BMK Benchmark Holdings Plc

Information within this announcement is deemed by the Company to constitute inside information under the Market Abuse Regulations (EU) No. 596/2014 and Article 7 of the UK version of EU Regulation 596/2014 which forms part of UK law by virtue of the European Union (Withdrawal) Act 2018.

22 May 2024

Benchmark Holdings plc

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

Second Quarter and Half Year results for the six months ended 31 March 2024

Positive quarterly momentum maintained and well on track to meet full year management's expectations  

Benchmark (LSE: BMK), the aquaculture biotechnology company, announces its unaudited interim results for the six months ended 31 March 2024 (the "Period" or "H1 FY24"). The Company also announces its unaudited results for the three months ended 31 March 2024 ("Q2 FY24") in compliance with the terms of its unsecured Green bond.

Financial Highlights

·    Q2 FY24 positive momentum in Genetics and Advanced Nutrition partially offset by Health and forex headwinds

o  Q2 FY24 revenues of £39.8m were 10% below Q2 FY23 (-3% CER) driven by a strong performance in Genetics and Advanced Nutrition, offset by Health

§ Genetics revenues were £13.2m (Q2 FY23: £12.9m) up 7% CER reflecting a solid performance in the core business and good progress in our growth vectors, particularly Chile

§ Advanced Nutrition revenues were £21.1m (Q2 FY23: £22.6m) up 3% CER reflecting the success of our strategy to adapt to difficult shrimp markets

§ Health revenues of £5.4m (Q2 FY23: £8.7m) were down 35% CER; focus remains on transition to new business model for Ectosan®Vet and CleanTreat®

o  9% CER increase in Adjusted EBITDA excluding fair value movement in biological assets to £9.9m (Q2 FY23: £9.9m)

o  Adjusted EBITDA margin excluding fair value movement in biological assets of 25% (Q2 FY23: 22%) in line with the Group's medium-term target

§ Genetics Adjusted EBITDA excluding fair value movement of £3.1m was 42% above Q2 FY23 (+50% CER) due to higher profit from the Genetics joint venture and higher egg revenues. The Adjusted EBITDA excluding fair value movement margin was 24% (Q2 FY23: 17%)

§ Advanced Nutrition Adjusted EBITDA of £5.3m was down 14% (-3% CER) with effective cost control offsetting reduced revenue. The Adjusted EBITDA margin was 25%; (Q2 FY23: 27%)

§ Health Adjusted EBITDA of £1.6m (Q2 FY23: £2.6m) and Adjusted EBITDA margin of 30% reflecting efforts to manage costs (Q2 FY23: 30%)

o  Adjusted operating profit excluding fair value movements was £5.9m, 24% above the prior year

o  Operating profit was marginally below the prior year at £0.6m (Q2 FY23: £0.7m)

o  Increase in net operating cash inflow to £3.6m (Q2 FY23: £1.4m)

·    H1 FY24 results underpinned by strong Q2 performance, supporting positive outlook for the full year

o  H1 FY24 revenues of £80.2m were 19% below a strong H1 FY23 (-12% CER) which benefited from supply constraints in the salmon egg market

§ Genetics revenues were £28.4m (H1 FY23: £34.3m) down 11% CER reflecting a normalised level against H1 FY23 which benefitted from supply constraints in the salmon egg market

§ Advanced Nutrition revenues were £40.4m (H1 FY23: £45.3m), down 2% CER representing a strong performance in challenging shrimp markets

§ Health revenues of £11.5m (H1 FY23: £19.1m) were down 37% CER; reduced Ectosan®Vet and CleanTreat® capacity in the period as we transition to a new business model

o  Adjusted EBITDA excluding fair value movement in biological assets was £17.3m, 23% below a strong H1 FY23 (-15% CER)

o  Group operating costs in H1 FY24 were £20.4m, 14% below H1 FY23 with a reduction across all business areas despite a high inflation environment

o  Adjusted EBITDA margin excluding fair value movement in biological assets was 22% (H1 FY23: 23%) with strong margins in Advanced Nutrition (24%) and Genetics (23%) offset by Health (19%)

o  Operating loss was £3.7m (H1 FY23: profit of £1.0m) primarily due to lower revenues in the period offset by continued cost control

·    Cash, liquidity and net debt:

o  Cash of £24.1m and liquidity (cash and available facility) of £41.3m at 20 May 2024

o  Net debt excluding lease liabilities of £56.8m at 31 March 2024 (31 March 2023: £44.5m,
 30 September 2023: £45.6m)

H1 FY24 Operational Highlights

·    Genetics - wide ranging progress

o  Excellent progress in Chile with new customer wins, establishing foundation for future growth

o  Launch of a new product portfolio in salmon genetics aligned with our strategy to invest in R&D to further enhance our customer value proposition and our competitive position

o  Successful launch of genotyping product portfolio; contracted customer projects commenced

o  Successful integration of shrimp activities with Advanced Nutrition generating commercial opportunities while we continue the work to develop local adapted strains

o  Significant progress in key innovation areas - complex gill disease project bolstered by a new partnership funded by the Biotechnology and Biological Sciences Research Council in the UK

·    Advanced Nutrition - well positioned for recovery

o  The strategy and mitigating actions taken by management in response to challenging shrimp markets including the continuous development of our product portfolio, the establishment of new routes to market and the implementation of operational efficiencies are delivering positive results

o  Green shoots of recovery in the shrimp market translating into demand for the Group's hatchery portfolio as the industry prepares to increase production

o  Well positioned for market recovery 

·     Health - progress with development of new business model

o  Further progress made towards development of new business model for Ectosan® Vet and CleanTreat® aimed at reducing infrastructure costs.   Design of the wellboat configuration completed in partnership with wellboat equipment provider MMC and wellboat designer SALT

o  Existing infrastructure being streamlined, rightsizing it for the new business model  

o  Strong sales of Salmosan® Vet reflecting successful lifecycle management and strength of the Group's sea lice solution portfolio

Current trading and outlook

The Company is trading in line with management's expectations for the full year. There is good visibility of revenue in Genetics including excellent progress in Chile, and there have been no operational or financial consequences from the infectious salmon anaemia (ISA) incident reported in February this year. In Advanced Nutrition, there is continuing strong performance in soft markets albeit with some green shoots and the business is well positioned for market recovery. In Health, our focus remains on the transition to the new business model for Ectosan® Vet and CleanTreat®. We will continue to manage costs and reduce our capital exposure, taking the second CleanTreat® unit out ahead of the low season for sea lice treatments.  Our established sea lice treatment Salmosan® Vet is performing well into the second half of the year.

Strategic review

In January 2024, the Company announced that the Board had unanimously decided to undertake a formal review of the Company's strategic options including a potential formal sale process. This process remains ongoing and further updates will be provided as appropriate.

Financial 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 

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

Trond Williksen, CEO, commented:

"I am pleased with the Company's performance in the second quarter, and the first half as a whole, which demonstrated good momentum in the business supporting our positive outlook. We have delivered strong trading in our established business areas, have made excellent progress in Chile, one of our key growth vectors, and made significant progress in our innovation programme where our recent investment to strengthen our innovation capabilities is bearing fruit. We remain focused on the transition to a new business model for Ectosan® Vet and CleanTreat® which will strengthen our sea lice solutions portfolio and deliver a much needed alternative to our customers.

"With our unique platform of mission critical specialised solutions in areas where we hold market leading positions we are strongly positioned to continue to deliver growth and to build sustainable shareholder value."

Presentation for analysts and institutional investors at 8.00 UK (9.00 CET)

Trond Williksen, Chief Executive Officer and Septima Maguire, Chief Financial Officer will host a presentation for analysts and institutional investors on the day at 08.00 UK time (9.00 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/landingpage/hegnarmedia/20240522_1/

Equity Development webcast for retail investors at 12:30pm 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 12.30pm 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-investor-presentation-22may2024

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, animal health and welfare.

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

Management Report

Q2 FY24 commentary

The Group delivered a strong performance in Q2 FY24 with Genetics and Advanced Nutrition performing strongly against a backdrop of difficult conditions in the shrimp markets, and progress made in Health towards a new business model for Ectosan® Vet and CleanTreat®.  Group revenue was £39.8m, 10% below a strong Q2 FY23
(-3% CER).  Adjusted EBITDA excluding fair value movement in biological assets was £9.9m, in line with Q2 FY23 despite strong forex headwinds, and ahead +9% at constant exchange rate. The Adjusted EBITDA margin excluding fair value movement in biological assets of 25% was in line with the Group's medium-term target (Q2 2023: 22%).

By business area, Genetics reported Q2 FY24 revenues of £13.2m, 2% above Q2 FY23 (+7% CER) driven by higher egg revenues (+2%) as well as higher harvest income (+70%) and genetic services revenues (+17%), partially offset by lower revenues in ancillary products. Adjusted EBITDA excluding fair value movements in biological assets was £3.1m, up 42% on the prior year (Q2 FY23: £2.2m) reflecting higher revenues as well as higher profits from the Genetics joint venture in the period of £0.7m (Q2 FY23: nil).  The Adjusted EBITDA margin excluding fair value movements was 24% (Q2 FY23: 17%) reflecting higher profit from the joint venture and higher harvest income. There was excellent progress in Chile, a key growth vector for the Group with an increasing number of customers, building our market position and achieving operational profitability. In shrimp, the integration of our shrimp genetics commercial activities with Advanced Nutrition to leverage our commercial capabilities is creating new opportunities as we continue the development of local adapted strains. Shrimp sales were £0.5m in the period 31% above the prior year. During the period we successfully launched a new genotyping product portfolio and there are a number of contracted customer projects already underway which underpin future revenue.  Innovation is a key component of our Genetics strategy and significant progress was made in our key R&D projects in the period. This included a new partnership for our complex gill disease project, which was bolstered by a new important partnership with funding from the Biotechnology and Biological Sciences Research Council in the UK.

Advanced Nutrition delivered Q2 FY24 revenues of £21.1m, 7% below Q2 FY23 largely due to forex impact (+3% CER) but 10% above Q1 FY24 showing good quarterly momentum. Q2 FY24 Adjusted EBITDA was £5.3m (Q2 FY23: £6.2m) with the impact of the lower sales partially offset by efficient cost control. The Adjusted EBITDA margin was 25% (Q2 FY23: 27%).  While the shrimp markets remain soft, there are green shoots of recovery which translated into improving demand for our hatchery portfolio in the period as the industry prepares to increase production as further signs of recovery emerge.  

In Health, Q2 FY24 revenues were £5.4m, 38% below Q2 FY23 (-35% CER), and Adjusted EBITDA was £1.6m (Q2 FY23: £2.6m). Sales of Salmosan® Vet were strong reflecting successful lifecycle management and the strength of the Group's sea lice solution portfolio. Our focus remains on the development of alternative operating models for Ectosan® Vet and CleanTreat® including barge and wellboat configurations. As part of this transition we are streamlining the infrastructure and organisation in Health, rightsizing for the new business model which will result in cost savings. Early in the quarter we took one of the two platform supply vessels (PSV) carrying the CleanTreat® systems out of service and we have streamlined the rest of the organisation accordingly. The wellboat configuration represents the long-term solution, with the CleanTreat® systems integrated into future wellboats owned and operated by customers or service providers. We have completed the design for the wellboat configuration in partnership with leading wellboat equipment provider, MMC, and leading wellboat designer SALT, and together we are now promoting the solution as part of the offering of new wellboats in the market.

Group operating costs were £9.9m, 19% below prior year (Q2 FY23: £12.2m) as focus continues on cost control across the Group, including streamlining the infrastructure of the Health business area, a programme of operational efficiencies and the ongoing integration of our activities around species.  R&D expenses of £1.5m were marginally above the prior year (Q2 FY23: £1.4m) and represented 4% of Group revenues (Q2 FY23: 3%). Exceptional costs in the quarter, mainly related to the ongoing strategic review, were £2.0m (Q2 FY23: £1.7m related to costs in preparation for an Oslo listing).  Depreciation and amortisation was £7.5m (Q2 FY23: £8.9m) with the reduction mainly relating to right of use assets in Health, leading to a Group operating profit of £0.6m (Q2 FY23: £0.7m). Adjusted operating profit excluding fair value movement in biological assets was £5.9m, 24% (+42% CER) ahead of the prior year (Q2 FY23: £4.8m).

Net finance costs of £1.3m for the quarter were £1.1m lower than the same period last year (Q2 FY23: £2.4m), mainly due to net forex gains in the period of £1.3m (Q2 FY23: loss of £0.7m) partially offset by higher interest costs.  Loss before tax for the quarter was £0.7m (Q2 FY23: £1.7m).

The tax charge for the quarter was £0.5m (Q2 FY23: £0.7m) resulting in loss after tax of £1.1m (Q2 FY23: £2.4m).

The Group reported a net operating cash outflow of £3.6m after an increase in working capital of £1.9m (Q2 FY23: £3.4m) and tax payments of £2.5m (Q2 FY23: £2.6m). Net cash outflow from investing activities was £0.7m (Q2 FY23: £1.3m) of which capex was £0.9m (Q2 FY23: £1.6m) offset by proceeds from sale of fixed assets, the reduction comes as the significant investment programme to support the Group's growth plans is now complete.

Net cash outflow from financing activities was £5.9m (Q2 FY23: £3.4m). Current period relates to payments for interest and lease and borrowings payments, whereas prior year included increase in bank borrowings of £9.2m offset by £8.0m for acquisition of minority interest in Iceland.

Half year commentary

Revenues in H1 FY24 were £80.2m, 19% below a strong H1 FY23 (-12% CER) but 13% above the H2 FY23 period showing positive sequential progress against a backdrop of difficult conditions in the shrimp markets. Adjusted EBITDA excluding fair value movements from biological assets was £17.3m down 23% (-15% CER). The Adjusted EBITDA margin excluding fair value movement was marginally below at 22% (H1 FY23: 23%) with a higher contribution from joint venture profit offsetting a slightly lower gross profit margin of 49% (H1 FY23: 50%).

By business area, Advanced Nutrition delivered a strong performance against challenging markets, with green shoots of recovery in Q2 FY24. First half revenues were £40.4m, 11% below H1 FY23 impacted by forex headwinds (-2% CER) but 22% ahead of H2 FY23 showing sequential progression partially reflecting signs of market improvement as mentioned above. H1 FY24 Adjusted EBITDA was £9.9m, 14% below H1 FY23 (-5% CER) resulting in Adjusted EBTIDA margin of 24% (H1 FY23: 25%).  While conditions in the shrimp market remained difficult, signs of recovery give us optimism and we are confident that the business is very well positioned to benefit from market recovery, with the strategy and mitigating actions implemented over recent periods including development of our product portfolio and technologies, new routes to market and operational efficiencies delivering results.

Genetics performed well against a comparatively strong H1 FY23.  Revenues of £28.4m were 17% below H1 FY23 and were impacted by adverse forex (CER -11%). The drop in revenues was driven by a 20% reduction in salmon egg revenues against H1 FY23, which benefitted from supply constraints in the salmon egg market and lower revenues from ancillary products and other income, partially offset by a 12% increase in harvest revenues and a 9% increase in revenues from Genetic Services. Revenues from shrimp genetics were marginally down. Adjusted EBITDA excluding fair value movement was £6.4m 2% above the prior year (+12% CER) resulting in a lift in Adjusted EBITDA margin excluding fair value movement to 23% (H1 FY23: 18%).

In Health, we continue our effort to transition to a new infrastructure and business model for Ectosan® Vet and CleanTreat® including streamlining our infrastructure and reducing capacity to manage costs during the transition period. Revenues in H1 FY24 were £11.5m 40% below the prior year (-37% CER) driven by a drop in Ectosan® Vet and CleanTreat® while revenues from Salmosan® Vet were 8% down as a result of a change in geographic mix with an increase in volume offset by lower average price.

Group operating costs in H1 FY24 were £20.4m, 14% below H1 FY23 with a reduction across all business areas despite a high inflation environment. This is the result of well embedded cost control across the Group, a programme of operational efficiencies and the ongoing integration of our activities around species. R&D expenses were £3.1m (H1 FY23: £3.0m) and total R&D investment including capitalised development costs was £3.2m, in line with the prior year (H1 FY23: £3.2m). Depreciation and amortisation were £18.1m (H1 FY23: £18.9m) with the reduction mainly related to right of use assets in the Health business area.

The Group reported an operating loss of £3.7m (H1 FY23: £1.0m profit) as a result of lower revenues partially offset by a reduction in operating costs and increased profit from joint ventures. Adjusted operating profit excluding fair value movements from biological assets was £6.5m, 46% below H1 FY23 (-34% CER) but significantly ahead (+151%) of the most recent six month period.

Net finance costs for H1 FY24 were £4.1m (H1 FY23: £2.2m).  Interest costs were higher due to higher borrowings during the current year, and the remainder of the increase is the result of income from ineffectiveness in hedge accounting in the prior year offset by differences in foreign exchange gains and losses year on year.

Loss before tax in H1 FY24 was £7.9m (H1 FY23: £1.2m). This included the impact of significant exceptional costs in the period of £2.5m (H1 FY23: £2.7m), largely related to the ongoing strategic review and restructuring costs associated with the integration of our shrimp genetics activities and other operational efficiency initiatives, while those in the prior period were primarily concerned with preparation for a listing of the Group in Oslo.

Total tax charge in H1 FY24 was £0.9m (H1 FY23: £1.5m) with a small reduction (+£0.2m) in current tax charges in the territories for which no loss relief is available, together with a higher deferred tax credit (+£0.4m) from the reversal of temporary differences. Loss after tax was £8.8m (H1 FY23: £2.7m loss).

The Group reported a net operating cash outflow of £2.0m after an increase in working capital of £12.8m (H1 FY23: £4.2m) and tax payments of £3.7m (H1 FY23: £4.1m). The increase in working capital is somewhat seasonal, but the larger increase this year is due to higher receivables resulting from increased harvest income and timing of egg sales in Genetics, a reduction in payables in Advanced Nutrition due to different timing, and the utilisation of the demobilisation provision in Health following decommissioning of one of the vessels. Net cash outflow from investing activities was £1.5m (H1 FY23: £3.4m) as the significant investment programme to support the Group's growth plans is now complete.  The majority of the outflow in the period relates to maintenance capex in Genetics.

Net cash outflow from financing activities was £11.4m (H1 FY23: £1.2m).  Interest payments in the period were £4.5m (H1 FY23: £4.1m) and lease payments were £5.4m (H1 FY23: £4.7m).  Additionally, H1 FY23 included an equity raise of (net) £11.4m, net proceeds from debt refinancing of £4.2m, and payments to acquire the minority interests in Benchmark Genetics Iceland of £8.0m.  The cash position at 31 March 2024 was £20.8m (H1 FY23: £38.6m; FY23: £36.5m), and net debt including lease liabilities was £72.7m (H1 FY23: £66.3m; FY23: £65.5m).

Outlook

The Company is trading in line with management's expectations for the full year. There is good visibility of revenue in Genetics including excellent progress in Chile and no operational or financial consequences from the ISA incident reported in February this year. In Advanced Nutrition there is continuing strong performance in soft markets albeit with some green shoots, and the business is well positioned for market recovery. In Health our focus remains on the transition to the new business model for Ectosan® Vet and CleanTreat®. We will continue to manage costs and reduce our capital exposure, taking the second CleanTreat® unit out of service ahead of the low season for sea lice treatments.  Our established sea lice treatment Salmosan® Vet is performing well into the second half of the year.