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Edited Transcript of BMKB.L earnings conference call or presentation 27-Nov-20 8:30am GMT

·47 min read

Full Year 2020 Benchmark Holdings PLC Earnings Call SHEFFIELD Nov 27, 2020 (Thomson StreetEvents) -- Edited Transcript of Benchmark Holdings PLC earnings conference call or presentation Friday, November 27, 2020 at 8:30:00am GMT TEXT version of Transcript ================================================================================ Corporate Participants ================================================================================ * Septima Maguire Benchmark Holdings plc - CFO & Director * Trond Williksen Benchmark Holdings plc - CEO & Director ================================================================================ Conference Call Participants ================================================================================ * Anand Dhananjay Date HSBC, Research Division - UK MidCap Equity Analyst * Damian Paul McNeela Numis Securities Limited, Research Division - Analyst * Emma Ulker Equity Development Limited - Analyst * Max Stephen Herrmann Stifel, Nicolaus & Company, Incorporated, Research Division - Head of European Healthcare Equity Research & MD * Patrick Roquas Kepler Cheuvreux, Research Division - Equity Research Analyst ================================================================================ Presentation -------------------------------------------------------------------------------- Unidentified Company Representative, [1] -------------------------------------------------------------------------------- Welcome to the Benchmark Holdings Full Year 2020 Results Webinar. (Operator Instructions) There's a PDF of the slides on the right-hand side. This webinar is being recorded. I now hand over to Trond Williksen, CEO; and Septima Maguire, CFO. Trond, over to you. -------------------------------------------------------------------------------- Trond Williksen, Benchmark Holdings plc - CEO & Director [2] -------------------------------------------------------------------------------- Thank you, and good morning to all of you, and welcome to our financial year '20 year-end presentation. I am Trond Williksen, the CEO of Benchmark Holdings, and I am joined by our CFO, Septima Maguire. And together, we are going to give you an insight into the financial performance of our financial year ending September 30 as well as update you on status, strategy and outlook for the group going forward. Slide 2, please. So we can start off with the highlights. Truly, financial year '20 has been an exceptional year for Benchmark, a year of true transformation. The main theme has been to deliver on a highly needed restructuring. And we have done so. We have completed a very significant restructuring, transforming the company towards becoming a streamlined, focused aquaculture biotechnology company, with core activities within Genetics, Advanced Nutrition and Health. We have managed to execute on this despite partly difficult trading conditions and despite considerable challenges related to COVID. And we have emerged in a significantly stronger financial position. It follows from this that given the circumstances, we are satisfied with the financial performance in what has been a truly exceptional financial year '20. The financials, which you can see from these slides, reflect that we have been able to trade through a challenging year being rather resilient. Key to the financial performance of the group has been a strong operational and financial performance in Genetics. We have been able to advance operationally and financially despite COVID, supported by a salmon industry that remains rather robust throughout the year. The situation in Advanced Nutrition has been more challenging. The shrimp industry, which constitutes the main market for our high-quality Advanced Nutrition solutions, has been significantly impacted by COVID and by underlying temporary disruption of supply-demand balance in different markets. In addition, we have experienced a similar imbalance in supply/demand of Artemia, still being our largest product group in Advanced Nutrition. Both these factors have impacted our operational and financial performance for this business area in the financial year that we have left behind. Our Health business area has had a year of considerable change with the divestment of large part of its higher business activities which we have defined to be noncore. What we are left with is a very focused business area now concentrating only on aquaculture and, more specifically, on solutions addressing the main challenge -- main sustainability challenge of the salmon industry, the sea lice. Through the year, we have managed to make very good progress towards commercial launch of BMK08 and CleanTreat, which will be a transformative solution for the salmon industry and is still on track to be launched in Q2 in calendar year '21. Looking forward, I see outlook as positive. We have a company well positioned in a very attractive industry with a lot of opportunities. And both the industry and the company are aligned with major ESG trends and opportunities. Slide 3, please. Our aim is to be a streamlined, profitable, market-leading aquaculture biotechnology company. Financial year '20 has really brought us forward towards this aim. We are ending financial year '20 in a much better position than we were when we entered the year, financially stronger, more streamlined, more focused, more commercial. The 3 clearly defined core business areas, Genetics, Advanced Nutrition and Health, 3 complementary areas, all of them with very good value proposition to the challenges and opportunities of the aquaculture industry, all of them with established business as well as initiatives that will enable us to grow in the years to come. We will remain focused, sticking to what is defined as being the core of Benchmark, making sure we realize the substantial potentials we have in our hands and, as soon as possible, becoming a sustainably profitable generating company. Before I add more flavor to this, I will leave it up to our CFO, Septima Maguire, to take you through the details of our performance and financials for the year that now is behind us. So Septima, over to you. -------------------------------------------------------------------------------- Septima Maguire, Benchmark Holdings plc - CFO & Director [3] -------------------------------------------------------------------------------- Thank you, Trond. If we can start on Slide #6, please. As Trond has noted, 2020 has been a significant year of transformation for Benchmark where even amidst the difficult global environment, in terms of the structural efficiency programs, we've been able to deliver what we promised and then more. When we look at the adjusted EBITDA of GBP 14.5 million for the continuing business, it becomes much clearer that even in such a challenging year, we have really good foundations to build this business into being profitable and cash-generative business in the future. While we see challenges in our markets, our business areas have adapted well to working within the current crisis, and we continue to make progress on each of our strategic areas. Focusing on 2020, we ended the year with cash of GBP 71.6 million and available liquidity of GBP 83.2 million, driven in the main by the fundraising and the proceeds from the divestments. Throughout the year, our focus was twofold: firstly, to ensure that the business continued to retain clarity of purpose; and, equally important, to ensure that we address the cost and cash burn areas in the business to be able to invest in our commercial opportunities as we now move forward. This resulted in the decision to divest most of our activities in vaccines, where the costs exceeded the future benefits. So moving on to Slide 6, where we take a look at the overall performance of the group. Sales for the continuing businesses were impacted by the underperformance in Nutrition, partially offset by stronger sales in Genetics. And this is very much reflective of the resilience of the end market, with salmon being significantly less impacted by COVID-19 [and shrimp]. Our gross margin was further impacted by a reduction in Artemia pricing and the lack of critical mass from a sales perspective in Nutrition in the year. Discretionary spend in operating costs and R&D were paused to mitigate the impact of COVID-19. We were not wholly successful, but these actions have contributed to building resilience in our continued business by reducing costs year-on-year by GBP 4.4 million and also strengthening our balance sheet as we move forward into FY '21. If we can move on to Slide #7. Genetics have had an excellent year, showing progress on all fronts, with growth at a revenue level of 5% at an actual exchange rate, but 14% at a constant exchange rate. This was definitely the business area which was most impacted by fluctuating exchange rates during the year as the Atlantic krona and Norwegian krona were quite volatile. In our salmon egg business, which is 2/3 of our revenue in Genetics, we were able to utilize our facilities to their best advantage with our biosecure facility in Iceland operating at high capacity, allowing us to fill a gap in the supply of salmon eggs into the Scottish market as Norway had lost its ISA free status restricting exports. This resulted in us supplying over 50 million eggs into the Scottish market in the year in comparison to 24 million, which have been delivered in 2019. Our new Norwegian facility at Salten had its first full year of sales and successfully passed its breakeven point. As we move forward, our focus is on building on this progress to ensure that it is consistently earnings-accretive in the coming years. Salten's ability to produce eggs year round allows us to have continuous sales throughout the year within this business area. Now in FY '20, we had a noncash fair value uplift from biological assets within the income statement of GBP 3.3 million. This is versus GBP 2.7 million in 2019. This fair value uplift is driven by accounting standards and represents expected future profit on future sales of salmon eggs, which we recognize in the current period income statement. As we move forward, we want to focus more closely on adjusted EBITDA excluding this fair value uplift as a metric to allow our investors a much clearer picture as to the profits on what we have sold in the period and more clearly help mirror the cash around those sales. So excluding the fair value uplift, adjusted EBITDA in Genetics would be GBP 11.1 million in 2020, up from GBP 7.4 million in 2019. And the adjusted EBITDA margin, 27%, up from 19% in 2019, is still an excellent performance. And we consider our future growth opportunities in Genetics. In FY '20, given the struggling shrimp market, we deferred the planned commercial launch of our SPR shrimp and instead used the time to focus on market trials. Now as this project is in its development phase, the majority of the costs associated with it are currently being capitalized, with only GBP 0.4 million in adjusted EBITDA and GBP 1.6 million capitalized in FY '20. It's important to understand that from the point of launch onwards, all costs associated with this facility will be expensed. We continue to build our facility in Chile and invested GBP 1.5 million of OpEx and GBP 1.2 million of CapEx in 2020. We expect to start selling eggs out of this facility from early in quarter 3 of the financial year '21. Chile has been more affected by COVID than Europe as it's more closely linked to U.S. demand, but we're confident in the quality of our genetics, and the ramp-up of the facility, as is normal, will have 3 years. It's also important to note that the eggs bought by the customers in quarter 3 2021 will typically be harvested in the end of 2023. So hopefully, COVID is over by then. Whilst Genetics were not impacted to a significant degree around COVID in the year, as we look forward, we will continue to monitor the Norwegian salmon industry as, at present, it is showing some short-term weakness due to the second round of lockdowns, but the impact is not significant at this point. Can we move on to Slide #8, Advanced Nutrition. So nutrition shrimp markets account for 71% of its sales, and these were the most heavily impacted by reduced demand in the year. This was further compounded by a demand-supply imbalance in Artemia after a couple of years of record harvest. As we entered the year, oversupply within the Artemia market and high inventory levels at the distributors resulted in depressed demand, and this was further exasperated by COVID as shrimp hatcheries, which represent our main customer segment, chose either not to stock their tanks or to do so at a lesser rate. To counter the price competition in certain markets for Artemia, a strategic decision to reduce price in certain markets was taken. The impact of this can be seen at the gross margin level, which reduced from 52% to 46% year-on-year. During the period, a number of shrimp markets were either constrained by border restrictions or lockdown, and the nutrition organizations focused their efforts on enhancing their online presence, establishing online training and educational seminars. The sea bass and sea bream market, which is primarily centered around Europe, remained relatively more resilient with a higher level of stocking occurring. But we did still experience a smaller drop in demand within this market of 8%. All in all, this resulted in adjusted EBITDA falling by GBP 9.6 million, 60%, to GBP 6.4 million in the year. Move on to Slide #9, please. Health was an area of focused restructuring during the year, with the vaccines development and the toll manufacturing being reviewed and either discontinued or divested. This resulted in the continuing business having 2 main focal points: the sale of Salmosan, our existing sea lice treatment; and the launch of the new sea lice treatment, BMK08, in conjunction with CleanTreat. Salmosan delivered GBP 1.2 million of gross margin contribution as sales fell after a year of high sea lice levels in 2019 in Canada and also increased generic competition in Chile. The OpEx and R&D activities relate in the main to the regulatory team, who have been working diligently in the year to progress the marketing authorization for BMK08, and our CleanTreat team, who have been working to be launch-ready for when we have that MA in place. And in addition to these teams, we have also the infrastructure departments, such as supply chain, finance, people, et cetera. Moving on to Slide #10. As part of the cost review of our continued business, we've crystallized annual cost savings of GBP 1.5 million through restructuring our senior management. This, in addition to the pause on discretionary spend, which we undertook when COVID started, resulted in a reduction of operating costs in the year. The pause on discretionary spend was well supported by all business areas, as can be seen here, with operation expenses down by GBP 4.4 million and R&D down by GBP 2.2 million in our continuing business. As we move forward, it's important to consider that these savings were a result of a hard stop on discretionary spend in areas such as travel, marketing, et cetera. And whilst we remain extremely prudent in terms of releasing these [holes], we anticipate that as we gradually move into normal trading conditions, we will also gradually release the hard stop on certain areas whilst maintaining a high degree of control over costs. The R&D spend that we're seeing within the continued business is focused on commercial aims, such as expanding the number of traits in Genetics to broaden customer offering, obtaining the marketing authorization for BMK08, and in Advanced Nutrition, expanding our offering of high-margin specialist products to customers to strengthen our market-leading place in hatchery and advance our market share in nursery and grow out. Moving to Slide #11 to focus on what is the most important slide of the deck, cash and debt. Net debt in the year has improved considerably from GBP 87.1 million to GBP 37.6 million. And the net debt position at the 30th of the ninth also includes the impact of GBP 9.6 million related to IFRS 16, where leases formerly shown as operating leases are no longer treated as they are now treated as finance leases. The 2 drivers of this significant shift were the equity raise in February of this year, which raised net proceeds of GBP 41.7 million and the proceeds received to date for the divestments of GBP 38.5 million. Some additional contingent consideration exists relating to these divestments, which may be received in the next few years. Cash used in operations was a negative of GBP 7.2 million, offset in part by positive working capital movements, driven by the lower activity levels in the year. We would expect a reversal of these figures once the market moves back towards positive growth. Interest paid in the year was GBP 7 million, with cash tax at a much lower level than normal run rate due to the lower profits in Advanced Nutrition. Capital expenditure was also at a lower than normal run rate as we tightened cash control and focused on our strategic projects: BMK08, CleanTreat, ramp-up of Chile, SPR shrimp and our replacement Artemia product. At the 23rd of November 2020, we currently have cash of GBP 65 million and availability of GBP 76 million within the group. Cash preservation remains a key driver in the business, but we're also considerate to the fact that we need to selectively invest in our business to progress it towards standing commercially on its own 2 feet. Back to you, Trond. -------------------------------------------------------------------------------- Trond Williksen, Benchmark Holdings plc - CEO & Director [4] -------------------------------------------------------------------------------- Thank you, Septima. And moving over to strategy and outlook, and could we go to the next slide, please. As I ended my first part of this presentation, I think it's important to understand that Benchmark is in a unique position, a position to deliver and contribute to one of the main ESG opportunities over time, sustainable food production. We are in a very attractive market. Aquaculture is an inherently sustainable industry with a lower environmental impact than other and protein productions and is growing faster than any other animal production. The industry is still very young. Even having embedded main features to be sustainable, the industry needs products and solutions to improve productivity and support sustainable growth. And this is where Benchmark comes in, well positioned, with a complementary offering, market-leading positions, a focused strategy and an experienced and, I will say, highly skilled team to support and contribute to the further development of this industry. Now when we have completed an extensive restructuring, we are also in a position to support and selectively invest in our core business areas, making sure that we, as a company, utilize the opportunity, delivering growth and sustainably profitability, making Benchmark an attractive investment. Move to Slide 14. Close to a year ago, we issued a road map to growth and profitability. This is still the road map we follow. We have made significant advancements in the year that we have left behind. Significant steps are also ahead of us in the financial year we just entered into. Restructuring is complete, but we still work on further streamlining of the group as one group, building an agile, a strong commercially oriented company. There are potentials to be taken out, there will always be. And we make sure that we turn also as necessary to make the group as the efficient group that we aim to be. We are lucky to have a pipeline of products that we need to deliver on that will generate further growth and development. The top strategic priority of the group is BMK08, CleanTreat. To make sure we are bringing the potential of this to life, we intend to grow in our established markets and have significant possibilities to follow up on. We have large opportunities for organic growth and expansion in our Genetics business area through further ramp-up of the Salten facility, primarily targeting growth in the large Norwegian salmon market, where we have strengthened our position over the last year. Further expansion of our capability on Iceland is also in the pipeline, enabling us to take a larger share in the European salmon production market as well as position towards the upcoming land-based salmon industry. In this new segment, we have a unique market position due to the quality of our genetics inherently optimized for land-based production environments. Similarly, we have large opportunities to grow in our established markets and building on our strong position also within Advanced Nutrition. Our strategy here will be to keep focused and keep seeking improvements in solutions and the way we work, enabling growth in specialist, high-margin segments. Further, we intend to selectively invest in areas to leverage group capabilities. Financial year '21, we did a year where we commercially launched SPR shrimp, underpinned by investment to gradually increase commercial capabilities as we develop markets in the year to come. Financial year '21 will also be the year where we expand our capabilities within salmon genetics entering into commercial launch in Chile. This will enable us to expand into the second largest production region of salmon, where we previously have not had any commercial footprint for our salmon genetics. Finally, we will seek to look beyond what we have in our pipeline today to seek to position Benchmark for even further future growth. I've been clear on this before that we will be disciplined in how to enter into this. We already have in our hands a lot of initiatives that we will -- that we can grow and develop, and we will make sure that we take out the potential in these initiatives first. This will be first base. Beyond this, there will be new opportunities for the group that will enable further growth. We will seek these as we move forward, but be disciplined, looking for opportunities in areas that naturally falls within what is and will be our core business areas. We will not be tempted to go beyond and bite, again losing our focus. Move to Slide 15, to give a little bit more granularity on the main initiatives that will be key strategic priorities for the group in financial year '21. BMK08, CleanTreat is our highest strategic priority. Our aim remains to launch commercially in Q2 calendar year '21, and we remain on track to do so. Next milestones are the MRL ratification in EU and getting the marketing authorization in Norway. In the subsequent entering of the market, we will apply discipline. Focus for now is Norway, the largest salmon production region of the world. We will start out with 2 CleanTreat systems, and we will ramp up the investments with further systems but doing so in line with the market uptake of the solution. SPR shrimp represents another strategic priority for us in financial year '21. After years of developing world-class genetic strains with traits that will represent a real value proposition to the shrimp industry, we are now entering into the commercial launch phase. Tests in the market were done last year confirming the potential. Demand is there, and we will gradually increase our capabilities to serve the market starting off with increasing our capacity to supply 100,000 breeders from our U.S. facility at [Salt Lake City]. Our strategic priority in financial year '21 for Advanced Nutrition is to regain Artemia market share, grow our position in hatchery and nursery as well as further develop our position as leading in health and environmental products, every team within specialist high-margin segments, where we have a very strong position to build on. Coming out over year where COVID and market turmoil has reduced our performance, our focus will be to gain back and further develop our positions. And we believe that we are in a place where we are able to do so. Finally, the strategic priority for the salmon genetics in financial year '21 will be to continue to develop the increasingly strong position we have in these markets. The continued ramp-up of the Salten facility is a key focus, enabling us to take out the potential in this investment. The financial impact of this will show as the cost structure is rather fixed, meaning that increased utilization is a key to profitability. The product from Salten is superior, we know that, and it's very well received in the market. So we have a market uptake that will enable us to climb the ladder in the utilization of the facility in financial year '21. Similarly, we are increasing our key peak capacities in Iceland to meet further demand in the rest of Europe and to meet future demand in the land-based salmon segment that we expect will grow in the years to come. We are now on Iceland, we are about to reach our capacity and then make sure that we expand this, enabling us to deliver high-quality genetics as demand increases. Slide 16, please. Finally, a few words on outlook. It follows from what I've said and what Septima says that our focus is very much remaining on to reach sustainable profitability and positive cash generation. We have a positive start of financial year '21, and we have a very strong focus on delivering operationally and financially to the best of our ability in the year that we've just entered into. Having said that, market conditions is still the same as it has been in the latter part of financial year '20. We expect that the salmon genetics part of our business will continue to be quite resilient to the short-term volatility in the salmon market that we are currently experiencing. The outlook for the salmon industry is quite strong looking into financial year '21 and beyond, and we expect this to continue to be reflected in the demand we see for our genetics in this industry. The shrimp market continues to be impacted by COVID, and visibility on when this will change is still low. Consequently, we are prepared, and we expect that this will continue to impact our Advanced Nutrition business for some time. Focus will be to deliver to the best of our ability, seeking improvements in solutions and also in the way we work, positioning to take our fair share of the market as it is now and then gain position when the market conditions turn back to more normality. And markets will eventually return back to normal over time. As this reflects the performance in our established businesses will be driven by the underlying market conditions. What comes in as a new vector is the planned launch of BMK08, CleanTreat that we expect to have -- that we expect will have positive impact on our performance, but then late in financial year '21. Focus in financial year '21 will be making sure we continue to realize the potentials of our initiatives, our strategic priorities and focused investments. And in doing so, we will always be mindful and committed to maintain a solid balance sheet, making sure investments in initiatives always is paced to cash generation. And on a final note, again, we are in a unique position as a company. We are in an industry with positive fundamentals. Coupled with the leading position of Benchmark, this will drive attractive growth. And in my mind, we are only at a starting point, a good starting point for a good journey. So with those words, I say thank you for the attention, and we can move over to questions. ================================================================================ Questions and Answers -------------------------------------------------------------------------------- Unidentified Company Representative, [1] -------------------------------------------------------------------------------- (Operator Instructions) And we have a question from Damian McNeela at Numis. -------------------------------------------------------------------------------- Damian Paul McNeela, Numis Securities Limited, Research Division - Analyst [2] -------------------------------------------------------------------------------- Yes. Trond, Septima, I've got a couple of questions, please. Firstly, for you, Trond. I was just wondering whether you could indicate whether there had been any forward orders for SPR from customers, or, in general, if not, what the customer feedback is for SPR. And then on Salten, I think you sort of indicated that it's currently running at about 60% capacity, and the ambition there is to get it full. What sort of time frame should we be thinking about that capacity realization happening over? And then for you, Septima, I think you sort of -- clearly, there's been a good job done on restructuring. There is streamlining to come. I was wondering if you could give us some color on potential areas and the sort of quantity of streamlining savings that might be available to you over the course of the next couple of years. And then finally, sort of what -- how you're sort of thinking about the shape of R&D investment over the next couple of years as well, please. -------------------------------------------------------------------------------- Trond Williksen, Benchmark Holdings plc - CEO & Director [3] -------------------------------------------------------------------------------- I probably can start off with the questions you have to me, which goes on forward orders on SPR and what the customer feedback has been on that. We made tests last year or trial deliveries last year. We -- instead of launching last year, we spent the year doing that. And the feedback from that was very positive, so positive that we are ramping up now and going into a commercial phase now. So the feedback from the market has been positive. Genetics is an incremental process. We always improve your traits as you move along. We have spent considerable time in order to develop the traits where we are now, and those will only become better. So we're very confident that we will bring a value proposition on Genetics to the shrimp market, and that the demand will be there going forward. And then we will do it like we normally will do it. We will gladly ramp up our activity as we move forward. But I'm very optimistic on that. And I think it's really going to be a good growth vector for us. And we are building on the capabilities we have as a genetics company, which is very significant moving into the shrimp market, which is actually bigger than salmon market, where we have had our foothold now. So the potential there should really be really good, and we'll take it out over time. The Salten facility, yes, approximately at 60%. Approximately, we have turned the turning point when it comes to profitability given that the cost structure is fixed. So we have managed to do that. We see now that we are advancing from that point into financial year '21. We expect that we -- and as I said, we will -- we see that we have a market uptake that allows us to climb the ladder in order to increase utilization significantly in financial year '21. And then it will be an incremental process where we also are tuning our production and production capabilities in order to take out the full potential of that facility over the next, I will say, 2 to 3 years. That's the realistic picture of that. Septima, over to your questions. -------------------------------------------------------------------------------- Septima Maguire, Benchmark Holdings plc - CFO & Director [4] -------------------------------------------------------------------------------- Yes. Thanks, Trond. In terms of the first question, Damian, around the potential areas for streamlining, I could write a book, quite honestly. There's loads of opportunities. But I think that the fundamental point that we walk into this next phase of our evolution is actually that it's not a case that we want to cut headcount and slim down cost. What I want to do is I want -- if I've got one headcount, I want that headcount to make me more and more and more sales so that we actually get the increasing return on investment in all our people and all our costs. Of course, we look at optimizing central functions. We're looking at optimizing as we grow. We're expanding our presence in Chile, and we're trying to put in place centralized functions to support our Chilean operations where we have different operations in territories, similarly for the BMK08 expansion in Norway, looking at optimizing the return on investment that we have in our infrastructure departments so we can support lots of different business areas out of one function. In terms of quantum of savings, we are at the start of this journey. We're just kind of transitioning from, in some ways, cutting off different parts of the business that just weren't making sense to us. Now we want to nurture the business that we have. We want to nurture the people that work for us so that we can all be better and make more money. Then in terms of the shape of R&D investment, in some ways, that the truth of their continued business, R&D is the truth of the future. Genetics, we'll continue to invest in the genetics programs that we have to improve the existing genetics and expand out our available traits, and the span of that will grow commensurate with the sales of the genetics organization. So I think that's a good measure of that. In terms of the health organization, at the moment, the big focus is on commercialization. We will turn around and invest in innovation rather than research so that there's more tangible outputs. And as we are making that transition towards that innovation profile for that part of the organization, there will be an uptick in spend, but we're at the infancy in terms of defining internally how we can create innovation whilst having very commercial goals in mind. And then in terms of nutrition, similarly, the rate of spend will also be driven by the rate of the available sales. And it's very much focused on portfolio, driven portfolio, expanding our portfolio, looking at our probiotics range, for example, to make sure that we expand it out. So the spend profile will be based on what we have available to save given the level of sales to spend, given the level of sales we have. But I think the key takeaway is that it's not blue sky spending. We don't have deep pockets. So every penny we spend, every penny, every krona, every cent gets spent with what is our return on investment for this money. And Benchmark, over the past 12 months, I've learned, it's very hard to pry the checkbook out of my hands. So that's really the kind of the way that we're moving forward in terms of spend. So I hope that answers your question. -------------------------------------------------------------------------------- Unidentified Company Representative, [5] -------------------------------------------------------------------------------- And we'll go to Anand Date from HSBC. -------------------------------------------------------------------------------- Anand Dhananjay Date, HSBC, Research Division - UK MidCap Equity Analyst [6] -------------------------------------------------------------------------------- Yes. Hopefully, you can hear me. I've got quite a few questions, so I might ask them one at a time, if that's okay. On BMK08 and CleanTreat, could you just remind us of your financial expectations per system? Is the anticipated rollout -- I'm trying to understand what you're saying, it's about customer demand, but is the anticipated rollout still to at launch to the end of FY '22 and through the following year? And then when can we expect marketing authorization in Norway? And what progress has been made on getting CleanTreat adoption for non-BMK08 medicines, i.e., for other stuff? That's question one. -------------------------------------------------------------------------------- Septima Maguire, Benchmark Holdings plc - CFO & Director [7] -------------------------------------------------------------------------------- Okay. I'll take that one then. -------------------------------------------------------------------------------- Trond Williksen, Benchmark Holdings plc - CEO & Director [8] -------------------------------------------------------------------------------- Yes, you can do that. -------------------------------------------------------------------------------- Septima Maguire, Benchmark Holdings plc - CFO & Director [9] -------------------------------------------------------------------------------- Yes. So in terms of financial expectations, the financial expectations are unchanged. We believe that the global sales market is GBP 75 million. We believe that the Norwegian market, which is the first market that we were going into, has a capacity of GBP 50 million at a revenue level. And at a peak capacity, it's a 60% margin product. The -- and that is based on us having 7 systems within the markets at a global level. Then in terms of the launch plan, the launch plan is absolutely 2 systems at launch. And then in terms of the ramp-up, we would like to have as many systems as is needed by the market. But to come back to my previous point, it's very hard to pry that checkbook out of my hands. The systems themselves cost between GBP 2.5 million and GBP 3 million. So the ramp-up of the systems thereafter will be definitely on the back of committed customer books to allow us to manage the CapEx and then also working capital associated with the rollout. So that's the systems. And then in terms of -- I think, Trond, you're probably best served in terms of the timing aspect of BMK08's MA? -------------------------------------------------------------------------------- Trond Williksen, Benchmark Holdings plc - CEO & Director [10] -------------------------------------------------------------------------------- Well, yes, as I said, we -- everything is within a time frame that -- where we are expecting that we will be able to launch in Q2 calendar year '21. We got positive opinion from EU on MRL in September. That was a significant achievement. Now it remains to be ratified into euro. And then that is a time line. It's a regulatory time line that will take us into next calendar year. And then we have a process on marketing authorization that also takes us into next calendar year. The definitive time line here, if I could come up on the date, I would really like to do that, but it's a regulatory time line, so we are, in a way, dependent on the regulatory processes. So to come up with a certain date is difficult for us. But we have made a time line, and we are on track to launch this in Q2 calendar year '21. And that is then we have taken headway to the -- or we are taking into consideration the time lines that you can expect from the regulatory side also. So that is a question on that -- answer on that. -------------------------------------------------------------------------------- Septima Maguire, Benchmark Holdings plc - CFO & Director [11] -------------------------------------------------------------------------------- And in terms of competing products coming to market, we always keep an eye out in terms of competing products coming to market. But I think that what makes BMK08 so very unique is actually CleanTreat. It's the environmental asset. It's the fact that we have this really, really efficacious bath treatment that does not result in the bath water being released into the sea that we take the bath treatment water and we put it to the CleanTreat unit and that removes all of the residual drug from the product -- from the water before it is actually -- we test it a number of times before in the labs that are on the CleanTreat boat before it gets released back into the water. So that's what really what makes it a unique product offering when you look at it versus competition. -------------------------------------------------------------------------------- Anand Dhananjay Date, HSBC, Research Division - UK MidCap Equity Analyst [12] -------------------------------------------------------------------------------- Sorry, guys. I think my line was muted. So Septima, actually, that last question was not about competitor products to CleanTreat. It's more about we sort of tie BMK08 and CleanTreat together. Actually, CleanTreat should be used for -- can be really used for almost anything that's waterborne. And I think you noted in the last annual report that there are lots of other products that it could potentially be used for. I'm curious about whether there's any update on the adoption or the potential adoption of CleanTreat for other products as well. -------------------------------------------------------------------------------- Trond Williksen, Benchmark Holdings plc - CEO & Director [13] -------------------------------------------------------------------------------- It's true. CleanTreat is a concept. It's a solution itself that could be used to clean medical treatments or used in medical treatment, biotreatments beyond BMK08. And we have plan to look at that. The focus now is very much on BMK08 and the combination of BMK08 and CleanTreat in order to make that come live. That is our primary focus, and that will be our primary focus. We have our arms around that. And then we will start to advance on the possibility that CleanTreat has. And it has significant potentials when it comes also to be used for other medical bath treatments going forward. So -- but that will come as a second step in the way that we are developing this. -------------------------------------------------------------------------------- Anand Dhananjay Date, HSBC, Research Division - UK MidCap Equity Analyst [14] -------------------------------------------------------------------------------- Okay. Cool. And then on SPR shrimp, please, could you give us a sense of your current expectations on when it might be launched? I know you said next year, but (inaudible) if possible. And then previous... -------------------------------------------------------------------------------- Trond Williksen, Benchmark Holdings plc - CEO & Director [15] -------------------------------------------------------------------------------- Okay. It's... -------------------------------------------------------------------------------- Anand Dhananjay Date, HSBC, Research Division - UK MidCap Equity Analyst [16] -------------------------------------------------------------------------------- And then, I think, previously -- go ahead, Trond. -------------------------------------------------------------------------------- Trond Williksen, Benchmark Holdings plc - CEO & Director [17] -------------------------------------------------------------------------------- Okay. I can answer that. We are in the midst of starting the launch of our SPR shrimp now. And again, it's just important to underline that it will be a stepwise launch also there. We are -- but I -- what we said now is that we are increasing our capacity to 100,000 breeders. Now this year, that is what we are aiming at for now. And then it will be a stepwise gradual ramp-up of that launch, again, based on market uptake and based on that we issued -- that we need to have the capabilities to underpin the development as we move along. But to your concrete question when are we starting the launch, we are about to start the launch now, and that will be part of what we do in financial year '21. -------------------------------------------------------------------------------- Anand Dhananjay Date, HSBC, Research Division - UK MidCap Equity Analyst [18] -------------------------------------------------------------------------------- Cool. On Nutrition, I think you said for a while, you're developing sort of Artemia replacement diet, and you're looking to move a little bit further down the farming vertical. And so I was just a bit -- could you update us on both? And alongside that, if you move a little bit down the farming vertical, does that make the business more or less cyclical? -------------------------------------------------------------------------------- Trond Williksen, Benchmark Holdings plc - CEO & Director [19] -------------------------------------------------------------------------------- I try to be very clear that we will stay on as a specialist advanced nutrition provider, targeting high-margin segments. Our main segment now are hatcheries, and then we will have environmental products that also could work, take us a little bit down the vertical when it comes to the farming, you say. But we've been very disciplined to stay into areas where we can apply our specialist products and sticking to the concept of -- or seeking to being a provider in high-margin segments of the market. We are not intending to be -- to go into the broader feed market, if that was what you asked about. We will stay as a highly specialized provider with specialist products, targeting high-margin segments of the markets. That is very, very clear. -------------------------------------------------------------------------------- Septima Maguire, Benchmark Holdings plc - CFO & Director [20] -------------------------------------------------------------------------------- But I think as long as we're still attached to the shrimp market, all of our demand is defined by the cycles and the seasonality of the shrimp market. Whether you're in actually nursery or grow out, you still have that ebb and flow associated with those markets. -------------------------------------------------------------------------------- Trond Williksen, Benchmark Holdings plc - CEO & Director [21] -------------------------------------------------------------------------------- Yes. -------------------------------------------------------------------------------- Unidentified Company Representative, [22] -------------------------------------------------------------------------------- Anand, I'm afraid we're going to have to move to another question now. And we'll go to Max Herrmann from Stifel. -------------------------------------------------------------------------------- Max Stephen Herrmann, Stifel, Nicolaus & Company, Incorporated, Research Division - Head of European Healthcare Equity Research & MD [23] -------------------------------------------------------------------------------- Great. Three, if I may. Firstly, just wanted to -- obviously, we've seen strong headwinds from COVID on the shrimp market. Just wanted to get a feel for any competitive changes in the landscape as well. That's the first question. Secondly, just on your debt expectations for FY '21, where are you anticipating? Are there any key things other than operating cash flows that will impact the debt outlook? And then finally, just an update on the salmon market. And has there been any development with ISA infections beyond Norway? -------------------------------------------------------------------------------- Trond Williksen, Benchmark Holdings plc - CEO & Director [24] -------------------------------------------------------------------------------- I can take the first one. When it comes to the competitive landscape in shrimp, well, I think we have a leading position as a specialist advanced nutrition provider within hatcheries, nurseries in shrimp now for sure. And we know that there will be -- there are competition out there, and we also see that competitors are trying to look into those segments we are in now. That's why it's so important for us to stay focused on being a high-quality specialist provider, sticking to specialist products within higher-margin segments. I don't see any particular movement beyond what we have seen over time, that there are a group of companies that is in the same landscape. And we expect that, that will be the situation also going forward. I think the key for us is to stick to what our identity should be and to our focus and make sure that we do what we can in order to both improve our products and solutions, but also improve the way that we are working. And then competition will always be there. We cannot do anything with that. What we can do something with and that we will make sure we are doing something with is our own position, making sure that we have the best possible products, best possible solutions and that we work in a way that defends our position going forward. So that's our thinking around that. I'm not sure, the second question, Septima. -------------------------------------------------------------------------------- Septima Maguire, Benchmark Holdings plc - CFO & Director [25] -------------------------------------------------------------------------------- Yes. In terms of debt expectations for FY '21, Benchmark is still not a cash-generative business, and that will not transition within FY '21. But we are going to selectively invest in our commercial endeavors. We're going to be selectively investing in [demand] both CapEx, [with increase] on the OpEx, with increase .We're going to be investing in the SPR shrimp, as Trond has referenced, and in our expansion in Iceland and Chile. And so from a cash point of view, we do not expect to be in a cash-generative position for FY '21, but we expect that, that needle to move once we start generating cash out of BMK08 and then also the projects that we're focusing on this year in terms of the growth factors, once they start crystallizing cash value for us. And then similarly, once we start to come out of COVID, we expect our operating cash flow to strengthen from that. And then in terms of the salmon markets, in terms of the ISA, I think that's for you, Trond. -------------------------------------------------------------------------------- Trond Williksen, Benchmark Holdings plc - CEO & Director [26] -------------------------------------------------------------------------------- Yes. I will talk for -- if I really catch what you -- what the question was. But your question was about the ISA status in Norway. We lost our ISA free segment in 2019, and we still haven't regained that, meaning that we don't have possibility to export from Norway as we used to and actually as we plan to. The good news -- I think the good news is that the size of the Norwegian salmon market -- salmon production market is large. We have advanced in that market. I'm very confident that we have advanced in that market. And we also see growth in that market. So I'm not concerned that, that will be a limitation to the -- our ability to utilize the capacities when it comes to Salten. I think that will be taken care of the Norwegian market itself. But the status is that we don't have an ISA free segment allowing us to export from Norway at a time. We also mentioned that -- we indicated in the presentation that we are investing also -- ramping up our capacity on Iceland in order to take the market outside Norway, both in Europe but also in the land-based. So we make sure that we have enough capacity to take on the market. So I'm not sure if that was the answer you wanted. -------------------------------------------------------------------------------- Max Stephen Herrmann, Stifel, Nicolaus & Company, Incorporated, Research Division - Head of European Healthcare Equity Research & MD [27] -------------------------------------------------------------------------------- But just to follow up. Obviously, your Iceland facility benefited from the inability to -- for producers to export from Norway to Scotland. I believe some countries -- sorry, some producers are now able to export. So do you expect the Iceland facility to remain at the levels that you saw last year? Will that be impacted by the... -------------------------------------------------------------------------------- Trond Williksen, Benchmark Holdings plc - CEO & Director [28] -------------------------------------------------------------------------------- We might have a short-term effect on the fact that, as you say, that we -- that there are other producers that are able to supply, especially to the Scottish market in another way that they did last year or financial year '20. So we expect that, that would probably have an impact. But over time, I'm sure that, and you see that from the demand that we experience also in Iceland now from different markets, that the capacity of Iceland well-utilized. And we foresee also over years, and then I'm talking about over years, that we need even more capacity to meet future demand. And that's why we also are in the pipeline to ramp up our peak capacities to meet, among other things, the expected demand that we see from the land-based segment that is now starting to come up. -------------------------------------------------------------------------------- Unidentified Company Representative, [29] -------------------------------------------------------------------------------- And the next question is from Patrick Roquas from Kepler Cheuvreux. -------------------------------------------------------------------------------- Patrick Roquas, Kepler Cheuvreux, Research Division - Equity Research Analyst [30] -------------------------------------------------------------------------------- Yes. Trond, Septima, I've got 2. The first one is I think you've done a pretty good job in restoring the balance sheet, bringing back focus. But I think for investors to get a feel for the financial upside in the midterm, and/or will you be sharing financial targets for the midterm in terms of the revenue base as well as the EBITDA for the 3 divisions? That's the first question. And then secondly, on Nutrition. Obviously, 2020 was a tough year. But do you believe that, fundamentally, things have changed? Or can you still return to, let's say, EBITDA levels that we've seen between '15 and 2019? -------------------------------------------------------------------------------- Septima Maguire, Benchmark Holdings plc - CFO & Director [31] -------------------------------------------------------------------------------- In terms of the financial targets in the midterm, until we have solidity in terms of the future for the short term, the midterm still remains uncertain in terms of the timing of recovery from COVID. So I think it would be remiss of me, quite frankly, to start issuing midterm targets until we have that proper visibility around that timing of recovery and then also being able to understand the pace at which recovery can actually occur in terms of our markets. Once we have that visibility, we'll be as happy as everybody to talk about growth targets for the future and also growth metrics that we will want to measure and to be seen to measure ourselves against. But given where we are at the moment, I am not in the business of making false promises that I know are not within my control at this point in time. That's the answer to that. And then, Trond, in terms of Nutrition? -------------------------------------------------------------------------------- Trond Williksen, Benchmark Holdings plc - CEO & Director [32] -------------------------------------------------------------------------------- Well, our target is to get back to the levels we have been on. The market conditions have been difficult. As we've gone through several times during this presentation, we have had COVID. But our aim is to get back to the levels that we have been historically, both in volumes and, of course, in margin. Actually, to be honest, our ambition is to -- far beyond -- when it comes to volume and size of our business, our ambition is far beyond that over time. But to answer your question on margin, of course, we have an ambition to get back to the levels we've been historically, personally. -------------------------------------------------------------------------------- Unidentified Company Representative, [33] -------------------------------------------------------------------------------- And we have a question from Carl-Emil Johannessen. Can you say something more on the start of full year '21 for the Nutrition segment? Are you seeing improvements in sales of Artemia? Are there any reasons that you should not be able to come back to pre-COVID earnings in the future? -------------------------------------------------------------------------------- Trond Williksen, Benchmark Holdings plc - CEO & Director [34] -------------------------------------------------------------------------------- Yes. To answer that, how have we started financial year '21? Yes, we have started it according to our expectations. And -- but we are -- our expectations are, of course, adjusted to the fact that we still are in a market that is in a turmoil in many ways. But we are -- we have been planning for that. And we are -- to the extent that -- we have been planning for that, and we are delivering to our expectations so far. When this will turn, when this will turn and get back to normal again? It depends on when the market imbalances that we've seen are getting normalized, it depends on how COVID -- how long COVID impacts us. To have a clear visibility on when that will happen, it's impossible. We make sure that we do the right things while we are waiting, that we are kicking out the potentials as the market is now. And that is what we are doing. And then we are making sure that we go through both our product solutions, but also the way we work. So we make sure that when things are coming back to normal again, that we take back our fair share but also develop on top of that. That is what we are doing there right now. So I'm not sure if that answers your question, Carl-Emil. -------------------------------------------------------------------------------- Unidentified Company Representative, [35] -------------------------------------------------------------------------------- And we've got a question from Emma Ulker from Equity Development. -------------------------------------------------------------------------------- Emma Ulker, Equity Development Limited - Analyst [36] -------------------------------------------------------------------------------- Just to ask you, if I may, about your attitude towards potentially acquiring any new products that might fit well with your strategic aims. I understand that clearly the focus is on reinvesting that money organically. But if there were to present any new opportunities, would you be disposed to looking at that? -------------------------------------------------------------------------------- Trond Williksen, Benchmark Holdings plc - CEO & Director [37] -------------------------------------------------------------------------------- What I said very clearly, I think that's a very clear thing from my side and from our side as a management. We have a lot of initiatives now in all 3 business areas that we need to deliver on. That is our first priority. That is base one. If we are starting to distract from that, we are losing our focus in order to deliver on that, and that's not going to happen. Will we, over time, look at other opportunities? Yes, as I said in my part of the presentation. Of course, that's part of our strategy going forward to look at new opportunities, new products that could be added to what we are doing now. What we're very precise on is the fact that we have 3 business areas which is complementary, which -- by themselves and together constitute a very good value proposition to the aquaculture industry. We will stay focused. So to the extent that we will look at something, and we will over time, when we are finished with base one, then it will be within those areas, within those areas. We will not, again, go wide and deep and lose focus. That's not going to happen. That's not going to happen. So -- but within those areas should be a lot of opportunities, and we will take them when time is right, not losing focus on what we need to focus on right now. -------------------------------------------------------------------------------- Unidentified Company Representative, [38] -------------------------------------------------------------------------------- And that's the end of the questions. Trond, do you have any closing remarks? -------------------------------------------------------------------------------- Trond Williksen, Benchmark Holdings plc - CEO & Director [39] -------------------------------------------------------------------------------- Yes. I hope we came over with that we -- in the circumstances that we've been true in financial year '20. We have managed to come out in a stronger position, financially stronger, operationally stronger. And we have transformed the company to become a streamlined company, focusing on 3 core business areas that holds a lot of potential going forward. Since we are in a stronger position, we are also able to underpin and selectively invest and develop those areas that we are now focusing on. We think we are -- have a lot of opportunities going forward. We have good initiatives that we need to focus on and take out the potentially -- potential now as first base. And we see good outlook for further development of this company going forward. So anyway, thank you for attending, and see you next time. -------------------------------------------------------------------------------- Unidentified Company Representative, [40] -------------------------------------------------------------------------------- Many thanks, Trond and Septima, and you all for joining. This is the end of the webinar.