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Benchmark Holdings PLC
24 January 2017
 

 

24 January 2017

BENCHMARK HOLDINGS PLC

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

 

PRELIMINARY RESULTS FOR THE YEAR ENDED 30 SEPTEMBER 2016

 

A YEAR OF INVESTMENT BEGINS TO YIELD RESULTS

 

Benchmark, the aquaculture biotechnology and food chain sustainability business announces its Preliminary Results for the year ended 30 September 2016 (the "period").

 

£m

2016

2015

Revenue

109.4

44.2

EBITDA from Trading Activities1

22.3

2.4

Adjusted EBITDA2

9.2

(5.7)

Operating loss

(20.5)

(11.6)

Basic loss per share (pence)

(4.39)

(5.96)

Net cash

0.4

13.4

 

Financial Highlights:

·     Acquisition of INVE Aquaculture in December 2015 for US$342m (c.£230m) created new Advanced Animal Nutrition division

Funded by £219m (gross) equity raise and US$70m revolving credit facility

·     INVE revenue of £55m in line with expectations

·     Like for like3 revenue up 20% to £30m (2015: £25m)

·     Operating loss reflects

£12.9m expensed acquisition and integration costs related to INVE

£11.7m investment in expensed R&D (2015: £6.6m)

·     £30.7m (gross) equity placing in August 2016 to fund capital projects and bolt-on acquisitions

·     Cash and cash equivalents at period end of £38.1m (2015: £13.6m)

 

Operational highlights:

·     Integration of INVE acquisition on track, synergies delivered with Benchmark Group include

First sales of new aquaculture vaccine for sea bass achieved

First major tilapia breeding programme in Asia for Spring Genetics secured post period end

·     Bolt-on acquisition of world leading shrimp breeding programme in Colombia

·     Adverse environmental factors mitigated by diversified Group portfolio

·     £16m investment in state-of-the-art vaccine manufacturing facility in Braintree in commissioning phase, first commercial batches expected in H2 FY 2017

·     Constructing new year-round, land-based salmon egg production unit in Norway which will increase salmon ova production capacity by 37.5%

·     Ten year contract with top three global salmon producer supplying genetic material, breeding selection services and health support

·     Pipeline of products continues to progress well

Eight products developed entirely in-house in final regulatory approval or have achieved first sales 

Current product pipeline of 94 products with an addressable market of £783m

 

1 EBITDA from Trading Activities - excludes costs relating to Investing Activities from reported IFRS numbers. Investing Activities comprise exceptional restructuring costs, acquisition costs, pre-operational expenses for new ventures and research and development expenditure

 2 Adjusted EBITDA - EBITDA before exceptional and acquisition cost

3 Like for like - statutory IFRS results excluding businesses acquired in either 2016 or 2015 (principally the Breeding and Genetics division and INVE)

 

Malcolm Pye, CEO of Benchmark, said:

"I am pleased to announce that the Group has delivered a financial performance inline with the Board's expectations, in a transformational year.  Our strategy of diversification has mitigated the impact of environmental headwinds such as the drought caused by El Niño and the temporary Chilean border closure.  Our acquisition strategy has already begun to show its strategic worth, providing access to a wider client base and technical insight which is enhancing our existing suite of products, as well as an established distribution network into fast growing markets.  We continue to execute our strategy of deploying world leading technology through established distribution channels into long term growth markets.

 

"As planned, we have been investing in manufacturing capacity this year in order to serve our fast growing portfolio of products, with our state-of-the-art plant in Braintree in its commissioning phase.  This increased capacity will allow us to deliver our product pipeline which continues to progress well, with a number of products expected to enter commercialisation from 2017 to 2019. Seafood is becoming a more desirable and important component of diets across the world, driven by increasing health, wealth and the limitations of the current food chain. We are now the world's biggest player in aquaculture biotechnology, placing us at the forefront of this 'Blue Revolution'."

 

Annual Report and Accounts

The Company's Annual Report and Accounts for the financial year ended 30 September 2016 will shortly be available to view on the Company's website (www.benchmarkplc.com) and posted out to shareholders.

 

For further information, please contact:

 


Benchmark Holdings plc

Tel: 020 7920 3150

Malcolm Pye, CEO


Roland Bonney, COO


Rachel Aninakwah, Communications




Numis

Tel: 020 7260 1000

Michael Meade / Freddie Barnfield (NOMAD)


James Black (Corporate Broking)




Tavistock

Tel: 020 7920 3150

Matt Ridsdale / Niall Walsh / Sophie Praill


 



 

Chairman's Statement

 

Strategic Summary

The year ended 30 September 2016 was a transformative one for the Benchmark Group and saw us complete and consolidate our strategic platform; from genetics and egg production through to specialist nutrition and into the provision of veterinary services and health products for the global aquaculture sector. As a result, Benchmark is now uniquely resourced and positioned to provide an integrated package of products and services that have the potential to unlock some of the key biological constraints which hold back our customers' production potential.  The Group's technology platform of genetics, nutrition and health is supported by our technical knowledge, manufacturing and research capabilities. This combination enables us to have a significant market presence in the three key aquaculture species - salmon, tilapia and shrimp.

Our customers are increasingly recognising the significant value that Benchmark's technology platform can deliver in terms of driving their productivity, profitability and sustainability. 

The Group is focussing on delivering the many top line synergies arising from building this platform.  In particular, we are concentrating on growing sales and market share in developing markets and actively exploring routes to market and strategic relationships in these regions.  Furthermore, we are set to continue to execute our strategy of making value-enhancing bolt-on acquisitions, and investing in some important strategic joint ventures to deliver significant synergies and sales growth.

Results

During the year revenue grew substantially to £109.4m (2015: £44.2m). This was primarily as a result of the acquisition of INVE Aquaculture in December 2015 and the recovery of Salmosan sales and demonstrates that the business is beginning to scale.  Full details of the Group's earnings, cash flow and financial position are set out in the FY16 Financial Review.  The Group made an operating loss of £20.5m, principally due to increased investment in R&D, significant acquisition related expenses arising from the INVE acquisition and higher amortisation. These items offset an improved operating performance in the Animal Health division and the results of the profitable, newly formed Advanced Animal Nutrition division.  EBITDA before exceptional expenditure and acquisition related costs was £9.2m compared with a loss of £5.7m last year.

Summary of Activities

The acquisition of INVE Aquaculture, a leading specialist manufacturer of primary stage, technically advanced nutrition and health products for aquaculture, was the most transformative event of the year and, indeed, of the Company's history. This transaction has enabled Benchmark to offer a comprehensive range of products and services to our key markets and has significantly advanced our goal to bridge the sustainable food production gap. The acquisition has also opened up enhanced distribution opportunities for Benchmark's suite of products across its other divisions through INVE's existing network.

The INVE acquisition necessitated a substantial equity fundraise in conjunction with committed banking arrangements and facilities that will support the important capital expenditure projects and joint venture opportunities as we grow.  As a result, our balance sheet has been transformed and we have cash resources in situ to provide the flexibility we need to capture the opportunities we currently see.  As well as the INVE fundraise, we also raised a small amount of equity in the summer of 2016 which allowed a supportive, strategic investor to gain a meaningful interest in the business.  The £30m of capital raised at the time has allowed us to fully fund Salmobreed Salten which is critical to consolidating some of our long-term salmon farming relationships and also to buy a world-leading shrimp breeding programme from Ceniacua.  This acquisition was completed in August, and together with INVE, provides us with important opportunities in the rapidly-growing global shrimp market and penetration into the key geographies of Latin America and South East Asia.

 

Whilst this fundraise was done when the share price was relatively low, we believed that the small amount of the raise, coupled with the strategic benefits the new shareholder brings, justified the transaction.  I'm pleased that the share price has recovered since the middle of the year as the market has become more aware and familiar with the potential growth inherent in the Benchmark business strategy.  Our Capital Markets communications day in November  did much to bring the Benchmark business model to the attention of the investing institutions and we intend to repeat this exercise at regular intervals.

We have continued to invest in new and improved production facilities in order to secure supply of products key to our future growth.  The most significant examples are the new vaccine manufacturing facility in Braintree which has entered the commissioning phase, and the previously mentioned SalmoBreed Salten project where work has commenced to build a new salmon egg production unit in Norway which will increase our production capacity by 37.5%.

Outlook

The long-term drivers of growth in our sectors, including the growing global demand for aquaculture products, which we expect to grow at around 5% per annum, will continue to benefit Benchmark for many years to come.  In addition to capturing the opportunities for the products and services we have today, an important driver of our organic growth will be the delivery of commercial sales from our robust pipeline of new products, and although the exact timing of new product launches is difficult to predict, an increasing number of these are expected to come to market during 2017 to 2019.

The current year has started in line with the Board's expectations with some continued softness in the Asian shrimp farming market occasioned by the disease challenges faced by producers there.  We expect this to recover once these challenges are met, however the exact timing of the predicted uplift remains uncertain.  At the same time the salmon farming market which represents more than a third of Benchmark's business is experiencing record high prices which look likely to be sustained.  With new markets and customers opening up as our integrated offering becomes more familiar to the participants in the global 'Blue Revolution', we look forward to the future with great confidence.

 

 

 

The Hon. Alexander Hambro

Chairman

24 January 2017

 

 



 

STRATEGIC REVIEW

 

MALCOLM PYE, CHIEF EXECUTIVE OFFICER

 

In Summary

Benchmark delivered a solid performance, in a challenging but transformational year, defined by our investment in the future of the business. Through the acquisition of INVE Aquaculture in December 2015, we now have a platform to serve customers in over 70 countries and a superb route to market in the southern hemisphere and its fast-growing markets.  Benchmark's global distribution network in aquaculture, coupled with our comprehensive IP-rich technology portfolio, gives us an unrivalled offering.  We remain focused on growing sales and market share in developing markets, including China, for our Genetics and Nutrition businesses, and are actively exploring routes to market and strategic relationships in those regions.

Delivering Core Strategy

Since Benchmark was founded in 2000 to set a new standard for sustainable living, the key issues at stake remain the same - food production is still the largest polluter and water/energy consumer on the planet. The food industry will have to evolve in order to cope with a huge increase in population to approximately 9.7bn by 2050 (UN), requiring an increase in protein production of between 40% and 70%.

An increase in the production and efficiencies of farmed land animals will meet some of this demand, however  much of the gains in production have already been optimised for terrestrial animals, and wild marine fisheries are expected to meet maximum production capacity of 93m tonnes by 2030. The World Bank in their report 'Fish to 2030' (2013), projected that aquaculture will continue to fill the supply-demand gap, and that by 2030 62% of fish for human consumption will come from this industry. We view considerable opportunity in the fact that the aquaculture industry is still relatively nascent, with significant room for improvement in terms of industrialisation and best practice.

With 90% of the Company now involved in aquaculture, Benchmark is at the forefront of the 'Blue Revolution'.  Our integrated package of both products and services is being increasingly recognised by our customers for the significant value that this can deliver in terms of driving their productivity, profitability and sustainability.  However, the challenges our customers face do not stand still and we are therefore committed to continuing our investment in Benchmark's technology portfolio and our in-market technical services for the products we sell today.

We have built a platform which can best serve our customers, helping farmers to take control of their biological environment through the combination of genetics, nutrition, health and knowledge services. We are delivering this by:

·    Harnessing the best expertise

·    Deploying cutting edge technologies

·    Being embedded alongside our customers

More detail is provided on how we are achieving this in the FY16 Business Review.

 



 

Acquisitions and Integration

At the end of December 2015 INVE Aquaculture joined the Group, adding advanced nutrition to our offering and largely completing the building of Benchmark's technology platform and operating structure. Integration is on schedule, with the key account management programme progressing well and allowing us to identify and deliver the synergies. Work on the first co-developed products well underway, and INVE's distribution network has already proved beneficial for other existing Group products.

We continue to exploit the many synergies across INVE and Benchmark and expect to see increasing opportunities as new production challenges present themselves that require multi-faceted solutions in the aquaculture, agriculture and animal healthcare industries.

In August 2016, we strengthened our genetics offering through the acquisition of an established and leading South American shrimp breeding programme which enabled us to take the lead on pathogen-resistant shrimp and added the third major aquaculture species shrimp to our already strong aquaculture breeding business in salmon and tilapia. This has enabled us to increase our market penetration into the fast-growing global shrimp industry, which is seeing strong and growing customer demand for disease resilient stock.  Our physical presence in the region also furthers our penetration into the South American market for our wider suite of products.

Challenges

The ongoing effect of El Niño and disease challenges in South East Asia and Latin America and, coupled with low market prices in the shrimp sector, is resulting in delayed sector investment and lower growth rates in the short-term in both regions.  The unexpected border closure in Chile also impacted sales for salmon eggs.  This has to some extent been offset by our ability to grow sales in other developing markets and now that the border has reopened we are starting to recover sales in Chile.  The strong US dollar against many other countries has also negatively affected trading in some markets where our products are priced in dollars, in particular Latin America.

Our People

We are a technology and innovation-driven company, which means our success is driven by having very high calibre, skilled and driven people at every level of the business. During the year we have secured some extremely high quality people, particularly within our health, nutrition and breeding and genetics divisions.  We are already seeing the positive impacts of these new appointments in their areas of the business, with many joining from household industry names.

I am immensely proud of our team's response to our fast-paced acquisition strategy. We've acquired businesses with excellent management and like-minded teams that have similar values to Benchmark, which has made it easier to maintain and grow our culture whilst growing the business.  INVE's integration into the Group has far exceeded our expectations, with the teams and workflows principally aligned and advancing the many opportunities available to us.

Our employees' passion and engagement makes a big contribution to the value we deliver to our customers and our success in the market. Our thanks go to all of Benchmark's people whose culture of hard work, commitment and enthusiasm has enabled the Group to deliver the noteworthy progress reported herein. 

What we can build upon

Aquaculture is a young industry with significant untapped potential to feed a growing global population.  There is an urgent need to professionalise and modernise aquaculture.  To meet this opportunity, we will advance our technology centre to drive progress in the areas of disease, growth, feed efficiency, and welfare as well as incorporating new technologies such as gene editing.

The Future

Thanks to our highly supportive shareholders and strong income generation, we have the opportunity, the platform, the technology and the team to grow our sustainable business, supporting a healthier, more sustainable future for food production. We have a major growth opportunity ahead of us in aquaculture and sustainable food production technology and we are uniquely well placed to deliver that exciting prospect.

FY16 FINANCIAL REVIEW

 

KEY PERFORMANCE INDICATORS

 

Financial highlights:

·     Revenue increased by 148% to £109.4m (2015: £44.2m). Like for like sales, excluding businesses acquired in either 2016 or 2015, increased by 20% to £29.8m (2015: £24.7m)

·     EBITDA from Trading Activities1 grew by £19.9m to £22.3m (2015: £2.4m)

·     Adjusted EBITDA2 increased by 14.9m to £9.2m (2015: loss of £5.7m)

·     Animal Health division successfully recovered sales on Salmosan / Byelice

·     Acquisition of INVE Aquaculture in December 2015 for US$342m (c.£230m) created new Advanced Animal Nutrition division

·     Integration of INVE went to plan and first revenue synergies were achieved

·     Temporary closure of Chilean border to Icelandic produced salmon eggs impacted Breeding and Genetics revenues

·     Operating loss of £20.5m (2015: £11.6m) after increase in investing activities to £26.7m (2015: £10.1m), including £12.9m of expensed acquisition and integration costs

·     Expensed R&D increased by 77% to £11.7m (2015: £6.6m)

 

£m



2016

2015

Total revenue



109.4

44.2

Gross profit



50.8

16.1

Gross profit percentage



46%

36%

Operating expenses - Trading Activities



(28.5)

(13.7)

EBITDA from Trading Activities



22.3

2.4

Profit / (Loss) before tax from Trading Activities


4.3

(1.3)

Total net costs of Investing Activities



(26.7)

(10.1)

Loss before tax



(22.4)

(11.4)

Earnings / (Loss) per share from Trading Activities (pence)

1.79

(1.13)

Basic loss per share (pence)



(4.39)

(5.96)

 

1 EBITDA from Trading Activities - excludes costs relating to Investing Activities from reported IFRS numbers. Investing Activities comprise exceptional restructuring costs, acquisition costs, pre-operational expenses for new ventures and research and development expenditure.

2 Adjusted EBITDA - EBITDA before exceptional and acquisition costs.

 

Group results

2016 was a transformational year for the Group, with the completion of the acquisition of INVE Aquaculture BV on 30 December 2015 to form the Advanced Animal Nutrition division which more than doubled the scale of the Group's operations.  The Group's results include nine months of trading from the new division and this is a significant component of the comparison to 2015.

The continued strategy to build a platform to exploit the significant growth opportunity in the aquaculture market also delivers increased diversification of revenue streams across the supply chain in several species, both in cold and warm water.  This has improved the Group's ability to withstand individual market challenges.

Group revenue increased by 148% to £109.4m in the year (2015: £44.2m).  The growth in revenue was achieved through a combination of the successful acquisition of INVE and the recovery of Salmosan sales in the Animal Health division.  Like for like sales, excluding businesses acquired in either 2016 or 2015, increased 20% to £29.8m (2015: £24.7m).

The Group continues to separate the statutory IFRS results into Trading Activities and Investing Activities, in line with many of its peers in the sector, to present better the underlying performance and development of the business.  This is how the board monitors progress of the existing Group businesses.  Trading Activities are those related to products and services that have been developed and are producing revenue streams, while Investing Activities relate to the costs associated with acquiring new businesses and products and services being developed for future revenue streams and include a pipeline of vaccines at various stages of the development cycle.

The Group's statutory IFRS earnings (including both Trading and Investing Activities), set out in the Consolidated Income Statement, show an EBITDA loss for the year of £3.9m (2015: loss of £7.2m), and loss after tax for the year of £18.3m (2015: loss of £11.8m).  Basic and diluted earnings per share are both losses of 4.4p per share (2015: basic and diluted loss per share of 6.0p).

Trading Activities

Gross profit of £50.8m was up on the previous year (2015: £16.1m).  Overall gross profit percentage increased to 46% (from 36% in 2015) due to the change in sales mix towards Advanced Animal Nutrition and Animal Health products.  Like for like gross profit, excluding businesses acquired in either 2016 or 2015, increased 56% to £12.3m (2015: £7.9m).

Operating costs relating to Trading Activities (excluding amortisation and depreciation) in the year more than doubled from the comparative period to £28.5m (2015: £13.7m), with £11.4m of the increase coming from the newly created Advanced Animal Nutrition division.  Headcount increased from 402 at the start of the year to 884 principally through the INVE acquisition.  The remainder of the increase in operating costs reflects the inclusion of financial year 2015 acquisitions for a full year and increased activity within the Animal Health division.

Central operating costs have decreased from £4.9m in 2015 to £4.3m.  This decrease reflects the better efficiency that the enlarged Group can achieve through increased scale and the impact of continued strong cost control.

As a result of the above factors EBITDA from Trading Activities of £22.3m was up on the previous year (2015: £2.4m).

Investing Activities

Expensed R&D expenditure, one of the Group's key investment objectives, increased significantly to £11.7m (2015:  £6.6m) in the year as a result of the Group's strategy to invest in technology solutions for food animal producers.  The acquisition of INVE contributed £1.3m to the year on year increase as it also has a core focus on innovation to drive future growth.  Overall spend was in line with expectations and R&D as a percentage of sales fell to 10.7% (2015: 14.9%).

Pre-operational expenses in the year of £1.4m (2015: £1.6m) relate primarily to the results of the FAI Aquaculture business which was undergoing the final stages of a substantial refurbishment.  The Ardtoe site was unveiled in May 2016 and became fully operational at the end of the year. It will provide trials facilities to the Benchmark Group that will help to advance new product launches.  The new FVG laboratories in Chile and Brazil are also included within pre-operational expenditure and are nearing completion.

Significant acquisition related costs of £12.9m (2015: £1.3m) were incurred in the year principally in respect of the acquisition of INVE and the associated fund raising.  This acquisition was considerably larger than all of the acquisitions completed in 2015 and hence costs were higher.

Exceptional non-recurring costs of £0.1m (2015: £0.2m) related to the completion of the restructuring exercise undertaken on the Sustainability Science Division which began in 2015.

Depreciation and amortisation at £16.6m in the year (2015: £4.3m) was higher than in previous years due to the significant increase in tangible and intangible fixed assets balances following the increased investment in the year and during the previous year, primarily from the acquisition of INVE.  Amortisation of intangibles was £13.7m in the year.

Finance costs

Net finance costs of £2.2m (2015: net finance income of £0.2m) reflect the fact that a multi-currency revolving credit facility of up to $70m was put in place in December 2015.  This facility incurs interest in the range of 1.9% to 2.5% above LIBOR depending on leverage.

The consideration for INVE was denominated in USD, US$50m was drawn to part fund the purchase of INVE followed by a further US$5m and £5m - both of which were repaid during the year.  A foreign exchange loss of £5.0m arose due to the movement in exchange rates and has been included within finance costs.

Taxation

There was a tax credit in the period of £4.0m (2015: charge £0.4m).  Overseas tax charges in the Advanced Animal Nutrition were more than offset by deferred tax credits on the reversal of temporary differences, particularly those arising on the intangible assets arising on consolidation from recent acquisitions.  In particular, a deferred tax liability of £50.1m arose on the intangible assets acquired with INVE during the year.  The deferred tax credit for the year relating to those acquired intangible assets was £4.1m.  No deferred tax assets have been recognised on the losses incurred in the year due except where there is certainty over the timing of their recovery.

Earnings per share

Basic loss and diluted loss per share were both 4.4p (2015: loss per share 6.0p).  The movement year on year is due to a combination of the result for the year as noted above, and the issue of new shares in the equity raise used to fund the acquisition of INVE and the subsequent fund raise later in the year.  Earnings per share from Trading Activities rose to 1.8p (2015: loss per share 1.1p) with the movement due to an improved result coupled with the dilutive effect of the higher number of shares in issue.

Dividends

No dividends have been paid or proposed in the year (2015: £nil).



 

Balance sheet

Group net assets increased in the year to £367.7m (2015: £92.1m), with the main increase arising from the equity raises in the year.  Gross proceeds from the first raise used to fund the acquisition of INVE were £185.7m and £4.4m of costs related to the equity raise were netted off the share premium account.  In addition, a further equity issue was completed in August 2016 raising gross proceeds of £30.7m.

Intangible assets have increased in the year to £352.5m (2015: £65.9m).  Note 12 outlines the fair value of the assets and liabilities acquired in the acquisitions made during the year.  These include separately identifiable intangible assets of £147.6m relating to INVE's intellectual property, contracts, licences and customer lists.  Deferred tax liabilities totalling £50.1m were provided for the tax timing differences on these intangible assets.  Goodwill of £102.9m arose on the acquisition and reflects the synergies available from combining INVE with Benchmark.  There was a further increase of £47.6m in the net book value of intangible assets due to the movement in foreign exchange rates in the period, as those which were acquired in overseas acquisitions were revalued to the year end exchange rates.

Tangible fixed assets have increased by £24.8m to £50.0m in the year.  Other than those assets acquired with INVE, the main investment has been in the new vaccine manufacturing plant in Braintree, Essex, together with the investment in trials facilities at FAI Aquaculture's Ardtoe, Scotland site.

Cash flow

Net cash flow from operations was an outflow of £10.5m (2015: outflow £9.0m) due to the increased working capital demands of the enlarged Group which offset cash inflow before working capital adjustments of £3.7m (2015: cash outflow £8.2m). 

Cash flows were dominated by the proceeds of the two share placings in the year, with a total of £211.8m net of costs being received.  £181.3m of this was used to fund the acquisition of INVE, together with some of the receipts from the new debt facility entered into in December 2015, with total cash inflow from proceeds of the bank borrowings of £42.3m.  The balance of the INVE purchase price was settled by the issue of new shares. 

The rest of the proceeds from share placings is being used to fund a number of strategically important projects including investment in a partnership that is constructing a new salmon egg production facility in Norway and the acquisition of the shrimp breeding programme in South America.  The majority of the funds from this share issue remained on deposit with the Company's bankers at the year end.

Cash outflow on capital expenditure in the year was £18.7m as investment in expanded capacity at Braintree and Ardtoe nears completion (2015: £14.0m).

Cash at the period end stood at £38.1m (2015: £13.6m) and borrowings drawn under the revolving credit facility, net of debt raising costs, and finance leases stood at £37.7m giving the Group a net cash position of £0.4m.



 

Treasury

The Group has established procedures to mitigate financial risk to ensure sufficient liquidity is available to meet foreseeable requirements.  These ensure that finance is secured at minimum cost where required and that cash assets are invested securely and profitably.  The finance function manages the Group's foreign exchange, liquidity and funding, interest rate and credit risks within a framework of policies and guidelines authorised by the Board.

The Group uses simple derivative financial instruments for risk management purposes only.  Group policy prohibits speculative arrangements.  Transactions in financial instruments are always matched to an underlying business requirement, such as expected foreign currency revenues and payments.  The Group uses derivatives only to manage its foreign currency and interest rate risks arising from underlying business activities.  No such derivatives were outstanding at the year end.  Treasury activities are reported to the Board on a monthly basis within the Group management accounts.

Foreign exchange risk

The Group's reporting currency is pounds sterling.  Where group entities operate with a different functional currency, the Group's policy is, where possible, to allow group entities to settle liabilities denominated in their functional currency with the cash generated from their own operations in that currency.  Where group entities have liabilities denominated in a currency other than their functional currency (and have insufficient reserves of that currency to settle them), cash already denominated in that currency will, where possible, be transferred from elsewhere within the Group.

Where significant transactions are conducted in currencies other than the functional currencies of the individual entities, exposure to movements in exchange rate is mitigated by the use of simple financial derivative instruments as appropriate.

Liquidity and funding

The Group's finance function is responsible for sourcing and structuring borrowing requirements.  The Group began the year with no bank borrowings and, as a result of the revolving credit facility first drawn in December 2015, had £37.1m in bank borrowings at the end of the year.  The new facility has a maximum drawdown of US$70m leaving sufficient funding facilities (£15.4m at 30 September 2016) to meet its normal funding requirements in the medium term.

Interest rate management

Controls over interest rate exposure are in place and dealings are restricted to those banks with the necessary combination of geographic presence and suitable credit rating.

Credit risk

The policy followed in managing credit risk permits only minimal exposures, with any surplus funds invested mainly in short-term deposits with financial institutions that meet credit criteria approved by the Board.  Specifically, counterparty creditworthiness is determined by reference to credit ratings as defined by the global rating agencies: Fitch, Standard & Poor's and Moody's.



 

Advanced Animal Nutrition division

 

Summary Income Statement

£m

2016

Revenue

55.0

Cost of Sales

(26.5)

Gross Profit

28.5

Operating costs relating to Trading Activities

(11.4)

EBITDA (from Trading Activities)

17.1

Operating costs relating to Investing Activities

(1.3)

Depreciation and amortisation

(11.4)

Operating profit

4.5

 

The division has performed well, with sales of £55.0m and EBITDA from Trading Activities at £17.1m for the nine month's post acquisition of INVE.  Sales of core live feed products (artemia) were strong and selling prices were resilient.  Market prices for raw material sourced in Asia increased and this resulted in some erosion of gross profit percentage.  Adverse conditions in the main shrimp markets linked to: the drought caused by El Nino during H1; disease challenges for customers; and the strong US Dollar, resulted in lower volume of sales of replacement diets.  Gross profit percentage for these products remained stable.  These adverse impacts on sales and margin were partially offset by the favourable GBP:USD exchange rate (arising after the UK's decision to exit the EU) when converting the financial results of the division.  Operating costs relating to Trading Activities (20.6% of sales) were managed carefully with some increase in payroll and other employee related expenses as a result of the strategy to continue to grow by implementing three business initiatives: implement key accounts approach (China and Asia); accelerate the penetration in the farm and grow-out segment; and gain a market leading position in fish hatcheries (Asia).

Expensed R&D costs were £1.3m and capitalised R&D was £0.7m reflecting increased investment for supporting the above growth initiatives.

 

Breeding and Genetics division

 

Summary Income Statement

£m

2016

2015

Revenue

20.7

15.9

Cost of Sales

(13.5)

(9.9)

Gross Profit

7.2

6.0

Operating expenses relating to Trading Activities

(3.6)

(1.3)

EBITDA (from Trading Activities)

3.6

4.7

Operating costs relating to Investing Activities

(4.6)

(0.2)

Depreciation and amortisation

(2.6)

(1.3)

Operating loss

(3.6)

3.1

 

The Breeding and Genetics division experienced difficult trading conditions for sales of salmon eggs in the year as a result of the closure of the Chilean border to Icelandic eggs at the start of the year, lower stocking in the Chilean industry in response to environmental challenges.  The revenues lost as a result of these factors were offset by the impact of a full year's trade, and overall, revenues for the division increased to £20.7m (2015: £15.9m).  The integration of the division's Tilapia breeding business, Spring Genetics, was completed and its sales grew from £0.2m to £0.5m. The division's aquaculture genetics advisory business, AFGC, achieved growth in revenue of £1.4m. The addition of shrimp breeding through the acquisition of Genética Spring in August 2016 had limited impact on the division's results for the year. 

 

EBITDA from Trading Activities fell by £1.0m to £3.6m (2015: £4.6m).

Animal Health division

 

Summary Income Statement

£m

2016

2015

Revenue

24.8

21.1

Cost of Sales

(15.0)

(14.5)

Gross Profit

9.8

6.6

Operating costs relating to Trading Activities

(5.4)

(4.4)

EBITDA (from Trading Activities)

4.5

2.1

Operating costs relating to Investing Activities

(8.9)

(6.2)

Depreciation and amortisation

(1.5)

(1.9)

Operating loss

(6.0)

(6.0)

 

The division's pipeline of new technologies and products remains its key focus, and first sales of a new Nodavirus vaccine for seabass were made in July 2016.

The Animal Health division achieved significant improvement in year on year sales of Salmosan / Byelice with total revenue up on last year by 18%.  2015 sales were impacted by generic competition and the 2016 recovery is as a result of targeted sales activity by Benchmark's technical team.  It should be noted that demand for Salmosan is expected to reduce over time as the product continues through its life cycle, as a result of generic competition and as new solutions to the sea lice challenge become available to the industry.  EBITDA from Trading Activities for the division was a profit of £4.5m (2015: £2.1m). 

Expensed R&D costs (including amortisation and depreciation of acquired R&D assets) of £8.7m have been invested in the product pipeline in the period (2015: £5.5m).  This year for the first time the criteria for capitalising development costs have been met and £0.8m has been capitalised in respect of new products which are in the trial stages.

 

Technical Publishing and Sustainability Science divisions

 

Summary Income Statement

£m

2016

2015

Revenue

11.2

10.1

Cost of Sales

(7.0)

(6.9)

Gross Profit

4.2

3.2

Operating costs relating to Trading Activities

(4.0)

(3.4)

EBITDA from Trading Activities

0.2

(0.2)

Operating costs relating to Investing Activities

(1.6)

(0.2)

Depreciation and amortisation

(1.0)

(1.0)

Operating loss

(2.4)

(1.4)

The knowledge services divisions of Benchmark had a solid year following internal reorganisation and delivered sales of £11.2m (2015: £10.1m) and EBITDA from Trading Activities of £0.2m (2015: EBITDA loss of £0.2m).

 

Consolidated Income Statement

for the year ended 30 September 2016

 



Trading Activities¹

Investing Activities²

Total

Trading Activities¹

Investing Activities²

Total



2016

2016

2016

2015

2015

2015


Note

£000

£000

£000

£000

£000

£000









Revenue


109,375

-

109,375

44,199

-

44,199

Cost of sales


(58,562)

-

(58,562)

(28,102)

-

(28,102)

Gross profit


50,813

-

50,813

16,097

-

16,097

Operating costs


(28,502)

(26,028)

(54,530)

(13,674)

(9,494)

(23,168)

Operating costs - Exceptional


-

(146)

(146)

-

(160)

(160)









EBITDA³


22,311

(26,174)

(3,863)

2,423

(9,654)

(7,231)

Depreciation

6

(2,609)

(250)

(2,859)

(1,113)

(191)

(1,304)

Amortisation

7

(13,504)

(245)

(13,749)

(2,825)

(239)

(3,064)

Operating profit / (loss)


6,198

(26,669)

(20,471)

(1,515)

(10,084)

(11,599)

Finance costs


(6,170)

-

(6,170)

(34)

-

(34)

Finance income


3,984

-

3,984

260

14

274

Share of profit of equity-accounted investees, net of tax


273

-

273

-

-

-

Profit / (loss) on ordinary activities before taxation


4,285

(26,669)

(22,384)

(1,289)

(10,070)

(11,359)

Tax on profit/(loss) on ordinary activities


3,187

851

4,038

(751)

355

(396)

Profit / (loss) for the year


7,472

(25,818)

(18,346)

(2,040)

(9,715)

(11,755)









Profit / (loss) for the year attributable to:








-       Owners of the parent


7,481

(25,818)

(18,337)

(2,273)

(9,715)

(11,988)

-       Non-controlling interest


(9)

-

(9)

233

-

233











7,472

(25,818)

(18,346)

(2,040)

(9,715)

(11,755)









Basic earnings / (loss) per share (pence)

4

               1.79


(4.39)

(1.13)


(5.96)









Diluted earnings / (loss) per share (pence)

4

1.78


(4.39)

(1.13)


(5.96)

 

1 Before items described in footnote 2 below

2 Includes exceptional items, research and development expenditure, pre-operational expenses for new ventures and costs of acquiring new businesses as set out in note 11.

3 EBITDA - Earnings before interest, tax, depreciation and amortisation



 

Consolidated Statement of Comprehensive Income



for the year ended 30 September 2016



 


Trading Activities¹

Investing Activities²

Total

Trading Activities¹

Investing Activities²

Total


2016

2016

2016

2015

2015

2015


£000

£000

£000

£000

£000

£000








Profit/(loss) for the year

7,472

(25,818)

(18,346)

(2,040)

(9,715)

(11,755)








Other comprehensive income/(expense)







Items that are or may be reclassified subsequently to profit or loss







Movement on foreign exchange reserve

48,386

-

48,386

(2,812)

-

(2,812)








Total comprehensive income/(expense) for the year

55,858

(25,818)

30,040

(4,852)

(9,715)

(14,567)








Total comprehensive income/(expense) for the year attributable to:







-       Owners of the parent

55,571

(25,818)

29,753

(5,071)

(9,715)

(14,786)

-       Non-controlling interest

287

-

287

219

-

219









55,858

(25,818)

30,040

(4,852)

(9,715)

(14,567)

 

1 Before items described in footnote 2 below.

2 Includes exceptional items, research and development expenditure, pre-operational expenses for new ventures and costs of acquiring new businesses as set out in note 11.


Consolidated Balance Sheet

as at 30 September 2016



2016

2015


Notes

£000

£000

Assets




Non-current assets




Property, plant and equipment

6

50,023

25,141

Intangible assets

7

352,538

65,872

Investments, including associates


827

147

Trade and other receivables


-

293

Biological and agricultural assets

8

5,028

3,392

Total non-current assets


408,416

94,845





Current assets




Inventories


23,231

5,359

Biological and agricultural assets

8

6,831

4,948

Trade and other receivables


34,288

15,353

Cash and cash equivalents


38,140

13,564

Total current assets


102,490

39,224





Total assets


510,906

134,069





Liabilities




Current liabilities




Trade and other payables


(31,232)

(24,368)

Loans and borrowings

9

(289)

(63)

Corporation tax liability


(1,107)

(860)

Provisions


(1,086)

(1,033)

Total current liabilities


(33,714)

(26,324)





Non-current liabilities




Loans and borrowings

9

(37,407)

(93)

Other payables


(8,825)

(7,330)

Deferred tax


(63,261)

(8,224)

Total non-current liabilities


(109,493)

(15,647)





Total liabilities


(143,207)

(41,971)





Net assets


367,699

92,098





Issued capital and reserves attributable to owners of the parent




Share capital

10

521

219

Share premium reserve

10

339,431

94,672

Capital redemption reserve


5

5

Retained earnings


(18,904)

(1,021)

Foreign exchange reserve


45,365

(2,724)

Equity attributable to owners of the parent


366,418

91,151

Non-controlling interest


1,281

947





Total equity and reserves


367,699

92,098

 

 


Consolidated Statement of Changes in Equity

for the year ended 30 September 2016

 


 Share
capital

 Share
premium
reserve

 Other
reserves

 Retained
  earnings

 Total attributable
 to equity holders of
parent

 Non-
controlling
interest

 Total
equity


 £000

 £000

 £000

 £000

 £000

 £000

 £000









As at 1 October 2014

137

26,903

79

10,123

37,242

10

37,252









Comprehensive income for the year








(Loss)/profit for the year

-

-

-

(11,988)

(11,988)

233

(11,755)

Other comprehensive income

-

-

(2,798)


(2,798)

(14)

(2,812)

Total comprehensive income for the year

-

-

(2,798)

(11,988)

(14,786)

219

(14,567)









Contributions by and distributions to owners








Share issue

82

69,918

-

-

70,000

-

70,000

Share issue costs recognised through equity

-

(2,149)

-

-

(2,149)

-

(2,149)

Share based payment

-

-

-

748

748

-

748

Deferred tax on share options

-

-

-

96

96

-

96

Acquisition of non-controlling interest

-

-

-

-

-

718

718

Total contributions by and distributions to owners

82

67,769

-

844

68,695

718

69,413









As at 30 September 2015

219

94,672

(2,719)

(1,021)

91,151

947

92,098









Comprehensive income for the year








Loss for the year

-

-

-

(18,337)

(18,337)

(9)

(18,346)

Other comprehensive income

-

-

48,089

-

48,089

297

48,386

Total comprehensive income for the year

-

-

48,089

(18,337)

29,752

288

30,040









Contributions by and distributions to owners








Share issue

302

249,444

-

-

249,746

-

249,746

Share issue costs recognised through equity

-

(4,685)

-

-

(4,685)

-

(4,685)

Share based payment

-

-

-

749

749

-

749

Deferred tax on share options

-

-

-

(295)

(295)

-

(295)

Total contributions by and distributions to owners

302

244,759

-

454

245,515

-

245,515









Changes in ownership








Acquisition of subsidiary with non-controlling interests

-

-

-

-

-

46

46

Total changes in ownership interests

-

-

-

-

-

46

46

Total transactions with owners of the Company

302

244,759

-

454

245,515

46

245,561









As at 30 September 2016

521

339,431

45,370

(18,904)

366,418

1,281

367,699


Consolidated Statement of Cash Flows

for the year ended 30 September 2016

 



2016

2015


Notes

£000

£000

 


1.    Basis of preparation

The results for the year ended 30 September 2016, including comparative financial information, have been prepared in accordance with International Financial Reporting Standards ("IFRS"), and their interpretations adopted by the European Union.

Benchmark Holdings plc ("the Company") has adopted all IFRS in issue and effective for the year.  While the financial information included in this preliminary announcement has been prepared in accordance with the recognition and measurement criteria of IFRS, this announcement does not itself contain sufficient information to comply with IFRS.  The Company expects to publish full financial statements that comply with IFRS in January 2017.

The financial information set out above does not constitute the Company's statutory accounts for the years ended 30 September 2016 or 2015, but is derived from those accounts.  Statutory accounts for 2015 have been delivered to the Registrar of Companies.  The auditors have reported on those accounts: their reports were unqualified, did not draw attention to any matters by way of emphasis and did not contain statements under s498 (2) or (3) of the Companies Act 2006.  The accounts for 2016 will be delivered following the Company's AGM.

The financial information presented in respect of the year ended 30 September 2016 has been prepared on a basis consistent with that presented in the annual report for the year ended 30 September 2015.

2.    Accounting policies

The accounting policies adopted are consistent with those of the financial year ended 30 September 2015.

The Group has acquired businesses during the period whose accounting policies were not included in the accounts for the financial year ended 30 September 2015.  The accounting policies for these new entities are consistent with those already applied for the existing group.

Trading Activities and Investing Activities are disclosed and described separately in this preliminary announcement where it is necessary to do so to provide further understanding of the financial performance of the Group.

As a result of business combinations outlined in note 12, the Group has acquired new intangibles during the period which have been capitalised within intangible fixed assets.  The accounting policy in respect of intangible assets has been updated in the financial statements for the year ending 30 September 2016 to reflect the differing asset lives of these newly acquired assets.  Following these acquisitions, the significant intangibles recognised by the Group, their useful economic lives and the methods used to determine the cost of intangibles acquired in a business combination are as follows:

Intangible asset

Useful economic life

Valuation method

Websites

5 years

Assessment of estimated revenues and profits

Patents

2-5 years

Cost to acquire

Trademarks

2-5 years

Cost to acquire

Contracts

3-20 years

Assessment of estimated revenues and profits

Licences

3-20 years

Cost to acquire, or if not separately identifiable, assessment of estimated revenues and profits

Intellectual property

Up to 20 years

Cost to acquire, or if not separately identifiable, assessment of estimated revenues and profits

Customer lists

Up to 26 years

Assessment of estimated revenues and profits

Genetic material and breeding nuclei

10-40 years

Cost to acquire, or if not separately identifiable, assessment of estimated revenues and profits

Development costs

Up to 10 years

Cost to acquire

 

3.    Segment information

Operating segments are reported in a manner consistent with the reports made to the chief operating decision maker. It is considered that the role of chief operating decision maker is performed by the Board of Directors.

 

The Group operates globally and for management purposes is organised into reportable segments as follows:

 

·     Animal Health Division - provides veterinary services, environmental services diagnostics and animal health products to global aquaculture, and manufactures licenced veterinary vaccines and vaccine components;

·     Breeding and Genetics Division - harnesses industry leading salmon breeding technologies combined with state-of-the-art production facilities to provide a range of year-round high genetic merit ova;

·     Advanced Animal Nutrition -  manufactures and provides technically advanced nutrition and health products to the global aquaculture industry;

·     Corporate - the corporate segment represents revenues earned from recharging certain central costs to the operating divisions, together with unallocated central costs.

 

In addition to the above, reported together as "all other segments" are the following divisions, the results of which are not significant on an individual basis:

 

·     Sustainability Science Division - provides sustainable food production consultancy, technical consultancy and assurance services;

·     Technical Publishing Division - promotes sustainable food production and ethics through online news and technical publications for the international agriculture and food processing sectors and through delivery of training courses to the industries.

 

Measurement of operating segment profit or loss

The Group separates its operations into Trading Activities and Investing Activities to report segmental performance. These measures are used by management for planning and reporting purposes. These measures are not defined in International Financial Reporting Standards and may not be comparable with similarly described measures used by other companies. Trading and Investing Activities are described further in note 11.

Inter-segment sales are priced along the same lines as sales to external customers, with an appropriate discount being applied to encourage use of Group resources at a rate acceptable to local tax authorities.  This policy was applied consistently throughout the current and prior period.

 



















Gross profit/(loss)


9,802

7,194

28,507

4,210

2,064

(964)

50,813

Operating costs relating to Trading Activities


(5,352)

(3,553)

(11,382)

(4,049)

(4,317)

151

(28,502)










EBITDA from Trading Activities


4,450

3,641

17,125

161

(2,253)

(813)

22,311

Investing Activities:









R&D expenditure


(8,258)

(2,195)

(1,341)

-

-

74

(11,720)

Pre-operational expenses


(414)

(61)

80

(1,550)

-

582

(1,363)

Adjusted EBITDA


(4,222)

1,385

15,864

(1,389)

(2,253)

(157)

9,228

Acquisition-related (expenses)/ income


(257)

(2,387)

2

-

(10,317)

14

(12,945)

Exceptional items


-

-

-

(146)

-

-

(146)










EBITDA


(4,479)

(1,002)

15,866

(1,535)

(12,570)

(143)

(3,863)

Depreciation


(721)

(796)

(1,016)

(271)

(55)

-

(2,859)

Amortisation


(792)

(1,850)

(10,369)

(738)

-

-

(13,749)

Operating profit/(loss)


(5,992)

(3,648)

4,481

(2,544)

(12,625)

(143)

(20,471)

Finance costs








(6,170)

Finance income








3,984

Share of profit of equity-accounted investees, net of tax








273

Group loss before tax








(22,384)

Year ended 30 September 2015


Animal Health

Breeding and Genetics

Advanced Animal Nutrition

All other segments

Corporate

Inter-segment sales

Total



£000

£000

£000

£000

£000

£000

£000










Revenue


21,098

15,871

-

10,101

2,271

(5,142)

44,199

Cost of sales


(14,524)

(9,912)

-

(6,906)

(1,463)

4,703

(28,102)










Gross profit/(loss)


6,574

5,959

-

3,195

808

(439)

16,097

Operating costs relating to Trading Activities


(4,445)

(1,339)

-

(3,405)

(4,924)

439

(13,674)










EBITDA from Trading Activities


2,129

4,620

-

(210)

(4,116)

-

2,423

Investing Activities:









R&D expenditure


(5,199)

(1,396)

-

-

-

-

(6,595)

Pre-operational expenses


(887)

-

-

(649)

(29)

-

(1,565)

Adjusted EBITDA


(3,957)

3,224

-

(859)

(4,145)

-

(5,737)

Acquisition-related (expenses)/ income


(65)

1,163

-

(18)

(2,414)

-

(1,334)

Exceptional items


-

(1)

-

509

(668)

-

(160)










EBITDA


(4,022)

4,386

-

(368)

(7,227)

-

(7,231)

Depreciation


(653)

(406)

-

(192)

(53)

-

(1,304)

Amortisation


(1,251)

(928)

-

(885)

-

-

(3,064)

Operating profit/(loss)


(5,926)

3,052

-

(1,445)

(7,280)

-

(11,599)

Finance costs








(34)

Finance income








274

Group loss before tax


(11,359)

 

4.    Earnings/loss per share

Basic earnings/loss per share is calculated by dividing the profit or loss attributable to ordinary equity holders of the Company by the weighted average number of ordinary shares in issue during the period.


2016

2015

 

Diluted loss/earnings per share is calculated by adjusting the weighted average number of ordinary shares outstanding to assume conversion of all dilutive potential ordinary shares. This is done by calculating the number of shares that could have been acquired at fair value (determined as the average market price of the Company's shares since admission to AIM) based on the monetary value of the subscription rights attached to outstanding share options and warrants.

Therefore, the Company is required to adjust the earnings/loss per share calculation in relation to the share options that are in issue under the Company's share based incentive schemes as follows:


2016

2015

 

A total of 5,891,889 potential ordinary shares have not been included within the calculation of statutory diluted earnings/loss per share for the year (2015: 2,401,186) as they are anti-dilutive. However, these potential ordinary shares could dilute earnings/loss per share in the future.

Earnings/loss per share from Trading Activities

Net profit/loss attributable to equity shareholders has been adjusted to exclude exceptional items and other operating costs relating to Investing Activities as disclosed in note 11.


2016

2015




Profit/(Loss) from Trading Activities attributable to equity holders of the parent (£000)

7,481

(2,273)

Weighted average number of shares in issue (thousands)

417,952

201,280

Earning/(Loss) per share from Trading Activities (pence)

1.79

(1.13)




 

Diluted earnings/loss per share from Trading Activities were as follows:


2016

2015

 




 

Profit/(Loss) from Trading Activities attributable to equity holders of the parent (£000)

7,481

(2,273)

 

Weighted average number of shares in issue (thousands)

419,600

201,280

 

Diluted earnings/(loss) per share from Trading Activities (pence)

1.78

(1.13)

 




 

5.    Net finance costs/(income)



2016

2015

 



£000

£000

 

Interest received on bank deposits

Foreign exchange gains on financing activities


254

3,730

274

-

 

Finance income


3,984

274

 





 

Finance leases (interest portion)

Foreign exchange losses on financing activities


(16)

(4,978)

(3)

-

 

Interest expense on financial liabilities measured at amortised cost


(1,176)

(31)

 

Finance costs


(6,170)

(34)

 

Net finance (costs)/income recognised in profit or loss


(2,186)

240

 

 

The foreign exchange gains of £3,730,000 were made on a foreign currency hedging instrument entered into to fix the exchange rate for the US Dollar consideration paid on the acquisition of INVE Aquaculture B.V.

 

6.    Property, plant and equipment

 


Freehold Land and Buildings

Assets in the course of construction

Long Term Leasehold Property Improve-ments

Plant and Machinery

E commerce Infra-structure

Office Equipment and Fixtures

Total


£000

£000

£000

£000

£000

£000

£000

Cost








Balance at 30 September 2015

5,630

11,092

2,721

7,557

204

990

28,194









Balance at 30 September 2016

12,448

21,807

4,847

15,512

247

1,136

55,997









Accumulated Depreciation








Balance at 30 September 2015

175

-

451

1,780

178

469

3,053









Balance at 30 September 2016

956

-

916

3,601

242

259

5,974









Net book value








At 30 September 2016

11,492

21,807

3,931

11,911

5

877

50,023

At 30 September 2015

5,455

11,092

2,270

5,777

26

521

25,141

At 1 October 2014

728

142

2,381

3,389

59

543

7,242

 

7.    Intangible assets


Websites

Goodwill

Patents and Trademarks

Intellectual Property

Customer Lists

Contracts

Licences

Genetics

Development costs

Total


£000

£000

£000

£000

£000

£000

£000

£000

£000

£000

 Cost or valuation











 Balance at 1 October 2014

517

2,701

590

1,678

-

1,835

3,190

-

-

10,511

 Additions - on acquisition

-

27,931

-

3,074

1,327

7,223

2,675

22,121

-

64,351

 Additions - externally acquired

-

-

119

-

-

-

-

-

-

119

 Exchange differences

-

(930)

-

(15)

-

(534)

(41)

(1,865)

-

(3,385)

 Balance at 30 September 2015

517

29,702

709

4,737

1,327

8,524

5,824

20,256

-

71,596












 Balance at 1 October 2015

517

29,702

709

4,737

1,327

8,524

5,824

20,256

-

71,596

 Additions - on acquisition

-

103,137

208

117,019

4,789

-

25,562

601

-

251,316

 Additions - externally acquired

44

-

30

9

-

-

-

-

-

83

 Additions - internally developed

-

-

-

-

-

-

-

-

1,440

1,440

 Disposals

-

(345)

-

-

-

-

-

-

-

(345)

 Exchange differences

-

20,690

128

16,625

667

1,124

4,192

5,332

-

48,758

 Balance at 30 September 2016

561

153,184

1,075

138,390

6,783

9,648

35,578

26,189

1,440

372,848












 Accumulated amortisation and impairment











 Balance at 1 October 2014

459

273

388

-

-

1,087

483

-

-

2,690

 Amortisation charge for the period

56

-

61

261

133

1,369

454

385

-

2,719

 Impairment

-

345

-

-

-

-

-

-

-

345

 Exchange differences

-

-

-

-

-

(25)

-

(5)

-

(30)

 Balance at 30 September 2015

515

618

449

261

133

2,431

937

380

-

5,724












 Balance at 1 October 2015

515

618

449

261

133

2,431

937

380

-

5,724

 Amortisation charge for the period

3

-

84

9,488

349

1,452

1,797

576

-

13,749

 Disposals

-

(345)

-

-

-

-

-

-

-

(345)

 Exchange differences

-

6

74

541

9

240

124

188

-

1,182

 Balance at 30 September 2016

518

279

607

10,290

491

4,123

2,858

1,144

-

20,310












 Net book value











 At 30 September 2016

43

152,905

468

128,100

6,292

5,525

32,720

25,045

1,440

352,538

 At 30 September 2015

2

29,084

260

4,476

1,194

6,093

4,887

19,876

-

65,872

 At 1 October 2014

58

2,428

202

1,678

-

748

2,707

-

-

7,821

 

Additions relating to business combinations in the year are detailed in note 12.

 

8.    Biological assets

 


2016

2015


£000

£000

Organic sheep

262

223

Organic beef

244

202

Organic pigs

-

2

Organic hens

23

-

Broodstock, eggs and fingerlings

11,330

7,913

Total biological assets

11,859

8,340

Less: non current broodstock

(5,028)

(3,392)

Total current biological assets

6,831

4,948

 

Livestock

The Group operates a commercial and research farming and technology transfer business, and at 30 September 2016 held 3,269 (2015: 2,992) head of sheep, 447 (2015: 246) head of cattle, nil (2015: 27) pigs and 6,940 (2015: nil) hens. The Group had farming sales of £358,000 in the year ended 30 September 2016 (2015: £310,000).

The Group is exposed to financial risks arising from changes in the market value of farm animals. The Group does not anticipate that prices will decline significantly in the foreseeable future and, therefore, has not entered into derivative or other contracts to manage the risk of a decline in livestock price. The Group reviews its outlook for livestock prices regularly in considering the need for active financial risk management.

 

Broodstock, eggs and fingerlings

 


Salmon Broodstock

Salmon eggs

Salmon  fingerlings

Lumpfish eggs and fingerlings

Tilapia

Total


£000

£000

£000

£000

£000

£000

Biological assets 1 October 2015

5,636

1,485

350

369

73

7,913

Increase due to production / purchase

3,832

303

763

483

203

5,584

Due to physical changes

(2,879)

15,136

(221)

-

-

12,036

Foreign exchange movements

1,685

444

29

110

-

2,268

Reduction due to sales / discarding of stock

-

(15,001)

(626)

(577)

(225)

(16,429)

Fair value adjustments

(690)

(3)

-

642

9

(42)

Biological assets 30 September 2016

7,584

2,364

295

1,027

60

11,330








Broodstock, eggs and fingerlings - non current

5,028

-

-

-

-

5,028

Broodstock, eggs and fingerlings - current

2,556

2,364

295

1,027

60

6,302


7,584

2,364

295

1,027

60

11,330

 

Assumptions used for determining fair value of broodstock, eggs and fingerlings

IAS41 requires that biological assets are accounted for at the estimated fair value net of selling and harvesting costs.  Fair value is measured in accordance with IFRS13 and is categorised into level 3 in the fair value hierarchy as the inputs include unobservable inputs in the valuation of broodstock, eggs and fingerlings for which there are no published market data available.

The calculation of the estimated fair value of salmon broodstock is primarily based upon its main harvest output being salmon eggs, which are priced upon our current seasonally adjusted selling prices for salmon eggs.  These prices are reduced for harvesting costs, freight costs, incubation costs and market capacity to arrive at the net value of broodstock.  The valuation also reflects the internally generated data to arrive at the biomass. This includes the weight of the broodstock, the yield that each kilogram of fish will produce and mortality rates. The fish take approximately four years to reach maturity, and so the fair value of the age and biomass of the fish is reflected in a discount to the gross biomass to reflect the progress to maturity.

The calculation of the fair value of the salmon eggs is based upon the current seasonally adjusted selling prices for salmon eggs less transport and incubation costs, and taking account of the market capacity. The valuation also takes account of the mortality rates of the eggs and expected life as sourced from internally generated data.

The calculation of the fair value of the salmon and lumpfish fingerlings is valued on current selling prices less transport costs. Internally generated data is used to incorporate mortality rates and the weight of the fish.

The lumpfish eggs are valued at cost. Internally generated data is used to calculate mortality rates.

The valuation models by their nature are based upon uncertain assumptions on sales prices, market capacity, weight, mortality rates, yields and assessment of the discounts to reflect the stages of maturity. The Group has a degree of expertise in these assumptions but these assumptions are subject to change. Relatively small changes in assumptions would have a significant impact on the valuation.  A 1% increase/decrease in assumed selling price would increase/decrease the fair value of biological assets by £119,000.

Total quantities held at 30 September were:


2016

2015

Salmon broodstock         and fingerlings

557 tonnes

452 tonnes

Lumpfish fingerlings

1.5m units

1.4m units

Salmon eggs

23.6m units

16.5m units

 

9.    Loans and borrowings

2016

2015

 


£000

£000



37,133

-

60

60

Finance lease creditor

214

33

 




 


37,407

93



Finance lease creditor

289

63

 




 


289

63

 




Total loans and borrowings

37,696

156

 

On 30 December 2015, the Group completed the acquisition of the Inve Aquaculture Group and on the same day entered into new borrowing facilities consisting of a five-year revolving credit facility of up to $70,000,000 secured on the assets of the parent company, UK subsidiary companies and certain overseas subsidiary companies. At 30 September 2016, $50,000,000 was drawn down on the facility. The interest rate on the facility is between 1.9% and 2.5% above LIBOR depending on leverage. The finance lease liabilities are secured on the assets to which they relate.

 

10.  Share capital and share premium


 

            Share Capital

Share premium

Allotted, called up and fully paid

Number

£000

£000





Ordinary shares of 0.1 penny each




Balance at 30 September 2014

136,977,095

137

26,903

Shares issued to fund the acquisition of Salmobreed and Stofnfiskur

82,353,000

82

69,918

Share issue costs recognised through equity

-

-

(2,149)

Exercise of share options

19,430

-

-









Balance at 30 September 2015

219,349,525

219

94,672

Shares placed to fund the acquisition of INVE

215,922,141

216

185,477

Shares issued as consideration for the acquisition of INVE

38,635,671

39

33,188

Exercise of share options

50,742

-

-

Shares issued to management

110,873

-

95

Placing shares to fund investments in joint ventures and capital projects

47,279,127

47

30,684

Share issue costs recognised through equity

-

-

(4,685)





Balance at 30 September 2016

521,348,079

521

339,431

 

On 19 December 2014, the Company issued 82,353,000 shares of 0.1p each at a price of 85p per share to fund the acquisition of the entire share capital of Salmobreed AS and 89.45 per cent of the issued share capital of Stofnfiskur HF.

 

On 30 December 2015, the Company issued 215,922,141 shares of 0.1p each at a price of 86p per share to fund the acquisition of INVE Aquaculture Holdings B.V. In addition, on 31 December 2015, the Company issued 38,635,671 shares of 0.1p each at 86p as part consideration for the acquisition. Non-recurring costs of £4.4 million were incurred in relation to the share placing and this has been charged to the share premium account.

 

On 2 March 2016, the Company issued a total of 50,742 shares of 0.1p each to 6 employees of the Group relating to share options granted in August 2013 and March 2015.

 

On 20 April 2016, the Company issued a total of 110,873 shares of 0.1p each at a price of 86p per share to certain managers of INVE Aquaculture Holdings B.V.

 

On 4 August 2016, the Company placed 47,279,127 shares of 0.1p each at a price of 65p per share to fund investment in certain strategic joint ventures and capital projects. Non-recurring costs of £0.2 million were incurred in relation to the share placing and this has been charged to the share premium account.

 

Employee share option scheme

The Company introduced an employee share option scheme in 2010.  The options existing immediately before admission to trading on AIM on 18 December 2013 were subdivided into equivalent options over the new 0.1p ordinary shares.  At the year end, options exist over 5,257,431 (2015: 2,401,186) 0.1p ordinary shares in the Company and the exercise price is the nominal value of 0.1p per share.

 

Members of the scheme can exercise the options at any point from the third anniversary of the option grant date until the options lapse on the tenth anniversary of the option grant date. Options cannot be exercised after the option holder ceases to hold employment with any member of the Group.

 

11.  Trading and Investing Activities

The Group separates its operations into Trading Activities and Investing Activities in order to report the performance of its business. Trading Activities are those operations which generate earnings in the current period. Investing Activities are those activities which have no associated income stream in the current period, but which are intended to provide the Group with income generating operations in future periods. These measures are used by management for planning and reporting purposes and in discussions with and presentations to investment analysts and are defined below. These measures are not defined in International Financial Reporting Standards and may not be comparable with similarly described measures used by other companies.

 

In arriving at Trading Activities, the following Investing Activities are excluded from reported results:

 

-    exceptional costs of a non-recurring nature

-    costs of acquiring new businesses outlined in note 11

-    pre-operational expenses for new ventures

-    expenditure on research and development

 

A reconciliation of reported earnings to earnings from Trading Activities is shown below.

 

Reconciliation of Reported Earnings to Earnings from Trading Activities - year ended 30 September 2016



Investing Activities



Year ended 30 September 2016

Exceptional Items

Acquisition related costs

Pre-operational expenses for new ventures

R&D expenditure

Trading Activities


£000

£000

£000

£000

£000

£000








Revenue

109,375

-

-

-

-

109,375

Cost of sales

(58,562)

-

-

-

-

(58,562)

Gross profit

50,813

-

-

-

-

50,813

Operating costs

(54,676)

146

12,945

1,363

11,720

(28,502)

EBITDA

(3,863)

146

12,945

1,363

11,720

22,311

Depreciation

(2,859)

-

-

-

250

(2,609)

Amortisation

(13,749)

-

-

-

245

(13,504)

Operating (loss)/profit

(20,471)

146

12,945

1,363

12,215

6,198

Finance costs

(6,170)

-

-

-

-

(6,170)

Finance income

3,984

-

-

-

-

3,984

Share of profit of equity-accounted investees, net of tax

273

-

-

-

-

273

 (Loss)/profit on ordinary activities before taxation

(22,384)

146

12,945

1,363

12,215

4,285

Tax on (loss) / profit on ordinary activities

4,038

-

-

-

(851)

3,187

(Loss)/profit for the period

(18,346)

146

12,945

1,363

11,364

7,472

(Loss)/earnings per share (pence)

(4.39)

                 0.03

                 3.10

                 0.33

                 2.72

              1.79

Weighted average number of shares (thousands)

417,952

417,952

417,952

417,952

417,952

417,952

 

Reconciliation of Reported Earnings to Earnings from Trading Activities - year ended 30 September 2015

 

 

 

 

 



Investing Activities



Year ended 30 September 2015

Exceptional Items

Acquisition related costs

Pre-operational expenses for new ventures

R&D expenditure

Trading Activities


£000

£000

£000

£000

£000

£000








Revenue

44,199

-

-

-

-

44,199

Cost of sales

(28,102)

-

-

-

-

(28,102)

Gross profit

16,097

-

-

-

-

16,097

Operating costs

(23,328)

160

1,334

1,565

6,595

(13,674)

EBITDA

(7,231)

160

1,334

1,565

6,595

2,423

Depreciation

(1,304)

-

-

118

73

(1,113)

Amortisation

(3,064)

-

-

-

239

(2,825)

Operating (loss)/profit

(11,599)

160

1,334

1,683

6,907

(1,515)

Finance costs

(34)

-

-

-

-

(34)

Finance income

274

-

-

(2)

(12)

260

Loss on ordinary activities before taxation

(11,359)

160

1,334

1,681

6,895

(1,289)

Tax on loss on ordinary activities

(396)

-

-

(4)

(351)

(751)

(Loss)/profit for the period

(11,755)

160

1,334

1,677

6,544

(2,040)

Loss per share (pence)

(5.96)

                 0.08

                 0.66

                 0.83

                 3.26

(1.13)

Weighted average number of shares (thousands)

201,280

201,280

201,280

201,280

201,280

201,280

 

12.  Business Combinations

During the year the following business combinations occurred:

 

On 30 December 2015, Benchmark Holdings plc completed the acquisition of 100% of INVE Aquaculture Holding B.V. ("INVE"), a leading specialist manufacturer of primary stage technically advanced nutrition and health products for aquaculture, for a total consideration of $342 million (approximately £230.7 million).

 

The Directors identified a strong strategic rationale for the acquisition.  INVE's leadership in speciality aquaculture nutrition market is complementary to Benchmark's position in genetics and health.  The acquired business complements Benchmark's existing expertise and operations within aquaculture and the enlarged group will become a leading global provider of technology for sustainable food production, with a strong focus on the aquaculture sector, benefiting from immediate scale in advanced aquaculture nutrition and health products, enhanced sales, marketing and distribution network and the opportunity for cross selling and new product development.  The acquisition created the Advanced Animal Nutrition Division.

 

In view of the size of the acquisition relative to the Group, the transaction was classified as a reverse takeover under the AIM rules.  For accounting purposes, Benchmark Holdings plc has been identified as the acquirer and the transaction has been accounted for using the acquisition method.  This is because Benchmark Holdings plc has obtained control over the operations of INVE as a result of the transaction.

 

Certain intangible assets have been separately identified and provisionally valued as shown in the table below. Related deferred tax has also been provided. The goodwill arising on the acquisition represents the synergies available from combining the two businesses, and the skills and technical talent of the INVE workforce.

 

On 11 August 2016, the group acquired control over aquaculture breeding programmes previously owned and operated by Centro de Investigación de la Acuicultura de Colombia Ceniacua through its wholly-owned subsidiary, Genética Spring S.A.S. ("Genética Spring") together with the related business, freehold land, buildings and assets, for a total consideration of $2.17m (£1.67m).  The acquisition added a third species, shrimp, to Benchmark's aquaculture breeding business in salmon and tilapia, and strengthened Benchmark's position in the fast-growing shrimp industry. 

 

Details of the fair value of the consideration paid and assets and liabilities assumed during the year are shown in the table below:


INVE Aquaculture Holdings B.V.

Genética Spring

Total


£000 

£000

£000

Consideration




Cost of investment

230,667

1,673

232,340





Satisfied by:




Cash

197,440

709

198,149

Deferred consideration

-

964

964

Equity

33,227

-

33,227

Total consideration

230,667

1,673

232,340





Fair value of assets acquired




Customer list

4,789

-

4,789

Patents and trademarks

208

-

208

Intellectual property

117,019

-

117,019

Contracts and Licences

25,562

-

25,562

Genetic Materials and Breeding Nuclei

-

601

601

Deferred tax on intangibles

(50,106)

-

(50,106)

Fixed assets

5,017

1,072

6,089

Investments

350

-

350

Inventories

16,686

-

16,686

Trade and other receivables

14,914

-

14,914

Cash and cash equivalents

6,647

-

6,647

Trade and other payables

(10,104)

-

(10,104)

Tax and social security

(2,373)

-

(2,373)

Loans and borrowings

(570)

-

(570)

Provisions

(291)

-

(291)

Total identifiable net assets

127,748

1,673

129,421

Goodwill

102,919

-

102,919

 

Measurement of fair values

The valuation techniques used for measuring the fair value of material assets acquired were as follows.

 

Assets acquired

Valuation technique

Property, plant and equipment

Market comparison technique and cost technique: The valuation model considers quoted market prices for similar items when they are available, and depreciated replacement cost when appropriate. Depreciated replacement cost reflects adjustments for physical deterioration as well as functional and economic obsolescence.

Intangible assets

 

Relief-from-royalty method and multi-period excess earnings method: The relief-from-royalty method considers the discounted estimated royalty payments that are expected to be avoided as a result of the patents or trademarks being owned. The multi-period excess earnings method considers the present value of net cash flows expected to be generated by the customer relationships, by excluding any cash flows related to contributory assets.

Inventories

 

Market comparison technique: The fair value is determined based on the estimated selling price in the ordinary course of business less the estimated costs of completion and sale, and a reasonable profit margin based on the effort required to complete and sell the inventories.

Other assets and liabilities

Management consider the fair value of other assets and liabilities to be equivalent to the purchase price, which was supported by an independent valuation.

 

The fair value of the ordinary shares issued was based on the listed share price of the Company at 30 December 2015 of £0.86 per share.

 

If new information obtained within one year of the date of acquisition about facts and circumstances that existed at the date of acquisition identifies adjustments to the above amounts, or any additional provisions that existed at the date of acquisition, then the accounting for the acquisition will be revised.

 

The Group incurred acquisition related costs of £9,504,000 in respect of INVE Aquaculture B.V. and £135,000 in respect of Genética Spring.

 

During the year INVE contributed £54,870,000 to the Group's revenue and increased EBITDA by £15,729,000 for the period.  The Genética Spring contributed £nil to the Group's revenue and decreased EBITDA by £61,000 for the period.  The table below shows the Group's pro-forma revenue and EBITDA if the acquisitions had taken place at the start of the period.



INVE Aquaculture Holdings B.V.

Genética Spring

Total


2016


£000 

£000 

£000 

£000 

Revenue

109,375

14,200

-

123,575

EBITDA

(3,863)

2,300

-

(1,563)

 


This information is provided by RNS
The company news service from the London Stock Exchange
 
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