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Benchmark Holdings Plc - Q4 Results

* 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.

 

 

Q4 Overview

·    As announced in the trading update of 29 November, the Company has accelerated its programme of disposals and restructuring, and as a result, certain activities, primarily the Knowledge Services division and the veterinary services business in Animal Health, have been classified as discontinued operations.

·    Revenue from continuing operations of £37.0m was 10% above the prior year (Q4 2018: £33.6m) driven by strong growth in Genetics versus the same period last year.

·    Adjusted EBITDA2 from continuing operations was up 7% at £7.5m (Q4 2018: £7.0m), driven by increased revenues in the period vs the prior year.

·    Adjusted EBITDA2 margin 20% (Q4 2018: 21%) with growth in gross profit offset by step up in operating costs

·    Impairment of acquired intangibles in Advanced Nutrition of £44.8m as a result of a reduction in forecasts due to a material change in market outlook (impairing INVE).

·    Impairment of tangible and intangible assets related to discontinued operations of £6.9m

·    Statutory loss for the period including discontinued operations of £61.5m (2018: loss of £2.3m), primarily as a result of the impairments (including discontinued operations); as well as an increase in depreciation, amortisation, finance costs and exceptional costs

·    The weakness in the shrimp and sea bass/sea bream markets continued during the period.

Q4 Divisional overview

·    Genetics reported revenue growth of 60% against Q4 last year as a result of higher salmon egg sales supported by the Salten facility coming onstream and the export ban of all salmon eggs from Norway which benefitted StofnFiskur in the period. Revenues in the quarter were £10.0m (2018: £6.2m). Adjusted EBITDA for the division was £4.3m (Q42018: £3.3m).

·    Advanced Nutrition delivered revenues of £22.3m (Q42018: £21.5m), as a result of higher GSL Artemia volumes, the launch of D-FENSE vibrio inhibiting Artemia in Vietnam and higher volumes in Health, partly offset by lower volumes of non GSL eggs and lower Diets sales mainly in Greece. Adjusted EBITDA was 18% up at £4.5m (Q42018: £3.8m) helped by one off income from the settlement of infringement cases and the profit on disposal of a property in China which together totalled £1.1m.

·    Revenues in Animal Health (including Discontinued Operations of veterinary and diagnostics) in Q4 were £6.6m, 13% below the prior year (Q42018: £7.6m) as a result of lower contribution from field trials partially offset by higher toll manufacturing contribution (timing) and higher Salmosan sales and Adjusted EBITDA was a loss of £0.8m (Q42018: loss £0.4m).

 

Full Year Overview

 

This morning the Company published its full year audited results for the 12 months ended 30 September 2019 which can be found on https://www.benchmarkplc.com

·    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 debt3 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

·    Impairment of acquired intangibles in Advanced Nutrition of £44.8m as a result of a reduction in forecasts due to a material change in market outlook (impairing INVE).

·    Impairment of tangible and intangible assets related to discontinued operations of £7.5m

·    Current trading:  Weakness in the shrimp and sea bass/sea bream markets continues and while some recovery is expected, it is 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 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.

 

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. Entered into agreement with two partners 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 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

 

Q4 Management Commentary

 

Q4 saw a continuation of the trends in Q3, with weak shrimp and Mediterranean seabass/seabream markets having affected sales volumes in Advanced Nutrition; Animal Health delivered lower than anticipated contribution from trials of pre-licence products and Genetics performed well with continued growth in salmon egg sales.

 

During the period, the Company accelerated its programme of disposals and restructuring, and certain activities were classified as discontinued, primarily the Knowledge Services businesses and the veterinary and diagnostics services business in Animal Health.

 

Compared to the prior year, the results from Continuing Operations in the quarter reflected good growth in salmon genetics sales, a slightly higher revenue from Advanced Nutrition related to timing of sales, and lower contribution from trials in Animal Health. Revenue from continuing operations was £37.0m, 10% above the prior year (Q4 2018: £33.6m). Adjusted EBITDA from continuing operations was up 7% at £7.5m (Q4 2018: £7.0m), driven by higher revenues.

 

The weak market conditions in Advanced Nutrition resulted in a significant impairment of goodwill on acquisition of INVE of £44.8m (2018: £nil).  Furthermore, there were other impairment charges on assets within discontinued operations of £7.5m (2018: £nil).  As a consequence, the statutory loss for the period including discontinued operations was £61.5m (2018: loss £2.3m), reflecting an increase in depreciation, amortisation, finance costs and exceptional costs.

 

In addition, Peter George took over as Executive Chairman following Malcolm Pye's resignation as CEO in August 2019. Septima Maguire joined the Company post period end in November 2019 and was appointed CFO on 20 December 2019.

 

Advanced Nutrition

 

Advanced Nutrition delivered revenues of £22.3m (Q42018: £21.5m), as a result of higher GSL Artemia volumes, the launch of D-FENSE vibrio inhibiting Artemia in Vietnam and higher volumes in Health partly offset by lower volumes of non GSL eggs and lower Diets sales mainly in Greece. Adjusted EBITDA was 18% up at £4.5m (Q42018: £3.8m) helped by one off income from the settlement of infringement cases and the profit on disposal of a property in China which together totalled £1.1m.

 

Operationally, good progress was made in the launch of D-FENSE vibrio inhibiting Artemia across markets, including ongoing trials in several key markets, and first significant sales delivered. The Company held a customer event in Crete, with seminars attended by representatives from more than 90% of all Mediterranean seabass and seabream hatcheries.

 

Genetics

 

Genetics revenues in Q4 were £10.0m, 60% above the prior year (2018: £6.2m) driven by higher salmon egg sales as a result of the Salten facility coming onstream and the countrywide export ban of salmon eggs from Norway in the period which benefitted StofnFiskur.

 

Gross profit in the period was favourably impacted by an increase in the fair value of biological assets. Adjusted EBITDA for the division was £4.3m (Q42018: £3.3m) with the Adjusted EBITDA margin affected by higher operational costs compared to the prior year from new ventures including Benchmark Chile, Salten and the new SPR shrimp operation in Florida. Additionally, we incurred legal fees in the termination of the joint venture and the establishment of the wholly owned subsidiary in Chile in Q4 2019.

 

Operationally, for the first time the Company was able to supply eggs from its SalmoBreed strain throughout the summer thanks to our new biosecure facility in Salten.

 

Animal Health

 

Revenues in Animal Health (including Discontinued Operations of veterinary and diagnostics) in Q4 were £6.6m, 13% below the prior year (Q42018: £7.6m) as a result of lower contribution from field trials partially offset by higher toll manufacturing contribution (timing) and higher Salmosan sales and Adjusted EBITDA was a loss of £0.8m (Q42018: loss £0.4m).

 

Operationally, during the period the Company completed the fourth set of field trials in Norway with BMK08, achieving further efficiency gains for CleanTreat® which won the Aqua-Nor Innovation award in August 2019.

 

Activities in Knowledge Services were classified as discontinued.