Benchmark Holdings PLC
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Benchmark Holdings PLC
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Good morning to all of you, and welcome to our Half Year Results Presentation in Benchmark. I am Trond Williksen, the CEO of the Group. And as usual, I'm here with Septima Maguire, our CFO.
We will provide you with insight into the financial and operational performance in the first half and the second quarter of this financial year, and we'll also cover the outlook for the group for the remainder of the financial year.
At this time, we will also utilize the opportunity at half year way point of the year to refresh on the unique strategic positioning of the group as well as share our thoughts on targets in the medium term in the next 3 to 5 years.
But as usual, let me start out with some highlights. And again, we are happy to announce strong financials, reflecting a strong and continued progress of the group. The numbers really speak for themselves. Revenue's year-on-year for the first half has grown by 33%, reflecting good growth and progress in all business areas. Even better, the adjusted EBITDA has grown even more. And in nominal figures, more than doubled year-on-year compared to first half of financial year '21.
I'm also tempted to mention that we in the first half of this financial year have delivered more on adjusted EBITDA than we did for the full year of financial year 2020.
Our EBITDA margin is now at 20%, which reflects that we have been able to grow the business, not only on the top line, but more so, been able to drive an even stronger development in the margin and earnings, which has been our stated objective and focus since we did the restructuring in financial year '20.
We are very well aware of that we are still not a profitable company at the bottom line, but I can assure everybody that we are working hard to get there and increased earnings in the first half of the year is reflected in us being able to narrow the operating loss at GBP 2.2 million as opposed to a loss of GBP 4.6 million for the same period last year.
Key is, of course, cash flow, where we have also seen a very positive development in the first half of this financial year with a positive GBP 2 million compared to a negative of GBP 1.5 million in the first half of financial year '21.
All in all, the numbers reflect a combination of good financial, operational and strategic progress throughout the group. The LTM figures on top line and EBITDA has consistently moved upwards quarter-by-quarter evidencing the effects of the restructuring as well as the commercial focus that we have embedded in the group, and that is now driving returns.
This is what you have seen so far. This is what we are working hard every day to make sure that we will continue to see in the quarters to come. The potential in this group is way bigger than what is reflected today, and we are walking the walk to take us there.
On the highlights, it's also natural to give a short update on the Oslo listing. We announced in November last year that the group has entered into a process considering a listing in Oslo and that DNB Markets and Pareto Securities was engaged as joint global coordinators. The process has since then been advancing. And subject to market conditions, we are targeting a listing at Euronext Growth in the second half of the calendar year, with the intention to up list to Oslo Børs within 12 months.
Such a listing will place Benchmark in the aquaculture ecosystem of surrounding Oslo Børs, which we believe will be beneficial for the company, the owners and the stakeholders of the group.
Before moving into the highlights of each business area, I think it could be useful, especially for new listeners and to -- for the new listeners to repeat what Benchmark is all about and why we are such a unique company.
We define ourselves as being a market-leading aquaculture biotechnology company, and this is not without fishing's. Aquaculture because this is the only industry we are focusing on, and we are lucky to be in a growing industry driven by global mega trends that will give structural growth for those of you who are well positioned. And Benchmark is well positioned by technology because we are a unique, well-invested biotech platform, probably the most unique in the aquaculture space with 3 clearly defined and complementary business areas, Genetics, Nutrition and Health.
Business areas where we hold leading market position -- business areas that commence the characteristics of being biotech, highly specialized, science-driven and with large entry barriers. From the 3 business areas, we are providing specialized, high-margin, mission-critical solutions that enhance farming efficiency, animal growth, fish health and fish welfare, thus driving sustainability for our customers in aquaculture.
We provide the solutions through a very well developed and a very well invested infrastructure, reaching more than 70 countries. We have our own infrastructure in place in more than 26 countries, and we are truly a global company covering all relevant parts of the aquaculture world.
Those of you who have been following us more closely know that we have spent the last 2 years establishing a firm, commercial foundation, preparing the group to take out its potential.
From the numbers, you see that we are a growth company, but -- and it should be underscored, quality of earnings, returns and cash generation is and will be very much our main focus.
Having this as an intro, moving over to more granularity on the business areas, starting with Genetics, where we see growth on invested infrastructure starting to come through.
In the first half of the year, we have seen a significant uplift in revenues and adjusted EBITDA compared to last year. This is driven by increased egg sales compared to last year as well as income from [ sorted ] fish. Looking from where we are right now and with order book that we have for the remainder of the financial year, we expect to have a strong year for salmon genetics out of Norway and Iceland. This remains the commercial backbone of this business area.
As for the other areas, it being the Chile, SPR shrimp and tilapia. We are still in more initial commercial stages. Having said that, we see a progress in other areas in SPR shrimp. We have had good progress in sales to key markets in Asia and sales have been exceeding our expectation in the first half of the year.
This is painting a picture of the opportunity that lies ahead of us in this area. We are still in the early stages, but we are positioned to take out larger potentials in the years to come.
Prerequisite to take out future growth is to have an infrastructure that supports product. This has been a key focus for us over the last few years, making sure we have an infrastructure that makes it possible for us to take out structural growth that we know will come for those who are well positioned.
We are, therefore, happy to say that we have completed a key infrastructure investment in this business area. It being a new incubation house in Iceland that has already provided us a lift in quality and capacity, and that's the accuracy and the production site in Fellsmere for SPR shrimp or the production facilities in Homestead, Florida for our fingerling tilapia production. Focus now and onwards is to take out the capacities of these infrastructure investments.
It should also be mentioned on the highlights from Genetics that we are advancing our genetic services with several new client wins during the first half of the year. I should remind everybody that besides having our own new facilities in salmon, shrimp and tilapia, we are also running Genetics Programs as a Service to more than 10 of species globally. This is a small, but profitable business for us that completes the genetics house we are building in Benchmark Genetics.
Finally, ova to Chile, where we are still in a build-up phase after having established in the market. As we have stated before, we have done the groundwork for expansion. And in the first part of this financial year also obtained our organic certification, which enabled us to be in a unique position for this specific segment of this important market.
Moving over to Nutrition, where we have had a stellar first half of the year, with strong growth of revenues but even stronger growth in earnings. Our EBITDA from this business area is up 84% compared to the first half of last year. Behind this strong financial development sits growth in sales in all product groups and markets. From the numbers we see that we have been able to take market share. Even if we have experienced improved market conditions in the period, the market has not developed at the speed or growth that we are showing.
We have also had some significant new customer wins, strengthening our basis in the marketplace. And I can assure you that our aim is to continue to do so also in the time to come.
Key to our performance in Advanced Nutrition has also been good cost discipline as well as improved capacity utilization and optimization of operations. This is something that we constantly work on and that we see good results during the period. And we see good results of that despite the fact that we have gone through a period where logistics and running an operation and an efficient supply chain has not been on the easy side.
But having the discipline in place, having these optimization processes in place is really an asset in the time we are moving into now with increased inflation, and I foresee even more hurdles on the logistics side. It should also be mentioned under the highlights from this business area that we continue to develop our products and technologies.
And finally, we should mention that we have also invested in solar panels in our Thailand production facility. This is part of our tangible net zero road map that we have developed for the company as well as our efforts to reduce energy costs.
Then moving over to the Health business area. First half of financial year '22 has really been the first month of operations of Ectosan Vet and CleanTreat, the solution that was launched in last August. And since we gave the last update after our first quarter, we have been progressing also in this area.
Very important is that the fundamentals are continued to be confirmed to be right, and efficacy is very high as we had expected. Gentleness to the fish of treatments reflected in very low mortalities as well as fish getting instantly back to feeding is also confirmed as we have expected.
Operations of the CleanTreat system has also been very satisfactory despite periods in both Q1 and Q2 with harsh weather conditions when it has been difficult to operate. And we have been able to significantly increase the efficiency in offload on the levels after the treatment. So we have been able to enhance our operation of the system.
We're also happy to see that the number of clients using searching is increasing, but it's still fair to say that we are at the stage where we still have to work hard on getting customer adoption and having the solution embedded in the sea lice treatment strategy of the farmers.
The farmers are heavily invested in other treatment technologies and methodologies and more farmers need to get comfortable around using our solution has now turned to what they've been doing in the later years. And as I've stated consistently since the launch of the solution, and this will take time despite tireless efforts on our side. Key to gain customer adoption is also to make sure that solution is so applicable and cost effective as possible.
The variation to the label that was announced in the beginning of this month allowing for one reuse of treatment water was an important step in the right direction. But it's not the end station that we are aiming at. We are also progressing our work to get the most what we use variation, which eventually is needed to get to the desired efficiency. We are still working on timeline where this could come into play in Q1, Q2 next calendar year.
As mentioned in the Q1 presentation, we are also working and have been doing that for a while on integrating the CleanTreat system, which means that the water purification part of the solution into existing infrastructure of the farmers. This is now a key priority for us since the current setup using the PSVs as a platform for the CleanTreat system is costly, both for us and the farmers. Integrating the CleanTreat system into their existing infrastructure of the farmers is therefore the directional travel to take down the cost hurdle for farmers and to increase the feasibility of the solution.
It also gives us -- such an integration gives us a possibility to -- causes an opportunity to reduce CapEx, but also, of course, keep the business proposition and returns on our side.
Finally, on the Ectosan and CleanTreat side, we have started to look at new territories. We are running a trial in Scotland using CleanTreat on Salmosan. This is really a first approving the technology in this territory, that's a first step preparing to enter also this market. We have also applied for marketing authorization in the Faroe Islands to be able to introduce Ectosan in this market.
So with those highlights on the group and business areas, I complete my first part and leave it up to you, Septima Maguire go through the financials in more granularity.
Thank you, Trond. I thought it would be useful using the half year as a backdrop to pause for a minute to reflect on where Benchmark are in terms of the journey towards profitability and cash generation.
When I joined Benchmark over 2.5 years ago, I came in with a clear mandate to restructure the business, sell or close noncore and loss-making parts of the business and streamline it to ensure that we could focus on our core, mature aquaculture businesses such as Genetics and Nutrition and also move into the potential growth areas such as Ectosan Vet and SPR shrimp into the commercialization phase.
Having done this, it leaves us in a strong position for the future. With strong revenue and adjusted EBITDA growth, coupled with cost and cash control, to drive future cash generation, along with disciplined investment and solid working capital management, this gives us good control to manage the business into the future.
Now there's been a continuation of good results in the first half of the year. The momentum, which was established in financial year '21 continued through the first and second quarters at both the revenue and adjusted EBITDA level with growth of 33% for revenue and adjusted EBITDA doubling to GBP 15.9 million versus the first half of last year.
From a quality of earnings perspective, adjusted EBITDA, excluding the noncash fair value uplift, increased by 149% to GBP 14.8 million. Net debt, excluding the leased assets of GBP 50.6 million versus GBP 56.9 million was driven in part by the equity issuance of GBP 20 million in quarter 1 2022. And we'll look at the cash flow movements in more detail later in the presentation.
So looking at Genetics. As we've previously stated, the core business of salmon genetics, where we have matured and invested businesses with production facilities in Norway and Iceland are the main drivers of sales growth and profitability within this area at this point and have delivered GBP 6.7 million of adjusted EBITDA. Of this, GBP 1 million was invested between tilapia, shrimp and salmon Chile as we continue to ramp up and commercialize these growth areas, leaving GBP 5.7 million of adjusted EBITDA for the half year.
Excluding fair value uplift, we've increased adjusted EBITDA by 18% at the half year and with good visibility on egg deliveries for the second half of the year, we expect to deliver solid results for the full year. With respect to SPR shrimp, we ceased capitalizing costs as we've moved from development phase early into commercialization.
The gross CapEx invested this year has been to close out projects commenced in financial year '21, mainly the incubation center in Iceland, which is already showing great results in terms of quality and consistency of eggs. This leaves us well situated for the future with a well invested asset base in both our mature businesses and our growth areas as we're moving forward.
Advanced Nutrition is the most mature and cash-generative part of our business and has delivered excellent growth through financial year '21 as it recovered from the impact of COVID and increased its focus on commercialization and into the first half of this year when it delivered revenue growth of 20% and adjusted EBITDA growth of up 84%. With revenue growth in each of the product areas, Artemia, diets and health and also within each of our geographical regions. We continued the trend of strong trading. This, along with good cost control, drove adjusted EBITDA margins to 27%.
Looking at health. Health continues to ramp up the Ectosan, CleanTreat product, delivering revenues of GBP 8.6 million, of which GBP 2.2 million related to recharges for vessels and fuel. During January, given severe weather conditions, neither vessels were able to treat, which will have impacted the quarter 2 results on a stand-alone basis. The balance of the revenue of GBP 2.1 million related to the sale of Salmosan, other sea lice treatments.
The ramp-up of Ectosan, CleanTreat along with good margins on Salmosan drove growth in gross profit to GBP 4.5 million versus GBP 0.6 million last year. Whilst we experienced growth in our operating costs from GBP 3.2 million to GBP 4.4 million, our adjusted EBITDA loss in this period fell from GBP 2.6 million to an adjusted EBITDA plus of GBP 0.1 million.
The ramp-up in Ectosan and CleanTreat will have driven an increased investment in working capital in the period, reflecting higher sales levels and also inventory to satisfy demand for Ectosan, which we look at in the next slide.
From a cash flow perspective, with stronger trading results, we had better cash generated from operations of GBP 18.4 million. GBP 13.5 million of this was utilized in building up working capital, either driven by increased sales in all of our business areas or increased inventory as we're in the launch phase of Ectosan.
As I noted earlier, we benefited from the equity raise during the first half of 2022. It is also notable that capital expenditure of GBP 6.6 million reflects much lower growth CapEx versus last year as we're closing out growth projects and focusing more on increasing utilization of the assets in our mature business and start obtaining value from the assets invested within our growth initiatives.
With net debt, excluding leases of GBP 50.6 million and available liquidity of GBP 57.7 million, we're well positioned to move forward towards profitability and cash generation.
Back to you, Trond.
Thank you, Septima. And now moving on to the outlook from where we are today. As a strong start to the year, we are trading in line with expectations. Focus in the period to come is, of course, to continue to roll out Ectosan Vet and CleanTreat in the market.
We are in a very important period where key is getting the solution more embedded in the sea lice treatment strategy of the customers. And as also mentioned in my -- go through the highlights, a key in what we are working actively on is also the integrated CleanTreat technology into the existing infrastructure of our customers. This will automatically makes the solution more adaptable for our customers, which is a key to secure widespread use.
In Genetics, we have a strong order book. That's a strong outlook for egg sales for the remainder of the year. And in Nutrition, we have had a strong start of the year. We got a solid demand profile in our advanced nutrition business also for the second half of the year. But it's probably faced slightly more towards Q4 due to the timing of expected orders.
As addressed in the initial highlights, we are targeting a listing at Euronext Growth in the second half of the calendar year with intention to up list to Oslo Børs within 12 months. And as I said, such a listing will place Benchmark in the aquaculture ecosystem surrounding Oslo Børs which we believe will be beneficial for the company, the owners and stakeholders of the group.
Then given that we are at the half year way point in the financial year and given that we are targeting a listing at Euronext Growth and Oslo in the second half of the calendar year, I would like to use the opportunity to restate some fundamentals around Benchmark and why we are such a unique proposition from an investment point of view.
We would also like to give you some insight into medium-term targets we have 3 to 5 years, which we believe you will find useful in understanding of the direction of travel. Having been in the aquaculture industry for more than 30 years and in Benchmark for 3 years, I am more convinced than ever that Benchmark is a unique company, a unique value proposition and a unique investment opportunity. So let me just tell you why I think so.
First of all, we are lucky that we are in the aquaculture industry, an industry that still is young. We play a crucial role in global food supply in the future, consequently we'll have strong growth driven by global megatrends, demographic, sustainability and health.
So the industry in itself will provide strong structural growth for those who are well positioned. And this is exactly what Benchmark is. In this industry, we provide specialized, high-margin, mission-critical solutions to enhance farming efficiency, animal growth, fish health and fish welfare the crucial factors within any biological production.
And in this industry, we hold market-leading positions in what we do. We are a market leader within salmon genetics, we are a market leader within specialized nutrition, and we are a market leader within medical treatments for sea lice.
In sum, what we represent is truly a unique biotech platform. And in my mind, the most unique one in the industry. But bear in mind that we are a well-invested one, which differentiates us from early-stage biotechs. We have 2 well-established business areas, Genetics and Nutrition; and the third one that is well underway to become the same.
Good news is also that me, as a company is at a point where we have well established strategies and financial framework for growth and returns. We are long past the initial development stage. We have executed on a needed restructuring, establishing firm commercial foundations and financial discipline. And we are now at the stage of consistent delivery on a financial framework that will generate cash returns.
And finally, we are more than just an ordinary company. We are absolutely purpose driven with a high-quality organization with strong ESG credentials. Sustainability is at the core of everything we are doing. It has always been that, and it will always be that.
So moving on to how you should think of us going forward. Based on everything that I've said so far, it should be obvious that the Benchmark is in a unique position moving forward. We are in the aquaculture industry that will provide structural growth and we are definitely in a position where we can utilize this.
And I will now leave it up to Septima to take you through how our unique positioning and value proposition, our firm foundations and strategies will translate into financials and how we expect this to develop over the next 3 to 5 years.
So Septima, back to you.
Okay. So we're at a point were based on the current growth and previous investments, we have the tools to continue to grow the business, getting better at asset utilization from the assets within the mature business areas of Nutrition and core Genetics and commence getting value from the assets within the growth initiatives and to obtain the potential within our Health business area, creating margin accretion and consequently better cash generation.
So reflecting on what I said earlier about where we are at present and how we're aiming to move ourselves forward. We've delivered good revenue and adjusted EBITDA growth last year and in H1 of this year. And our objective is for this to continue in the medium term. The next step of this evolution is to move the cash conversion percentage from the 30% of last year upwards, to translate this growth into cash returns.
And with the CapEx burden moderating, use that cash in the medium term to deleverage the business and ultimately to drive free cash flow, with higher sales levels from both the mature businesses and the growth coming through from the newly commercialized growth vectors in the medium term, allowing us to get better utilization of our invested assets. We can use this to drive the return on capital employed, thus driving more embedded value in the business.
When we look at where this translates down into the business areas, as we've previously guided around the more mature parts of the business, we expect strong growth to come from our Genetics business, built around the growth in our core salmon egg business, but then also aided by the commercialization of the growth areas in Chile, SPR shrimp and tilapia. And as you can see, our medium-term objectives for revenue growth of 10% to 15%.
This growth in revenues will continue to drive margin accretion in this business area. We anticipate that Advanced Nutrition will continue to grow ahead of the market at 7% to 10%. This business area will continue to drive strong margins with adjusted EBITDA margin objectives consistently between 20% and 25%.
For Health, the recent variation around allowing one reuse of water is a step in the right direction, and we're working towards multiple reuse variation, which will allow for better efficiency in the solution and has potential upside from a margin perspective to move it towards the target 60% margin when fully commercialized, which will be with the expanded MA with Ectosan being used as a primary tool in the industry against sea lice.
And of course, geographical expansion to allow us to reach the 75 million global potential. Our focus is profitability and cash generation, and we believe that each business area is well placed to contribute towards that generation of both as we move forward.
So on that note, back to you, Trond, for some closing remarks.
Thank you, Septima. And to summarize this presentation, we have had a strong start to the year, which is reflected in strong financials. We have continued the consistent progress that you have seen from us over many quarters now. We are well positioned to continue this journey in the years to come, and we have realistic targets, giving us a clear direction of travel over the next 3 to 5 years.
So with these closing remarks, we end the presentation, and we are now opening up for Q&A.
[Operator Instructions] There are currently no questions. We will turn back to the webcast for some questions.
Thank you, Emma. Some questions have come in through the web, mainly around the Health business. So if we dive straight in.
Can you share how your insights into the seasonality of Ectosan and CleanTreat solutions are progressing?
The seasonality, well, we've been through a winter period in the first quarter of this calendar year and that is a period where they are good farmers are using it to clear the sea lice levels before the real sea lice season is starting. We have moved into the spring period, which has the same aim for the farmers. And then we will move into the summer phase and the autumn phase, which will be the main sea lice season.
How will play out in utilization of a solution is really not 100% clear to us yet, because we see that there will probably be more use during the winter and spring period, the winter period than we thought initially. And it still remains to be seen how the utilization will be in the main sea lice season.
So whilst we initially thought that it was the summer months and fall months that was the main season of this year, it might be more even throughout the year that we have seen before, but that is still to be really proven through the experiences that we are gaining at the moment.
Thank you. Another follow-up, do you still estimate GPB 10 million revenue per ship?
At full utilization, yes, full utilization, yes, but we are not at full utilization yet. And as I alluded to you in the presentation, the key focus now is to make sure that we get more customer uptake, get the better use of the solution or more useful solution than we had so far.
But at full utilization, yes.
Thank you. Another follow-up in the Health sector. When can you start reusing treatment water under the extended label? Is it from the moment it is granted?
Yes, that's my understanding. Septima, if you have an under understanding there, but that's my understanding. That's from the moment it is granted in public, yes.
Yes. I think that it's as good as. So we would expect it to commence henceforth.
Thank you. And another follow-up, the GBP 50 million to GBP 75 million in revenues in 3 to 5 years mentioned in the medium-term objectives. Is that peak sales? Or do you still see opportunities for growth beyond that and using an example of Chile?
Septima, you will probably answer one of the questions here, you can take that one.
So we've always estimated that the GBP 50 million was going to be attached with the Norwegian market and the GBP 75 million is the global market. We did not expect a significant level of take-up in Chile as we had anticipated in Norway. And so that's one of the reasons why to achieve the GBP 75 million we've now started the MA process in the Faroe Islands to allow us to commence that geographical expansion. So Chile will be part of that additional global target.
Do we see any upside? At this point, we are working towards a target, not a pipe dream. And any upside that comes over and above that will be just a bonus.
Thank you, both. There are no follow-up questions. So I'd now like to hand back for any closing remarks.
Well, thank you for your questions also. And as I summarized before we went into Q&A, I think everybody can see that we have had a strong start to the year, and that is reflected in the financials. More important for us is to come over with that we are a management that works to get this group to produce consistent progress and consistent results over time. And this is what we have seen over the last quarters, and this is what we are working hard for you to -- for you to see also in the coming quarters.
I hope also that we have come over very clearly that we are well positioned to continue on the journey in the years to come, and that we also have realistic targets, and that gives us a clear direction of travel over the next years.
So with these words, thank you for the attendance.