Harnessing biological control to drive sustainable growth ANNUAL REPORT 2016 BIOTECHNOLOGY WILL DRIVE THE BLUE REVOLUTION As the world wrestles with the challenge of feeding a vast and growing population, there is an urgent need to professionalise and modernise aquaculture. Oceans cover 70% of the world’s surface, but only produce 2% of our food, making the aquaculture industry the fastest growing form of protein production. With 90% of the Company now involved in aquaculture, Benchmark is at the forefront of the ‘Blue Revolution’ offering an integrated package of products and services to customers in over 70 countries. Benchmark’s customers are increasingly recognising the significant value this can deliver in terms of driving their productivity, sustainability and profitability. Registered office: Benchmark Holdings plc Benchmark House 8 Smithy Wood Drive Sheffield S35 1QN Registered number: 04115910 2016 HIGHLIGHTS CONTENTS £m Revenue EBITDA from Trading Activities1 Adjusted EBITDA2 Operating loss Basic loss per share (pence) Net cash 2016 109.4 22.3 9.2 (20.5) (4.39) 0.4 2015 44.2 2.4 (5.7) (11.6) (5.96) 13.4 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, • Acquisition of INVE Aquaculture Financial Highlights 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 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) 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 including the Breeding and Genetics division and INVE). 01. Strategic Report 02. Governance 03. Financial Statements 08 Benchmark at a Glance 62 Introduction to the Board 86 Independent Auditor’s Report 10 Realising Value 64 Leadership 87 Consolidated Income Statement 12 Chairman's Statement 68 Effectiveness 14 Strategic Review 70 Accountability 16 Market Opportunities 74 Remuneration 18 Business Review 79 Shareholders 79 Directors’ Report 83 Directors’ Responsibility Statement 20 Knowledge Services — Sustainability Science and Technical Publishing 24 Genetics 28 Nutrition 32 Health 36 Business Model 40 Our People 44 Our Responsibility and Impact 48 Financial Review 48 Key Performance Indicators 56 Risk Management 58 Principal Risks and Uncertainties 88 Consolidated Statement of Comprehensive Income 89 Consolidated Balance Sheet 90 Company Balance Sheet 91 92 93 94 95 Consolidated Statement of Changes in Equity Company Statement of Changes in Equity Consolidated Statement of Cash Flows Company Statement of Cash Flows Notes Forming Part of the Financial Statements 04. Additional Information 142 Glossary 143 Advisers “I am pleased to announce that the Group has delivered a financial performance in line 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’.” Malcolm Pye Chief Executive Officer STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION Setting a new benchmark for sustainable living — starting with food production 01 Strategic Report 08 Benchmark at a Glance 10 Realising Value 12 Chairman’s Statement 14 Strategic Review 16 Market Opportunities 18 Business Review 20 Knowledge Services — Sustainability Science and Technical Publishing 24 Genetics 28 Nutrition 32 Health 36 Business Model 40 Our People 44 Our Responsibility and Impact 48 Financial Review 48 Key Performance Indicators 56 Risk Management 58 Principal Risks and Uncertainties STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION Benchmark challenges the status quo in aquaculture, agriculture and animal healthcare. Since 2000 Benchmark has consistently worked to build a platform to serve its customers, helping farmers to take control of their biological environment through the combination of genetics, nutrition, health and knowledge services. Through its in-depth knowledge of animal biology Benchmark is able to tackle the key issues in the aquaculture, livestock and companion animal sectors. Image left: Benchmark’s vaccine manufacturing facility, Braintree UK Image right: Benchmark’s 1650-acre commercial research farm, Oxford UK £13.2m 94 £783m 70 Amount invested in R&D for FY16 Products in Benchmark’s pipelines Total pipeline addressable market Serving customers in over 70 countries WHAT WE DO BENCHMARK AT A GLANCE Our technology is at the forefront of our industry. Our people are right there next to the farmers. R&D facilities and farms Diagnostic laboratories Commercial services Manufacturing/production 884 People 27 Countries 5 Continents REALISING VALUE We realise value now by providing products and services urgently needed today, whilst investing in capacity and technology to solve the problems of tomorrow. Our strategy is to achieve first-mover advantage in high growth markets and to tackle deep-rooted issues in more mature markets. We aim to take a leadership position in our chosen markets. We develop and sell innovative products rich in intellectual property that deliver high margins and visibility of earnings. Our platform of capacity and technology is scalable, and combined with our deep insight into the challenges faced by major food producers, enables us to be confident that we will drive improvement in their profitability. By executing this strategy we will continue to build a business of significant value. Here we highlight some of the key developments for Benchmark in the last 12 months, as we successfully implemented this strategy. £4m aquaculture R&D and trials facility opened in Scotland June 2016 May 2016 STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION September 2016 August 2016 £16m state-of-the-art UK vaccine facility entered commissioning Acquisition of South American shrimp breeding programme July 2016 Commercial trials commenced for sea bass vaccine targeted at €300m Mediterranean market 10 year agreement signed with one of the world’s top three salmon producers Launch of major sea lice resistance breakthrough, Salmosan Vet All-In-One April 2016 February 2016 New 1,200m2 fish health lab opened in Chile Benchmark ‘Top 1000 Companies to Inspire Britain’ November 2015 September 2015 December 2015 Transformational acquisition of INVE Aquaculture adds new division to Benchmark: Advanced Animal Nutrition New Virus-Like Particle technology and expertise brought in-house Major genetics breakthrough for pancreas disease (PD) and sea lice resistance in salmon Key Highlights In September 2015 our Breeding and Genetics team in Norway achieved a major victory for pancreas disease (PD) and sea lice resistance in salmon using Genomic Selection. This was followed in June 2016 with the launch of Salmosan Vet All-In-One, a new treatment programme proven in trials to kill all stages of sea lice. In November 2015 we secured an exclusive worldwide license from Saiba Animal Health GmbH to develop and commercialise a recombinant animal health vaccine using Virus Like-Particle (VLP) technology, building on our growing capabilities and supporting our strategy of driving innovation in animal health. December 2015 concluded with a reverse takeover of world-leading nutrition specialist, INVE Aquaculture, adding our fifth and final business division. The deal was transformational, offering multiple synergies, cross-selling and new product opportunities as well as significantly increased distribution capability for the enlarged Group. In April 2016 FishVet Group (F VG) — now the world’s leading aquaculture health provider — opened a new state-of-the art diagnostic lab in Chile offering customers rapid-response to disease identification and on-farm clinical services. This was closely followed by the official opening of our £4m aquaculture research and development facility in Ardtoe, Scotland to drive advances for a variety of marine and freshwater species, shellfish and microalgae. We secured a ten-year contract win in July 2016 to supply one of the world’s top three salmon producers, Lerøy, with our salmon strains. In the same month, commercial field trials commenced for one of our new generation vaccines to treat Nodavirus, targeted at the Mediterranean sea bass market. In August we expanded into shrimp breeding and genetics to meet the growing global demand for faster growing, more robust shrimp through the acquisition of a world-leading shrimp breeding programme in South America. Our state-of-the-art vaccine facility in Braintree, UK, entered the commissioning phase following a £16m investment with first commercial batches expected in H2 FY2017. In Norway, construction began of SalmoBreed Salten, our new land-based salmon egg and broodstock production facility with a capacity to produce 150m eggs. This will replicate our highly successful land-based Icelandic model. Benchmark Holdings plc Annual Report 2016 | Strategic Report 11 Alex Hambro, Non-Executive Chairman 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. STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION 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 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 on pages 48 to 55. The Group made an operating loss of £20.5m, this was 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 believe that the small amount of the raise, coupled with the strategic benefits the new shareholder brings us, 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%. Both of these projects are explained in more detail on pages 34 and 26. Benchmark Holdings plc Annual Report 2016 | Strategic Report 13 Malcolm Pye, Chief Executive Officer STRATEGIC REVIEW 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. STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION Delivering Core Strategy Acquisitions and Integration Our People 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 much of 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. 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 is 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 enhances 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, 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 currencies has also negatively affected trading in some markets where our products are priced in dollars, in particular Latin America. 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 major industry players. 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 vaccine, advanced nutrition, and genetic engineering technologies. 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. Benchmark Holdings plc Annual Report 2016 | Strategic Report 15 MARKET OPPORTUNITIES There is a strong demand for Benchmark’s unique integrated package of genetics, nutrition, health and knowledge services to unlock production constraints and boost efficiency. Aquaculture is growing globally across all key markets Crustaceans Diadromous fish Freshwater fish Marine fish Molluscs Misc. Europe : 4 . 5 % C A G R * C A G R * : 4 . 5 % : 4 . 5 % : 4 . 5 % C A G R * C A G R * : 1 0 . 6 % China : 1 0 . 6 % C A G R * C A G R * C A G R * C A G R * : 1 0 . 6 % : 1 0 . 6 % 2.8m Tonnes 2.8m Tonnes 2.8m 2.8m Tonnes Tonnes 43.6m Tonnes 43.6m Tonnes 43.6m 43.6m Tonnes Tonnes Demand for animal protein is rising Disease, animal health and welfare are becoming a limiting factor to production There is an urgent need to reduce reliance on antibiotics There is an increased need for professionalisation Americas Asia (excl. China) : 6 . 3 % C A G R * : 6 . 3 % C A G R * C A G R * C A G R * : 6 . 3 % : 6 . 3 % : 7 . 2 % C A G R * : 7 . 2 % C A G R * C A G R * C A G R * : 7 . 2 % : 7 . 2 % 3.1m Tonnes Source: FishStat, FAO. * CAGR refers to total market of 1950–2013. 3.1m Tonnes 3.1m 3.1m Tonnes Tonnes 19.0m Tonnes 19.0m Tonnes 19.0m 19.0m Tonnes Tonnes By 2050 global production is expected to increase by... Emerging diseases drive demand for health products Animal health and human health are intrinsically linked Efficiency benefits trigger industry consolidation • Disease has a significant impact on production volumes • In the shrimp industry alone, 40% of production is lost to disease • c.60% of all human diseases and 75% of all emerging infectious diseases are zoonotic (passed between humans and animals) • 13 deadliest of these diseases kill 2.2m people a year Global market statistics • Aquaculture is still a nascent industry • Modernisation will help in production 67% Beef * 71% Chicken* 90% Aquaculture* Early stage nutrition† $250m Breeding & Genetics† Shrimp: $500m Salmon: $110m Tilapia: $316m‡ Animal medicines and vaccines sector is estimated at $22bn§ Aquaculture is growing globally across all key markets (currently $119bn global market*) * Source: FAO. • Seafood consumption is increasing rapidly driven by a growing middle class in developing countries and healthy eating trends in developed countries • Farmed fish has now exceeded beef production, and all future growth in seafood supply is expected to come from aquaculture † Management estimates. ‡ Inocap. § Within the estimated $92–102bn animal health industry (includes diagnostics, medicated feed and veterinary services) (Source: Vetnosis). 1717 Benchmark Holdings plc Annual Report 2016 | Strategic ReportSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATION STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION BENCHMARK TECHNOLOGY CENTRE Benchmark has built a platform which can best serve our customers, helping producers to take control of their biological environment through the combination of genetics, nutrition, health and knowledge services. The various components of the Technology Centre are outlined overleaf. Roland Bonney, Chief Operating Officer FY16 BUSINESS REVIEW In Summary The Group has transformed since the IPO in December 2013. We have invested £304m in M&A, adding two new business units: Nutrition and Genetics to our existing platform. During 2016 the Group operational structure evolved into what we now call Benchmark’s Technology Centre which recognises that nutrition, genetics and health, the markets served by three of our operating divisions, are supported and served by ‘knowledge services’ which encompasses the work of our Sustainability Science division and Technical Publishing division. We have made significant progress this year in building our platform to completely serve our customers’ needs and help them to take control of their biological environment. We have done this by harnessing the best expertise, deploying cutting edge technologies and embedding ourselves alongside our customers — with our hands in the water and our feet in the mud. We outline in the following sections how the Benchmark Technology Centre is used to deliver this, and a review of our operations in the year. Bench m ark Technology Centre G enetics K no wledge Services H ealth D e a c r o p l o s s yi n g o u r o u m r t e a r k c h n o l o g y N utrition A q u a c e t s u lt u r e c o Liv m e p a s t o n i o c k n a n d a n i m a ls Benchmark Holdings plc Annual Report 2016 | Strategic Report 19 KNOWLEDGE SERVICES For informed management For our customers, understanding the disease threats and determining livestock performance through optimised health, genetics and nutrition is essential to the productivity and sustainability of their business. We do this through cutting edge research and trials, and by deploying our globally- renowned team of specialists on a consultancy basis. Our team has been hand-selected for its unique insight and expertise. Image left: Benchmark’s 420-acre commercial research farm in Jaboticabal, São Paulo Brazil Image right: Benchmark’s aquaculture trials facility, Pisa Italy STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION How we are delivering our strategy Harnessing the best expertise Deploying cutting edge technologies Embedded alongside our customers • Creating the best insight through globally recognised specialists, veterinarians, and food production experts • Training the next generation of innovators through our work with Universities and CPD programmes • Sharing best practice with customers in order to lift standards of production • Taking aquaculture diagnostics into the digital age — Benchmark has transferred human cancer cell screening techniques into aquaculture for early disease identification • Developing software platforms for tracking, clinical management and real-time analysis of supply — our histopathology team is available 24 hours a day in locations across the globe • Integrated health management — directly involved in decision making alongside our customers • At the coalface of aquaculture industry, allowing us unique insight and first mover advantage • Long-term partnerships with blue-chip food chain companies, validating our position as a market leader At the front line R&D capabilities We have a breadth of experience across the aquaculture, agriculture and animal healthcare sectors. Our world-leading aquatic health business serves customers across the entirety of the supply chain from farming, feed, pharma and processors. With 75 veterinarians and fish health professionals spanning four continents, we have prescribing veterinary surgeons in all of our key markets ensuring we are the first to respond to existing and new disease challenges. Benchmark’s R&D sites — accessing customers and markets worldwide We continue to invest in our R&D capabilities to overcome the bottlenecks in development of an aquaculture industry which is particularly underserved due to a lack of trials facilities. To that end we now have trial facilities across the globe, from our flagship site in Ardtoe to warm water units in Thailand and Brazil. This allows us to test a myriad of treatments in a controlled environment and develop treatments and products entirely in-house. Our product pipeline also continues to develop — we now have 94 products in our portfolio with an addressable market of over £780m. 40% of Benchmark’s animal health pipeline is currently exclusively being developed at our in-house facilities. Ardtoe, Scotland Aquaculture trials unit and cold water challenge unit Chonburi, Thailand (x2) Shrimp and tilapia nutritional trials unit and warm water challenge trial unit Oxford, England Commercial research farm Miami, US Tilapia trials unit Jaboticabal, Brazil Tilapia trials unit and agriculture R&D farm Pisa, Italy Warm water nutritional trials Benchmark Holdings plc Annual Report 2016 | Strategic Report 21 REVIEW OF OPERATIONS IN THE YEAR Knowledge Services — Sustainability Science and Technical Publishing Division Trials commence at new aquaculture R&D facility FAI Ardtoe, Benchmark’s aquaculture R&D and trials unit, marked half a century of service to aquaculture in May 2016 by unveiling the new state-of-the- art facility. The site has been expanded to help overcome the bottlenecks in development caused by a lack of trial facilities in the aquaculture industry. The trials unit is approved by the UK Home Office to undertake safety and infection trials and is expected to be accredited Good Laboratory Practice by the end of March 2017. The capacity that is available to us now means that we can run multiple trials for multiple species, at the same time and independently from one another — allowing us to develop the Benchmark pipeline faster. R&D expansion into new species FAI Brazil, Benchmark’s established commercial agriculture research farm in São Paulo State, expanded its reach into warm water aquaculture this year by building a tilapia hatchery to support our genetics business. Tilapia is today the most farmed fish species in Brazil, and demand for this product outstrips production. In some regions, including São Paulo State, growth is predicted at 20% per year in the next 10 years, reaching 35 thousand metric tons per year. Benchmark’s tilapia hatchery is expected to produce 500,000 fingerlings per month and will be based upon our high-genetic-merit strains. We have built in greater capacity for fish health, feed and genetics trials to support our product portfolio and to help further instill knowledge into the South American industry to support future sustainable growth. The key operational and strategic business activities are highlighted below. Growing global influence Benchmark’s work extends to the end of the supply chain where we provide sustainable sourcing solutions to global food brands. This year FAI added two new major global brands to our list of consultancy clients: IKEA Food, the €1.6bn turnover food business of the IKEA Group, and Ferrero, one of the world’s largest confectionery companies with an annual turnover of €9.5bn. FAI have secured three- year partnership agreements with both companies focused on driving progress on sustainability and animal welfare in key agricultural supply chains. The conference was bigger and better than ever with over 130 exhibitors (2014: 112) from around the world showcasing the latest in aquaculture health and innovation and showed revenue growth of 64% compared to the 2014 event. The sharing of knowledge, to further the growth of the aquaculture industry, is at the heart of the event. With this in mind, Benchmark expanded the seminar programme to cover topics such as the latest in breeding salmon with resistance to economically important diseases, seaweed farming technology and advances in fish health, biosecurity and sea lice control. Growing industry expertise Official Veterinary Conference The future success of the sectors we serve requires educated and skilled people equipped to navigate the challenges of sustainability. Benchmark continues to run a number of high-profile undergraduate and postgraduate aquaculture courses in collaboration with St Andrews University. This year we have seen a growth in numbers to over 50 students annually. We have also expanded our veterinary offering, introducing new Continuing Professional Development (CPD) courses and training modules. Training vets also gives us access to people in the field who have knowledge of, and will provide an excellent network for spreading knowledge regarding new products in our companion animal pipeline. Accelerating knowledge dissemination Aquaculture UK Benchmark hosted the biggest aquaculture show in the UK in May 2016, following the acquisition of the Aquaculture UK event in April 2015. Building on Benchmark’s official veterinary (OVs) training and educational services for Defra (Department for Agriculture, Food and Rural Affairs), we launched a veterinary conference named ‘Reducing the impact of notifiable animal diseases in the UK’ which was attended by 250 delegates. The conference featured lecture streams for large animal, small animal and equine vets with topics ranging from new thinking on the eradication of bovine TB, the potential threat to UK pets from Echinococcus multilocularis and an update on avian influenza. Round table debates gave delegates a chance to put questions to speakers directly and an exhibition of the latest products and services for OVs ran alongside. The conference was organised as a joint venture by Benchmark in association with government department APHA. These platforms also give Benchmark first-hand insight into the challenges in the aquaculture, agriculture and animal health care sectors, giving us first mover advantage in our product development pipeline. Image: Benchmark’s aquaculture R&D and trials facility, Ardtoe Scotland GENETICS All farming starts with a choice of genetics Benchmark carries out contract research and runs genetics programmes for a range of species, covering both established mature and emerging markets. These contracts are with some of the largest producers in the world. In addition, we run our own in-house primary breeding programmes with salmon, tilapia and shrimp. Our robust genetic material, combined with our team’s insights into the key challenges facing our clients and partners, allows us to drive real improvements in production efficiency traits, disease resistance and product quality. STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION How we are delivering our strategy Harnessing the best expertise Deploying cutting edge technologies Embedded alongside our customers • Highly skilled and well-qualified aquaculture genetics team in a relatively niche industry • World’s largest genetics company on selective breeding programs for all aquaculture species • Breadth of knowledge secures our position as world leader by number of species • Specific genomic selection allows for increased trait selection accuracy • Customer-led approach to delivery of all products and services • Harnessing existing technologies and developing new solutions to transfer into new species • Forming strategic partnerships with leading companies on their breeding facilities and genetics • Unique land-based biosecure production — all year-round delivery and back-up facilities Current and historical R&D programmes 25 applied programs for 15 species in 15 countries At the front line Benchmark is deploying the expertise developed over 30 years of salmon selection into other aquaculture species. The barrier to entry for competitors is high, as it can take a number of years to develop robust and effective breeding lines. Benchmark has access to extensive data sets and front line knowledge, giving us the unique ability to transfer genomic knowledge to different species. Our work is currently focused on major consumer species including salmon, tilapia, shrimp, and also species growing in importance including sea bass, sea bream, cobia, seriola and grouper. 9 10 1 7 11 14 4 12 13 5 15 5 1 2 6 2 2 3 6 8 1 Atlantic salmon 7 Turbot 11 Sea bass & sea bream 2 Nile tilapia 3 Red tilapia 4 Nile, red & blue tilapia 5 Nile & red tilapia 6 P. vannamei 8 Atlantic salmon, coho salmon and rainbow trout 9 Atlantic salmon & rainbow trout 10 Atlantic cod 12 Rohu carp 13 P. monodon 14 P. chinensis 15 Pangasius Deploying Technologies Shrimp Tilapia Salmon Benchmark Holdings plc Annual Report 2016 | Strategic Report 25 Other major farmed species REVIEW OF OPERATIONS IN THE YEAR Breeding and Genetics Division The key operational and strategic business activities are highlighted below. Ground breaking research Products in market Expansion into new species Major breakthrough in breeding for pancreas disease, sea lice resistance and infectious salmon anemia (ISA) The team achieved a major breakthrough for pancreas disease (PD), sea lice resistance and infectious salmon anemia (ISA) in salmon, becoming the first salmon breeder to use new genomic technology — Genomic Selection — to breed PD, ISA and sea lice resistance into our fish. The use of the method will provide a significant advancement in resistance to PD, ISA and sea lice and hence significant savings for the industry. First tilapia breeding program worldwide selecting for improved resistance to S. iniae and S. agalactiae Streptococcus infection is one of the most devastating diseases in tilapia farming as it can cause huge mortalities of large size fish and is responsible for heavy economic losses for farmers. Spring Genetics (US) recently launched a pioneering and complementary preventative approach, implementing selection for S. iniae and S. agalactiae resistance based on controlled challenge tests. Search for genetic markers is initiated. Contract win — 10-year agreement with leading salmon producer World-leading marine shrimp breeding programme brought in-house In July 2016, Benchmark signed a 10-year agreement with Lerøy — one of the world’s top three salmon producers — to supply our SalmoBreed genetic strain into its production sites. The contract represents an endorsement of SalmoBreed’s ability to produce world-class salmon strains and is an encouraging collaboration with one of the largest producers in the industry. Lumpfish — Success in the Faroe Islands In 2016 StofnFiskur delivered 1.5m lumpfish to the Faroe Islands market. The production has been a proven success resulting in two of our clients not having used any treatment for sea lice other than lumpfish this year. The lumpfish have high survival rates after transport from Iceland and immediately commence feeding on sea lice when introduced to the salmon cages. In response to the strong and globally growing customer demand for disease resilient shrimp, we acquired a South American L. vannamei shrimp breeding programme in August 2016 that has bred populations with high levels of resistance to some of the major diseases affecting the shrimp industry worldwide. This allows us the opportunity to cross-sell shrimp genetics alongside our existing nutrition and health products. Increasing capacity In September construction commenced of SalmoBreed Salten, the land-based salmon broodstock and egg production facility in Norway. The 10,000 square metre unit replicates our successful onshore facility in Iceland. The new site will give us the ability to hold broodstock on land throughout the production cycle and the capacity to produce 150m eggs per year for delivery all year round. The project was funded by the most recent fundraise in August 2016. Breeding and Genetics — Product Pipeline We have 18 products in our Breeding and Genetics pipeline with a total addressable market value of £95m. Pre-Project Project Phase Test Development Launch Lumpfish Salmon ova genetic traits Tilapia genetic traits Shrimp genetic traits Addressable market: £95m Lumpfish Iceland 4m Genomics ISA 1m Lumpfish Scotland 8m Genomics PD 5m Genomics Sea lice 14m Genomics SRS 2m All-female 2m DH021 8m PF011 10m DH022 8m QF001 8m DBV002 2m DA009 3m DT001 1m DP001 5m DS011 8m DT002 1m DP002 5m £20m £16m £23m £36m Image: Benchmark’s tilapia breeding facility, Miami, USA. Harvesting a commercial performance trial to generate growth data for the Company’s tilapia strain NUTRITION Caring for growth requires optimum nutrition Advanced animal nutrition has strengthened our existing health and genetics offerings to drive performance and consistency of production. By knowing, understanding, and inducing key biological processes at the earliest stages of the life cycle we can unlock the innate potential of survivability, development and growth. Our innovations and protocols have a proven added value in hundreds of farms and hatcheries worldwide. At the front line Customer partnerships Operational excellence We are market driven and science based. Our market intelligence from the front line reveals our customers’ practical needs. Coupled with 33 years of in-house expertise and collaborations with 25 centres of excellence, we are able to deliver bespoke solutions for any customer. We have developed a rigorous approach to caring for animals. We offer a products and solutions portfolio based on the essential principles of care in the life cycle of fish and shrimp. We support hatcheries and farms worldwide with concepts, best practices and technologies that ultimately improve their bottom line. We strongly believe that the only way to shape the future is to do it in close collaboration and partnership with the market. We serve our customers globally with the industry’s most comprehensive product portfolios. We are able to support them in taking better care throughout the life cycle of their fish and/or shrimp by contributing on a daily basis. This contributes to both our clients’ sustainable growth and long-term financial success. Upholding our reputation for innovation and consistency, we continuously develop and market products that are used as benchmarks in the industry. From raw material to the finished product, we want to ensure that the highest quality standards are met consistently. Our high-end products are developed, tested and manufactured in-house at our state-of-the-art facilities to certified GMP, HACCP and Global GAP manufacturing standards, enabling higher-throughput, lower costs, shorter lead times and a more reliable supply chain. To guarantee that our products will work under commercial conditions, our testing centres operate real-life hatchery production cycles for fish and shrimp. Benchmark’s shrimp hatchery feeds drive consistency & profitability * r a e y / t i n u n o i t c u d o r p / $ 35,000 30,000 25,000 20,000 15,000 10,000 5,000 0 Control INVE Total Costs Total Margin Total Revenue Production runs/year 16.0 15.5 15.0 14.5 14.0 r a e y r e p s n u r n o i t c u d o r P Benefits for farmers using the INVE feeding protocol (including FRiPPAK) increased by $2,464 per production unit producing 1m post larvae (PL) 15.2 times per year† Absolute values ($/production unit/year) Cost item Protocol Control Total costs –6,8% 18,459 Total revenue +4,2% 29,200 Total margin +22,2% 10,741 INVE 17,212 30,417 13,205 Production runs/year 14.6 15.2 * A production unit produces 1m PL per run. † Results were obtained over 18 months in hatcheries in Vietnam, Thailand, Ecuador (2), Nicaragua and Mexico. STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION How we are delivering our strategy Harnessing the best expertise Deploying cutting edge technologies Embedded alongside our customers • Our status as a world-leading • Employing a multi-disciplinary • advanced animal nutrition provider stems from our ability to create and provide high-tech, high-performance and cost-effective nutrition and health solutions • This capability enables us to become our customers’ preferred partner, maintaining those relationships over the long-term approach, allowing for greater insight and adaptability when faced with new problems • Focussing on manufacturing efficiencies which results in higher throughput, lower cost and shorter lead times • Innovation is our driver Locations and facilities — operations and supply chain 1 INVE pioneered early-life-stage nutrition and innovated hatchery nutrition hand-in-hand with forerunners of marine fish and shrimp farming • Customer partnership and collaboration, combined with the best expertise in the sector, results in customer loyalty and market leadership 3 2 Inventories 1 INVE Aquaculture Inc., SLC, UT, U.S.A. 2 INVE Thailand, Pichit, Thailand 3 TIAC, Tianjin, China • Artemia harvesting & processing • Main production centre • Probiotics formulating & mixing COOP SLB • Feeds & Health products final processing for LATAM markets • State-of-the-art facilities 2000 • Artemia processing • Produces all INVE products Benchmark Holdings plc Annual Report 2016 | Strategic Report 29 REVIEW OF OPERATIONS IN THE YEAR The key operational and strategic business activities are highlighted below. Advanced Animal Nutrition Division Integration progressing well Benchmark acquired INVE on 31 December 2015 to strengthen its aquaculture offering and ability to provide a complete solution to producers through the combination of genetics, health and nutrition. The acquisition has provided Benchmark with scale, enhanced sales, marketing and distribution networks, together with aquaculture nutrition expertise to facilitate further pipeline development. A major focus during 2016 has been the development and delivery of the synergies between Benchmark and INVE including: • Sales and marketing infrastructure to launch aquaculture vaccines: INVE sells to customers in more than 70 countries and has direct sales and marketing in 16 countries. This provides opportunity to leverage this infrastructure to sell aquaculture animal health products. The business has helped facilitate ongoing commercial field trials of Benchmark’s first proprietary aquaculture vaccine, which is for sea bass • Shrimp genetics: The purchase of one of the world’s leading South American shrimp breeding programmes mentioned above opened another major arena for us cross-selling shrimp genetics to our established nutrition customer base We expect continued demand for high quality early nutrition and health products boosted by favourable artemia pricing as a scarce resource. Products in market Artemia Artemia generates nearly 60% of Benchmark’s Advanced Animal Nutrition product sales (and gross margin). Around 3,000 tonnes of artemia is produced annually of which Benchmark has access to 600 tonnes, or 20% of the global market. The highest quality artemia available is from the Great Salt Lake, Utah, USA and Benchmark sources the majority of its artemia on a contracted basis from the Great Salt Lake Brine Shrimp Co-operative. The price of artemia has doubled over the past decade reflecting the increasing demand in aquaculture, against a limited natural supply of product. In response to this, Benchmark are investing in alternative early-stage feed to be used independently or in conjunction with natural artemia. Artemia replacements Alternatives or supplements to artemia are required in order to support the predicted future growth of aquaculture. In addition to our product feeding protocol ‘Best Balance’ that replaces c.85% of natural artemia, we are investing in a product that replaces 100% with equal or better survival rates and grow-out performance at a significantly lower cost, which is on schedule for first sales in 2020. Health products Benchmark’s health products cover all stages of production for shrimp and fish. We sell nutraceuticals (health boosters) to strengthen the immune system and probiotics designed to improve digestion and feed conversion ratio (FCR). We also offer product ranges such as Sanolife and Sanocare which are globally recognised for their effectiveness against a wide range of aquaculture pathogens, creating a more biosecure environment for the animals. Advanced Animal Nutrition — Product Pipeline Our Advanced Animal Nutrition pipeline has an addressable market size of £70m, with development through to commercialisation typically taking between 3–4 years for nutrition products. We have a long history of successful innovation and new product launches. Development & lab testing Field verification Market preparation Start of sales up to 1Y Artemia Shrimp diets Fish diets Sanocare Sanolife Sanoguard Addressable market: £70m ART01 4m SD04 0.1m SC13 8m SL16 3m SD03 23m FD05 7m SC11 3m SL21 1m SG25 TBD SG27 TBD SC12 3m SL22 0.1m* SG26 2m SG28 9m ART02 0.3m SD29 TBD Thalapure TBD FD06 Natura 50 3m SC15 SANOCARE FIT 1m FD07 EASY DRY SELCO 0.4m SL17 0.4m SL18 0.1m SL19 0.3m SL20 2m SL23 SANOLIFE GUT 0.2m £48m £18m £4m £0.2m Image: Benchmark Advanced Nutrition manufacturing plant, Thailand HEALTH Healthy growth drives efficiency The health and welfare of animals is at the heart of a thriving and sustainable food chain. A healthy animal delivers healthy growth. Disease is a significant barrier to sustainable production. For example, disease and parasites are the largest restriction on the growth of aquaculture. Benchmark is investing in new animal healthcare technologies to solve major production challenges in aquaculture, agriculture and animal healthcare. Image: Benchmark Vaccines, Braintree UK STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION How we are delivering our strategy Harnessing the best expertise Deploying cutting edge technologies Embedded alongside our customers • A world-leading team of expert scientists with deep roots in pharmaceutical development — some having previously worked for some of the major players in the industry • Leading research collaborations with prominent industry players to widen the net for discovery and mutual benefit • Our innovative approach results • in lower production costs and time to market Integrating our package of solutions to help customers achieve optimised production performance • Customer focused health plans enable buy-in to a range of products throughout development • Applying new, more efficient delivery technologies that result in optimised product performance for our customers • Our range of business units means we can employ technology from one part of the Company to another, such as VLP delivery mechanisms At the front line Building the technology platform Manufacturing firepower Our animal health pipeline includes 51 products with an addressable market value of over £600m, including a suite of vaccines and health solutions (see page 35). The technologies that we develop and harness within the Group can be transferred across species, maximising our impact across the aquaculture, agriculture and animal healthcare sectors. Benchmark has over 25 years’ experience in the manufacture of aquaculture vaccines. We have recently expanded our capacity at our in-house vaccine manufacturing facility to meet demand. The new £16m biotechnology building in Braintree with 2,500 square metres of production capability enables: • Ultra-modern GMP (Good Manufacturing Practice) • Seamless transition from R&D to production • Improved efficiency and flexibility combining both conventional and recombinant vaccines, including Virus Like Particles (VLP) • Third party manufacturing options providing short-term utilisation of any available surplus capacity New BMK cell lines used for multiple targets VLP technology is being applied to terrestrial and aquaculture targets Technology Platforms Several parasite infections can be treated with the same API Vaccine antigen(s) through several species Oral delivery systems can be used across species, diseases and medicine application Benchmark Holdings plc Annual Report 2016 | Strategic Report 33 REVIEW OF OPERATIONS IN THE YEAR Animal Health Division The key operational and strategic business activities are highlighted below. In-market product performance Virus Like Particle (‘VLP’) Technology Salmosan Our leading product, Salmosan, generated c.£14m of sales in the period. Now launched in the UK, Norway, Canada and Chile, Group sales were impacted by generic competition in Chile during 2014/15, but we have managed to recover and stabilise our market share with Animal Health divisional revenues increasing by 18% in 2016, driven by Salmosan/Byelice sales. It should be noted that we expect demand for Salmosan 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. Product development progress Commercial field trials commence Our first vaccine to be entirely developed in-house commenced commercial field trials in July 2016. Targeted at the Mediterranean sea bass market to treat Nodavirus, this product represents a significant first for Benchmark as the full development process including research, design, development and manufacturing has been delivered entirely in-house by our specialist teams. This is the beginning of a new era of vaccine launches for the Group. We now have the platform and resources to take a leading position in our major markets to deliver new technology-driven vaccines and pharmaceuticals. We are building on our growing capabilities for this ground-breaking technology supporting our strategy of driving innovation in animal health. The emerging technologies that we develop can be transferred and utilised in the aquaculture, agriculture and animal healthcare sectors. HypoCat — Benchmark’s VLP allergy vaccine which neutralises the Fel d 1 protein — the primary cause of human allergic reaction to cats is expected to launch in 2020, and we estimate a potential market worth of £165m per annum. Canine Atopic Dermatitis — Benchmark secured an exclusive worldwide license to develop and commercialise a recombinant vaccine for Canine Atopic Dermatitis (CAD). This vaccine is planned to be the first truly effective preventative tool against CAD. Unlike other CAD treatments on the market such as steroids, antihistamines and immuno-suppressants, which typically require continuous application and in some cases can weaken the dog’s immune system, this new vaccine would reduce the need for intervention and lessen the animals’ susceptibility to infection and illness. With an estimated 152 million dogs in the US, Canada and Europe, the estimated total market value for treatment of the disease is over £1 billion per annum. Sweet Itch — Benchmark entered into an agreement with Evax, a Swiss biotech company, to develop a recombinant vaccine to prevent and treat the most prevalent skin disease caused by insect bite hypersensitivity reactions in horses — Sweet Itch. The estimated total market value for treatment of the disease is over £100m per annum. There is no licensed vaccine available, and we expect the first commercial product to be available in Europe/US/Canada in 2020/2021. Entering new markets at the front line FishVet Group (FVG) opened a new 1,200 square metre state-of-the-art diagnostic lab in Chile. The lab is currently the only aquaculture health facility in South America with histopathology and PCR capability under one roof, allowing us to provide producers with rapid response to disease identification and on-farm clinical services. Building capacity We have significantly enhanced our vaccine manufacturing capability through the investment of over £16m in our state-of-the-art vaccine antigen production facility at our established Braintree site. The facility is one of only a few EU Good Manufacturing Practice (GMP) sites for animal health vaccines in Europe with a range of key manufacturing processes and a secondary packaging service if required. The 2,500 square metre unit allows us to significantly scale-up our in-house product pipeline and expand our toll manufacturing capacity. Benchmark animal healthcare brings benefits to production species from the earliest stages of development to table Below is an example our technological strategies in the forms that we can develop and apply. Immersion Oral delivery Benchmark cell line VLP technology Oral booster Bath treatment Oral delivery STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION Animal Health — Product Pipeline We have 51 products within our animal health pipeline of biocides, vaccines and paraciticides, with a total addressable market value of £618m. Of these there are 34 vaccine projects that can be manufactured at our newly upgraded facility in Braintree, UK. Discovery/Pre-Poc Passed Poc Development Trials In Regulatory First Sales Achieved Biocides/water conditioners PAQ004 5m EAQ004 2m VAQ006 15m VAQ017 25m VAQ024 8m VAQ002 6m VAQ005 2m VAQ007 3m VAQ004 8m VAQ019 1m VAQ020 2m EAQ002 Pre-Stock Rapid 25m VAQ012 FryShield IPN 8m VAQ016 MariMark N 6m VAQ025 8m VAQ031 8m VAQ032 10m VAQ010 1m VAQ011 3m VAQ015 10m VAQ029 25m VAQ021 3m VAQ022 8m VAQ028 3m VAQ008 3m Aquaculture vaccines VAQ033 4m VAQ034 10m VAQ035 6m VAQ003 5m VAQ009 2m VAQ036 5m PAQ016 10m PAQ021 10m PAQ022 11m PAQ007 9m PAQ017 5m Aquaculture parasiticides PAQ015 1m PAQ024 8m Farm Animal products VTS006 6m VTS003 1m VCO002 55m VTS009 50m Companion Animal vaccines /Other pharma Addressable market: £618m PAQ009 10m PAQ018 10m PAQ010 KleenKoi 5m PAQ008 Ectosan 25m PAQ014 Salmosan USA 1m PAQ006 Salmosan Bass/Bream 1m VTS007 2m PAQ023 3m HypoCat VC001 165m £256m £73m £215m £67m £7m Benchmark Holdings plc Annual Report 2016 | Strategic Report 35 BUSINESS MODEL Biological control is a key driver for financial performance of producers in the food chain industry. Benchmark’s business model is centred around the production life cycle, deploying solutions and preventative technologies in the earliest stages of life in order to boost sustainability and long-term growth. The Group is able to charge prices for these solutions that deliver good attractive margins, but represent only a fraction of the savings delivered to farmers and producers. Early stage production Breeding Grow-out Broodstock Hatchery Nursery Grow-out E L C Y C E F I L N O I T C U D O R P M R O F T A L P Y G O L O N H C E T S ’ K R A M H C N E B Preventative technology applied at the early stage is worth $billions at grow-out Early stage nutrition Genetic products Vaccines 6 Biocides/Water conditioners 5 Breeding programme selection 4 2 1 3 Veterinary health services and diagnostics l P u g g n g i i n t o i n d u s t r y c h a l l e n g e s STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION Below is a diagram of a typical aquaculture production life cycle, overlaid with examples of products and services in Benchmark’s Technology Centre — effectively supporting producers in realising the profitable and sustainable production of high quality food. Example issues and scale of their economic impact on producers 1 2 Genetics All farming starts with a choice of genetics. Benchmark sells high-genetic-merit eggs to producers, delivering the best starting point for production with excellent cost benefit ratio. $4bn Antibiotics use in aquaculture 3 Nutrition $1bn Early mortality syndrome in shrimp $500m Sea lice in salmon Caring for growth requires optimal nutrition. Benchmark supplies advanced nutrition products driving consistency in supply and better grow-out results. 4 5 Health Healthy growth drives efficiency. Benchmark’s comprehensive suite of products provides both preventative and treatment options for existing and emerging problems. 6 Knowledge Services Informed management is crucial to understand the threats on-farm. Benchmark’s team is on the front line offering actionable advice on a consultancy basis to reduce the impact of disease challenges. Benchmark is becoming a ‘one-stop shop’ for all production related needs. Benchmark Holdings plc Annual Report 2016 | Strategic Report 37 GROWTH STORIES Vietnamese aquaculture — rapid growth of a booming micro-economy Working closely with ambitious aquaculture entrepreneurs worldwide to improve production, Benchmark’s Advanced Animal Nutrition division through INVE have witnessed many successes, innovations and breakthroughs. Below we feature the insight and experience of one of our partners. “Aquaculture produces food for millions of people. But in the first place, it is a livelihood for farmers and their families. By optimising local farmers’ productivity, we have a tangible impact on their daily reality.” Rudi Bijnens INVE Regional Sales Director, Asia STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION Just like in many Asian countries, aquaculture in Vietnam is a booming micro-economy. Now providing almost half of the country’s seafood, the aquaculture industry has grown into one of the most important sources of revenue for the local population. “Mastering the hatchery stage has been the first step towards achieving better grow-out results. If you want to build tall, you have to start by laying a solid foundation.” Mr Van Thanh Luong CEO Viet-Uc Group Applying best practice hatchery management principles — controlling conditions from start to finish — to the nursery and grow-out stages, Viet-Uc is investing in large-scale farming capacity without compromising the shrimps’ health or conditions. Covered and aerated ponds combined with on-site water treatment and waste management make it possible to bring all environmental aspects under control. Adopting game-changing technologies in feed formulation such as complete fishmeal replacement, Viet-Uc is a pioneer and innovator in the field of sustainable shrimp production. Viet-Uc, Mekong Delta, Vietnam One of the best-known growth stories in Vietnamese aquaculture is shrimp producing company, Viet-Uc. The business, run by entrepreneur Mr Van Thanh Luong, has set up the world’s largest shrimp hatchery producing 15bn post larvae (PL) shrimp annually. INVE works closely with Viet-Uc’s hatchery and farm management, optimising their operations and protocols. Economies of Scale 15bn post larvae (PL) 3,000m2 31ºC The Viet-Uc Group has set up the world’s largest shrimp hatchery near Bac Lieu, Vietnam, which produces approximately 15bn post larvae per year. The grow-out stage has been intensified in ponds of 3,000 to 3,500 square metres each. Stocking densities range from 400 to 900 post larvae per square metre. Covering its ponds with industrial green-houses, Viet-Uc maintains a constant water temperature of 31ºC during the hot season. Daily fluctuations are kept under 1.5ºC. See more at www.inveaquaculture.com/growth-stories Benchmark Holdings plc Annual Report 2016 | Strategic Report 39 STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION Our People BENCHMARK’S LEADERSHIP TEAM PLC Executive Board Malcolm Pye Chief Executive Officer Roland Bonney Chief Operating Officer Mark Plampin Chief Financial Officer Athene Blakeman Company Secretary Bob Long, Managing Director, Benchmark Vaccines John Marshall, Technical Director, Benchmark Animal Health Philippe Léger, Chief Executive Officer, INVE Bob joined Benchmark as part of the BVL acquisition from Novartis in 2012. He graduated in Virology and Microbiology from the University of London and is a Member of the Royal Society of Biology, a Chartered Biologist and a Qualified Person. Bob brings to Benchmark over 35 years’ experience in animal and human health. John is Technical Director of Benchmark Animal Health. He has over 20 years’ experience in the animal health industry working in R&D, sales and marketing, business development, business unit leadership. John leads the Group’s R&D teams working on the development, sales and marketing of new animal health vaccines, medicines and biocides. Hamish Rodger, Global Managing Director, FishVet Group Jonas Jónasson, Managing Director, StofnFiskur Hamish Rodger graduated from the University of Glasgow Veterinary School, Scotland in 1984 and has worked as an Aquatic Animal Veterinarian for over 30 years. He has a Master’s in Aquatic Veterinary Medicine from the Institute of Aquaculture, University of Stirling, Scotland where he also completed his PhD on the EIBS virus of salmonids in 1997. James Banfield, Head of Technical Publishing, Managing Director of 5m Publishing James has over 20 years’ experience in professional and education publishing, holding positions with Longman from 1987 to 1993 as an Editor and Publisher, and then at Pearson Group PLC from 1993 to 2003 working in publishing and business development roles until he became Managing Director at FT Information Europe. Prior to joining Benchmark in 2012, James was Managing Director at KBC, an international education provider. Jan-Emil Johannessen Managing Director, SalmoBreed Jan-Emil has been the Managing Director of SalmoBreed since 2013 and has worked closely with Benchmark’s senior team since SalmoBreed joined the Group in December 2014. He has over 30 years’ experience within the Norwegian food production sector, having worked with Rieber (Toro) and Fossen AS (today Lerøy Fossen AS). Jónas joined Benchmark in December 2014 when StofnFiskur became a part of the Group. He joined StofnFiskur in 1996 as the Chief Geneticist responsible for developing and running breeding programmes for Atlantic salmon and was appointed CEO in 2006. Jónas is responsible for running StofnFiskur in Iceland and oversees the production of salmon ova and lumpsucker cleaner fish for the salmon industry. Morten Rye, Managing Director, Akvaforsk Genetics Morten has been working with genetic research and applied genetic improvement programs for fish and crustaceans since 1986 and joined Akvaforsk Genetics when it was established in 1999. During his career he has played a key role developing and establishing the Company as a renowned provider of genetic improvement services to aquaculture industries globally. Patrick Lavens, Innovations Director, INVE Patrick has a PhD in Applied Biological Sciences and an MSc in Biology from the University of Ghent where he was also Guest Professor in Aquaculture. Patrick joined INVE in 1999 and has since fulfilled a number of roles within the Company including Technical- Commercial Manager for Europe and Business Unit Manager Health. He has been Innovations Director since 2010 responsible for R&D, new business and product development. Philippe has over 35 years’ experience in the aquaculture industry and has worked at INVE Aquaculture (now Benchmark Advanced Nutrition) since its foundation in 1983. He has occupied a variety of roles including Research Scientist, R&D Manager, Manager Technical Department, Business Director Aqua and CEO. He holds a PhD in Agricultural Sciences from the University of Ghent and two Masters degrees in Environmental Sanitation & Management and Pharmaceutical Sciences. Pierre Hugo, Finance Director, INVE Pierre joined INVE in 2012 having previously worked at Pfizer for 11 years in roles including Accounting Supervisor, Controller, Senior Analyst and Business Finance Manager. Prior to this he spent three years as Finance Director at UCB Pharma and three years working at Sanofi Pasteur MSD. He has over 19 years’ experience in finance and holds two Masters degrees in Finance and Taxation, as well as Risk and Insurance Management. Ruth Layton, Benchmark Co-founder, Head of Benchmark Sustainability Science In addition to her role as Director of FAI Farms, Ruth is also one of Benchmark’s founders. Ruth graduated as a Veterinarian from The Royal Veterinary College London and has a Diploma in Animal Welfare Science Ethics & Law. She has extensive experience of consultancy within the food industry and with external parties, including various research institutes to tackle industry problems. Stelios Leontios, Commercial Director, INVE Stelios has worked at INVE since 1993 and has held several functions within the company including Technical- Commercial Support, Sales Executive, General Manager of INVE Hellas, Regional Manager Europe, Regional Sales Director Europe and Commercial Director. He has over 22 years’ experience in Aquaculture and holds a Masters in Agricultural Sciences. Image: Benchmark’s aquaculture conference, Aquaculture UK Benchmark Holdings plc Annual Report 2016 | Strategic Report 41 STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION Our culture as a business is defined by our shared values, we are — Brave & Ambitious Practical Focused We challenge the status quo to create understanding, opportunity and innovation. We deliver the day job, we keep it simple, we are honest and straightforward. We are clear on our vision and know what success looks like. Collaborative Courteous & Have Fun None of us are as good as all of us. Our manners matter, our humour helps. A DAY IN THE LIFE Birgitte Sørheim, Marketing Director for Benchmark Breeding and Genetics Since joining Benchmark’s team in Bergen, Norway in August 2015 I’ve been able to use my combined skills and experience within marketing, sales and technical knowledge to drive results for Benchmark’s (at the time) newly formed Breeding and Genetics division. A typical day includes event planning, brand strategising, profiling, product launches, website production and generating advertisement, marketing and sales collateral. Exhibitions, conferences and customer seminars are also regular features in my diary. Our technology is highly advanced and specialised, so ensuring that customers understand how we can help them is key to my job and our success. Travel is essential to my role. We are a truly international group and it is necessary to visit colleagues and other Benchmark teams to fully understand how we can promote their brands and products, and support their commercial activities. It is very important that our marketing strategies and actions are in line with the needs of our international customer base. I am lucky to have a large base of skilled, talented and collaborative colleagues across the Benchmark Group and within Breeding and Genetics in particular. Our focus on the very start of the value chain for aquatic food production influences the entire life cycle that follows. It’s incredibly exciting to know that what we do in Breeding and Genetics is going to influence the future of the industries we serve, and to work at a company which is a global leader in this space. Benchmark Holdings plc Annual Report 2016 | Strategic Report 43 Image: Benchmark’s vaccine manufacturing facility, Braintree UK DEVELOPING OUR INDUSTRY- LEADING TEAM 2016 was a pivotal year for our People Strategy. The acquisition of INVE Aquaculture in 2015 more than doubled the number of people across the Group and increased our global footprint to 27 countries, requiring integration across new cultures and geographies. Working groups across key business areas were set up to map out and implement strategies for enabling this as well as identifying areas of synergy and opportunity. The ease and speed with which this has happened has far exceeded our expectations. We believe this is the result of our closely aligned company values and our team’s continued appetite for embracing new challenges and opportunities. A series of vision and values workshops were rolled out across key locations to ensure our senior leaders are united to ready the business for the next phase in our evolution and to take on the challenges of our dynamic industries. Succession planning remains a focus and our Management Development Programme supports this, continuing to yield success into its fourth year as part of our company-wide strategy for nurturing emerging talent and developing and investing in our employees. The global team has continued to deliver results despite many working in challenging circumstances, such as the construction of the Braintree Biotech Building and the renovation of FAI Ardtoe aquaculture research Facility in Scotland. Ongoing recruitment for highly skilled, highly specialised positions across the Group — particularly within the areas of health, nutrition and genetics — remained a challenge throughout 2016, but renewed focus on developing existing and new recruitment partnerships helped secure a number of high quality appointments. Our growth and continued success is down to the hard work, talent and dedication of every member of our team. Maintaining a culture where everyone feels a valued member of our global team, regardless of geography or role, is central to our strategy as we enter our next phase of growth. OUR RESPONSIBILITY AND IMPACT Benchmark is founded upon what we call the 3Es — Economics, Ethics and Environment. Businesses now need to deliver ethically, environmentally as well as economically to bring sustainable success and profits. We believe that it’s only when business gets involved that change really starts to accelerate. The 3Es guide our hand, ensuring that we respond to the whole challenge and not to single issues in isolation. Here we list some issues of importance to humanity, and what Benchmark is doing to help tackle them. SM Economically viable Environmentally sound Ethically robust STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION Challenge Benchmark’s impact Antibiotic resistance There are 15 World Health Organization (WHO) critically or medically important antibiotics, a number of which are still routinely used in agriculture and aquaculture. Emerging diseases Benchmark promotes and adheres to the ‘3Rs framework’ of Replace, Reduce, Refine to help drive responsible use of antibiotics in agriculture and aquaculture. It is essential that we take responsibility to preserve the effectiveness of all antibiotics for the benefit of people, animals and the environment. Disease is a significant barrier to sustainable production. New disease threats can be a limiting factor for all animal production systems, particularly within the young, fast- growing aquaculture industry. Benchmark is investing in technologies to accelerate the early identification of new diseases through our state-of-the-art histopathology equipment, enabling producers to act rapidly and reduce losses. Across the Group we are investing in vaccine development as a means of a preventing some of the leading health challenges facing our industries. We continue to train and educate our people and customers in best-practice prevention and management of key diseases. Animal welfare Giving an animal a ‘life worth living’ requires good husbandry, considerate handling and transport, humane slaughter and, above all else, skilled and conscientious stockmen (FAWC*). Energy use Climate change and rising costs of energy are key challenges facing every business. Community engagement Contributing to the well-being of communities. Health and safety Everyone has the right to go home unharmed and we all have a responsibility to ensure that we do. Benchmark’s team of animal health experts, combined with our products and training services, ensure we adhere to and promote the highest animal welfare standards throughout our operations. We recognise and respect the ‘Five Freedoms’ (RSPCA), but strive to ensure the highest possible welfare potential for every animal under our care. For example, through assisting in developing and implementing the RSPCA’s Freedom Food standard for salmon. In-house, as a baseline, we adhere to relevant environmental legislations and standards by implementing best practices within waste minimisation and management, energy use and water use. However, we always strive to do more. We are reviewing our footprint and identifying ‘hotspots’ in our operations where we need to make a difference — these often have economic and ethical benefits, as well as environmental. We strive to have a ‘net positive’ impact on the communities in which we operate. For example, Benchmark supports FarmAbility in Oxford, an on-farm day service for adults with autism and learning difficulties to build their independence in living and working skills. Benchmark has supported the charity and its co-farmers from its inception, providing a base and facilities at the commercial research farm in Oxford, UK. The project has also been supported by Benchmark employees, with members of staff participating in a range of fundraising activities throughout the year. Benchmark is deploying a commitment to health safety for every employee to sign up to as follows: • Nothing is more important than health and safety • Nothing we do is worth being hurt for • Nothing is so important we cannot take time to do it safely • We will never witness an unsafe act or condition without taking action * FAWC, the independent advisory body known as the Farm Animal Welfare Committee. Image: Benchmark’s 1650-acre commercial research farm, Oxford UK Benchmark Holdings plc Annual Report 2016 | Strategic Report 45 GROWTH STORIES Investing in a blue-green economy Working closely with ambitious aquaculture entrepreneurs worldwide to improve production, Benchmark’s Advanced Animal Nutrition division through INVE has witnessed many successes, innovations and breakthroughs. Below we feature the insight and experience of one of our partners. STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION As global seafood consumption increases, producing the volumes necessary to maintain an adequate supply is a big concern in aquaculture. Quality, food safety and traceability have become critical factors for anyone who wants to successfully market any kind of food produce. Meeting the consumer’s demand for safe and traceable food produce An environmentally friendly approach to aquaculture is no longer just an ideological standard, it has become mandatory to maintain production licenses and commercial viability. Investing in the fish production of tomorrow Philosofish by Bitsakos (‘Philosofish’) is one of INVE’s customers which has recently managed to double its yearly proceeds. The secret to this success: a thorough professionalisation of their entire operations, funded with new working capital. We see this phenomenon worldwide as aquaculture has developed into an attractive industry for investors, who realise its enormous growth potential. Philosofish used its new capital injection to increase its production capacity both in the hatchery and the farm. By expanding the hatchery and redesigning its set-up for a more controlled way of working, Philosofish can now produce more and stronger fry. The installation of additional sea cages enabled them to double their grow-out yield in a year’s time. Our local experts contributed to the new set-up of the hatchery and the optimisation of feeding protocols to support their increased production targets. “Investing in aquaculture is investing in a future-proof production supply of protein for human consumption. A market that will keep on growing for many decades to come.” Panagiotis Bitsakos Aquaculture Entrepreneur 100% growth Two species By investing in a thorough professionalisation of their operations Philosofish by Bitsakos has recently managed to increase its yearly proceeds by 100%. Philosofish by Bitsakos focuses its activities on sea bass and sea bream, two species that are in high demand on the Mediterranean seafood market. Large-scale investment plan In order to support the Company’s growth plan Philosofish by Bitsakos attracted new working capital, which allowed the Company to double its open sea cage farming capacity. See more at www.inveaquaculture.com/growth-stories Benchmark Holdings plc Annual Report 2016 | Strategic Report 47 STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION Financial highlights • Revenue increased by 148% • Animal Health division successfully 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) 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 Total revenue Gross profit Gross profit percentage Operating expenses — Trading Activities EBITDA from Trading Activities Profit /(Loss) before tax from Trading Activities Total net costs of Investing Activities Loss before tax Earnings/(Loss) per share from Trading Activities (pence) Basic loss per share (pence) 2016 109.4 50.8 46% (28.5) 22.3 4.3 (26.7) (22.4) 1.79 (4.39) 2015 44.2 16.1 36% (13.7) 2.4 (1.3) (10.1) (11.4) (1.13) (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). Benchmark Holdings plc Annual Report 2016 | Strategic Report 49 Mark Plampin, Chief Financial Officer FY16 FINANCIAL REVIEW Key Performance Indicators Group Revenue 2016 2015 £44.2m £109.4m Headcount 2016 2015 402 Group EBITDA from Trading Activities Products in Pipeline 2016 2015 £2.4m £22.3m 2016 2015 61 884 94 Basic EPS from Trading Activities Investment in R&D (including additions to intangibles) 2.3 1.8 2016 2015 £13.2m £8.5m 2.0 1.5 1.0 0.5 0.0 (0.5) (1.0) e c n e P -1.1 0.6 (1.5) B asic EP S fro m Trading Activities 2 0 1 5 Im pact of Increased Im pact of Increased N o. of S hares Earnings B asic EP S fro m Trading Activities 2 0 1 6 Net assets 2016 2015 £92.1m £367.7m 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). Further commentary on divisional results is provided on pages 53 to 55. 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 division 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 except where there is certainty over the timing of their recovery. Investing Activities Earnings per share 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. 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 31 to the accounts 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 site in Ardtoe, Scotland. STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION 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). Cashflows 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 Group Revenue 2016 2015 £44.2m £109.4m 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. Group Revenue by Division 120 100 80 60 40 20 m £ 3.7 1.1 44.2 4.8 55.0 0.7 -0.3 109.4 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. 0 2 0 1 5 R evenue Advanced Anim al N utrition Breeding and G enetics Anim al H ealth Other Divisions* C orporate 2 0 1 6 R evenue Intra-Group Eliminations * Sustainability Science Division and Technical Publishing Division Group Trading EBITDA by Division 1.9 -0.8 22.3 17.1 25 20 15 10 5 m £ 2.3 0.4 -1.0 2.4 0 Other Divisions* Breeding and G enetics Anim al H ealth Advanced Anim al N utrition 2 0 1 5 Trading E BIT D A 2 0 1 6 Trading E BIT D A Intra-Group Eliminations C orporate * Sustainability Science Division and Technical Publishing Division Group EBITDA from Trading Activities 2016 2015 £2.4m £22.3m Reconciliation of Group Loss before Tax to Group EBITDA from Trading Activities 11.7 0.1 22.3 16.6 1.4 25 20 15 10 5 0 -5 -10 -15 -20 m £ -22.4 12.9 2.2 -0.3 -25 N et Finance C osts Pre-operational Ventures Trading E BIT D A Acquisition R elated C osts Loss B efore Tax D epreciation & A m ortisation S hare of Profit of Associate Exceptional Ite m s R & D Expenditure Benchmark Holdings plc Annual Report 2016 | Strategic Report 51 STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION 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 FINANCIAL PERFORMANCE 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 Breeding and Genetics Division 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 £1.1m to £3.6m (2015: £4.7m). The division has performed well, with sales of £55.0m and EBITDA from Trading Activities at £17.1m for the nine months 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 Niño 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. Basic EPS from Trading Activities Group Cashflow 2016 2.3 1.8 2.0 1.5 1.0 0.5 0.0 (0.5) (1.0) e c n e P -1.1 0.6 (1.5) B asic EP S fro m Trading Activities 2 0 1 5 Im pact of Increased Im pact of Increased N o. of S hares Earnings B asic EP S fro m Trading Activities 2 0 1 6 -6.0 -4.4 3.1 -1.5 Basic EPS 0 -1 -2 -3 -4 -5 -6 e c n e P -7 B asic EP S 2 0 1 5 Im pact of Increased Im pact of R educed N o. of S hares Earnings B asic EP S 2 0 1 6 211.8 -191.5 Advanced Animal Nutrition Division Revenue Breeding and Genetics Division Revenue 2016 2015 £55.0m 2016 2015 £20.7m £15.9m 33.3 -18.5 -1.5 -2.2 38.1 -10.5 3.7 13.6 Advanced Animal Nutrition Division EBITDA from Trading Activities Breeding and Genetics Division EBITDA from Trading Activities 2016 2015 £17.1m 2016 2015 £3.6m £4.7m m £ 250 200 150 100 50 0 N et Proceeds fro m B ank B orro wings C ashflo w fro m O perations Acquisition of S ubsidiary N et Proceeds of S hare Issue G ain on foreign exchange forw ard contract 2 0 1 5 Closing B alance Property, Plant & Equip m ent Interest Paid/R eceived Investm ent in R & D (capitalised) 2 0 1 6 Closing B alance Net assets 2016 2015 £92.1m £367.7m Summary Income Statement Revenue Cost of Sales Gross Profit 2016 £m 55.0 Summary Income Statement Revenue (26.5) Cost of Sales 28.5 Gross Profit Operating costs relating to Trading Activities EBITDA (from Trading Activities) Operating costs relating to Investing Activities Depreciation and amortisation Operating profit (11.4) 17.1 (1.2) (11.4) 4.5 Operating costs relating to Trading Activities EBITDA (from Trading Activities) Operating costs relating to Investing Activities Depreciation and amortisation Operating profit 2016 £m 20.7 (13.5) 7.2 (3.6) 3.6 (4.6) (2.6) (3.6) Benchmark Holdings plc Annual Report 2016 | Strategic Report 2015 £m 15.9 (9.9) 6.0 (1.3) 4.7 (0.2) (1.4) 3.1 53 Animal Health Division The division’s pipeline of new technologies and products remains its key focus, and first sales of a new Nodavirus vaccine for sea bass 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. Animal Health Division Revenue Factored Products Revenue 2016 2015 £24.8m £21.1m 2016 2015 £3.3m £3.6m Animal Health Division EBITDA from Trading Activities 2016 2015 £2.1m Manufacturing Revenue 2016 2015 Own Products Revenue 2016 2015 £10.2m Fish Vet Group Services Revenue £4.5m 2016 2015 £1.0m £0.8m £3.5m £3.5m £16.4m Summary Income Statement Revenue Cost of Sales Gross Profit Operating costs relating to Trading Activities EBITDA (from Trading Activities) Operating costs relating to Investing Activities Depreciation and amortisation Operating loss 2016 £m 24.8 (15.0) 9.8 (5.3) 4.5 (9.0) (1.5) (6.0) 2015 £m 21.1 (14.5) 6.6 (4.5) 2.1 (6.1) (1.9) (5.9) Sustainability Science and Technical Publishing Divisions 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). Sustainability Science and Technical Publishing Divisions Revenue 2016 2015 £11.2m £10.1m Sustainability Science and Technical Publishing Divisions EBITDA from Trading Activities 2016 £0.2m -£0.2m 2015 Summary Income Statement Revenue Cost of Sales Gross Profit Operating costs relating to Trading Activities EBITDA (from Trading Activities) Operating costs relating to Investing Activities Depreciation and amortisation Operating loss 2016 £m 11.2 (7.0) 4.2 (4.0) 0.2 (1.6) (1.0) (2.4) 2015 £m 10.1 (6.9) 3.2 (3.4) (0.2) (0.2) (1.0) (1.4) Benchmark Holdings plc Annual Report 2016 | Strategic Report 55 RISK MANAGEMENT Approach to risk management The Group recognises that taking risks is an inherent part of doing business and that competitive advantage can be gained through effectively managing risk. The Group continues to develop risk management processes, integrating risk management into business decision-making. The Group’s approach to risk management is set out in the diagram below, and areas of focus during the year are discussed. The principal risks and uncertainties, together with their potential impacts, are set out in the tables below along with an illustration of what is being done to mitigate them. The Board is responsible for ensuring that the Company has in place effective procedures for the management of risk, and that the principal risks faced by the Group are identified, assessed, appropriately mitigated and monitored. The Audit Committee reviews the effectiveness of the Company’s risk management and internal control procedures on behalf of the Board. The diagram below sets out the key elements of the Company’s risk management framework. Bottom-up risk review Risks are identified in a bottom-up process involving local management, resulting in a risk register for each business. PLC risk register Risks capable of having an effect at Group level are identified and prioritised. I D E N T I F I C A T I O N M O N I T O R I N G Ongoing monitoring and review There is a continual process of updating risk registers, incorporating newly acquired businesses into the process, reviewing risk appetite, and monitoring the implementation of mitigation strategies. A S S E S S M E N T A N D E V A L U A T I O N Risk weighting Risks are assessed to give a gross risk weighting, taking into account likelihood of occurrence and severity of impact, and a net risk weighting, which also takes into account existing mitigating factors and controls. Risk exposure The risk exposure (net risk weighting) is evaluated and it is determined whether the relevant risk is within the Company’s risk appetite. Actions Risk appetite M I T I G A T I O N Where risk exposure is outside risk appetite, actions are agreed and implemented, with priority given to risks capable of having an effect at Group level and risks outside risk tolerance. The Company’s risk appetite, which varies depending on the type of risk, is determined. The risk tolerance limit, which allows for a level of deviation from risk appetite where warranted to achieve objectives, and risk capacity, which is the level of risk that the Group is able to handle, are also evaluated. STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION Areas of focus In 2015, a bottom-up risk review was concluded, under the guidance of the Chief Financial Officer and an independent risk adviser, which resulted in the creation of a risk register for each business. Risks were categorised as strategic, operational, financial, human, legal/regulatory, or asset, and were given a weighting, having regard to the likelihood of occurrence, severity of impact and existing mitigating factors and controls. A PLC Risk Register was created, which identified and assessed the risks capable of having an impact at Group level, and commented on existing mitigating factors and controls. During the year, the Company reassessed its risk appetite. The Board agreed on a risk appetite statement applicable to the Group as a whole, which articulates the Group’s overall willingness to take risks (set out below). The Board also reviewed a more detailed risk appetite matrix, which sets out the Group’s appetite for risk in key areas relevant to the business. The Board received an overview of the Group’s risk profile, which evaluated each business against various risk categories, and identified significant risks and areas requiring focus. The Group has repeated the bottom-up risk review and reviewed the PLC Risk Register to ensure that these remain current and takes into account newly acquired companies and developments in the business. A programme is ongoing, at both PLC and local level, to identify where risk exposure is outside appetite, and to develop a plan to mitigate or control such situations. Risk appetite statement Benchmark Holdings plc, operating as it does in a highly regulated sector involving significant interaction with living organisms, has a very low tolerance to risks of breaching legal, regulatory or ethical standards or anything which could negatively impact on our reputation. The nature of our business means that we can be impacted by biological or climatic effects which are beyond our influence and so where possible, we take steps to mitigate these impacts on the business. We use our knowledge of fundamental biology to develop products that tackle unsolved problems often by applying new technology. We are mindful of our stakeholder requirements and so will take measured risk with regards to the integrity of our product pipeline and intellectual assets. We recognise that our people are one of our greatest assets and the Group encourages their long-term commitment allowing them to progress and achieve success. Failure to leverage value through collaborative working and cooperation between our Divisions is not a risk we are prepared to accept and the Group has the management structure in place to continue to deliver this particular goal. Where we believe that actions will be beneficial to the Group and its stakeholders, such as specific projects or acquisitions, then we will be willing to take more risk relative to the potential rewards on offer. Benchmark Holdings plc Annual Report 2016 | Strategic Report 57 STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION PRINCIPAL RISKS AND UNCERTAINTIES Risk Category Risks and uncertainty Mitigating factors Opportunities Risk Category Risks and uncertainty Mitigating factors Opportunities Legal and Regulatory — Licences and accreditations Legal and Regulatory — Intellectual assets Failure to obtain or retain licences for key existing or new products, R&D facilities 1:1048576 production sites could lead to reduced sales or restrictions on sales growth. The Group employs high calibre teams in regulatory affairs, quality control and customer technical support who manage the licence application process and ensure compliance with existing licence conditions. The knowledge of our people is a key asset and the need for a high calibre team to handle regulated products and processes is a barrier to entry for potential competitors. Risk of legal challenge to the Group’s intellectual property leading to potentially significant costs being incurred in the defence of Group IP or defending against third party accusations that the Group breached third party IP. A failed defence could lead to the loss of a product and/or compensatory awards. The Group employs an in-house legal team including an IP specialist. This is combined with retained external specialist advisers. Benchmark applies a rigorous process to appraise the IP in all new products and adopts a policy to vigorously defend or negotiate all claims arising. In house resource enables long-term strategic focus on efficient protection of IP which in turn protects future revenue streams. Access to rights to commercialise some pipeline products developed in collaboration with universities or other third parties are yet to be negotiated and there is a risk that the Group may not be able to launch these products or may have to agree to less favourable terms in order to do so. Operational — Products The Group is reliant on the continued success of its research and development programmes for aquaculture and the commercial success of its pipeline products. An unexpectedly high new product development failure rate or delay in reaching market would delay revenue growth. A system for monitoring the contractual and IP position of pipeline products has been developed and this is operated in parallel with systems for monitoring status of product development. The Group has expanded the in-house legal team to include an IP manager who works closely with the product development team. The Group has a high calibre team of animal health product development specialists covering all stages of the process to market. Some new products in development involve collaboration with specialist partners and often present a lower risk as the Group can leverage the partner's existing development work. Rigorous proof of concept studies are undertaken at an early stage in order to seek to minimise the possibility of failure. Further focus on this area will provide opportunities to improve terms for future product development collaborations. This approach to product development tends to enable the Group to access a wider portfolio of potential solutions to identified market needs and often allows accelerated progress to market launch. Development of resistance to some existing products would lead to reduced efficacy. The Group has deployed a technical support team to provide customers with regular advice and training on the proper use of its products. There is a particular focus on good stock management and avoiding over-use. Correct management of product efficacy presents an opportunity to provide a package of solutions that enable better long-term disease management. Operational — Supply chain Delayed launch or under-utilisation of laboratory, manufacturing or R&D facilities resulting in reduced return on investment. Reliance on third parties to provide some raw materials and manufacturing services could lead to restrictions in supply. New capital projects are supervised by an experienced project manager working with an in-house project team and supplemented by retained specialist consultants and advisors. The Group's new product pipeline will provide significant utilisation of group manufacturing capacity in the future. External manufacturing contracts are also available. Wherever possible dual suppliers of key raw materials, components and manufacturing services are engaged on a contracted basis. In addition the group continually evaluates the security of the supply chain for each of its products and will consider establishing in house manufacturing where there is a high risk. The Group will also increase stock holding where appropriate in order to mitigate the risk of product shortages. Having in-house manufacturing provides security of supply and protects important IP that is developed in the manufacturing process. Laboratories provide brand penetration into the key aquaculture markets. Where dual supply is achieved this presents opportunities for cost saving and also to encourage collaboration. Where in house manufacturing is the preferred approach this can present opportunities to generate revenues from providing manufacturing services to third parties. Disease outbreaks at sites with breeding programmes or live stocks could result in reduced revenues, reputational damage and potential product liability claims. Group breeding facilities operate high standards of biosecurity, quality control and quality assurance. In particular StofnFiskur’s location in Iceland provides some of the best resources for disease free production. Consistent disease free production results in increased customer confidence and the potential to expand sales. Human — People Failure to recruit, retain or replace employees with skills key to the success of the business. Benchmark is involved in production environments and there is a risk of injury or death to employees. This could lead to legal action and, as a consequence, reputational and financial damage to the Group. Asset risk — Assets and business interruption Damage to Group assets could result in loss of key breeding or manufacturing capacity coupled with long lasting consequential losses including loss of customers. Key systems or IT Infrastructure failure could lead to temporary or permanent loss of data resulting in lost IP, delays to product launches, reduced production capacity, delays to financial reporting, etc. Strategic — Reputational Failure of a Group product could cause third party loss or damage resulting in potential legal action, loss of confidence in product, damaged reputation and reduced sales. There is risk of one entity suffering reputational damage that then spreads to other associated group companies. Strategic — Synergies One of the Group’s key strategies is to extract synergies between operating divisions and failure to manage this effectively could inhibit growth. Benchmark has a centralised People team with a core understanding of group requirements backed up by a People Strategy. The Operations Board is involved in all key hires and in developing and implementing policy. The Group's Divisions have established management teams and a substantial degree of autonomy meaning that potential problems with succession are reduced. Health and Safety is a priority matter for the plc board and a new senior post of Health and Safety manager was created in 2016. This senior post reports to the board and the manager has launched new policies, implemented priority safety measures and improved monitoring and reporting. Regular safety inspections are undertaken to assess the risk of fire, security, etc. and integrated alarm systems are installed wherever possible. Tenure at key sites is generally secured through freehold ownership or long leasehold. The Group is improving safety standards at all sites and constructing alternative production facilities where return on investment can be demonstrated. Benchmark employs a centralised IT team with an IT strategy in place that has security at its centre. This includes implementation of key security systems like single sign on. The Group utilises a mix of in house and outsourced solutions to ensure systems are robust and data is secure. Benchmark employs rigorous quality control, quality assurance and pharmacovigilance practices. The Group provides a high level of technical support and training to customers in order to ensure correct use of products. Any issues arising would be discussed at the Operations Board ensuring a swift group response and this would include the group’s centralised communications team. Management of the Group is structured to maximise focus on synergies and the senior team have this as a key priority. In addition, one of the founding principles of the group’s ethos is to encourage collaborative working. Benchmark has a high staff retention rate which supports the Group’s strong culture and ensures consistent delivery of its strategy. The launch of alternative manufacturing facilities provides significant additional production capacity. Properly controlled use of IT systems enables faster and wider collaboration, especially for an international business like Benchmark. Efficient protection of reputation results in high levels of customer confidence and hence supports opportunities for collaboration and growth. Effective collaboration drives progress faster and opens further opportunities for growth. The Strategic Report was approved by the Board on 24 January 2017 and signed on its behalf by Financial Limited diversity of revenue streams presents a risk of volatility in sales. The Group's pipeline of new products is anticipated to deliver an increasing number of launches in both existing and new markets. Benchmark's offering of a package of solutions and technical support promotes customer retention and reduces volatility in orders. The Group is fast building a strong position as a key technology solutions provider to the global aquaculture industry across multiple species and this brings new opportunities at an increasing pace. Malcolm Pye Chief Executive Officer The Group is exposed to risks associated with currency exchange rates. This impacts sales volumes where products are priced in US dollars but sold in local currency and impacts reported results when local results, assets and liabilities are converted to GB pounds. Substantial natural hedging is achieved by matching currency cash flows and through borrowings in US dollars. A treasury policy is in place to ensure that currency outflows that cannot be matched internally are hedged when there is certainty of amount and timing. Debt facilities include financial covenants which, if breached, could lead to reclassification of debt as ‘within one year’ and to the requirement to refinance on uncertain terms. The Group's customers are susceptible to the impact of climatic conditions on their livestock and hence their profitability. This may cause short-term unpredictability in Benchmark's trading and in anticipated growth in revenues. Financial covenants are set with appropriate headroom and regular reforecasting enables advanced monitoring of compliance. Proactive management of the relationship with banking partners based on track record of delivery and a spirit of openess and early engagement would assist if amendments to covenants were required. Consider the potential range of consequences of adverse conditions when preparing financial projections. Monitor climatic data and market intelligence. Climatic conditions often impact the performance of livestock and can promote new or heightened disease challenge, which presents Benchmark with the opportunity to apply its technology to solve these new problems. Benchmark Holdings plc Annual Report 2016 | Strategic Report 59 STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION 02 Governance 62 Introduction to the Board 64 Leadership 68 Effectiveness 70 Accountability 74 Remuneration 79 Shareholders 79 Directors’ Report 83 Directors’ Responsibility Statement INTRODUCTION TO THE BOARD Board of Directors and Company Secretary Malcolm Pye — Chief Executive Officer Appointed: November 2000 Skills, competence and experience: Malcolm has over 30 years’ experience in international agribusiness through his roles within the Hillsdown Holdings/HMTF group, operating in animal breeding, poultry, feed milling and veterinary services. During this time, Malcolm gained extensive experience in breeding and genetics, sales and strategic M&A, and held board positions within the Group. In 2000, Malcolm founded Benchmark, along with Roland Bonney and Ruth Layton, and has since led the Company’s growth and diversification. Malcolm has a degree in Zoology/Applied Zoology from the University of Wales (Bangor). Roland Bonney — Chief Operating Officer Appointed: November 2000 Skills, competence and experience: Roland is an experienced agriculturalist, having founded businesses in large-scale farming and food chain development consultancy serving global food retailers. Roland has extensive experience in international business development, particularly in the US, Latin American and Chinese markets. Roland was one of the three founders of Benchmark, and has since led the Company’s operations, working with management teams to identify and implement opportunities for improvement and optimise use of resources, as well as leading the Company’s communications and people strategies. Mark Plampin — Chief Financial Officer Appointed: March 2010 Skills, competence and experience: Mark is a qualified Chartered Certified Accountant with over 20 years’ experience. Mark joined Benchmark in 2010 from PKF (UK) LLP (now BDO LLP), where he was a Partner and National Chairman of the Food Sector Group. Mark’s experience at PKF was focussed on corporate finance, including leading on M&A and the strategic development of high-growth small and mid-market businesses. Alex Hambro — Non-Executive Chairman Nomination Committee (Chair) — Audit Committee Appointed: December 2013 Skills, competence and experience: Alex has operated in the private equity industry, both in the UK and USA, for over 25 years. He has acted as principal investor, manager and sponsor of private equity and venture capital management teams, and adviser to professional private clients. Alex managed the venture capital and private equity fund investment portfolio for Hambros plc, prior to its sale to Société Générale in 1998. Alex was also a founding Director of both Crescent Capital, a venture capital fund management team based in Belfast, and Judges Scientific plc, a scientific instrument manufacturing group. Other roles: Chair of Judges Scientific plc; Chair of Crescent Capital NI Limited; Non-Executive Director of Octopus Apollo VCT plc; Non-Executive Director of BACIT (UK) Ltd; Non-Executive Director Bapco Closures; Non-Executive Director Whitley Asset Management; Non-Executive Director First Magazine Ltd. STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION Susan Searle — Senior Independent Director Remuneration Committee (Chair) — Nomination Committee Appointed: December 2013 Skills, competence and experience: Susan has over 20 years’ experience working with entrepreneurs and academic inventors in the commercialisation of university research. Susan co-founded Imperial Innovations Group plc, now one of the world’s leading technology venture investment businesses, and was the group’s Chief Executive Officer from 2002 to 2013. Previously, Susan held roles in sales, marketing, operations and manufacturing in various industries including chemicals, precious metals and retail. Susan holds an MA in Chemistry from Exeter College, Oxford. Other roles: Chair of Woodford Patient Capital PLC; Chair of Mercia Technologies PLC; Senior Independent Director and Non-executive Director of Horizon Discovery Group plc; Non-Executive Director of QinetiQ Group plc. Kevin Quinn — Non-Executive Director Audit Committee (Chair) — Remuneration Committee Appointed: November 2016 Skills, competence and experience: Kevin is a qualified Chartered Accountant with over 30 years of financial experience in international business and the biosciences industry, including with FTSE 100 companies. Kevin has, for the past 11 years, been Chief Financial Officer at Berendsen plc, the leading FTSE 250 European textile service business. Previously, Kevin held senior finance positions within biosciences group Amersham plc and before that was a partner with PricewaterhouseCoopers (Prague). Kevin holds a BA in French from University College, Durham. Other roles: Chief Financial Officer of Berendsen plc. Athene Blakeman — Company Secretary & Group Legal Counsel Appointed: September 2014 Skills, competence and experience: Athene is a qualified Solicitor with over 12 years’ experience. Athene previously worked in Slaughter and May and Travers Smith LLP’s corporate finance teams, focussing on public company advisory work, M&A, fundraisings, private investments, JVs and commercial contracts. Since joining Benchmark, Athene has acted as Company Secretary and Group Legal Counsel, with responsibility for the Group’s global legal and IP functions. Athene holds an MA in Jurisprudence from St John’s College, Oxford. Basil Brookes — Non-Executive Director Audit Committee (Chair) — Remuneration Committee Appointed: December 2013 Retired: July 2016 Following a very successful 3-year term as Non-Executive Director, Basil Brookes stepped down from the Board in July 2016 for health reasons. Board Committees Audit Committee Kevin Quinn (Chair) Alex Hambro Nomination Committee Alex Hambro (Chair) Susan Searle Remuneration Committee Susan Searle (Chair) Kevin Quinn On 29 July 2016, Basil Brookes (Non-Executive Director) stepped down from the Board for health reasons. Basil had been Chair of the Audit Committee and a member of the Remuneration Committee. The Board implemented its succession plan and promptly commenced a recruitment process to find a Non-Executive Director with appropriate skills and experience to replace Basil, and Kevin Quinn was appointed on 25 November 2016. In the interim period, temporary appointments were made to ensure that each of the committees maintained an appropriate composition and the requisite experience. Alex Hambro stepped up to Chair the Audit Committee, and Susan Searle was appointed on an interim basis to the Audit Committee. Susan Searle remained Chair of the Remuneration Committee, and was joined by Alex Hambro who was appointed on an interim basis to the Remuneration Committee. Benchmark Holdings plc Annual Report 2016 | Governance 63 LEADERSHIP Role of the Board Strategic decisions STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION Governance framework Benchmark operates a clear governance framework, which is outlined in the diagram below and described in this report. The Company complies with the principles of the UK Corporate Governance Code (the Code). An overview of the Company’s compliance with the Code is set out in the Directors’ Report on pages 79 to 83. Board of Directors of Benchmark Holdings plc Alex Hambro (Chair) Susan Searle (Senior Independent Director) Kevin Quinn (Non-Executive Director) Malcolm Pye (Chief Executive Officer) Roland Bonney (Chief Operating Officer) Mark Plampin (Chief Financial Officer) Principal objective: Collectively to ensure the long-term success of the Company. Audit Committee Kevin Quinn (Chair) Alex Hambro Principal objective: To ensure that the interests of shareholders are properly protected in relation to financial reporting and internal controls. Nomination Committee Alex Hambro (Chair) Susan Searle Principal objective: To lead a formal, rigorous and transparent process for the appointment of new Directors to the Board and its committees. Benchmark Operations Board Remuneration Committee Executive Directors (Malcolm Pye, Roland Bonney, Mark Plampin), heads of division, senior management of other significant businesses within the Group, heads of key support functions. Principal objective: To facilitate synergistic business development, deliver strategic initiatives across the Group, and communicate Group strategy. Susan Searle (Chair) Kevin Quinn Principal objective: To develop policy on executive remuneration and set the remuneration of the Chairman, Executive Directors and senior management. Divisional Boards Executive Director representation, heads of division, senior management of all businesses within division. Principal objective: To develop and deliver strategy for the relevant division. The Board is responsible for the long-term success of the Group, overseeing the development and delivery of strategy and conduct of the business, to generate sustainable value for shareholders. The Executive Directors are responsible for the implementation of strategy, business operations, risk management, and ensuring that the necessary financial and people resources are in place to achieve the Company’s aims. The primary responsibilities of the Non-Executive Directors are to constructively challenge and help develop strategy, scrutinise the performance of management, satisfy themselves that financial controls and risk management systems are robust, determine Directors’ remuneration, satisfy themselves regarding the integrity of financial information, and succession planning for Executive Directors and senior management. Each year, the Board holds a Strategy Day to allow for a focussed session to discuss the long-term strategy of the Group and related matters, including the composition and performance of the Board, succession planning, Group and management structure, financial resources and funding, and people resources and deployment. At this year’s Strategy Day, the Board received presentations from the heads of each of the Animal Health, Advanced Animal Nutrition and Breeding and Genetics Divisions regarding their long-term strategy for those divisions, which included an analysis of opportunities for growth and proposed investment programmes. The Board also dedicates a portion of each Board meeting to discussing strategy and its implementation. The Board exercises oversight and control over the performance of the Company through review of management financial information, by agreeing budgetary targets, and by approving investment programmes and monitoring their execution against budget and returns on investment. In addition, certain decisions which are significant to the Group due to their strategic, financial or reputational implications are reserved for approval by the Board. Matters reserved for the Board The decisions which are significant to the Group due to their strategic, financial or reputational implications and are reserved for approval by the Board are set out on this page. A formal schedule of matters reserved for the Board is maintained, and is communicated throughout the Group via regular training. The matters reserved for the Board were reviewed by the Board in 2016. Amendments were made to take account of changes in the business as a result of the INVE Acquisition, including the introduction of business specific thresholds for identifying material decisions. • Review and approval of the long-term objectives and strategic direction of the Group • Approval and monitoring of strategic and annual business plans and budget • Review of business performance • Approval of significant acquisitions, mergers, disposals and other transactions • Approval of diversification into new business activities and new geographies Reporting • Approval of the Annual Report and Accounts and of the interim financial statements • Oversight and approval of significant changes to reporting policies and practices Regulatory matters • Compliance with the AIM Rules for Companies and principles of the UK Corporate Governance Code • Approval of interim dividends and recommendation of final dividends Finance, governance and controls • Review and approval of internal control and risk management systems • Approval of significant projects, contracts and disputes • Approval of financing policy including the issue of shares and significant borrowings • Appointment or removal of the auditors and determination of the audit fee • Oversight and approval of Directors’ conflicts of interests • Rules and procedures for regulating dealing in the Company’s shares by its employees and Directors Succession planning and reward • Ensuring adequate succession planning is in place • Appointments of Directors to the Board and its committees • Appointment or removal of the Company Secretary • Approving and recommending to shareholders the terms of employee share schemes, and approving significant changes to pension schemes • Approval of remuneration of senior management Benchmark Holdings plc Annual Report 2016 | Governance 65 Board attendance During the year, the Board held 11 scheduled Board meetings, and 4 Board meetings on short notice. Individual attendance at the scheduled Board meetings is set out below. A Board dinner is often held around Board meetings to allow for more informal discussion, and on site visits the Board are often joined by local management. Attendance Appointment Number of scheduled meetings attended in FY16 Maximum possible scheduled meetings in FY16 % of scheduled meetings attended Alex Hambro, Chair December 2013 Susan Searle, Senior Independent Director December 2013 Basil Brookes, Non-Executive Director1 December 2013 (resigned July 2016) Malcolm Pye, Chief Executive Officer Roland Bonney, Chief Operating Officer Mark Plampin, Chief Financial Officer December 2013 December 2013 December 2013 11 11 9 11 11 11 11 11 10 11 11 11 100% 100% 90% 100% 100% 100% 1 Basil Brookes was unable to attend the scheduled Board meeting held on 7 July 2016 for health reasons. Board activities in the year At each scheduled Board meeting, the following standing items are considered: Standing agenda items • Notice, quorum, Directors’ duties and any conflicts • Review of BVL Business Development Update, tracking of interest Benchmark Vaccines’ manufacturing pipeline • Approval of minutes of previous meeting and review • Consideration of any Matters Reserved for the Board of action points from previous meetings • Review of Management Information Pack, which includes monthly group management accounts, outlook, cash flow forecast, financial covenant forecast, share price performance, shareholder and trading report, and monthly headcount • CEO/COO update, comprising an update on strategic matters and significant developments from the Executive Directors • Review of Capex Project Report, tracking expenditure and payback on significant capex investments. In FY16 these reports covered the vaccine manufacturing facility at Braintree, UK and SalmoBreed Salten • Review of Deal Tracker, updating on potential acquisitions, licensing deals and other exceptional transactions • Review of People Report, summarising vacancies, management appointments, and updating on implementation of People Team strategy • Review of Health and Safety Report, giving an overview of accident and near miss reporting, and tracking Health and Safety performance • Review of Compliance Report, summarising and tracking compliance initiatives and issues, and an update on legal, IP, litigation and Company secretarial matters • Review of Communications Report, summarising announcements, media coverage, and other shareholder events STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION In addition to the standing items, an overview of the principal matters considered by the Board in the year is set out below. Strategy and operations • Discussed the Group’s strategy for FY17, including strategy for developing target growth markets and implementation of the Group’s key account management programme • Reviewed and approved the Group budget for FY16 • Received presentations from the heads of each of the Advanced Animal Nutrition, Breeding and Genetics and Animal Health divisions, including 3-year strategic plans, opportunities for growth and investment proposals • Received updates on key regulatory developments, including new Market Abuse Regulations, Insurance Act 2015, gender pay gap reporting and PSC (persons exercising significant control) regime • Received training on Directors’ responsibilities from Numis • Report from the Chair of the Audit Committee on the FY15 audit process and principal matters discussed with the auditors • Approved the appointment of KPMG as auditors to the Company, following a tender process Shareholders • Received presentations from INVE Aquaculture senior • Approved Annual Report and Accounts and interim results management following the acquisition, including overview of the business, target products and markets, and analysis of synergies • Received regular reports on integration and synergies, including key account management, changes to the composition of the Operations Board, and synergistic new business development across Animal Health, Breeding and Genetics and Advanced Animal Nutrition divisions • Received presentation on big data project, designed to utilise big data to generate advanced diagnostic tools and improve animal production • Discussed biosecurity and risk mitigation strategy in Breeding and Genetics division and proposals for broodstock sites • Received regular updates on the closure of the Chilean border to salmon eggs from Iceland, as well as algal bloom in Chile and drought in Asia, and expected impact on the business • Discussed expected effects of Brexit and risk mitigation strategies • Received presentation on the Sustainability Science division, including an overview of the business, and plans for restructuring and consolidation, which have now been completed Governance and risk • Discussed the effect of currency movements on the business, and hedging • Received presentation from Group Health and Safety manager, including overview of current situation and strategy • Reviewed results of comprehensive bottom-up risk review and recommended actions, including identification and mitigation of principal risks capable of having an impact at Group level, and overview of Group risk profile using weighted scoring (having regard to severity of impact, likelihood of occurrence and existing controls) • Reviewed key terms of Group insurance policies • Approved amendments to the Group’s Share Dealing Code, in part to reflect implementation of EU Market Abuse Regulation • Reviewed and approved amendments to the Matters Reserved for the Board, introducing division specific thresholds for identifying material decisions • Reviewed the performance of the Company against the UK Corporate Governance Code • Received feedback from investor meetings held following the equity fundraising to fund the acquisition of INVE Aquaculture, release of results, and placing • Received presentation from investor relations advisers Tavistock on brand development and shareholder communications • Approved appointment of Numis as NOMAD and Broker. Received presentation from Numis, including analysis of shareholder base, valuation and peer group analysis Research and development • Received Pipeline Reports from Benchmark Animal Health on a quarterly basis, providing an overview of and updates on the product pipeline (from June 2016) • Received presentation from head of the Animal Health division on the product development pipeline, including its strategic focuses, progress with late-stage and significant products, and implementation of a new project management system Acquisitions, licensing deals and transactions • Approved the acquisition of INVE Aquaculture, and related equity fundraising and debt facilities • Approved licensing deals for Canine Atopic Dermatitis vaccine, and Sweet Itch equine vaccine • Approved equity placing to raise £30.7m, to fund construction of SalmoBreed, Salten, joint venture with major salmon producer, acquisition of specialist shrimp breeding programme, investment in product pipeline People • Received presentation from Head of People regarding People Team strategy, including attracting and retaining the right people, succession planning, leadership development and projects to identify and nurture key persons within the business, and talent development programme • Discussed, with Head of People present, the culture and values of the Group and how these cascade through the Group, including the use of induction days and vision workshops Benchmark Holdings plc Annual Report 2016 | Governance 67 EFFECTIVENESS Nomination Committee Report The Nomination Committee is responsible for safeguarding the effectiveness of the Board by regularly reviewing its composition, and leading a rigorous and transparent process for the identification and appointment of new Directors. of Conduct for Executive Search Firms in Board Appointments, which is designed to address gender and wider diversity on Boards. The Zygos Partnership has no other connections with the Company. Its key responsibilities are: • To review the composition of the Board, including its size, balance of skills, knowledge, experience and diversity • To lead the process for Board appointments and recommend the appointment of new Directors • To review the re-appointment of Non-Executive Directors • To make recommendations on the composition of the Board Committees • To consider succession for Board members and senior management The Nomination Committee’s terms of reference are reviewed annually and a summary of these is available on the Corporate Governance section of our website at www.benchmarkplc.com. Composition of Nomination Committee and attendance in the year Member Attendance Appointment Number of meetings attended in FY16 Maximum possible meetings in FY16 % of meetings attended Alex Hambro, Chair Susan Searle December 2013 December 2013 2 2 2 2 100% 100% In addition to the scheduled meetings of the Nomination Committee, discussions were held at the Board Strategy Day in September 2016 regarding the composition and diversity of the Board. Only the members of the Nomination Committee have the right to attend meetings. The Head of People, other Board members and external advisers may be invited to contribute on specified agenda items. The Company Secretary acts as a secretary to the Nomination Committee. The Nomination Committee encourages discussion in the full Board forum of certain of the matters for which it is responsible, including the composition and diversity of the Board and succession planning. Nomination Committee activities during the year The Nomination Committee’s principal focus in FY16 was the replacement of Basil Brookes, who retired from the Board in July 2016 for health reasons. The Committee ensured that a well-defined specification for the new appointment was formulated, having regard to the skills, expertise and values required to ensure effective functioning of the Board as a whole. As well as the financial expertise required to Chair the Audit Committee, experience in financial management of international business and growth companies was sought. The Nomination Committee appointed external search consultants The Zygos Partnership to assist with the recruitment process. The Zygos Partnership are signatories to the Voluntary Code The Nomination Committee also assessed the composition of the Board and its committees on an interim basis, including the option to appoint an external consultant to advise the Audit Committee in the absence of its usual Chair. It was determined that Alex Hambro and Susan Searle had sufficient skills and experience to cover the vacant roles on a temporary basis; Susan sits on the Audit Committee of QinetiQ Group plc, and has previously chaired the Audit Committees of both Mercia Technologies plc and Horizon Discovery Group plc. Accordingly, temporary appointments were made to ensure that each of the Board committees maintained an appropriate composition and the requisite experience. Alex Hambro stepped up to Chair the Audit Committee, and Susan Searle was appointed on an interim basis to the Audit Committee. Susan Searle remained Chair of the Remuneration Committee, and Alex Hambro was appointed on an interim basis to the Remuneration Committee. Following a successful recruitment process, Kevin Quinn was appointed as Non-Executive Director, Chair of the Audit Committee and member of the Remuneration Committee, in November 2016. The Nomination Committee also led discussion at the Board Strategy Day regarding the composition of the Board, having regard to its recent growth through the acquisition of INVE Aquaculture, and increased presence and opportunity in global markets. It was recognised that it would be desirable to increase Board diversity when the opportunity arose, particularly having regard to the international nature of the Group’s operations. Succession planning for senior management is a focus for the Group, and the People Team are leading a programme to identify and foster talent within the business, which includes the provision of leadership training and development of individual success factors. Action plan for the coming year In the coming year, the Nomination Committee intends to: • Keep the composition of the Board under review, to ensure that its size, balance of skills, knowledge and experience remain suitable for the needs of the Group • Undertake a Board evaluation process to review performance and seek opportunities for improvement. The Board last undertook a self-evaluation process to review its composition and performance in 2015 • Ensure that, where opportunities arise, the Group’s goal to increase diversity at Board and senior management level is considered The Hon Alexander Hambro Chairman of the Nomination Committee 24 January 2017 STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION Board composition The Board comprises six Directors; a Non-Executive Chairman, Senior Independent Director, further Non-Executive Director, and three Executive Directors. On 29 July 2016, Basil Brookes (Non-Executive Director) stepped down from the Board for health reasons. The Board implemented its succession plan and promptly commenced a recruitment process to find a Non-Executive Director with appropriate skills and experience to replace Basil, and Kevin Quinn was appointed on 25 November 2016. In the interim period the Board comprised five Directors; a Non-Executive Chairman, Senior Independent Director and three Executive Directors. All resolutions passed by the Board during this interim period in which there were three Executive Directors and two independent Non-Executive Directors, were passed unanimously. The size and composition of the Board was reviewed during the year by the Nomination Committee and by the Board. The Group’s recent growth through the acquisition of INVE Aquaculture, and increased presence and opportunity in global markets were discussed. The Board determined that the composition of the Board remains suitable for the Group, and contains an appropriate breadth and balance of skills, knowledge, experience and independence. The Board also identified that it would be desirable to increase Board diversity when the opportunity arose, particularly having regard to the international nature of the Group’s operations. Directors’ roles and responsibilities Biographical details for all members of the Board can be found on pages 62 to 63 of this report. There is a clear separation between the roles of Chairman and Chief Executive Officer. The role of the Chairman is to: • Lead the Board to ensure effective functioning in all aspects of its role • Promote an open culture of debate • Ensure that the membership of the Board is appropriate for the needs of the business • Oversee Board committees as they carry out their duties, including reporting to the Board • Set and manage the agenda for Board meetings • Establish an environment which allows the recruitment, engagement, retention and development of the people needed to deliver the Group’s strategy The Senior Independent Director provides a sounding board for the Chairman and serves as an intermediary for the other Directors when necessary. The Non-Executive Directors meet regularly throughout the year without the Executive Directors present. Induction, business awareness and development The Chairman is responsible for ensuring that new Directors receive a comprehensive and formal induction. This includes: • An overview of the Group, its functions and governance framework • Briefings on Directors’ responsibilities and compliance responsibilities • Site visits to key Group locations • Detailed reviews of the strategic projects and initiatives underway • One-to-one meetings with senior management Kevin Quinn was appointed on 25 November 2016 and is receiving a formal induction covering the above aspects, with a focus on financial matters, as well as meetings with key members of the finance team. In order that Directors further their understanding of the business, its ambitions and the challenges it faces, and are able to challenge and help develop strategy constructively, Non-Executive Directors are encouraged to visit Group locations and have regular opportunities to meet senior management. During the year, the Non-Executive Directors visited the following sites: FAI Farms — Oxford, UK Benchmark Head Office — Sheffield, UK Benchmark’s founding site, hosting the Sustainability Science division and a working research farm Benchmark’s head office, hosting the finance team and publishing teams within the Technical Publishing division Benchmark Animal Health — Edinburgh, Scotland, UK Location of Benchmark Animal Health’s product development team INVE Aquaculture — Dendermonde, Belgium INVE Aquaculture’s global headquarters and R&D team TomAlgae — Nevele, Belgium TomAlgae’s algae production facilities • Ensure the provision of information necessary for Directors to take a full and constructive part in Board discussions Benchmark Vaccines — Braintree, UK Benchmark Vaccine’s state-of-the-art vaccine manufacturing suite • Develop and maintain effective communications with shareholders • Establish appropriate personal objectives for the Chief Executive Officer • Ensure the Directors are up to date and receive suitable training and development The role of the Chief Executive Officer is to: • Oversee operation of the day-to-day business of the Group • Lead the development and delivery of strategy and budget, to enable the Group to meet the requirements of its shareholders • Lead and oversee the executive management of the Group FAI Aquaculture — Ardtoe, Scotland, UK FAI Aquaculture’s advanced marine research facility The Board also received a number of presentations from senior management throughout the year, including from the Heads of Division of each of the Animal Health, Advanced Animal Nutrition and Breeding and Genetics divisions, the Head of People and Group Health and Safety Manager. During the year, the Board received training on Directors’ responsibilities from Numis and updates on key regulatory developments, including new Market Abuse Regulations, Insurance Act 2015, gender pay gap reporting and PSC (persons exercising significant control) regime. Benchmark Holdings plc Annual Report 2016 | Governance 69 Independence of Non-Executive Directors The Board considered each Non-Executive Director’s independence on appointment, and concluded that they were independent. The Board reviews independence on an annual basis and has concluded that the Non-Executive Directors all remain independent. Non-Executive Directors are appointed for specified terms, subject to re-election by shareholders, and terms beyond 6 years are subject to rigorous review. Accordingly, Non-Executive Directors are appointed for a maximum of two terms of 3 years, and thereafter may serve for an additional period only at the invitation of the Board following scrutiny of their continued independence. Alex Hambro and Susan Searle were appointed for a second 3-year term commencing 18 December 2016, subject to re-election by shareholders. The respective periods of service of our Non-Executive Directors are set out below. 3 years, 2 months 3 years, 2 months Name Alex Hambro Chair Date of appointment Term 18 December 2013 Susan Searle Senior Independent Director 18 December 2013 Kevin Quinn Non-Executive Director 25 November 2016 2 months Conflicts of interest Directors are obliged to seek authorisation from the Board before taking up any position which conflicts, or which may conflict, with the interests of the Company. The Board is empowered to authorise situations of potential conflict, where it sees fit, in order that a Director is not in breach of his/her duties. The interested Director is excluded from voting on the resolution to authorise the conflict. The Directors may resolve that any such transaction or arrangement be subject to such terms as they may determine. All existing external appointments and other such situational conflicts of Directors have been considered and authorised by the Board. All Directors are required to ensure that their external appointments do not involve a time commitment that would adversely affect their responsibilities to the Company. If a Director is a party to or otherwise interested in any actual or proposed transaction or other arrangement with the Company, or in which the Company is otherwise interested, the Director is obliged to declare his/her interest in the transaction or arrangement. The Directors may resolve that any such transaction or arrangement be subject to such terms as they may determine. Where the interest is material, the interested Director will not be permitted to vote on decisions relating to the matters in which he/she has an interest. Information and independent professional advice The Company Secretary assists the Chairs of the Board and each of the Nomination Committee, Remuneration Committee and Audit Committee to ensure that the Directors have access to the information and advice they require to carry out their roles effectively. The Directors have access to independent professional advice at the Company’s expense. In addition, they have access to the services of the Company Secretary, who is responsible for advising the Board on corporate governance matters. ACCOUNTABILITY Audit Committee Report The composition of the Audit Committee up to 19 July 2016 was: All Committee members are independent Non-executive Directors. • Basil Brookes (Chair) • Alex Hambro On 29 July, Basil Brookes announced his retirement from the Audit Committee for health reasons. Susan Searle was temporarily appointed to the committee and Alex Hambro was temporarily appointed Chairman of the committee pending the recruitment of Basil’s successor. Subsequent to the year end on 25 November 2016, Kevin Quinn was appointed Chairman of the Audit Committee and Susan Searle stepped down from the committee. Kevin is serving Chief Financial Officer of a FTSE 250 plc and a qualified Chartered Accountant and hence is considered a financial expert. Further information on Kevin’s relevant experience is provided on page 63. We would like to thank Basil for his valuable contribution to the Audit Committee over the past 3 years. In addition to the Committee members, there are a number of regular attendees at each meeting. The Chief Financial Officer (CFO) and lead external audit partner normally attend all scheduled Audit Committee meetings. The Audit Committee members regularly take time before or after a meeting, without any Executive Directors or senior management present, to raise any questions and discuss issues with the external auditor. The Chairman of the Audit Committee meets the CFO and the external auditor separately to review current issues and developments prior to each meeting of the Audit Committee, such meetings often taking place by telephone. Key objective To ensure that the interests of shareholders are properly protected in relation to financial reporting and internal controls. STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION Responsibilities Presentation of results During the year the main responsibilities were: • To review accounting policies and the integrity and content of the financial statements; • To monitor disclosure controls and procedures and the Group’s internal controls; • To consider the adequacy and scope of external audits; • To oversee a tendering exercise and appoint the new external auditor; • Considering and recommending that the Annual Report and Accounts 2015/16, when taken as a whole, are fair, balanced and understandable; • To monitor the objectivity, independence and effectiveness of the external auditor, including the scope and expenditure on non-audit work; • To review and approve the statements to be included in the Annual Report on internal control and risk management; • To review and report on the significant issues considered in relation to the financial statements and how they are addressed. The Committee’s terms of reference are reviewed annually and a summary of these are available on the Governance section of our website at www.benchmarkplc.com. Actions undertaken during the year The key activities for the Committee for the period under review are set out below. At the request of the Board, the Committee reviewed the presentation of the Group’s unaudited results for the six months ended 31 March 2016 and the audited results for the year ended 30 September 2016 to ensure they were fair, balanced and understandable and provide sufficient information necessary for shareholders and other users of the accounts to assess the Group’s position and performance, business model and strategy. Particular attention was paid to the presentation of the results and the separation of the statutory IFRS results into Trading Activities and Investing Activities. The board continues to regard this as an appropriate way to present the underlying performance and development of the business and this is how it 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. Acquisition accounting The Committee considered the acquisition accounting for the transformational acquisition of INVE Aquaculture which took place in December 2015. Particular attention was paid to the identification, measurement and assessment of the intangible assets arising on acquisition, with independent valuations being sought for those assets, and the assumptions behind those valuations being subjected to very close scrutiny with both the CFO and the external auditor. External auditor Management override of internal controls In light of the rapid recent growth in the size and scale of the Benchmark Group, and with a view to implementing best corporate governance practice regarding auditor independence and the split of audit and non-audit work, the Board made the decision to put the position of external auditor out to tender. The Audit Committee led a full and formal tender process after which KPMG were appointed effective from 26 May 2016. Following the appointment, in accordance with section 519 of the Companies Act 2006, BDO deposited with the Company a statement confirming that there are no circumstances in connection with its resignation as auditor that should be drawn to the attention of the Company’s shareholders. A review of the annual audit plan and process has been undertaken with the lead audit partner. The robustness of the audit process and service levels provided was rigorously assessed during the tender process and following the first full year audit, with significant input sought from senior management and others involved in the audit process across the business. Following best practice in promoting auditor independence, separate tax advisers have been engaged during the year, and non audit fees payable to the external auditor (and the outgoing external auditor) were monitored throughout the year and their level were taken into account, amongst other criteria, when awarding non audit work. The independence, objectivity and performance of the external auditor was assessed and the Committee recommended to the Board that their reappointment as the auditors of the Company be recommended to shareholders at the Annual General meeting of the Company to be held on 7 March 2017. The Committee considered the inherent risk of management override of internal controls as defined by auditing standards. In doing so the Committee continue to review the overall robustness of the control environment, including consideration of the Group’s whistleblowing arrangements and the review by the external auditor. Following the acquisition of INVE, integration of the business has progressed well and work is continuing to identify and implement best practice controls across the enlarged business. No major weaknesses have been identified in this process. Goodwill and intangible assets impairment review The Committee considered the carrying value of the Group’s businesses, including goodwill and intangible assets. The Committee reviewed management’s recommendations, which were also reviewed by the external auditor, including an evaluation of the appropriateness of the assumptions applied in determining asset carrying values and the appropriateness of the identification of cash generating units. After review the Committee was satisfied with the assumptions and judgements applied by management and concluded that no impairment of carrying values was required. Revenue recognition The Committee considered the inherent risk of fraud in revenue recognition as defined by auditing standards and was satisfied that there were no issues arising. Benchmark Holdings plc Annual Report 2016 | Governance 71 Going Concern The Committee was presented by management with an assessment of the Group’s future cash forecasts and profit projections, available facilities, facility headroom, banking covenants and the results of a sensitivity analysis. The Committee discussed the assessment with management and was satisfied that the going concern basis of preparation continues to be appropriate for the Group and advised the Board accordingly. Risk management Effective risk management and control is key to the delivery of the Group’s business strategy and objectives. Risk management and control processes are designed to identify, assess, mitigate and monitor significant risks, and can only provide reasonable and not absolute assurance that the Group will be successful in delivering its objectives. The Board is responsible for the oversight of how the Group’s strategic, operational, financial, human, legal and regulatory risks are managed and for assessing the effectiveness of the risk management and internal control framework. Work has continued to ensure that risk management is embedded in the Group’s procedures and significant further work has been done to update the Risk Register and to re-affirm the effectiveness of risk management procedures following the INVE acquisition. A description of the Group’s risk management procedures and the work completed in the year is provided in the Principal Risks and Uncertainties section on pages 56 to 59. Internal audit Following the acquisition of INVE, the size, scale and complexity of the Group has increased. As noted above, significant work has been performed on the Risk Register and the Committee continues to monitor whether an internal audit function could be justified. During the year the decision was made not to set up such a function while work was ongoing to assess the risks of the enlarged Group. This matter will be reconsidered in the forthcoming year. Safeguards and effectiveness of the external auditor The Committee recognises the importance of safeguarding auditor objectivity. The following safeguards are in place to ensure that auditor independence is not compromised: • The Audit Committee carries out an annual review of the external auditor as to its independence from the Group in all material respects and that it is adequately resourced and technically capable to deliver an objective audit to shareholders. Based on this review the Audit Committee recommends to the Board the continuation, or removal and replacement, of the external auditor; • The decision was made in the year to split the role of tax advisor and external auditor; • The external auditor may provide audit-related services such as regulatory and statutory reporting as well as formalities relating to shareholder and other circulars; • The external auditor may undertake due diligence reviews and provide assistance on tax matters given its knowledge of the Group’s business. Such provision will be assessed on a case-by-case basis so that the best adviser is retained. The Audit Committee monitors the application of policy in this regard and keeps the policy under review; • The Audit Committee reviews on a regular basis all fees paid for audit and consultancy services with a view to assessing the reasonableness of fees, value of delivery and any independence issues that may have arisen or may potentially arise in the future; • The external auditor reports to the Directors and the Audit Committee regarding its independence in accordance with Auditing Standards. KPMG’s policy is that audit partners are required to be rotated every fifth year, and audit senior management require approval from the Engagement Partner and Engagement Quality Control Reviewer to continue after seven years, and approval from the UK Audit Risk Management Partner to continue after 10 years, but such approval will be rare and only likely for 1 or 2 years; • Different teams are used on all other assignments undertaken by the auditor; • Non-audit services carried out by the external auditor are generally limited to work that is closely related to the annual audit or where the work is of such a nature that a detailed understanding of the business is beneficial; • The Audit Committee monitors these costs in absolute terms and in the context of the audit fee for the year, in order to ensure that the potential to affect auditor independence and objectivity does not arise. The Committee does not adopt a formulaic approach to this assessment. The split between audit and non-audit fees for 2016 and information on the nature of the non-audit fees incurred is detailed in Note 6 accompanying the consolidated financial statements. The Audit Committee monitors the effectiveness of the external audit functions. To comply with this requirement, the Committee reviews and comments on the external audit plans before it approves them. It then considers progress during the year by assessing the major findings of their work, the perceptiveness of observations, the implementation of recommendations and management feedback. At the request of the Board, the Committee also monitors the integrity of all financial statements in the Annual Report and half year results statements, and the significant financial reporting judgements contained in them. Further details of the Committee’s procedures to review the effectiveness of the Group’s systems of internal control during the year can be found in the section on effective risk management and internal control below. The Committee recognises that all financial statements include estimates and judgements by management. The key audit areas are agreed with management and the external auditors as part of the year-end audit planning process. This includes an assessment by management at both a business unit and Group level of the significant areas requiring management judgement. These areas are reviewed with the auditors to ensure that appropriate levels of audit work are completed and the results of this work are reviewed by the Committee. STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION Risk management and internal control system features Risk management control system As well as the risks that management identify through the ongoing processes of reporting and performance analysis, the Audit Committee has additional risk identification processes, which include: • Risk and control process for identifying, evaluating and managing major business risks. During the year, the CFO oversaw an exercise to evaluate the risks faced by the business following the acquisition of INVE and to identify suitable mitigating actions; • External audit reports, which comment on controls to manage identified risks and identify new ones; • A confidential whistle-blowing helpline and an email address available for employees to contact the Non-executive Directors in confidence. Internal control system The internal controls which provide assurance to the Committee of effective and efficient operations, internal financial controls and compliance with law and regulation include: • A formal authorisation process for investments; • An organisational structure where authorities and responsibilities for financial management and maintenance of financial controls are clearly defined; • Anti-bribery and corruption policies and procedures and a dedicated email hotline, designed to address the specific areas of risk of corruption faced by the Group; • A comprehensive financial review cycle where the annual budget is approved by the Board and monthly variances are reviewed against detailed financial and operating plans. Kevin Quinn Chairman of the Audit Committee 24 January 2017 Effective risk management and internal control One of the Board’s key responsibilities is to ensure that management maintains a system of internal control which provides assurance of effective and efficient operations, internal financial controls and compliance with law and regulation. The Group’s systems are designed to identify key financial and other risks to the Group’s business and reputation, and to ensure that appropriate controls are in place. Consideration is given to the relative costs and benefits of implementing specific controls. Assurance On behalf of the Board, the Audit Committee examines the effectiveness of: • The systems of internal control, primarily through reviews of the financial controls for financial reporting of the annual, preliminary and half yearly financial statements and a review of the nature, scope and reports of external audit; • The management of risk by reviewing evidence of risk assessment and management; and • Any action taken to manage critical risks or to remedy any control failings or weaknesses identified, ensuring these are managed through to closure. The Audit Committee has completed its review of the effectiveness of the Group’s systems of internal control during the year. It confirms that the necessary action plans to remedy identified weaknesses in internal control are in place and have been throughout the year. Where appropriate, the Audit Committee ensures that necessary actions have been, or are being, taken to remedy or mitigate significant failings or weaknesses identified from the review of effectiveness of internal controls. The Group’s internal controls over the financial reporting and consolidation processes are designed under the supervision of the CFO to provide reasonable assurance regarding the reliability of financial reporting and the preparation and fair presentation of the Group’s published financial statements for external reporting purposes in accordance with IFRS. Because of its inherent limitations, internal control over financial reporting cannot provide absolute assurance and may not prevent or detect all misstatements whether caused by error or fraud. The Group’s internal controls over financial reporting and the preparation of consolidated financial information include policies and procedures that provide reasonable assurance that transactions have been recorded and presented accurately. Management regularly conducts reviews of the internal controls in place in respect of the processes of preparing consolidated financial information and financial reporting. During the year ended 30 September 2016, there were no changes to the internal controls over these processes that have or are reasonably likely to materially affect the level of assurance provided over the reliability of the financial statements. Benchmark Holdings plc Annual Report 2016 | Governance 73 REMUNERATION Remuneration Report for year ended 30 September 2016 Statement from Susan Searle, Chairman of the Remuneration Committee This year has marked a major transformation for the business with the early months focused on the acquisition of INVE and its subsequent integration into the wider Benchmark Group. The INVE transaction itself was an extraordinary deal to deliver and to achieve that alongside a major equity and debt raise was testament to the management team’s sheer hard work and conviction in building out and largely completing the Company’s aquaculture platform. The focus through the year has been on merging the teams, drawing out the synergies through integration and innovation and all whilst continuing to deliver results despite some major headwinds. The end of the year saw the purchase of shrimp breeding programme from Ceniacua, another astute deal complementing both the original business but also bringing with it the opportunity to leverage the commanding sales presence INVE has in shrimp farm hatcheries. The team has assembled some high quality IP assets and a platform that will deliver long-term shareholder value. The investment in infrastructure is ongoing with major capital projects, such as the vaccine production plant at Braintree and SalmoBreed Salten requiring considerable management oversight in building the footprint for a substantial business. Not all has gone to plan, the share price suffered during the year but has recovered and a modest equity raise primarily to finance SalmoBreed Salten was done at a difficult time. The Salten investment will attract and cement partnerships with several large customers and is part of the strategy for scaling the future revenue streams. The executive team made some difficult decisions that should result in greater value for shareholders in the long run. I have reported in the past that the Executive Directors have been compensated considerably behind prevailing market rates, particularly in terms of base salary. In 2016 the Group ended the year with 884 people, £109.4m turnover and market cap at 31 December 2016 of £433m. This is a long way from the 200 people, £25m turnover and market cap of £212m in 2015. The board believes it has an exceptionally talented executive team who continue to build an outstanding business and are motivated to build long-term value. A major component of future success will be to continue to build the human talent pool and to do that the Group must pay competitive salaries. MM&K were charged with reviewing the Executive Directors’ salary package and a decision has been taken to move base salaries to the lower quartile of AIM/main list companies where the midpoint is in a comparable turnover range. This is a significant change to the executive team’s base salaries and a material corrective step. The objective over the next 2–3 years is to further move the team to median salaries for the relevant range as the expected synergies are demonstrated, the business scales and the aquaculture platform is validated. In reviewing the bonus provisions for Executive Directors, the Remuneration Committee noted the team had delivered in line with the Board’s expectations on the numbers and delivered in all four areas set out in the remuneration policy on page 75 of this report. This had to be balanced against the fact that this progress was not reflected in the share price and that the decision to do a modest equity raise in August was not well received by some of our shareholders. Alex Hambro and I visited many of our significant shareholders during the summer and took their feedback into consideration when trying to strike the right balance. The Remuneration Committee believes it has been a momentous year for both the Company and the executive team who have displayed entrepreneurial and determined leadership throughout the year and should be congratulated for delivering an impressive business with considerable scope for growth with the assets they have assembled. Susan Searle Chairman of the Remuneration Committee 24 January 2017 Remuneration Committee overview The composition of the Remuneration Committee during the year was: • Susan Searle (Chair) • Basil Brookes • Alex Hambro The Committee comprises two independent Non-Executive Directors with the Company Secretary acting as secretary and the Head of People attending committee meetings to provide advice on policies and practices. At appropriate times, the Committee invites the views of the Chief Executive and Chairman of the Board, and seeks advice from independent remuneration consultants. No Director or employee is present when his or her own remuneration or fees are discussed. Key objectives: The key objectives of the Remuneration Committee are to develop the Company’s policy on executive remuneration and to fix the remuneration of the Executive Directors, Chairman of the Board and Senior Managers. Responsibilities: The main responsibilities of the Committee are: • To monitor and develop the Company’s remuneration policy • To determine the remuneration of the Executive Directors • To approve the service agreements of the Executive Directors • To approve the remuneration of Senior Managers • To determine the fees of the Chairman • To review the Company’s annual bonus proposals and to approve bonuses for the Executive Directors and Senior Managers • To approve the design of and oversee all awards under the Company’s share incentive plans • To consider risks to the Group in light of its remuneration policies STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION An overview of the Remuneration Committee’s terms of reference is available on the Governance section of our website at www.benchmarkplc.com. Actions undertaken during the year: With the acquisition of INVE in December 2015 and the purchase of shrimp breeding programme from Ceniacua in August 2016, the number of employees moved from 402 to 884 (120% increase in headcount) and the number of countries where the Group has offices increased from 14 to 27, overlapping with INVE in 3 countries. With this in mind the Remuneration Committee has instigated a review of terms and conditions across the Group. In addition, talent management and succession planning has become a priority. Benchmark operates within a highly technical industry and wants to ensure that it has the very best people to drive forward innovation across the divisions of Breeding and Genetics, Advanced Animal Nutrition and Animal Health. The responsibilities of the committee were also reviewed during the year. Directors’ Remuneration Policy The Group’s policy is unchanged and seeks to balance three key objectives: • To pay reasonably competitively in the relevant talent markets to sustain motivation and commitment, recognising that Benchmark has a unique culture and staff join and remain with Benchmark in order to share in the Company’s vision for sustainability and participate in the important work it does • To remunerate in a way that makes economic sense for the Company, ensuring there is a fair balance of return to the executive team, management, staff and shareholders for their contributions to the Company’s success • To encourage the cooperative behaviours which promote business priorities and lead to high performance The Company’s remuneration policy supports a climate of team involvement and generates a shared enthusiasm for the growth and success of the Group as a whole. It encourages cooperation, sharing of ideas and mutual support between people in different business units. The policy reflects and supports the sense that the Group is involved in creating and delivering services which benefit mankind and the natural environment. It also recognises that the non-monetary rewards of team membership, intellectual stimulation, freedom, creativity and producing something worthwhile, have equal or higher place in maintaining personal commitment and in attracting and retaining the best people. Remuneration policy The Executive Directors’ remuneration comprises fixed elements in the form of a base salary, benefits and pension contributions, and a variable discretionary element in the form of a bonus, which may be satisfied in cash, deferred shares (or nominal cost share options) or a combination of both. The Company has long-term share plans in place but does not intend to make awards to the Executive Directors this year. Fixed elements of remuneration The fixed elements of the Executive Directors’ remuneration are designed to attract and retain Directors of the appropriate calibre, with the requisite knowledge, skills and experience, and to sustain motivation and commitment. Following a further review by MM&K the Remuneration Committee has concluded that the appropriate benchmark for the Executive Directors’ salaries is lower quartile for AIM/main listed companies falling in the turnover range £101–300m and has also reviewed comparators in the market cap range. The Executive Directors’ salaries from IPO have been substantially below those of their peer group. The Remuneration Committee concluded that this is no longer tenable or appropriate, particularly as the Group seeks to attract in further high calibre talent and pays competitive compensation. The Directors are running a very different company in size and scale from that which listed in 2014. Accordingly this year the Executive Directors base salaries have been significantly adjusted. Over the next 2–3 years the Company expects to be at median for the comparator range once the combined business demonstrates clearly on its plans and this is reflected in valuation. The Executive Directors all participate in defined contribution pension schemes on terms consistent with those of other employees. The Company contributes up to 10% of the employee’s salary, starting at 5% and increasing by 1% for every 3 years of service. The Executive Directors also receive private medical insurance for themselves and their families and death in service benefits. Variable elements of remuneration Executive Directors are eligible for an annual performance bonus, part of which may be deferred for three years and paid in shares or nominal cost share options. The maximum award, including any deferred element, is 100% of salary. The bonus is designed to reward and incentivise success leading to sustainable long-term growth and to recognise the Directors’ commitment to the business. Performance is measured by reference to four key metrics, set out below. • Progress towards the Group’s objectives of mid to long-term growth in revenue and trading earnings per share • Successful and secure investment of the Group’s available capital in long-term revenue and generation of EBITDA from trading activities • Building on the Group’s track record of recruiting the highest calibre and most appropriate people, in terms of skills and experience • Establishing a strong and long-lasting leadership position in the development of sustainable food and farming internationally The Remuneration Committee exercises judgment in assessing performance against these metrics when setting bonus levels for the Executive Directors. The remuneration of senior management is also taken into consideration. The bonus is discretionary and no element of the bonus is guaranteed. Long-term incentive plans may be used to supplement the variable elements of the total reward. Benchmark Holdings plc Annual Report 2016 | Governance 75 Non-executive Directors’ terms of appointment Executive Directors Statement of consideration of employment conditions elsewhere in the Group Historically, the salaries across the Group have been increased annually by reference to the retail price index. In 2016, the average salary increase across the Group including senior management was 4%. This percentage rise included adjustments made for additional responsibilities taken on by staff as the Group’s activities expanded. The entitlements of the Executive Directors to pension contributions are the same as those of employees. Bonuses for employees are determined on a discretionary basis, by reference to a combination of Group and individual performance. Senior Managers’ bonuses for 2016 will be paid part in cash, and part will be deferred and satisfied in nominal cost share options (other than where the individual is already a substantial shareholder in the Company). The Company expects and encourages everyone in the team to have an interest in the Company’s shares in order to foster a culture of cooperation and shared participation in the Group’s achievements and the remuneration policy supports this by issuing share options to employees at a level that reflects the strategic contribution of their role. Following the successful acquisition of INVE the Company issued 3,093,493 nominal cost share options (0.65% of issued share capital) to 419 employees that were new to the Group and 31 senior managers, excluding the Executive Directors. The grant is in line with the Company’s historic remuneration policy, which has seen options granted across the workforce at times of significant achievement in the Company’s development. Executive Directors’ service contracts and remuneration on termination Each Executive Director contract commenced on 18 December 2013 and is terminable by either party on 12 months’ notice at any time, and by the Company at any time and without compensation in case of serious misconduct, breach of duty or in similar circumstances. In the event of termination by the Company without cause, the Executive Director is entitled to receive payment of salary for any unexpired notice period and any accrued holiday entitlement. In the event of termination for cause, the Director is not entitled to compensation in respect of salary. The Executive Directors’ bonuses are fully discretionary. In the event of termination during a bonus period, the Committee will consider payment of a bonus on a pro rata basis for the relevant portion of the year worked, having regard to the circumstances. Deferred bonuses which have been satisfied in share options remain exercisable where the Executive Director is a good leaver, including in case of death, incapacity, redundancy, retirement, and where the Remuneration Committee so determines. In all other circumstances, deferred bonuses satisfied in share options cease to be exercisable on termination of employment and lapse. The Non-Executive Directors hold office under letters of appointment. Each appointment is for a term of 3 years commencing on 18 December 2013 but with an additional period of 3 years anticipated. All directors are required to stand for re-election at least every three years. In accordance with best practice, all directors stood for re-election at the Annual General Meeting held on 10 March 2016 and all were elected for a further 3 years. Regrettably, Basil Brookes was forced by ill-health to step down as a Non-Executive Director in July 2016 and on 25 November 2016 Kevin Quinn was appointed as a new Non-Executive Director. Kevin replaced Basil on the Remuneration Committee. Either the Company or the Non-Executive Director may terminate the appointment on 3 months’ notice, and the appointments are subject to the Company’s articles of association and to the Director being re-elected by shareholders upon retirement by rotation. On termination as a result of the Non-Executive Director not being re-elected by shareholders or under the articles of association for reasons connected with outside interests or independence, the appointment terminates immediately and the Non-Executive Director is not entitled to compensation. On termination in other circumstances, including on 3 months’ notice, a Non- Executive Director is entitled to accrued but unpaid directors’ fees to the date of termination but no other compensation. The dates of appointment of and length of service for each Non-Executive Director are shown in the table below. Name Date of appointment Basil Brookes 18 December 2013 Alex Hambro 18 December 2013 Susan Searle 18 December 2013 Kevin Quinn 25 November 2016 Length of service as at 2017 AGM Stood down on 29 July 2016 3 years, 2 months 3 years, 2 months 3 months Shareholder dilution The total number of ordinary shares issued and issuable in respect of options granted in any ten year period under the Company’s discretionary share option schemes (excluding pre-IPO options under the Enterprise Management Incentive (EMI) scheme) is restricted to 10% of the Company’s issued ordinary shares from time to time. In the financial year ended 30 September 2016 the Company allocated 3,093,493 nominal cost share options (0.65% of issued share capital) to staff including senior management as mentioned on page 76. Annual Report on Remuneration for 2016 Single total figure of remuneration for the financial year ended 30 September 2016. The remuneration in respect of qualifying services of the Directors who served during the financial year ended 30 September 2016 is as set out below. STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION Total 2015 206,950 200,670 215,552 Salary Bonus (a) Taxable benefits (b) Long-term incentive Roland Bonney Mark Plampin Malcolm Pye 171,250 162,500 187,500 99,000 93,000 110,000 2,379 2,374 3,246 - - - Pension 16,313 10,883 17,375 2016 288,942 268,707 318,121 (a) The balance of the cash bonuses were paid in January 2017. Mark Plampin has elected to defer 60% of his bonus to be satisfied in nominal cost options. (b) Benefits provided for all Executive Directors are medical insurance coverage for the Directors and their families, and death in service benefits. Also includes taxable mileage payments as a result of the Company’s policy of paying 55p per business mile (10p per mile paid over the HMRC rate of 45p per mile is taxable via P11Ds). Executive Directors’ salaries were reviewed with effect from 1 January 2017. Following a benchmarking exercise undertaken by the Remuneration Committee and having regard to the Group’s performance in 2016, the increases awarded are shown on page 78. Non-Executive Directors Basil Brookes Alex Hambro Susan Searle 2016 35,000(a)(b) 45,000 42,500(b) Fees 2015 35,000 45,000 35,000 (a) For period 1 October 2015 to 29 July 2016. (b) The fees for Susan Searle and Basil Brookes were reviewed with effect from 1st January 2016 and increased to £45,000 per year. Executive Directors’ bonuses for the financial year ended 30 September 2016 As described in the Chairman’s statement, the Remuneration Committee considered the performance of the Executive Directors against the delivery of long-term sustainable growth and their performance against four KPIs set out on page 75. Accordingly, the Executive Directors received bonuses in respect of the financial year ended 30 September 2016 as set out below. Roland Bonney Mark Plampin Malcolm Pye 2016 99,000 93,000(a) 110,000 Bonus (£) 2015 55,000 55,000 55,000 (a) Mark Plampin has elected to defer 60% of the 2016 bonus to be satisfied as nominal cost options. Defined contribution pension scheme The Executive Directors all participate in defined contribution pension schemes. Roland Bonney and Malcolm Pye participate in the Benchmark Holdings Executive Pension Scheme and Mark Plampin participates in a self-invested personal pension (SIPP). In accordance with the policy set out on page 75, the Company contributes 10% of salary for each of Roland Bonney and Malcolm Pye, and 7% of salary for Mark Plampin. LTIP awards No awards under the Company’s share plans were made to Executive Directors in the financial year ended 30 September 2016. Executive Directors’ external appointments None of the Executive Directors held non-executive directorships or external appointments with organisations other than the Company in the financial year ended 30 September 2016. Non-Executive Directors’ fees for the financial year ended 30 September 2016 No changes were made to the Non-Executive Directors’ fees in the financial year ended 30 September 2016. Kevin Quinn was appointed as a new Non-Executive Director on 25 November 2016. Benchmark Holdings plc Annual Report 2016 | Governance 77 Statement of implementation of Remuneration Policy in 2017 Executive directors’ salaries In the light of the substantial growth of the Company, a review of base salaries and the fact that the Executive Directors’ salaries have been substantially below market over the last few years, the Remuneration Committee has taken a corrective step in 2017 and as described in the Chairman’s statement will look to move the base salaries towards the median range over the next 2–3 years. Accordingly, from 1 January 2017, the Executive Directors’ base pay was increased as set out below. Roland Bonney Mark Plampin Malcolm Pye Bonus Salary (£) Increase in salary 2016 to 2017 (%) 2017 265,000 250,000 310,000 2016 180,000 170,000 200,000 47% 47% 55% The 2017 bonus will be implemented in line with the future policy described above. LTIP The Company does not intend to make awards to the Executive Directors under its long-term share incentive plans in 2017. Additional information on Directors’ interests Directors’ interests under the Company’s employee share plans Details of the Executive Directors’ interests in outstanding share awards under the employee share plans during the financial year ended 30 September 2016 are set out below. Options held at 30 September 2015 Share option scheme Options exercised in year Options granted in year At 30 September 2016 Exercise price Grant date Date from which exercisable Mark Plampin EMI scheme 135,000 (a) Mark Plampin CSOP II 67,647 - - - - 135,000 67,647 0.1p 29 August 2013 29 August 2016 0.1p 9 March 2015 8 March 2018 (a) Prior to its IPO, the Company operated an Enterprise Management Incentive (EMI) share option scheme. At 30 September 2016, options over 1,202,000 ordinary shares remained outstanding under the EMI scheme, including options over 135,000 ordinary shares held by Mark Plampin as detailed above. No further grants may be made under the EMI scheme. Directors’ interests in ordinary shares At 30 September 2016, the interests of the Directors and their connected persons in ordinary shares was as follows. Roland Bonney Basil Brookes Alex Hambro Malcolm Pye Mark Plampin Susan Searle Interests in ordinary shares at 30 September 2016 % of Company’s issued share capital (d) Interests in ordinary shares at 30 September 2015 15,145,686 49,062 (b) 46,875 (b) 15,145,686 401,686 (c) 98,125 (b) 2.91% 0.01% 0.01% 2.91% 0.08% 0.02% 15,145,686 39,062 (b) 46,875 (b) 15,145,686 401,686 (c) 98,125 (b) (b) Held through self-invested personal pension (SIPP). (c) Comprising 130,000 ordinary shares registered in own name, 267,000 ordinary shares held through self-invested personal pension (SIPP) and 4,686 ordinary shares held through the Benchmark employee share incentive plan. (d) As at 30 September 2016. Mark Plampin exercised his 135,000 EMI options following the year end. The total number of ordinary shares held by him at the date of this report is 536,686. There were no further changes in Directors’ shareholdings between the 30th September 2016 and the date of this report. Susan Searle Chairman of the Remuneration Committee 24 January 2017 STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION SHAREHOLDERS Share capital and substantial shareholdings Details of the Company’s issued share capital, together with details of movements during the year, are shown in note 24 accompanying the financial statements. The Company has one class of ordinary share which carries no right to fixed income. Each ordinary share carries the right to one vote at general meetings of the Company. As at 23 January 2017 the Company has been notified of the following substantial shareholdings under Rule 5 of the UKLA’s Disclosure and Transparency Rules: % of issued share capital Woodford Investment Management Limited Invesco Limited Lansdowne Partners International Limited Lansdowne Partners Limited Lansdowne Partners (UK) LLP FERD AS The Royal Bank of Scotland Group plc 25.10 16.17 15.34 10.79 6.84 Engagement with shareholders Engagement with shareholders is essential to ensure that Benchmark’s strategy is understood and to receive feedback on this strategy, its implementation, performance and governance. It is crucial that shareholders have confidence in the Board’s ability to oversee development and implementation of strategy. DIRECTORS’ REPORT The Directors present their Annual Report and audited financial statements of the Company and of the Group for the year ended 30 September 2016. Benchmark Holdings plc is a public limited company, incorporated and domiciled in England and Wales. Its shares are admitted to trading on AIM, London Stock Exchange’s international market for smaller growing companies. The disclosure requirements of the Companies Act 2006, and where the Directors have deemed it appropriate, the UK Disclosure and Transparency Rules, have been met by the contents of this Directors’ Report, along with the Strategic Report, Corporate Governance Report, Nomination Committee Report, Audit Report and Remuneration Report, which should be read in conjunction with this report. UK Corporate Governance Code The Company complies with the principles of the Code. A copy of the Code is available from the website of the Financial Reporting Council (www.frc.org.uk). An overview of the Company’s compliance with the principles of the Code is set out in the Directors’ Report on pages 79 to 83 of this report. Benchmark complies with the main principles of the Code, as set out in the diagram page 80. If shareholders have concerns, they need to know to whom these should be addressed. The Chairman is primarily responsible for ensuring that the Board is accessible to major shareholders and that channels for communication are open. The Chairman is also responsible for ensuring that all of the Board members are aware of any feedback received from, or concerns raised by, major shareholders, and that these views are taken into account. The Senior Independent Director is available to shareholders if they have concerns which contact through the normal channels of Chairman, CEO or other Executive Directors has failed to resolve or for which such contact is inappropriate. All members of the Board, including in particular the Chairman, Senior Independent Director, Chief Executive Officer and Chief Financial Officer, have regular dialogue with institutional shareholders. During the year: • A number of face-to-face meetings were held with institutional shareholders, including following release of the Annual Report and Accounts for 2015 and interim financial statements, and in connection with the July equity placing • Directors attended the AGM, where they were available to answer questions and meet informally with shareholders • A number of meetings were held between institutional shareholders and the Chairman or other Non-Executive Directors During the year, the Company did not comply with the following aspects of the Code: • The Board did not conduct a formal evaluation of its performance in 2016, as a thorough and formal evaluation of the Board’s performance had been conducted towards the end of 2015, led by the Nomination Committee. During 2016, the Board evaluated its composition and the balance and breadth of skills, experience and independence on the Board, taking into account recent acquisitions and the global growth of the Group. The Company intends to undertake a further evaluation of its performance in 2017 • The Nomination Committee evaluates the performance of the Board as a whole and in doing so evaluates the performance of each of the Directors, but a formal evaluation of the performance of individual Directors is not undertaken. The Company intends to undertake evaluation of individual Directors as part of the Board’s performance review in 2017 • The Company is not subject to the Listing Rules and is not required to make a longer term viability statement • The Audit Committee and Remuneration Committee each comprise two independent Non-Executive Directors (the Code recommends that three independent Directors should sit on each of these committees). The Company considers two independent Directors to be appropriate for the size of the Group and its Board Benchmark Holdings plc Annual Report 2016 | Governance 79 • The bonus element of the Executive Directors’ remuneration is performance related. However, the Company believes that purely financial targets can lead to focus on delivery of short-term goals at the expense of long-term success and other opportunities, and therefore the key performance indicators used to determine performance based remuneration involve an element of discretion, which is exercised critically by the Remuneration Committee. Share options may be granted as part of a deferred bonus, in lieu of part of a cash bonus, and are accordingly offered at a discount (See pages 74 to 78). Overview of compliance with principles of UK Corporate Governance Code A. Leadership A.1 Role of Board A.2 Clear division of responsibilities A.3 Role of Chairman The Board takes collective responsibility for the long-term success of the Group, and oversees the development and delivery of strategy and conduct of the business. It does this by exercising oversight and control over the performance of the Company through review of management financial information, agreeing budgetary targets, and approving investment programmes and monitoring their execution against budget and returns on investment. (See page 65) There is a clear division of responsibilities between Chairman and Chief Executive Officer which is described on page 69 of this report. The Chairman leads the Board, setting and managing the agenda, and promoting open and constructive discussion and challenge. (See page 69) A.4 Role of Non-Executive Directors The Board has a culture of transparency and open debate, and the Non-Executive Directors constructively challenge the Executive Directors regarding the strategy and its implementation. (See page 65) B. Effectiveness B.1 Composition of the Board B.2 Board appointments The Board and the Nomination Committee assessed the composition of the Board during the year and are of the view that it contains an appropriate breadth and balance of skills, knowledge, experience and independence. The Nomination Committee leads the process for the appointment of new Directors, and follow a formal and rigorous process, with the assistance of independent external recruiters, and taking into account the Group’s policies regarding diversity. B.3 Time commitments Non-Executive Directors are notified of and agree to the required time commitments prior to appointment, and external directorships which may impact existing time commitments must be agreed with the Chairman. B.4 Training and development New Directors receive a comprehensive and formal induction programme which is tailored to their role and needs, and the Board receives updates regarding the business and regulatory developments. (See pages 66 to 67 and 69) B.5 Provision of information and support The Chairman, supported by the Company Secretary, ensures that Board members receive accurate and timely information and other support requested, including access to external legal advice. B.6 Board and Committee performance evaluations As, the Board conducted a formal evaluation of its own performance, size and composition in 2015, a formal evaluation of Board performance was not conducted in 2016. The Board intends to conduct a further review of its performance, and that of its committees, in 2017. B.7 Re-election of Directors The Articles of Association require Directors to retire by rotation at the third Annual General Meeting after the Annual General Meeting at which they were elected. C. Accountability C.1 Financial and business reporting The Audit Committee has reviewed the results for the year to 30 September 2016 to ensure they were fair, balanced and understandable. (See page 71) C.2 Risk management and internal control systems The Board is responsible for ensuring that the Company has in place effective procedures for the management of risk, and that the principal risks faced by the Group are identified, assessed, appropriately mitigated and monitored. Pages 56 to 59 of this report sets out the Company’s risk framework and risk management activity. C.3 Role and responsibilities of the Audit Committee Responsibility for oversight of the Group’s financial reporting procedures, internal controls and audit process is delegated to the Audit Committee, which also oversees the Group’s risk management framework. (See pages 70 to 71) D. Remuneration D.1 Executive Directors’ remuneration The policy for determining the remuneration of Executive Directors is set out in the Remuneration Report on pages 74 to 78. No Director is involved in setting his/her own remuneration. D.2 Remuneration policy The Company’s remuneration policy is set out in the Remuneration Report on pages 74 to 78. E. Relations with Shareholders E.1 Shareholder engagement The Board engages actively and regularly with its shareholders. The Chairman and Senior Independent Director are available for discussions with major shareholders, and the Board is kept appraised of their views and feedback. E.2 Use of general meetings The Directors are always available at the AGM to meet with shareholders, who are invited to raise questions and also to meet with the Board following the formal business of the meeting. STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION Annual General Meeting Length of notice of general meetings The next Annual General Meeting will be held at 10.00am on 7 March 2017 at the offices of Travers Smith LLP at 10 Snow Hill, London, EC1A 2AL. Details of the AGM are set out in the Notice of AGM which is being posted to shareholders with this report. The Directors will be available at the AGM to answer questions and to meet with shareholders following conclusion of the formal business of the meeting. Re-election of Directors The re-appointment of Alex Hambro and Mark Plampin was approved at the Annual General Meeting held on 10 March 2016. The Articles of Association require Directors to retire by rotation at the third Annual General Meeting after the Annual General Meeting at which they were elected. The Articles also provide that the Board has the power to appoint any person to be a Director, and that any Director appointed by the Board shall only hold office until the next following AGM. Kevin Quinn was appointed as a Director by the Board on 25 November 2016. At the Annual General Meeting to be held on 7 March 2017, the following Directors are standing for re-election: Kevin Quinn, Susan Searle and Malcolm Pye. Power to allot shares Each year at the Annual General Meeting, the Directors seek authority to allot shares for the following year. At the last AGM held on 10 March 2016, shareholders authorised the Directors to allot relevant securities up to an aggregate nominal value of £157,969, representing one third of the issued share capital, and to further allot equity securities up to an additional aggregate nominal value of £157,969 in connection with a fully pre-emptive rights issue, in accordance with ABI guidance. Directors were authorised to allot for cash equity securities having a nominal value not exceeding in aggregate £47,390 (being 10% of issued share capital). The authorities expire at the conclusion of the next AGM. At the forthcoming AGM, authorities will be sought from shareholders similar to those sought at the 2016 AGM. Authority for the Company to purchase its own shares At the Company’s 2016 Annual General Meeting, shareholders renewed the Company’s authorities to make market purchases of up to 47,390,733 ordinary shares, representing 10% of the Company’s issued share capital. These authorities were not used during the year, or up to the date of this report. At the 2017 Annual General Meeting, shareholders will be asked to renew these authorities for another year, and the resolution will once again propose a maximum aggregate number of ordinary shares which the Company can purchase equal to 10% of the Company’s issued ordinary share capital. Details are set out in the Notice of Annual General Meeting. The Company held no treasury shares during the year, or at the date of this report. The Companies Act 2006 requires listed companies to call general meetings on at least 21 clear days’ notice unless shareholders have approved the calling of meetings on shorter notice. At the 2015 AGM, a resolution approving 14 days as the minimum period of notice for all general meetings of the Company other than AGMs was passed. The 14 day notice period will only be used where the flexibility is merited by the business of the meeting, and is thought to be in the best interests of shareholders as a whole. The Company offers the facility for shareholders to vote by electronic means. This facility is open to all shareholders and would be available if the Company were to call a meeting on 14 clear days’ notice. Employee involvement Benchmark recognises that as the Group grows, additional systems are required to communicate information and strategy to all its people in an effective and timely way. The Group operates the following practices to ensure that all employees receive the information they require to optimise their personal performance and that of the Group, and to ensure effective functioning of internal control systems: • Members of the Operations Board and of the Divisional Boards are responsible for the communication of strategy and relevant developments to their managers and teams, and formal and informal meetings are held at local level to ensure effective dissemination of such information • Monthly newsletters are received by all employees, and include an update from the Executive Directors, together with information on business developments within the Group, new projects, investment programmes, and news regarding the aquaculture and animal health industries • One-off newsletters are used to promptly communicate important events, such as the release of results acquisitions, significant business developments, and other events which are announced to shareholders • The Group’s intranet provides comprehensive information on each of the businesses within the Group, together with the Employee Handbook, policies, toolkits and other relevant information • A programme of compliance training ensures that targeted training is provided to the workforce in relation to the Share Dealing Code, control of inside information, Matters Reserved for the Board, Anti-Bribery Policy, Whistleblowing Policy, employee share schemes and other matters • One of the People Team’s responsibilities is to act as a bridge between the business and its employees, ensuring effective communication and where appropriate acting as mediator The Group has a policy of encouraging share ownership and over 72% of the Group’s employees hold shares or options in the Company. Benchmark Holdings plc Annual Report 2016 | Governance 81 Equal opportunity employer Disclosure of information to auditors Information elsewhere in the report STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION At the date of approval of this Directors’ Report, each Director in office confirms that: • He/she knows of no information, which would be relevant to the auditors for the purposes of their audit report, of which the auditors are not aware • He/she has taken all steps that he/she ought to have taken in order to make himself/herself aware of any such information and to establish that the auditors are aware of it This confirmation is given and should be interpreted in accordance with the provisions of s418 Companies Act 2006. Going concern The Strategic Report reviews, in relation to the business as a whole: • Business activities • Financial position • Factors likely to affect future development and performance • Objectives and policies in managing the financial risks to which the business is exposed The Directors have assessed, in light of current and anticipated economic conditions, the Group’s ability to continue as a going concern, including its solvency and liquidity. The Directors confirm that they are satisfied that the Group and the Company have adequate resources to continue in business for the foreseeable future. For this reason, they continue to adopt the ‘going concern’ basis for preparing accounts. The Group aims to be an equal opportunities employer and is committed to helping people to develop their potential. The Group is committed to giving disabled people and members of minority groups full and fair consideration for all vacancies for which they are suitably qualified. If any employees become disabled during employment, they will be retained wherever possible and retrained where appropriate. Directors’ indemnities All of the Directors benefited from qualifying third party indemnity provisions during the year and at the date of this report. The Company maintains appropriate D&O insurance cover in respect of legal action which may be taken against its Directors. Political and charitable donations No political donations were made by any Group companies in the year. The Company encourages employee involvement with charitable causes. Benchmark provides manpower and farm and office facilities to FarmAbility, a charity which works with adults with autism and learning difficulties by providing them with farming experience. Together, the Group’s employees ran over 500 miles for charity during the year, raising many thousands of pounds for good causes. Dividend The Group’s loss for the year attributable to owners of the parent for 2016 was £18.3m (2015: Loss of £12.0m). The Directors do not recommend a final dividend in relation to the 2016 financial year (2015: Nil). Auditors Following a tender process, the Company appointed KPMG LLP as auditor to replace BDO LLP in 2016. Resolutions regarding the of appoint KPMG LLP as auditor to the Company will be put to shareholders at the Annual General Meeting to be held on 7 March 2017 (details on page 81). The information set out below is contained in other areas of this report. Financial instruments Details of the Group’s financial risk management objectives and policies including the Group’s policy for hedging, and the exposure of the Company and its subsidiaries to price risk, credit risk, liquidity risk and cash flow risk. Page(s) of this report 102–105 Important events Particulars of important events affecting the Company or its subsidiaries. 11–15, 19–37, 47–55 Post balance sheet events Description of post balance sheet events. None Future developments Likely future developments in the business of the Company or its subsidiaries. 11–18, 47–55 Research and development Details of research and development activities of the Company and its subsidiaries. 20–26, 33 Branches outside the UK Details of the existence of branches outside the UK. Risk management Details of the Company’s risk management framework, activities in the year and principal risks and uncertainties Directors’ remuneration and interests Details of Directors’ remuneration, interests in shares of the Company, share options and pension arrangements. 8 56–59 74–79 Principal activities and business review Business review, details of 2016 results, key performance indicators, outlook for future years. 11–15, 19–37, 47–55 Financial risk management Objectives and policies for management of financial risk. Share capital Details of the issued share capital and movements during the year. 72–73 130 This report was approved by the Board on 23 January 2017 and signed on its behalf. Athene Blakeman Company Secretary 24 January 2017 DIRECTORS’ RESPONSIBILITIES Statement of Directors’ responsibilities in relation to the Group financial statements and Annual Report The Directors are responsible for preparing the Strategic Report, the Directors’ Report and the financial statements in accordance with applicable law and regulation. Company law requires the Directors to prepare financial statements for each financial year. Under that law, the Directors have elected to prepare the Group and Company financial statements in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union. Under company law, the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and Company, and of the profit or loss of the Group and Company for that period. The Directors are also required to prepare financial statements in accordance with the rules of the London Stock Exchange for companies whose securities are traded on the Alternative Investment Market. In preparing these financial statements, the Directors are required to: • Select suitable accounting policies and apply them consistently • Make judgements and accounting estimates that are reasonable and prudent • State whether the financial statements have been prepared in accordance with IFRS as adopted by the European Union, subject to any material departures disclosed and explained in the financial statements • Prepare the financial statements on a going concern basis unless it is inappropriate to assume that the Company will continue its business Benchmark Holdings plc Annual Report 2016 | Governance 83 STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION 03 Financial Statements 86 87 88 89 Independent Auditor’s Report Consolidated Income Statement Consolidated Statement of Comprehensive Income Consolidated Balance Sheet 90 Company Balance Sheet 91 92 93 94 95 Consolidated Statement of Changes in Equity Company Statement of Changes in Equity Consolidated Statement of Cash Flows Company Statement of Cash Flows Notes Forming Part of the Financial Statements Independent Auditor's report to the members of Benchmark Holdings plc for the year ended 30 September 2016 Consolidated Income Statement for the year ended 30 September 2016 STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION We have audited the financial statements of Benchmark Holdings plc for the year ended 30 September 2016 which comprise the Consolidated Income Statement, the Consolidated and Company Balance Sheets, the Consolidated Statement of Comprehensive Income, the Consolidated and Company Statement of Changes in Equity, the Consolidated and Company Statement of Cash Flows and the related notes. The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the EU and, as regards the parent company financial statements, as applied in accordance with the provisions of the Companies Act 2006. This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the company’s members those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company’s members as a body, for our audit work, for this report, or for the opinions we have formed. Respective responsibilities of directors and auditors As explained more fully in the statement of directors’ responsibilities, set out on page 83, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s Ethical Standards for Auditors. Scope of the audit of the financial statements A description of the scope of an audit of financial statements is provided on the Financial Reporting Council’s website at www.frc.org.uk/auditscopeukprivate. Opinion on financial statements In our opinion: • • • • the financial statements give a true and fair view of the state of the group’s and the parent company’s affairs as at 30 September 2016 and of the group’s loss for the year then ended; the group financial statements have been properly prepared in accordance with IFRSs as adopted by the EU; the parent company financial statements have been properly prepared in accordance with IFRSs as adopted by the EU and as applied in accordance with the provisions of the Companies Act 2006; and the financial statements have been prepared in accordance with the requirements of the Companies Act 2006. Opinion on other matters prescribed by the Companies Act 2006 In our opinion the information given in the strategic report and directors’ report for the financial year for which the financial statements are prepared is consistent with the financial statements. Matters on which we are required to report by exception We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion: • adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from branches not visited by us; or • the parent company financial statements are not in agreement with the accounting records and returns; or • certain disclosures of directors’ remuneration specified by law are not made; or • we have not received all the information and explanations we require for our audit. Ian Beaumont for and on behalf of KPMG LLP Chartered Accountants 1 Sovereign Square, Sovereign Street, Leeds, LS1 4DA 24 January 2017 Revenue Cost of sales Gross profit Operating costs Operating costs — Exceptional EBITDA3 Depreciation Amortisation Operating profit/(loss) Finance costs Finance income Share of profit of equity-accounted investees, net of tax Profit/(loss) on ordinary activities before taxation Trading Activities1 2016 £000 Investing Activities2 2016 £000 Total 2016 £000 Trading Activities1 2015 £000 Investing Activities2 2015 £000 Note 4 109,375 (58,562) 50,813 - - - 109,375 44,199 (58,562) (28,102) 50,813 16,097 - - - Total 2015 £000 44,199 (28,102) 16,097 26 10 13 14 9 9 (28,502) (26,028) (54,530) (13,674) (9,494) (23,168) - (146) (146) - (160) (160) 22,311 (26,174) (3,863) 2,423 (9,654) (7,231) (2,609) (250) (2,859) (1,113) (13,504) (245) (13,749) (2,825) (191) (239) (1,304) (3,064) 6,198 (26,669) (20,471) (1,515) (10,084) (11,599) (6,170) 3,984 273 - - - (6,170) 3,984 273 (34) 260 - - 14 - (34) 274 - 4,285 (26,669) (22,384) (1,289) (10,070) (11,359) Tax on profit/(loss) on ordinary activities 11,26 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 — Non-controlling interest 7,481 (25,818) (18,337) (2,273) (9,715) (11,988) (9) - (9) 233 - 233 7,472 (25,818) (18,346) (2,040) (9,715) (11,755) Basic earnings/(loss) per share (pence) Diluted earnings/(loss) per share (pence) 12 12 1.79 1.78 (4.39) (4.39) (1.13) (1.13) (5.96) (5.96) 1 Before items described in footnote 2 below. 2 Includes exceptional items (outlined in note 10), research and development expenditure, pre-operational expenses for new ventures and costs of acquiring new businesses as set out in note 26. 3 EBITDA — Earnings before interest, tax, depreciation and amortisation 86 Benchmark Holdings plc Annual Report 2016 | Financial Statements | Independent Auditor's report to the members of Benchmark Holdings plc Benchmark Holdings plc Annual Report 2016 | Financial Statements | Consolidated Income Statement 87 Consolidated Statement of Comprehensive Income for the year ended 30 September 2016 Consolidated Balance Sheet as at 30 September 2016 STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION Profit/(loss) for the year 7,472 (25,818) (18,346) (2,040) (9,715) (11,755) Trading Activities1 2016 £000 Investing Activities2 2016 £000 Total 2016 £000 Trading Activities1 2015 £000 Investing Activities2 2015 £000 Total 2015 £000 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 — Non-controlling interest 55,571 (25,818) 29,753 (5,071) (9,715) (14,786) 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 (outlined in note 10), research and development expenditure, pre-operational expenses for new ventures and costs of acquiring new businesses as set out in note 26. Assets Non-current assets Property, plant and equipment Intangible assets Investments, including associates Trade and other receivables Biological and agricultural assets Total non-current assets Current assets Inventories Biological and agricultural assets Trade and other receivables Cash and cash equivalents Total current assets Total assets Liabilities Current liabilities Trade and other payables Loans and borrowings Corporation tax liability Provisions Total current liabilities Non-current liabilities Loans and borrowings Other payables Deferred tax Total non-current liabilities Total liabilities Net assets Issued capital and reserves attributable to owners of the parent Share capital Share premium reserve Capital redemption reserve Retained earnings Foreign exchange reserve Equity attributable to owners of the parent Non-controlling interest Total equity and reserves Notes 2016 £000 2015 £000 13 14 19 18 17 18 19 34 20 21 50,023 25,141 352,538 65,872 827 - 147 293 5,028 3,392 408,416 94,845 23,231 6,831 5,359 4,948 34,288 15,353 38,140 13,564 102,490 39,224 510,906 134,069 (31,232) (24,368) (289) (1,107) (63) (860) 22 (1,086) (1,033) (33,714) (26,324) 21 20 23 24 24 25 25 25 (37,407) (93) (8,825) (7,330) (63,261) (8,224) (109,493) (15,647) (143,207) (41,971) 367,699 92,098 521 219 339,431 94,672 5 5 (18,904) (1,021) 45,365 (2,724) 366,418 91,151 1,281 947 367,699 92,098 88 Benchmark Holdings plc Annual Report 2016 | Financial Statements | Consolidated Statement of Comprehensive Income Benchmark Holdings plc Annual Report 2016 | Financial Statements | Consolidated Balance Sheet 89 The financial statements on pages 87 to 139 were approved and authorised for issue by the Board of Directors on 24 January 2017 and were signed on its behalf by: M J Plampin Chief Financial Officer Company Balance Sheet as at 30 September 2016 Consolidated Statement of Changes in Equity for the year ended 30 September 2016 STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION Assets Non-current assets Property, plant and equipment Investments, including associates Deferred tax assets Total non-current assets Current assets Trade and other receivables Cash and cash equivalents Total current assets Total assets Liabilities Current liabilities Trade and other payables Total current liabilities Non-current liabilities Loans and borrowings Other payables Total non-current liabilities Total liabilities Net assets Issued capital and reserves attributable to owners of the parent Share capital Share premium reserve Capital redemption reserve Retained earnings Total equity and reserves Note 2016 £000 2015 £000 13 16 23 19 34 240 154 261,902 29,502 - 170 262,142 29,826 101,489 70,280 27,480 5,542 128,969 75,822 391,111 105,648 20 (26,102) (8,542) (26,102) (8,542) 21 20 24 24 25 25 (37,193) - (37,193) (60) (351) (411) (63,295) (8,953) 327,816 96,695 521 219 339,431 94,672 5 5 (12,141) 1,799 327,816 96,695 The financial statements on pages 87 to 139 were approved and authorised for issue by the Board of Directors on 24 January 2017 and were signed on its behalf by: MJ Plampin Chief Financial Officer Share capital £000 Share premium reserve £000 Other reserves £000 Retained earnings £000 Total attributable to equity holders of parent £000 Non- controlling interest £000 Total equity £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 Other comprehensive income Total comprehensive income for the year Contributions by and distributions to owners - - - - - - - (11,988) (11,988) 233 (11,755) (2,798) (2,798) (14) (2,812) (2,798) (11,988) (14,786) 219 (14,567) Share issue 82 69,918 Share issue costs recognised through equity Share based payment Deferred tax on share options Acquisition of non-controlling interest Total contributions by and distributions to owners - - - - (2,149) - - - 82 67,769 - - - - - - - - 748 96 - 70,000 (2,149) 748 96 - - - - - 718 70,000 (2,149) 748 96 718 844 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 Other comprehensive income Total comprehensive income for the year Contributions by and distributions to owners - - - - - - - (18,337) (18,337) (9) (18,346) 48,089 - 48,089 48,089 (18,337) 29,752 297 288 48,386 30,040 Share issue 302 249,444 Share issue costs recognised through equity Share based payment Deferred tax on share options - - - (4,685) - - Total contributions by and distributions to owners 302 244,759 Changes in ownership Acquisition of subsidiary with non-controlling interests Total changes in ownership interests Total transactions with owners of the Company - - - - 302 244,759 - - - - - - - - - - 249,746 (4,685) 749 (295) 749 (295) 454 245,515 - - - - - - - - - 46 46 249,746 (4,685) 749 (295) 245,515 46 46 454 245,515 46 245,561 As at 30 September 2016 521 339,431 45,370 (18,904) 366,418 1,281 367,699 90 Benchmark Holdings plc Annual Report 2016 | Financial Statements | Company Balance Sheet Benchmark Holdings plc Annual Report 2016 | Financial Statements | Consolidated Statement of Changes in Equity 91 Company Statement of Changes in Equity for the year ended 30 September 2016 Consolidated Statement of Cash Flows for the year ended 30 September 2016 STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION At 1 October 2014 Comprehensive income for the year Loss for the year Total comprehensive income for the year Contributions by and distributions to owners Share based payment Deferred tax on share options Share issue Share issue costs recognised through equity Total contributions by and distributions to owners Share capital £000 Share premium reserve £000 Capital redemption reserve £000 Retained earnings £000 Total attributable to equity holders £000 137 26,903 5 8,854 35,899 - - - - 82 - 82 - - - - 69,918 (2,149) 67,769 - - - - - - - (7,807) (7,807) (7,807) (7,807) 748 4 - - 748 4 70,000 (2,149) 752 68,603 At 30 September 2015 219 94,672 5 1,799 96,695 Comprehensive income for the year Loss for the year Total comprehensive income for the year Contributions by and distributions to owners Share based payment Deferred tax on share options Share issue Share issue costs recognised through equity Total contributions by and distributions to owners At 30 September 2016 - - - - - - - - 302 249,444 - (4,685) 302 521 244,759 339,431 - - - - - - - (14,646) (14,646) (14,646) (14,646) 749 (43) - - 749 (43) 249,746 (4,685) 706 245,767 5 (12,141) 327,816 Cash flows from operating activities Loss for the year Adjustments for: Depreciation of property, plant and equipment Amortisation of intangible fixed assets Loss on sale of property, plant and equipment Finance income Finance costs Share of profit of equity-accounted investees, net of tax Foreign exchange losses/(gains) Share based payment expense Tax (credit)/expense (Increase)/decrease in trade and other receivables Increase in inventories and biological assets Decrease in trade and other payables Decrease in provisions Income taxes paid Net cash flows used in operating activities Investing activities Acquisition of subsidiaries, net of cash acquired Purchase of investments Purchases of property, plant and equipment Purchase of intangibles Proceeds from sale of fixed assets Interest received Net cash flows used in investing activities Financing activities Proceeds of share issues Proceeds from bank borrowings Share-issue costs recognised through equity Net cash flows from derivative financial instruments Repayment of bank borrowings Interest and finance charges paid Payments to finance lease creditors Net cash inflow from financing activities Net increase/(decrease) in cash and cash equivalents Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year Notes 2016 £000 2015 £000 13 14 9 9 30 11 (18,346) (11,755) 2,859 13,749 30 1,304 3,064 21 (3,984) (274) 6,170 (273) 34 - 6,776 (1,445) 749 (4,038) 458 396 3,692 (8,197) (3,729) (4,704) 2,503 (468) (4,124) (2,645) (238) (47) (9,103) (8,854) (1,429) (105) (10,532) (8,959) (191,502) (47,568) - (52) (18,660) (14,038) (1,523) (182) 174 254 148 274 (211,257) (61,418) 216,519 70,000 42,254 - (4,685) (2,149) 3,731 - (8,809) (2,481) (164) (332) (34) (55) 246,365 67,430 24,576 (2,947) 13,564 16,511 34 38,140 13,564 92 Benchmark Holdings plc Annual Report 2016 | Financial Statements | Company Statement of Changes in Equity Benchmark Holdings plc Annual Report 2016 | Financial Statements | Consolidated Statement of Cash Flows 93 Company Statement of Cash Flows Company Statement of Cash Flows for the year ended 30 September 2016 for the year ended 30 September 2016 Notes forming part of the financial statements for the year ended 30 September 2016 STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION Cash flows from operating activities Loss for the year Adjustments for: Depreciation of property, plant and equipment Provision for impairment of investments Loss on sale of property, plant and equipment Finance income Finance expense Share based payment expense Tax expense/credit Increase in trade and other receivables Increase in trade and other payables Net cash flows used in operating activities Investing activities Loans to subsidiary undertakings Repayment of loan from subsidiary undertaking Investment in subsidiary undertakings Purchases of property, plant and equipment Interest received Net cash flows used in investing activities Financing activities Proceeds of share issues Proceeds from bank borrowings Share issue costs recognised through equity Net cash flows from derivative financial instruments Repayment of bank borrowings Interest paid Net cash inflow from financing activities Net increase/(decrease) in cash and cash equivalents Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year Note 2016 £000 2015 £000 1 Accounting policies Corporate information 13 16 30 (14,646) (7,807) 62 - - 22 850 5 (4,018) (117) 6,219 149 127 - 128 (119) (12,107) (7,038) (34,001) (42,680) 17,207 1,998 (28,901) (47,720) - (8,902) 1,659 - (197,440) (19,767) (148) 288 (115) 117 (195,641) (28,667) 216,519 70,000 42,254 - (4,685) (2,149) 3,731 (8,809) (2,530) - - - 246,480 67,851 21,938 (8,536) 5,542 14,078 34 27,480 5,542 Benchmark Holdings plc (the Company) is a public limited company, which is listed on the Alternative Investment Market (AIM), a sub-market of the London Stock Exchange. The Company is incorporated and domiciled in England and Wales. The registered office is at Benchmark House, 8 Smithy Wood Drive, Sheffield, S35 1QN. The Group is principally engaged in the provision of technical services, products and specialist knowledge that support the global development of sustainable food and farming industries. Basis of preparation The principal accounting policies adopted in the preparation of the financial statements are set out below. The policies have been consistently applied to all the years presented, unless otherwise stated. The Group’s business activities, together with the factors likely to affect its future development, performance and position are set out in the Chairman’s Statement, the FY16 Financial Review and the Audit Committee Report. As at 30 September 2016 the Group had net assets of £367.7 million, including cash of £38.1 million (2015: £13.6 million) as set out in the consolidated balance sheet on page 89 and a five year revolving credit facility of US$70.0 million, of which US$50 million is currently drawn down and which expires in 2020. The Directors have considered these factors, together with the results for the year and the likely future performance of the business and possible alternative outcomes and the financing activities available to the Group. Having taken all of these factors into consideration, including the impact on covenants relating to the external borrowing facility, the Directors confirm that forecasts and projections indicate that the Group and its Parent Company have adequate resources for the foreseeable future and at least for the period of 12 months from the date of signing the half year report. Accordingly, the financial information has been prepared on the going concern basis. These financial statements have been prepared in accordance with International Financial Reporting Standards, International Accounting Standards and Interpretations (collectively IFRSs) issued by the International Accounting Standards Board (IASB) as adopted by the European Union (“adopted IFRSs”) and those parts of the Companies Act 2006 that are applicable to companies that prepare financial statements in accordance with IFRS. The preparation of financial statements in compliance with adopted IFRS requires the use of certain critical accounting estimates. It also requires Group management to exercise judgement in applying the Group’s accounting policies. The areas where significant judgements and estimates have been made in preparing the financial statements and their effect are disclosed in note 2. Basis of consolidation The consolidated financial statements comprise the financial statements of the Group and its subsidiaries at 30 September 2016. Subsidiaries are consolidated from the date of acquisition, being the date on which the Group obtained control, and continue to be consolidated until the date when such control ceases. Where the Company has power, either directly or indirectly, over another entity or business and the ability to use this power to affect the amount of returns, as well as exposure or rights to variable returns from its involvement with the investee, it is classified as a subsidiary. The consolidated financial statements present the results of the Company and its subsidiaries (“the Group”) as if they formed a single entity. Intercompany transactions, balances, unrealised gains and losses resulting from intra- Group transactions and dividends are eliminated in full. The consolidated financial statements incorporate the results of business combinations using the acquisition method. In the consolidated balance sheet, the acquiree’s identifiable assets, liabilities and contingent liabilities are initially recognised at their fair values at the acquisition date. Non-controlling interests, presented as part of equity, represent a proportion of a subsidiary’s profit or loss and net assets that is not held by the Group. The total comprehensive income or loss of non-wholly owned subsidiaries is attributed to owners of the parent and to the non-controlling interests in proportion to their respective ownership interests. A separate income statement for the Company is not presented, in accordance with Section 408 of the Companies Act 2006. The loss for the year for the Company was £14,646,000 (2015: loss £7,807,000). Standards issued but not effective A number of new standards, amendments to standards and interpretations are not yet effective, and have not been applied in preparing these consolidated financial statements. Those which may be relevant to the Group are set out below. The adoption of these standards is not expected to have a material effect on the financial statements unless otherwise indicated: IFRS 9 Financial Instruments: Classification and Measurement has been issued but is not yet effective. The standard has been developed in several phases and replaces IAS 39 Financial Instruments: Recognition and Measurement in its entirety. The effective date of the fully completed version of IFRS 9 is for periods beginning on or after 1 January 2018 with retrospective application. The Group has not yet quantified the full impact of all phases of the final standard. It is expected that the Group will adopt IFRS 9 on 1 October 2018. 94 Benchmark Holdings plc Annual Report 2016 | Financial Statements | Company Statement of Cash Flows Benchmark Holdings plc Annual Report 2016 | Financial Statements | Notes forming part of the financial statements 95 1 Accounting policies (continued) IFRS 15 Revenue from Contracts with Customers, which has been issued but has an effective date of 1 January 2018. IFRS 15 supersedes IAS 11 Construction Contracts, IAS 18 Revenue, IFRIC 13 Customer Loyalty Programmes, IFRIC 15 Agreements for the Construction of Real Estate, IFRIC 18 Transfers of Assets from Customers and SIC 31 Revenue — Barter Transactions Involving Advertising Services. The Group has not yet quantified the potential impact of this standard. It is expected the Group will adopt IFRS 15 on 1 October 2018. IFRS 16 Leases introduces a single, on-balance sheet accounting model for lessees which has an effective date of 1 January 2019. The Group has not yet quantified the potential impact of this standard. It is expected that the Group will adopt IFRS 16 on 1 October 2019. New standards and interpretations applied for the first time The following standards with an effective date of either 1 January 2015 or 1 February 2015 have been adopted without any significant impact on the amounts reported in these financial statements: Annual Improvements to IFRSs 2010–2012 Cycle — various standards Annual Improvements to IFRSs 2011–2013 Cycle — various standards Revenue Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured, regardless of when the payment is being made. Revenue is measured at the fair value of consideration received or receivable, taking into account contractually defined terms of payment and excluding taxes or duty. The Group assesses its revenue arrangements against specific criteria in order to determine if it is acting as a principal or agent. The Group has concluded that it is acting as a principal in all of its revenue arrangements. The following specific criteria must also be met before revenue is recognised: Sale of goods Within Benchmark Animal Health, revenue from the sale of licenced veterinary vaccines and vaccine components is recognised when the Group has transferred the significant risks and rewards of ownership to the buyer, usually on despatch. Where the buyer has a right of return, revenue and cost of sales are adjusted for the value of the expected returns based on historical results, taking into consideration the specifics of each arrangement. Within Benchmark Sustainability Science, revenue from the sale of agricultural produce is recognised when the Group has transferred the significant risks and rewards of ownership to the buyer, usually on delivery. Where the buyer has a right of return, revenue and cost of sales are adjusted for the value of the expected returns based on historical results, taking into consideration the specifics of each arrangement. Within Benchmark Technical Publishing, revenue from the sales of books and publications is recognised when the Group has transferred the significant risks and rewards of ownership to the buyer, usually on despatch. Within Benchmark Breeding and Genetics, revenue from the sale of eggs is recognised upon despatch, which is when the risks and rewards of ownership are considered to have passed to the customer. Within Benchmark Advanced Animal Nutrition, revenue of advanced nutrition and health products is recognised when the Group has transferred the significant risks and rewards of ownership to the buyer, usually on despatch. Rendering of services Services including sustainable food production consultancy, technical consultancy and assurance services are provided by Benchmark Sustainability Science, Benchmark Animal Health, Benchmark Breeding and Genetics and Benchmark Advanced Animal Nutrition. Online news, marketing and technical publications, book publishing, online shops, online distance learning programs and other training courses are provided by Benchmark Technical Publishing. Provided the amount of revenue can be measured reliably and it is probable that the Group will receive any consideration, revenue for these services is recognised in the period in which they are rendered. Business combinations Business combinations are accounted for using the acquisition method. The consideration transferred for the acquisition of a subsidiary is the fair values of the assets transferred, the liabilities incurred to the former owners of the acquiree and the equity interests issued by the Group. The consideration transferred includes the fair value of asset or liability resulting from a contingent consideration arrangement. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date. The Group recognises any non-controlling interest in the acquiree on an acquisition by acquisition basis, either at fair value or at the non-controlling interest’s proportionate share of the recognised amounts of acquiree’s identifiable net assets. Transaction costs, other than share and debt issue costs, are expensed as incurred. In accordance with IFRS 3 — Business Combinations, the Group has a twelve-month period in which to finalise the fair values allocated to assets and liabilities determined provisionally on acquisition. Contingent consideration is measured at fair value based on an estimate of the expected future payments. Deferred consideration is measured at the present value of the obligation. If the business combination is achieved in stages, the previously held equity interest is remeasured at its acquisition date fair value and any resulting gain or loss is recognised in the consolidated income statement. STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION 1 Accounting policies (continued) Foreign currency The Group’s consolidated financial statements are presented in UK pounds sterling, which is also the parent Company’s functional currency. The Group determines the functional currency of each of its subsidiaries and items included in the financial statements of each of those entities are measured using that functional currency. Transactions entered into by Group entities in a currency other than the currency of the primary economic environment in which they operate (their “functional currency”) are recorded at the rates ruling when the transactions occur. Foreign currency monetary assets and liabilities are translated at the rates ruling at the reporting date. Exchange differences arising on the retranslation of unsettled monetary assets and liabilities are recognised immediately in the consolidated income statement. On consolidation, the results of overseas operations are translated into sterling at rates approximating to those ruling when the transactions took place. All assets and liabilities of overseas operations, including goodwill arising on the acquisition of those operations, are translated at the rate ruling at the reporting date. Exchange differences arising on translating the opening net assets at opening rate and the results of overseas operations at actual rate are recognised in other comprehensive income and accumulated in the foreign exchange reserve. Exchange differences recognised in the income statement in the Group entities’ separate financial statements on the translation of long-term monetary items forming part of the Group’s net investment in the overseas operation concerned are reclassified to other comprehensive income and accumulated in the foreign exchange reserve on consolidation. On disposal of a foreign operation, the cumulative exchange differences recognised in the foreign exchange reserve relating to that operation up to the date of disposal are transferred to the consolidated income statement as part of the profit or loss on disposal. Financial assets The Group classifies all of its financial assets as loans and receivables and has not classified any of its financial assets as held to maturity. Loans and receivable assets are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They arise principally through the provision of goods and services to customers (e.g. trade receivables), but also incorporate other types of contractual monetary asset. They are initially recognised at fair value plus transaction costs that are directly attributable to their acquisition or issue, and are subsequently carried at amortised cost using the effective interest rate method, less provision for impairment. Impairment provisions are recognised when there is objective evidence (such as significant financial difficulties on the part of the counterparty or default or significant delay in payment) that the Group will be unable to collect all of the amounts due under the terms of the receivable, the amount of such a provision being the difference between the net carrying amount and the present value of the future expected cash flows associated with the impaired receivable. For trade receivables, which are reported net, such provisions are recorded in a separate allowance account with the loss being recognised within operating costs in the consolidated income statement. On confirmation that the trade receivable will not be collectable, the gross carrying value of the asset is written off against the associated provision. From time to time, the Group elects to renegotiate the terms of trade receivables due from customers with which it has previously had a good trading history. Such renegotiations will lead to changes in the timing of payments rather than changes to the amounts owed and, in consequence, the new expected cash flows are discounted at the original effective interest rate and any resulting difference to the carrying value is recognised in the consolidated income statement (operating profit). The Group’s loans and receivables comprise trade and other receivables and cash and cash equivalents in the consolidated balance sheet. Cash and cash equivalents includes cash in hand, deposits held at call with banks, other short term highly liquid investments with original maturities of three months or less from inception, and for the purpose of the statements of cash flows, bank overdrafts. Bank overdrafts are shown within loans and borrowings in current liabilities on the consolidated balance sheet. Financial liabilities The Group classifies its financial liabilities as other financial liabilities which include the following items: • Bank borrowings which are initially recognised at fair value net of any transaction costs directly attributable to the issue of the instrument. Such interest bearing liabilities are subsequently measured at amortised cost using the effective interest rate method, which ensures that any interest expense over the period to repayment is at a constant rate on the balance of the liability carried in the consolidated balance sheet. • Trade payables and other short-term monetary liabilities, which are initially recognised at fair value and subsequently carried at amortised cost using the effective interest method. Financial liabilities fair value through profit and loss Contingent consideration is recognised at fair value with movements recognised in the consolidated income statement. Share capital The Group’s ordinary shares are classified as equity instruments. 96 Benchmark Holdings plc Annual Report 2016 | Financial Statements | Notes forming part of the financial statements Benchmark Holdings plc Annual Report 2016 | Financial Statements | Notes forming part of the financial statements 97 1 Accounting policies (continued) Retirement benefits: Defined contribution schemes Contributions to defined contribution pension schemes are charged to the income statement in the year to which they relate. Share-based payments Where equity settled share options are awarded to employees, the fair value of the options at the date of grant is charged to the consolidated income statement over the vesting period. Non-market vesting conditions are taken into account by adjusting the number of equity instruments expected to vest at each reporting date so that, ultimately, the cumulative amount recognised over the vesting period is based on the number of options that eventually vest. Non-vesting conditions and market vesting conditions are factored into the fair value of the options granted. As long as all other vesting conditions are satisfied, a charge is made irrespective of whether the market vesting conditions are satisfied. The cumulative expense is not adjusted for failure to achieve a market vesting condition or where a non-vesting condition is not satisfied. Where the terms and conditions of options are modified before they vest, the increase in the fair value of the options, measured immediately before and after the modification, is also charged to the consolidated income statement over the remaining vesting period. Leased assets Where substantially all of the risks and rewards incidental to ownership of a leased asset have been transferred to the Group (a “finance lease”), the asset is treated as if it had been purchased outright. The amount initially recognised as an asset is the lower of the fair value of the leased property and the present value of the minimum lease payments payable over the term of the lease. The corresponding lease commitment is shown as a liability. Lease payments are analysed between capital and interest. The interest element is charged to the consolidated income statement over the period of the lease and is calculated so that it represents a constant proportion of the lease liability. The capital element reduces the balance owed to the lessor. Where substantially all of the risks and rewards incidental to ownership are not transferred to the Group (an “operating lease”), the total rentals payable under the lease are charged to the consolidated income statement on a straight-line basis over the lease term. The aggregate benefit of lease incentives is recognised as a reduction of the rental expense over the lease term on a straight-line basis. Goodwill Goodwill is initially measured at cost, being the excess of the cost of a business combination over the total acquisition date fair value of the identifiable assets, liabilities and contingent liabilities acquired. Goodwill is capitalised as an intangible asset with any impairment in carrying value being charged to the consolidated income statement. Where the fair value of identifiable assets, liabilities and contingent liabilities exceed the fair value of consideration paid, the excess is credited in full to the consolidated income statement on the acquisition date. Externally acquired intangible assets Externally acquired intangible assets are initially recognised at cost and subsequently amortised over their useful economic lives as outlined below, on a straight-line basis from the time they are available for use. Intangible assets are recognised on business combinations if they are separable from the acquired entity or give rise to other contractual/legal rights. The amounts ascribed to such intangibles are arrived at by using appropriate valuation techniques (see section related to critical estimates and judgements below). In-process research and development programmes acquired in such combinations are recognised as an asset, even if subsequent expenditure is written off because it does not meet the criteria specified in the policy for development costs below. 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 Websites 5 years Valuation method Assessment of estimated revenues and profits Patents 2-5 years Cost to acquire Trademarks 2-5 years Cost to acquire Contracts 3-20 years Licences 3-20 years Assessment of estimated revenues and profits 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 Genetic material and breeding nuclei 10-40 years estimated revenues and profits Cost to acquire, or if not separately identifiable, assessment of estimated revenues and profits Development costs Up to 10 years Cost to acquire STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION 1 Accounting policies (continued) Impairment of non-financial assets (excluding inventories) The carrying values of all non-current assets are reviewed for impairment, either on a stand-alone basis or as part of a larger cash generating unit, when there is an indication that the assets might be impaired. Additionally, goodwill, intangible assets with indefinite useful lives and intangible assets which are not yet available for use are tested for impairment annually. Where the carrying value of an asset exceeds its recoverable amount (i.e. the higher of value in use and fair value less costs to sell), the asset is written down accordingly. Where it is not possible to estimate the recoverable amount of an individual asset, the impairment test is carried out on the smallest group of assets to which it belongs for which there are separately identifiable cash flows; its cash generating units (‘CGUs’). Goodwill is allocated on initial recognition to each of the Group’s CGUs that are expected to benefit from the synergies of the combination giving rise to the goodwill. Impairment charges are included in the consolidated income statement, except to the extent they reverse gains previously recognised in other comprehensive income. An impairment loss recognised for goodwill is not reversed. Internally generated intangible assets (development costs) Expenditure on internally developed products is capitalised if it can be demonstrated that: • it is technically feasible to develop the product for it to be sold; • adequate resources are available to complete the development; • there is an intention to complete and sell the product; • the Group is able to sell the product; • sale of the product will generate future economic benefits; and • expenditure on the project can be measured reliably. Capitalised development costs are amortised over the periods the Group expects to benefit from selling the products developed. The amortisation expense is included within the cost of sales line in the consolidated income statement. Development expenditure not satisfying the above criteria and expenditure on the research phase of internal projects are recognised in the consolidated income statement as incurred. Deferred taxation • the initial recognition of an asset or liability in a transaction which is not a business combination and at the time of the transaction affects neither accounting or taxable profit; and • investments in subsidiaries and jointly controlled entities where the Group is able to control the timing of the reversal of the difference and it is probable that the difference will not reverse in the foreseeable future. Recognition of deferred tax assets is restricted to those instances where it is probable that taxable profit will be available against which the difference can be utilised. The carrying amount of deferred tax asset is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered. The amount of the asset or liability is determined using tax rates that have been enacted or substantively enacted by the reporting date and are expected to apply when the deferred tax liabilities/assets are settled/ recovered. Deferred tax assets and liabilities are offset when the Group has a legally enforceable right to offset current tax assets and liabilities and the deferred tax assets and liabilities relate to taxes levied by the same tax authority on either: • the same taxable Group company; or • different Group entities which intend either to settle current tax assets and liabilities on a net basis, or to realise the assets and settle the liabilities simultaneously, in each future period in which significant amounts of deferred tax assets or liabilities are expected to be settled or recovered. Property, plant and equipment Items of property, plant and equipment are initially recognised at cost. As well as the purchase price, cost includes directly attributable costs and the estimated present value of any future unavoidable costs of dismantling and removing items. The corresponding liability is recognised within provisions. Freehold land is not depreciated. Assets in the course of construction which have not yet been brought into use are not depreciated until fully commissioned and available for use. Depreciation is provided on all other items of property, plant and equipment so as to write off their carrying value over their expected useful economic lives. It is provided at the following rates: Freehold property – 2% per annum straight line Long term leasehold property improvements – 2%–10% per annum straight line Deferred tax assets and liabilities are recognised where the carrying amount of an asset or liability in the balance sheet differs from its tax base, except for differences arising on: • the initial recognition of goodwill; Plant and machinery – 15% per annum reducing balance Motor vehicles – 25% per annum reducing balance E commerce infrastructure – 10% per annum straight line Other fixed assets – 15%–33% per annum straight line 98 Benchmark Holdings plc Annual Report 2016 | Financial Statements | Notes forming part of the financial statements Benchmark Holdings plc Annual Report 2016 | Financial Statements | Notes forming part of the financial statements 99 1 Accounting policies (continued) Investments in subsidiary undertakings Investments in subsidiaries are stated at cost less provision for impairment. Investments in associates An associate is an entity over which the Group has significant influence and that is neither a subsidiary nor an interest in a joint venture. Significant influence is the power to participate in the financial and operating policy decisions of the investee but is not control or joint control over those policies. The results and assets and liabilities of associates are incorporated in the consolidated financial statements using the equity method of accounting. Under the equity method, investments in associates are carried in the consolidated balance sheet at cost as adjusted for post-acquisition changes in the Group’s share of the net assets of the associate, less any impairment in the value of the investment. Losses of an associate in excess of the Group’s interest in that associate are not recognised. Additional losses are provided for, and a liability is recognised, only to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of the associate. Any excess of the cost of acquisition over the Group’s share of the net fair value of the identifiable assets, liabilities and contingent liabilities of the associate recognised at the date of acquisition is recognised as goodwill. The goodwill is included within the carrying amount of the investment. Cash and cash equivalents Cash and cash equivalents comprise cash balances and call deposits with an original maturity of three months or less. Bank overdrafts that are repayable on demand and form an integral part of the Group’s cash management are included as a component of cash and cash equivalents for the purpose of the statements of cash flows. Dividends Dividends are recognised when they become legally payable. In the case of interim dividends to equity shareholders, this is when declared by the Directors. In the case of final dividends, this is when approved by the shareholders at the AGM. Inventories Inventories are initially recognised at cost, and subsequently at the lower of cost and net realisable value. Cost comprises all costs of purchase, costs of conversion and other costs incurred in bringing the inventories to their present location and condition. Biological assets Biological assets comprise two asset types: livestock, and fish and fish eggs Livestock is measured at fair value less costs to sell. The fair value of livestock is based on quoted prices of livestock and adjusted for age, breed, and genetic merit in the principal (or most advantageous) market for the livestock, and therefore is categorised within level 2 of the fair value hierarchy set out in IFRS 13. Fish and fish eggs are, in accordance with IAS 41 ‘Agriculture’, measured at fair value, unless the fair value cannot be measured reliably. The principal components of fish and fish eggs within the business are: • Salmon broodstock • Salmon fingerlings • Salmon eggs • Lumpfish eggs and fingerlings Non-current biological assets are those biological assets which will not produce saleable progeny within twelve months of the balance sheet date. Further details of the valuation of fish and fish eggs are given in note 18. Government grants Government grants received on capital expenditure are included in the balance sheet as deferred income and released to the income statement over the life of the asset. Grants for revenue expenditure are netted against the cost incurred by the Group. Where retention of a government grant is dependent on the Group satisfying certain criteria, it is initially recognised as deferred income. When the criteria for retention have been satisfied, the deferred income balance is released to the consolidated income statement or netted against the asset purchased. Provisions The Group has recognised provisions for liabilities of uncertain timing or amount including those for leasehold dilapidations, sale or return obligations and legal disputes. The provision is measured at the best estimate of the expenditure required to settle the obligation at the reporting date, discounted at a pre-tax rate reflecting current market assessments of the time value of money and risks specific to the liability. In the case of leasehold dilapidations, the provision takes into account the potential that the properties in question may be sublet for some or all of the remaining lease term. STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION 2 Critical accounting estimates and judgements The Group makes certain estimates and assumptions regarding the future. Estimates and judgements are continually evaluated based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. In the future, actual experience may differ from these estimates and assumptions. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below. Estimates and assumptions (a) Fair value measurement A number of assets and liabilities included in the Group’s financial statements require measurement at, and/or disclosure of, fair value. The fair value measurement of the Group’s financial and non-financial assets and liabilities utilises market observable inputs and data as far as possible. Inputs used in determining fair value measurements are categorised into different levels based on how observable the inputs used in the valuation technique utilised are (the ‘fair value hierarchy’): (c) Legal proceedings The Group reviews outstanding legal cases following developments in the legal proceedings and at each reporting date, in order to assess the need for provisions and disclosures in its financial statements. Among the factors considered in making decisions on provisions are the nature of litigation, claim or assessment, the legal process and potential level of damages in the jurisdiction in which the litigation, claim or assessment has been brought, the progress of the case (including the progress after the date of the financial statements but before those statements are issued), the opinions or views of legal advisers, experience on similar cases and any decision of the Group’s management as to how it will respond to the litigation, claim or assessment. (d) Valuation of intangible assets Where the cost of intangible assets acquired as part of business combinations is not separately identifiable or does not represent the fair value, the valuation is calculated based upon value in use which requires the use of a discount rate in order to calculate the present value of cash flows. These intangibles are reviewed annually for impairment. The recoverable amount is determined based on value in use calculations. The use of this method requires the estimation of future cash flows and the choice of a discount rate in order to calculate the present value of the cash flows. Level 1: Quoted prices in active markets for identical items (unadjusted) (e) Income taxes Level 2: Observable direct or indirect inputs other than Level 1 inputs Level 3: Unobservable inputs (i.e. not derived from market data). The classification of an item into the above levels is based on the lowest level of the inputs used that has a significant effect on the fair value measurement of the item. Transfers of items between levels are recognised in the period they occur The Group measures a number of items at fair value. Financial instruments (note 3) Biological assets (note 18) Business combinations (note 32), including contingent consideration (note 20). For more detailed information in relation to the fair value measurement of the items above, please refer to the applicable notes. (b) Impairment of goodwill The Group is required to test, on an annual basis, whether goodwill has suffered any impairment. The recoverable amount is determined based on value in use calculations. The use of this method requires the estimation of future cash flows and the choice of a discount rate in order to calculate the present value of the cash flows. More information including carrying values is included in note 15. The Group is subject to income tax in several jurisdictions and significant judgement is required in determining the provision for income taxes. The Group believes that its accruals for tax liabilities are adequate for all open audit years based on its assessment of many factors including past experience and interpretations of tax law. This assessment relies on estimates and assumptions and may involve a series of complex judgements about future events. To the extent that the final tax outcome of these matters is different than the amounts recorded, such differences will impact income tax expense in the period in which such determination is made. (f) Share-based payments The Group measures the cost of equity-settled transactions with employees by reference to the fair value of the equity instruments at the date at which they are granted. Estimating fair value for share-based payment transactions requires determination of the most appropriate valuation model, which is dependent on the terms and conditions of the grant. This estimate also requires determination of the most appropriate inputs to the valuation model including the expected life of the share option, volatility and dividend yield and making assumptions about them. The assumptions and models used for estimating fair value for share-based payment transactions are disclosed in note 30. 100 Benchmark Holdings plc Annual Report 2016 | Financial Statements | Notes forming part of the financial statements Benchmark Holdings plc Annual Report 2016 | Financial Statements | Notes forming part of the financial statements 101 3 Financial instruments — Risk Management 3 Financial instruments — Risk Management (continued) STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION The Group is exposed through its operations to the following financial risks: • Credit risk • Fair value or cash flow interest rate risk • Foreign exchange risk • Liquidity risk In common with all other businesses, the Group is exposed to risks that arise from its use of financial instruments. This note describes the Group’s objectives, policies and processes for managing those risks and the methods used to measure them. Further quantitative information in respect of these risks is presented throughout these financial statements. There have been no substantive changes in the Group’s exposure to financial instrument risks, its objectives, policies and processes for managing those risks or the methods used to measure them from previous periods unless otherwise stated in this note. Principal financial instruments The principal financial instruments used by the Group, from which financial instrument risk arises, are as follows: • Trade receivables • Cash and cash equivalents • Trade and other payables • Bank overdrafts • Floating-rate bank loans • Contingent consideration The contingent consideration held within other payables is classified as financial liabilities at fair value through profit and loss. In accordance with IFRS 13 ‘Fair Value Measurement’, the measurement of the fair value of contingent consideration is categorised into Level 3 in the fair value hierarchy, as the inputs are primarily unobservable. The amounts payable for all of the outstanding amounts depend on sales volumes or sales revenues targets. Management uses the actual performance against these targets together with relevant budgets and forecasts to derive the fair value of the contingent consideration. The amount recorded in these financial statements for contingent consideration for all acquisitions with the exception of Akvaforsk Genetic Center Inc, represents the maximum amounts payable. An increased level of performance for Akvaforsk Genetic Center Inc would increase the amount payable. A reduction in the level of performance would significantly reduce the amounts payable. A summary of the financial instruments held by category is provided below: Group Financial assets Financial assets not measured at fair value Cash and cash equivalents (note 34) Trade and other receivables (note 19) Total financial assets Financial liabilities Financial liabilities measured at amortised cost Trade and other payables (note 20) Loans and borrowings (note 21) Financial liabilities at fair value through profit and loss Other payables — contingent consideration (note 20) Total financial liabilities 2016 £000 38,140 29,926 68,066 2016 £000 26,268 37,696 63,964 10,220 74,184 2015 £000 13,564 10,281 23,845 2015 £000 11,066 156 11,222 16,296 27,518 Principal financial instruments (continued) Company Financial assets Financial assets not measured at fair value Cash and cash equivalents (note 34) Trade and other receivables (note 19) Total financial assets Financial liabilities Financial liabilities measured at amortised cost Trade and other payables (note 20) Loans and borrowings (note 21) Financial liabilities at fair value through profit and loss Other payables — contingent consideration (note 20) Total financial liabilities 2016 £000 27,480 101,122 128,602 2016 £000 25,916 37,193 63,109 82 63,191 2015 £000 5,542 69,977 75,519 2015 £000 5,510 60 5,570 3,351 8,921 There were no financial instruments classified as available for sale. General objectives, policies and processes The Board has overall responsibility for the determination of the Group’s risk management objectives and policies and, whilst retaining ultimate responsibility for them, it has delegated the authority for designing and operating processes that ensure the effective implementation of the objectives and policies to the Group’s finance function. The Board receives monthly reports from the Group Chief Financial Officer through which it reviews the effectiveness of the processes put in place and the appropriateness of the objectives and policies it sets. The overall objective of the Board is to set policies that seek to reduce risk as far as possible without unduly affecting the Group’s competitiveness and flexibility. Further details regarding these policies are set out below: Credit risk Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations. The Group is mainly exposed to credit risk from credit sales. It is Group policy, implemented locally, to assess the credit risk of new customers before entering contracts. Credit risk also arises from cash and cash equivalents and deposits with banks and financial institutions. For banks and financial institutions, only independently rated parties with minimum rating “A” are accepted. Further disclosures regarding trade and other receivables are provided in note 19. Fair value and cash flow interest rate risk During the year the Group had borrowings denominated in Sterling and US Dollars. If interest rates on Pound Sterling and US Dollar denominated borrowings had been 100 basis points higher/lower with all other variables held constant, loss after tax for the year ended 30 September 2016 would be £434,000 higher/lower (2015: £nil). The Directors consider that 100 basis points is the maximum likely change in the relevant interest rates over the next year, being the period up to the next point at which the Group expects to make these disclosures. 102 Benchmark Holdings plc Annual Report 2016 | Financial Statements | Notes forming part of the financial statements Benchmark Holdings plc Annual Report 2016 | Financial Statements | Notes forming part of the financial statements 103 3 Financial instruments — Risk Management (continued) 3 Financial instruments — Risk Management (continued) STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION Foreign exchange risk Foreign exchange risk arises when individual Group entities enter into transactions denominated in a currency other than their functional currency (principally Sterling, Norwegian Krone, Icelandic Krona, Euro, US dollars and Danish Krone). 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. The table below shows the impact of a 10 per cent. increase and reduction in Sterling against the relevant foreign currencies, with all other variables held constant, on the Group’s profit before tax and equity. A greater or smaller change would have a pro-rata effect. The movements in profit arise from retranslation of foreign currency denominated monetary items held at the year end, including the foreign currency revolving credit facility, foreign currency bank accounts, trade receivables, trade and other payables. The movements in equity arise from the retranslation of the net assets of overseas subsidiaries and the intangible assets arising on consolidation in accordance with IFRS 10 Consolidated Financial Statements. £/$ £/€ £/NOK £/ISK £/DKK £/THB Profit £’000 Equity £’000 Profit £’000 Equity £’000 Profit £’000 Equity £’000 Profit £’000 Equity £’000 Profit £’000 Equity £’000 Profit £’000 Equity £’000 3,214 (20,545) 174 (554) 359 (2,659) 412 (2,518) (41) (41) (3,928) 25,110 (213) 677 (439) 3,250 (504) 3,077 51 51 (98) (212) 63 (75) 218 (2,276) 833 (1,913) (132) (132) 120 259 (77) 92 (266) 2,781 (1,018) 2,338 161 161 - - - - (854) 1,043 40 (49) 2016 10% increase in rate 2016 10% reduction in rate 2015 10% increase in rate 2015 10% reduction in rate Liquidity risk Liquidity risk arises from the Group’s management of working capital and the finance charges and principal repayments on its debt instruments. It is the risk that the Group will encounter difficulty in meeting its financial obligations as they fall due. The Group’s policy is to ensure that it will always have sufficient cash to allow it to meet its liabilities when they become due. To achieve this aim, the Group seeks to maintain cash balances (or agreed facilities) sufficient to meet expected requirements detailed in rolling three month cashflow forecasts, and in longer term cashflow forecasts. The following table sets out the contractual maturities (representing undiscounted contractual cash-flows) of financial liabilities: Group As at September 2016 Trade and other payables Loans and borrowings Total As at September 2015 Trade and other payables Loans and borrowings Total Company As at September 2016 Trade and other payables Loans and borrowings Total As at September 2015 Up to 3 months £000 26,613 416 27,029 Up to 3 months £000 9,522 16 9,538 Up to 3 months £000 25,916 326 26,242 Up to 3 months £000 Between 3 and 12 months £000 1,051 1,232 2,283 Between 3 and 12 months £000 10,510 50 10,560 Between 3 and 12 months £000 82 966 1,048 Between 3 and 12 months £000 Trade and other payables 5,510 3,000 Loans and borrowings - - Total 5,510 3,000 Between 1 and 2 years £000 7,862 1,438 9,300 Between 1 and 2 years £000 3,946 37 3,983 Between 1 and 2 years £000 - 1,292 1,292 Between 1 and 2 years £000 70 - 70 Between 2 and 5 years £000 962 40,042 41,004 Between 2 and 5 years £000 2,608 - 2,608 Between 2 and 5 years £000 - 40,042 40,042 Between 2 and 5 years £000 281 - 281 Over 5 years £000 - 60 60 Over 5 years £000 776 60 836 Over 5 years £000 - 60 60 Over 5 years £000 - 60 60 Capital Management The capital structure of the Group consists of debt, as analysed in Note 21, and equity attributable to the equity holders of the Parent Company, comprising share capital, share premium, non-controlling interest, retained earnings, and share based payment reserve as shown in the Consolidated Statement of Changes in Equity. The Group manages its capital with the objective that all entities within the Group continue as going concerns while maintaining an efficient structure to minimise the cost of capital and ensuring that the Group complies with the banking covenants associated with the external borrowing facilities. These covenants are related to interest cover and leverage. The Group is not restricted by any externally imposed capital requirements. 104 Benchmark Holdings plc Annual Report 2016 | Financial Statements | Notes forming part of the financial statements Benchmark Holdings plc Annual Report 2016 | Financial Statements | Notes forming part of the financial statements 105 4 Revenue Revenue arises from: Sale of goods Provision of services 5 Expenses by nature Changes in inventories of finished goods and work in progress Changes in biological assets Write-down of inventory to net realisable value Course fees Raw materials and consumables used Transportation expenses Staff costs (see note 7) Motor, travel and entertainment Premises costs Advertising and marketing Professional fees Foreign exchange gains Losses on disposal of property, plant and equipment Exceptional expenses (see note 10) Other research and development costs Other investing activities Depreciation of PPE Amortisation of intangible assets Other costs 2016 £000 94,751 14,624 109,375 2016 £000 1,186 (928) 686 2,648 43,634 1,137 26,499 3,093 6,516 1,690 4,563 (1,674) 30 146 7,702 12,851 2,859 13,749 3,459 2015 £000 34,578 9,621 44,199 2015 £000 978 452 767 1,578 14,734 841 15,099 1,512 2,553 1,314 2,350 (1,874) 21 160 5,389 4,326 1,304 3,064 1,230 Total cost of sales, operating costs, depreciation and amortisation 129,846 55,798 STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION 6 Auditor’s remuneration Audit of these financial statements Amounts receivable by auditors and their associates in respect of: Audit of financial statements of subsidiaries pursuant to legislation Audit related assurance services Services relating to taxation Due diligence All other services 2016 £000 64 249 23 3 907 - 1,246 2015 £000 4 140 16 62 82 27 331 The 2016 fees for the services relating to taxation and the due diligence were performed by the company’s previous auditor, BDO LLP. The remainder of the fees for 2016 were due to KPMG LLP, who were appointed during the year. 7 Staff costs Staff costs (including Directors) comprise: Wages and salaries Social security contributions and similar taxes Defined contribution pension cost Share-based payment expense (note 30) The average monthly number of employees, including Directors, during the year was as follows: Production Administration Management 2016 £000 22,741 1,930 1,079 749 26,499 2016 No. 449 131 123 703 2015 £000 12,994 1,168 479 458 15,099 2015 No. 247 53 91 391 106 Benchmark Holdings plc Annual Report 2016 | Financial Statements | Notes forming part of the financial statements Benchmark Holdings plc Annual Report 2016 | Financial Statements | Notes forming part of the financial statements 107 7 Staff costs (continued) Directors’ remuneration Salary £000 Bonus £000 Taxable benefits £000 Long-term incentive £000 Pension £000 Fees £000 2016 £000 2015 £000 Roland Bonney Mark Plampin Malcolm Pye Basil Brookes Alex Hambro Susan Searle 171 163 188 - - - 99 93 110 - - - Total 522 302 2 2 3 - - - 7 - - - - - - - 16 11 17 - - - - - - 35 45 43 288 269 318 35 45 43 207 200 216 35 45 35 44 123 998 738 Of the 2015 total of £738,000, £705,000 was emoluments and £33,000 related to pension and other post-employment benefit costs. During the year retirement benefits were accruing to 3 Directors (2015: 3) in respect of defined contribution pension schemes. The cost of employer National Insurance contributions in relation to the Directors was £146,000 (2015: £105,000). The value of the Group’s contributions paid to a defined contribution pension scheme in respect of the highest paid Director amounted to £17,000 (2015: £13,000). In addition to the above, there was an accounting charge for share based payments in respect of the Directors for £35,000 (2015: £59,000). The aggregate gain on the exercise of options by the Directors during the year was £nil (2015: £nil). STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION 8 Segment information (continued) 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 26. 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. Year ended 30 September 2016 Animal Health £000 Breeding and Genetics £000 Advanced Animal Nutrition £000 All other segments £000 Corporate £000 Inter- segment sales £000 Total £000 Notes Revenue Cost of sales 24,837 20,717 55,024 11,195 3,002 (5,400) 109,375 (15,035) (13,523) (26,517) (6,985) (938) 4,436 (58,562) Directors’ interests under the Company’s employee share plans Gross profit/(loss) 9,802 7,194 28,507 4,210 2,064 (964) 50,813 Share option scheme EMI scheme Options held at 30 September 2015 135,000 Director Mark Plampin Mark Plampin CSOP II 67,647 Options exercised in year Options granted in year Options held at 30 September 2016 Exercise price Grant date Date from which exercisable - - - - 135,000 0.1p 67,647 0.1p 29 August 2013 29 August 2016 9 March 2015 8 March 2018 Further details of Directors’ remuneration are provided in the Remuneration Report on pages 74 to 78. The key management of the Group is deemed to be the Board of Directors who have authority and responsibility for planning and controlling all significant activities of the Group. 8 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. Operating costs relating to Trading Activities EBITDA from Trading Activities Investing Activities: R&D expenditure Pre-operational expenses Adjusted EBITDA Acquisition-related (expenses)/income (5,352) (3,553) (11,382) (4,049) (4,317) 151 (28,502) 4,450 3,641 17,125 161 (2,253) (813) 22,311 26 26 (8,258) (2,195) (1,341) - (414) (61) 80 (1,550) - - 74 (11,720) 582 (1,363) (4,222) 1,385 15,864 (1,389) (2,253) (157) 9,228 Exceptional items 10,26 - - 26 (257) (2,387) 2 - - (10,317) 14 (12,945) (146) - - (146) EBITDA Depreciation Amortisation (4,479) (1,002) 15,866 (1,535) (12,570) (143) (3,863) (721) (796) (1,016) (792) (1,850) (10,369) (271) (738) (55) - - - (2,859) (13,749) Operating profit/(loss) (5,992) (3,648) 4,481 (2,544) (12,625) (143) (20,471) Finance costs Finance income Share of profit of equity- accounted investees, net of tax Group loss before tax (6,170) 3,984 273 (22,384) 108 Benchmark Holdings plc Annual Report 2016 | Financial Statements | Notes forming part of the financial statements Benchmark Holdings plc Annual Report 2016 | Financial Statements | Notes forming part of the financial statements 109 8 Segment information (continued) Year ended 30 September 2015 Animal Health £000 Breeding and Genetics £000 Advanced Animal Nutrition £000 All other segments £000 Corporate £000 Inter- segment sales £000 Total £000 Notes Revenue Cost of sales 21,098 15,871 (14,524) (9,912) Gross profit /(loss) 6,574 5,959 Operating costs relating to Trading Activities EBITDA from Trading Activities Investing Activities: R&D expenditure Pre-operational expenses Adjusted EBITDA Acquisition-related (expenses)/income (4,445) (1,339) 2,129 4,620 26 26 (5,199) (1,396) (887) - (3,957) 3,224 26 (65) 1,163 Exceptional items 10,26 - (1) EBITDA Depreciation Amortisation (4,022) 4,386 (653) (1,251) (406) (928) Operating profit/(loss) (5,926) 3,052 Finance costs Finance income Group loss before tax External revenue by location of customers - - - - - - - - - - - - - - United Kingdon Chile India Vietnam Norway Rest of Europe Other No customers accounted for greater than 10% of total turnover in the year. 10,101 2,271 (5,142) 44,199 (6,906) (1,463) 4,703 (28,102) 3,195 808 (439) 16,097 (3,405) (4,924) 439 (13,674) (210) (4,116) - - (649) (29) (859) (4,145) (18) (2,414) 509 (668) (368) (7,227) (192) (885) (53) - (1,445) (7,280) 2016 £000 13,610 3,043 9,584 7,258 18,697 18,772 38,411 109,375 - - - - - - - - - - 2,423 (6,595) (1,565) (5,737) (1,334) (160) (7,231) (1,304) (3,064) (11,599) (34) 274 (11,359) 2015 £000 13,740 6,411 - - 12,629 8,792 2,627 44,199 STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION 8 Segment information (continued) Non-current assets by location of assets Belgium UK Rest of Europe Rest of world 9 Net finance costs/(income) Interest received on bank deposits Foreign exchange gains on financing activities Finance income Finance leases (interest portion) Foreign exchange losses on financing activities Interest expense on financial liabilities measured at amortised cost Finance costs Net finance (costs)/income recognised in profit or loss 2016 £000 276,327 39,717 80,336 12,036 408,416 2016 £000 254 3,730 3,984 (16) (4,978) (1,176) (6,170) (2,186) 2015 £000 2,288 28,978 59,217 4,362 94,845 2015 £000 274 - 274 (3) - (31) (34) 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. 10 Exceptional items Items that are material because of their size or nature, non-recurring and whose significance is sufficient to warrant separate disclosure and identification within the consolidated financial statements are referred to as exceptional items. The separate reporting of exceptional items helps to provide an understanding of the Group’s underlying performance. Exceptional IPO costs Exceptional restructuring costs Total exceptional costs 2016 £000 - 146 146 2015 £000 24 136 160 Restructuring costs of £146,000 (2015: £136,000) were incurred on re-organisations within the Sustainability Science Division during the year. On 18 December 2013 Benchmark Holdings plc was admitted to trading on AIM with significant non-recurring costs being incurred as a result. £24,000 of these costs fell due in 2015. 110 Benchmark Holdings plc Annual Report 2016 | Financial Statements | Notes forming part of the financial statements Benchmark Holdings plc Annual Report 2016 | Financial Statements | Notes forming part of the financial statements 111 11 Taxation Amounts recognised in profit or loss Current tax expense Analysis of charge in period Current tax: Current income tax expense on profits for the period Adjustment in respect of prior periods Total current tax Deferred tax expense Origination and reversal of temporary differences Deferred tax movements in respect of prior periods Total deferred tax credit (Note 23) Total tax (credit)/charge 2016 £000 2015 £000 1,252 (1,250) 2 (4,048) 8 (4,040) (4,038) 877 (23) 854 (284) (174) (458) 396 The reasons for the difference between the actual tax (credit)/charge for the year and the standard rate of corporation tax in the United Kingdom applied to profits for the year are as follows: Accounting loss before income tax Expected tax credit based on the standard rate of UK corporation tax at the domestic rate of 20% (2015: 20%) Expenses not deductible for tax purposes Research and development relief Deferred tax not recognised Adjustment to tax charge in respect of prior periods Profits of associate reported net of tax Effects of changes in tax rates Different tax rates in overseas jurisdictions Total tax (credit)/charge 2016 £000 2015 £000 (22,384) (11,359) (4,477) 2,982 (54) 2,592 (1,242) (54) (475) (3,310) (4,038) (2,272) 532 (230) 2,463 (197) - - 100 396 Changes in tax rates and factors affecting the future tax charge Reductions in the UK corporation tax rate were substantively enacted in the year. The main rate of corporation tax was reduced from 20 per cent to 19 per cent effective from 1 April 2017 and to 17 per cent from 1 April 2020. Deferred tax is calculated at the substantively enacted rates, at which the temporary differences and tax losses are expected to reverse, in the territories in which they arose. The adjustment in respect of prior periods includes £1,037,000 in relation to Research and Development tax credits from 2014 and 2015 received during the year. There was no deferred tax recognised in other comprehensive income. STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION 12 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. Loss attributable to equity holders of the parent (£000) Weighted average number of shares in issue (thousands) Basic loss per share (pence) 2016 (18,337) 417,952 (4.39) 2015 (11,988) 201,280 (5.96) 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: Loss attributable to equity holders of the parent (£000) Weighted average number of shares in issue (thousands) Diluted loss per share (pence) 2016 (18,337) 417,952 (4.39) 2015 (11,988) 201,280 (5.96) 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 26. Profit /(Loss) from Trading Activities attributable to equity holders of the parent (£000) Weighted average number of shares in issue (thousands) Earning/(Loss) per share from Trading Activities (pence) Diluted earnings/loss per share from Trading Activities were as follows: Profit /(Loss) from Trading Activities attributable to equity holders of the parent (£000) Weighted average number of shares in issue (thousands) Diluted earnings/(loss) per share from Trading Activities (pence) 2016 2015 7,481 417,952 1.79 (2,273) 201,280 (1.13) 2016 2015 7,481 419,600 1.78 (2,273) 201,280 (1.13) 112 Benchmark Holdings plc Annual Report 2016 | Financial Statements | Notes forming part of the financial statements Benchmark Holdings plc Annual Report 2016 | Financial Statements | Notes forming part of the financial statements 113 13 Property, plant and equipment Freehold Land and Buildings £000 Assets in the course of construction £000 Long Term Leasehold Property Improvements £000 Plant and Machinery £000 E commerce Infra-structure £000 Office Equipment and Fixtures £000 Group Cost Balance at 1 October 2014 Additions On acquisition Reclassification Exchange differences Disposals 728 264 4,638 - - - 142 2,615 10,950 - - - - 14 77 114 (39) (60) Balance at 30 September 2015 5,630 11,092 2,721 Balance at 1 October 2015 Additions On acquisition Reclassification Fair value adjustment Exchange differences Disposals 5,630 1,268 3,017 518 - 2,015 - 11,092 11,785 555 2,721 487 - (1,718) 1,480 - 93 - (75) 267 (33) 4,540 1,628 1,530 39 31 (211) 7,557 7,557 4,803 2,204 34 - 1,325 (411) 204 - - - - - 204 204 - - 43 - - - Balance at 30 September 2016 12,448 21,807 4,847 15,512 247 Total £000 9,134 13,034 6,316 - (18) (272) 28,194 28,194 18,660 6,089 (2) (75) 3,802 (671) 55,997 905 178 71 (153) (10) (1) 990 990 317 313 (359) - 102 (227) 1,136 Accumulated Depreciation Balance at 1 October 2014 Depreciation charge for the year Exchange differences Disposals - 175 - - Balance at 30 September 2015 175 Balance at 1 October 2015 Depreciation charge for the year Reclassification Exchange differences Disposals Balance at 30 September 2016 175 638 - 143 - 956 - - - - - - - - - - - Net book value At 30 September 2016 At 30 September 2015 At 1 October 2014 11,492 5,455 728 21,807 11,092 142 3,931 2,270 2,381 11,911 5,777 3,389 234 1,151 253 - (36) 451 736 (40) (67) 1,780 145 33 - - 178 362 1,892 107 - - 469 1,304 (40) (103) 3,053 451 1,780 178 469 3,053 358 1,638 79 28 - 916 162 321 (300) 3,601 21 42 1 - 242 5 26 59 204 (283) 36 (167) 259 877 521 543 2,859 - 529 (467) 5,974 50,023 25,141 7,242 STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION 13 Property, plant and equipment (continued) Security over the assets is disclosed within note 21. The above includes the following in respect of plant and machinery held under finance leases (note 27): Cost Accumulated depreciation Net book value Company Cost Balance at 1 October 2014 Additions Disposals Balance at 1 October 2015 Additions Balance at 30 September 2016 Accumulated depreciation Balance at 1 October 2014 Depreciation charge for the year Disposals Balance at 1 October 2015 Depreciation charge for the year Balance at 30 September 2016 Net book value At 30 September 2016 At 30 September 2015 At 1 October 2014 2016 £000 824 (266) 558 2015 £000 259 (63) 196 Office equipment and fixtures £000 147 115 (44) 218 148 366 82 22 (40) 64 62 126 240 154 65 114 Benchmark Holdings plc Annual Report 2016 | Financial Statements | Notes forming part of the financial statements Benchmark Holdings plc Annual Report 2016 | Financial Statements | Notes forming part of the financial statements 115 14 Intangible assets 15 Impairment testing of goodwill STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION Websites £000 Goodwill £000 Patents and Trademarks £000 Intellectual Property £000 Customer Lists £000 Contracts £000 Licences £000 Genetics £000 Development costs £000 Total £000 Cost or valuation Balance at 1 October 2014 517 2,701 590 1,678 - 1,835 3,190 - Additions — on acquisition Additions — externally acquired Exchange differences - - - 27,931 - 3,074 1,327 7,223 2,675 22,121 - 119 - (930) - (15) - - - - - (534) (41) (1,865) Balance at 30 September 2015 517 29,702 709 4,737 1,327 8,524 5,824 20,256 Balance at 1 October 2015 517 29,702 709 4,737 1,327 8,524 5,824 20,256 Additions — on acquisition - 103,137 208 117,019 4,789 Additions — externally acquired 44 Additions — internally developed Disposals Exchange differences - - - - - (345) 30 - - 9 - - - - - - - - - 25,562 601 - - - - - - 20,690 128 16,625 667 1,124 4,192 5,332 - - - - - 10,511 64,351 119 (3,385) 71,596 - 71,596 - 251,316 - 83 1,440 1,440 - - (345) 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 - Amortisation charge for the year Impairment Exchange differences 56 - - - 345 - 61 261 133 1,369 454 385 - - - - - - - (25) - - - (5) Balance at 30 September 2015 515 618 449 261 133 2,431 937 380 Balance at 1 October 2015 515 618 449 261 133 2,431 937 380 Amortisation charge for the year Disposals Exchange differences 3 - - - (345) 6 84 - 74 9,488 349 1,452 1,797 576 - 541 - 9 - - - 240 124 188 Balance at 30 September 2016 518 279 607 10,290 491 4,123 2,858 1,144 - - - - - - - - - - 2,690 2,719 345 (30) 5,724 5,724 13,749 (345) 1,182 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 At 1 October 2014 58 2,428 260 202 4,476 1,194 6,093 4,887 19,876 1,678 - 748 2,707 - - - 65,872 7,821 Additions relating to business combinations in the year are detailed in note 31. Goodwill acquired in a business combination is allocated, at acquisition, to the cash generating units (CGUs) that are expected to benefit from the business combination. The Group tests goodwill annually for impairment, or more frequently if there are indications that goodwill might be impaired. Goodwill arises across all of the Group’s operating segments, and is allocated specifically against the following CGUs: FVG Limited Benchmark Vaccines Limited Atlantic Veterinary Services Limited FAI do Brasil Criacao Animal Ltda FAI Aquaculture Limited 5M Enterprises Limited Salmobreed AS Stofnfiskur HF Akvaforsk Genetic Center* Improve International Limited INVE Aquaculture Group Animal Health 2016 £000 Sustainability Science 2016 £000 Breeding and Genetics 2016 £000 Technical Publishing 2016 £000 288 439 167 - - - - - - - - 894 - - - 96 446 - - - - - - 542 - - - - - - 7,590 13,512 9,334 - - 30,436 - - - - - 774 - - - 2,995 - 3,769 Advanced Animal Nutrition 2016 £000 - - - - - - - - - - 117,264 117,264 *Includes goodwill arising from the joint acquisition of Akvaforsk Genetics Center AS and Akvaforsk Genetics Center Inc. FVG Limited Benchmark Vaccines Limited Atlantic Veterinary Services Limited FAI do Brasil Criacao Animal Ltda FAI Aquaculture Limited 5M Enterprises Limited Salmobreed AS Stofnfiskur HF Akvaforsk Genetic Center* Improve International Limited Animal Health 2015 £000 Sustainability Science 2015 £000 Breeding and Genetics 2015 £000 Technical Publishing 2015 £000 Advanced Animal Nutrition 2015 £000 288 439 167 - - - - - - - 894 - - - 96 446 - - - - - 542 - - - - - - 6,125 10,405 7,349 - 23,879 - - - - - 774 - - - 2,995 3,769 - - - - - - - - - - - Total 2016 £000 288 439 167 96 446 774 7,590 13,512 9,334 2,995 117,264 152,905 Total 2015 £000 288 439 167 96 446 774 6,125 10,405 7,349 2,995 29,084 *Includes goodwill arising from the joint acquisition of Akvaforsk Genetics Center AS and Akvaforsk Genetics Center Inc. The recoverable amounts of the above CGUs have been determined from value in use calculations which have been predicated on discounted cash flow projections from formally approved budgets. These budgets cover a four-year period to 30 September 2020 and were then extrapolated into perpetuity taking account of specific growth rates for future cash flows, using individual business operating margins based on past experience and future expectations in light of anticipated economic and market conditions. The pre-tax cashflows that these projections produced were discounted at pre-tax discount rates based on the Group’s beta adjusted cost of capital reflecting management’s assessment of specific risks related to each cash generating unit. Pre-tax discount rates of between 10% and 14% have been used in the impairment calculations which the Directors believe fairly reflect the risks inherent in each of the CGUs, and a 2.5% growth rate was used in extrapolating the budgets into perpetuity. The value in use assessment is sensitive to changes in the key assumptions used, most notably the discount rate and the growth rates. Sensitivity analysis has been performed on the individual CGUs, and based on this analysis, no reasonably possible changes to these assumptions resulted in an additional impairment charge being required. 116 Benchmark Holdings plc Annual Report 2016 | Financial Statements | Notes forming part of the financial statements Benchmark Holdings plc Annual Report 2016 | Financial Statements | Notes forming part of the financial statements 117 16 Subsidiary undertakings 16 Subsidiary undertakings (continued) The direct and indirect subsidiary undertakings of Benchmark Holdings plc, all of which have been included in these consolidated financial statements, are as follows: Name Name Animal Health Division Benchmark Animal Health Group Limited Benchmark Animal Health Limited Benchmark Vaccines Limited FVG Limited Fish Vet Group Limited (dormant) Fish Vet Group Asia Limited Fish Vet Group Norge AS FVG Inc Atlantic Veterinary Services Limited Fish Vet Group SPA FVG Canada Inc Sustainability Science Division FAI Farms Limited Country of incorporation United Kingdom United Kingdom United Kingdom United Kingdom United Kingdom Thailand Norway USA Ireland Chile Canada United Kingdom FAI do Brasil Criacao Animal Ltda Brazil FAI Aquaculture Limited RL Consulting Limited Trie Benchmark Limited Allan Environmental Limited Dust Collective Limited Dust Collective LLC Viking Fish Farms Limited (dormant) Woodland Limited (dormant) Technical Publishing Division 5M Enterprises Limited 5M Enterprises Inc Curriculo Limited (dormant) OOO 5M Enterprises** Improve International Limited Continuous Medical Training LDA Improve International GmbH Improve International Australia Pty Improve Formacion Veterinaria Improve France SARL Improve Mediterranean Limited (dormant) Ascomber Limited (dormant) AquacultureUK Limited (dormant) European School of Veterinary Post-Graduate Studies** Breeding and Genetics Division Benchmark Genetics Limited Salmobreed AS Stofnfiskur HF Akvaforsk Genetic Center AS Akvaforsk Genetics Center Inc* Akvaforsk Genetic Center Spring Mexico, SA de CV (dormant)* Akvaforsk Do Brasil Cultivo De Especies Aquaticas LTDA* Genetilapia, SA de CV* United Kingdom United Kingdom United Kingdom United Kingdom United Kingdom USA United Kingdom United Kingdom United Kingdom USA United Kingdom Russia United Kingdom Portugal Germany Australia Spain France United Kingdom United Kingdom United Kingdom United Kingdom United Kingdom Norway Iceland Norway USA Mexico Brazil Mexico Proportion of ownership interest as at 30 September 2016 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 99.25% 100% 100% 100% 100% 100% 100% 100% 100% 98.50% 98.50% 98.50% 0% 100% 100% 100% 70% 100% 100% 100% 100% 100% 0% 100% 100% 89.45% 100% 80% 80% 80% 41% 2015 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 99.25% 100% 100% 100% 100% 100% 100% 100% 100% 98.50% 98.50% 98.50% 0% 100% 100% 100% 70% 100% 100% 100% 100% 100% 0% 100% 100% 89.45% 100% 80% 80% 80% 41% STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION Breeding and Genetics Division (continued) Stofnfiskur Chile Limitada (dormant) Stofngen EHF (dormant) Sudourlax EHF (dormant) Salmobreed Salten AS*** Spring Genetics SRL Genetica Spring SAS Animal Advanced Nutrition Division TomAlgae C.V.B.A. Inve Aquaculture Holding BV Inve Aquaculture Temp Holding BV Inve Asia Ltd Inve Latin America BV Inve Aquaculture Europe Holding BV Inve Technologies NV Inve Asia Services Ltd Inve (Thailand) Ltd PT. Inve Indonesia Inve Eurasia SA Inve Hellas SA Country of incorporation Chile Iceland Iceland Norway Costa Rica Colombia Belgium Netherlands Netherlands Hong Kong Netherlands Netherlands Belgium Thailand Thailand Indonesia Turkey Greece Fortune Ocean Technologies Ltd (dormant) Hong Kong Tianjin Inve Aquculture Co Ltd Inve Vietnam Ltd Inve Animal Health SA Fortune Ocean Americas LLC Inve Aquaculture Mexico SA de CV Inve do Brasil Ltda Invecuador SA Inveservicios SA de CV Inve Aquaculture NV Maricoltura di Rosignan Solvay Srl Inve USA Holdings Inc Sanders Brine Shrimp Company LC Golden West Artemia Inc Inland Sea Inc United Aquaculture Technologies LLC Inve Aquaculture Inc Salt Creek Holdings Inc Salt Creek Inc China Vietnam Spain USA Mexico Brazil Ecuador Mexico Belgium Italy USA USA USA USA USA USA USA USA Proportion of ownership interest as at 30 September 2016 2015 89.45% 62.62% 89.45% 50% 80% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 89.45% 62.62% 89.45% 50% - - 100% - - - - - - - - - - - - - - - - - - - - - - - - - - - - - * ** A put and call option agreement is in place to acquire the remaining 20% of Akvaforsk Genetic Center Inc, so the Group controls 100% of that company and its wholly owned subsidiaries despite having an 80% equity holding. European School of Veterinary Post-Graduate Studies is a company limited by guarantee and although the Group has no equity holding in the company, its results are consolidated into this annual report by virtue of control exercised under the provisions of IFRS 10 — Consolidated Financial Statements. The same is true of 0005M Enterprises, a limited company incorporated in Russia. *** Whilst Salmobreed Salten AS was 50% owned by SalmoBreed AS at 30 September 2016, the shareholders’ agreement stipulates that SalmoBreed AS will become the majority shareholder over the course of the following twelve months. For this reason SalmoBreed Salten AS has been consolidated as a subsidiary undertaking rather than as a joint venture. 118 Benchmark Holdings plc Annual Report 2016 | Financial Statements | Notes forming part of the financial statements Benchmark Holdings plc Annual Report 2016 | Financial Statements | Notes forming part of the financial statements 119 16 Subsidiary undertakings (continued) Cost or valuation Balance at 1st October 2014 Additions Capitalisation of intercompany balances Balance at 30 September 2015 Additions Capitalisation of intercompany balances Balance at 30 September 2016 Provisions Balance at 1st October 2014 Provision against investment in subsidiary company Balance at 30 September 2015 and at 30 September 2016 Net book value At 30 September 2016 At 30 September 2015 At 1 October 2014 Investments in subsidiary companies £000 5,610 23,727 1,015 30,352 231,267 1,133 262,752 - (850) (850) 261,902 29,502 5,610 In 2016, the Company acquired 100% of the share capital of INVE Aquaculture Holding B.V. for total consideration of £230,667,000, full details of which have been outlined in note 31. During the year, intercompany balances totalling £1,133,000 were converted into share capital (2015: £1,015,000). Additionally, £600,000 (2015: £330,000) of the charge associated with share options relates to employees of subsidiary companies, and so this amount has been treated as an investment in the books of the Company. In 2015, the Company acquired 100% of the share capital of TomAlgae C.V.BA for total consideration of £642,000 and 100% of the share capital of Improve International Limited and its subsidiaries for a maximum consideration of £6,531,000. Subsequent to the acquisition of TomAlgae C.V.B.A., the Group invested a further £1,224,000 to provide long term funding to the business, and this was converted to share capital. In 2015, the Company made a £15,000,000 investment in Benchmark Genetics Limited in order to fund the purchase of Stofnfiskur HF and Salmobreed AS. In 2015, as part of the restructuring of the Sustainability Science Division, a review of the carrying value of its investments in subsidiaries was conducted and the Company made a provision of £850,000. STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION 17 Inventories Group Raw materials Work in progress Finished goods and goods for resale Total inventories at the lower of cost and net realisable value 2016 £000 6,510 10,039 6,682 23,231 2015 £000 1,772 1,655 1,932 5,359 During 2016, £44,320,000 (2015: £15,501,000) was recognised as an expense for inventories carried at net realisable value. This is recognised in cost of sales. The cost of inventories recognised as an expense includes £686,000 (2015: £767,000) in respect of write-downs of inventory to net realisable value. The Company did not have any inventories at the year end (2015: £nil). 18 Biological assets Group Organic sheep Organic beef Organic pigs Organic hens Broodstock, eggs and fingerlings Total biological assets Less: non current broodstock Total current biological assets Livestock 2016 £000 262 244 - 23 11,330 11,859 (5,028) 6,831 2015 £000 223 202 2 - 7,913 8,340 (3,392) 4,948 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. 120 Benchmark Holdings plc Annual Report 2016 | Financial Statements | Notes forming part of the financial statements Benchmark Holdings plc Annual Report 2016 | Financial Statements | Notes forming part of the financial statements 121 7,584 2,364 295 1,027 60 11,330 Trade receivables — net 18 Biological assets (continued) Broodstock, eggs and fingerlings Salmon Broodstock £000 Salmon eggs £000 Salmon fingerlings £000 Lumpfish eggs and fingerlings £000 Tilapia £000 Total £000 Biological assets 1 October 2015 5,636 1,485 350 369 73 7,913 Increase due to production/ purchase 3,832 303 763 Due to physical changes (2,879) 15,136 (221) Foreign exchange movements 1,685 444 29 Reduction due to sales/ discarding of stock - (15,001) (626) Fair value adjustments (690) (3) - 483 - 110 (577) 642 203 5,584 - - 12,036 2,268 (225) (16,429) 9 (42) Biological assets 30 September 2016 Broodstock, eggs and fingerlings — non current Broodstock, eggs and fingerlings — current 5,028 - - - - 5,028 2,556 7,584 2,364 2,364 295 295 1,027 1,027 60 60 6,302 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. STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION 18 Biological assets (continued) Total quantities held at 30 September were: Salmon broodstock and fingerlings Lumpfish fingerlings Salmon eggs The Company did not hold any biological assets at the year end (2015: £nil). 19 Trade and other receivables Group Trade receivables Less: provision for impairment of trade receivables Total financial assets other than cash and cash equivalents classified as loans and receivables Prepayments Other receivables Total trade and other receivables Less: non-current portion: prepayments Current portion 2016 557 tonnes 1.5m units 2015 452 tonnes 1.4m units 23.6m units 16.5m units 2016 £000 32,133 (2,130) 30,003 30,003 1,672 2,613 34,288 - 34,288 2015 £000 10,560 (279) 10,281 10,281 2,873 2,492 15,646 (293) 15,353 All non-current receivables are due within five years from the end of the reporting period. The fair values of trade and other receivables classified as loans and receivables are not materially different to their carrying values. As at 30 September 2016 trade receivables of £6,979,000 (2015: £3,340,000) were past due but not impaired. They relate to customers with no default history. The ageing analysis of these receivables is as follows: Up to 3 months overdue 3 to 6 months overdue 6 to 12 months overdue Movements on the Group provision for impairment of trade receivables are as follows: At 1 October Assumed in a business combination Provided during the year Receivable written off during the year as uncollectable At 30 September 2016 £000 5,253 1,139 587 6,979 2016 £000 279 1,831 291 (271) 2,130 2015 £000 1,827 606 907 3,340 2015 £000 63 - 247 (31) 279 The movement on the provision for impaired receivables has been included in the administrative expenses line in the consolidated income statement. Other classes of financial assets included within trade and other receivables do not contain impaired assets. 122 Benchmark Holdings plc Annual Report 2016 | Financial Statements | Notes forming part of the financial statements Benchmark Holdings plc Annual Report 2016 | Financial Statements | Notes forming part of the financial statements 123 STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION 19 Trade and other receivables (continued) 20 Trade and other payables (continued) Company Receivables from related parties Loan provided to subsidiary company Total financial assets other than cash and cash equivalents classified as loans and receivables Prepayments Other receivables Total trade and other receivables Less: non-current portion Current portion 20 Trade and other payables Group Trade payables Other payables Accruals Financial liabilities, excluding loans and borrowings, classified as financial liabilities measured at amortised cost Other payables — contingent consideration Financial liabilities, excluding loans and borrowings, classified as financial liabilities at fair value through profit or loss Other payables — tax and social security payments Deferred income Total trade and other payables Less: non-current portion of other payables — contingent consideration Current portion 2016 £000 93,879 7,243 101,122 218 149 101,489 - 101,489 2016 £000 14,172 6,857 5,239 26,268 10,220 10,220 593 2,976 40,057 (8,825) 31,232 2015 £000 61,075 8,902 69,977 142 161 70,280 - 70,280 2015 £000 4,319 2,910 3,837 11,066 16,296 16,296 477 3,859 31,698 (7,330) 24,368 Company Trade payables Payables to related parties Accruals Total financial liabilities, excluding loans and borrowings, classified as financial liabilities measured at amortised cost Other payables — contingent consideration Financial liabilities, excluding loans and borrowings, classified as financial liabilities at fair value through profit or loss Other payables — tax and social security payments Total trade and other payables Less: non-current portion of other payables — contingent consideration Current portion Book values approximate to fair value at 30 September 2016 and 2015. 21 Loans and borrowings Group Non-Current Bank borrowings Other loans Finance lease creditor (note 27) Current Finance lease creditor (note 27) Total loans and borrowings 2016 £000 1,336 23,517 1,063 25,916 82 82 104 26,102 - 26,102 2016 £000 37,133 60 214 37,407 289 289 37,696 2015 £000 164 4,355 991 5,510 3,351 3,351 32 8,893 (351) 8,542 2015 £000 - 60 33 93 63 63 156 Book values approximate to fair value at 30 September 2016 and 2015. The financial liability at fair value through profit and loss relates to contingent consideration outstanding from business combinations. The majority of this relates to deferred cash consideration dependent on the performance of the acquired businesses and the fair value is derived from the likely liabilities based on current performance against the targets at each reporting date. Also included in contingent consideration is a put/call agreement exercisable and payable in 2022 to acquire the remaining 20% stake in Akvaforsk Genetics Center Inc for a sum determined by future performance. The minimum consideration is NOK 1 (one Krone) payable in the event the business under performs the minimum target set and the maximum consideration is capped at NOK 60m. If Akvaforsk Genetics Center Inc achieves the projections provided by the vendors, payment will be NOK 10m and this assumption has been used in calculating the fair value of the liability. The fair value of loans and borrowings is not materially different to the carrying value and has not been separately disclosed. 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. 124 Benchmark Holdings plc Annual Report 2016 | Financial Statements | Notes forming part of the financial statements Benchmark Holdings plc Annual Report 2016 | Financial Statements | Notes forming part of the financial statements 125 21 Loans and borrowings (continued) 22 Provisions The currency profile of the Group’s loans and borrowings is as follows: Sterling US Dollar Euro Thai Baht Company The book value and fair value of loans and borrowings are as follows: Non-Current Bank borrowings Other loans Total loans and borrowings 2016 £000 97 37,133 456 10 37,696 2016 £000 37,133 60 37,193 The fair value of loans and borrowings is not materially different to the carrying value and has not been separately disclosed. The currency profile of the Company’s loans and borrowings is as follows: Sterling US Dollar 2016 £000 60 37,133 37,193 2015 £000 156 - - - 156 2015 £000 - 60 60 2015 £000 60 - 60 STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION Legal fees provision £000 Repairs provision £000 Other provisions £000 300 201 (300) 201 - 349 - (88) 462 462 - 462 201 - 201 30 - - 30 - 40 - - 70 70 - 70 30 - 30 750 52 - 802 291 107 63 (709) 554 554 - 554 802 - 802 Total £000 1,080 253 (300) 1,033 291 496 63 (797) 1,086 1,086 - 1,086 1,033 - 1,033 At 1 October 2014 Charged to profit or loss Utilised in year At 1 October 2015 Assumed in a business combination Charged to profit or loss Foreign exchange movement Utilised in year At 30 September 2016 Current Non-current At 30 September 2016 Current Non-current At 30 September 2015 Legal fees provision The legal fees provision relates to potential costs the Group may be liable for should it not succeed with an appeal made against an adverse court ruling on a legal action it took against a third party in relation to intellectual property matters. Management believes the provision held to be adequate to defend this claim and expect conclusion to the matter in the next 12 months. Repairs provision Under property operating lease agreements, FAI Farms Limited, a subsidiary company, has a rolling obligation to maintain all properties to the standard that prevailed at the inception of the lease. The Directors estimate the costs of this obligation at £15,000 (2015: £15,000). Additionally, Benchmark Vaccines Limited has a repairs provision of £55,000 (2015: £15,000) in respect of its Braintree premises. Other provisions During the year provisions of a further £107,000 were made and amounts of £709,000 were utilised to total £200,000 (2015: £802,000) in relation to potential rebates to customers/distributors based on targeted volumes, price fluctuations and potential stock returns under right of return clauses. The Directors expect these to be settled in the financial year ended 30 September 2017. A provision with a fair value of £291,000 was acquired with INVE in relation to an overseas customs duty dispute. Since then, the balance has been increased to £354,000 due to being retranslated at the year end foreign exchange rate. The directors believe this provision to be adequate and that the matter should be resolved in the next 12 months. No provisions were held by the Company at the year end (2015: £nil). 126 Benchmark Holdings plc Annual Report 2016 | Financial Statements | Notes forming part of the financial statements Benchmark Holdings plc Annual Report 2016 | Financial Statements | Notes forming part of the financial statements 127 23 Deferred tax 23 Deferred tax (continued) Deferred tax is calculated in full on temporary differences under the liability method using the substantively enacted rates in the relevant territories in which the temporary differences and tax losses are expected to reverse. The movement on the deferred tax account is as shown below: Group At 1 October Acquired during the year Recognised in income statement Tax credit (note 11) Exchange differences Recognised in equity At 30 September Company At 1 October Recognised in income statement Tax (expense)/credit Recognised in equity At 30 September 2016 £000 (8,224) (50,106) 4,040 (8,676) (295) (63,261) 2016 £000 170 (127) (43) - 2015 £000 339 (9,748) 458 631 96 (8,224) 2015 £000 47 119 4 170 There was no deferred tax recognised in other comprehensive income. Deferred tax assets have been recognised in respect of all tax losses and other temporary differences giving rise to deferred tax assets where the Directors believe it is probable that these assets will be recovered. The Directors believe there is sufficient evidence that the amounts recognised will be recovered against future taxable profits. The Group did not recognise deferred tax assets of £5,535,0000 (2015: £2,930,000) in respect of losses amounting to £21,903,000 (2015: £14,652,000) and temporary differences of £4,358,000 (2015: £nil), where there was insufficient evidence that the amounts will be recovered. No deferred tax is recognised on the unremitted earnings of overseas subsidiaries and joint ventures. As the earnings are continually reinvested by the Group and there is no intention for these entities to pay dividends, no tax is expected to be payable on them in the foreseeable future. The movements in deferred tax assets and liabilities (prior to the offsetting of balances within the same jurisdiction as permitted by IAS 12) during the period, together with amounts recognised in the consolidated income statement and amounts recognised in other comprehensive income are as follows: Group Accelerated capital allowances Other temporary and deductible differences Available losses Fair value of share options Net tax assets /(liabilities) Liability 2016 £000 (Charged)/ credited to profit or loss 2016 £000 Net 2016 £000 (Charged)/ credited to equity 2016 £000 (62,748) (62,748) (3,118) (800) - - (800) 287 - (1,149) 225 2 (63,548) (63,261) (4,040) - - 295 295 Asset 2016 £000 - - 287 - 287 Group Accelerated capital allowances Other temporary and deductible differences Available losses Fair value of share options Net tax assets /(liabilities) Company Accelerated capital allowances Other temporary and deductible differences Available losses Fair value of share options Net tax assets /(liabilities) Company Accelerated capital allowances Other temporary and deductible differences Available losses Fair value of share options Net tax assets /(liabilities) STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION Asset 2015 £000 Liability 2015 £000 (Charged)/ credited to profit or loss 2015 £000 Net 2015 £000 (Charged)/ credited to equity 2015 £000 - (8,932) (8,932) 349 62 297 708 - - - 349 62 297 (8,932) (8,224) 243 289 (74) - 458 - - - 96 96 Asset 2016 £000 Liability 2016 £000 (Charged)/ credited to profit or loss 2016 £000 Net 2016 £000 (Charged)/ credited to equity 2016 £000 - - - - - Asset 2015 £000 - 130 - 43 173 - - - - - Liability 2015 £000 (3) - - - (3) - - - - - Net 2015 £000 (3) 130 - 43 170 3 (130) - - (127) - - - (43) (43) (Charged)/ credited to profit or loss 2015 £000 (Charged)/ credited to equity 2015 £000 1 118 - - 119 - - - 4 4 128 Benchmark Holdings plc Annual Report 2016 | Financial Statements | Notes forming part of the financial statements Benchmark Holdings plc Annual Report 2016 | Financial Statements | Notes forming part of the financial statements 129 24 Share capital and share premium 25 Reserves Allotted, called up and fully paid Number £000 £000 Reserve Description and purpose Share Capital Share premium The following describes the nature and purpose of each reserve within equity: STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION Share premium reserve Amount subscribed for share capital in excess of nominal value. Capital redemption reserve Amounts transferred from share capital on redemption of issued shares. Foreign exchange reserve Gains/losses arising on retranslating the net assets of overseas operations into sterling. Retained earnings All other net gains and losses and transactions with owners (e.g. dividends) not recognised elsewhere. To simplify presentation, the share-based payment reserve has been combined with the retained earnings reserve in the current period. The share-based payment reserve recognised the value of equity-settled share-based payment transactions provided to employees, including management personnel, as part of their remuneration. Refer to note 30 for further details of these plans. 26 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 31 — pre-operational expenses for new ventures — expenditure on research and development Ordinary shares of 0.1 penny each Balance at 30 September 2014 136,977,095 Shares issued to fund the acquisition of Salmobreed and Stofnfiskur Share issue costs recognised through equity Exercise of share options 82,353,000 - 19,430 Balance at 30 September 2015 219,349,525 Shares placed to fund the acquisition of INVE 215,922,141 Shares issued as consideration for the acquisition of INVE Exercise of share options Shares issued to management Placing shares to fund investments in joint ventures and capital projects Share issue costs recognised through equity Balance at 30 September 2016 38,635,671 50,742 110,873 47,279,127 - 521,348,079 137 82 - - 219 216 39 - - 47 - 521 26,903 69,918 (2,149) - 94,672 185,477 33,188 - 95 30,684 (4,685) 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. Movements in the share options are disclosed in note 30. 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. 130 Benchmark Holdings plc Annual Report 2016 | Financial Statements | Notes forming part of the financial statements Benchmark Holdings plc Annual Report 2016 | Financial Statements | Notes forming part of the financial statements 131 26 Trading and Investing Activities (continued) 26 Trading and Investing Activities (continued) 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 2015 STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION Reconciliation of Reported Earnings to Earnings from Trading Activities — year ended 30 September 2016 Investing Activities Year ended 30 September 2016 £000 Exceptional Items £000 Acquisition related costs £000 Pre- operational expenses for new ventures £000 R&D expenditure £000 - - - 146 146 - - - - - - - - - - - Trading Activities £000 109,375 (58,562) 50,813 12,945 1,363 11,720 (28,502) 12,945 1,363 11,720 22,311 - - - - 250 245 (2,609) (13,504) 146 12,945 1,363 12,215 6,198 - - - - - - - - - - - - (6,170) 3,984 273 109,375 (58,562) 50,813 (54,676) (3,863) (2,859) (13,749) (20,471) (6,170) 3,984 273 (22,384) 146 12,945 1,363 12,215 4,285 Revenue Cost of sales Gross profit Operating costs EBITDA Depreciation Amortisation Operating (loss)/profit Finance costs Finance income Share of profit of equity- accounted investees, net of tax (Loss) /profit on ordinary activities before taxation Tax on (loss) /profit on ordinary activities (Loss)/profit for the period (18,346) 146 12,945 1,363 11,364 4,038 - - - (851) 3,187 7,472 Investing Activities Year ended 30 September 2015 £000 Exceptional Items £000 Acquisition related costs £000 Pre- operational expenses for new ventures £000 R&D expenditure £000 Trading Activities £000 44,199 (28,102) 16,097 - - - 6,595 (13,674) 6,595 2,423 73 239 (1,113) (2,825) Revenue Cost of sales Gross profit Operating costs EBITDA Depreciation Amortisation 44,199 (28,102) 16,097 (23,328) (7,231) (1,304) (3,064) - - - 160 160 - - - - - 1,334 1,334 - - - - - 1,565 1,565 118 - Operating (loss) /profit (11,599) 160 1,334 1,683 6,907 (1,515) Finance costs Finance income Loss on ordinary activities before taxation Tax on loss on ordinary activities (34) 274 - - - - - (2) - (12) (34) 260 (11,359) 160 1,334 1,681 6,895 (1,289) (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 (Loss)/earnings per share (pence) Weighted average number of shares (thousands) (4.39) 0.03 3.10 0.33 2.72 1.79 417,952 417,952 417,952 417,952 417,952 417,952 27 Leases Finance leases The Group leases plant and machinery with a carrying value of £558,000 (2015: £196,000). Such assets are generally classified as finance leases as the rental period amounts to the estimated useful economic life of the assets concerned and often the Group has the right to purchase the assets outright at the end of the minimum lease term by paying a nominal amount. Future lease payments are due as follows: Not later than one year Later than one year and not later than five years Later than five years Minimum lease payments 2016 £000 294 215 - 509 Interest 2016 £000 Present value 2016 £000 5 1 - 6 289 214 - 503 132 Benchmark Holdings plc Annual Report 2016 | Financial Statements | Notes forming part of the financial statements Benchmark Holdings plc Annual Report 2016 | Financial Statements | Notes forming part of the financial statements 133 27 Leases (continued) Minimum lease payments 2015 £000 Interest 2015 £000 Present value 2015 £000 Not later than one year Later than one year and not later than five years Later than five years 66 37 - 103 The present values of future lease payments are analysed as: Current liabilities Non-current liabilities Operating leases — lessee 3 4 - 7 2016 £000 289 214 503 63 33 - 96 2015 £000 63 33 96 The Group has entered into commercial leases on certain items of land and buildings. These leases have an average life of greater than five years. There are no restrictions placed on the Group by entering into these leases. The total future value of minimum lease payments under non-cancellable operating leases for land and buildings are as follows: Not later than one year Later than one year and not later than five years Later than five years 2016 £000 1,765 4,122 2,825 8,712 2015 £000 683 1,526 2,471 4,680 28 Retirement benefits The Group operates a defined contribution pension scheme. The assets of the scheme are held separately from those of the Group in an independently administered fund. The pension cost represents contributions payable by the Group and amounted to £1,079,000 (2015: £479,000). Contributions totalling £306,200 (2015: £100,200) were payable to the fund at the balance sheet date and are included in other payables. 29 Capital commitments At 30 September 2016 the Group and Company had capital commitments as follows: Group 2016 £000 Group 2015 £000 Company 2016 £000 Company 2015 £000 STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION 30 Share-based payment Share options The Group operates an EMI based equity settled share option scheme for certain employees. Options are exercisable at a price equal to the nominal value of the parent Company’s shares. The vesting period is three years. If the options remain unexercised after a period of ten years from the date of grant the options expire. Options are forfeited if the employee leaves the Group before the options vest. The share options under the scheme are as follows: Year ended 30 September 2016: As at 1 October 2015 89,000 1,183,000 988,753 140,433 No. of options Granted in 2016 Exercised in 2016 Forfeited in 2016 As at 30 September 2016 Option Price* Exercise Period - - - - - - 89,000 0.10p (35,000) (35,000) 1,113,000 0.10p (15,742) (108,108) 864,903 0.10p - - (21,037) 119,396 0.10p (22,361) 3,071,132 0.10p August 2016 to July 2023 August 2016 to July 2023 March 2018 to February 2025 July 2018 to June 2025 March 2019 to February 2026 - 3,093,493 Year 2013 2013 2015 2015 2016 * The option price is the nominal value of the parent Company’s shares. Of the total number of options outstanding at 30 September 2016, 1,202,000 (2015: nil) were exercisable. Options exercised in 2016 resulted in 50,742 shares being issued at a weighted average price of 0.1p. The related weighted average share price at the time of exercise was 59.5p per share. Year ended 30 September 2015: As at 1 October 2014 89,000 1,193,000 - - No. of options Granted in 2015 Exercised in 2015 Forfeited in 2015 As at 30 September 2015 Option Price* Exercise Period - - - (10,000) - - 89,000 0.10p 1,183,000 0.10p 1,026,501 (9,430) (28,318) 988,753 0.10p 140,433 - - 140,433 0.10p August 2016 to July 2023 August 2016 to July 2023 March 2018 to February 2025 July 2018 to June 2025 Year 2013 2013 2015 2015 Contracted for but not provided within these financial statements 4,833 6,672 - - * The option price is the nominal value of the parent Company’s shares. Options exercised in 2015 resulted in 19,430 shares being issued at a weighted average price of 0.1p. The related weighted average share price at the time of exercise was 98p per share. 134 Benchmark Holdings plc Annual Report 2016 | Financial Statements | Notes forming part of the financial statements Benchmark Holdings plc Annual Report 2016 | Financial Statements | Notes forming part of the financial statements 135 30 Share-based payment (continued) Share options issued in August 2013 31 Business Combinations During the year the following business combinations occurred: STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION Share options outstanding at the year-end had a weighted average exercise price of 0.1p and a weighted average remaining contractual life of 7 years. The fair value of the EMI equity settled share options granted is estimated at the date of grant using the Black Scholes Merton model taking into account the terms and conditions on which the options were granted. The expense recognised for these options during the year was £7,000 (2015: £8,000). This has been reflected in the income statement and included within Operating Costs — Trading Activities. Additional share options issued in August 2013 Share options outstanding at the year-end had a weighted average exercise price of 0.1p and a weighted average remaining contractual life of 7 years. The fair value of the EMI equity settled share options granted is estimated at the date of grant using the Black Scholes Merton model taking into account the terms and conditions on which the options were granted. The expense recognised for these options during the year was £93,000 (2015: £113,000). This has been reflected in the income statement and included within Operating Costs — Trading Activities. Of the options issued in August 2013, 35,000 were exercised early in respect of good leavers. Share options issued in March 2015 and July 2015 Share options outstanding at the year-end had a weighted average exercise price of 0.1p and a weighted average remaining contractual life of 9 years. The fair value of the EMI equity settled share options granted is estimated at the date of grant using the Black Scholes Merton model taking into account the terms and conditions on which the options were granted. The expense recognised for these options during the year was £344,000 (2015: £337,000). This has been reflected in the income statement and included within Operating Costs — Trading Activities. Of the options issued in March 2015, 15,742 were exercised early in respect of a good leavers. Share options issued in March 2016 Share options outstanding at the year-end had a weighted average exercise price of 0.1p and a weighted average remaining contractual life of 9 years. The fair value of the EMI equity settled share options granted is estimated at the date of grant using the Black Scholes Merton model taking into account the terms and conditions on which the options were granted. The expense recognised for these options during the year was £305,000 (2015: £nil). This has been reflected in the income statement and included within Operating Costs — Trading Activities. Share warrants In January 2015, the Company issued warrants to acquire 259,312 ordinary shares at 112p per share as part consideration for the acquisition of the Improve International Limited business and its subsidiaries. The exercise of these warrants is subject to the extension of certain contracts and the warrants are exercisable at any point between the extension of these contracts and six months thereafter. The Group did not enter into any other share-based payment transactions with parties other than employees during the current or previous period. The total charge reflected in the consolidated income statement in relation to all of the above share based transactions, and included within Operating Costs was £749,000 (2015: £458,000), all charged to Operating Costs — Trading Activities. The share-based payment expense comprises: Equity-settled schemes Total share based payment charge 2016 £000 749 749 2015 £000 458 458 The total charge reflected in the Company’s income statement was £149,000 (2015: £128,000), all charged to Operating Costs — Trading Activities (2015: all charged to Operating Costs — Trading Activities). 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: Consideration Cost of investment Satisfied by: Cash Deferred consideration Equity Total consideration Fair value of assets acquired Customer list Patents and trademarks Intellectual property Contracts and Licences Genetic Materials and Breeding Nuclei Deferred tax on intangibles Fixed assets Investments Inventories Trade and other receivables Cash and cash equivalents Trade and other payables Tax and social security Loans and borrowings Provisions Total identifiable net assets Goodwill INVE Aquaculture Holdings B.V. £000 Genética Spring £000 Total £000 230,667 1,673 232,340 197,440 - 33,227 230,667 4,789 208 117,019 25,562 - (50,106) 5,017 350 16,686 14,914 6,647 (10,104) (2,373) (570) (291) 127,748 102,919 709 964 - 1,673 - - - - 601 - 1,072 - - - - - - - - 1,673 - 198,149 964 33,227 232,340 4,789 208 117,019 25,562 601 (50,106) 6,089 350 16,686 14,914 6,647 (10,104) (2,373) (570) (291) 129,421 102,919 136 Benchmark Holdings plc Annual Report 2016 | Financial Statements | Notes forming part of the financial statements Benchmark Holdings plc Annual Report 2016 | Financial Statements | Notes forming part of the financial statements 137 STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION 32 Related party transactions During the year, Group entities entered into the following trading transactions with related parties that are not members of the Group: Benchmark Holdings Limited Executive Pension scheme The following balances are payable at the end of the reporting period: Benchmark Holdings Limited Executive Pension scheme The Company is controlled by the shareholders. There is no single controlling party. 33 Contingent liabilities Purchases 2016 £000 72 2016 £000 20 2015 £000 72 2015 £000 11 There is a full cross guarantee in respect of borrowings of other Group undertakings. Total borrowings of other Group undertakings at 30 September 2016 were £3,559,000 (2015: £408,000). 34 Notes supporting statement of cash flows Cash and cash equivalents for purposes of the statement of cash flows comprises: Group Cash at bank and in hand Cash and cash equivalents Company Cash at bank and in hand Cash and cash equivalents 2016 £000 38,140 38,140 27,480 27,480 2015 £000 13,564 13,564 5,542 5,542 31 Business Combinations (continued) 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 Intangible assets Inventories 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. 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. 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. 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. Revenue EBITDA 32 Related party transactions INVE Aquaculture Holdings B.V. £000 2016 £000 Genética Spring £000 109,375 (3,863) 14,200 2,300 - - Total £000 123,575 (1,563) Transactions between the Company and its subsidiary undertakings (see note 16), which are related parties, amounted to £1,912,800 in the year (2015: £643,000). These transactions related to inter-company recharges. Balances with subsidiary undertakings are shown in notes 19 and 20. Details of transactions between the Group and other related parties are disclosed in the following note. Included within trade and other payables due after more than one year are the following loans from related parties: Director Total Group 2016 £000 (60) (60) Group 2015 £000 (60) (60) Company 2016 £000 (60) (60) Company 2015 £000 (60) (60) The loan from Malcolm Pye, Chief Executive Officer, has no fixed repayment date. 138 Benchmark Holdings plc Annual Report 2016 | Financial Statements | Notes forming part of the financial statements Benchmark Holdings plc Annual Report 2016 | Financial Statements | Notes forming part of the financial statements 139 STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITI ONAL INFO RMATION 04 Additional Information 142 Glossary 143 Advisers GLOSSARY ADVISERS STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITI ONAL INFO RMATION 3Es Environment, Ethics & Economics — Benchmark’s framework for sustainability Adjusted EBITDA EBITDA before exceptional and acquisition costs AGM AIM API CAGR CEO CFO CGU COO CPD Defra Annual General Meeting Alternative Investment Market Active Pharmaceutical Ingredient Compound Annual Growth Rate Chief Executive Officer Chief Financial Officer Cash Generating Unit Chief Operating Officer Continuing Professional Development Department for Environment, Food and Rural Affairs IP IPO LTIP M&A PD Intellectual Property Initial Public Offering Long-term Incentive Plan Mergers & Acquisitions Pancreas Disease QCA Code Quoted Companies Alliance Code — outlining best practice for quoted companies qPCR QTL Quantitative polymerase chain reaction — a diagnostic tool Quantitative Trait Loci — DNA containing/linked to genes that underlie a quantitative trait R&D Research & Development SalmoBreed Salten Benchmark’s new land-based salmon egg and broodstock production facility currently under construction EBITDA Earnings before interest, tax, depreciation and amortisation Salmosan® Benchmark’s market-leading sea lice treatment EMI scheme Enterprise Management Incentive scheme EU GMP EU Good Manufacturing Practice FAO FAWC FCR FY Food and Agriculture Organisation Farm Animal Welfare Committee Feed Conversion Ratio Financial Year SIP STM Trading Activities Share Incentive Plan Science, technical and medical — referring to the publishing market Trading Activities are those operations which generate earnings in the current period excluding Investing Activities Trading EBITDA EBITDA from Trading Activities Virus Like Particle. VLPs do not contain any viral genetic material and can offer a safer alternative to live-attenuated or inactivated vaccines. Several first-generation VLP approaches have yielded successful vaccines for humans Genomic Selection Targeted breeding by selecting individuals based on their genome VLP Histopathology Diagnosis and study of disease HypoCat™ A breakthrough vaccine for cats which neutralises the primary cause of human allergic reaction to cats IFRS International Financial Reporting Standards Investing Activities 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. Includes exceptional items, research and development expenditure, pre-operational expenses for new ventures and costs of acquiring new businesses Nominated Adviser and Broker: Numis Securities Lawyers: Travers Smith LLP 10 Paternoster Square London EC4M 7LT 10 Snow Hill London EC1A 2AL Auditor: KPMG LLP Bankers: Lloyds Bank 1 Sovereign Square Sovereign Street Leeds LS1 4DW Registrars: Equiniti Limited Aspect House Spencer Road Lancing West Sussex BN99 6DA 1st Floor Butt Dyke House 33 Park Row Nottingham NG1 6GY Financial Advisers: Equity Strategies 3rd Floor New Liverpool House 15 Eldon Street London EC2M 7LD Information regarding forward-looking statements This document includes statements that are, or may be deemed to be, ‘forward-looking statements’. These forward-looking statements can be identified by the use of forward-looking terminology, including the terms ‘believes’, ‘estimates’, ‘plans’, ‘projects’, ‘anticipates’, ‘expects’, ‘intends’, ‘may’, ‘will’, or ‘should’ or, in each case, their negative or other variations or comparable terminology, or by discussions of strategy, plans, objectives, goals, future events or intentions. These forward-looking statements include all matters that are not historical facts. They appear in a number of places throughout this document and include, but are not limited to, statements regarding the Company’s intentions, beliefs or current expectations concerning, among other things, its business, results of operations, financial position, prospects, growth, product pipeline, strategies and the industry in which it operates. By their nature, forward-looking statements involve risk and uncertainty because they relate to future events and circumstances and are not guarantees of future performance. The actual results may differ materially from those described in, or suggested by, the forward-looking statements contained in this document. Any forward-looking statements in this document reflect only the Directors’ and the Company’s current intentions or beliefs. Subject to the requirements of the AIM Rules, the Disclosure and Transparency Rules and any other applicable law or regulation, Benchmark explicitly disclaims any obligation or undertaking publicly to release the result of any revisions to any forward-looking statements in this document that may occur due to any change in Benchmark’s expectations or to reflect events or circumstances after the date of this document. All images copyright © 2016 Benchmark Holdings Plc and its subsidiaries Printed on FSC Certified paper — Manufactured with Windpower Benchmark Holdings plc Annual Report 2016 | Additional Information 143 Benchmark is securing a position at the heart of the blue revolution — driving shareholder value as the industry grows and professionalises. Benchmark Holdings plc Benchmark House 8 Smithy Wood Drive Sheffield S35 1QN t. +44 (0)114 240 9939 w. benchmarkplc.com e. info@benchmarkplc.com