Company Announcements

15 February 2024

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")

Q1 Results

(Three months ended 31 December 2023)

Good performance in Genetics and Advanced Nutrition in line with Management's expectations

Actions taken to transition to new business model in Health

In compliance with the terms of the Company's unsecured Green bond, which requires it to publish quarterly financial information, Benchmark, the aquaculture biotechnology business, announces its unaudited results for the three months ended 31 December 2023 (the "Period"), which constitute the first quarter for the fiscal year ("FY") 2024. All Q1 FY23, Q4 FY23 and Q1 FY24 figures quoted in this announcement are based on unaudited accounts.

Financial highlights

·    Q1 FY24 revenues were £40.5m, 26% below a particularly strong Q1 FY23 (-19% CER), but 11% above Q4 FY23, maintaining quarterly momentum

o  Genetics revenues were £15.2m, a solid performance against a strong Q1 FY23 when the Company benefitted from supply constraints of salmon eggs in the market (Q1 FY23: £21.4m)

o  Advanced Nutrition revenues were £19.3m, 13% above Q4 FY23 reflecting a solid performance in the context of continuing soft market conditions (Q1 FY23: £22.7m)  

o  Health revenues of £6.1m were lower than anticipated as a result of biological challenges faced by certain customers' fish stock which led to the cancellation of orders of Ectosan® Vet and CleanTreat® in December (Q1 FY23: £10.4m)

·    Gross profit margin maintained at 45% (Q1 FY23: 45%)

·    Q1 FY24 Adjusted EBITDA excluding fair value movements from biological assets was £7.5m (Q1 FY23: £12.5m) due to lower revenues partially offset by a reduction in operating costs   

·    Adj. EBITDA margin excluding fair value movements from biological assets of 18% (Q1 FY23: 23%); margin improvements in Genetics and Advanced Nutrition offset by Health   

o  Genetics Adj. EBITDA margin excluding FV movements in biological assets increased to 22% (Q1 FY23: 19%)

o  Advanced Nutrition Adj. EBITDA margin increased to 24% (Q1 FY23: 23%)

o  Excluding Health, Group Adj. EBITDA margin excl. fair value movements from biological assets of 20% (Q1 FY23: 19%)

·    Cash, liquidity and net debt:

o  Cash of £24.2m and liquidity of £36.4m (cash and available facility)

o  Net debt excluding lease liabilities of £57.5m (30 September 2023: £45.6m)

Operational highlights

·    Genetics - Solid performance in the core salmon business and progress in growth vectors

o  Post period end launch of a new product portfolio in salmon genetics, strengthening the Company's offering and demonstrating its ongoing commitment to innovation

o  Growing commercial traction in Chile with revenue growth underpinned by new customers and repeat orders and strong progress towards profitability 

o  Successful integration of shrimp activities across Genetics and Advanced Nutrition driving commercial synergies and cost savings

o  No impact on the Company's ability to meet customer demand for salmon eggs following the detection of ISA virus (Infectious Salmon Anaemia) in a single tank at Salten facility post period end. There have been no further signs ISA at the facility or in the specific tank from which the fish originated

·    Advanced Nutrition - Strong performance in Europe and well positioned for market recovery

o  Strong performance in Europe from marine fish, offset by soft shrimp markets particularly in Asia

o  Successful commercialisation of SnappArt post launch with initial supply sold-out, demonstrating the Company's successful innovation and commercial capability

o  Ongoing commercial focus and actions to improve operational efficiency, including equipment improvements, place the business in a strong position for market recovery

·    Health - Significant steps taken to transition to new business model for Ectosan® Vet and CleanTreat®

o  Further progress made towards development of a new configuration and business model for Ectosan® Vet and CleanTreat® aimed at reducing infrastructure costs

§ Continued progress on wellboat configuration and steps to develop a third configuration based on a barge

o  Streamlining of existing infrastructure and organisation with demobilisation of one of the two CleanTreat® units, leading to cost savings

Current trading and outlook

Trading in line with management's expectations for the full year underpinned by good revenue visibility in Genetics, continuing positive performance in Advanced Nutrition and focus on profitable growth with actions to manage costs and cash in Health as the business transitions to a new configuration for Ectosan® Vet and CleanTreat®.

Financial Summary - continuing operations

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, amortisation, and impairment), before exceptional items

(2) Adjusted Operating Profit is operating gain or loss before exceptional 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:

"We have had a busy quarter where we have maintained momentum in our two largest business areas and the Group is on track to meet management's expectations for the year.  We have good visibility of revenues in Genetics, continuing good performance in Advanced Nutrition and have taken actions in Health to transition to a new business model for Ectosan® Vet and CleanTreat® which will increase its commercial attractiveness and strengthen our portfolio of sea lice solutions.  We have a busy year ahead and intend to stay focused to deliver continued progress towards our goals. Longer term, as a supplier of specialised mission critical solutions to aquaculture producers worldwide, Benchmark is uniquely positioned in an industry with significant structural growth trends with significant opportunities ahead."

Analyst / investor presentation and webcast being held today

Trond Williksen, Chief Executive Officer and Septima Maguire, Chief Financial Officer will host a presentation for analysts and institutional investors on the day at 09.30 GMT (10.30 CET).

The presentation will be held in person at Haakon Vlls Gate 2, Oslo, Norway. To register your interest, please contact benchmark@mhpgroup.com

A live webcast of the presentation will be available for analysts and investors to join remotely at the following link: https://channel.royalcast.com/hegnarmedia/#!/hegnarmedia/20240215_10

Equity Development webcast for retail investors at 12:00pm UK time

Trond Williksen, Chief Executive Officer and Septima Maguire, Chief Financial Officer will host a second webcast for retail investors and wealth managers at 12.00pm UK time. The webcast is open to all existing and potential shareholders.

To register please visit: https://www.equitydevelopment.co.uk/news-and-events/benchmark-q1-investor-presentation-15february2024

Enquiries

Katie Hunt, Reg Hoare                                                                                              benchmark@mhpgroup.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

Benchmark's Q1 FY24 top line performance was relatively soft against a strong Q1 FY23 but ahead of the previous quarter, maintaining momentum in the business.  The two largest business areas, Genetics and Advanced Nutrition performed in line with management's expectations, while our Health business area was affected by biological challenges faced by certain customers' fish stock which led to the cancellation of orders for Ectosan® Vet and CleanTreat® in December and therefore lower sales than previously anticipated.  As a result, Group revenues against the same period in FY23 were down 26% to £40.5m, 19% at a constant exchange rate (CER) but 11% ahead of Q4 FY23. Lower revenues against the same period last year also reflect a strong comparative quarter in FY23 which benefitted from shortage in supply of salmon eggs in the market.  Gross profit margin for the Group was 45% in line with the previous year (Q1 FY23: 45%).

Adjusted EBITDA margin excluding fair value movements from biological assets was 18% (Q1 FY23: 23%) with an improvement in Genetics and Advanced Nutrition offset by Health. Excluding Health, the Adj. EBITDA margin for the Group excluding fair value movements was 20% (Q1 FY23: 19%). Adjusted EBITDA from excluding fair value movements from biological assets was £7.5m (Q1 FY23: £12.5m). Again, the Group suffered adverse foreign exchange conditions, and at CER Adj. EBITDA excluding fair value movements fell 34%.

The Group has maintained financial discipline with a focus on spend and profitability. As a result, despite inflationary pressure, operating costs were £10.5m, 9% below the prior year (6% at CER). R&D costs were £1.5m, broadly in line with Q1 FY23 (Q1 FY23: £1.6m). Total R&D investment including capitalised development costs was £1.6m, in line with the prior year (Q1 FY23: £1.6m).

Depreciation and amortisation increased marginally from the comparative period last year to £10.5m (Q1 FY23: £10.0m). The increase in depreciation arising from the demobilisation of one of the CleanTreat® vessels was offset by a reduction in amortisation as some acquired assets become fully written off.  Exceptional costs incurred in the period of £0.5m (Q1 FY23: £1.0m) related to costs associated with business reorganisation and the closure of the tilapia business.

Net finance cost in the period was £2.8m; (Q1 FY23: £0.2m income) with the increase primarily explained by a £2.5m credit in Q1 FY23 from changes the fair value of derivative financial instruments. In addition, there was an increase in interest costs in the year of £0.3m resulting from higher borrowings in the current quarter.

The Group reported a loss before tax of £7.2m (Q1 FY23: profit before tax £0.6m); the loss after tax for the period was £7.6m (Q1 FY23: loss after tax £0.7m).

Net operating cash outflow from operating activities for the period was £5.6m (Q1 FY23: inflow £8.1m) impacted by the lower sales.  However, this also included an increase in net working capital of £10.8m against a much lower of £0.8m in the Q1 FY23, with the main movements being a lower reduction in receivables and biological assets and a higher reduction in payables in Q1 24 than in the comparative quarter.  Movements in biological assets and receivables both showed larger reductions in Q1 23 than in Q1 24 and were dominated by the impact in Genetics of the supply issues in the market in Q4 FY22 and Q1 FY23.  The opportunities from which Benchmark was able to benefit due to these supply issues meant an abnormally high biological asset inventory in September 2022, and hence a larger reduction in Q1 FY23, during which the supply issues were resolved, than in Q1 FY24 when inventory levels were more normalised throughout.  The same supply issues also meant a higher level of debtors in September 2022 from higher sales in Q4 FY22 leading to a larger reduction in debtors in Q1 23 than in Q1 24.  The large reduction in creditors in Q1 24 compared to Q1 23 occurred due to larger contractual payments for artemia supplies in Q1 24, an increase in payables for exceptional costs within Corporate for the Oslo listing preparation work at the end of Q1 23 which were paid off after the end of that quarter and higher accrued harvest production costs at September 2023 which returned to normal levels at the end of Q1 24.

Net cash used in investing activities was significantly reduced to £0.8m (Q1 FY23: £2.2m) of which capex was £1.0m (Q1 FY23: £1.9m).  Capex in the period related to investment in Genetics (£0.6m) and Advanced Nutrition (£0.3m).  Net cash outflow from financing activities was £5.5m arising mainly from interest and lease payments.  Net decrease in cash in the quarter was £11.8m (Q1 FY23: £8.1m inflow) to leave the period end cash position at £24.2m and liquidity of £36.4m.

Advanced Nutrition

Advanced Nutrition revenues were £19.3m, 15% below the prior year (-7% CER) but 13% ahead of Q4 FY23, a good performance against a backdrop of continuing soft market conditions. By geography performance was stronger in Europe driven by sales to the marine fish market, and in the Americas, while Asia was most affected by conditions in the shrimp markets.  Innovation continues to be an important part of the Group's strategy and we were pleased with the customer reception for the recently launched SnappArt, with initial volumes sold out.

Gross margin was 53% (Q1 FY23: 50%) reflecting a change in product mix. Q1 FY24 Adjusted EBITDA was £4.6m (Q1 FY23: £5.3m) as a result of lower sales. Adjusted EBITDA margin was marginally up at 24% (Q1 FY23: 23%).

The resilience and continued good performance of Advanced Nutrition in difficult markets reflects our continuous innovation, focused commercial effort, financial discipline, and our drive to improve operational efficiency.  Together this puts the business in a strong position for a recovery in the market.

Genetics

Genetics delivered revenues of £15.2m in Q1 FY24 (Q1 FY23: £21.4m) primarily driven by normalised egg volumes against the prior year which benefitted from supply constraints in the market. Egg sales were 86m against 118m in Q1 FY23.  Our core salmon business had revenues of £13.6m (Q1 FY23: £20.7m) primarily driven by lower egg sales and lower harvest income at £2.8m (Q1 FY23: £3.5m). Revenues from genetic services were 15% ahead of the prior year. 

In our growth vectors, increasing commercial traction in Chile translated into revenues of £0.9m (Q1 FY23: £0.01m) taking the Company closer to profitability. Sales of shrimp genetics were broadly in line with the prior year at £0.3m (Q1 FY23: £0.3m).

Adjusted EBITDA for Q1 FY24 excluding fair value movements of biological assets was £3.3m, 19% below the prior year (Q1 FY23: £4.1m), and at constant exchange rates, was 9% below the prior year.  The fair value movements on biological assets in the quarter was a £0.8m reduction in value (Q1 FY23: £1.2m reduction), so Adjusted EBITDA including fair value movements for Q1 FY24 was £2.5m (Q1 FY23: £2.9m). Adjusted EBITDA margin excluding fair value movements in biological assets increased to 22% (Q1 FY23: 19%) reflecting an improvement in our growth vectors, Chile and shrimp genetics.

Innovation is a key element in the strategy of our core genetics business to bring in new traits and technologies that differentiate our offering and can add substantial value for our customers. We continue to progress our work on sterility and gene editing to position ourselves at the forefront of these developments.  In addition, post year end we launched a new product portfolio of specialised, premium genetics products based on innovation in our existing technologies, including genomics and cryopreservation, to optimise our genetic design, and focus our selection intensity on the traits that give the most benefit to customers.  

Post period end, the Company reported an isolated incident of ISA virus (Infectious Salmon Anaemia) at its facility in Salten. The tank containing the affected fish is an isolated unit with separate water systems and farming equipment. The tank contained 1,582 broodstock fish, equivalent to a production of 12m salmon eggs.  All fish in the tank were culled and the Company does not expect the incident to impact its delivery capability. The Company has accessible broodstock from other fish groups in the facility as well as access to additional supply of eggs from third party partners in Norway and from its own facility in Iceland.

Health

Revenues in Q1 FY24 were £6.1m (Q1 FY23: £10.4m) primarily reflecting lower sales of Ectosan® Vet and CleanTreat® which were impacted by biological challenges at certain customers which led to the cancellation of sales in December.  Revenues from Ectosan® Vet and CleanTreat® were £4.0m of which £1.4m was derived from recharging vessel and fuel costs associated with the Ectosan® Vet and CleanTreat® operations.  Sales of Salmosan® Vet - the Group's well-established sea lice treatment were down as a result of geographic mix with sales skewed towards countries with lower pricing versus last year.  The reduction in revenues resulted in Adjusted EBITDA of £0.6m in the quarter (Q1 FY23: £4.1m).  

In December 2023, we took the decision to demobilise one of the two CleanTreat® vessels in light of the low-capacity utilisation. The decision also led to a streamlining of the Health business area reducing its costs base. As Q2 evolves we will monitor capacity utilisation, prioritising cash management in the transition period until new a less capital intensive business model is in place.  We view a model with CleanTreat® integrated into wellboats as the medium to long term solution and continue our work to bring this into place. In addition, we are exploring a third configuration for CleanTreat® based on a barge in order to provide customers with continuity through a less costly alternative until the wellboat solution is implemented.

Strategic Review

On 22 January, the Company announced a strategic review to evaluate the Company's options including, but not limited to, a potential sale of the Company as a whole or of one or more individual business units. The purpose of the strategic review is to establish whether there are bidders prepared to offer a price that the Board considers attractive relative to its view of the Company's intrinsic value. Further announcements will be made as appropriate in due course.

Current Trading and Outlook

The Group is trading in line with management's expectations for the full year underpinned by good visibility of revenues in Genetics, continued good performance in Advanced Nutrition and streamlining of our infrastructure and operations in Health. Post period end the Genetics and Advanced Nutrition business areas are trading well, and actions are being taken to manage costs and cash in our Health business area through the period of transition to a new business model.