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Benchmark Hlgs PLC - Q4 and FY Trading Update & Notice of Results

RNS Number : 0706V
Benchmark Holdings PLC
29 November 2019
 

29 November 2019

 

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")

 

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.

Details of analyst / investor call today

 

There will be a call at 9am UK time today for analysts and investors. To register for the call please contact MHP Communications on +44 (0)20 3128 8591 or 8742, or by email on benchmark@mhpc.com

 

 

Notice of Results

 

The Company will announce its full results for the year ended 30 September 2019 in the week ending 20 December 2019 ("Full Year Results"). On publication of its Full Year Results, Benchmark will be in full compliance with the terms of its senior secured bond of NOK 850 million (USD $95m equivalent), which require the Company to publish quarterly financial information within an extended period ending on 31 December 2019. Future quarterly reports will be published within the routine permitted period of 60 days from the quarter end.

 

Please contact [email protected] if you would like to register your interest in attending the results conference call.

 

Management and Financial Report

 

Overview

 

Performance in the year was significantly affected by market conditions in the shrimp and Mediterranean sea bass/bream markets, as well as by changes and delays in our programme of commercial scale trials for some of our pipeline products.

 

The Company expects to report revenues from Continuing Operations of c. £127m, c.3% below prior year (2018: £131.6m) and Total revenues including Continuing and Discontinued Operations of c.£148m, down c.2% (2018: £151.5m). Adjusted EBITDA from Continuing Operations is expected to be in the region of £11m to £12m (2018: £19.1m) and Total Adjusted EBITDA2 including Continuing and Discontinued Operations is expected to be in the region of £13m to £14m (2018: £17.0m).

 

Liquidity and cash management continued to be a priority through this period of investment ahead of the launch of the Company's next generation sea lice treatment. The Company has accelerated its programme of disposals and cost reductions to reallocate capital from non-core areas to fund its product development programme and Continuing Operations while maintaining sufficient liquidity.  

 

Challenging markets in Advanced Nutrition

 

2019 was a challenging year for Advanced Nutrition. Our main customers faced challenges in their shrimp business with declining prices and negative margin development, leading to reduced production, with an impact on demand for our products. Production in all major shrimp markets contracted in 2019, with the exception of Ecuador which showed strong growth, and shrimp prices fell to their lowest in 30 years (in real terms, inflation adjusted). In Artemia the situation was exacerbated by strong artemia harvests and increased competition, resulting in price pressure. 

 

The Mediterranean seabass and seabream markets were also affected by oversupply after a period of high stocking which affected prices, reaching levels not seen since 2012. In Turkey, the largest producing country, this was exacerbated by the adverse economic environment, including high inflation and limited access to credit.  Overall, producers reacted by contracting production reducing demand for our products.  

 

As a result, revenues in Advanced Nutrition are expected to be down c. 10% to c.£77m (2018: £85.7m) and revenues from artemia, our largest product area within the division, are expected to be down (in USD$) by 23%.  Margins in the division are also expected to be lower than the previous year.  

 

The division's health and diets segments were more resilient to market conditions with sales expected to decrease by c.5%, and the Company was able to increase its market share in both segments.

 

Good performance in Genetics and progress towards launch of disease resistant shrimp

 

Our salmon genetics business continued to perform well and to deliver growth driven by an increase in salmon egg sales, and pricing that reflects our continued innovation. Genetics revenues are expected to be c.£39m (2018: £35.8m), with growth ahead of the global salmon farming market. The valuation of biological assets increased as a result of growth in biomass at the new production site in Norway. Looking forward, the Company's increased capacity and the ongoing innovation programme to introduce new genetic traits, will support further growth. 

 

In Chile the final steps in the dissolution of the JV with AquaChile were completed post period end on 25 October 2019 with the transfer of ownership of the Ensenada salmon egg hatchery facility, which will form the platform for the Group to establish local production.

 

The Company made progress towards the launch of its specific pathogen resistant (SPR) shrimp in Asia which the represents a significant growth opportunity for the Company, leveraging its strong market position in shrimp. The programme of trials for SPR shrimp continued to show good results, and production commenced in Florida for export to the Asian markets. In addition, the Company entered into a joint venture in Thailand for local multiplication and distribution.

 

Animal Health - progress towards launch of next generation sea lice treatment and CleanTreat

 

In Animal Health, revenue (including discontinued veterinary services) is expected to be c.£17m (2018: £16.2m) benefitting from an increase in sales of Salmosan, the Company's sea lice treatment, particularly in Chile and Canada where producers faced high levels of sea lice during the year.  Revenues from commercial scale field trials were lower than in 2018, as the programme of trials for product candidate BMK08 successfully completes, and we approach commercial launch.

 

The Company made good progress towards the launch of product candidate BMK08, conducting additional large-scale trials which continued to show c.99% effectiveness as well as excellent animal welfare and environmental credentials. There is increasing recognition in the industry of the breakthrough nature of our solution and growing interest from customers while the regulatory approval process is progressing according to plan. Sea lice continues to represent the most important biological challenge in the salmon industry.  

 

CleanTreat®, the Company's proprietary system to remove medicinal residues from treatment water, was awarded a prestigious industry innovation award. CleanTreat® addresses two of the biggest concerns in the aquaculture industry, disease control and environmental impact and has broad applications beyond the Company's sea lice treatment. 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, including alternative funding strategies with support from its major shareholders.

 

Animal Health - pipeline update

 

During the year the Company conducted a review of its Health pipeline led by Alex Raeber, CSO, which resulted in a reduction in the number of projects that the Company is pursuing and increased focus on its main opportunities, namely product candidate BMK08 and its portfolio of vaccines for seabass/seabream and for salmon. The review extended to the Company's in-house trial facilities which led to the decision to restructure these. The positive impact from this effort will come through from FY2020 onwards. 

 

The Company experienced longer timescales than anticipated in the development of its seabass/seabream vaccines, and in establishing commercial trials for a number of its pipeline products, which had an impact on Group revenues and on the expected timing for commercial launch. The Company is adopting a more conservative approach to forecasting development timescales and revenues from new products. It is expected that the first vaccine for the seabass/seabream market will be launched in H12020 CY. 

 

Knowledge Services: progress towards disposals

 

Knowledge Services revenue (comprising Discontinued Operations) is expected to be c.£16m (2018: £15.8m). The Company has accelerated its programme of disposals for the businesses in Knowledge Services, which are not core to the Company's strategic focus going forward.  During the year the Company sold part of its publishing activities and closed its lumpfish production facilities in Aultbea and Shetland. In addition, prior to the year end the Company appointed advisers to commence active marketing and accelerate the disposals.

 

Impairments

 

Revisions to the financial projections for the Advanced Nutrition division resulting from more difficult market conditions and consequent constraints on cash investment, have resulted in the carrying value of the intangible assets no longer being fully supported by its discounted cash flows.  As a result, the value of the intangibles is expected to be impaired.

 

In addition, as the Group has decided to dispose of and exit several non-core activities there has been a need to consider whether the anticipated net proceeds support the carrying value of the associated tangible and intangible assets.  In some instances it is anticipated that this will not be the case in relation to certain activities which we are exiting, and hence impairment provisions are expected to be made in the year.

 

Together, these two factors are expected to lead to an impairment in the range of £45m-£55m.

 

Free Cash flow4

 

Free cash flow4 was an outflow of c. £24m (2018: outflow of £36.1m). Compared to the previous year, the reduced outflow is the result of lower capex offset by an increase in working capital in Advanced Nutrition from purchase commitments with the GSL Cooperative and phased sales towards year end, and the build of biological assets at the new salmon egg facility.

 

Net Debt3 and Liquidity5

 

The Company completed a debt refinancing in June 2019 through the issue of a NOK 850m bond ($95m equivalent) and the repayment of the existing $90m revolving credit facility (RCF). The balance, together with a new USD$15m RCF and the expected proceeds from the planned disposals and cost reductions provide the Company with sufficient headroom to fund its development programme and Continuing Operations.  The ringfenced debt facilities that part funded the new production facility in Norway remain in place. 

 

At year end Net Debt3 was £87.1m and Liquidity5 was £28.6m, significantly above the financial covenant minimum of £10m.  The facilities also carry a minimum 30% equity ratio covenant and there was significant headroom at year end.

 

The refinancing resulted in increased borrowing costs and a consequent increase in net finance costs. 

 

Q4 Financials

 

Q4 2019 total revenues are expected to be c. £42m (Q4 2018: £38.0m) with notable growth in salmon Genetics.  Q4 2019 total Adjusted EBITDA2 is expected to be in the range £7m to £8m (Q4 2018: £6.0m) with growth following the revenue trend.

 

Outlook

 

Weakness in the shrimp and sea bass/bream markets continues and while some recovery is expected it is 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 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.

 

Enquiries

 

For further information, please contact:


Benchmark Holdings plc

Tel:  020 3696 0630

Peter George, Executive Chairman


Septima Maguire/Mark Plampin, CFO


Ivonne Cantu, Investor Relations






Numis (Broker and NOMAD)

Tel:  020 7260 1000

James Black, Freddie Barnfield, Duncan Monteith

 




MHP Communications

Tel:  020 3128 8742

Katie Hunt, Reg Hoare, Alistair de Kare-Silver                                     [email protected]

 

 

About Benchmark 

Benchmark's mission is to enable food producers to improve their sustainability and profitability.

We bring together biology and technology, to develop innovative products which improve yield, quality and animal health and welfare for our customers. We do this by improving the genetic make-up, health and nutrition of their stock - from broodstock and hatchery through to nursery and grow out.

Benchmark has a broad portfolio of products and solutions, including salmon eggs, live feed (artemia), diets and probiotics and sea lice treatments. Find out more at www.benchmarkplc.com


This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact [email protected] or visit www.rns.com.
 
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