Benchmark Holdings plc Annual Report 2017

Plain-text annual report

Benchmark Holdings plc Annual Report 2017 TECHNOLOGY DRIVEN GROWTH OUR VISION To be the leading global player in aquaculture health, genetics and advanced nutrition • We address some of the main challenges facing the aquaculture industry • We focus on improving yield, quality and profitability for our customers • We bring together technology and biology to deliver innovative products that support producers throughout the growth cycle CONTENTS 01. Strategic Report 03. Financial Statements 08 10 12 14 18 22 28 54 56 64 72 78 80 Benchmark at a Glance 110 Independent Auditor’s Report Our Sites 2017 Milestones Market Overview Chairman's Statement Strategic Review Business Review 30 Genetics 36 Advanced Nutrition 42 Animal Health 48 Knowledge Services Business Model Environmental, Social & Governance (ESG) Our People Financial Review Risk Management Principal Risks and Uncertainties 114 Consolidated Income Statement 115 Consolidated Statement of Comprehensive Income 116 Consolidated Balance Sheet 117 Company Balance Sheet 118 119 120 121 122 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 174 Glossary 175 Advisers 02. Governance 84 86 90 93 97 Introduction to the Board Leadership Effectiveness Accountability Remuneration 102 Shareholders 102 Directors’ Report 106 Directors’ Responsibility Statement Registered office: Benchmark Holdings plc Benchmark House 8 Smithy Wood Drive Sheffield S35 1QN Registered number: 04115910 2017 HIGHLIGHTS Benchmark has delivered growth and achieved significant milestones, whilst continuing its focused investment in the development of its pipeline and infrastructure despite the challenges faced in the year. Malcolm Pye Chief Executive Officer FINANCIAL HIGHLIGHTS Significant organic growth despite the challenges in the year, as we have continued our focused investment in the development of the Group’s pipeline and infrastructure. • Revenue increased by 28% to £140.2m (2016: £109.4m) • Like for like1 sales, up by 13% • Expensed R&D increased by £1.4m to £13.1m but reduced as a percentage of sales to 9% (2016: 11%) reflecting increased capitalised R&D and control of spend in line with revenue growth • £21.5m investment in state-of-the-art additional production capacity in genetics and animal health • Adjusted EBITDA2 increased by 9% to £10.0m (2016: £9.2m) • Loss reduced by 61% to (£7.1m) (2016: (£18.3m)) • Net debt3 increased as expected to £23.9m including £6.0m of ringfenced non-recourse debt used to part fund Genetics capital expenditure OPERATIONAL HIGHLIGHTS Further developed our leadership in aquaculture with large scale production facilities now in seven countries combined with our established distribution network to serve 1,435 customers in 70 countries. Advanced Nutrition • Advanced Nutrition grew like for like1 revenues by 21%. Continued signs of recovery in key shrimp markets resulting in strong growth in sales of compound hatchery, diets and specialised health products, with Artemia sales similar to last year • New 10 year sales and marketing agreement with the Great Salt Lake Cooperative — securing continued access to high quality live feed (artemia) • Launch of two new products • Sanolife GUT — targeted at marine fish in Greece with potential to expand to other geographies and to shrimp • Sanolife PRO-2 — improved formulation of an established product • Development of 100% replacement feed for artemia progressing to plan. This will allow Benchmark to take advantage of the increasing demand for early stage feed against a limited artemia supply and will therefore contribute to the overall growth in the shrimp industry by making available a novel alternative to artemia Genetics • Strong sales growth in Genetics with a 47% increase, driven by increasing demand for salmon products with salmon egg sales up on prior year in every major market • Launch of new salmon strain resistant to infectious salmon anaemia (ISA), developed using genomic selection tools • Development of pathogen resistant shrimp broodstock for the Asian market progressing well, with field trials underway • Integration of Genetics division which now includes salmon, shrimp and tilapia and has customers in Europe, North and Latin America and Asia • New land-based production facility in Norway through joint venture with Salten Stamfisk AS received first batch of broodstock, post period end Animal Health (medicines and vaccines) • Sales in Animal Health decreased from £24.8m to £15.1m driven by a drop in sales of Salmosan® as a result of the continuing development of lice resistance to the product, and the consequent use of alternative mechanical lice removal tools in the industry • Post period end, commencement of field trials for Ectosan®, Benchmark’s new sea lice treatment for the salmon industry • Development of CleanTreat® an innovative water purification system that avoids contamination of marine waters from medicinal treatments of fish • Successful performance in field trials of sea bass nodavirus vaccine, with volumes growing • First commercial scale production at the new Braintree vaccine antigen manufacturing facility • Continued progress in pipeline of 41 products of which 7 are in regulatory phase and 10 are in pre-regulatory development trials 1 Like for like includes three months’ preacquisition results from unaudited INVE Aquaculture Group management information and unaudited eleven months proforma results for Genetica Spring SAS in the comparative period. See Financial Review Section page 74. 2 Adjusted EBITDA — Earnings before tax, interest, depreciation and amortisation before exceptional including and acquisition related items. See Financial Review Section on page 73. 3 Net debt is cash and cash equivalents less loans and borrowings. 01 STRATEGIC REPORT 08 Benchmark at a Glance 10 Our Sites 12 2017 Milestones 14 Market Overview 18 Chairman’s Statement 22 Strategic Review 28 Business Review 30 Genetics 36 Advanced Nutrition 42 Animal Health 48 Knowledge Services 54 Business Model 56 Environmental, Social & Governance (ESG) 64 Our People 72 Financial Review 78 Risk Management 80 Principal Risks and Uncertainties Genetics Advanced Nutrition Animal Health Knowledge Services STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATI ON WHAT HAS BEEN YOUR MOST MEMORABLE EVENT WHILE WORKING AT BENCHMARK? The work and results around our R&D project, SalmoResist, has been very compelling, and talking about it and getting to share it for the world during Aqua Nor was great fun. Borghild Hillestad Genetics Manager 07 BENCHMARK AT A GLANCE DRIVING THE BLUE REVOLUTION WITH TECHNOLOGY Benchmark brings together technology and fundamental biology to deliver products and solutions that support producers throughout the growth cycle Broodstock Hatchery Nursery Grow-out Knowledge Services Insight and training to inform our product development and support our customers Health A leading innovator in aquaculture health Advanced Nutrition Number 1 advanced nutrition and health solution provider to the aquaculture hatchery and nursery market Genetics Leading global aquaculture genetics company Large scale production facilities in 7 countries, covering the main aquaculture regions and supported by a network of R&D and commercial operations in an additional 20 countries Products in pipeline1 70 952 People Customers 1,435 £15m £707m Total pipeline peak projected sales Investment in R&D (FY17) 1 New products and enhancements to current product line. 09 Benchmark Holdings plc | Annual Report 2017 | Strategic ReportSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONOUR SITES 2017 INVESTMENTS SHRIMP MANUFACTURING SEA BASS AND SEA BREAM 3 4 5 2 8 1 2 4 5 3 6 7 Benchmark’s operations SALMON 1 2 We invest in projects that allow us to scale our operations to increase market share or that create a competitive advantage and in all cases that are capable of delivering attractive return on investment. Malcolm Pye Chief Executive Officer Warm water nutrition and health trials, Thailand • Capability for tilapia in addition to shrimp • Expansion with new 92-tank unit, doubling capacity to facilitate experimental-scale shrimp hatchery and on-growing stage testing • Amount invested in FY17: £0.1m • Amount invested to date: £0.2m State-of-the-art vaccine antigen production facility, UK • All major farmed species • Aquaculture vaccines • 2,500-square-metre production facility • Capability for large-scale antigen manufacture and pipeline products testing • EU Good Manufacturing Practices (GMP) compliant • Amount invested in FY17: £1.0m • Amount invested to date: £16.1m Warm water nutrition and health trials, Italy • Capacity for larval and juvenile replicate and commercial-scale testing, rotifer and artemia production test and analytical lab facilities • Annual fry production capacity of 4 million • Amount invested in FY17: £0.1m • Amount invested to date: £0.2m TILAPIA 6 GROUP R&D 7 8 Land-based broodstock facility, Norway • 10,000 square-metre, fully- biosecure joint venture facility • Capacity to produce over 150 million ova per year to meet demand • Year-round production • Amount invested in FY17: £20.5m • Amount invested to date: £21.8m Lumpfish hatcheries, Scotland and Iceland • Capacity to produce 3 million lumpfish per year, a biological control against sea lice • Expanded capacity in Iceland, two new sites in Scotland • Amount invested in FY17: £1.3m • Amount invested to date: £3.4m Breeding centre, Miami • Increased biosecurity • Doubling of capacity to 20-million fingerlings per year • Amount invested in FY17: £0.3m • Amount invested to date: £0.3m New hatchery, Brazil • Capacity to produce 1 million high-quality fingerlings per month • Leading-edge equipment and biosecurity • Amount invested in FY17: £0.1m • Amount invested to date: £0.2m Aquaculture trials facility, Scotland • Home office licensed • Speeding up delivery of pipeline products • Amount invested in FY17: £0.5m • Amount invested to date: £4.9m 11 Benchmark Holdings plc | Annual Report 2017 | Strategic ReportSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATION2017 MILESTONES Activities during the year to deliver on BENCHMARK'S STRATEGY Benchmark’s strategy is to take a leadership position in aquaculture technology, tackling deep-rooted issues in established markets and securing an early mover advantage in less developed, high growth markets. Our strategy is driven by our customers' needs, a commitment to sustainability and the goal to deliver attractive returns for shareholders. Ways in which we execute our strategy: 1. When developing new products, we apply the insights gained from our customer relationships, partnerships and front line veterinary services 2. We combine the fundamental biology disciplines to create a strong technology platform across products and services 3. We use technology and innovation to develop a range of complementary and proprietary products that address unmet needs 4. We develop products capable of achieving high margins and an attractive return on investment 5. We seek to capture cross-selling opportunities resulting from our broad range of products and our global distribution network 6. We build and operate secure and scalable manufacturing capabilities to support our growth Image: Benchmark’s new land-based salmon broodstock facility, Norway. March 2017 May 2017 June 2017 Long-term agreement signed with major salmon producer, SalMar, to provide genetics, health and knowledge services. Distribution deal signed with Thailand’s largest tilapia fry and feed provider, Manit Farm, to supply tilapia nutrition and health products. New tilapia hatchery opened in Brazil with capacity to supply one-million-fish per-month to the high-growth domestic market. June 2017 June 2017 July 2017 Development of pancreas disease (PD) resistant strain in collaboration with industry partners. Inaugural ‘Aquaculture UK 2017’ conference draws sector stars and record numbers to Scotland. Launch of new probiotic to enhance shrimp performance and growth. August 2017 August 2017 September 2017 Announcement of CleanTreat®, an innovative purification system allowing the use of medicinal bath treatments without water contamination. Renewal of key sales and marketing agreement and entry into strategic distribution agreement with Great Salt Lake Brine Shrimp Cooperative, Inc. Operations commenced at our brand-new £16m aquaculture vaccine production facility in Braintree, UK. 13 Benchmark Holdings plc | Annual Report 2017 | Strategic ReportSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONMARKET OVERVIEW PROGRESSIVELY ELIMINATING AQUACULTURE’S PRODUCTION CONSTRAINTS STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATI ON Total aquaculture production is estimated to grow 3-4% in volume terms 2018 (Rabobank 2017) But the industry is young and faces significant challenges: Forecast Disease is aquaculture’s most limiting factor $1bn lost annually due to streptococcus in tilapia4 40% of shrimp production is lost to disease annually2 $500m cost of sea lice in salmon3 0 1950 1960 1970 1980 1990 2000 2010 2020 Source: Rabobank Wild catch Aquaculture This leads to volatility in supply Growth will be enabled by innovation: YOY change in global farmed Atlantic Salmon supply and forecast (%) Genetics, Nutrition, Health including vaccines & treatments and Know-how. Infectious Salmon Anaemia (ISA) outbreak (Chile) Lice and Algae Bloom (Chile) Genetics technology is one of the primary drivers of efficient production. Like health care, genetics is consistently high margin with a high barrier to entry. Increased professionalisation of the industry is creating demand for technically advanced nutritional and health products. It is increasingly important to cooperate through the value chain to combat diseases and pathogens which has been a driver of M&A in the industry. Benchmark works across the full production lifecycle. 2 0 0 1 2 0 0 2 2 0 0 3 2 0 0 4 2 0 0 5 2 0 0 6 2 0 0 7 2 0 0 8 2 0 0 9 2 0 1 0 2 0 1 1 2 0 1 2 2 0 1 3 2 0 1 4 2 0 1 5 E 2 0 1 6 E 2 0 1 7 E Source: Rabobank, Kontali, Subsecretaria de Pesca, 2016 Total seafood supply 200 180 160 140 120 100 80 60 40 20 s e n n o t n o i l l i M 25% 20% 15% 10% 5% 0% –5% –10% Human consumption of fish has now overtaken that of beef, and aquaculture accounts for half of all the fish people eat.1 Seafood demand drivers: • Growing population • Healthy food trend — omega 3, low saturated fats • Indulgence trend — looking for new food experiences and variety • Supply side marketing push • Urbanisation* — better logistics, availability and food service • Income effect* — switch to proteins and prestige products 1 FAO, State of the World’s Fisheries and Aquaculture 2016. * Mostly relevant in developing countries. Aquaculture is the fastest growing food producing sector. Benchmark’s key aquaculture markets: Shrimp 5% Projected growth (2015–2019)5 Tilapia 5-10% Projected growth per annum6 Salmon 5-7% Projected growth (2018–2020)6 The highest value aquaculture industry world-wide. Biological issues likely to drive a potential need for a new business model. World’s second most farmed fish. Technology has played an important role in the development of the industry. Highly innovative, established market. Sea lice issues are restricting growth. 2 Stentiford, G.D. (2012) Disease will limit future food supply from the global crustacean fishery and aquaculture sectors, Journal of Invertebrate Pathology 110:141–157. 3 Rabobank data. 4 USDA (2017) A Big Step towards Reducing Strep 5 GOAL (2017) Global Shrimp Production Review and Forecast. in Farm-Raised Tilapia. 6 Rabobank, 2017. 15 CASE STUDY: Salmon SEA LICE the challenge The World's 20 largest salmon farmers 2,000,000 Tonnes of Atlantic salmon is farmed every year1 Marine Harvest Lerøy Seafood Group Cermaq SalMar Cooke Aquaculture Grieg Seafood Multiexport Bakkafrost Nordlaks AquaChile Nova Sea Pesquera Los Fiordos Alsaker Fjordbruk Camanchaca Australis Seafoods SinkaBerg-Hansen Blumar Norway Royal Salmon Bremnes Seashore The Scottish Salmon Company Source: Salmon Business N°1 Sea lice is the salmon industry’s number one disease challenge $ $500m Sea lice cost the industry an estimated $500m per year to treat2 18mm Sea lice grow to 5-6mm (males) and 8-18mm (females) STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATI ON THE SOLUTION Benchmark has developed a range of products and services to help producers protect against and combat sea lice, including: • Veterinary services to assess the challenge and prescribe treatment • Sea lice resistant salmon eggs • Salmosan®, Benchmark’s established sea lice treatment • Biological controls to eat the lice i.e. lump fish • Ectosan®, Benchmark's new sea lice treatment for the salmon industry, currently in commercial field trials Top salmon producing countries 20163 (tonnes GWE*) Faroe Islands 69,600 Scotland 144,100 Norway 1,054,000 North America 148,100 Ireland 13,400 Chile 454,000 1 Salmon Farming Handbook, Marine Harvest. 2 Rabobank data. 3 Salmon Farming Handbook. * Gutted Weight Equivalent. Australia 48,600 17 CHAIRMAN’S STATEMENT A YEAR OF SIGNIFICANT OPERATIONAL AND STRATEGIC PROGRESS What is predictable is that the demand for our products, driven by growth in demand for our customers’ products, is showing long-term growth. Alex Hambro Chairman Introduction I am pleased to report on another year of significant operational and strategic progress for Benchmark Holdings. Despite certain challenges, we have put in place important technological, and infrastructure and organisational building blocks which will allow the Company to deliver substantial shareholder value in the future. At the same time, we continued to develop our leadership position in aquaculture; indeed, Benchmark is now one of the leading global providers of advanced nutrition, genetics and animal health in the industry. STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATI ON New technologies Whilst the introduction of new technologies and the nature of biological assets is unpredictable, Benchmark has developed an increasingly diversified, rich seam of technology, which it now deploys across multiple species and in multiple geographies. We have a highly skilled team of people who are creating enduring solutions to address the commercial and environmental challenges facing the global aquaculture industry and the past year has seen the delivery of some of these technologies. More detail is outlined in the CEO Report but one such example is the recently announced successful first commercial field trials of Ectosan®, our new sea lice treatment for the salmon industry, which passed its first field trials showing 100% efficacy and no environmental impact due to our proprietary purification system, CleanTreat®. This marked a breakthrough development for Benchmark and for the salmon industry, for which sea lice is the biggest disease challenge, estimated to have cost the industry c.$500m at current market prices in 2016 (Source: Rabobank). CleanTreat® will, we anticipate, set a new standard in environmental protection by allowing marine fish medicines to be delivered safely and without in any way contaminating the marine environment. We are in the process of evaluating additional applications and routes to market for the CleanTreat® system. There is an element of unpredictability in the introduction of new and innovative technologies and the nature of biological assets. For example, delays to introducing new products and the impact of both disease and climate have both been challenges for the business over the last year. However, I have been impressed with our ability to overcome these challenges during the year and believe that as the business has become more diversified, in the future it will be more able to mitigate these risks. What is predictable is that the demand for our products, driven by growth in demand for our customers’ products, is showing long-term growth. Having built Benchmark into a global leader in the fastest growing segment of the food industry, our task is now to ensure we successfully execute our plans and take advantage of the scale of opportunities that we see ahead, whilst delivering consistent and more predictable financial performance in the coming year and beyond. Results overview The year saw significant organic revenue growth; the Advanced Nutrition division grew like for like1 revenue by 21% over the prior year and the Genetics division grew sales by 47%. At the same time we have made much progress in marshalling our pipeline of 41 Animal Health products, of which 7 are in regulatory phase, and 10 are in pre-regulatory development trials. Adjusted EBITDA2 increased by 9% to £10.0m (2016: £9.2m) and this together with a reduction in M&A activity and the associated costs resulted in the loss for the year reducing by 61% to (£7.1m) (2016: (£18.3m)). Net debt3 increased, as expected, to £23.9m including £6.0m of ringfenced non-recourse debt used to part fund capital expenditure in the Genetics division. Net debt is managed within routine leverage parameters to ensure that there is sufficient headroom in the Group’s facilities to meet funding requirements in the medium term. 1 Like for like includes three months’ preacquisition results from unaudited INVE Aquaculture Group management information and unaudited eleven months proforma results for Genetica Spring SAS in the comparative period. See Financial Review Section page 74. 2 Adjusted EBITDA — Earnings before tax, interest, depreciation and amortisation before exceptional including and acquisition related items. See Financial Review Section on page 73. 3 Net debt is cash and cash equivalents less loans and borrowings. 19 I believe we have created a unique group, comprised of a team of the most talented aquaculture professionals to be found anywhere in the world, and which would be impossible to replicate. I therefore thank all of Benchmark’s people for their hard work, commitment and enthusiasm which has seen the Group reach many very important milestones allowing it to grow stronger despite a challenging year. The Hon. Alexander Hambro Chairman 23 January 2018 Integration — the ‘Benchmark solution’ Our four divisions are increasingly working together to deliver an integrated “Benchmark Solution” for aquaculture producers across the major species and geographic farming areas. The integration of genetics, advanced nutrition and health products into a complete offering for aquaculture producers will provide the Group with a distinct competitive advantage. Over the past year, the establishment of a key account management strategy has been an important operational focus which will drive our commercial development into the future. An important part of our integration effort this year was the reorganisation of our management structure to drive efficiency, synergies and accountability. The Board and the CEO in particular have spent a considerable amount of time reorganising the way the business is managed, establishing divisional heads, cross divisional functions and creating a streamlined Operations Board. Strengthening of Benchmark’s Board One of my commitments to shareholders has been to further strengthen our Board to ensure we have the optimal blend of experience and skills to help deliver our strategy and shareholder value. I am particularly pleased therefore that we added two new and well regarded non-executive directors to our Board during the year. Both have extensive global experience in aquaculture and animal health and will provide the Company with strategic frameworks, market intelligence and operational insight. • Yngve Myhre has many years of operational experience in running and managing salmon farming companies in Norway, as well as wider fin fish executive managerial experience in South America and the Mediterranean. • Hugo Wahnish was for many years a leading executive for the animal health operations of Merck and brings Benchmark a wealth of knowledge of the global animal health industry and the companies and people at its core. Having insight into the approach taken by the “big pharma” players in the aquaculture sector is of great strategic value. We welcome them to the Board and look forward to their contribution to the strategic trajectory of the Company over the coming years. We are well advanced in the process to recruit a Chief Scientific Officer for the Group who will join the Board. This is a key role to ensure Benchmark’s technology leadership into the future and support the execution and launch of our rich pipeline of products. We look forward to updating investors in due course. During the year our colleague Roland Bonney stepped down from the Board and took a temporary leave of absence for medical reasons. We are pleased that Roland has recovered and has since rejoined Benchmark to lead our very important key accounts programme and as a member of the Operations Board. Sustainability Our objective is not merely to grow the business; we also aim to do so in a sustainable and environmentally responsible way. I mention this particularly because we take the environmental and social impact of the aquaculture industry as a whole extremely seriously and as we now hold a leadership position in the industry, we must also show leadership in this respect. This is not only ethically responsible, but we believe is also good for the business. We will be therefore outlining our Environmental, Social & Governance (ESG) approach in more detail in this and in future reports. Summary We have built a strong platform from which to deliver further progress in 2018 and beyond. We have put a new organisational structure in place with new members of the team ensuring we have the skill set to deliver on the market opportunity and make optimal use of the infrastructure we have built. Our focus is keenly on the execution and delivery of the Group’s projects which will drive growth and profitability; this includes the rollout of our highest potential new products in Genetics and Advanced Nutrition as well as the work on the commercialisation of Ectosan®, together with the continuous leverage of our Group capabilities in cross- selling and shared development. STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATI ON 21 STRATEGIC REVIEW TECHNOLOGY DRIVING GROWTH IN AQUACULTURE Technology has played a very important role in the development of aquaculture to date. From genetics to feed and medicines, in addition to farming methods and equipment, the impact of technology has been substantial. Malcolm Pye Chief Executive Officer STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATI ON Overview 2017 was a transitional year for Benchmark. After three years of heavy investment and acquisitions to build a platform of products and technologies with strong market positions, our focus during the year was on strengthening and aligning the organisation for the next phase of our growth. The key tasks were: • reviewing the organisational structure leading to a post year end implementation; • recruiting new team members to complement and upskill the team; • creating new functions to address key areas including Investor Relations (IR), scientific leadership (CSO) and marketing; and • integrating the organisation and developing a “One Benchmark” culture to realise the benefits inherent in the Group. In addition to Ectosan®, we faced challenges in Advanced Nutrition, where climate and disease outbreaks affected the shrimp sector during the first half of the year adversely impacting on demand for our products. There was a recovery in the second half and like for like sales for the year were up 21%1, a positive result for the division. Biological disease is a feature of our industry which affects predictability, but our growing, diversified portfolio of products increasingly mitigates this risk. Sales in our Genetics division grew strongly as well, by 47% to £30.5m (2016: £20.7m), driven by increased demand for our salmon eggs which were up on prior year in every major market. Our new state-of-the-art land based broodstock facility in Norway, with capacity to produce over 150 million ova per year, will enable us to continue to develop this market. The first broodstock has been delivered and salmon eggs from this stock will be produced in early Autumn 2018. We now have an execution driven team and structure. We have one important gap to fill in terms of our team, namely that of a Chief Scientific Officer (CSO) who will be responsible for leading our R&D effort and for delivering our pipeline. The CSO will join the Board in recognition of the importance of the role for Benchmark as a science-led, technology business, and I hope to report on an appointment in the near future. Challenges during the year There were however a few setbacks in the period, notably the delay experienced in the launch of the commercial field trials phase for Ectosan®, our new sea lice treatment; this was exacerbated by the impact from the anticipated drop in sales of Salmosan® as a result of the development of partial resistance to the product and the industry focus on mechanical treatments. The increased complexity from the addition of the CleanTreat® system to the Ectosan® solution required the delay, but critically has created new opportunities for the Group. We are pleased that commercial trials for Ectosan® have now commenced delivering excellent results so far and confirming the very significant potential of this product in the market. Benchmark Strategy • Take a leadership position in aquaculture technology, where commercially attractive • Seek a first-mover advantage in high-growth markets where appropriate • Tackle deep-rooted aquaculture issues in more mature aquaculture markets • Deliver attractive shareholder returns 1 Like for like includes three months’ preacquisition results from unaudited INVE Aquaculture Group management information and unaudited eleven months proforma results for Genetica Spring SAS in the comparative period. See Financial Review Section page 74. 23 STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATI ON The new SPR shrimp is the result of over 20 years’ experience in our teams in Colombia and Norway and will be sold using our Advanced Nutrition distribution network in Asia, demonstrating the value of having created a global multi-product platform. Another element of our strategy is to expand into newly industrialised farmed species. This is an area in which we made good progress in the year, signing a deal to supply Thailand’s largest tilapia fry and feed provider, Manit Farm, with advanced nutrition and health products, and opening our own tilapia hatchery in Brazil with capacity to supply one million fish per month to the high growth Brazilian market. Outlook The fundamental drivers of our market remain favourable and we continue to see new growth opportunities in the sector. The outlook for our core species is positive with salmon production expected to grow strongly in the next two years and shrimp production recovering. We continue to execute our strategy, leveraging the platform we have built in recent years and making steady progress in the development of our pipeline. Current trading is in line with the Board expectations and we expect to deliver on our strategic and financial objectives for the year. Our Advanced Nutrition and Genetics businesses are mature, established businesses, each with 20 to 30 years’ presence in the market and leading positions. We are focused on leveraging our market position to realise opportunities across the group from presenting an integrated product offering to our customers, realising cross-selling opportunities and sharing technology and know-how. An important element of this strategy which was initiated this year is our key accounts programme. Product Development In addition to the progress with Ectosan®, new products were launched in our genetics and advanced nutrition businesses, some of which represent an addition to our product offering such as the Infectious Salmon Anaemia (ISA) resistant ova, and Sano-life GUT, while others are an upgrade to existing products like Sano-life PRO 2 in the area of advanced nutrition. Technology upgrades are an important part of our product development strategy. They enable us to strengthen our competitive position with limited product adoption risk. Good progress was made with the Group’s pipeline of new products during the year and we now have 15 products in the final phase of development across the Group. Post period end we announced the development of a specific pathogen resistant (“SPR”) shrimp to address the challenges in the Asian market including white spot, early mortality syndrome and vibriosis. We are at an early stage, but this is an exciting project with the potential to unlock production capacity in the largest shrimp market by tackling disease. Image: Benchmark vets on site with Sonja Brown of Loch Duart, Scotland. 25 CASE STUDY: Salmon The use of genomic tools could REVOLUTIONISE THE SEAFOOD INDUSTRY Studying the genes that control characteristics helps breeders select desirable traits in parents and offspring. Selection methods using new genomic technologies has the potential to more than double the genetic gain from one generation to the next. This is due to higher accuracy and individual selection, compared to traditional family breeding. Genomic tools in aquaculture were prohibitively expensive in the past, but recent progress is starting to bring the costs down making them more accessible. In studies carried out by Benchmark’s SalmoBreed, Nofima and several other partners, fish with high breeding value for PD had a survival rate close to 90 per cent, while for fish with low breeding value it was just below 60 per cent. Image: Salmon ova and alevins close up, Lønningdal, Norway. STRATEGIC STRATEGIC REPORT REPORT GOVERNANCE GOVERNANCE FINANCIAL FINANCIAL STATEMENTS STATEMENTS ADDITIONAL ADDITIONAL INFORMATI ON INFORMATI ON Genomic selection is a significant tool in the fight against pancreas disease. By breeding from individuals that have the desired gene composition, we are able to deliver fish with ever increasing resistance to PD, generation after generation. Jan-Emil Johannessen Head of Benchmark Genetics 27 2017 BUSINESS REVIEW We have made history this year with the development of Ectosan®and CleanTreat®and the impact it has had on sea lice. I am proud to be part of a team that develops products that are making a real difference to the industry, environment and the future of food production. Matt Haslam Head of CleanTreat® Benchmark Animal Health Image: Benchmark's Matt Haslam and Robert Reilly visiting a salmon farmer in Scotland. STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATI ON MARKET DRIVERS: • Proliferation of disease • Drive to eliminate antibiotics in the food chain • Continuous end-product quality improvement • Need for environmentally friendly solutions • Enhancing productivity of established farmed species • Making newly farmed species economically viable 29 DIVISIONAL REVIEW — GENETICS BREEDING for the future with genomic precision We select the best performing fish and magnify their genetic strengths from generation to generation. We are seeing an increasing demand for our disease- resistant ova to help the industry combat disease challenges and support growth. Jan-Emil Johannessen Head of Genetics 21% FY17 revenue contribution 8 Sites 128 Employees HISTORY Benchmark Genetics was established in 2014 through the acquisitions of StofnFiskur (Iceland) and SalmoBreed (Norway), two of the top three players in salmon genetics, each with more than 30 years’ presence in the market. Following these acquisitions for a total of £52.4m, Benchmark became the leading player in salmon genetics. Further acquisitions totalling £13.5m were made in 2015 and 2016 to add a presence and expertise in shrimp and tilapia. PRODUCTS Atlantic salmon, tilapia and shrimp eggs/hatchery stage/ breeding animals and genetic services for multiple species. 31 Benchmark Holdings plc | Annual Report 2017 | Strategic ReportSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONDIVISIONAL REVIEW — GENETICS OPERATIONAL PROGRESS Strengthened infrastructure in key growth markets • Salmon production facility in Iceland now able to grow broodfish to 4–5 kg (similar to market size) within 11 months, due to investments and improvements. Previously the same production took approximately 16–18 months • New tilapia hatchery opened by the Group in São Paolo, Brazil, with capacity to produce up to 1 million high-quality tilapia fingerlings a month • Newly expanded tilapia genetics site in Miami with capacity to produce up to 20 million fingerlings per year • New 10,000 square-metre on-land salmon broodstock facility receives its first batch of broodstock. The land-based facility is the first of its kind in Norway, with capacity to produce 150 million ova per year, post period end New products • Specific pathogen resistant (SPR) shrimp developed for the Asian market, the largest and fastest growing market for shrimp, announced post-period end with field trials underway • Launch of new trait, GS-AGD, to increase natural resistance in Atlantic salmon to amoebic gill disease • Launch of new ova resistant to infectious salmon anaemia (ISA). ISA causes high mortality and significant monetary losses in affected salmon farms worldwide, and is a major welfare issue Partnerships • Long-term agreement with one of the world’s largest salmon producers, SalMar, to provide a full suite of services encompassing genetics, health and knowledge services Innovation and integration • Breeding breakthrough for fish with increased natural resistance to pancreas disease (PD) achieved by Benchmark's SalmoBreed, Nofima and other partners • Integration of Genetics division which now includes salmon, shrimp and tilapia and has customers in Europe, North and Latin America and Asia STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATI ON FINANCIAL PERFORMANCE Benchmark Genetics delivered strong growth in Adjusted EBITDA with the main drivers being increased sales volumes and average sales prices for salmon eggs resulting from customer demand and the success of new products launched. The valuation of biological assets increased by £4.2m driven by the growth in sales in the year and strong order book at the year end. This supported strong growth in gross margins for the division and, after expensed R&D of £2.7m (2016: £2.2m), Adjusted EBITDA grew by 314% to £5.8m (2016: £1.4m). Genetics Division Revenue Summary Income Statement Revenue Cost of Sales Gross Profit Research and development costs Operating costs Adjusted EBITDA 2017 2016 £30.5m Exceptional including acquisition related items £20.7m Depreciation and amortisation Operating profit /(loss) 2017 £m 2016 £m 30.5 20.7 (13.8) (13.5) 16.7 7.2 (2.7) (2.2) (8.2) (3.6) 5.8 7.0 (3.3) 9.5 1.4 (2.4) (2.6) (3.6) Genetics Division Adjusted EBITDA 2017 2016 £1.4m £5.8m Benchmark Holdings plc | Annual Report 2017 | Strategic Report 33 CASE STUDY: Shrimp Disease has cost the Asian shrimp sector more than $20bn OVER THE LAST 7 YEARS 1 Benchmark’s new Specific Pathogen Resistant (SPR) shrimp have proven resistance to a number of diseases. 60% Production of farmed shrimp is expected to grow by 50 to 60% through to 20302 The genetics sector has a high barrier to entry due to the technical nature of the business and the length of time it would take to find desirable traits, select and then reproduce the stock. In 2016 Benchmark acquired a South American shrimp breeding programme to expand into the fast-growing shrimp sector. It is from this point that Benchmark has a unique opportunity. Taking the learnings from our well-established breeding programmes in salmon and deploying this know-how into other major farmed species that are less technically developed. This year trials have commenced in Asia with Benchmark’s new specific pathogen resistant (SPR) shrimp to address the issues facing the Asian market. The Asian shrimp industry alone incurred a loss of $22.5bn from AHPND (previously known as Early Mortality Syndrome — EMS) over the period 2009 to 2016.1 Benchmark's SPR shrimp have proven resistance to major diseases and early indications also suggest that our stocks hold resistance to AHPND. 1 Shinn, A.P., Pratoomyot, J., Griffiths, D., Trong, T.Q., Vu, N.T., Jiravanichpaisal, J. & Briggs. M. (in press) Asian shrimp production and the economic costs of disease. Asian Fisheries Science Journal. 2 World Bank, Fish to 2030. Shrimp farmers globally are seeking robust shrimp adapted to local conditions to stabilize production. Benchmark’s shrimp lines resistance to key pathogens and their genetic diversity has enormous potential to do just that. Benchmark has the veterinarians, breeds, and the delivery and distribution through INVE to help the global shrimp industry. Oscar Hennig Operations Director of Benchmark’s shrimp breeding facility 35 STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATION DIVISIONAL REVIEW — ADVANCED NUTRITION STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATI ON After decades of innovation we have seen aquaculture evolve from small-scale pioneering to the industry it is today. We aim to further support this evolution and shape the future of aquaculture with our customers by caring for their long-term growth. Philippe Léger Head of Advanced Nutrition High performance and cost-effective NUTRITIONAL SOLUTIONS 58% FY17 revenue contribution 14 Sites 461 Employees HISTORY Advanced Nutrition was added to Benchmark’s portfolio of products and services in 2015 when the Company acquired INVE Aquaculture, a world-leading provider of specialist nutrition and health solutions to the shrimp and finfish market, including sea bass and sea bream. PRODUCTS Live feed (artemia), enrichment diets, compound larval hatchery feeds, advanced health products including probiotics and soil and water treatments. Benchmark Holdings plc | Annual Report 2017 | Strategic Report 37 DIVISIONAL REVIEW — ADVANCED NUTRITION OPERATIONAL PROGRESS Strengthened infrastructure in key growth markets • Key account programme established covering marine fish, salmon, tilapia and shrimp to centralise and coordinate Benchmark’s offering • Expansion and renovation of Benchmark’s sea bass and bream testing facility in Tuscany, Italy and of our testing facility for tropical species (shrimp and tilapia) in Chonburi, Thailand • Initiation of probiotics production and completion of GMP certification New product launches and contract wins • Commercial launch of enhanced shrimp probiotics Sanolife GUT and Sanolife PRO-2 building on Sanolife’s strong brand within the industry • TomAlgae products fully integrated into the Advanced Nutrition product portfolio • New contract signed with KA-Key Distributor in Honduras to serve Honduras, Costa Rica, Venezuela and Guatemala • Distribution agreement signed with Manit Farms to supply tilapia products in Thailand • Renewal and expansion of long-term sales and marketing agreement with Great Salt Lake artemia cooperative. This agreement generated revenues of over £30m for Benchmark in 2016 Increasing market share • Double digit growth in replacement diets (20 per cent vs prior year) and health products (33 per cent vs prior year) under difficult market conditions, including Early Mortality Syndrome (EMS) in Vietnam and China, and whitespot outbreak in Brazil • Overall revenue growth of 8 per cent vs prior year as a result of achieving maximum sustainable volumes of Artemia: • Strong growth in the Americas shrimp market including Ecuador • Launch of new initiatives in the stagnating Mediterranean marine fish markets Innovation • R&D releases achieved for four pipeline products: Hi-5 IL, non-GSL Artemia, HI-5 Defence, Sanolife PRO-2+, Easy Dry Selco • Four year research project on pond bottom management underway with the University of Ghent, Belgium • Major milestones reached in our 100 per cent Artemia replacement projects for shrimp and fish: • SmART Shrimp: milestone of 95 per cent Artemia replacement achieved • SmART Fish: milestone of 95 per cent Artemia replacement exceeded STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATI ON Summary Income Statement Revenue Cost of Sales Gross Profit Research and development costs Operating costs Adjusted EBITDA Exceptional including acquisition related items 2017 £m 2016 £m 83.7 55.0 (42.8) (26.5) 40.9 28.5 (3.0) (1.3) (20.2) (11.3) 17.7 15.9 (0.0) 0.0 Depreciation and amortisation (16.6) (11.4) Operating (loss)/profit 1.1 4.5 FINANCIAL PERFORMANCE Advanced Nutrition’s increased revenue growth of £28.7m was driven by increased market share and demand for higher margin live feed replacement and health diets plus the inclusion of a full year’s sales of the INVE business (vs nine months of trading post acquisition in 2016). The Division experienced lower growth rates in the first half year but key markets continued to recover through the second half. This recovery aided strong growth in higher margin live feed replacement and health diets. Market prices for some live feed products were impacted by significant oversupply in Asia and this resulted in reduced gross margin from this product category. An exceptional bad debt provision of £1.1m was made in the year for a single debtor related to sales made in 2016. After this provision and after expensed R&D of £3m (2016: £1.3m) the division reported Adjusted EBITDA of £17.7m (2016: £15.9m — nine months post acquisition). 2016 like for like Adjusted EBITDA was £17.3m. Advanced Nutrition Division Revenue 2017 2016 £83.7m £55.0m Advanced Nutrition Division Adjusted EBITDA 2017 2016 £17.7m £15.9m 1 Like for like includes three months’ preacquisition results from unaudited INVE Aquaculture Group management information and unaudited eleven months proforma results for Genetica Spring SAS in the comparative period. See Financial Review Section page 74. Benchmark Holdings plc | Annual Report 2017 | Strategic Report 39 STRATEGIC STRATEGIC REPORT REPORT GOVERNANCE GOVERNANCE FINANCIAL FINANCIAL STATEMENTS STATEMENTS ADDITIONAL ADDITIONAL INFORMATI ON INFORMATI ON CASE STUDY: Tilapia STREPTOCOCCUS is one of the most devastating diseases in tilapia The disease predominantly affects countries in Latin America and Asia. It can cause substantial mortalities of large fish and causes farmers heavy economic losses. The solution Benchmark has built a pioneering and complimentary preventative approach including vaccine development, specialist nutrition and an advanced family-based breeding programme for Nile tilapia that selects stock for key traits including increased resistance to Streptococcus iniae and Streptococcus agalactiae. Weakened fish are especially susceptible to the illness. Our approach ensures we look at the health of the full animal: • Strong genetics result in a greater level of disease resistance • Probiotic nutrition helps immune stimulation to fend off diseases naturally • Healthier fish respond better to vaccines The combination of fry genetics, biosecurity measures, and specific management protocols — through product and strong technical support — will allow farmers to cost-efficiently produce quality fish. Olivier Decamp INVE’s Farm & Feedmill Product Manager $6.7bn Global tilapia production ($6.7bn USD 2015) $1bn Lost annually due to streptococcus1 2nd Most farmed fish globally2 1 USDA (2017) A Big Step towards Reducing Strep in Farm-Raised Tilapia. 2 Rise of the Aquatic Chicken, Rabobank 2015. Image: Courtesy of CDC. 41 DIVISIONAL REVIEW — ANIMAL HEALTH Cutting-edge HEALTH PRODUCTS targeted at the major disease challenges STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATI ON Our pipeline is progressing well. We use our market insight from the business to develop products targeted at the industry’s largest unmet disease issues and emerging challenges. We are working on some potential game-changers. John Marshall Head of Benchmark Animal Health 11% FY17 revenue contribution 10 Sites 177 Employees HISTORY Benchmark Animal Health was established through the acquisition of Fish Vet Group in 2003, the Company’s first-move into aquaculture. Following this Benchmark acquired Novartis Animal Health vaccine manufacturing plant whilst organically growing the product pipeline. The product development team was built through a number of key strategic hires from the aquaculture pharmaceutical industry. PRODUCTS Vaccines, medicines, biocides, parasiticides, veterinary health services and diagnostics. Image: Benchmark vets monitor the gill health of salmon in Scotland. Benchmark Holdings plc | Annual Report 2017 | Strategic Report 43 DIVISIONAL REVIEW — ANIMAL HEALTH OPERATIONAL PROGRESS Innovative breakthroughs in market • Post period end, successful field trials of Benchmark’s new generation sea lice treatment, proven in trials to be 100 per cent effective against sea lice • Launch of CleanTreat®, Benchmark’s new fully contained purification system which will be used in conjunction with sea lice treatments, ensuring there is no impact on the environment • Second generation vaccine technology passed proof of concept and fast tracking to field trials during 2018 Increasing manufacturing firepower and commercial delivery • Operations commenced at the new vaccine antigen production facility in Braintree, UK. The facility processed its first commercial-scale batch of antigen in September 2017 • Benchmark’s aquaculture vaccines are now being manufactured at the Braintree facility, speeding up the delivery of vaccines to market • Preparing to launch direct distribution of Byelice (Salmosan®) in Chile as a first initiative in strengthening the Company’s position for future product introductions Extracting synergies through strong distribution network • Integration is progressing well with vaccines from Animal Health being distributed in the Mediterranean through INVE’s extensive network • Benchmark pipeline’s streptococcus vaccine for tilapia being developed as part of a total control programme linked to products in Advanced Nutrition and Genetics Product pipeline progress • Continued progress in our pipeline of 41 products, of which 7 are in regulatory phase, and 10 are in pre-regulatory development trials • Successful performance in field trials of sea bass nodavirus vaccine, with volumes growing • Improved R&D efficiency through better integration with Benchmark’s research facility Ardtoe, increasing capacity to deliver trials for pipeline products STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATI ON FINANCIAL PERFORMANCE Animal Health is in a phase of transition with a targeted increase in investment in new products that will deliver future organic growth set against a backdrop of reduced demand for existing mature products, primarily Salmosan®. Investment in expensed R&D reduced to £7.3m (2016: £8.3m) reflecting careful management of spend and the fact that an increasing proportion of R&D has to be capitalised as more pipeline products approach full launch. The division reported an increased Adjusted EBITDA loss of (£11.6m) (2016: loss of (£4.2m)). Animal Health Division Revenue Summary Income Statement Revenue Cost of Sales Gross Profit Research and development costs Operating costs Adjusted EBITDA 2017 2016 £15.1m Exceptional including acquisition related items £24.8m Depreciation and amortisation Operating loss 2017 £m 2016 £m 15.1 24.8 (13.9) (15.0) 1.3 9.8 (7.3) (5.5) (11.6) (0.6) (1.4) (13.6) (8.3) (5.8) (4.2) (0.3) (1.5) (6.0) Animal Health Division Adjusted EBITDA -£11.6m -£4.2m 2017 2016 Benchmark Holdings plc | Annual Report 2017 | Strategic Report 45 CASE STUDY: Sea bass Nodavirus can cause up to 100% MORTALITY 148,650 Tonnes of sea bass produced (2016) €300m Mediterranean sea bass market2 23% Predicted increase in production 2016 to 2017, overtaking sea bream1 45,000 Tonnes of Mediterranean sea bass produced in 20153 25-30ºC Nodavirus is highly dependent on water temperature. Ideal temperature of 25-30ºC Nodavirus is a serious viral disease, primarily affecting farmed sea bass in Greece and other Mediterranean countries. The disease impedes growth and causes high production losses. There is currently no effective treatment. The solution Benchmark is currently trialling a new vaccine for the Mediterranean market. Full development of this product has been undertaken in-house covering R&D, vaccine manufacturing and trials. Now in the final stages of development, the brand new Benchmark vaccine will be available to customers in 2018. The development process for producing this vaccine for sea bass can now be readily adapted to bring forward vaccines for several other emerging farmed aquaculture species including Turbot, Barramundi and Grouper also affected by Nodavirus. Robin Wardle Benchmark Vaccine Development Director 1 INVE estimate. 2 Aquaculture in Greece 2016, Federation of Greek Maricultures. 3 INVE data. 47 Benchmark Holdings plc | Annual Report 2017 | Strategic ReportSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONDIVISIONAL REVIEW — KNOWLEDGE SERVICES Technical know-how and PRACTICAL ADVICE STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATI ON Knowledge unlocks the growth of the industries we serve. Benchmark is becoming increasingly recognised for the value we create from our research, training, services and events. James Banfield Head of Knowledge Services HISTORY Knowledge Services1 has been part of Benchmark since its inception when Benchmark’s founders set out to build a business based on the growing need to create a sustainable and ethical future for global food production. PRODUCTS Conferences, cleanerfish sales, challenge tests (for Benchmark product pipeline), training, events and consultancy. 10% FY17 revenue contribution 12 Sites 151 Employees Image: Advanced nutrition manufacturing plant Phichit, Thailand. 1 Knowledge Services’ encompasses the work of Benchmark’s Sustainability Science and Technical Publishing. Benchmark Holdings plc | Annual Report 2017 | Strategic Report 49 DIVISIONAL REVIEW — KNOWLEDGE SERVICES OPERATIONAL PROGRESS Strengthened infrastructure in key growth markets • Successful delivery of trials at Benchmark’s Ardtoe Aquaculture Research Facility of the new and patented CleanTreat® water purification solution • Benchmark’s tilapia hatchery in Brazil is now operational. The Knowledge Services team is working with Benchmark Genetics to provide training to producers on best practice in health and welfare • Supporting Benchmark’s two new lumpfish sites in the north of Scotland with training on welfare standards of cleanerfish, a biological control against sea lice • New state-of-the-art veterinary training facility opened in Sheffield, UK • Launch of new website for the aquaculture industry in The Fish Site and veterinary market through the new Vet Practice site Growing market share • Benchmark’s aquaculture news site increased unique visitors by five per cent in the period • Acquisition of Vet Practice, an industry magazine serving 10,000+ veterinary professionals New product launches and contract wins • Successful conferences in VetsNorth and VetsSouth attracting over 700 delegates and disseminating knowledge into fast evolving veterinary industry • Successful Aquaculture Innovation conference at Stirling University • Two year extension of Defra contract for the training and assurance of official veterinarians (OVs) • Further development and securing of new clients for Benchmark’s growing suite of data services • Expanded consultancy contracts with existing food producer and retailer clients, including McDonald’s, IKEA and KFC, and secured new long-term clients, including Barry Callebaut and Woolworths STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATI ON FINANCIAL PERFORMANCE Knowledge Services reported a reduced Adjusted EBITDA loss of (£0.9m) (2016: loss of (£1.4m)) as a result of increased R&D trials revenue and cost control. Summary Income Statement Knowledge Services Division Revenue 2017 2016 £13.8m £11.2m Knowledge Services Division Adjusted EBITDA -£0.9m -£1.4m 2017 2016 Revenue Cost of Sales Gross Profit Operating costs Adjusted EBITDA Exceptional including acquisition related items Depreciation and amortisation Operating loss 2017 £m 2016 £m 13.8 11.2 (9.4) (7.0) 4.4 4.2 (5.2) (0.9) (0.1) (1.9) (2.9) (5.6) (1.4) (0.1) (1.0) (2.5) Benchmark Holdings plc | Annual Report 2017 | Strategic Report 51 TECHNOLOGY CENTRE PRODUCT PIPELINES Genetics Pipeline Product code (peak projected sales (£), date of first sales (incl. field trials) Pre-Project Project phase Test development Launch Salmon Lumpfish Tilapia Shrimp PF011 (5.4m) 2020 DH021 (3.5m) 2020 DH022 (3.5m) 2020 QF001 (0.2m) 2019 DS011 (2.1m) 2021 Genomics ISA (5.4m) Genomics SRS (1.9m) Genomics AGD (2.7m) Genomics GS-Quality (0.3m) 2018 Lumpfish Scotland (4m) DT003 (6m) 2021 DT006 (3m) 2020 DT005 (3m) 2020 DT004 (4.5m) 2020 DT002 (4.5m) 2018 DT001 (4.5m) 2018 DP002 (28m) 2019 DP001 (32m) 2019 Total* peak projected sales: £100.5m Total products: 14 Advanced Nutrition Pipeline Development and lab testing Field verification Market preparation Start of sales up to 1Y SC30 SL22 (0.1m) 2020 SG25 (7m) 2019 SL18 (0.1m) 2019 SD04 (0.1m) SG28 (8.5m) SC15 (1m) 2018 ART01 (3.8m) 2018 ART02 (0.3m) 2018 SC12 (3.3m) 2020 FD07 (0.4m) FD06 (3m) SL23 (0.2m) SL16 (3.2m) SD29 (1.4) Product code (peak projected sales (£), date of first sales (incl. field trials) Marine finfish Shrimp SL19 (0.3m) 2021 SD03 (22.8m) 2022 Shrimp/ marine finfish SG27 2020 Shrimp/ oyster Tilapia Salmon/tilapia/ sea bass/bream Sea bass/bream All species SC11 (2.7m) 2021 SG26 (1.5m) 2021 FD05 (7m) 2021 SL20 (2.2m) 2020 Animal Health Pipeline Product code (peak projected sales (£), date of first sales (incl. field trials) Sea bass/ bream Salmonids Tilapia Shrimp Cleanerfish Catfish All species (aquaculture) Companion animal/ farm animal Discovery Passed proof of concept Development Trials Regulatory process begins Commercial launch VAQ002 (3m) 2019 PAQ009 (10m) 2019 VAQ022 (6m) 2019 VAQ007 (12m) 2019 VAQ011 (3m) 2018 VAQ008 (1m) 2018 PAQ024 (4m) 2021 VAQ017 (25m) 2021 VAQ032 (10m) 2019 VAQ006 (15m) 2019 PAQ017 (3m) 2022 VAQ029 (9m) 2020 VAQ015 (6m) 2020 VAQ010 (1m) 2018 VAQ019 (1m) 2019 VAQ021 (2m) 2019 VAQ020 (1m) 2019 VAQ028 (19m) 2019 PAQ014 (1m) 2018 Field Trials VAQ016 (1m) 2016 PAQ008 (45m) 2018 PAQ006 (1m) PAQ004 (3m) 2022 PAQ022 (11m) 2021 VAQ031 (8m) 2021 VAQ034 (10m) 2022 VAQ036 (3m) 2021 VAQ025 (4m) 2021 PAQ018 (10m) 2021 PAQ007 (13m) 2021 VAQ009 (2m) 2020 VAQ024 (1m) 2018 VAQ004 (1m) 2018 EAQ002 (10m) 2019 VAQ033 (1m) 2018 VAQ003 (3m) 2019 PA016 (10m) 2022 PAQ021 (10m) 2022 VC002 (55m) 2021 VTS009 (50m) 2021 VC001 (165m) 2021 PAQ023 (3m) 2019 PondDtox (1m) Total* peak projected sales: £546m Total products: 41 Total* peak projected sales: £60.7m Total products: 15 * Not including products above with ‘launched’ status. 53 Benchmark Holdings plc | Annual Report 2017 | Strategic ReportSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONBUSINESS MODEL Driving performance and efficiency in the PRODUCTION LIFE CYCLE 1 DEVELOPING AND COMMERCIALIZING BIOLOGICAL SOLUTIONS Technologies • Robust genetics • High quality nutritional products • Health products including vaccines and treatments Infrastructure • Vaccine manufacturing capacity — GMP accredited • Biosecure breeding and genetics production facilities • R&D and challenge test units — Home Office licensed Distribution • Long standing customer relationships in 70 countries • Strong distribution network — own and third party 2 FOCUSED ON KEY PRODUCTION NEEDS Improved disease resistance Lower mortality Lower stress levels Better harvest quality Better fillet quality Faster growth rate 1,435 Number of customers 70 Customers in 70 countries 3 DELIVERING VALUE Customers • High ROI relative to substantial costs resulting from major disease challenges • Driving consistency in supply and better grow-out results • Supporting long-term growth and sustainability of their businesses Shareholders • Driving shareholder value as the industry grows 55 Benchmark Holdings plc | Annual Report 2017 | Strategic ReportSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONENVIRONMENTAL, SOCIAL AND GOVERNANCE (ESG) WE ARE COMMITTED TO CONDUCTING BUSINESS IN AN ETHICAL MANNER AND ACTING WITH INTEGRITY STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATI ON I’m committed to ensure we continue to realise value for our clients, partners and investors, while safeguarding society and the world in which we work now and in the future. This is the vision on which Benchmark was founded. Ruth Layton Group Sustainability Director (Benchmark co-founder) Benchmark was founded upon the need to build a sustainable food chain; sustainability is part of our DNA. The 3Es Increasing our impact We continue to work closely with our clients, partners and wider stakeholders — including governments and industry bodies — to inform and influence their own standards and practices to ensure best practice is implemented as widely as possible. Benchmark has been consistently guided by the ‘3Es’ framework, which places equal value on ethics, environment and economics (“3E”). This framework is line with ESG reporting frameworks and ensures we can pursue our commercial interests in a manner that ensures consideration and respect for: • Our people and partners • The animals under our care and influence • The communities and environments in which we operate • The health and safety of every employee • Our impact on the planet Post year-end Ruth Layton (pictured above) was appointed as Group Sustainability Director and a sustainability working group and PLC Board Committee was established. The group is beginning an assessment of the Company’s sustainability strategy and operations against Benchmark’s established 3Es framework. The Committee will work alongside Benchmark’s Operations Board to ensure we continue to realise value for our clients, partners and investors while also safeguarding society and the world in which we work now and in the future. Benchmark Holdings plc | Annual Report 2017 | Strategic Report 57 STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATI ON ENVIRONMENTAL, SOCIAL AND GOVERNANCE (ESG) SUCCESSFUL BUSINESSES CAN BE A FORCE FOR GOOD OUR PEOPLE AND PARTNERS Our people are the beating heart of our business. We are committed to building a working environment where health and safety is paramount in everything we do. In February, we asked every employee to sign up to our commitment to health and safety, followed by a series of workshops and a company-wide global safety day. Our Commitment to health and safety is 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 We believe that openness and good communication promote a better culture. Our whistleblower channel facilitates the reporting of concerns about potential compliance issues, with regard to both laws and regulations, in the areas of environment, human and labour rights, equality and diversity, health and safety, business ethics and anti-corruption, conflict of interest and professional behaviour. Ethical business conduct Benchmark employs people from 42 different nationalities encompassing a variety of languages, cultures and customs. We are committed to high ethical standards in our business dealings worldwide and require the same from every member of our team. Our values and policies guide how we make decisions and what we do and say each day. Our values set the standards of behaviour we expect from one another, and which external parties can expect from us. Our policies cover whistleblowing, anti-fraud and anti- corruption, financial reporting as well as regulatory compliance. ANIMAL HEALTH AND WELFARE We strive to ensure the highest level of animal welfare throughout the supply chain. Animal health and welfare is at the very heart of what we do. We strive to ensure the highest possible welfare potential for every animal under our care. By working closely with academic and research organisations around the world, we ensure our standards and practices are constantly informed by the most up-to-date science and research in order to keep raising the bar for animal health and welfare throughout our business and beyond. We continue to train and educate our people and customers in best- practice husbandry and prevention and management of key diseases. The aquaculture industry will only be able to grow successfully within sustainable parameters if certain challenges are overcome. During the year we have continued to invest in technologies to accelerate the early identification of new diseases and vaccine development as a means of preventing some of the leading health challenges. We have reached major milestones with two such projects: our CleanTreat® purification system enabling medical bath treatments to be administered with no impact on the marine environment, and our Cleanerfish programme, a biological control, that has reduced lice burden on some Scottish farms by up to 70 per cent. Setting the standard RSPCA-Assured is one of the UK’s leading standards for farmed fish. Benchmark works closely with the RSPCA, where possible, helping to inform and develop standards such as the welfare standards for farmed Atlantic salmon which covers over 90 per cent of UK farmed salmon, and the welfare standards for cleanerfish. Benchmark Holdings plc | Annual Report 2017 | Strategic Report 59 ENVIRONMENTAL, SOCIAL AND GOVERNANCE (ESG) WE WANT TO HAVE A ‘NET POSITIVE’ IMPACT ON THE COMMUNITIES IN WHICH WE OPERATE COMMUNITIES We have supported FarmAbility, an on-farm day service for adults with autism and learning difficulties, since it was founded. We provide a base, facilities and farm access for the charity at our farm in Oxford, UK. “When I get home after a day at FarmAbility, I feel as though I have been smiling all day. It makes me feel really special. The peace and tranquillity really helps to control my epilepsy. It gives me peace of mind.” Hannah Crabb FarmAbility Co-worker Benchmark's supported charity School outreach Thailand In Thailand we work closely with the local community, providing equipment and training in health and safety. Our team visited a school and donated tools such as fire extinguishers and traffic cones to create a safer environment for the children. Brazil At our farm in São Paulo we work with school children (9 to 11 years) from underprivileged areas, educating them about how their food is produced and nurturing their skills. It’s rewarding to see the children working as part of a team out on the farm. It’s important to give them a sense of purpose and help them find enjoyment in what they are doing. Murilo Quintiliano Director, Benchmark’s FAI Farms, Brazil Image: FarmAbility staff and co-workers at our R&D farm in Oxford. Image: Local school children at our farm in São Paulo, Brazil. 61 Benchmark Holdings plc | Annual Report 2017 | Strategic ReportSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONENVIRONMENTAL, SOCIAL AND GOVERNANCE (ESG) BATH TREATMENTS FOR SEA LICE THAT LEAVE NOTHING BEHIND BUT HEALTHY FISH AND CLEAN WATER STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATI ON ENVIRONMENT We continue to review our footprint in order identify ‘hotspots’ in our operations where we need to make a difference — ranging from improving our communication tools to reduce travel and investing in greener technologies through to sustainable sourcing across our entire supply chain and championing more sustainable alternatives such as cleanerfish and CleanTreat®. Announced in August 2017, CleanTreat® is a unique purification system that removes all detectable medical components from treatment water after delousing salmon in well boats. Chemical-based bath treatments that are released into the environment is one of the biggest objections to the salmon farming industry and CleanTreat® solves this environmental challenge. CleanTreat® represents a transformational change in the battle against one of the industry’s greatest challenges, and a step towards a future where no chemicals are applied directly into the oceans. It is testament to our world-class R&D team to bring this idea through to market. John Marshall Head of Benchmark Animal Health Benchmark Holdings plc | Annual Report 2017 | Strategic Report 63 OUR PEOPLE BUILT ON KNOWLEDGE We employ a diverse and expert team from 42 different nationalities, serving customers in over 70 countries. Our business is built on collaboration, expertise and rigorous ethical standards, which we require all of our employees to uphold. Our business requires motivated, engaged people with in-depth technical and practical experience across the entire supply chain. Anna Winton Head of People Image: Benchmark salmon production facility in Kalmanstjørn, Iceland. 65 Benchmark Holdings plc | Annual Report 2017 | Strategic ReportSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONLEADERSHIP TEAM Driving efficiencies for our customers requires collaboration, progression and strong leadership. Post-year end there was a re-organisation of the management team to further strengthen leadership and communication, extract synergies and drive efficiencies in supply and better serve our customers as a one-stop shop. The Operations Board is now made up of representatives from each division and key group functions. Alongside this, functional working groups have been launched for the following key areas — account management; supply chain; R&D and innovation; marketing; finance and strategy execution and business growth. Malcolm Pye Chief Executive Officer Mark Plampin Chief Financial Officer Athene Blakeman Company Secretary and Group Legal Counsel PLC EXECUTIVE BOARD OPERATIONS BOARD Jan-Emil Johannessen Head of Genetics Date joined: 2014 • Over 30 years’ experience in the salmon industry • Deep-rooted market insight into the food production sector • Strong management and commercial skills Philippe Léger Head of Advanced Nutrition Date joined: 2015 • 35 years’ experience in the aquaculture industry, worked with INVE since its foundation • Strong local relationships with major producers: Europe, S E Asia, China, Latin America, USA • Strong commercial skills with pioneering reputation John Marshall Head of Animal Health Date joined: 2011 • 20 years’ experience in the pharmaceutical industry, former Head of Global Technical Services and Head of European Business unit aquaculture at Novartis • Strong R&D, portfolio development and commercial skills • Significant experience in taking new vaccines and products to market James Banfield Head of Knowledge Services Date joined: 2012 • 20 years’ experience in professional and education-publishing and business development • Strong international strategic skills and experience of B2B and B2C businesses • Experience of managing businesses across geographies: Europe, India, S E Asia, China, Australia, USA Roland Bonney Group Lead, Key Account Management (Benchmark co-founder) Date joined: 2000 • Over 30 years’ experience in the food production sector • Significant M&A experience in Europe, Asia & the Americas • Strong strategy development and execution skills Ivonne Cantu Director of Investor Relations and Corporate Development Date joined: 2017 • 20 years’ experience in corporate finance • Significant experience of financing and capital raising • M&A experience in international markets Anna Winton Head of People Date joined: 2002 • Experience of managing HR departments in various businesses and regulatory environments • Several years experience of operating within international businesses with cultural diversity • Extensive knowledge of acquisition integration 67 Benchmark Holdings plc | Annual Report 2017 | Strategic ReportSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONOUR PEOPLE ONE BENCHMARK Image: Benchmark specialists assess the prevalence of Amobic Gill Disease parasites at our lab in Norway. STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATI ON ‘ One Benchmark’ Diversity and equality Our global team ranges from geneticists, nutritionists, livestock technicians, veterinarians through to auditors, accountants and sustainability officers. Harnessing this expertise across our global operations to drive efficiencies for our customers requires collaboration, communication and upholding robust ethical standards. Workshops were held throughout the year in the UK, Brazil, Thailand and USA as part of our on-boarding process for new employees. During the year a new internal communications platform was rolled out to ensure we remain connected across our different geographies. Work has also continued on the integration of people, systems and process across the Group to drive efficiency, increase effectiveness and provide a consistent external presence. We strive to attract a diverse workforce and provide equal opportunities throughout the business. We aim to conduct our activities without discrimination and value everyone as an individual. Within the Group, there are some differences with regard to the benefits to which permanent and temporary employees are entitled, due to geographies and the number of hours worked. As a minimum, we comply with each country’s employment laws. Beyond this we aim to offer a competitive package of benefits that support and protect our people, are valued by our employees and are appropriate to our local markets. Gender pay The introduction of mandatory gender pay gap reporting in England, Scotland and Wales is a positive step for diversity and gender equality and will likely lead to increased transparency. Whilst Benchmark is not obliged to report on this issue, as we do not have 250+ people employed at one site, we believe the potential benefits of reporting on gender pay will give us: • Greater understanding of where we need to take action • Access to a far wider reaching talent pool • A different way of thinking around diversity and inclusion more widely in the workplace • Reduced risk of equal pay claims and attrition. We intend to report on the gender pay gap within the UK in April 2018. We will also review the gender pay gap within our overseas companies. This is an area that we take very seriously. More than 50 per cent of our employees are women and we continue to recruit women into senior roles. VALUES 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. A series of global vision and values workshops continued throughout the year to ensure that all of our people feel empowered to ‘live’ the Benchmark values. Our global values define our culture as a business: Brave & Ambitious We challenge the status quo to create understanding, opportunity and innovation. Focused We are clear on our vision and know what success looks like. Practical We deliver the day job, we keep it simple, we are honest and straightforward. Collaborative None of us are as good as all of us. Courteous & have Fun Our manners matter, our humour helps. Benchmark Holdings plc | Annual Report 2017 | Strategic Report 69 RECOGNITION OFC & RASE Science & Innovation Award, UK Reducing motorcycle fatalities and injuries, Thailand Won in January 2017 by Benchmark Veterinary surgeon, Ruth Clements, in recognition of Benchmark's 5-Point Plan to tackle lameness. Our factory in Phichit was the only non-government organisation to achieve 100 per cent compliance in this important government scheme. ECO Factory Award, Thailand Our factory in Phicit scooped ‘ECO Factory Award’ at the ECO Innovation Forum for excellence in safety, sustainability and positive contribution to the local community. London Stock Exchange’s 1000 Companies to Inspire Britain Benchmark was delighted to be included in the LSE’s 2017 report alongside so many exciting UK companies. BENCHMARK AWARDS During the year, Benchmark launched a number of awards to recognise and drive excellence in aquaculture. Outstanding Health and Safety, Thailand British Veterinary Association Chiron Award For the second consecutive year, our advanced nutrition facility in Thailand received the provincial “Outstanding Occupational Health and Safety” award. Awarded to Benchmark co-founder and Director, Ruth Layton, for services to the international veterinary profession. UK marine aquaculture awards Three brand new categories were added to the Scottish Marine Aquaculture Awards, including ‘Shellfish Farm Manager of the Year’, ‘Rising Star Award’, and the ‘Peoples Choice Award’. Best Dissertation on Aquaculture and Fisheries Master of Science in Aquaculture award In partnership with Swansea University’s Centre for Sustainable Aquatic Research, awards were presented to Toby Champneys and Alice Wren for their dissertation on Nile tilapia, plaice and common sole. Our inaugural Master of Science in Aquaculture was presented to MSc student, Bipul Kumar Dey, at the University of Ghent. 71 Benchmark Holdings plc | Annual Report 2017 | Strategic ReportSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONFY17 FINANCIAL REVIEW SOLID FINANCIAL PROGRESS Good progress in trading results for Benchmark's two largest divisions secured financial progress for the Group despite some end market challenges and the decline in sales of mature products. Mark Plampin Chief Financial Officer STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATI ON Financial highlights • Revenue increased by 28% to £140.2m (2016: £109.4m) • Like for like1 sales, including 12 month comparative figures for businesses acquired in 2016, increased by 13% • 47% growth in salmon genetics sales resulting from customer demand and the success of new products launched • Adjusted EBITDA increased by 9% to £10.0m (2016: £9.2m). • Loss for the year reduced by 61% to (£7.1m) (2016: (£18.3m)) • £21.5m investment in state-of-the-art additional production capacity in health products and genetics • Like for like1 21% growth in nutrition products driven by increased market share and demand for higher margin live feed replacement and health diets • Net debt increased as expected, to £23.9m including £6.0m of ringfenced non-recourse debt used to part fund genetics capital expenditure • Sales of health products reduced by 39% due to lower demand for mature products • Total investment in R&D increased by £2.0m to £15.2m (of which £13.1m was expensed in the income statement and £2.1m was capitalised) but reduced as a percentage of sales to 11% (2016: 12%) reflecting reduced rate of increase in spend £m Total revenue Gross profit Gross profit percentage Research and development costs Operating expenses Adjusted EBITDA Exceptional including acquisition related items Loss before tax Basic loss per share (pence) 2017 2016 140.2 109.4 62.4 45% (13.1) (39.3) 10.0 5.6 (8.1) (1.4) 50.8 46% (11.7) (29.9) 9.2 (13.1) (22.4) (4.4) We continue to use adjusted results as our primary measures of financial performance. In line with many of our peers in the sector we highlight expensed R&D on the face of the income statement separate from operating expenses. Furthermore, we report earnings before interest, tax, depreciation and amortisation (“EBITDA”) and EBITDA before including exceptional and acquisition related items (“Adjusted EBITDA”). We believe that this enables a better understanding of the investment we are making in the future growth of the Group and provides a better measure of our underlying performance. This is how the Board monitors the progress of the Group. 1 Like for like includes three months’ preacquisition results from unaudited INVE Aquaculture Group management information and unaudited eleven months proforma results for Genetica Spring SAS in the comparative period. See Financial Review Section page 74. 73 FINANCIAL REVIEW Like for like As an acquisitive group, we also make reference to “like-for-like” measures to adjust for the different periods of ownership of new acquisitions and to show the underlying performance of the group. For FY17, like for like includes three months’ preacquisition results from unaudited INVE Aquaculture Group management information and unaudited eleven months proforma results for Genetica Spring SAS in FY16 as shown in the tables below: Like for like — Group Revenue 2017 £000 2016 £000 140,172 109,375 Adjusted EBITDA2 10,039 9,228 Operating loss (7,662) (20,471) Loss before taxation (8,100) (22,384) 11 months FY16 proforma Genetica Spring £000 3 months pre-acquisition INVE £000 Revised 2016 £000 60 (970) (1,147) (1,147) 14,242 123,677 1,763 10,021 1,147 (20,471) 1,148 (22,383) LFL £000 13% 0% (63)% (64)% Like for like — Advanced Nutrition 2017 £000 2016 £000 3 months pre-acquisition INVE £000 Revenue 83,659 55,024 14,242 Adjusted EBITDA2 17,681 15,864 Operating profit/loss 1,082 4,481 1,453 837 Revised 2016 £000 69,266 17,317 5,318 LFL £000 21% 2% (80%) Like for like — Genetics Revenue 2017 £000 2016 £000 30,530 20,717 Adjusted EBITDA2 5,785 1,385 11 months FY16 proforma Genetica Spring £000 60 (970) Revised 2016 £000 20,777 LFL £000 47% 415 1,294% Operating profit/loss 9,460 (3,648) (1,147) (4,795) 297% 2 Adjusted EBITDA — Earnings before tax, interest, depreciation and amortisation before exceptional including and acquisition related items. See Financial Review Section on page 73. Revenue Group revenue increased by 28% to £140.2m in the year (2016: £109.4m). The increase results from: • £28.6m from growth in our Advanced Nutrition business driven by increased market share and demand for higher margin live feed replacement and health diets plus the inclusion of a full year’s sales of the INVE business (vs nine months of trading post acquisition in 2016); • Strong growth in salmon genetics sales resulting from customer demand and the success of new products launched; • Offset by reduced sales of health products due to lower demand for the now mature sea lice treatment Salmosan®. On a like for like basis sales increased by £16.5m (13%) and the Advanced Nutrition division delivered an increase of 14.2m (21%). Group Revenue by Division Animal Health Knowledge Services* Genetics Advanced Nutrition *Sustainability Science Division and Technical Publishing Division £140.2m Adjusted EBITDA Group Revenue 2017 2016 £109.4m Group Revenue by Division 28.6 140.2 -0.5 109.4 9.8 2.6 -9.7 160 140 120 100 80 60 40 20 m £ 0 2 0 1 6 R evenue K no wledge S ervices* Anim al H ealth Advanced N utrition G enetics 2 0 1 7 R evenue C orporate *Sustainability Science Division and Technical Publishing Division Adjusted EBITDA increased by 9% to £10.0m (2016: £9.2m). On a like for like basis 2016 Adjusted EBITDA was £10.0m Benchmark Genetics delivered strong growth in Adjusted EBITDA with increased sales volumes and average sales prices for salmon eggs being the main drivers. The valuation of biological assets increased by £4.2m driven by the growth in sales in the year and strong order book at the year end. This supported strong growth in gross margins for the division and, after expensed R&D of £2.7m (2016: £2.2m), Adjusted EBITDA grew by 314% to £5.8m (2016: £1.4m). Advanced Nutrition experienced lower growth rates in the first half year but key markets continued to recover through the second half. This recovery aided strong growth in higher margin live feed replacement and health diets. Market prices for some live feed products were impacted by significant oversupply in Asia and this resulted in reduced gross margin from this product category. An exceptional bad debt provision of £1.1m was made in the year for a single debtor related to sales made in 2016. After this provision and after expensed R&D of £3m (2016: £1.3m) the division reported Adjusted EBITDA of £17.7m (2016: £15.9m — nine months post acquisition). 2016 like for like Adjusted EBITDA was £17.3m. Animal Health is in a phase of transition with a targeted increase in investment in new products that will deliver future organic growth set against a backdrop of reduced demand for existing mature products. Investment in expensed R&D reduced to £7.3m (2016: £8.3m) reflecting careful management of spend and the fact that an increasing proportion of R&D has to be capitalised as more pipeline products approach full launch. The division reported an increased Adjusted EBITDA loss of (£11.6m) (2016: loss of (£4.2m)). 75 Benchmark Holdings plc | Annual Report 2017 | Strategic ReportSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONKnowledge Services reported a reduced Adjusted EBITDA loss of (£0.9m) (2016: loss of (£1.4m)) as a result of increased R&D trials revenue and cost control. Total Group operating costs (excluding expensed R&D) increased by 32% to £39.3m (2016: £29.9m). This increase reflects the impact of including a full year of INVE’s costs, a reduced credit from forex gains and a key driver of the balance was an increase in average headcount from 703 in 2016 to 881 in 2017. Year end headcount was 952 (2016: 884). Adjusted EBITDA bridge by Division 10.0 1.5 1.8 4.4 12.0 10.0 9.2 m £ 8.0 6.0 4.0 2.0 0.5 -7.4 0 K no wledge S ervices* 2 0 1 6 Adjusted E BIT D A Anim al H ealth Advanced N utrition G enetics C orporate 2 0 1 7 Adjusted E BIT D A *Sustainability Science Division and Technical Publishing Division Adjusted EBITDA by Division Investment in expensed R&D increased by £1.4m to £13.1m (2016: £11.7m). This represents a lower level of increase than in past years as R&D was carefully managed to ensure it is aligned with revenue growth and an increase in capitalised R&D as investment is more focused on products in the final stages of development. As a consequence R&D as a percentage of sales fell to 9% (2016: 11%). Total investment in R&D (including capitalized development costs) as a percentage of sales also fell to 11% (2016: 12%). A net credit of £5.6m from exceptionals including acquisition related items is mainly due to the impact of the assessment of the likely level of payment of acquisition earnout liabilities and forex movements on those liabilities. In 2016, exceptional including acquisition related items were costs of £13.1m, principally due to the acquisition costs related to the purchase of INVE Aquaculture in December 2015. As a result of the above, EBITDA was £15.7m for the year (2016: loss of £3.9m). Headcount 2017 2017 2016 952 884 Investment in R&D (including capitalised development costs) 2017 2016 £15.2m £13.2m 17.7 Net finance costs 20.0 15.0 10.0 5.0 0.0 -5.0 -10.0 m £ 5.8 -0.9 -0.9 -11.6 -15.0 Anim al H ealth K no wledge S ervices* Advanced N utrition G enetics C orporate The Group incurred net finance costs of £0.5m during the year (2016: net finance costs of £2.2m). Interest charged on the Group’s revolving credit facility was £1.7m (2016: £0.9m) reflecting both a full year of interest in 2017 (compared to nine months in the previous year) and a higher level of net debt during the year. The facility incurs interest in the range of 1.9% to 3.0% over LIBOR. During the year, a foreign exchange gain of £1.2m arose due to the movement in exchange rates and has been included within finance costs (2016: £5.0m foreign exchange loss). In 2016, there was also an exchange gain of £3.7m on a foreign currency hedging instrument entered into to fix the US dollar consideration paid on the acquisition of INVE Aquaculture B.V. *Sustainability Science Division and Technical Publishing Division Statutory loss before tax Adjusted EBITDA 2017 2016 £10.0m £9.2m The loss before tax for the year at £8.1m is an improvement of £14.3m on the prior year (2016: loss of £22.4m). The impact of the improved trading outlined above was offset by higher depreciation and amortisation charges of £23.4m (2016: £16.6m) due to a full year of charge on the assets acquired in the prior year. Taxation Intangibles There was a tax credit in the period of £1.0m (2016: credit £4.0m). The largest elements of this relate to overseas tax charges in the Genetics division of £1.7m and in the Advanced Nutrition division of £3.7m, offset by deferred tax credits of £5.6m, mainly on intangible assets arising on consolidation from recent acquisitions. No deferred tax assets have been provided on any losses made in the period. Capitalised R&D increased by £0.7m to £2.1m. R&D costs related to products that are close to commercial launch have to be capitalised when they meet the requirements set out under IFRS. As Benchmark goes through a period of an increasing number of new products approaching launch this capitalisation will be an increasing feature in the mid-term. Earnings per share Basic loss and diluted loss per share were both 1.43p (2016: loss per share -4.39p). The movement year on year is due to a combination of the improved result for the year as noted above, and the higher average number of shares in 2017 due to a full year of the new shares issued in the equity raise used to fund the acquisition of INVE. Basic EPS 0 -1 -2 -3 -4 e c n e P -5 2.0 -1.4 0.9 -4.4 B asic EP S 2 0 1 6 Im pact of Increased Im pact of Increased N o. of S hares B asic EP S 2 0 1 7 Earnings Basic EPS from Adjusted EBITDA 2.2 -0.4 0.1 1.9 2.5 2.0 1.5 1.0 0.5 e c n e P 0 Im pact of Increased Im pact of Increased EP S fro m Adjusted N o. of S hares E BIT D A 2 0 1 6 EP S fro m Adjusted E BIT D A 2 0 1 7 Earnings Capital expenditure Capital expenditure additions of £36.1m (2016: £18.7m) includes £20.5m cash investment on the ongoing construction of the new salmon egg production facility in Norway. Cash flow Net cash flow from operations was an increase of £13.4m (2016: outflow £10.5m) due to the improved EBITDA in the period, and the high acquisition costs incurred and a corresponding increase in working capital in the prior year. Proceeds from increased borrowings of £5.9m were used to part fund some of the capital expenditure outlined above, with total cash outflow on tangible and intangible capital additions totalling £35.2m (2016: £20.2m). Cash at the period end stood at £18.8m (2016: £38.1m) with net debt finishing the year at £23.9m (2016: net cash £0.4m). Movement in Net Debt 16.4 0.4 m £ 20.0 15.0 10.0 5.0 0.0 -5.0 -10.0 -15.0 -20.0 -25.0 -30.0 0.9 -35.2 0.1 -4.6 -2.0 -23.9 Investm ents N et cash FY 1 6 Interest and tax C ash generated fro m operations FX on cash borro wings C apital expenditure Other N et debt FY 1 7 Dividends No dividends have been paid or proposed in the year (2016: £nil) and the Board is not recommending a final dividend in respect of the year ended 30 September 2017. Biological Assets A feature of the Group’s net assets is its investment in biological assets, which under IAS 41 are stated at fair value. At 30 September 2017, the carrying value of biological assets was £16.5m (2016: £11.9m). The movement in the overall carrying value of biological assets is due principally to the increase in sales of and future orders for the Company’s salmon eggs. Liquidity and net debt The Group’s finance function is responsible for sourcing and structuring borrowing requirements. The Group had £42.7m in bank borrowings at the end of the year. Reported debt includes £6m in relation to the funding of the Group’s new salmon egg production facility in Norway. This is ringfenced debt without recourse to Benchmark. The key revolving credit facility has a maximum drawdown of £54m and a total of £38m had been drawn at the year end leaving sufficient headroom to meet normal funding requirements in the medium term. Net debt increased to £23.9m during the year as planned as available capital was invested in R&D and production capacity. 77 Benchmark Holdings plc | Annual Report 2017 | Strategic ReportSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONRISK MANAGEMENT Systems for risk management Taking calculated risks is an important part of the Group’s business, and significant focus is given at Board level to the key risks affecting the business, including risk mitigation within the Group’s long-term strategy. The Board also discusses risks over which the Group has limited control, including biological and climatic factors which may affect the Group and its customers. During FY17, the Group continued to operate its established risk management framework, which is designed to make management of risk an integrated part of the organisation. The diagram visualises the Group’s framework for risk identification, assessment, and mitigation. This involves a bottom-up approach in which local management lead the identification, assessment and mitigation of risk, within the context of the Group’s framework for risk management and guidelines regarding risk appetite, with focus being placed on risks capable of having an effect at Group level. The implementation of the Group’s risk management framework is led by the Chief Financial Officer, with the support of external consultants, and the Board is ultimately responsible for oversight of the Group’s risk management systems, with the Audit Committee acting as a reviewing committee. During FY17, the Audit Committee received reports from the Chief Financial Officer regarding risk management, and from the Group’s auditors regarding financial and management controls. No major issues were identified, and the auditors’ recommendations in relation to certain non-material matters were implemented, with external advice being taken where appropriate. Actions to mitigate risk were progressed; an overview of actions taken in respect of the more significant risks affecting the Group is set out in the diagram on the right. Risk appetite The Group has determined not to make any amendments to its risk appetite statement, which is set out below: 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 commensurate with the potential rewards on offer. This risk appetite statement is supported by guidelines for risk appetite in various areas, which have been reviewed and approved by the Board. Bottom-up risk review PLC risk register Risks are identified in a bottom-up process involving local management, resulting in a risk register for each business. 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. 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. A S S E S S M E N T A N D E V A L U A T I O N M I T I G A T I O N Actions 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. Risk appetite 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. 79 Benchmark Holdings plc | Annual Report 2017 | Strategic ReportSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATION PRINCIPAL RISKS AND UNCERTAINTIES Action to mitigate significant risks and uncertainties In our 2016 Annual Report, we set out the principal risks and uncertainties to which the Group is subject. During FY17, we focused on assessing the principal risks and uncertainties in more detail, and implementing actions and establishing systems to ensure appropriate mitigation of these. The areas of focus included: Risk category Risk and uncertainty Mitigating factors Licences and accreditations Failure to obtain or retain licences for key existing or new products, R&D facilities or production sites could lead to reduced sales or restrictions on sales growth. The Group sells products and services into over 70 countries globally, many of which are regulated. During FY17, we undertook a programme of reviewing existing product portfolios and pipeline products to evaluate regulatory compliance and anticipate shifts in policy and regulation. In response to this review, resource was added to the product regulation teams to handle an increasing number of new product launches, solutions identified for specific issues, and an improved system for linking the R&D, operational, regulatory, commercial and marketing aspects of new product development launched within the Advanced Nutrition division. 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. Our product pipeline continues to be carefully managed and prioritised to ensure an appropriate balance of risk of failure against investment for future growth. There are risks associated with product development and achievement of timeframes, which the Group seeks to mitigate through its project management systems. A new Chief Scientific Officer is being recruited to strengthen the Group’s R&D and innovation function and to ensure full exploitation of opportunities for cross divisional synergies in this space. Development of resistance to some existing products would lead to reduced efficacy. Supply chain and production Delayed launch or under-utilisation of laboratory, manufacturing or R&D facilities resulting in reduced return on investment. In anticipation of resistance to the Group’s first sea lice medicine Salmosan® developing in the field, the Company has over several years generated a next generation sea lice treatment. The new treatment is showing 100 per cent efficacy against sea lice in commercial field trials and has excellent environmental credentials, as all detectable traces of medicines are removed from the treatment water prior to it being discharged into the ocean. The Group has a strategy of mitigating supply chain risk in its growing vaccine portfolio by establishing in-house manufacturing, as there is limited external capacity in this sector, and in FY17 commenced first commercial scale production at its new Braintree Biotech Building. The new building is a state- of-the-art EU GMP vaccine antigen manufacturing facility with the capability to support the technology platforms required by Benchmark’s vaccine portfolio, including recombinant constructs. The building completed its first commercial production and is in the final stages of qualification. Utilisation of the Group’s in-house aquaculture R&D facilities has increased again in FY17; the new facilities at Ardtoe are now almost fully on line and while further optimisation is being completed there is 100 per cent capacity scheduled FY18. The group’s dedicated warm water facility within FVG Thailand has increased capacity and biosecurity providing the group year round challenge facilities for shrimp and warm water fish species. The utilisation here is increased with 24 hour working and 100 per cent utilisation by Animal Health and Advanced Nutrition. Trials from these facilities have advanced several warm water products as well as Ectosan® in FY17 and are scheduled to accelerate more than half the pipeline in FY18. Reliance on third parties to provide some raw materials and manufacturing services could lead to restrictions in supply. A new cross divisional functional group has been established to review the Group’s supply chains (being the process from procurement through manufacturing to delivery to customer), with the aim of identifying opportunities for efficiency, operational improvements and synergies. Disease outbreaks at sites with breeding programmes or live stocks could result in reduced revenues, reputational damage and potential product liability claims. Financial Limited diversity of revenue streams presents a risk of volatility in sales. The Group is aware of the risk of disease outbreaks at sites with breeding programmes and live stocks and has implemented a number of initiatives to mitigate this risk. The Group’s Genetics division needs to grow its production capacity to meet market demand. Growth is planned having regard to the need to replicate broodstock to ensure that in case of complete or partial stock loss, the genetic value in the breeding programme is preserved. The new SalmoBreed Salten land based salmon facility in North Norway, which commenced construction at the start of FY17 and received its first stock in November 2017, will hold the primary nucleus of the Group’s salmon breeding lines. Projected growth in the Group’s tilapia and shrimp production is being designed with these risks in mind, and will ensure that copies of breeding lines are held at multiple sites. In addition, the Group’s approach to insuring biological assets will be reviewed in FY18, to ensure that the policies taken remain appropriate for the Group’s growing portfolio of biological assets. As the Group has grown, its revenue streams have increasingly diversified and this has improved its ability to withstand individual market or product challenges. Benchmark now operates across the aquaculture supply chain in several species, both in cold and warm water. The Group’s strategy is targeted to exploit the growth opportunity in aquaculture and the focus on organic growth through launching new products into and expanding presence in existing markets will deliver further diversification. 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 pounds sterling. 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. Debt facilities include financial covenants related to leverage and interest cover which, if breached, could lead to reclassification of debt as "within one year" and to the requirement to refinance on uncertain terms. 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. The Group maintains short and long-term cash flow projections to ensure sufficient liquidity is available to meet foreseeable requirements. The Group’s budgeting and forecasting process includes focus on financial covenants to ensure adequate headroom is maintained. Since inception of the facility strong relationships have been maintained with the Group’s bankers. During 2017 regular meetings were held with the banks to keep them briefed on developments in the business. There is a productive and proactive relationship between the Group and its bankers. Risk category Risk and uncertainty Mitigating factors People Failure to recruit, retain or replace employees with skills key to the success of the business. Our ability to recruit and retain highly skilled people continues to be of high strategic importance. We take a multi-channel approach to recruitment, involving trusted recruitment partners, direct advertising and use of our own networks as appropriate to the role and local market. A key project commencing in early 2018 is to develop a systematic process for succession planning across the Group. This is one element of our approach to retaining critical knowledge, skills and experience within the Group and will help us develop our teams and mitigate any loss of key employees. 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. A strong safety representative structure has been established and every employee signed up to the Benchmark commitment to health and safety. Throughout the year communication channels have been established to give employees globally the opportunity to engage with health and safety, report concerns and share best practice. The year culminated with Benchmark’s first Global Safety Day, where managers and their teams explored health and safety in their workplace and generated improvement action plans. Intellectual property 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. 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. Intellectual property rights are fundamental to supporting the technologies, services and products the Group delivers to the industry, and to its success. The Group’s IP strategy focuses on ensuring that we have freedom to operate in the areas the business requires, that we capture and protect IP including through patenting and in-licensing, that we appropriately utilise IP by developing knowledge and promoting value realisation, and that we build and protect brand equity by securing and enforcing our trademarks. In FY17, the Group increased its campaign of prosecuting competitors which infringe its patents, some of which actions are settled by entering into licensing arrangements to ensure we capture value from these assets. We also invested by strategically enlarging the Group’s patent portfolio by over 25 per cent, primarily through filing new patent applications, focused on new aquaculture vaccines, pharmaceuticals, diagnostics and supporting technologies. 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. Fire risk assessments have been completed at key sites. Actions taken to reduce the identified risks include improvements in fire prevention and emergency response capabilities. The Group HSE Manager has performed audits at the majority of the Group production facilities. Policy changes have been made to ensure the potential for, or incidents of, damage to assets is an integral element of reporting procedures and health and safety initiatives. 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. 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. 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. As the Group’s portfolio of products and services grows, and opportunities for cross selling between divisions are implemented, the Group’s exposure to reputational risk associated with failure of products also increases. The Group has a strong Operational Board, close relationships between its divisional heads, and for key customers systems for communication at all levels of the organization through its Key Account Management programme. This structure ensures good communication and coordinated management of customers, allowing for better management of these relationships, both as regards risks and optimisation of opportunities. Synergies One of the Group's key strategies is to extract synergies between operating divisions and failure to manage this effectively could inhibit growth. Brexit The Board continues to monitor and assess the impact of the UK’s decision to leave the European Union. Whilst the decision to leave the EU will affect UK trade agreements and relevant European legislation, we do not anticipate changes to our business model in the near to medium term. The Group has reviewed and implemented changes to its management structure in order to optimise the identification and exploitation of cross divisional synergies. Details of the new structure are set out in the leadership section of this Annual Report on pages 84 to 86. The streamlined Operational Board is focused on optimising cross-divisional synergies; functional groups have been established to optimise synergies across R&D and innovation, supply chain and operations, key account management and marketing; key revenue streams for FY18 are reported on regularly to ensure focus on delivery; and a Strategy Execution and Business Growth team has been established to assist the business in delivering its strategic goals. Benchmark’s current view on the possible impact is: • Trading — Most of Group’s operations and sales do not involve EU countries, so the impact on trading of the result of the referendum are expected to be limited. • Exchange rate volatility — A large proportion of the Group’s sales are transacted in US dollars and volatile GBP exchange rates may lead to increased exchange gains or losses. However, these are, to an extent, naturally hedged by raw materials sourced in US dollars and by Benchmark’s US dollar denominated borrowing facility. • Regulatory environment — Changes to regulation, including product registration, will be an area of focus as the new trading environment becomes clear. Our international footprint gives the Group flexibility to mitigate the effects of any potential material changes. • Workforce mobility — Our ability to employ specialist professionals may be affected by changes to immigration and employment rules. We will monitor developments in this area to ensure we maintain an effective system for planning people resources. The Strategic Report was approved by the Board on 23 January 2018 and signed on its behalf by Malcolm Pye Chief Executive Officer 81 Benchmark Holdings plc | Annual Report 2017 | Strategic ReportSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATION02 GOVERNANCE 84 Introduction to the Board 86 Leadership 90 Effectiveness 93 Accountability 97 Remuneration 102 Shareholders 102 Directors’ Report 106 Directors’ Responsibility Statement STRATEGIC REPORT GOVERNANCE FINANCI AL STATEMENTS ADDITIONAL INFORMATI ON While working in the highlands as a vet I became increasingly interested in aquaculture. After finishing my Masters in Aquatic Vet Studies, I moved back, joined Benchmark’s Fish Vet Group and I haven’t looked back. Chris Matthews Fish Vet Group Operations Director Inverness 83 BOARD OF DIRECTORS DIVERSE LEADERSHIP Malcolm Pye Chief Executive Officer Appointed: November 2000 Independent: No The depth of knowledge, broad scientific skills and commercial experience of our directors ensure we recognise and extract the synergies we need to succeed. 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. Malcolm co-founded Benchmark in 2000 and has since led the Company’s growth and diversification. Malcolm has a degree in Zoology/Applied Zoology from the University of Wales (Bangor). Mark Plampin Chief Financial Officer Appointed: March 2010 Independent: No 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 Chairman Nomination Committee (Chair) — Audit Committee Appointed: December 2013 Independent: Yes 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. Yngve Myhre Non-executive Director Appointed: November 2017 Independent: Yes Skills, competence and experience: Yngve has more than 20 years’ experience in the aquaculture sector as a senior executive, adviser and investor. Yngve was Chief Executive of leading Norwegian salmon producer SalMar, and of international white fish supplier Aker Seafood during periods of successful growth. Yngve has a very strong track record in Benchmark’s focus area of aquaculture, both in the Norwegian and international markets. Other roles: Yngve is Chairman of Chilean salmon producer Nova Austral, and sits on the boards of Mediterranean fish producer, Andromeda, and Norwegian aquaculture research institute, Nofima. Yngve also acts as a strategic adviser to investors in the aquaculture sector. STRATEGIC REPORT GOVERNANCE FINANCI AL STATEMENTS ADDITIONAL INFORMATI ON Kevin Quinn Non-executive Director Audit Committee (Chair) — Remuneration Committee Appointed: November 2016 Independent: Yes Skills, competence and experience: Kevin is a qualified Chartered Accountant with over 30 years' financial experience in international business and the biosciences industry, including with FTSE 100 companies. Kevin was Chief Financial Officer at Berendsen plc, the leading FTSE 250 European textile service business, until the takeover of Berendsen by Elis SA in September 2017. 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. Hugo Wahnish Non-executive Director Appointed: November 2017 Independent: Yes Skills, competence and experience: Hugo has over 35 years’ experience in the animal health and pharmaceuticals industry, firstly with GlaxoSmithKline, and more recently with Merck during a major growth period. Hugo was Chief Commercial Officer Animal Health at Merck, with responsibility for Merck’s commercial operations worldwide. Hugo brings a wealth of international experience to the board of Benchmark, alongside his expertise in aggressively growing businesses and in the commercialisation of medicines and animal health products. Other roles: Hugo has acted as an independent senior advisor with several multinational companies, private equity groups and consulting firms, primarily in the animal health sector. Susan Searle Senior Independent Director Remuneration Committee (Chair) — Nomination Committee Appointed: December 2013 Independent: Yes Skills, competence and experience: Susan has over 25 years’ experience working with entrepreneurs and academic inventors in the commercialisation of university research. Susan co-founded Imperial Innovations Group plc (now owned by IP Group), 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. She has investment and M&A experience in healthcare and technology companies. 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. Appointed: September 2014 Independent: No Skills, competence and experience: Athene is a qualified Solicitor with over 13 years’ experience. Having previously worked in Slaughter and May and Travers Smith’s corporate finance teams, Athene joined Benchmark in 2014. Athene is responsible for the Group’s legal and intellectual property functions globally, including compliance, M&A and joint ventures, share schemes, commercial and other contracts, capture and utilisation of IP, disputes, and management of legal risk. Athene holds an MA in Jurisprudence from St John’s College, Oxford. Athene Blakeman Company Secretary and Group Legal Counsel Board Committees Audit Committee Kevin Quinn (Chair) Alex Hambro Nomination Committee Alex Hambro (Chair) Susan Searle Remuneration Committee Susan Searle (Chair) Kevin Quinn In July 2017, Roland Bonney, formerly Chief Operating Officer, stepped down from the Board for medical reasons. In light of the Group’s strong focus on aquaculture, the significance of its pipeline of products and technologies, and its rapid geographic expansion, the Nomination Committee determined to further strengthen the Board with Non-Executive Directors having dedicated aquaculture, pharmaceutical and international industry expertise. Hugo Wahnish, who has a strong track record in international pharmaceuticals, and Yngve Myhre, who has extensive expertise in aquaculture in Norway, Chile and the Mediterranean, were both appointed to the Board shortly after the year end (November 2017). The Company intends to appoint a Chief Scientific Officer to the Board during 2018. Benchmark Holdings plc | Annual Report 2017 | Governance 85 LEADERSHIP Governance framework Benchmark’s governance framework 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 102 to 105. Board of Directors of Benchmark Holdings plc Chair, Non-Executive Director Alex Hambro Senior Independent Non-Executive Director Susan Searle Non-Executive Directors Chief Executive Officer Chief Financial Officer Company Secretary Kevin Quinn Hugo Wahnish Yngve Myhre Malcolm Pye Mark Plampin Athene Blakeman Audit Committee Nomination Committee Remuneration Committee Kevin Quinn (C) Alex Hambro Alex Hambro (C) Susan Searle Susan Searle (C) Kevin Quinn Operations Board Chief Executive Officer Chief Financial Officer Heads of Division • Advanced Nutrition • Genetics • Animal Health • Knowledge Services Heads of cross-Group functions • Key Account Management • Group Legal Counsel • Investor Relations • Head of People Malcolm Pye Mark Plampin Philippe Leger Jan-Emil Johannessen John Marshall James Banfield Roland Bonney Athene Blakeman Ivonne Cantu Anna Winton Advanced Nutrition Board Genetics Board Animal Health Board Knowledge Services Board Executive Directors Executive Directors Executive Directors Executive Directors Head of Division Head of Division Head of Division Head of Division Senior management of businesses in division Senior management of businesses in division Senior management of businesses in division Senior management of businesses in division The Group is currently in the process of recruiting a Chief Scientific Officer, who will join the Board of Directors of the Company. The roles of the Board of Directors of Benchmark Holdings plc, the Operations Board, and the Divisional Boards are as follows. Board of Directors of Benchmark Holdings plc Responsible for the long-term success of the Group, overseeing the development and delivery of strategy, financial performance, and conduct of the business, in order to generate sustainable value for shareholders. The Executive Directors are responsible for the delivery of strategy, business operations, risk management, and ensuring that the right financial and people resources are in place to achieve the Company’s aims. The Non-Executive Directors are responsible for assisting in the development of and constructively challenging strategy, overseeing the performance of management, satisfying themselves that financial controls and risk management systems are robust, and safeguarding the integrity of financial information, determining the Directors’ remuneration, and succession planning for the Executive Directors and senior management. A formal schedule of matters reserved for the Board is maintained and communicated throughout the Group with regular training, to ensure that decisions which are significant due to their strategic, financial or reputational implications are reserved for approval by the Board. The column to the right lists the key areas of decision-making reserved for the Board. Operations Board Responsible for developing and delivering cross-Group opportunities, revenue and costs synergies, advancing integration, and overseeing the financial and operational performance of the Group as a whole. Divisional Boards — Advanced Nutrition; Genetics; Animal Health; Knowledge Services Responsible for the development and delivery of the strategy of the relevant division and its businesses, its financial performance, and the implementation of cross-Group opportunities and synergies. Matters reserved for the Board Strategic 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 • 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, principles of the UK Corporate Governance Code, procedures for regulating dealing in the Company’s shares by its employees and Directors 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 • Approval of interim dividends and recommendation of final dividends Succession planning and reward • Ensuring adequate succession planning is in place • Appointment and removal of Directors on the Board and its Committees, and 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 87 Benchmark Holdings plc | Annual Report 2017 | GovernanceSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONBoard attendance During the year, the Board held 10 scheduled Board meetings and 8 special Board meetings. Individual attendance at the scheduled Board meetings is set out below. A Board dinner is usually held around Board meetings to allow for more informal discussion, and for the Board to spend time with the Company’s senior management team. Around scheduled Board meetings, the Board visited the Group’s Advanced Nutrition and Animal Health manufacturing, diagnostics and trials facilities in Thailand; the Advanced Nutrition headquarters and R&D facilities in Belgium; Knowledge Services research farm in Oxford; and headquarters in Sheffield. Attendance Alex Hambro, Chair Susan Searle, Senior Independent Director Kevin Quinn Non-Executive Director Malcolm Pye, Chief Executive Officer Mark Plampin, Chief Financial Officer Roland Bonney1 Chief Operating Officer Appointment Number of scheduled Board meetings attended in FY17 Maximum possible scheduled meetings in FY17 % of scheduled meetings attended December 2013 December 2013 November 2016 December 2013 December 2013 December 2013 10 10 7 10 10 6 10 10 8 10 10 9 100% 100% 88% 100% 100% 66% 1 Roland Bonney stepped down from the Board in July 2017, and was unable to attend certain Board meetings prior to that date, for medical 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 of interest arising. • Approval of minutes and review action points from previous meetings. • Review of Management Information Pack which includes Group management accounts, outlook, cash flow forecast, financial covenant forecast, share price performance, shareholder and trading report and headcount report. • Receipt of update from the CEO regarding strategic matters and significant developments. • Review of Capex Project Report, tracking expenditure and progress with significant capital investments. In FY17 these reports included the SalmoBreed Salten land based salmon broodstock facility; the Braintree Biotech vaccine manufacturing facility; Ardtoe aquaculture research facility; expansion of the Group’s lumpfish production facilities; and construction of the Genetics division’s salmon smolt facility. • Review of Deal Tracker, updating on potential acquisitions, joint ventures and other exceptional transactions. • Consideration and approval of Matters Reserved for the Board. • Review of Compliance Report, regarding compliance matters, training and initiatives. • Review of People Report, with an overview of headcount, vacancies, management appointments, and updating on other people matters arising. • Review of Health and Safety Report, with an overview of accident and near miss reporting, initiatives, risk assessments, and Health and Safety performance. • Review of Investor Relations Report, summarising announcements, media coverage and other shareholder events. In addition to the standing items, an overview of the principal matters considered by the Board in the year is set out below: • Received report from the Chair of the Audit Committee on the FY16 audit process and principal matters discussed with the auditors. • Reviewed the Group’s risk management framework and risk register and received update on ongoing process for mitigation of key risks. • Reviewed and approved the implementation of the Group’s policy in relation to international economic sanctions. • Received advice from the Group’s auditors regarding the level of D&O insurance. • Reviewed and approved the Group’s tax strategy, and received report on a review of the Group’s transfer pricing policy. • Received updates on key regulatory developments, including the new Market Abuse Regulation and corporate tax offences, and discussed the Group’s plans for compliance. • Received updates on disputes and litigation, including actions taken to protect the Group’s intellectual property. • Received presentation on health and safety from the Group Health and Safety Manager, including near miss and incident reporting, approach to health and safety, higher risk areas, and mitigating action. • Received presentation regarding talent management from the Head of People. Shareholders • Approved the Annual Report and Accounts and Interim Results. • Oversaw the planning and execution of the Company’s Capital Markets Day for investors, and other engagement with institutional investors. • Received reports following meetings with major shareholders involving the Chairman of the Board and Senior Independent Director, throughout the year. Research and development • Received presentations from the Heads of R&D of the Advanced Nutrition division and Animal Health division on the product pipeline, discussing R&D expenditure, the portfolio’s strategic focuses, late stage and major products, timelines to launch, risks, and opportunities. • Received reports on the Advanced Nutrition, Genetics and Animal Health product pipelines on a quarterly basis, providing an overview of the portfolio and updates on progress. Strategy and operations • Received and discussed presentations from the heads of each of the Advanced Nutrition, Genetics, Animal Health and Knowledge Services divisions, covering 3 year strategic plans, synergies, investments, growth opportunities and key risks. • Reviewed and approved the Group budget for FY17. • Received reports on and discussed synergies and cross-group opportunities, across R&D, production, cross-selling and Key Account Management. • Reviewed and approved changes to the Group’s management structure to ensure that the Company has the people and structure required for the next phase of growth and integration. • Received updates from the Head of IP Commercialisation regarding the Group’s intellectual property strategy and discussed the capture and utilisation of IP within the business, key IP assets and risks. • Received regular updates on progress with the development of ground-breaking sea lice treatment and CleanTreat® system. • Discussed the Group’s strategy for growth in the Genetics division, including in shrimp and tilapia, and related opportunities. • Oversaw the process, and approved the renewal, of the Sales and Marketing Agreements with the Great Salt Lake Cooperative. Received regular updates on the Great Salt Lake artemia harvest and the Advanced Nutrition division’s artemia procurement strategy. • Received updates on and discussed the Group’s strategy in relation to China and related proposals. • Reviewed utilisation plan for Benchmark Vaccines including the new Braintree Biotechnology vaccine manufacturing facility. • Discussed strategy in relation to FVG Asia, including movement of the aquaculture diagnostics laboratory in Thailand to reduce overheads and bring all the Group’s Asian trials and diagnostics facilities together in the same region. • Approved the grant of share options pursuant to the Group’s bonus schemes, under which 60.66 per cent of employees hold options in the Company. Governance and risk • Oversaw and approved the appointment of Non-Executive Director and Chair of the Audit Committee, Kevin Quinn. Oversaw the process of recruiting two new Non-Executive Directors with international pharmaceutical and aquaculture expertise, resulting in the appointment of Hugo Wahnish and Yngve Myhre shortly after the year end. Approved the reappointment of Non-Executive Directors Alex Hambro and Susan Searle for a further three year term. 89 Benchmark Holdings plc | Annual Report 2017 | GovernanceSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONEFFECTIVENESS 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. The Nomination Committee comprises: Alex Hambro (Chair) Susan Searle 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 regularly updates, and invites contributions from, the Board. Attendance Appointment Alex Hambro Chair Susan Searle December 2013 December 2013 Number of scheduled Board meetings in FY17 Maximum possible scheduled meetings in FY17 % of scheduled meetings attended 2 2 2 2 100% 100% In addition to the Nomination Committee meetings, several informal meetings and calls were held during the year between the members of the Nomination Committee and other members of the Board, regarding the recruitment and appointment of new Non-Executive Directors. Responsibilities During the year the main responsibilities were: • 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 benchmarkplc.com. Actions undertaken during the year Following a review of the Board composition in FY16, the focus of the Nomination Committee in FY17 was on broadening the experience represented on the Board, in light of the Group’s growth, the diversification of its business and increased presence in global markets. It was recognised that the Board would benefit from increased diversity and dedicated aquaculture, pharmaceutical and international industry expertise. At the start of the year, the Committee finalised the appointment of Kevin Quinn as Non-Executive Director, Chair of the Audit Committee and member of the Remuneration Committee, following the retirement of Basil Brookes for health reasons. The Nomination Committee then initiated a process of recruiting two new Non-Executive Directors, appointing the Zygos Partnership to assist. The Zygos Partnership are signatories to the Voluntary Code of Conduct for Executive Search Firms in Board Appointments which is designed to address gender and wider diversity on boards. The Company set certain requirements for diversity on long lists of candidates, relating to gender and nationality, which were met. The Zygos Partnership has no other connections with the Company. Throughout the process, the Nomination Committee consulted with and involved the Board. Shortly after year end, we were pleased to appoint Hugo Wahnish, who is based in the US and has over 30 years of experience in the international animal health and pharmaceuticals industry, and Yngve Myhre, who is based in Norway and has over 20 years of experience in the international aquaculture sector, to the Board. The Nomination Committee is coordinating and overseeing the induction of the new Directors, including meetings with senior management and site visits during the coming year. Roland Bonney, formerly Chief Operating Officer, experienced ill health during the year and stepped down from the Board in July 2017. The Nomination Committee monitored the situation and exercised oversight over the allocation of his duties to other members of the executive and senior management team. In FY17, the Company undertook a review of its management structure to prepare the Group for the next phase of its development, and the duties formerly held by the COO were considered as part of this process. Roland Bonney has now returned to the business to lead the Key Account Management initiative. The Nomination Committee and the Board discussed and received regular updates regarding the implementation of the new management structure. The changes were designed to clarify the responsibilities of the operational boards for the development and delivery of strategy, drive efficiencies in the supply chain, streamline R&D and innovations activities, drive further integration with a focus on the way the Group interacts with its customers, and improve internal and external communications. The review resulted in a leaner Operational Board, with some key hires focused on strengthening the Group’s commercial operations. Businesses within the divisions have been further integrated, with each divisional Board responsible for development and delivery both of strategy in the division and of relevant synergies and cross-divisional opportunities. A number of new cross-Group functions were established to cement strong relationships and coordinated action between divisions, including Key Account Management; Supply Chain; Chief Scientific Officer; Marketing Director; and a Strategy Execution and Business Growth Team. The new structure is designed to support the delivery of the Group’s strategy, on the basis of the platform that Benchmark has now built, in order to drive value for shareholders. Actions for the coming year In the coming year, the focus of the Nomination Committee will be working with the Remuneration Committee to oversee the establishment of a strategy for and systematic approach to succession planning across the business, including at Board level. We will continue to assess the Group’s performance at management level against diversity metrics, and support the business with initiatives to drive improvement in this area. The Nomination Committee plans to undertake a review of the effectiveness of the Board, a process which was last undertaken in 2015. It will keep the composition of the Board under review to ensure that the size, balance of skills, knowledge and experience remains suitable for the needs of the Company. Board composition The Board comprises seven Directors, a Non-Executive Chairman; Senior Independent Director; three further Non-Executive Directors; and two Executive Directors, the Chief Executive Officer and the Chief Financial Officer. The size and composition of the Board was reviewed during the year by the Nomination Committee and by the Board, and it was determined that in light of the Group’s growth, the diversification of its business and increased presence in global markets, it would be beneficial to bring additional expertise to the Board. The report of the Nomination Committee discusses the process of recruitment and other changes to the Board during the course of the year, which ultimately resulted in the appointment of two new Non-Executive Directors shortly after year end. The Board considers that the composition of the Board remains suitable for the Group, and contains an appropriate breadth and balance of skills, knowledge, experience and independence. Directors’ roles and responsibilities Biographical details for all members of the Board can be found on pages 84 to 85 of this report. There is a clear separation between the roles of Chairman and Chief Executive Officer. Chairman Chief Executive Officer Lead the Board to ensure effective functioning in all aspects of its role 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 Establish an environment which allows the recruitment, engagement, retention and development of the people needed to deliver the Group’s strategy 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 Ensure the provision of information necessary for Directors to take a full and constructive part in Board discussions 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 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 in November 2016, and Hugo Wahnish and Yngve Myhre appointed in November 2017. Kevin has received, and Hugo and Yngve are receiving, a full induction covering all of the above matters. 91 Benchmark Holdings plc | Annual Report 2017 | GovernanceSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONDuring the year, the Board visited the following sites: Independence of Directors FVG Asia Chonburi, Thailand INVE Aquaculture shrimp trials facility Chonburi, Thailand INVE Aquaculture advanced nutrition production facility Phichit, Thailand INVE Aquaculture Dendermonde FAI Farms Oxford, UK Benchmark Holdings plc and Improve International Sheffield, UK Aquaculture diagnostics laboratory (Animal Health division) Aquaculture research centre and trials facility (Advanced Nutrition division) Advanced nutrition manufacturing site (Advanced Nutrition division) INVE Aquaculture headquarters and R&D facilities (Advanced Nutrition division) Working research farm and location of terrestrial vaccine trials facility (Knowledge Services division) Benchmark’s head office, hosting the finance team and veterinary training laboratories (Knowledge Services division) During the year, the Board received presentations from, and discussed strategy with, several members of the management team, including: • The heads of each of the Advanced Nutrition, Genetics, Animal Health and Knowledge Services divisions, regarding three year strategic plans, synergies, investments, growth opportunities and key risks. • The Heads of R&D of the Advanced Nutrition division and Animal Health division regarding the product pipeline, R&D expenditure, the portfolio’s strategic focuses, late stage and major products, timelines to launch, risks, and opportunities. • The Head of IP Commercialisation regarding the Group’s intellectual property strategy and discussed the capture and utilisation of IP within the business, key IP assets and risks. • The information technology team, regarding the Group’s strategy for supporting the business through the coming years. • The Health and Safety Manager regarding health and safety near miss and incident reporting, approach to health and safety, areas of risk, mitigating action, and proposed investment. • The Head of People regarding talent management and personnel development within the workforce. • The Knowledge Services division in relation to opportunities for data analytics across the business, focusing on the developing needs of the aquaculture industry and synergies with other Group products and services. 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 six years are subject to rigorous review. Accordingly, Non-Executive Directors are appointed for a maximum of two terms of three years, and thereafter may serve for an additional period only at the invitation of the Board following scrutiny of their continued independence. During FY17, Alex Hambro and Susan Searle completed their first three year term with the Company, and were each appointed for a further term of three years from 18 December 2016. The periods of service of our Non-Executive Directors are set out below. Name Date of appointment Term Alex Hambro Chair 18 December 2013 4 years, 1 month Susan Searle Senior Independent Director 18 December 2013 4 years, 1 month Kevin Quinn Non-Executive Director Hugo Wahnish Non-Executive Director Yngve Myhre Non-Executive Director 25 November 2016 1 year, 1 month 6 November 2017 2 months 6 November 2017 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, including in relation to the newly appointed Non-Executive Directors. 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, and this principle is enshrined in their engagement letters. 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 Key objective Responsibilities The Committee’s key role is to review and report to the Board on financial reporting and internal financial control effectiveness and to oversee the relationship with the external auditor in order to ensure that the interests of shareholders are properly protected in this regard. Membership, meetings and attendance The composition of the Audit Committee during the year was: • Kevin Quinn (Chair) • Alex Hambro All Committee members are independent Non-Executive Directors. 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. The Audit Committee met four times during the year with all members of the Committee in attendance at each. 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 monitor the integrity of the financial statements of the Group, and to assist the Board in ensuring that the Annual Report and Accounts 2016/17, when taken as a whole, are fair, balanced and understandable; • To consider the adequacy and scope of external audits; • 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 benchmarkplc.com. 93 Benchmark Holdings plc | Annual Report 2017 | GovernanceSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONActions undertaken during the year 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. Valuation of biological assets The Group holds significant biological assets on the balance sheet at fair value less costs to sell, with the valuation dependent on a number of subjective assumptions, including some which relate to future egg sales prices and volumes and seasonal variations. The Committee considered the accounting policy employed by the Group for biological assets, the assumptions used in the valuation calculations and the disclosures provided in the financial statements. The Committee was satisfied with the accounting policy in force and with the judgements applied by management in employing this policy. 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 policies and procedures and to continue to maintain the Risk Register to ensure all risks are appropriately prioritised and addressed. 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 page 78 to 81. Internal audit As the Group evolves and grows, the Committee continues to monitor whether an internal audit function would add significant value as a part of the integrated control environment currently operating. During the year further consideration has been given to this, and although a decision is yet to be made to proceed with internal audit, the form and structure of such a potential function has been investigated. The key activities for the Committee for the period under review are set out below. Presentation of results At the request of the Board, the Committee reviewed the presentation of the Group’s unaudited results for the six months to 31 March 2017 and the audited results for the year to 30 September 2017 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 in the income statement following the growth and evolution of the Group and the acquisition of INVE Aquaculture in the prior year. The board considers the separation of the statutory IFRS results into Trading Activities and Investing Activities no longer to be appropriate, and a single column approach has been adopted, retaining reference to “Adjusted EBITDA” and “EBITDA”. “EBITDA” is “earnings before interest, tax, depreciation and amortisation, and “Adjusted EBITDA” is “EBITDA before exceptional items and acquisition related expenditure”. The board regards this an appropriate way to present the underlying performance and development of the business as it reflects the continuing investment being made by the Group, particularly in relation to recent and future acquisition activity, and this is how the board monitors progress of the existing group businesses. Management override of internal controls 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. 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. Valuation of goodwill and intangible assets The Committee considered the carrying value of the Group’s businesses, including goodwill and intangible assets. The first anniversary of the acquisition of INVE Aquaculture occurred during the year, so management conducted a review of the acquisition values of the assets acquired to ensure their appropriateness. Furthermore, management performed an impairment review on goodwill and other intangible assets held within the Group. The Committee reviewed management’s recommendations, which were also reviewed by the external auditor, including an evaluation of the appropriateness of the identification of cash generating units and the assumptions applied in determining asset carrying values. The Committee was satisfied with the assumptions and judgements applied by management and concluded that no impairment of carrying values was required. 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; • A tax adviser separate from the external auditor is engaged to provide tax related services; • The external auditor may provide audit-related services such as regulatory and statutory reporting as well as formalities relating to shareholder and other circulars; • 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 external auditor may undertake due diligence reviews and provide assistance on tax matters given its knowledge of the Group’s business. Such provision is 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 all fees paid for audit and consultancy services on a regular basis to assess 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 their 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 every 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 one or two years; • Different teams are used on all other assignments undertaken by the auditor; • The Audit Committee monitors these costs in absolute terms and in the context of the audit fee for the year, 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 2017 and information on the nature of the non-audit fees incurred is detailed in Note 1 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 both at business unit and at 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. 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. 95 Benchmark Holdings plc | Annual Report 2017 | GovernanceSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONInternal 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 annual budgets and subsequent reforecasts are formally approved by the Board and monthly variances are reviewed against detailed financial and operating plans. Kevin Quinn Chairman of the Audit Committee 23 January 2018 Where appropriate, the Audit Committee ensures that necessary actions have been, or are being, taken to remedy or mitigate significant failings or weaknesses identified during the year either from internal review or from recommendations raised by the external auditor. 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 2017, the Group installed new consolidation software to increase the efficiency and accuracy of the consolidation process, primarily as a result of the ongoing growth in the Group. This process was run parallel to the previous consolidation system for three months to ensure ongoing accurate reporting. There were no other 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. 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. A risk register is maintained defining each business risk identified and quantifying its likely impact to ensure adequate priority is given to each in turn; • external audit reports, which comment on controls to manage identified risks and identify new ones; and • a confidential whistle-blowing helpline and an email address available for employees to contact the Non-executive Directors in confidence. REMUNERATION Remuneration Report for year ended 30 September 2017 Statement from Susan Searle, Chairman of the Remuneration Committee This year has been focused on further development of the underlying business and its pipeline, extraction of synergies from the acquisitions and infrastructure investments made and the scaling of the organisation and its people. The underlying health of the business for the medium to long-term is strong and many of the actions taken this year position the business well to deliver in the coming years. However, these drivers of value were not reflected in the share price movement experienced by our shareholders with the share price falling significantly following our trading update in September that disappointed the market in respect of 2017 financial performance. This picture was mixed with good growth in revenue, especially in Genetics and Advanced Nutrition but the delay of significant revenue into next year from the launch of Ectosan® in the Animal Health division contributed to a shortfall in that division and lower than expected EBITDA. This reflects the inherent uncertainty in timing of bringing such an innovative new product to market, and we are pleased that post year end the launch is proving very successful and the opportunity is bigger than that of previous new sea lice medicines, with the inclusion of the innovative CleanTreat® system which has wider application. In terms of investments and extraction of synergies, the business has made solid progress. The SalmoBreed Salten project has been extremely well managed and will prove to be a valuable asset in delivering all year round from a fully biosecure environment in Norway. We are pleased that the new vaccine manufacturing facility in Braintree is now in commissioning and with new development products being put through the plant, is moving closer to the original plan for the site. The extraction of synergies from recent acquisitions is a five year program and good progress has been made in a number of areas, especially in the collaboration between shrimp feeding and breeding. The company is well positioned as a leader in aquaculture. Our plans for development of the team were impacted by the absence through illness of Roland Bonney, but with the changes in management organisation we have put in place (as discussed in on pages 66 to 67), the right organisation structure for the future is now set. We are encouraged that some extremely talented people have been attracted into the business and a Chief Scientific Officer will join Malcolm and Mark as an executive director in 2018. Whilst the executives have clearly worked very hard this year in laying down further the right foundations for the business, shareholders have yet to see this reflected in our financial performance and the value creation of an appropriate share price has clearly been deferred. Against this background, the Remuneration Committee determined that, save for a nominal cross company cash bonus of £500, it was more appropriate to allocate a number of market value options, with vesting over three years to the two Executive Directors rather than to award immediate cash bonuses based on the delivery of the medium to long-term objectives. This move has been reflected across the whole organisation. This does two things; it allows cash to be deployed for investment in the longer term opportunities within the business and further aligns executive directors and management to shareholders in the value creation associated with delivery of strategy, stronger financial performance, and share price improvement. Last year, we reported that we had benchmarked salaries with the external market and moved them into the lower end of the comparator band, reflecting the issues discussed above. We have not sought to make any significant change this year and plan to revisit this with an update to the benchmark data when 2018 performance on integration and financial delivery is clear. The Committee has sought to balance the challenge of rewarding executives when progress towards medium to long-term objectives is being made but short-term financial performance and share price performance within the year are more challenging. We believe we have struck the right balance but welcome shareholder feedback. Susan Searle Chairman of the Remuneration Committee 23 January 2018 Remuneration Committee overview The composition of the Remuneration Committee during the year was: • Susan Searle (Chair) • Kevin Quinn 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 97 Benchmark Holdings plc | Annual Report 2017 | GovernanceSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATION • 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 An overview of the Remuneration Committee’s terms of reference is available on the Governance section of our website at benchmarkplc.com. Actions undertaken during the year: During the year the Remuneration Committee carried out a review of employee base salaries and implemented in the UK, the policy of paying the living wage as described by the Living Wage foundation to all employees (with the exception of apprentices) regardless of whether they work full or part time or on a temporary basis. Work is underway to ensure that in our overseas jurisdictions where similar organisations exist our pay reflects the levels that they advocate, and where they do not, to establish a level of pay that is set above the minimum wage. The introduction of gender pay gap reporting has been of interest to the Committee who recognise that at senior management level women are under-represented, steps are being taken to address this. As Benchmark has fewer than 250 employees in any one entity within the UK we are not required to report our gender pay gap figures, however, it is our intention to do so voluntarily. Following the reorganisation of the management team, the Committee has continued to work on succession planning across the Group to ensure that we have the skills required to drive success in all our markets. Directors’ Remuneration Policy The Group’s policy is unchanged and seeks to balance three key objectives: • To pay 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 share options) or a combination of both. This year the Executive Directors are not receiving cash bonuses, other than a nominal cross group figure mentioned in the Chairman’s report, but are instead receiving awards of market value share options under the Benchmark Company Share Option Plan (CSOP) I, as described on page 97. Other than these awards, the Company does not intend to make further awards under the share plans to the Executive Directors in the coming 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 of executive salaries in 2016 the Remuneration Committee substantially increased the Executive Directors’ salaries in January 2017 to bring them into the lower end of a band of AIM/main listed companies where Benchmark Holdings plc sits in terms of turnover and market capitalisation. The Executive Directors’ salaries from IPO had been substantially below those of their peer group. This year the Executive Directors base salaries were adjusted in line with other employees across the Group. Over the next 2–3 years the Company expects to be at median for the comparator range once the combined business delivers on its plans and this is reflected in the share price. The Executive Directors all participate in defined contribution pension schemes on terms consistent with those of other employees. The Company contributes up to 10 per cent of the employee’s salary, starting at 5 per cent and increasing by 1 per cent for every three 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 or all of which may be deferred for three years and paid in shares or share options. The maximum award, including any deferred element, is 100 per cent 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. Four key metrics are used to evaluate performance of the Executive Directors: • 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. Statement of consideration of employment conditions elsewhere in the Group Historically, the salaries across the Group have been increased annually by reference to the consumer price index (CPI). In 2017, the average salary increase across the Group including senior management was 4.8 per cent. 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 2017 will be paid part in cash, and part will be deferred and satisfied in share options with an exercise price equal to market value of the Benchmark shares on the date of grant. The Company aims to encourage 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. In 2017, 436,702 share options were issued to 53 employees across the Group. 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. As a result of a period of ill-health, Roland Bonney stepped down as COO on 28 July 2017. We are very pleased to say that he has subsequently returned to the business as Group Lead, Key Account Management. 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. Non-Executive Directors’ terms of appointment The Non-Executive Directors hold office under letters of appointment. Each appointment is for a term of three years but with an additional period of three years anticipated. All directors are required to stand for re-election at least every three years. Alex Hambro and Susan Searle were appointed for a further three year term by the Board in December 2016. Kevin Quinn was appointed as a new Non-Executive Director on 25 November 2016, replacing Basil Brookes as Chair of the Audit Committee and on the Remuneration Committee. In accordance with the UK Corporate Governance Code, Kevin Quinn, Malcolm Pye and Susan Searle stood for re-election at the Annual General Meeting held on 10 March 2017 and all were re-elected. Following the year end, Hugo Wahnish and Yngve Myhre were appointed as new Non-Executive Directors. Both will stand for election at the AGM to be held on 8 March 2018. Either the Company or the Non-Executive Director may terminate the appointment on three 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 three 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 Length of service as at 2018 AGM Alex Hambro 18 December 2013 4 year, 2 months Susan Searle 18 December 2013 4 year, 2 months Kevin Quinn 25 November 2016 1 year, 2 months Hugo Wahnish 6 November 2017 4 months Yngve Myhne 6 November 2017 4 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 2017 the Company allocated 463,702 nominal cost share options (0.09% of issued share capital) to staff including senior management as mentioned on page 100. 99 Benchmark Holdings plc | Annual Report 2017 | GovernanceSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATION Annual Report on Remuneration for 2017 Single total figure of remuneration for the financial year ended 30 September 2017 The remuneration in respect of qualifying services of the directors who served during the financial year ended 30 September 2017 is as set out below. Executive Directors Salary Bonus (a) Taxable benefits (b) Long-term incentive Roland Bonney Mark Plampin Malcolm Pye 243,750 230,000 282,500 500 500 500 2,391 2,592 6,010 - - - Pension 24,375 15,517 28,250 2017 271,016 248,609 317,268 Total 2016 288,942 268,757 318,121 (a) The balance of the cash bonuses will be paid in February 2018. Options with an exercise price equal to market value in lieu of a cash bonus in the year to September 2017, will be granted to the Executive Directors shortly after the date of this report. Further details can be found in the bonus section below. (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). Non-Executive Directors’ fees for the financial year ended 30 September 2017 No changes were made to the Non-Executive Directors’ fees in the financial year ended 30 September 2017. Kevin Quinn was appointed as a new Non-Executive Director on 25 November 2016. Statement of Implementation of Remuneration Policy in 2018 Executive Directors’ salaries From 1 January 2018, the Executive Directors’ base pay was increased as set out below. Mark Plampin Malcolm Pye Bonus The 2018 bonus will be implemented in line with the future policy described above. 2017 255,175 316,417 Salary (£) 2016 250,000 310,000 Increase in salary 2017 to 2018 (%) 2.07% 2.07% Executive Directors’ salaries were reviewed with effect from 1 January 2018. Having regard to the Group’s performance in 2017, the increases awarded are shown on page 101. LTIP Non-Executive Directors Alex Hambro Susan Searle Kevin Quinn 2017 45,000 45,000 38,365 Fees (£) 2016 45,000 45,000 - Although the Board believes that the Chairman’s fees and the fees of the Committee may be out of line with market practice it has been decided not to adjust them given the share price performance during the year. However, given the size, scale and complexity of the business has changed considerably, a review of fees will be undertaken in 2018 with a view to implementation in the following year. Executive Directors’ bonuses for the financial year ended 30 September 2017 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 98. Accordingly, the Executive Directors received bonuses in respect of the financial year ended 30 September 2017 as set out below. Roland Bonney (resigned as COO on 28th July 2017) Mark Plampin Malcolm Pye 2017(a) 500 500 500 Bonus (£) 2016 99,000 93,000(b) 110,000 (a) The remuneration committee has decided, in lieu of cash, save for a nominal cross company cash bonus of £500, market value share options will be granted following publication of the annual results, in accordance with the company’s share plan rules. Malcolm Pye will be granted 500,000 options, Mark Plampin will receive 400,000 options and Roland Bonney will receive 100,000 options. The exact value of these awards cannot be determined until the date of grant. (b) Mark Plampin received £37,200 in cash and the balance in nominal cost share 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 98, the Company contributes 10 per cent of salary for each of Roland Bonney and Malcolm Pye, and 7 per cent 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 2017. 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 2017. The Company will use the CSOP shortly after the publication of the annual results in 2018 to grant awards to the Executive Directors in lieu of a cash bonus as described in the introduction to this report. 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 2017 are set out below. Share option scheme Options held at 30 September 2016 Options exercised in year Options granted in year At 30 September 2017 Exercise price Grant date Date from which exercisable Mark Plampin EMI Scheme 135,000 135,000 - 0.1p 29 August 2013 29 August 2016 Mark Plampin CSOP II 67,647 135,000 56,938 124,585 0.1p 6 March 2017 5 March 2020 Directors’ interests in ordinary shares At 30 September 2017, the interests of the Directors and their connected persons in ordinary shares was as follows. Roland Bonney Alex Hambro Malcolm Pye Mark Plampin Susan Searle Kevin Quinn Interests in ordinary shares at 30 September 2017 % of Company’s issued share capital at 30 September 2017 (c) Interests in ordinary shares at 30 September 2016 15,145,686 100,000 (a) 15,145,686 536,686 (b) 98,125 (a) 25,000 2.90% 0.02% 2.90% 0.10% 0.02% 0% 15,145,686 46,875 15,145,686 401,686 98,125 - (a) Held through self-invested personal pension (SIPP). (b) Comprising 265,000 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. (c) As at 30 September 2017. Susan Searle Chairman of the Remuneration Committee 23 January 2018 101 Benchmark Holdings plc | Annual Report 2017 | GovernanceSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATION SHAREHOLDERS Share capital and share holdings The Company’s issued share capital, together with details of movements during the year, are shown in note 25 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 22 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 FERD AS Invesco Limited Lansdowne Partners International Limited Lansdowne Partners Limited Lansdowne Partners (UK) LLP The Royal Bank of Scotland Group plc Harwood Capital 25.10 16.67 16.17 9.88 6.84 3.54 Engagement with shareholders The Board recognises that engagement with shareholders is vital to the success of the business, and to ensuring that shareholders understand the strategy of the Company and the means by which that strategy will be delivered. The Board welcomes regular and open engagement with its shareholders. A number of meetings were held between institutional shareholders and both Executive and Non-Executive Directors (together and independently) throughout the year. The Company held a capital markets day for institutional shareholders which included presentations regarding the macro environment; the aquaculture industry and Benchmark’s positioning within it; and the strategies, assets, capabilities, and markets of each of the Genetics, Animal Health, Advanced Nutrition and Knowledge Services divisions; and the Company’s financial model and capital structure. Shareholders had the opportunity to meet with the Board and senior management and to discuss and challenge the strategy of the Company. The Directors attended the Annual General Meeting and were available for questions and discussion both in and following the meeting. The Chairman is responsible for ensuring that major shareholders are able to access and engage with all members of the Board. The Chairman is also responsible for ensuring that the Board is aware of any feedback received from, or concerns raised by, major shareholders, and that these views are taken into account. The Board regularly discusses feedback from meetings and other liaison with major shareholders. If shareholders have concerns which have not been resolved by means of contact through other channels, or for which such channels are inappropriate, they are welcome to contact the Senior Independent Director. 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 2017. 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 (frc.org.uk). Benchmark complies with the main principles of the Code, as set out in the diagram on page 103. During the year, the Company did not comply with the following aspects of the Code: • 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 is not subject to the Listing Rules and is not required to make a longer term viability statement. • The bonus element of the Executive Directors’ remuneration is performance related and based on four key performance indicators. 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 the key performance indicators used to determine performance based remuneration involve an element of discretion, which is exercised critically by the Remuneration Committee. The Remuneration Committee intends to review these key performance indicators in the coming year to ensure that they remain relevant and appropriate for the Group in light of its growth. Overview of compliance with principles of UK Corporate Governance Code A. Leadership A.1 Role of Board The Board is collectively responsible for the long-term success of the Group, and oversees the development and delivery of strategy and operations. It does this by exercising oversight and control over the performance of the Company through review of management financial information; agreeing budgetary targets; approving investment programmes and monitoring their execution against budget and returns on investment. (See page 87) A.2 Clear division of responsibilities There is a clear division of responsibilities between the Chairman and the Chief Executive Officer which is described on page 91 of this report. A.3 Role of Chairman The Chairman leads the Board, setting and managing the agenda, and promoting open and constructive discussion and challenge. (See page 91) 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 87) B. Effectiveness B.1 Composition of the Board Two new Non-Executive Directors were recently appointed to strengthen the pharmaceutical and aquaculture expertise on the Board. The Board and the Nomination Committee is of the view that the Board contains an appropriate breadth and balance of skills, knowledge, experience and independence. B.2 Board appointments 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. This process was followed in relation to the recent appointments of Hugo Wahnish and Yngve Myhre. 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. (See pages 93) 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 91) 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. (See pages 93) B.6 Board and Committee performance evaluations Following a formal evaluation of the Board’s performance, size and composition in 2015, which was kept under review, it was determined to strengthen the Board with pharmaceutical and aquaculture sector expertise, in an international forum. Two new Non-Executive Directors were appointed shortly after the year end. 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. (See pages 104) C. Accountability C.1 Financial and business reporting The Board has reviewed this Annual Report and the results for the year to 30 September 2017 to ensure that the Annual Report and Accounts, taken as a whole, are fair, balanced and understandable. (See pages 106) 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 78 to 81 of this report set 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 93 to 96) 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 99 to 101. 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 99 to 101. 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. (See pages 102) 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. (See pages 104) 103 Benchmark Holdings plc | Annual Report 2017 | GovernanceSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONAnnual General Meeting The next Annual General Meeting will be held at 12.00pm on 8 March 2018 at Travers Smith LLP, 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 for discussion with shareholders following conclusion of the formal business of the meeting. Directors The Directors who held office during the year were as follows: Alex Hambro Susan Searle Kevin Quinn (appointed 25 November 2016) Malcolm Pye Mark Plampin Roland Bonney (stepped down 28 July 2017) The Directors benefited from qualifying third party indemnity provisions during the financial year and continue to do so at the date of this report. Re-election of Directors The re-appointment of Susan Searle and Malcolm Pye, and the appointment of Kevin Quinn was approved at the Annual General Meeting held on 7 March 2017. 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. Hugo Wahnish and Yngve Myhre was appointed as a Director by the Board on 6 November 2017. At the Annual General Meeting to be held on 8 March 2018, Hugo Wahnish and Yngve Myhre are standing for re-election. 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 7 March 2017, shareholders authorised the Directors to allot relevant securities up to an aggregate nominal value of £174,006, representing one third of the issued share capital, and to further allot equity securities up to an additional aggregate nominal value of £174,006 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 £26,100 (being 5 per cent of issued share capital) , and to further allot for cash equity securities having a nominal value not exceeding in aggregate £26,100 for the purpose of financing acquisitions and capital investments. 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 2017 AGM. Authority for the Company to purchase its own shares At the Company’s 2017 Annual General Meeting, shareholders renewed the Company’s authorities to make market purchases of up to 52,201,825 ordinary shares, representing 10 per cent 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 per cent 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. Length of notice of general meetings The Company has taken authority under the Companies Act 2006 to call general meetings of the Company, other than AGMs, on 14 days notice. 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 The Group has grown significantly since its IPO in 2014, and has now established the platform for the next phase of its development. As discussed on pages 66 to 67 of this report, the management was reviewed during the year to ensure that it is appropriate, and has the necessary expertise required, to deliver the Company’s strategy. The Group now has nearly 1,000 employees in 27 countries, and recognises the challenges of communicating strategy and information to all its people in an effective and timely manner. The following are the principal methods by which the Company ensures 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, focuses 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. • Regular 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. • Short videos from the Executive are used to communicate more personally with the workforce around the world and to highlight key matters, such as the significance of and the Board’s commitment to Health and Safety on our Global Health and Safety Day. • An improved intranet platform was launched during the year, which provides comprehensive information on each of the businesses within the Group, together with the Employee Handbook, policies, toolkits and other relevant information to all employees. • Targeted training and workshops are undertaken with the workforce to ensure that there is a good understanding of the Group’s strategy and values; compliance matters including the Share Dealing Code, control of inside information, Matters Reserved for the Board, Anti-Bribery Policy and Whistleblowing Policy, employee share schemes and other matters. • The People Team is responsible for acting 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 60 per cent of the Group’s employees hold shares or options in the Company. Political contributions Neither the Company nor any of its subsidiaries made any political donations or incurred any political expenditure during the year. Disclosure of information to auditor The Directors who held office at the date of approval of this Directors’ report confirm that, so far as they are each aware, there is no relevant audit information of which the Company’s auditor is unaware; and each Director has taken all the steps that he/she ought to have taken as a director to make himself/herself aware of any relevant audit information and to establish that the Company’s auditors is aware of that information. Auditor In accordance with Section 489 of the Companies Act 2006, a resolution for the re-appointment of KPMG LLP as auditor of the Company is to be proposed at the forthcoming Annual General Meeting. Information elsewhere in the report 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. Important events Particulars of important events affecting the Company or its subsidiaries. Post balance sheet events Description of post balance sheet events. Page(s) of this report 127–129 5 None Future developments Likely future developments in the business of the Company or its subsidiaries. 12–17, 20, 24 Research and development Details of research and development activities of the Company and its subsidiaries. 33, 38, 50, 73 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 N/A 78–81 Directors’ remuneration and interests Details of Directors’ remuneration, interests in shares of the Company, share options and pension arrangements. 97–101 Principal activities and business review Business review, details of 2017 results, key performance indicators, outlook for future years. 5–63 Financial risk management Objectives and policies for management of financial risk. Share capital Details of the issued share capital and movements during the year. 78–81, 94, 96 157 This report was approved by the Board on 22 January 2018 and signed on its behalf. Athene Blakeman Company Secretary 23 January 2018 105 Benchmark Holdings plc | Annual Report 2017 | GovernanceSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONSTRATEGIC REPORT GOVERNANCE FINANCI AL STATEMENTS ADDITIONAL INFORMATI ON DIRECTORS’ RESPONSIBILITIES Statement of Directors’ responsibilities in relation to the Group financial statements and Annual Report The Directors are responsible for preparing the Group and parent Company financial statements in accordance with applicable law and regulation. Company law requires the Directors to prepare Group and parent Company financial statements for each financial year. As required by the AIM Rules of the London Stock Exchange, they are required to prepare the Group financial statements in accordance with International Financial Reporting Standards as adopted by the EU (IFRSs as adopted by the EU) and applicable law and have elected to prepare the parent Company financial statements on the same basis. 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 parent Company, and of the profit or loss of the Group and parent Company for that period. In preparing each of the Group and parent Company financial statements, the Directors are required to: • Select suitable accounting policies and apply them consistently • Make judgements and accounting estimates that are reasonable, relevant and reliable • State whether the financial statements have been prepared in accordance with IFRS as adopted by the European Union • Assess the Group and parent Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern • Use the going concern basis of accounting unless they either intend to liquidate the Group or the parent Company or to cease operations, or have no realistic alternative but to do so The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the parent Company’s transactions and disclose with reasonable accuracy at any time the financial position of the parent Company and enable them to ensure that its financial statements comply with the Companies Act 2006. They are responsible for such internal control as they determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error, and have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Group and to prevent and detect fraud and other irregularities. Under applicable law and regulations, the Directors are also responsible for preparing a Strategic Report and a Directors’ Report that complies with that law and those regulations. The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company’s website benchmarkplc.com. Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. Image: Dr Ernesto Dieguez and Rosana Estevez at our StofnFiskur facility in Kalmanstjørn, Iceland. Benchmark Holdings plc | Annual Report 2017 | Governance 107 03 FINANCIAL STATEMENTS 110 Independent Auditor’s Report 114 Consolidated Income Statement 115 Consolidated Statement of Comprehensive Income 116 Consolidated Balance Sheet 117 Company Balance Sheet 118 Consolidated Statement of Changes in Equity 119 Company Statement of Changes in Equity 120 Consolidated Statement of Cash Flows 121 Company Statement of Cash Flows 122 Notes Forming Part of the Financial Statements STRATEGIC REPORT GOVERNANCE FINANCIAL STATEME NTS ADDITIONAL INFORMATI ON The services we provide have a fundamental impact on the development of sustainable aquaculture production and we are proud to serve the world’s largest players in the industry. Morten Rye Managing Director Akvaforsk Genetics 109 INDEPENDENT AUDITOR’S REPORT to the members of Benchmark Holdings plc 1 Our opinion is unmodified Overview Materiality: Group financial statements as a whole £1,000,000 (2016: £750,000) 0.7% (2016: 0.7%) of revenue Coverage 86% (2016: 91%) of group revenue Risks of material misstatement vs 2016 Recurring risks Valuation of goodwill, intangibles Valuation of biological assets Recoverability of parent company’s investment in subsidiaries and group debtor balances We have audited the financial statements of Benchmark Holdings plc (“the Company”) for the year ended 30 September 2017 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, including the accounting policies in note 1. In our opinion: • the financial statements give a true and fair view of the state of the Group’s and of the parent Company’s affairs as at 30 September 2017 and of the Group’s loss for the year then ended; • the group financial statements have been properly prepared in accordance with International Financial Reporting Standards as adopted by the European Union (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. Basis for opinion We conducted our audit in accordance with International Standards on Auditing (UK) (“ISAs (UK)”) and applicable law. Our responsibilities are described below. We have fulfilled our ethical responsibilities under, and are independent of the Group in accordance with, UK ethical requirements including the FRC Ethical Standard as applied to listed entities. We believe that the audit evidence we have obtained is a sufficient and appropriate basis for our opinion. 2 Key audit matters: our assessment of risks of material misstatement Key audit matters are those matters that, in our professional judgment, were of most significance in the audit of the financial statements and include the most significant assessed risks of material misstatement (whether or not due to fraud) identified by us, including those which had the greatest effect on: the overall audit strategy; the allocation of resources in the audit; and directing the efforts of the engagement team. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. In arriving at our audit opinion above, the key audit matters, in decreasing order of audit significance, were as follows: The risk Our response Valuation of group goodwill, acquired intangibles and of parent’s investment in subsidiaries/debt due from group entities Goodwill: £149,665,000 (2016: 152,905,000) Intangibles: £175,695,000 (2016: £197,682,000) Investments (parent company): £263,841,000 (2016: £261,902,000) Debt due from group entities (parent company): £126,348,000 (2016: £101,122,000) Refer to page 94 (Audit Committee Report), page 126 (accounting policy) and page 144 (financial disclosures). Forecast-based valuation: The carrying value of goodwill, acquired intangibles, investments and debt due from group entities depends on assumptions of future financial performance which inherently contain an element of judgement and uncertainty. In addition, certain cash generating units of the group are at risk of impairment as they contain immature products or markets, or are not trading in line with initial expectations. Significant areas of judgement include sales growth rates, operating margins and the discount rate applied to future cash flows. Valuation of biological assets, Salmon broodstock Subjective valuation: Salmon broodstock: £9,273,000 (2016: £7,584,000) Refer to page 94 (Audit Committee Report), page 127 (accounting policy) and page 151 (financial disclosures). The group hold significant biological assets at StofnFiskur in Iceland. Under IFRS these are required to be held at fair value less cost to sell. The calculations of fair value include a number of assumptions relating to the future (e.g. egg sales prices, sales volumes), and are subject to seasonal variations. Our procedures included: • Data comparisons: Assessing the Group’s impairment model for mathematical accuracy as well as internal consistency with board approved budgets and forecast; • Benchmarking assumptions: With the assistance of our valuation specialists we compared the Group’s assumptions in relation to key inputs such as projected growth and discount rates to externally derived data; • Sensitivity analysis: Performing analysis of changes in key assumptions such as projected growth and discount rates to understand the sensitivity of the valuation; • Historical comparison: Considering the Group’s historical budgeting accuracy, by assessing actual performance against budget; • Comparing valuations: Comparing the sum of the discounted cash flows to the group’s market capitalisation to assess the reasonableness of those cash flows; and • Assessing transparency: We also assessed whether the Group’s disclosures about the sensitivity of the outcome of the impairment assessment to changes in key assumptions reflected the risks inherent in the valuation of goodwill, intangibles and investments. Our procedures included: • Data comparisons: Assessing the Group’s valuation model for mathematical accuracy and internal consistency with board approved budgets and forecast; • Benchmarking assumptions: We compared the Group’s assumptions in relation to key inputs such as selling price to externally derived data; • Sensitivity analysis: Performing analysis of changes in key assumptions such as egg sales prices to understand the sensitivity of the valuation; and • Assessing transparency: We considered the adequacy of the Group’s disclosures in respect of the valuation of biological assets. 110 111 Benchmark Holdings plc | Annual Report 2017 | Financial StatementsBenchmark Holdings plc | Annual Report 2017 | Financial StatementsSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATION3 Our application of materiality and an overview of the scope of our audit Revenue £140,172,000 (2016: £109,375,000) Group Materiality £1,000,000 (2016: £750,000) Materiality for the Group financial statements as a whole was set at £1,000,000 (2016: £750,000), determined with reference to a benchmark of Group revenue, of which it represents 0.7% (2016: 0.7% of Group revenue). We consider revenue to be the most appropriate benchmark as it provides a more stable measure year on year than group profit before tax. Materiality for the parent company financial statements as a whole was set at £750,000 (2016: £650,000), determined with reference to a benchmark of company total assets, of which it represents 0.2% (2016: 0.2%). We agreed to report to the audit committee any corrected or uncorrected identified misstatements exceeding £50,000 (2016: £37,500), in addition to other identified misstatements that warranted reporting on qualitative grounds. Of the Group’s 69 (2016: 45) reporting components, we subjected 19 (2016: 15) to full scope audits for Group purposes and 1 (2016: nil) was subject to specified risk-focused audit procedures over cost of sales and trade payables. The latter was not individually financially significant to require an audit for group reporting purposes but did present specific individual risks that need to be addressed. For the residual components, we performed analysis at an aggregated group level to re-examine our assessment that there were no significant risks of material misstatement within these. The Group audit team instructed component auditors as to the significant areas to be covered, including the relevant risks detailed above and the information to be reported back. The Group audit team also approved the component materialities ranging from £10,000– £750,000 (2016: £10,000–£650,000) having regard to the mix of size and risk profile of the Group across the components. The work on 10 of the 20 (2016: 4 of the 15) components was performed by component auditors and the rest, including the audit of the parent company, by the Group team. The Group team visited one component in Iceland and held calls with all other full scope component auditors to assess the audit risk and strategy as part of the planning process. During these, the audit approach to key risk areas were discussed. The Group team visited three component locations in Iceland, Norway, and Belgium to attend clearance meetings and held calls with all other full scope component auditors. During these, the findings reported to the Group team were discussed in more detail, and any further work required by the Group team was then performed by the component auditor. £1,000,000 Whole financial statements materiality (2016: £750,000) £750,000 Range of materiality at 20 components (£10,000–£750,000) (2016: £10,000–£650,000) Revenue Group Materiality £50,000 Misstatements reported to the audit committee (2016: £37,500) Group revenue Group loss before tax 86% (2016: 91%) 91 86 90% (2016: 92%) 92 90 Group total assets 87% (2016: 98%) 98 87 Full scope for group audit purposes 2017 Specified risk-focused audit procedures 2017 Full scope for group audit purposes 2016 Specified risk-focused audit procedures 2016 Residual components 4 We have nothing to report on going concern 7 Respective responsibilities We are required to report to you if we have concluded that the use of the going concern basis of accounting is inappropriate or there is an undisclosed material uncertainty that may cast significant doubt over the use of that basis for a period of at least twelve months from the date of approval of the financial statements. We have nothing to report in these respects. 5 We have nothing to report on the other information in the Annual Report The directors are responsible for the other information presented in the Annual Report together with the financial statements. Our opinion on the financial statements does not cover the other information and, accordingly, we do not express an audit opinion or, except as explicitly stated below, any form of assurance conclusion thereon. Our responsibility is to read the other information and, in doing so, consider whether, based on our financial statements audit work, the information therein is materially misstated or inconsistent with the financial statements or our audit knowledge. Based solely on that work we have not identified material misstatements in the other information. Strategic report and directors’ report Based solely on our work on the other information: • we have not identified material misstatements in the strategic report and the directors’ report; • in our opinion the information given in those reports for the financial year is consistent with the financial statements; and • in our opinion those reports have been prepared in accordance with the Companies Act 2006. 6 We have nothing to report on the other matters on which we are required to report by exception Under the Companies Act 2006, we are required 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. We have nothing to report in these respects. Directors’ responsibilities As explained more fully in their statement set out on page 106, the directors are responsible for: the preparation of the financial statements including being satisfied that they give a true and fair view; such internal control as they determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error; assessing the Group and parent Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern; and using the going concern basis of accounting unless they either intend to liquidate the Group or the parent Company or to cease operations, or have no realistic alternative but to do so. Auditor’s responsibilities Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue our opinion in an auditor’s report. Reasonable assurance is a high level of assurance, but does not guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the financial statements. A fuller description of our responsibilities is provided on the FRC’s website at frc.org.uk/auditorsresponsibilities. 8 The purpose of our audit work and to whom we owe our responsibilities 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. Ian Beaumont (Senior Statutory Auditor) for and on behalf of KPMG LLP, Statutory Auditor Chartered Accountants 1 Sovereign Square, Sovereign Street, Leeds, LS1 4DA 23 January 2018 112 113 Benchmark Holdings plc | Annual Report 2017 | Financial StatementsBenchmark Holdings plc | Annual Report 2017 | Financial StatementsSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONCONSOLIDATED INCOME STATEMENT for the year ended 30 September 2017 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME for the year ended 30 September 2017 Loss for the year Other comprehensive income Items that are or may be reclassified subsequently to profit or loss Movement on foreign exchange reserve Total comprehensive income for the year Total comprehensive income for the year attributable to: — Owners of the parent — Non-controlling interest The accompanying notes form part of the financial statements. 2017 £000 2016 £000 (7,120) (18,346) (7,128) (14,248) 48,386 30,040 (14,407) 29,752 159 288 (14,248) 30,040 Revenue Cost of sales Gross profit Research and development costs Other operating costs Adjusted EBITDA² Exceptional including acquisition related items EBITDA¹ Depreciation Amortisation Operating loss Finance cost Finance income Share of profit of equity-accounted investees, net of tax Loss before taxation Tax on loss Loss for the year Loss for the year attributable to: — Owners of the parent — Non-controlling interest Basic loss per share (pence) Diluted loss per share (pence) Notes 2017 £000 2016 £000 4 140,172 109,375 (77,781) (58,562) 62,391 50,813 (13,055) (11,720) (39,297) (29,865) 10,039 9,228 5,649 (13,091) 15,688 (4,877) (3,863) (2,859) (18,473) (13,749) (7,662) (20,471) (1,960) 1,495 27 (6,170) 3,984 273 (8,100) (22,384) 10 13 14 9 9 11 980 4,038 (7,120) (18,346) (7,440) (18,337) 320 (9) (7,120) (18,346) (1.43) (1.43) (4.39) (4.39) 12 12 1 EBITDA — Earnings before interest, tax, depreciation and amortisation 2 Adjusted EBITDA — EBITDA before exceptional and acquisition related items The accompanying notes form part of the financial statements. 114 115 Benchmark Holdings plc | Annual Report 2017 | Financial StatementsBenchmark Holdings plc | Annual Report 2017 | Financial StatementsSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATION CONSOLIDATED BALANCE SHEET as at 30 September 2017 COMPANY BALANCE SHEET as at 30 September 2017 Assets Non-current assets Property, plant and equipment Intangible assets Equity-accounted investees Other investments 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 Additional paid-in capital* Capital redemption reserve Retained earnings Foreign exchange reserve Equity attributable to owners of the parent Non-controlling interest Total equity and reserves * See note 26 Notes 2017 £000 2016 £000 13 14 16 19 18 19 20 35 21 22 23 22 21 24 25 25 26 26 26 80,845 50,023 329,137 352,538 2,512 237 5,745 581 246 5,028 418,476 408,416 20,053 10,798 38,530 18,779 23,231 6,831 34,288 38,140 88,160 102,490 506,636 510,906 (44,498) (31,232) (6,234) (2,844) (450) (289) (1,107) (1,086) (54,026) (33,714) (36,453) (37,407) (1,213) (8,825) (56,359) (63,261) (94,025) (109,493) (148,051) (143,207) 358,585 367,699 522 521 339,431 339,431 5 5 (24,742) (18,904) 38,398 45,365 353,614 366,418 27 4,971 1,281 358,585 367,699 The financial statements on pages 114 to 170 were approved and authorised for issue by the Board of Directors on 23 January 2018 and were signed on its behalf by: M J Plampin Chief Financial Officer The accompanying notes form part of the financial statements. Assets Non-current assets Property, plant and equipment Investments 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 Total non-current liabilities Total liabilities Net assets Issued capital and reserves attributable to owners of the parent Share capital Additional paid-in capital* Capital redemption reserve Retained earnings Total equity and reserves * See note 26 Note 2017 £000 2016 £000 13 17 20 35 287 240 263,841 261,902 264,128 262,142 126,843 101,489 1,776 27,480 128,619 128,969 392,747 391,111 21 (26,195) (26,102) (26,195) (26,102) 22 (36,451) (37,193) (36,451) (37,193) (62,646) (63,295) 330,101 327,816 25 25 26 26 522 521 339,431 339,431 5 5 (9,857) (12,141) 330,101 327,816 The financial statements on pages 114 to 170 were approved and authorised for issue by the Board of Directors on 23 January 2018 and were signed on its behalf by: M J Plampin Chief Financial Officer The accompanying notes form part of the financial statements. 116 117 Benchmark Holdings plc | Annual Report 2017 | Financial StatementsBenchmark Holdings plc | Annual Report 2017 | Financial StatementsSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATION CONSOLIDATED STATEMENT OF CHANGES IN EQUITY for the year ended 30 September 2017 COMPANY STATEMENT OF CHANGES IN EQUITY for the year ended 30 September 2017 At 1 October 2015 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 Comprehensive income for the year Profit for the year Total comprehensive income for the year Contributions by and distributions to owners Share based payment Share issue Total contributions by and distributions to owners At 30 September 2017 * See note 26. Share capital £000 Additional paid-in capital* £000 Capital redemption reserve £000 Retained earnings £000 Total attributable to equity holders £000 219 94,672 - - - - - - - - 302 249,444 - 302 521 (4,685) 244,759 339,431 - - - 1 1 - - - - - 5 - - - - - - - 5 - - - - - 1,799 96,695 (14,646) (14,646) (14,646) (14,646) 749 (43) - - 749 (43) 249,746 (4,685) 706 245,767 (12,141) 327,816 682 682 682 682 1,602 1,602 1 1,602 1,603 522 339,431 5 (9,857) 330,101 The accompanying notes form part of the financial statements. Share capital £000 Additional paid-in capital* £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 2015 219 94,672 (2,719) (1,021) 91,151 947 92,098 Comprehensive income for the period Loss for the period Other comprehensive income Total comprehensive income for the period Contributions by and distributions to owners - - - - - - - (18,337) (18,337) 48,089 - 48,089 48,089 (18,337) 29,752 (9) 297 288 (18,346) 48,386 30,040 Share issue 302 249,444 Share issue costs recognised through equity Share based payment Deferred tax on share options Total contributions by and distributions to owners Changes in ownership Acquisition of subsidiary with non-controlling interest Total changes in ownership interests Total transactions with owners of the Company - - - (4,685) - - 302 244,759 - - - - 302 244,759 - - - - - - - - - - 249,746 (4,685) 749 (295) 749 (295) 454 245,515 - - - - - 249,746 (4,685) 749 (295) 245,515 - - - - 454 245,515 46 46 46 46 46 245,561 As at 30 September 2016 521 339,431 45,370 (18,904) 366,418 1,281 367,699 Comprehensive income for the period (Loss)/profit for the period Other comprehensive income Total comprehensive income for the period Contributions by and distributions to owners Share issue Share based payment Total contributions by and distributions to owners Changes in ownership interests Investment in subsidiary by non- controlling interest Total changes in ownership interests Total transactions with owners of the Company - - - 1 - 1 - - 1 - - - - - - - - - - (7,440) (6,967) - (7,440) (6,967) 320 (161) (7,120) (7,128) (6,967) (7,440) (14,407) 159 (14,248) - - - - - - - 1 1,602 1,602 1,602 1,603 - - - 1 1,602 1,603 - - - - 3,531 3,531 3,531 3,531 1,602 1,603 3,531 5,134 As at 30 September 2017 522 339,431 38,403 (24,742) 353,614 4,971 358,585 * See note 26. The accompanying notes form part of the financial statements. 118 119 Benchmark Holdings plc | Annual Report 2017 | Financial StatementsBenchmark Holdings plc | Annual Report 2017 | Financial StatementsSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATION CONSOLIDATED STATEMENT OF CASH FLOWS for the year ended 30 September 2017 COMPANY STATEMENT OF CASH FLOWS for the year ended 30 September 2017 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 (gains)/losses Share based payment expense Tax credit Increase in trade and other receivables Increase in inventories and biological assets Increase/(decrease) in trade and other payables Decrease in provisions Income taxes paid Notes 2017 £000 2016 £000 13 14 9 9 31 11 (7,120) (18,346) 4,877 2,859 18,473 13,749 19 (1,495) 1,960 (27) (1,434) 1,602 (980) 15,875 (1,250) (1,253) 3,665 (643) 16,394 (3,015) 30 (3,984) 6,170 (273) 6,776 749 (4,038) 3,692 (3,729) (4,704) (4,124) (238) (9,103) (1,429) Cash flows from operating activities Profit/(loss) for the year Adjustments for: Depreciation of property, plant and equipment 13 Finance income Finance expense Foreign exchange gains Share based payment expense Tax expense Increase in trade and other receivables (Decrease)/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 from/(used in) operating activities 13,379 (10,532) Net cash received used in investing activities Investing activities Proceeds from investment by NCI 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 or other 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 (decrease)/increase in cash and cash equivalents Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year 188 - - (191,502) (2,032) - (32,740) (18,660) (2,423) (1,523) 245 270 174 254 (36,492) (211,257) 1 216,519 5,921 42,254 - - - (1,869) (301) (4,685) 3,731 (8,809) (2,481) (164) 3,752 246,365 (19,361) 38,140 18,779 24,576 13,564 38,140 35 The accompanying notes form part of the financial statements. Financing activities Proceeds of share issue 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 (used in)/from financing activities Net (decrease)/increase in cash and cash equivalents Cash and cash equivalents at beginning of period Cash and cash equivalents at end of period The accompanying notes form part of the financial statements. Note 2017 £000 2016 £000 682 (14,646) 90 (1,567) 2,232 (587) 369 325 62 (4,018) 6,219 - 149 127 1,544 (12,107) (24,462) (34,001) (576) 17,207 (23,494) (28,901) (800) - - (137) 30 - 1,659 (197,440) (148) 288 (907) (195,641) 1 216,519 - - - - (1,304) 42,254 (4,685) 3,731 (8,809) (2,530) (1,303) 246,480 (25,704) 21,938 27,480 5,542 35 1,776 27,480 120 121 Benchmark Holdings plc | Annual Report 2017 | Financial StatementsBenchmark Holdings plc | Annual Report 2017 | Financial StatementsSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATION NOTES FORMING PART OF THE FINANCIAL STATEMENTS for the year ended 30 September 2017 NOTES FORMING PART OF THE FINANCIAL STATEMENTS (continued) for the year ended 30 September 2017 1 Accounting policies Corporate information 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 Strategic Report, the FY17 Financial Review and the Audit Committee Report. As at 30 September 2017 the Group had net assets of £358.6 million, including cash of £18.8 million (2016: £38.1 million) as set out in the consolidated balance sheet on page 116 and a five year revolving credit facility of US$70.0 million, of which US$50 million was drawn down at 30 September 2017 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 annual 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. Following the growth and evolution of the Group and the acquisition of INVE Aquaculture in the prior year, the Directors consider the separation of the statutory IFRS results into Trading Activities and Investing Activities no longer to be appropriate, and a single column approach has been adopted. In this approach, in line with many of the Group’s peers in the sector, the Group highlights expensed research and development costs on the face of the consolidated income statement separate from other operating costs. Furthermore, the Group reports earnings before interest, depreciation and amortisation (“EBITDA”) and EBITDA before exceptional and acquisition related items (“Adjusted EBITDA”) to enable a better understanding of the investment being made in the Group’s future growth and provide a better measure of our underlying performance. This is how the Directors monitor the progress of the Group. 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 2017. 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 profit for the year for the Company was £682,000 (2016: loss £14,646,000). 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 IRFS 9 on 1 October 2018. 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 IRFS 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 1 January 2016 have been adopted without any significant impact on the amounts reported in these financial statements: Annual Improvements to IFRS 2012 — 2014 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 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. 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. Rendering of services Services including sustainable food production consultancy, technical consultancy and assurance services are provided by Benchmark Sustainability Science, Benchmark Animal Health, Benchmark 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. 122 123 STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONBenchmark Holdings plc | Annual Report 2017 | Financial StatementsBenchmark Holdings plc | Annual Report 2017 | Financial StatementsNOTES FORMING PART OF THE FINANCIAL STATEMENTS (continued) for the year ended 30 September 2017 NOTES FORMING PART OF THE FINANCIAL STATEMENTS (continued) for the year ended 30 September 2017 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. 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. Retirement benefits: Defined contribution schemes Contributions to defined contribution pension schemes are charged to the income statement in the year to which they relate. 1 Accounting policies (continued) Externally acquired intangible assets 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 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 Websites Useful economic life 5 years Valuation method Assessment of estimated revenues and profits Patents Trademarks 2-5 years 2-5 years Cost to acquire Cost to acquire Contracts 3-20 years Licences 3-20 years Intellectual property Up to 20 years Customer lists Up to 26 years Genetic material and breeding nuclei 10-40 years Assessment of estimated revenues and profits Cost to acquire, or if not separately identifiable, assessment of estimated revenues and profits Cost to acquire, or if not separately identifiable, assessment of estimated revenues and profits Assessment of 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 124 125 STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONBenchmark Holdings plc | Annual Report 2017 | Financial StatementsBenchmark Holdings plc | Annual Report 2017 | Financial StatementsNOTES FORMING PART OF THE FINANCIAL STATEMENTS (continued) for the year ended 30 September 2017 NOTES FORMING PART OF THE FINANCIAL STATEMENTS (continued) for the year ended 30 September 2017 1 Accounting policies (continued) Deferred taxation 1 Accounting policies (continued) Government grants 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 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; • 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 Plant and machinery – 15% per annum reducing balance Motor vehicles E commerce infrastructure – 25% per annum reducing balance – 10% per annum straight line Other fixed assets – 15% — 33% per annum straight line 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, fish eggs and frozen milt. 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, fish eggs and frozen milt are, in accordance with IAS 41 ‘Agriculture’, measured at fair value, unless the fair value cannot be measured reliably. The principal components of fish, fish eggs and frozen milt within the business are: • Salmon broodstock • Salmon fingerlings • Salmon eggs • Lumpfish eggs and fingerlings • Tilapia broodstock and fingerlings • Frozen milt 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, fish eggs and frozen milt are given in note 19. 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. 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. 126 127 STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONBenchmark Holdings plc | Annual Report 2017 | Financial StatementsBenchmark Holdings plc | Annual Report 2017 | Financial StatementsNOTES FORMING PART OF THE FINANCIAL STATEMENTS (continued) for the year ended 30 September 2017 NOTES FORMING PART OF THE FINANCIAL STATEMENTS (continued) for the year ended 30 September 2017 1 Accounting policies (continued) 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. 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 (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’): Level 1: Quoted prices in active markets for identical items (unadjusted) 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 the following items at fair value. Biological assets (note 19) Contingent consideration outstanding from past acquisitions (note 21). 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. Judgements (a) Capitalisation of development costs Costs incurred on Internally developed products are capitalised in line with the Group’s accounting policy, and significant judgement is required in determining at which point the appropriate criteria for capitalisation have been met. This involves determination of factors such as the point when the technical feasibility has been established and the likelihood of commercialisation of the product. (b) Recognition of deferred tax Deferred tax is provided in full on temporary differences under the liability method using substantively enacted rates to the extent that they are expected to reverse. Provision is made in full where the temporary differences result in liabilities, but deferred tax assets are only recognised where the directors believe it is probably that the assets will be recovered. Judgement is required to determine the likelihood of reversal of the temporary differences in establishing whether an asset should be recognised. (c) 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. The assumptions used in the assessment of the recoverable amount are consistent with those used in the impairment review for goodwill as outlined in note 15. 3 Financial instruments — Risk Management 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. Where the level of contingent consideration payable is known with a reasonable level of certainty, as the underlying performance against target levels is well established, the contingent consideration is adjusted accordingly. This has resulted in an income statement credit in the period as shown in note 10. The contingent consideration for Akvaforsk Genetic Center Inc is dependent on a longer-term target and is recorded in these financial statements at management’s best estimate. 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 measured at amortised cost Cash and cash equivalents (note 35) Trade and other receivables (note 20) Total financial assets Financial liabilities Financial liabilities measured at amortised cost Trade and other payables (note 21) Loans and borrowings (note 22) Financial liabilities at fair value through profit and loss Other payables — contingent consideration (note 21) Total financial liabilities 2017 £000 18,779 30,074 48,853 2017 £000 37,850 42,687 80,537 1,222 81,759 2016 £000 38,140 30,003 68,143 2016 £000 27,682 37,696 65,378 8,806 74,184 128 129 STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONBenchmark Holdings plc | Annual Report 2017 | Financial StatementsBenchmark Holdings plc | Annual Report 2017 | Financial Statements NOTES FORMING PART OF THE FINANCIAL STATEMENTS (continued) for the year ended 30 September 2017 NOTES FORMING PART OF THE FINANCIAL STATEMENTS (continued) for the year ended 30 September 2017 3 Financial instruments — Risk Management (continued) 3 Financial instruments — Risk Management (continued) 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 £/THB Increase/(decrease) Profit £000 Equity £000 Profit £000 Equity £000 Profit £000 Equity £000 Profit £000 Equity £000 Profit £000 2017 10% increase in rate 3,213 (17,949) (186) (1,735) 115 (3,480) 427 (2,888) 2017 10% reduction in rate (3,927) 21,938 2016 10% increase in rate 3,214 (20,545) 227 174 2,121 (140) 4,253 (521) 3,530 (554) 359 (2,659) 412 (2,518) 2016 10% reduction in rate (3,928) 25,110 (213) 677 (439) 3,250 (504) 3,077 - - - - Equity £000 (961) 1,174 (854) 1,043 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. Company Financial assets Financial assets measured at amortised cost Cash and cash equivalents (note 35) Trade and other receivables (note 20) Total financial assets Financial liabilities Financial liabilities measured at amortised cost Trade and other payables (note 21) Loans and borrowings (note 22) Financial liabilities at fair value through profit and loss Other payables — contingent consideration (note 21) Total financial liabilities There were no financial instruments classified as available for sale. General objectives, policies and processes 2017 £000 1,776 126,843 128,619 2017 £000 25,772 36,451 62,223 84 62,307 2016 £000 27,480 101,122 128,602 2016 £000 25,916 37,193 63,109 82 63,191 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 20. Fair value and cash flow interest rate risk During the year the Group had borrowings denominated in Sterling, US Dollars and Norwegian Krone, 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 2017 would be £454,000 higher/lower (2016: £434,000 higher/lower). 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. 130 131 STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONBenchmark Holdings plc | Annual Report 2017 | Financial StatementsBenchmark Holdings plc | Annual Report 2017 | Financial Statements NOTES FORMING PART OF THE FINANCIAL STATEMENTS (continued) for the year ended 30 September 2017 NOTES FORMING PART OF THE FINANCIAL STATEMENTS (continued) for the year ended 30 September 2017 3 Financial instruments — Risk Management (continued) The following table sets out the contractual maturities (representing undiscounted contractual cash-flows) of financial liabilities: Group As at September 2017 Trade and other payables Loans and borrowings Total As at September 2016 Trade and other payables Loans and borrowings Total Company As at September 2017 Trade and other payables Loans and borrowings Total As at September 2016 Trade and other payables Loans and borrowings Total Capital Management Up to 3 months £000 34,803 6,411 41,214 Up to 3 months £000 26,613 416 27,029 Up to 3 months £000 25,615 328 25,943 Up to 3 months £000 25,916 326 26,242 Between 3 and 12 months £000 3,332 1,146 4,478 Between 3 and 12 months £000 1,051 1,232 2,283 Between 3 and 12 months £000 241 984 1,225 Between 3 and 12 months £000 82 966 1,048 Between 1 and 2 years £000 Between 2 and 5 years £000 - 1,314 1,314 937 38,091 39,028 Between 1 and 2 years £000 Between 2 and 5 years £000 7,862 1,438 9,300 962 40,042 41,004 Between 1 and 2 years £000 Between 2 and 5 years £000 - 1,312 1,312 - 38,091 38,091 Between 1 and 2 years £000 Between 2 and 5 years £000 - 1,292 1,292 - 40,042 40,042 Over 5 years £000 - 60 60 Over 5 years £000 - 60 60 Over 5 years £000 - 60 60 Over 5 years £000 - 60 60 The capital structure of the Group consists of debt, as analysed in Note 22, and equity attributable to the equity holders of the Parent Company, comprising share capital, share premium, merger reserve, capital redemption reserve, foreign exchange reserve, retained earnings, and share based payment reserve, and non-controlling interest 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. 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 items (see note 10) Other research and development costs Depreciation of PPE Amortisation of intangible assets Other costs 2017 £000 122,513 17,659 140,172 2017 £000 4,788 (4,413) 1,414 2,871 56,288 3,306 37,183 4,580 8,169 1,909 4,846 (136) 18 (5,649) 5,180 4,877 18,473 4,130 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 13,091 7,702 2,859 13,749 3,365 Total cost of sales, operating costs, depreciation and amortisation 147,834 129,846 132 133 STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONBenchmark Holdings plc | Annual Report 2017 | Financial StatementsBenchmark Holdings plc | Annual Report 2017 | Financial Statements NOTES FORMING PART OF THE FINANCIAL STATEMENTS (continued) for the year ended 30 September 2017 NOTES FORMING PART OF THE FINANCIAL STATEMENTS (continued) for the year ended 30 September 2017 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 2017 £000 66 304 24 - 13 407 2016 £000 64 249 23 3 907 1,246 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 that 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 31) The average monthly number of employees, including Directors, during the year was as follows: Production Administration Management 2017 £000 30,992 2,946 1,643 1,602 37,183 2017 No. 636 138 107 881 2016 £000 22,741 1,930 1,079 749 26,499 2016 No. 500 105 98 703 7 Staff costs (continued) Directors’ remuneration Salary £000 Bonus £000 Taxable benefits £000 Long-term incentive £000 Pension £000 Fees £000 2017 £000 2016 £000 244 230 283 - - - - 757 1 1 1 - - - - 3 2 3 6 - - - - 11 - - - - - - - - 24 16 28 - - - - - - - 45 45 38 - 271 250 318 45 45 38 - 288 269 318 45 43 - 35 68 128 967 998 Roland Bonney Mark Plampin Malcolm Pye Alex Hambro Susan Searle Kevin Quinn Basil Brookes Total Of the 2016 total of £998,000, £954,000 was emoluments and £44,000 related to pension and other post-employment benefit costs. During the year retirement benefits were accruing to 3 Directors (2016: 3) in respect of defined contribution pension schemes. The cost of employer National Insurance contributions in relation to the Directors was £119,000 (2016: £146,000). The value of the Group’s contributions paid to a defined contribution pension scheme in respect of the highest paid Director amounted to £28,000 (2016: £17,000). In addition to the above, there was an accounting charge for share based payments in respect of the Directors for £81,000 (2016: £35,000). The aggregate gain on the exercise of options by the Directors during the year was £106,000 (2016: £nil). Directors’ interests under the Company’s employee share plans Director Mark Plampin Share option scheme EMI scheme Options held at 30 September 2016 Options exercised in year Options granted in year 135,000 (135,000) - - Options held at 30 September 2017 - Exercise price 0.1p 67,647 0.1p Mark Plampin CSOP II 67,647 Mark Plampin CSOP II - - - 56,398 56,398 0.1p Date from which exercisable Grant date 29 August 2013 29 August 2016 9 March 2015 6 March 2017 8 March 2018 5 March 2020 In addition to the cash bonus, Malcolm Pye will receive 500,000 options, Mark Plampin will receive 400,000 options and Roland Bonney will receive 100,000 options, with an exercise price equal to market value of the Benchmark shares on the date of grant. Further details of Directors’ remuneration are provided in the Remuneration Report on pages 97 to 101. 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. 134 135 STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONBenchmark Holdings plc | Annual Report 2017 | Financial StatementsBenchmark Holdings plc | Annual Report 2017 | Financial Statements NOTES FORMING PART OF THE FINANCIAL STATEMENTS (continued) for the year ended 30 September 2017 NOTES FORMING PART OF THE FINANCIAL STATEMENTS (continued) for the year ended 30 September 2017 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; • Genetics Division — harnesses industry leading salmon breeding technologies combined with state-of-the-art production facilities to provide a range of year-round high genetic merit ova; • Advanced Animal Nutrition — manufactures and provides technically advanced nutrition and health products to the global aquaculture industry; • Corporate — the corporate segment represents revenues earned from recharging certain central costs to the operating divisions, together with unallocated central costs. In addition to the above, reported together as “all other segments” are the following divisions (known collectively as “Knowledge Services”), 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 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 2017 Animal Health £000 Genetics £000 Notes Advanced Animal Nutrition £000 All other segments £000 Corporate £000 Inter- segment sales £000 Total £000 15,149 30,530 83,659 13,770 4,300 (7,236) 140,172 (13,882) (13,842) (42,789) (9,405) (359) 2,496 (77,781) 1,267 16,688 40,870 4,365 3,941 (4,740) 62,391 (7,343) (2,682) (3,030) - - - (13,055) (5,527) (8,221) (20,159) (5,240) (4,890) 4,740 (39,297) (11,603) 5,785 17,681 (875) (949) 10 (631) 7,005 (19) (51) (655) (12,234) 12,790 17,662 (926) (1,604) (851) (523) (1,217) (1,630) (1,053) (126) (2,113) (14,950) (887) - Revenue Cost of sales Gross profit / (loss) Research and development costs Operating costs Adjusted EBITDA Exceptional including acquisition related items EBITDA Depreciation Amortisation Operating profit / (loss) (13,608) 9,460 1,082 (2,866) (1,730) Finance cost Finance income Share of profit of equity- accounted investees, net of tax Loss before tax - - - - - - 10,039 5,649 15,688 (4,877) (18,473) (7,662) (1,960) 1,495 27 (8,100) 8 Segment information (continued) Year ended 30 September 2016 Animal Health £000 Genetics £000 Notes Advanced Animal Nutrition £000 All other segments £000 Corporate £000 Inter- segment sales £000 Total £000 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) 9,802 7,194 28,507 4,210 2,064 (964) 50,813 (8,258) (2,195) (1,341) - - 74 (11,720) (5,766) (3,614) (11,302) (5,599) (4,317) 733 (29,865) (4,222) 1,385 15,864 (1,389) (2,253) (157) 9,228 10 (257) (2,387) 2 (146) (10,317) 14 (13,091) (4,479) (1,002) 15,866 (1,535) (12,570) (143) (3,863) (721) (792) (796) (1,016) (1,850) (10,369) (271) (738) (55) - - - (2,859) (13,749) Revenue Cost of sales Gross profit / (loss) Research and development costs Operating costs Adjusted EBITDA Exceptional including acquisition related items EBITDA Depreciation Amortisation Operating profit / (loss) (5,992) (3,648) 4,481 (2,544) (12,625) (143) (20,471) Finance cost Finance income Share of profit of equity- accounted investees, net of tax Loss before tax External revenue by location of customers Norway India United Kingdom Singapore Ecuador Rest of Europe Other (6,170) 3,984 273 (22,384) 2016 £000 18,697 9,584 13,610 2,360 4,876 18,772 41,476 2017 £000 18,803 15,040 14,661 9,821 9,223 30,471 42,153 No customers accounted for greater than 10% of total turnover in the year or the previous year. 140,172 109,375 136 137 STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONBenchmark Holdings plc | Annual Report 2017 | Financial StatementsBenchmark Holdings plc | Annual Report 2017 | Financial Statements NOTES FORMING PART OF THE FINANCIAL STATEMENTS (continued) for the year ended 30 September 2017 NOTES FORMING PART OF THE FINANCIAL STATEMENTS (continued) for the year ended 30 September 2017 8 Segment information (continued) Non-current assets by location of assets 11 Taxation Amounts recognised in profit or loss Belgium United Kingdom Rest of Europe Rest of world 9 Net finance costs Interest received on bank deposits Foreign exchange gains on financing activities Dividend income 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 recognised in profit or loss 2017 £000 244,627 44,911 109,916 19,022 418,476 2017 £000 258 1,225 12 1,495 (5) - (1,955) (1,960) (465) 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) The foreign exchange gains of £3,730,000 in 2016 arose 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 nature, non-recurring or 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. Acquisition related items Exceptional expenses Total exceptional costs 2017 £000 (6,254) 605 (5,649) 2016 £000 12,945 146 13,091 Acquisition related items are costs incurred in investigating and acquiring new businesses. During the year, the contingent consideration element of the provision for deferred consideration held for previous acquisitions has been recalculated considering up to date performance of those acquisitions and the projected performance for the final 3 months of the earn out period (which ended on 31 December 2017) against the relevant sales volumes and revenue targets. As a result, £7,283,000 (2016: £2,791,000) has been released in the year. Included in 2016 is £9,504,000 relating to the acquisition of INVE Aquaculture B.V. Exceptional include: costs of £452,000 (2016: £nil) for legal fees incurred in relation to a dispute around building works with the main contractor at premises in Braintree within the Animal Health Division; costs totalling £182,000 (2016: £nil) relating to a restructuring in an Animal Health Division business in Thailand, this included £97,000 of redundancy payments (staff costs) and £85,000 loss on disposal of property, plant and equipment; also included is a £29,000 (2016: £nil) credit in relation to balances written off in preparation for liquidating an entity in the Advanced Animal Nutrition division. In 2016 restructuring costs (staff costs) of £146,000 were incurred on re-organisations within the Sustainability Science Division. 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 24) Total tax credit 2017 £000 2016 £000 4,404 245 4,649 (5,812) 183 (5,629) (980) 1,252 (1,250) 2 (4,048) 8 (4,040) (4,038) The reasons for the difference between the actual tax credit 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 19.5% (2016: 20%) Income not taxable 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 2017 £000 (8,100) (1,580) (1,484) 801 - 2,835 428 - (142) (1,838) (980) 2016 £000 (22,384) (4,477) - 2,982 (54) 2,592 (1,242) (54) (475) (3,310) (4,038) 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% to 19% effective from 1 April 2017 and to 17% 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 £109,356 (2016: £1,037,000) in relation to Research and Development tax credits from 2015 and 2016 received during the year. Income not taxable includes a release of provision for deferred consideration. There was no deferred tax recognised in other comprehensive income. 138 139 STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONBenchmark Holdings plc | Annual Report 2017 | Financial StatementsBenchmark Holdings plc | Annual Report 2017 | Financial Statements NOTES FORMING PART OF THE FINANCIAL STATEMENTS (continued) for the year ended 30 September 2017 NOTES FORMING PART OF THE FINANCIAL STATEMENTS (continued) for the year ended 30 September 2017 12 Loss per share 13 Property, plant and equipment Basic 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) 2017 (7,440) 522,092 (1.43) 2016 (18,337) 417,952 (4.39) Diluted loss 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 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) 2017 (7,440) 522,092 (1.43) 2016 (18,337) 417,952 (4.39) A total of 4,464,413 potential ordinary shares have not been included within the calculation of statutory diluted loss per share for the year (2016: 5,891,889) as they are anti-dilutive. However, these potential ordinary shares could dilute earnings/loss per share in the future. Group Cost Balance at 1 October 2015 Additions On acquisition Reclassification Fair value adjustment Exchange differences Disposals Balance at 30 September 2016 Balance at 1 October 2016 Additions Reclassification Exchange differences Disposals Balance at 30 September 2017 Accumulated Depreciation Balance at 1 October 2015 Depreciation charge for the year Reclassification Exchange differences Disposals Balance at 30 September 2016 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 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) 7,557 4,803 2,204 34 - 1,325 (411) 204 - - 43 - - - 990 317 313 (357) - 100 (227) Total £000 28,194 18,660 6,089 - (75) 3,800 (671) 12,448 21,807 4,847 15,512 247 1,136 55,997 12,448 5,147 21,807 21,708 4,847 893 15,047 (16,118) (1,188) 310 4 (245) - (54) (217) 15,512 247 7,993 2,254 150 (318) - - - - 1,136 309 5 19 (242) 55,997 36,050 - 180 (773) 32,956 27,152 4,281 25,591 247 1,227 91,454 175 638 - 143 - 956 1,029 245 184 - 2,414 - - - - - - - - - - - - 451 1,780 178 469 3,053 358 1,638 79 28 - 162 321 (300) 21 42 1 - 204 (283) 36 (167) 2,859 - 529 (467) 916 3,601 242 259 5,974 916 3,601 242 259 5,974 759 (305) (36) (123) 2,817 22 108 (160) 2 - - - 270 38 11 (226) 4,877 - 267 (509) 1,211 6,388 244 352 10,609 30,542 11,492 5,455 27,152 21,807 11,092 3,070 3,931 2,270 19,203 11,911 5,777 3 5 26 875 877 521 80,845 50,023 25,141 Balance at 1 October 2016 956 Depreciation charge for the year Reclassification Exchange differences Disposals Balance at 30 September 2017 Net book value At 30 September 2017 At 30 September 2016 At 1 October 2015 140 141 STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONBenchmark Holdings plc | Annual Report 2017 | Financial StatementsBenchmark Holdings plc | Annual Report 2017 | Financial Statements NOTES FORMING PART OF THE FINANCIAL STATEMENTS (continued) for the year ended 30 September 2017 NOTES FORMING PART OF THE FINANCIAL STATEMENTS (continued) for the year ended 30 September 2017 13 Property, plant and equipment (continued) Security over the assets is disclosed within note 20. The above includes the following in respect of plant and machinery held under finance leases (note 28): 14 Intangible assets 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 Accumulated depreciation Net book value Company Cost Balance at 1 October 2015 Additions Balance at 1 October 2016 Additions Balance at 30 September 2017 Accumulated Depreciation Balance at 1 October 2015 Depreciation charge for the year Balance at 1 October 2016 Depreciation charge for the year Balance at 30 September 2017 Net book value At 30 September 2017 At 30 September 2016 At 1 October 2015 2017 £000 599 (396) 203 2016 £000 824 (266) 558 Office equipment and fixtures £000 218 148 366 137 503 64 62 126 90 216 287 240 154 Cost or valuation Balance at 1 October 2015 Additions — on acquisition Additions — externally acquired Additions — internally developed Disposals Exchange differences Balance at 30 September 2016 Balance at 1 October 2016 Additions — on acquisition Additions — externally acquired Additions — internally developed Exchange differences Balance at 30 September 2017 Accumulated amortisation and impairment Balance at 1 October 2015 Amortisation charge for the period Disposals Exchange differences Balance at 30 September 2016 Balance at 1 October 2016 Amortisation charge for the period Exchange differences Balance at 30 September 2017 Net book value At 30 September 2017 At 30 September 2016 At 1 October 2015 517 29,702 - 103,137 709 208 4,737 117,019 1,327 4,789 8,524 - 5,824 25,562 20,256 601 71,596 - - 251,316 44 - - - - - (345) 20,690 30 - - 128 9 - - - - - 83 - - 16,625 - - 667 - - 1,124 - - 4,192 - - 5,332 1,440 - - 1,440 (345) 48,758 561 153,184 1,075 138,390 6,783 9,648 35,578 26,189 1,440 372,848 561 153,184 12 - 1,075 - 138,390 - 6,783 157 9,648 - 35,578 - 26,189 - 1,440 372,848 169 - 36 - 30 26 - 18 - - - - (3,255) - (294) - (3,778) - (156) - (156) - (914) - - 56 - 110 2,144 (53) 2,144 (8,550) 597 149,941 811 134,638 6,784 9,510 34,664 26,245 3,531 366,721 515 618 449 261 133 2,431 937 380 3 - - - (345) 6 84 - 74 9,488 349 1,452 1,797 - 541 - 9 - 240 - 124 576 - 188 518 279 607 10,290 491 4,123 2,858 1,144 518 279 607 10,290 491 4,123 2,858 1,144 13 - - (3) 79 (55) 13,544 (932) 552 (15) 1,443 (60) 2,162 (121) 680 (13) 531 276 631 22,902 1,028 5,506 4,899 1,811 - - - - - - - - 5,724 13,749 (345) 1,182 20,310 20,310 18,473 (1,199) 37,584 66 149,665 43 152,905 29,084 2 180 468 260 111,736 128,100 4,476 5,756 6,292 1,194 4,004 5,525 6,093 29,765 32,720 4,887 24,434 25,045 19,876 3,531 329,137 1,440 352,538 65,872 - 142 143 STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONBenchmark Holdings plc | Annual Report 2017 | Financial StatementsBenchmark Holdings plc | Annual Report 2017 | Financial Statements NOTES FORMING PART OF THE FINANCIAL STATEMENTS (continued) for the year ended 30 September 2017 NOTES FORMING PART OF THE FINANCIAL STATEMENTS (continued) for the year ended 30 September 2017 15 Impairment testing of goodwill 16 Equity-accounted investees 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 Improve International GmbH INVE Aquaculture Group Animal Health 2017 £000 Sustainability Science 2017 £000 Breeding and Genetics 2017 £000 Technical Publishing 2017 £000 Advanced Animal Nutrition 2017 £000 288 432 167 - - - - - - - - - - - - 96 450 - - - - - - - - - - - - - 7,401 14,049 9,099 - - - - - - - - 775 - - - 2,996 12 - 887 546 30,549 3,783 - - - - - - - - - - - 113,900 113,900 *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 INVE Aquaculture Group Animal Health 2016 £000 Sustainability Science 2016 £000 Breeding and Genetics 2016 £000 Technical Publishing 2016 £000 Advanced Animal Nutrition 2016 £000 288 439 167 - - - - - - - - - - - 96 446 - - - - - - - - - - - - 7,590 13,512 9,334 - - 894 542 30,436 - - - - - 774 - - - 2,995 - 3,769 - - - - - - - - - - 117,264 117,264 Total 2017 £000 288 432 167 96 450 775 7,401 14,049 9,099 2,996 12 113,900 149,665 Total 2016 £000 288 439 167 96 446 774 7,590 13,512 9,334 2,995 117,264 152,905 *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 three-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 9 and 11% (2016: 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 (2016: 2.5%) 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, the growth rates and the timing of new product launches. Sensitivity analysis has been performed on the individual CGUs, and based on this analysis, no reasonably possible changes, such as a 1% change in discount rate, to these assumptions resulted in an additional impairment charge being required. Interest in joint venture Interest in associate Joint venture 2017 £000 1,934 578 2,512 2016 £000 - 581 581 During the year the Group invested in Salmar Genetics AS (SGA). SGA is a joint venture in which the Group has joint control and a 50% ownership interest. SGA is structured as a separate vehicle and the Group has a residual interest in the net assets of SGA. Accordingly, the Group has classified its interest in SGA as a joint venture. The following table summarises the financial information of SGA as included in its own financial statements, adjusted for fair value adjustments and differences in accounting policies. The table also reconciles the summarised financial information to the carrying amount of the Group’s interest in SGA. Percentage ownership interest Non-current assets Current assets Non-current liabilities Current liabilities Net assets (100%) Group's share of net assets (50%) Elimination of unrealised profit Carrying amount of interest in joint venture Revenue Cost of sales and operating costs Finance costs Profit and total comprehensive income (100%) Group's share of total comprehensive income (50%) 2017 £000 50% 3,173 2,917 (441) (863) 4,786 2,393 (459) 1,934 1,966 (1,965) (1) - - 2016 £000 - - - - - - - - - - - - - - The company is registered in Norway and the registered address is 7266 Kverva, Frøya, Norway. Associate The Group has a 22% interest in an associate Great Salt Lake Brine Shrimp Cooperative, Inc (the”Cooperative”). The Cooperative is one of the Group’s strategic suppliers and is an aquacultural cooperative organised for the purpose of harvesting, processing, manufacturing, and marketing artemia cysts and artemia feeds. The Group’s interest in the Cooperative represents 22% of the Cooperative’s unallocated equity reserves. The company is registered in USA and the registered address is 1750 West 2450 South, Ogden, Utah. 144 145 STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONBenchmark Holdings plc | Annual Report 2017 | Financial StatementsBenchmark Holdings plc | Annual Report 2017 | Financial Statements NOTES FORMING PART OF THE FINANCIAL STATEMENTS (continued) for the year ended 30 September 2017 NOTES FORMING PART OF THE FINANCIAL STATEMENTS (continued) for the year ended 30 September 2017 17 Subsidiary undertakings 17 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: Company name Registered address Animal Health Division Country of Incorporation Direct/ Indirect Group Interest Share class % of share capital/ voting rights held by Group companies Note Atlantic Veterinary Services Limited Unit 7B Oranmore Business Park, Oranmore, Co Galway, H91 XP3F Ireland Indirect 1€ ordinary shares 100% Benchmark Animal Health Group Limited Benchmark House, 8 Smithy Wood Drive, Sheffield S35 1QN Benchmark Animal Health Limited Benchmark House, 8 Smithy Wood Drive, Sheffield S35 1QN Benchmark Vaccines Limited Fish Vet Group Asia Limited Benchmark House, 8 Smithy Wood Drive, Sheffield, S35 1QN No.57/1 Moo 6, Samed Sub- District, Muang Chonburi District, Chonburi Province, 20000 United Kingdom Direct £1 ordinary 100% United Kingdom Indirect £1 ordinary 100% United Kingdom Indirect £1 ordinary 100% Thailand Indirect THB 10 ordinary 100% Fish Vet Group Limited (dormant) Benchmark House, 8 Smithy Wood Drive, Sheffield, S35 1QN United Kingdom Indirect £1 ordinary 100% Fish Vet Group Norge AS Hoffsveien 21-23, 0275, Oslo. Norway Indirect Fish Vet Group SPA Bernardino 1978, Puerto Montt FVG Canada Inc FVG Inc FVG Limited Knowledge Services – Sustainability Science Division Allan Environmental Limited Dust Collective Limited FAI Aquaculture Limited FAI do Brasil Criação Animal LTDA FAI Farms Limited RL Consulting Limited Trie Benchmark Limited 1600-3500 Boulevard De Maisonneuve, Ouest, Westmount, QC, H3Z 3CI Gulf of Maine Research Institute, 350 Commercial Street, Portland, Maine -04101 22 Carsegate Road, Inverness, IV3 8EX Benchmark House, 8 Smithy Wood Drive, Sheffield, S35 1QN 340 Glossop Road, Sheffield, S10 2HW Benchmark House, 8 Smithy Wood Drive, Sheffield, S35 1QN Fazenda Santa Terezinha, S/N — Zona Rural, Jaboticabal/SP , CEP: 14870-000 Benchmark House, 8 Smithy Wood Drive, Sheffield, S35 1QN Benchmark House, 8 Smithy Wood Drive, Sheffield, S35 1QN The Field Station, Northfield Farmhouse, Wytham, Oxford, OX2 8QJ Viking Fish Farms Limited (dormant) Benchmark House, 8 Smithy Wood, Sheffield, S35 1QN Woodland Limited (dormant) Benchmark House, 8 Smithy Wood, Sheffield, S35 1QN Chile Indirect Canada Indirect USA Indirect NOK 1 ordinary CLP 1 ordinary CAD 1 ordinary $10 common stock 100% 100% 100% 100% United Kingdom Indirect £1 ordinary 100% United Kingdom Indirect £1 ordinary 100% United Kingdom Direct £1 ordinary 100% United Kingdom Direct £1 ordinary 100% Brazil Indirect R$1 ordinary 99.25% United Kingdom Direct £1 ordinary 100% United Kingdom Direct £1 ordinary 100% United Kingdom Direct £1 ordinary 100% United Kingdom Indirect £1 ordinary 100% United Kingdom Direct £1 ordinary 100% Company name Registered address Country of Incorporation Direct/ Indirect Group Interest Share class % of share capital/ voting rights held by Group companies Note Knowledge Services - Technical Publishing Division 5M Enterprises Inc CBoT, 141 West Jackson Boulevard, Chicago, IL 60604-2900 USA Direct ordinary shares 98.50% 5M Enterprises Limited Benchmark House, Smithy Wood, Sheffield, S35 1QN AquacultureUK Limited (dormant) Benchmark House, Smithy Wood, Sheffield, S35 1QN Continuous Medical Training LDA 53 Rua do Bolhao, 4000-112 Oporto Curriculo Limited (dormant) Benchmark House, Smithy Wood, Sheffield, S35 1QN United Kingdom Indirect £1 ordinary 98.50% United Kingdom Direct £5 ordinary 100% Portugal Indirect £1 ordinary 100% United Kingdom Indirect £1 ordinary 98.50% European School of Veterinary Post-Graduate Studies Ltd (ESVPS) Benchmark House, Smithy Wood, Sheffield, S35 1QN United Kingdom Indirect Improve Formacion Veterinaria Calle Rio Lozoya 5, Bloque Derecho 3 A, 28981 Parla, Madrid Improve France SARL 11 rue Laugier, 75017 Paris Spain France Improve International Australia Pty Improve International GmbH Amtsgericht, Frankfurt, HRB 90624 Germany PO Box 59, Kenmore QLD 4069 Australia Indirect Indirect Indirect Indirect N/A N/A N/A AUD 1 ordinary shares N/A 100% 100% 100% 100% 100% Improve International Limited OOO 5M Enterprises Benchmark Genetics Division Alexandra House, Wroughton, Swindon SN4 0QJ Shlizovaya embarkmet 8/1, Moscow, 115 115 United Kingdom Direct 1p ordinary 100% Russia Indirect Shares 0% Akvaforsk Do Brasil Cultivo De Especies Aquaticas LTDA Rua Doutor Ribamar Lobo, 451, Coco, Fortaleza, CEI Brazil Akvaforsk Genetic Center AS Auragata 3, 6600 Sunndalsøra. Norway Indirect Indirect ordinary ordinary Akvaforsk Genetic Center Spring Mexico, SA de CV (dormant) Caguama 3023, Zapopan, Loma Bonita, Jaalisco 45086 Akvaforsk Genetics Center Inc 25508 SW 169th Ave, Miami Florida 33031 Mexico Indirect ordinary USA Indirect ordinary Benchmark Genetics Limited Benchmark House, 8 Smithy Wood Drive, Sheffield S35 1QN United Kingdom Direct £1 ordinary Genetica Spring SAS Calle 32, 8a-33 Office 215 Colombia Indirect ordinary Genetilapia, SA de CV Avenida Dr Carlos Canseco 5994 Planta Alta El Cid C.P. 82110 Mazatlan, Sinaloa Salmobreed AS Sandviksboder 3A,5035 Bergen Mexico Norway Salmobreed Salten AS Sørfjordmoen, Kobbelv, 8264 Engan Norway Indirect Indirect Indirect ordinary ordinary ordinary 80% 100% 80% 80% 100% 100% 41% 100% 75% Spring Genetics SRL Calle Los Alemanes, Condominium Condado de Baviera, Apt 703 Costa Rica Indirect ordinary 80% b a a a 146 147 STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONBenchmark Holdings plc | Annual Report 2017 | Financial StatementsBenchmark Holdings plc | Annual Report 2017 | Financial StatementsNOTES FORMING PART OF THE FINANCIAL STATEMENTS (continued) for the year ended 30 September 2017 NOTES FORMING PART OF THE FINANCIAL STATEMENTS (continued) for the year ended 30 September 2017 17 Subsidiary undertakings (continued) 17 Subsidiary undertakings (continued) Company name Registered address Stofnfiskur Chile Limitada (dormant) Urmeneta 581, Of. 42, Puerto Montt, Reg. X Stofnfiskur HF. Stadarberg 2-4, Hafnarfjordur Stofngen EHF (dormant) Stadarberg 2-4, Hafnarfjordur Sudourlax EHF (dormant) Stadarberg 2-4, Hafnarfjordur Country of Incorporation Chile Iceland Iceland Iceland % of share capital/ voting rights held by Group companies Share class ordinary ordinary ordinary ordinary 89.45% 89.45% 62.62% 89.45% Direct/ Indirect Group Interest Indirect Indirect Indirect Indirect Advanced Animal Nutrition Division Fortune Ocean Americas, LLC 3528 W 500 South, Salt Lake City, Utah 84104 USA Indirect N/A 100% Fortune Ocean Technologies Ltd. 25/F., OTB Building 160 Gloucester Road, Wanchai Hong Kong Indirect 1 HKD ordinary 100% Golden West Artemia Inland Sea Incorporated INVE (Thailand) Ltd. 3528 W 500 South, Salt Lake City, Utah 84104 3528 W 500 South, Salt Lake City, Utah 84104 USA USA Indirect $1 shares 100% Indirect shares 100% No. 79/ 1 Moo 1 Nakhonsawan- Pitsanulok Road, Tumbol Nhong Lhum, Amphur, Wachirabharamee, Phichit Province Thailand Indirect THB 1,000 shares 100% Inve Animal Health, S.A. Policarpo Sanz 12, 4º, 36202 Vigo, Pontevedra Spain Indirect 10€ shares 100% Inve Aquaculture Europe Holding B.V. Verlengde Poolseweg 16,4818 CL Breda Inve Aquaculture Holding B.V. Verlengde Poolseweg 16, 4818 CL Breda Netherlands Indirect 1€ shares 100% Netherlands Direct $1 shares 100% Inve Aquaculture México, S.A. de C.V. Avenida Camaron Sabalo # 51, Local 6, Interior, Plaza Riviera, Zona Dorada,Mazatlán Sinaloa 82110 Mexico Inve Aquaculture NV Hoogveld 93, 9200 Dendermonde Belgium Indirect Indirect MXN $1,000 shares shares 100% 100% Inve Aquaculture Temp Holding B.V. Verlengde Poolseweg 16, 4818 CL Breda Netherlands Indirect 1€ shares 100% INVE Aquaculture, Inc. 3528 W 500 South, Salt Lake City, Utah 84104 USA Indirect shares 100% Hong Kong Indirect $1 shares 100% Inve Asia Ltd INVE Asia Services Ltd. Inve do Brasil Ltda. Inve Eurasia SA Inve Hellas S.A. 25/F., OTB Building, 160 Gloucester Road, Wanchai 471 Bond Street, Tumbol Bang- Pood, Amphur Pakkred, Nonthburi ProvinceTumbol bang-pood, Amphur Pakkred, Nontburi Province Rua Augusto Calheiros, n° 226, Messejana, Fortaleza, Ceará, Zip Code 60.863-290 Thailand Indirect Brazil Indirect Karacaog˘lan Mahallesi 6170 Sokak No. 17/B Is¸ikkent/Izmir Turkey Indirect 93 Kiprou Str., 16451, Argyroupoli Greece Indirect THB 100 shares BRL 1 shares 6.25 TL shares $29.35 shares 100% 100% 100% 100% Note Company name Registered address Country of Incorporation Direct/ Indirect Group Interest Share class Inve Latin America B.V. Verlengde Poolseweg 16, 4818 CL Breda Netherlands Indirect 10€ shares Inve Technologies NV Hoogveld 93, 9200 Dendermonde Belgium Indirect INVE USA Holdings, Inc. 3528 W 500 South, Salt Lake City, Utah 84104 USA Indirect shares $0.001 shares % of share capital/ voting rights held by Group companies 100% 100% 100% Note Inve Vietnam Company Ltd Invecuador S.A. Inveservicios, S.A. de C.V. Maricoltura di Rosignano Solvay S.r.l. PT. Inve Indonesia Salt Creek Holdings, Inc Salt Creek, Inc. 8FI-19 Tan Canh, Ward 1, Tan Binh District, Ho Chi Minh City CDLA. Las Conchas, MZ A-11 No. Lot 8 , Salinas, Santa Elena Avenida Camaron Sabalo # 51, Local 6, Interior, Plaza Riviera, Zona Dorada,Mazatlán Sinaloa 82110 Rosignano Marittimo (LI), in via Pietro Gigli, 57013 , Solvay Loc. Lillatro Cilandak Commercial Estate, Jl. Cilandak KKO — Cilandak Timur — PasarMinggu — South Jakarta 12560 3528 W 500 South, Salt Lake City, Utah 84104 3528 W 500 South, Salt Lake City, Utah 84104 Sanders Brine Shrimp Company, L.C. 3528 W 500 South, Salt Lake City, Utah 84104 Tianjin INVE Aquaculture Co., Ltd No. 108, 83 Area, Xiamen Road, Tanggu Economic Development Zone, Binhai, New Area, Tianjin Tom Algae C.V.B.A. USA USA USA Vietnam Indirect N/A 100% Ecuador Indirect $1 shares 100% Mexico Indirect shares 100% Italy Indirect shares 100% Indonesia Indirect A shares & B shares $0.001 shares $0.05 shares 100% 100% 100% Indirect Indirect Indirect N/A 100% China Indirect shares 100% Graaf van Hoornestraat 1, 9850 Nevele Belgium Direct fixed and variable shares 100% United Aquaculture Technologies, LLC 3528 W 500 South , Salt Lake City, Utah 81404 USA Indirect N/A 100% Notes a b 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. 148 149 STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONBenchmark Holdings plc | Annual Report 2017 | Financial StatementsBenchmark Holdings plc | Annual Report 2017 | Financial Statements NOTES FORMING PART OF THE FINANCIAL STATEMENTS (continued) for the year ended 30 September 2017 NOTES FORMING PART OF THE FINANCIAL STATEMENTS (continued) for the year ended 30 September 2017 17 Subsidiary undertakings (continued) 19 Biological assets Investments in subsidiary companies £000 30,352 231,267 1,133 262,752 1,233 706 264,691 Group Organic sheep Organic beef Organic hens Frozen Milt Broodstock, eggs and fingerlings Total biological assets Less: non current broodstock Total current biological assets Livestock 2017 £000 214 201 24 876 15,228 16,543 (5,745) 10,798 2016 £000 262 244 23 - 11,330 11,859 (5,028) 6,831 The Group operates a commercial and research farming and technology transfer business, and at 30 September 2017 held 2,909 (2016: 3,269) head of sheep, 327 (2016: 447) head of cattle, and 9,011 (2016: 6,940) hens. The Group had farming sales of £346,194 in the year ended 30 September 2017 (2016: £358,000). 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. Frozen Milt Where we have identified individual salmon carrying particular traits or disease resistance, semen (milt) can be extracted and deep frozen using cryopreservation techniques (the process of freezing biological material at extreme temperatures in liquid nitrogen). The calculation of the fair value of milt is based on production and freezing costs and, where appropriate, an uplift to recognise the additional selling price that can be achieved from eggs fertilised by premium quality milt. The estimated fair value of Frozen Milt at 30 September 2017 was £876,000 (2016: £nil). The increase in value of £876,000 all relates to production. Cost or valuation Balance at 1 October 2015 Additions Capitalisation of intercompany balances Balance at 1 October 2016 Additions Capitalisation of intercompany balances Balance at 30 September 2017 Provisions Balance at 1 October 2015, 30 September 2016 and 30 September 2017 (850) Net book value At 30 September 2017 At 30 September 2016 At 1 October 2015 263,841 261,902 29,502 During 2017, intercompany balances totalling £706,000 were converted into share capital (2016: £1,133,000). Additionally, £1,233,000 (2016: £600,000) of the charge associated with share options relates to employees of subsidiary companies, and so this amount has been treated as an investment by the Company. In 2016, the Company acquired 100% of the share capital of INVE Aquaculture Holding B.V. for total consideration of £230,667,000. 18 Inventories Group Raw materials Work in progress Finished goods and goods for resale Total inventories at the lower of cost and net realisable value 2017 £000 8,120 1,781 10,152 20,053 2016 £000 6,510 10,039 6,682 23,231 During 2017, £57,702,000 (2016: £44,320,000) 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 £1,414,000 (2016: £686,000) in respect of write-downs of inventory to net realisable value. The Company did not have any inventories at the year-end (2016: £nil). 150 151 STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONBenchmark Holdings plc | Annual Report 2017 | Financial StatementsBenchmark Holdings plc | Annual Report 2017 | Financial Statements NOTES FORMING PART OF THE FINANCIAL STATEMENTS (continued) for the year ended 30 September 2017 NOTES FORMING PART OF THE FINANCIAL STATEMENTS (continued) for the year ended 30 September 2017 5,745 3,528 9,273 - 3,913 3,913 - 292 292 - - 5,745 1,661 1,661 89 89 9,483 15,228 Up to 3 months overdue 3 to 6 months overdue 6 to 12 months overdue 19 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 7,584 2,364 295 1,027 60 11,330 Due to physical changes (2,945) 16,180 Foreign exchange movements 247 (39) 4,441 - 300 (136) - 1,431 435 12 47 (3) 3 6,219 13,531 223 Reduction due to sales / discarding of stock - (14,626) (167) (1,013) (18) (15,824) Fair value adjustments (54) 34 - (231) - (251) 9,273 3,913 292 1,661 89 15,228 Biological assets 1 October 2016 Increase due to production / purchase Biological assets 30 September 2017 Broodstock, eggs and fingerlings — non-current Broodstock, eggs and fingerlings — current 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 the age and biomass of the fish is taken into account in the fair value. 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 £160,000. 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 (2016: £nil). 2017 538 tonnes 2.1m units 37.2m units 2016 557 tonnes 1.5m units 23.6m units 20 Trade and other receivables Group Trade receivables Less: provision for impairment of trade receivables Trade receivables — net 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 2017 £000 33,284 (3,210) 30,074 30,074 2,812 5,644 38,530 - 38,530 2016 £000 32,133 (2,130) 30,003 30,003 1,672 2,613 34,288 - 34,288 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 2017 trade receivables of £4,577,000 (2016: £6,979,000) were past due but not impaired. They relate to customers with no default history. The ageing analysis of these receivables is as follows: 2017 £000 3,616 716 245 4,577 2017 £000 2,130 - 1,347 (267) 3,210 2016 £000 5,253 1,139 587 6,979 2016 £000 279 1,831 291 (271) 2,130 Movements on the Group provision for impairment of trade receivables are as follows: At 1 October Assumed in a business combination (Released)/provided during the year Receivable written off during the year as uncollectable At 30 September 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. 152 153 STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONBenchmark Holdings plc | Annual Report 2017 | Financial StatementsBenchmark Holdings plc | Annual Report 2017 | Financial Statements NOTES FORMING PART OF THE FINANCIAL STATEMENTS (continued) for the year ended 30 September 2017 NOTES FORMING PART OF THE FINANCIAL STATEMENTS (continued) for the year ended 30 September 2017 20 Trade and other receivables (continued) 21 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 2017 £000 117,986 8,362 2016 £000 93,879 7,243 126,348 101,122 475 20 126,843 - 126,843 218 149 101,489 - 101,489 The balance of receivables from related parties includes a provision for impairment of £6,600,000 (2016: £nil) made during the year following a review of the individual subsidiaries’ net assets. 21 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 2017 £000 22,534 5,629 9,687 37,850 1,222 1,222 2,882 3,757 45,711 (1,213) 44,498 2016 £000 14,172 8,271 5,239 27,682 8,806 8,806 593 2,976 40,057 (8,825) 31,232 Book values approximate to fair value at 30 September 2017 and 2016. 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. 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. As disclosed in note 10, there has been a release of £7,283,000 (2016: £2,791,000) of the amount provided. Company Trade payables Payables to related parties 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 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 2017 and 2016. 22 Loans and borrowings Group Non-Current Bank borrowings Other loans Finance lease creditor (note 28) Current Other loans Finance lease creditor (note 28) Total loans and borrowings 2017 £000 474 24,156 1,142 25,772 84 84 339 26,195 - 26,195 2017 £000 36,391 60 2 36,453 6,019 215 6,234 42,687 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 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 (expiring on 11 December 2020) 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 2017, $50,000,000 was drawn down on the facility. The interest rate on the facility is between 1.9% and 3.0% above LIBOR depending on leverage. The finance lease liabilities are secured on the assets to which they relate. At 30 September 2017 SalmoBreed Salten AS had a NOK 60 million short term loan outstanding from its minority shareholder, Salten Stamfisk AS. The interest rate on the loan was 2.5% above seven day Norwegian Interbank Offered Rate (NIBOR). The loan was fully repaid in October 2017 from the proceeds of a new NOK 216 million construction loan facility provided by Nordea Bank Norge ASA to SalmoBreed Salten AS. The construction loan is available for drawdown up to 31 December 2018. The interest rate on this new facility is 2.5% above seven day NIBOR. Once the construction loan has been fully drawn, the loan converts into a five year term loan at an interest rate of 2.65% above 3 month NIBOR. 154 155 STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONBenchmark Holdings plc | Annual Report 2017 | Financial StatementsBenchmark Holdings plc | Annual Report 2017 | Financial Statements NOTES FORMING PART OF THE FINANCIAL STATEMENTS (continued) for the year ended 30 September 2017 NOTES FORMING PART OF THE FINANCIAL STATEMENTS (continued) for the year ended 30 September 2017 22 Loans and borrowings (continued) The currency profile of the Group's loans and borrowings is as follows: Sterling US Dollar Euro Norwegian Krone 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 2017 £000 71 36,391 200 6,019 6 42,687 2017 £000 36,391 60 36,451 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 2017 £000 60 36,391 36,451 2016 £000 60 37,133 37,193 23 Provisions Group At 1 October 2015 Assumed in a business combination Charged to profit or loss Foreign exchange movement Utilised in year At 1 October 2016 Credited to profit or loss Foreign exchange movement Utilised in year At 30 September 2017 Current Non-current At 30 September 2017 Current Non-current At 30 September 2016 Legal fees provision Legal fees provision £000 Repairs provision £000 Other provisions £000 201 - 349 - (88) 462 - - (262) 200 200 - 200 462 - 462 30 - 40 - - 70 - - - 70 70 - 70 70 - 70 802 291 107 63 (709) 554 (336) 7 (45) 180 180 - 180 554 - 554 Total £000 1,033 291 496 63 (797) 1,086 (336) 7 (307) 450 450 - 450 1,086 - 1,086 The legal fees provision relates to potential costs the Group may be liable for relating to a legal action it took against a third party in relation to intellectual property matters. Management believe the provision held to be adequate 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 (2016: £15,000). Additionally, Benchmark Vaccines Limited has a repairs provision of £55,000 (2016: £15,000) in respect of its Braintree premises. Other provisions During the year provisions of a further £25,000 were made and amounts of £45,000 were utilised to total £180,000 (2016: £200,000) 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 2018. A provision of £354,000 held at the previous year end for an overseas customs duty dispute has been released to profit or loss as it was no longer required. No provisions were held by the Company at the year-end (2016: £nil). 156 157 STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONBenchmark Holdings plc | Annual Report 2017 | Financial StatementsBenchmark Holdings plc | Annual Report 2017 | Financial Statements NOTES FORMING PART OF THE FINANCIAL STATEMENTS (continued) for the year ended 30 September 2017 NOTES FORMING PART OF THE FINANCIAL STATEMENTS (continued) for the year ended 30 September 2017 24 Deferred tax 24 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: 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 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 credit (note 11) Recognised in equity At 30 September 2017 £000 (63,261) - 5,629 1,273 - (56,359) 2017 £000 - - - - 2016 £000 (8,224) (50,106) 4,040 (8,676) (295) (63,261) 2016 £000 170 (127) (43) - 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 in the relevant tax jurisdiction. The Group did not recognise deferred tax assets of £9,112,000 (2016: £5,535,000) in respect of losses amounting to £28,492,000 (2016: £21,903,000) and temporary differences of £1,363,000 (2016: £4,358,000), 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. Group Accelerated capital allowances Other temporary and deductible differences Available losses Fair value of share options Asset 2017 £000 - - 2,922 - Liability 2017 £000 Net 2017 £000 (Charged)/ credited to profit or loss 2017 £000 (Charged)/ credited to equity 2017 £000 (58,348) (58,348) 3,126 (1,081) - - (1,081) 2,922 - (281) 2,635 - 5,480 - - - - - Net tax assets / (liabilities) 2,922 (59,429) (56,507) 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) Liability 2016 £000 Net 2016 £000 (Charged)/ credited to profit or loss 2016 £000 (Charged)/ credited to equity 2016 £000 (62,748) (62,748) 4,962 (800) - (800) 287 - (1,149) 225 2 (63,548) (63,261) 4,040 - - - 295 295 Asset 2016 £000 - - 287 - 287 Asset 2017 £000 Liability 2017 £000 Net 2017 £000 (Charged)/ credited to profit or loss 2017 £000 (Charged)/ credited to equity 2017 £000 - - - - - - - - - - - - - - - - - - - - - - - - - Asset 2016 £000 Liability 2016 £000 Net 2016 £000 (Charged)/ credited to profit or loss 2016 £000 (Charged)/ credited to equity 2016 £000 - - - - - - - - - - - - - - - 3 (130) - - (127) - - - (43) (43) 158 159 STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONBenchmark Holdings plc | Annual Report 2017 | Financial StatementsBenchmark Holdings plc | Annual Report 2017 | Financial Statements NOTES FORMING PART OF THE FINANCIAL STATEMENTS (continued) for the year ended 30 September 2017 NOTES FORMING PART OF THE FINANCIAL STATEMENTS (continued) for the year ended 30 September 2017 25 Share capital and additional paid-in capital 26 Reserves Allotted, called up and fully paid Ordinary shares of 0.1 penny each Balance at 30 September 2015 Shares placed to fund the acquisition of INVE 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 Exercise of share options Benchmark Share Incentive Plan Balance at 30 September 2017 Number Share Capital £000 Additional paid-in capital £000 219,349,525 215,922,141 38,635,671 50,742 110,873 47,279,127 - 521,348,079 991,144 25,811 522,365,034 219 216 39 - - 47 - 521 1 - 522 94,672 185,477 33,188 - 95 30,684 (4,685) 339,431 - - 339,431 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. On 1 December 2016, the Company issued a total of 670,173 shares of 0.1p each to certain employees of the Group relating to share options granted in August 2013 and March 2015. On 6 March 2017, the Company issued a total of 203,105 shares of 0.1p each to certain employees of the Group relating to share options granted in August 2013 and March 2015. On 13 March 2017, the Company issued a total of 25,811 shares of 0.1p each in respect of the Benchmark Share Incentive Plan (“SIP”). The shares are free matching shares issued upon certain conditions being met following purchase by eligible employees of partnership shares in 2014. On 3 April 2017, the Company issued a total of 117,866 shares of 0.1p each to certain employees of the Group relating to share options granted in August 2013 and March 2015. 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 4,543,420 (2016: 5,257,431) 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. The following describes the nature and purpose of each reserve within equity: Reserve Description and purpose Share premium reserve Amount subscribed for share capital in excess of nominal value. Merger reserve Under merger relief, the amount in excess of nominal value attributed to shares issued as consideration in an acquisition where the Group has secured at least a 90% equity holding in the other company. 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. 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 31 for further details of these plans. During the current year the directors noticed that the amount that was described as share premium reserve in the prior year financial statements should have been described as additional paid-in capital as it was made up of two components, the share premium reserve as well as a merger reserve. As a result the reserve has been re-labelled as paid-in capital instead of share premium reserve. This change is merely presentational. The balance of additional paid-in share capital includes the merger reserve balance of £33,188,000, the balance being the share premium reserve. The merger reserve arose due to the Company issuing 38,635,671 shares of 0.1p each at 86p as part consideration for the acquisition of INVE Aquaculture Holdings B.V. on 30 December 2015. 27 Non-controlling interest The following table summarises the information relating to each of the Group’s subsidiaries that has a material non- controlling interest (NCI), before any intra-group eliminations. Year ended 30 September 2017 NCI percentage Non-current assets Current assets Non-current liabilities Current liabilities Net assets Other individually immaterial subsidiaries £000 Total £000 Stofnfiskur HF. £000 Salmobreed Salten AS £000 10% 16,184 11,330 (1,880) 25% 24,517 716 - (11,698) (11,250) 13,936 13,983 Net assets attributable to NCI 1,459 3,500 12 4,971 Revenue Profit/(loss) OCI Total comprehensive income Profit/(loss) allocated to NCI OCI allocated to NCI Cash flows from operating activities Cash flows used in investment activities Cash flows from financing activities (dividends to NCI: £nil) Net increase in cash and cash equivalents 14,345 4,116 (1,280) 2,836 431 (134) - (99) (256) (355) (25) (64) 2,425 3,781 (1,815) (23,858) 500 1,110 20,737 660 (86) 37 320 (161) 160 161 STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONBenchmark Holdings plc | Annual Report 2017 | Financial StatementsBenchmark Holdings plc | Annual Report 2017 | Financial Statements NOTES FORMING PART OF THE FINANCIAL STATEMENTS (continued) for the year ended 30 September 2017 NOTES FORMING PART OF THE FINANCIAL STATEMENTS (continued) for the year ended 30 September 2017 27 Non-controlling interest (continued) Year ended 30 September 2016 NCI percentage Non-current assets Current assets Non-current liabilities Current liabilities Net assets Net assets attributable to NCI Revenue Profit OCI Total comprehensive income Profit allocated to NCI OCI allocated to NCI Cash flows from operating activities Cash flows used in investment activities Cash flows (used in)/from financing activities (dividends to NCI: £nil) Net (decrease)/increase in cash and cash equivalents Stofnfiskur HF. £000 Salmobreed Salten AS £000 Other individually immaterial subsidiaries £000 Total £000 10% 9,195 12,663 (7,244) (3,511) 11,103 1,163 7,933 415 2,646 3,061 43 277 993 (3,612) (1,496) (4,115) 50% 996 32 - (913) 115 58 - - 24 24 - 12 935 (996) 93 32 60 1,281 (34) (10) 9 279 28 Leases Finance leases The Group leases plant and machinery with a carrying value of £203,000 (2016: £558,000). Such leases 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 Not later than one year Later than one year and not later than five years Later than five years Minimum lease payments 2017 £000 220 2 - 222 Minimum lease payments 2016 £000 294 215 - 509 The present values of future lease payments are analysed as: Current liabilities Non-current liabilities Operating leases — lessee Interest 2017 £000 Present value 2017 £000 5 - - 5 215 2 - 217 Interest 2016 £000 Present value 2016 £000 5 1 - 6 2017 £000 215 2 217 289 214 - 503 2016 £000 289 214 503 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 2017 £000 2,860 5,667 4,021 12,548 2016 £000 1,765 4,122 2,825 8,712 162 163 STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONBenchmark Holdings plc | Annual Report 2017 | Financial StatementsBenchmark Holdings plc | Annual Report 2017 | Financial Statements NOTES FORMING PART OF THE FINANCIAL STATEMENTS (continued) for the year ended 30 September 2017 NOTES FORMING PART OF THE FINANCIAL STATEMENTS (continued) for the year ended 30 September 2017 29 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 £1,506,000 (2016: £1,079,000). Contributions totalling £783,000 (2016: £306,200) were payable to the fund at the balance sheet date and are included in other payables. 30 Capital commitments At 30 September 2017, the Group and Company had capital commitments as follows: Contracted for but not provided within these financial statements 9,339 4,833 - - Group 2017 £000 Group 2016 £000 Company 2017 £000 Company 2016 £000 31 Share-based payment Share options The Group operates equity settled share option schemes 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 2017: Year As at 1 October 2016 Granted in 2017 Exercised in 2017 Forfeited in 2017 As at 30 September 2017 Option Price* No. of options 2013 89,000 2013 1,113,000 2015 864,903 2015 119,396 2016 3,071,132 - - - - - 2017 - 463,702 (89,000) (891,000) - - - 0.10p 222,000 0.10p (11,144) (78,723) 775,036 0.10p - - - (21,821) 97,575 0.10p (86,025) 2,985,107 0.10p - 463,702 0.10p * The option price is the nominal value of the parent Company’s shares. Exercise Period 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 March 2020 to February 2027 31 Share-based payment (continued) Year ended 30 September 2016: Year As at 1 October 2015 Granted in 2016 Exercised in 2016 Forfeited in 2016 As at 30 September 2016 Option Price* No. of options 2013 89,000 - - - 89,000 0.10p 2013 1,183,000 - (35,000) (35,000) 1,113,000 0.10p 2015 988,753 - (15,742) (108,108) 864,903 0.10p 2015 140,433 - - (21,037) 119,396 0.10p 2016 - 3,093,493 - (22,361) 3,071,132 0.10p * The option price is the nominal value of the parent Company’s shares Exercise Period 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 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. 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 6 years. The fair value of the 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 £nil (2016: £7,000). This has been reflected in the income statement and included within operating costs. 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 6 years. The fair value of the 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 £nil (2016: £93,000). This has been reflected in the income statement and included within operating costs. 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 7 years. The fair value of the 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 £329,000 (2016: £344,000). This has been reflected in the income statement and included within operating costs. Of the options issued in March 2016, 15,742 were exercised early in respect of a good leavers. Of the total number of options outstanding at 30 September 2017, 222,000 (2016: 1,202,000) were exercisable. Share options issued in March 2016 Options exercised in 2017 resulted in 991,144 shares being issued at a weighted average price of 0.1p. The related weighted average share price at the time of exercise was 83.6p per share. Share options outstanding at the year-end had a weighted average exercise price of 0.1p and a weighted average remaining contractual life of 8 years. The fair value of the 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. 164 165 STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONBenchmark Holdings plc | Annual Report 2017 | Financial StatementsBenchmark Holdings plc | Annual Report 2017 | Financial Statements NOTES FORMING PART OF THE FINANCIAL STATEMENTS (continued) for the year ended 30 September 2017 NOTES FORMING PART OF THE FINANCIAL STATEMENTS (continued) for the year ended 30 September 2017 31 Share-based payment (continued) 32 Business Combinations The expense recognised for these options during the year was £663,000 (2016: £305,000). This has been reflected in the income statement and included within operating costs. Share options issued in March 2017 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 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 £110,000 (2016: £nil). This has been reflected in the income statement and included within operating costs. Share options to be issued in 2018 During the year, the decision was made to replace an element of cash bonuses for the year with an award of share options to be granted after the year end. The final details of the award have not yet been determined, but a charge of £500,000 has been made in the income statement for the year as an estimate of element of the value of the award relating to the current year. 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 £1,602,000 (2016: £749,000). The share-based payment expense comprises: Equity-settled schemes Total share based payment charge 2017 £000 1,602 1,602 2016 £000 749 749 The total charge reflected in the Company’s income statement was £369,000 (2016: £149,000), all charged to operating costs in both years. No business combinations occurred during the year. In the previous year the following business combinations occurred: On 30 December 2015, Benchmark Holdings plc completed the acquisition of 100% of INVE Aquaculture Holding B.V. (“INVE”), a leading specialist manufacturer of primary stage technically advanced nutrition and health products for aquaculture, for a total consideration of $342 million (approximately £230.7 million). The Directors identified a strong strategic rationale for the acquisition. INVE’s leadership in speciality aquaculture nutrition market is complementary to Benchmark’s position in genetics and health. The acquired business complements Benchmark’s existing expertise and operations within aquaculture and the enlarged group will become a leading global provider of technology for sustainable food production, with a strong focus on the aquaculture sector, benefiting from immediate scale in advanced aquaculture nutrition and health products, enhanced sales, marketing and distribution network and the opportunity for cross selling and new product development. The acquisition created the Advanced Animal Nutrition Division. In view of the size of the acquisition relative to the Group, the transaction was classified as a reverse takeover under the AIM rules. For accounting purposes, Benchmark Holdings plc was identified as the acquirer and the transaction was accounted for using the acquisition method. This was because Benchmark Holdings plc had obtained control over the operations of INVE as a result of the transaction. Certain intangible assets were separately identified and were provisionally valued as shown in the table below. Related deferred tax was also 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. 166 167 STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONBenchmark Holdings plc | Annual Report 2017 | Financial StatementsBenchmark Holdings plc | Annual Report 2017 | Financial Statements NOTES FORMING PART OF THE FINANCIAL STATEMENTS (continued) for the year ended 30 September 2017 NOTES FORMING PART OF THE FINANCIAL STATEMENTS (continued) for the year ended 30 September 2017 32 Business Combinations (continued) Details of the fair value of the consideration paid and assets and liabilities assumed during the previous year are shown in the table below: 32 Business Combinations (continued) Measurement of fair values 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 The valuation techniques used for measuring the fair value of material assets acquired were as follows. Assets acquired Valuation technique Property, plant and equipment Intangible assets Inventories Market comparison technique and cost technique: The valuation model considers quoted market prices for similar items when they are available, and depreciated replacement cost when appropriate. Depreciated replacement cost reflects adjustments for physical deterioration as well as functional and economic obsolescence. 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. 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 2016 INVE contributed £54,870,000 to the Group’s revenue and increased EBITDA by £15,729,000 for the period. The Genética Spring contributed £nil to the Group’s revenue and decreased EBITDA by £61,000 for the period. The table below shows the Group’s pro-forma revenue and EBITDA for 2016 if the acquisitions had taken place at the start of that period. Revenue EBITDA INVE Aquaculture Holdings B.V. £000 14,200 2,300 2016 £000 109,375 (3,863) Genética Spring £000 - - Total £000 123,575 (1,563) 168 169 STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONBenchmark Holdings plc | Annual Report 2017 | Financial StatementsBenchmark Holdings plc | Annual Report 2017 | Financial Statements NOTES FORMING PART OF THE FINANCIAL STATEMENTS (continued) for the year ended 30 September 2017 NOTES FORMING PART OF THE FINANCIAL STATEMENTS (continued) for the year ended 30 September 2017 33 Related party transactions 34 Contingent liabilities Transactions between the Company and its subsidiary undertakings (see note 17), which are related parties, amounted to £3,737,400 in the year (2016: £1,912,8000). These transactions related to intercompany recharges. Balances with subsidiary undertakings are shown in notes 20 and 21. Details of transactions between the Group and other related parties are disclosed below. Included within trade and other payables due after more than one year are the following loans from related parties: There is a full cross guarantee in respect of certain borrowings of other Group undertakings. Total such borrowings of other Group undertakings at 30 September 2017 were £nil (2016: £3,559,000). 35 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 2017 £000 18,779 18,779 1,776 1,776 2016 £000 38,140 38,140 27,480 27,480 Director Total Group 2017 £000 (60) (60) Group 2016 £000 (60) (60) Company 2017 £000 (60) (60) Company 2016 £000 60 60 The loan from Malcolm Pye, Chief Executive Officer, has no fixed repayment date. Group entities entered into the following trading transactions and outstanding balances with related parties that are not members of the Group: Sales of good and services Salmar Genetics AS Great Salt Lake Brine Shrimp Cooperative, Inc Purchases Benchmark Holdings Limited Executive Pension scheme Great Salt Lake Brine Shrimp Cooperative, Inc Transaction values for the year ended 30 September Balance outstanding as at 30 September 2017 £000 974 195 2016 £000 - 294 2017 £000 - 103 2016 £000 - 72 72 72 - 20 15,819 11,440 3,344 4,400 The Company is controlled by the shareholders. There is no single controlling party. 170 171 STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONBenchmark Holdings plc | Annual Report 2017 | Financial StatementsBenchmark Holdings plc | Annual Report 2017 | Financial Statements 04 ADDITIONAL INFORMATION 174 Glossary 175 Advisers STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITI ONAL INFO RMATION We believe our new land-based salmon production facility is the world’s most advanced. It is the result of decades of combined know-how and experience. We are already seeing excellent growth rates and virtually no mortality. The future is pathogen-free egg production and this site enables us to meet this demand. Stig Joar Krogli SalmoBreed Salten Project Manager 173 GLOSSARY ADVISERS 3Es Environment, Ethics & Economics — Benchmark’s framework for sustainability Adjusted EBITDA EBITDA before exceptional and acquisition costs AGM AHPND AIM API CAGR CEO CFO CGU CleanTreat® CPD Defra EBITDA Ectosan® Annual General Meeting Acute Hepatopancreatic Necrosis Disease — a shrimp disease — previously known as Early Mortality Syndrome Alternative Investment Market Active Pharmaceutical Ingredient Compound Annual Growth Rate Chief Executive Officer Chief Financial Officer Cash Generating Unit Benchmark’s purification system which removes any detectable traces of medicine from treatment water before it is discharged into the ocean Continuing Professional Development Department for Environment, Food and Rural Affairs Earnings before interest, tax, depreciation and amortisation Benchmark’s next generation sea lice treatment EMI scheme Enterprise Management Incentive scheme EMS Early Mortality Syndrome in shrimp, now known as AHPND EU GMP EU Good Manufacturing Practice FAO FAWC FCR FY Genomic Selection GWE Food and Agriculture Organisation Farm Animal Welfare Committee Feed Conversion Ratio Financial Year Targeted breeding by selecting individuals based on their genome Gutted Weight Equivalent Histopathology Diagnosis and study of disease IFRS Investing Activities IP IPO LTIP M&A Organic growth International Financial Reporting Standards 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 Intellectual Property Initial Public Offering Long-term Incentive Plan Mergers & Acquisitions Organic growth, as it applies to financial information, is the growth arising year on year in any part of the business eliminating the impact of the different ownership periods of any acquisitions made in either the current or prior year as appropriate PD 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 Salmosan® Benchmark’s sea lice bath treatment SIP SPR Trading Activities Share Incentive Plan Specific Pathogen Resistant Trading Activities are those operations which generate earnings in the current period excluding Investing Activities 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 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 1 Sovereign Square Sovereign Street Leeds LS1 4DW Registrars: Equiniti Limited Aspect House Spencer Road Lancing West Sussex BN99 6DA Financial Public Relations: MHP Communications 6 Agar Street London WC2N 4HN 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 © 2017 Benchmark Holdings plc and its subsidiaries Printed on FSC Certified paper — Manufactured with Windpower 175 Benchmark Holdings plc | Annual Report 2017 | Additional InformationSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATION TECHNOLOGY DRIVEN GROWTH 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

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