Benchmark Holdings Plc — Interim / Quarterly Report 2021

Aug 24, 2021

Q3 Results (3 months ended 30 June 2021)-Strong quarter with continuing momentum and strong performance across all business areas

Q3 Results (3 months ended 30 June 2021)-Strong quarter with continuing momentum and strong performance across all business areas

Q3 Results

(3 months ended 30 June 2021)

Strong quarter with continuing momentum and strong performance across all business areas

Strategic milestone with successful launch of Ectosan® Vet and CleanTreat® post period

In compliance with the terms of the Company’s senior secured bond which requires it to publish quarterly financial information, Benchmark, the aquaculture biotechnology business, announces its unaudited results for the 3 months ended 30 June 2021 (the “period”). All Q3 FY21, Q3 FY20, YTD Q3 2021 and YTD Q3 2020 figures quoted in this announcement are based on unaudited accounts.

Highlights – strong Q3 2021 performance across all business areas and continuing momentum

• Revenues 17% ahead of the prior year (+25% CER) (continuing operations) with strong performance across all business areas:

o Genetics revenues 21% above Q3 2020 driven by higher sales of salmon eggs

o Advanced Nutrition revenues 15% above the prior year reflecting growth across all product lines and continuing its good performance

o Health revenues 20% above Q3 2020 benefitting from higher Salmosan sales

• Adjusted EBITDA more than doubled as a result of higher revenues, operational improvements and continuous cost control

• YTD Q3 2021, Group revenues were 9% higher than the prior year (+15% CER) and Adjusted EBITDA 26% ahead (38% CER) (continuing operations)

• Liquidity of c.£51m (cash and available facility) as at 23 August 2021

Operational highlights – launch of Ectosan® Vet (formerly BMK08) and CleanTreat® post period end; first sea lice treatments delivered successfully

• Post period end, the Group received Marketing Authorisation in Norway for Ectosan® Vet and the MRL (Maximum Residue Limit) was adopted into the Agreement of the European Economic Area, completing the regulatory steps for commercialisation. The first treatments were successfully delivered in August 2021. Ectosan® Vet is the first new sea lice medicine to come to market in more than a decade

• Good commercial and operational momentum in Advanced Nutrition continues with strong growth YoY

• Expansion projects for salmon and shrimp Genetics in Iceland, Fellsmere and Chile are progressing according to plan

• Continue to win new contracts for future delivery in the emerging land-based salmon segment

Market environment - Reopening of hospitality sector creates positive market outlook

• The gradual reopening of the hospitality sector creates a positive outlook for our end markets

• Conditions in the salmon industry are positive with recovery in prices after a drop related to Covid-19; demand growth continues to exceed global supply

• The shrimp market is recovering with potential to bounce back to pre-Covid-19 levels despite continued hardships due to the pandemic in certain markets

• The seabass and seabream market have substantially recovered

Current trading and Outlook

• The Group is trading in line with market expectations for the full year with good revenue visibility for the remainder of the year

• Looking forward to FY 2022, consistency in performance is expected to continue in Genetics and Advanced Nutrition, while Health starts benefitting from Ectosan® Vet and CleanTreat® revenue stream

Trond Williksen, CEO, commented:

“We are very pleased with the results and progress in Q3 2021 and the subsequent period. Our three business areas performed strongly, and we achieved a major strategic milestone with the successful commercial launch of Ectosan® Vet and CleanTreat®. We now have the basis to have three profitable business areas moving the Group closer to overall profitability.

There is good momentum in the business following the streamlining exercise conducted in 2020 and the adoption of a new commercial focus. Our end markets are gradually recovering from the impact of Covid-19, creating a positive environment for our business. All this provides confidence in our ability to deliver full year results in line with market expectations as well as progress in future years.”

Details of analyst / investor call today

There will be a call at 9:00am UK time today for analysts and investors. To register for the call please contact MHP Communications on +44 (0)20 3128 8990 or 8742, or by email on benchmark@mhpc.com

Enquiries

For further information, please contact:

Benchmark Holdings plc Tel: 020 3696 0630

Trond Williksen, CEO

Septima Maguire, CFO

Ivonne Cantu, Investor Relations

Numis (Broker and NOMAD) Tel: 020 7260 1000

James Black, Freddie Barnfield, Duncan Monteith

MHP Communications Tel: 020 3128 8990 / 8742

Katie Hunt, Reg Hoare, Alistair de Kare-Silver benchmark@mhpc.com

About Benchmark

Benchmark is a leading aquaculture biotechnology company. Benchmark's mission is to enable aquaculture producers to improve their sustainability and profitability.

We bring together biology and technology to develop innovative products and solutions 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), specialist diets and probiotics and sea lice treatments. Find out more at www.benchmarkplc.com

Management Report

We are very pleased with the Group’s performance in Q3 2021. Our three business areas delivered strong results, and we achieved a major strategic milestone post period end with the completion of all the regulatory steps required to commercialise Ectosan® Vet (previously code named BMK08) and CleanTreat® in Norway, our main target market for our new sea lice solution. The first sea lice treatments were delivered successfully in August 2021 generating the first commercial revenues from our new solution.

Group revenues from continuing operations for the quarter at £28.3m were 17% ahead of the prior year (+25% CER) reflecting good performance across all business areas. YTD group revenues from continuing operations were 9% higher than the prior year at £87.8m (+15% CER) (YTD Q3 2020 (restated): £80.3m). The drivers behind our results are outlined in the business area commentary below.

The continuing good performance in the year highlights the benefits of a streamlined organisation with a clear commercial focus. In addition, we have seen some recovery from Covid-19 in our end markets, particularly in shrimp, as Covid-19 restrictions ease and the hospitality sector reopens. While conditions in some shrimp producing countries including India remain difficult there is positive momentum and significant upside potential to reach pre Covid-19 levels. The salmon market remains stable with price recovery after a drop relating to Covid-19 and the Mediterranean sea bass/sea bream market has substantially recovered.

We maintain our disciplined approach to cost control, cash management and investment. Our goal is to maintain or improve the margins in our established business, while investing in the launch of new products including SPR shrimp, and in the expansion of our core areas such as salmon genetics. Operating expenses in Q3 2021 of £9.3m were 25% above the prior year and R&D expenses of £1.6m were up 27%. This expected increase is against a backdrop of significant savings in Q3 2020 when, in response to the Covid-19 pandemic, we implemented cost containment and temporary salary reductions for senior management and utilised government support schemes. Total R&D investment including capitalised development costs was £2.9m (Q3 2020: £2.6m). Total capex investment in the period of £7.8m (Q3 2020: £3.7m) and £17.1m YTD (YTD Q3 2020: £9.8m) includes investment in CleanTreat®, in our Advanced Nutrition facilities in Thailand and in the new incubation facility in Iceland.

Adjusted EBITDA from continuing operations for the quarter was 110% up at £4.4m against £2.1m in Q3 2020 as a result of higher revenues and ongoing cost control, partially offset by an increase in operating costs as activity normalises post Covid-19. YTD adjusted EBITDA at £12.4m was £2.6m, 27% up on the prior year (YTD Q3 2020 (restated): £9.8m).

We continued to make good progress in our strategic priorities which are aligned towards our goal of becoming the leading aquaculture biotechnology company delivering sustainable profitability.

Advanced Nutrition

Advanced Nutrition performed strongly in the quarter with growth across all product areas – Artemia, diets and health. The good performance is the result of a successful commercial programme to regain market share in Artemia and strengthen our position in diets and health, as well as recovering shrimp and seabass/seabream markets. Revenues of £18.4m in Q3 were 15% above the prior year (Q3 2020: £16.0m). YTD Q3 revenues of £53.4m were 13% above the prior year (YTD Q3 2020: £47.3m). Adjusted EBITDA in Q3 2021 was £3.9m (Q3 2020: £2.8m) and YTD Q3 Adjusted EBITDA was £10.2m, 64% above the prior year YTD (YTD Q3 2020: £6.2m). The increase in Adjusted EBITDA margin reflects higher sales, as well as growth in diets which have a higher margin and ongoing cost control.

By product, Artemia revenues were up 21%, Diets were up 27% and Health was up 56% in the quarter. YTD Q3, Artemia revenues were up 19% versus prior year despite a strategic drop in price to regain market share. Diets were up 26% and Health was up 7%. By region, Asia performed strongly while the Americas remain challenging partly because of the ongoing Covid-19 pandemic and logistical difficulties.

Genetics

Genetics performed well in the period with revenues of £8.7m, 21% above the prior year (Q3 2020: £7.2m) driven by higher sales of salmon eggs primarily from the Salten facility in Norway. Current capacity from our Salten facility is sold out and we continue to work on the operational optimisation and ramp up of Salten to reach its full 150m egg capacity. Harvest income was lower than the prior year due to lower salmon prices. YTD Q3 revenues at £30.9m were 4% ahead of the prior year (YTD Q3 2020: £29.7m) reflecting the same drivers as in Q3.

Adjusted EBITDA for Q3 2021 of £2.2m was 83% higher than prior year (Q3 2020: £1.2m) as a result of higher sales offsetting an increase in operating costs as operations normalise post Covid-19. Adjusted EBITDA for YTD Q3 of £8.2m was 16% below the prior year (YTD Q3 2020: £9.8m) due to lower harvest income and lower JV revenues.

Biological asset increase of £1.2m in the quarter (Q3 FY20: £1.5m) was impacted by adverse foreign exchange movements of £0.5m (Q3 FY20: favourable £1.0m) and includes a fair value increase of £0.4m (Q3 2020: £0.9m decrease) as a result of higher salmon egg sales and higher price. YTD Q3 increase in biological assets of £5.3m (YTD Q3 2020: £1.3m) reflects a favourable foreign exchange movement of £0.8m (YTD Q3 FY20: adverse £2.6m) and includes a fair value increase of £2.3m (YTD Q3 2020: £1.7m) as salmon egg production, sales and prices increase.

By species, salmon performed well maintaining a strong market position in the northern hemisphere. We also continue to win new contracts for future delivery in the emerging land-based segment where we have established a leading position which will support future growth. Delivery of land-based contracts will commence as the new land-based facilities come on stream which we expect to be gradual in the years to come. The expansion of the incubation facility in Iceland will support future demand across all production paradigms and is progressing according to plan. In Chile, we continued our efforts to penetrate the market in a disciplined manner, achieving first sales in the period. The Chilean market is well established and we expect to build a market position gradually over time.

In shrimp, test market sales of our SPR shrimp continued in the period and the expansion of the Fellsmere facility in Florida progressed according to plan. The additional capacity is expected to come onstream by the end of the year. We are planning a phased entry into the Asian markets ensuring that we have an optimised product in each region. During Q3 we capitalised £0.4m from development costs (YTD Q3 2021: £1.3m) and incurred operating costs of £0.2m (YTD Q3 2021: £1.2m).

In Tilapia, our focus is on achieving profitability seeking new commercial opportunities and establishing the optimal scale for a sustainably profitable business. During the period we incurred £0.2m operating costs (YTD Q3 2021: £0.7m).

Health

Post period-end the Health business area achieved a very significant strategic milestone when marketing authorisation was obtained in Norway for its new sea lice treatment, Ectosan® Vet and CleanTreat®, as well as ratification of the MRL (Maximum Residue Limit) in Norway. Having concluded these steps, Benchmark is now able to commercialise its novel sea lice solution in Norway. Benchmark’s solution which is highly efficacious, is good for animal welfare and protects the environment from discharge of medicine into the ocean is the first sea lice medicine to be introduced in the market in more than a decade. We have two CleanTreat® units in operation and have successfully delivered the first sea lice treatments to our customers during August.

Revenues in Q3 2021 from continuing operations of £1.2m were 20% above the prior year (Q3 2020 (restated): £1.0m) due to higher sales of Salmosan in Norway and the Faroes. YTD Q3 2021 revenues were £3.6m, 8% behind prior year (YTD Q3 2020 (restated): £3.9m).

Adjusted EBITDA from continuing operations in Q3 2021 was a loss of £1.2m (Q3 2020 (restated): loss £1.3m) reflecting higher revenues offset by continued investment in Ectosan® Vet and CleanTreat®. YTD Q3 Adjusted EBITDA was a loss of £3.8m (Q3 YTD 2020 (restated): loss £3.9m).

Operating costs associated with Ectosan® Vet and CleanTreat® were £3.4m YTD Q3 2021, of which £1.7m have been capitalised and capex investment in CleanTreat® YTD Q3 2021 was £3m.

Finance costs, cashflow and net debt

Net finance cost for the quarter of £1.4m is £0.6m lower than the prior year (Q3 2020: £2.0m). Q3 2021 had forex gains of £0.7m (Q3 2020: £1.4m loss) and no movement on the fair value of the financial instrument used to hedge the currency and interest risk on the NOK bond financing (Q3 2020: £1.6m gain). Interest charge (including interest expense on right-of-use assets) of £2.1m (Q3 2020: £2.2m) was slightly lower due to favourable exchange rate movements, offset by £0.1m increase in interest on right-of-use assets.

Net finance cost for the YTD Q3 at £0.1m is £11.4m lower than the prior year (YTD 2020: £11.5m). The main reasons for the lower net cost are a YTD gain of £2.4m on revaluation of financial instruments mentioned above (YTD Q3 2020: £2.1m loss) and forex gains of £4.0m (YTD Q3 2020: £3.2m loss). Interest charge (including interest expense on right-of-use assets) of £6.5m (Q3 2020: £6.4m) is broadly in line with the previous year.

Net debt at the quarter end was £76.1m (30 June 2020: £54.7m; 30 Sept 2020: £37.6m) and net debt excluding lease liabilities was £52.7m (30 June 2020: £45.3m; 30 Sept 2020: £27.1m). This is a result of a cash outflow from operations of £0.1m (cash inflow YTD 2020: £0.5m) and capex of £13.5m. The main areas of capex investment in the period include CleanTreat®, the fire prevention equipment in our facility in Thailand and the new incubation centre in Iceland. Capitalised development costs totalled £3.6m, mainly related to Ectosan® Vet and CleanTreat® and SPR shrimp.

We continue to maintain tight control of costs and working capital across the Group. Our priority is to maintain a strong balance sheet in the business to maintain momentum and support the execution of our growth opportunities. Liquidity at the end of the period was £54.1m providing £44.1m of headroom against our minimum liquidity covenant.

Current Trading and Outlook

The Group is performing well across its three business areas and is trading in line with market expectations for the full year.

Looking forward, our end markets are gradually recovering from the impact of Covid-19 as restrictions ease in certain territories, creating a more positive trading environment for our businesses. This, together with the successful commercial launch of Ectosan® Vet and CleanTreat®, the continuing good performance in Genetics and Advanced Nutrition and our ongoing cost and cash management discipline, are expected to benefit our financial performance going forward.

Longer term, the opportunities in our end markets remain significant with an increasing need for sustainable solutions in the aquaculture industry. As a focused aquaculture biotechnology company and proactive industry leader, with a clear commercial focus and capital allocation priorities, we are well positioned to improve sustainability across the aquaculture and deliver profitable growth in future years.