10.3m (Q3 YTD FY21: £0.1m), primarily due to forex movements which resulted in a forex loss of £2.6m in the first nine months compared to a £4.0m gain in the comparative period - a £6.6m year-on-year adverse movement.  In addition, there has been a loss in the fair value of financial instruments taken in the income statement of £1.7m, a year-on-year adverse movement of £4.1m on last year's £2.4m gain.  These increased charges were slightly offset by a £0.5m improvement in net interest charges following the listing of the NOK bond, leaving Q3 YTD FY22 loss before tax to be £10.5m higher than the previous year at £16.4m (Q3 YTD FY21: loss before tax £5.9m).

Although loss before tax is higher in the YTD period in FY22 than in FY21, the Group's tax charge has increased to £5.2m for YTD FY22 (YTD FY21: £0.1m credit) due to higher profits in the Advanced Nutrition and Genetics business areas in territories where there are no available losses to be utilised.  The credit in the prior period was a result of the deferred tax credits on amortisation of acquired intangible assets arising on consolidation, more than offsetting lower income tax charges on lower profits.  Loss after tax was £21.6m (Q3 YTD FY21: loss after tax £5.9m)

Year to date, the Group reported a net operating cash outflow of £2.2m after an increase in working capital of £22.1m related to the growth in sales in Advanced Nutrition and Genetics and increase of inventory levels in Health and Advanced Nutrition, and tax payments of £6.1m in the period. Net cash outflow from investing activities was £8.9m of which capex was £7.2m primarily in Genetics (£4.1m) and Health (£1.8m) and capitalised R&D was £1.7m (mainly in SPR Shrimp) both of which were offset by receipts of deferred consideration from earlier year disposals of divested businesses of £0.9m. Net cash inflow from financing activities of £6.5m, included an equity raise of (net) £20.1m, £6.9m of lease payments and the NOK bond coupon payments. Our cash position at the end of the period was £38.2m and liquidity of £50.5m.

Q3 FY22 commentary

The Group reported revenue of £36.3m, 28% above prior year of £28.3m. This was driven by revenue growth in all business areas with Advanced Nutrition reporting revenue +5%, Genetics +50% and Health +213% respectively, higher than the comparative period in the prior year.  The Group's reported revenue performance was aided by forex tailwinds and, on a constant currency basis, Genetics and Health improved by 47% and 214% while Advanced Nutrition reported a small decrease of 5%, mainly due to the timing of orders.

Adjusted EBITDA (excluding fair value uplift from biological assets) was £5.1m, 26% ahead of the prior year (18% higher on a constant currency basis) (Q3 FY21: £4.1m), reflecting higher revenues, operational leverage and good cost control as well as forex movements. Operating costs of £11.5m were 24% above last year (Q3 FY21: £9.3m), primarily driven by an increase in operating costs in Health associated with the Ectosan® Vet and CleanTreat® operations and the impact of forex in Advanced Nutrition. R&D expenses of £1.4m were 13% below the prior year (Q3 FY21: £1.6m) and represented 4% of Group revenues (Q3 FY21: 6%).  After an increase in depreciation and amortisation to £10.1m (Q3 YTD FY21: £5.5m), Group operating loss for the quarter increased to £4.0m (Q3 FY21: £1.2m). 

Net finance costs of £7.3m were significantly higher than the comparative period (Q3 FY21: £1.4m).  As with the YTD position, this is due to a combination of the movement in the fair value of the derivative instrument and forex movements.  There was a loss in the fair value of the derivative in the period of £2.3m (Q3 YTD FY21: £nil) and the group incurred forex losses of £3.1m (Q3 FY21: gain £0.7m).  As a result of these large adverse year-on-year movements, loss before tax in the quarter increase to £11.2m (Q3 FY21: £2.7m).

The tax charge of £1.6m was higher than last year (Q3 FY21: £0.1m) due to higher profits in Advanced Nutrition and Genetics in the quarter in territories where no loss relief was available.  The resulting loss after tax for the quarter was £12.8m (Q3 FY21: loss £2.8m).

We continue our efforts to enhance our commercial focus and integrate the Group to drive synergies. In the period we combined our salmon commercial organisation across Health and Genetics.

Advanced Nutrition

Advanced Nutrition revenues were up 5% with all product areas aided by favourable forex rates in the period, with CER revenues decreasing 5% due to timing of orders. By product area, sales of Artemia were +8%, Diets +1% and Health +6% higher than Q3 2021.  Timing differences in sales pattern, together with a change in product mix in the period compared to last year, and higher operating costs from increased activity resulted in a decrease in Adjusted EBITDA in Q3 FY22 to £2.8m (Q3 FY21 £3.9m). However, as noted earlier Q3YTD FY22 Adjusted EBITDA is up by 41% and the business area continues to perform strongly with good visibility to the end of the year.  In the YTD, all sales regions were up on the prior year except China, and overall, conditions in the shrimp markets are positive. 

Genetics

Genetics delivered an excellent performance in Q3 FY22 with revenues of £13.1m, 50% above the prior year (Q3 FY21: £8.7m) (+47% CER) driven by higher revenues across all products and genetics services. Sales of salmon eggs were +39% higher than the prior year while sales from shrimp were +164% and revenues from tilapia were 57% higher albeit shrimp and tilapia were from a small base. These results reflect the success of our recent investments in our new land-based incubation centre in Iceland, and in our shrimp and tilapia facilities in the US to expand capacity. Harvest income from our broodstock licence benefitted from a timing difference with income received earlier this year resulting in an increase to £2.1m in the quarter (Q3 FY21: £0.7m). Commercialisation of our SPR shrimp is also progressing ahead of plan, with encouraging marketing synergies with Advanced Nutrition materialise.

Adjusted EBITDA for Q3 FY22 (excluding fair value movements of biological assets) was £3.4m, 81% ahead of the prior year (Q3 FY21: £1.9m). Including fair value movements Adjusted EBITDA for Q3 FY22 was £4.8m, 116% above the same period last year.

Revenue YTD at £39.7m was 29% better than the prior year (Q3 YTD FY21: £30.9m) and Adjusted EBITDA excluding fair value movements in biological assets was 37% higher than the prior year at £8.0m (Q3 YTD FY21: £5.9m).

Health

Revenues in Q3 FY22 increased to £3.8m (Q3 FY21: £1.2m) due to sales from Ectosan® Vet and CleanTreat® which were launched in Q4 FY21.  Salmosan sales for the quarter were 38% up on the prior year despite a fall in the volumes sold as a result of a change in the mix of markets supplied.  Adjusted EBITDA was a loss of £0.6m (Q3 FY21: loss of £1.2m) as a result of the higher revenues, albeit reflecting a low utilisation rate of the CleanTreat® assets in the quarter.  £0.2m of the revenue in the period (Q3 FY21: £nil) was derived from recharging vessel and fuel costs associated with the Ectosan® Vet and CleanTreat® operations.  YTD revenue was £14.5m (Q3 YTD FY21: £3.6m) due to the introduction of Ectosan® Vet and CleanTreat®, and £2.4m of the revenue was derived from recharging vessel and fuel costs.

Treatments performed with Ectosan® Vet and CleanTreat® reported efficacy above 99%. The end of Q3 was a slow period for sea lice treatments due to lower sea lice pressure, however going into Q4, we are entering a season with high sea lice challenges driving customer interest and increased operational activity. During the period we obtained Marketing Authorisation for Ectosan® Vet and CleanTreat® in the Faroe Islands.  We are accelerating the development of a new configuration of the Group's CleanTreat® systems based on the next generation of large wellboats, which form a core part of our customers' infrastructure. This will also enable  a new business model, with customers buying CleanTreat systems with the right to use and operate the systems under license. Benchmark will oversee the operation to ensure compliance with pharmacovigilance. In order to satisfy customers' different operating models, the Group plans to offer both configurations.   This assumes transitioning some of the existing CleanTreat® capacity to the new wellboat model. While this will result in lower revenues in FY23 and will result in  limited growth in Adjusted EBITDA for Health in FY23, it will be of strategic importance for the ongoing commercial roll-out of Ectosan® Vet and CleanTreat®.

Oslo Listing

As previously announced, the Company engaged DNB Markets and Pareto Securities as Joint Global Coordinators in connection with its assessment of a potential listing in Oslo.  The Company is pursuing a listing on Euronext Growth Oslo (operated by the Oslo Stock Exchange) during the fourth quarter of the calendar year subject to market conditions. The Company plans to execute a limited share issue to satisfy the regulatory requirements of a listing on Euronext Growth Oslo.

The Board then intends to uplist the Company to the Oslo Stock Exchange (Oslo Børs) from Euronext Growth Oslo in H1 CY 2023. In tandem, the Board intends to consult with shareholders on whether to maintain its admission of the Company's shares to trading on AIM.

The potential limited share issue and the timing of the intended listings on Euronext Growth and the Oslo Børs are subject to market conditions.

Outlook

The Group has completed another quarter of financial and operational delivery post its restructuring. There is continued momentum in the business and the Group is trading in line with expectations for FY22. Conditions in our core markets remain favourable. 

The outlook for Genetics and Advanced Nutrition is strong for the remainder of the year and beyond. In Health, we continue to make progress in the roll-out of Ectosan® Vet and CleanTreat® and are accelerating the development of a new configuration and business model adapted to our customers' infrastructure.  This is a positive strategic development which will facilitate adoption while reducing capital investment for Benchmark and improving quality of earnings. The transition to a new business model will require transferring some capacity taking one CleanTreat® system off the market for a period of time in FY23 with a consequent impact on our sales and Adjusted EBITDA. However, our medium-term targets are unchanged for Health and for the Group, and this development increases our confidence in the potential of our solution.