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Benchmark Holdings Plc - Q4 and Full Year Trading Update & Notice of Results

 

Benchmark Holdings plc

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

Q4 and Full Year Trading Update & Notice of Results

Challenging market conditions led to disappointing performance and the commencement of restructuring of the Group

Benchmark, the aquaculture health, nutrition and genetics business, provides the following trading update for its fourth quarter and year ended 30 September 2019 ahead of the publication of its full year results in the week ending 20 December 2019. 

All FY19 figures quoted in this announcement are based on unaudited accounts.

Overview

  • As previously announced, results for the year were impacted by adverse conditions in the shrimp and seabass/seabream markets, which significantly affected Advanced Nutrition, the Company's largest division
  • Restructuring of the Group commenced, accelerating the disposal and discontinuation of non-core activities which primarily includes businesses in the Knowledge Services division and veterinary services in Animal Health. These activities will be excluded from Continuing Operations in the Company's FY19 results and going forward
  • Progress towards commercial launch of the Company's next generation sea lice treatment (product candidate BMK08) and its specific pathogen resistant (SPR) shrimp in Asia

Financial Overview

  • Total Revenues and Adjusted EBITDA2 including Continuing and Discontinued Operations are expected to be in line with current market expectations
  • Revenues from Continuing Operations are expected to be c.£127m, c.3% below prior year (2018: £131.6m)
  • Total revenues including Continuing and Discontinued Operations are expected to be c.£148m, down c.2% (2018: £151.5m)
  • Adjusted EBITDA2 from Continuing Operations is expected to be in the region of £11m to £12m (2018: £19.1m)
  • Total Adjusted EBITDA2 including Continuing and Discontinued Operations is expected to be in the region of £13m to £14m (2018: £17.0m)
  • Adjusted EBITDA is driven by lower sales in Advanced Nutrition and lower revenues from commercial scale field trials, offset by an increase in sales and margins in Genetics and one-off other income
  • Total R&D investment is expected to increase by c.7% driven by products close to launch and additional investment in Genetics and Advanced Nutrition to maintain leadership in our core markets
  • Capex is expected to reduce significantly to c. £12m (2018: £25.1m) following completion of the new salmon egg production facility in Norway, returning to a normalised level which includes maintenance capex and planned investments to support growth
  • Net debt3 at the end of the year was £87.1m (2018: £55.7m) as a result of the total investment in R&D (particularly the next generation sea lice treatment), and an increase in working capital including that related to the growth in biological assets (stock of salmon and eggs) in the new production facilities
  • Free cash flow4 was an outflow of c. £24m (2018: outflow of £36.1m)
  • Liquidity5 was £28.6m at year end, well within the covenant threshold
  • Impairment of intangible and tangible assets in FY19 is expected to be in the range of £45m-£55m as a result of a reduction in forecasts in Advanced Nutrition due to material change in market outlook (impairing INVE) and the exit from some non-core activities

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

(4) Free cashflow is defined as operating cashflow less investment capex (including capitalised development costs).

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

Restructuring

  • Appointment of Peter George as Executive Chairman on an interim basis; recruitment of new CEO at an advanced stage
  • Recruited Septima Maguire as CFO who joined on 11 November
  • Restructuring commenced with disposals and cost reductions accelerated. 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.
  • Appointed advisers for disposal of businesses in the Knowledge Services division and veterinary services; marketing well underway and good level of interest received
  • Discussions with alternative partners for the commercialisation of the Company's companion animal products are ongoing

Restructuring and management changes are expected to result in exceptional charges in FY2019 and FY2020. 

Peter George, Executive Chairman commented:

"It is disappointing to report a performance which is below that expected at the beginning of the financial year largely due to market conditions in 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.

"During the year the Group made good progress towards the launch of product candidate BMK08 which, together with its co-dependant technology CleanTreat®, has the potential to be transformational for the industry, delivering a solution with zero environmental impact to one of the industry's biggest challenges.

"The Company is considering the optimal strategy to take CleanTreat® from trial to commercial scale given its importance to product candidate BMK08 and its broader industry wide applications.

"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.

"While the timing of the recovery in the shrimp and seabass/seabream markets is uncertain, I remain confident that the actions we are taking and the products we are launching will move the Group from its R&D investment phase into commercial profitability."

Operational Overview

Genetics

  • Opening of state of the art, land-based salmon egg facility in Norway, with 150m annual egg capacity to support continued growth. Ramp-up of production advancing according to plan
  • Dissolution of JV with AquaChile. Recovery of original investment which will be reinvested in a wholly owned local salmon egg production facility in the world's second largest market
  • Production of specific pathogen resistant (SPR) shrimp commenced in Florida for export into the Asian markets. Establishment of a JV in Thailand for local multiplication and distribution with sales expected to commence in FY2020

Animal Health

  • Increased sales of Salmosan as a result of high levels of sea lice, particularly in Chile; this is indicative of the potential for the Company's product candidate BMK08, the Company's next generation sea lice treatment
  • Product candidate BMK08 continued to show c.99% efficacy. Regulatory process progressing towards approval in late CY2020
  • Winner of Aquaculture Innovation Award for CleanTreat®, the Company's breakthrough purification system which removes medicinal residues from bath treatments including, but not limited to, BMK08
  • In combination with CleanTreat®, BMK08 is potentially transformative for the industry, addressing the urgent need for a highly efficacious treatment eliminating the environmental impact and improving animal health and welfare

Advanced Nutrition

  • Increase in market share in health products and diets which demonstrated relative resilience in challenging market conditions
  • Continued innovation with 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
  • Increased capacity at production plant in Thailand to meet growing long term demand for the Company's specialist diets

Outlook

  • The shrimp and seabass/seabream markets continue to show weakness and although some recovery is expected they are 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 FY 2020
  • The Company expects 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.