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1 Benchmark Holdings Generic speed bumps, but clear growth path 5th May 2015 Trading update highlights Salmosan generic BMK interim results, and FY2015 results, are expected to suffer through the impact of a Salmosan generic on sale in Chile. Pipeline delays add to the potential shortfall in revenues and profits. On the plus side, the new Breeding & Genetics division is performing strongly, even against FX headwinds. Growth opportunity very much intact Salmosan has an inevitable decline ahead, and the Chile situation is volatility in that trend. Nevertheless, continuing core investment activities to support R&D, vaccine manufacturing and its product pipeline underlines an exciting and sustainable growth story. Forecast revisions to FY15 and FY16. We reduce our Group sales revenue forecasts: FY2015, by 37% to 40m and FY2016, by 26% to 68m. Trading EBITDA is reduced to 0.2m (was 13m) and 11m (was 22m), respectively. New products portfolio is the future growth. BMK has, probably, aquaculture's strongest new product and technology pipeline, with 46 products across addressable markets totalling up to 400m pa. Technical Publishing (TPD) performed in-line, some project delay in Sustainability Science (SSD). The restructured TPD progressed well, in-line with management expectations. However, a number of SSD projects at the bid stage are delayed, but are expected to contribute in FY2016. Enhanced growth trajectory underpins investment potential. Despite 2015's clear operational challenges, BMK's growth is above average for the sector, with CAGR ('16-'20) in revenues and adjusted PBT of >20% and >60%, respectively. BMK is unique with no obvious comparators, and we believe that for high-growth companies the valuation method that best accommodates this transition is a discounted cash flow (DCF). In light of the trading update and review of our earnings model we revise our fair value to 130 pence/share (from 150 pence). EPIC Price (last close) Company Data BMK 75p 52 week Hi/Lo p Market cap 164m 12m target price Share Price, p 130p 60 May/14 Sep/14 Jan/15 May/15 Source: ADVFN Description Benchmark helps deliver improved healthcare products and services to the Animal Health industry (and the global aquaculture market). Rising demand from clients for its products and services to manage sustainability practice in worldwide production and supply chains underlines BMK s opportunity for significant organic and external growth. Next scheduled news Interim results (23 June, 2015) Summary forecasts, m FY12 FY13 FY14 FY15e FY16e FY17e FY18e Sales Growth 48.5% 28.4% 14.2% 69.5% 21.2% 32.3% EBITDA Adjusted/Trading EBITDA na Adjusted/Trading EPS na Adjusted/Trading EPS (incl amort)* na Statutory PAT Statutory EPS Net cash/ (debt) na Source: Company and ED forecasts Robin Campbell PhD robin@equitydevelopment.co.uk Gilbert Ellacombe gilbert@equitydevelopment.co.uk Please refer to the important disclosures shown on the back page and note that post MiFID this information is categorised as Marketing Material

2 Benchmark Holdings 5th May 2015 Trading update FY2015 is likely to deliver a set of disappointing results for BMK. The reason - the aggressive selling of a recently-launched Salmosan generic into Chile. The generic came to market in January and quickly stole a significant market share in Q BMK's distributor, with intensive support from Company management, has managed to restore a degree of balance to the market, and should be able to retain up to 70% plus of the market going into next year. Over the last few months BMK has launched a sales promotion, winning back many annual customer contracts and even gaining some global ones (probably helped by its technical support, product pipeline potential and new Salmon genetics credentials). However, the damage has been done. There are generic pressures in Norway too. In addition two new Fish Vet Group pipeline products expected to launch in FY2015 have been delayed months; one due to the need to integrate an 'application' technology (now expected in FY2017), the other to a changed fish treatment regime (delayed to FY2016). As a result we anticipate an ~ 20m negative impact to Animal Health revenues, and potentially 13m to Group trading EBITDA in FY2015. We revise our Group sales revenue forecast for FY2015 to 40m (+14%) from 64m and trading EBITDA forecast to 0.2m from the prior 13.2m. The main contributor to the shortfall is expected to be Salmosan followed by the delay of BMK's sea lice follow-up product, Ectosan (previously expected to be launched at the end-fy2015). In FY2016 we are making a forecast downgrade based on similar reasoning, except that Salmosan should be a (short term) beneficiary in the absence of Ectosan sales. In addition we are making a number of separate forecast changes to accommodate more conservative assumptions regarding the estimated launch dates for pipeline products and vaccine toll manufacturing contracts. As a result we anticipate an ~ 23m negative impact to Animal Health revenues, and potentially ~ 10m to Group trading EBITDA in FY2016. We revise our Group sales revenue forecast for FY2016 to 68m (+70%) from 93m and trading EBITDA forecast to 11m from the prior 21.7m. For outer years, we are adjusting our current forecasts to take account of more conservative assumptions regarding launch date planning for new products and toll vaccines. BMK has, probably, aquaculture's strongest new product and technology pipeline, with 46 products across addressable markets totalling up to 400m pa. Changes to our forecasts are shown on the next page: 2

3 5th May 2015 Benchmark Holdings Changes to forecasts, m Year to end-sept FY15e FY16e FY17e FY18e Sales growth % 14.2% 69.5% 21.2% 32.3% EBITDA Adjusted/Trading EBITDA Adjusted/Trading EPS Adjusted/Trading EPS (incl amort)* Statutory PAT Statutory EPS Net cash/ (debt) Previous forecasts Sales growth % 80.7% 45.6% 23.6% 18.1% EBITDA Adjusted/Trading EBITDA Adjusted/Trading EPS Adjusted/Trading EPS (incl amort)* Statutory PAT Statutory EPS Net cash/ (debt) % change in forecasts Sales -36.8% -26.4% -27.8% -19.2% EBITDA nm -74.8% -65.4% -28.6% Adjusted/Trading EBITDA -98.8% -47.6% -47.8% -22.2% Adjusted/Trading EPS nm -72.5% -67.0% -24.0% Adjusted/Trading EPS (incl amort)* nm -81.2% -78.5% -27.4% Statutory PAT nm nm nm -37.3% Statutory EPS nm nm nm -39.6% Net cash/ (debt) nm nm nm nm Source: ED estimates 3

4 Benchmark Holdings 5th May 2015 Divisional commentary In respect to performance in the separate Divisions in FY2015 to date, we would highlight: Animal Health Fish Vet Group The campaign to re-gain market leadership for Salmosan in Chile appears to be succeeding, with promotional deals helping reverse the market share decline experienced in Q The generic entrant, thought to be of lower quality and lacking technical support, managed to gain an unexpected regulatory approval. Salmosan is expected to become a less important sales and profit contributor to the Group over the next few years, but this campaign has been significant in winning customer support and promoting BMK's new, higher business activity profile in aquaculture and salmon genetics. Interestingly, the expected delay to Ectosan is likely to have a positive impact on Salmosan sales in the short term, and particularly in FY2016. Benchmark Vaccines Limited For FY2016 and beyond we have made a number of separate forecast changes to accommodate more conservative assumptions regarding the estimated launch dates for vaccine toll manufacturing contracts. Similarly for the Animal Health new product pipeline we have incorporated more conservative assumptions regarding the estimated launch dates for future pipeline products, which are reflected in the forecast revisions for FY2016 and beyond. Breeding and Genetics This division is performing strongly, with results tracking management expectations even despite the FX headwinds being experienced by the NOK. Integration activities are proceeding to plan, with customer support for the new combined salmon breeding and egg production activities being realised in increased demand. Sustainability Science We had anticipated that a new investment programme and a number of new projects at the bid stage would be contributing to FY2015 results. Unfortunately these projects are delayed, meaning that the modest upgrade we made in January to this division's forecasts is being reversed. However, the mentioned projects remain in play to potentially upgrade FY2016's results. Technical Publishing The restructured TPD is performing well and in-line with management expectations. The recent acquisition of Improve International (vet training and CPD activities) is making a healthy contribution to growth. 4

5 5th May 2015 Benchmark Holdings Outlook - FY2016 and beyond BMK's Animal Health and Aquaculture product solutions, supported by technical and advisory services framed within a Sustainable Science philosophy, have been delivering increased turnover for a number of years. The increasing breadth of its aqua-to-agriindustry platform is a significant testament to strategic perception, determined management and the opportunity to supply an increasing industry demand. To build the infrastructure needed for the next year or few, BMK has been investing hard - into people, production facilities and product development. Operationally we believe that the business now possesses a critical momentum that should prove to be extremely valuable in increasingly competitive markets. Despite the knockback in Chile with Salmosan and the significant impact on FY2015's trading EBITDA result, we continue to anticipate the payback in the medium term. We believe that BMK should be highly rated as a core investment into the life sciences sector. BMK's growth is above average for the sector (despite the clear operational challenges in 2015), with CAGR ('16-'20) in revenues and adjusted PBT of >20% and >60%, respectively. We believe that this enhanced growth trajectory underpins a significant investment potential. 5

6 Benchmark Holdings 5th May 2015 Financial Forecasts Income Statement, m FY12 FY13 FY14 FY15e FY16e FY17e FY18e Revenues Cost of sales Gross profit Operating costs Other income EBITDA Depreciation Amortisation (of acq intangibles) EBIT Interest income Interest expense Net interest EBT Taxation EAT Non controlling interests Net attributable to owners of the parent Shares out (at end yr) EPS (p) Revenue growth % 44.0% 48.5% 28% 14% 70% 21% 32% Gross margin % 42.4% 46.4% 42% 38% 47% 47% 51% EBITDA margin % 22.6% 22.6% 19% 0% 17% 19% 28% EBIT margin % 19.6% 18.5% 15% -10% 8% 9% 21% Effective tax rate % 11.5% 0% nm nm nm 20% Retained profit growth % 45.1% 54.3% -18% -228% -134% 81% 395% Adjusted figures (Trading activities) Adjusted EBITDA Adjusted EBIT Adjusted EBIT (and incl amortisation) Adjusted PBT Adjusted PBT (and incl amortisation) Adjusted net attributable to owners of the parent Adjusted net attrib (and incl amortisation) Adjusted EPS (p) Adjusted EPS (p) (and incl amortisation) Adjusted EBITDA growth % -11% -98% 731% 41% 90% Adjusted EPS growth % -8% nm -265% 85% 207% Source: Company historic data, ED estimates Key valuation metrics FY15e FY16e FY17e FY18e Adjusted P/E ratio nm 47.4x 25.7x 8.4x EV/Sales 3.3x 2.4x 2.1x 1.6x EV/EBITDA (adjusted) 877.8x 14.4x 11.1x 5.8x PEG ratio nm Dividend yield na na na na Share price, p 75 Market cap, m Source: ED Estimates 6

7 5th May 2015 Benchmark Holdings Cash flow statement, m FY12 FY13 FY14 FY15e FY16e FY17e FY18e CF from Operating activities PBT Adjustments Depreciation Amortisation Loss on sale of PPE Finance income Finance expense Share based payment expense Other OCF Working capital changes Changes in working capital Income taxes (paid)/refunded Net CF From Operating Activities Investing activities Acquisitions Purchases of PPE Additional capex - Biocampus Other capex Sale of PPE Purchase of Intangibles Net cash used in investing activities Financing activities Proceeds from share issues IPO/share issue costs recog through equity Employee share issues Purchase of ordinary shares Proceeds from bank borrowings Repayment of bank borrowings Interest paid Cash with acquisitions New finance leases Payments to finance lease creditors Dividends paid to the holders of the parent Dividends paid to equity shareholders (post IPO) Net cash (used in)/ from financing activities Net increase/ (decrease) in cash & cash equivalents Cash & cash equivalents at start of FY Cash & cash equivalents at end of FY ST debt LT debt Total debt Cash Net cash/ (debt) Source: Company historic data, ED estimates 7

8 Benchmark Holdings 5th May 2015 Balance sheet, m Year to end Sept FY12 FY13 FY14 Fixed Assets: Intangible Assets Tangible Fixed Assets Deferred tax assets Current Assets: Stocks Agricultural assets Trade Debtors Other Debtors Cash Creditors Due Within One Year: Bank Loans Other Loans Trade Creditors Other Creditors Corp tax liability Creditors Due After One Year: Bank Loans Other Loans Other Creditors Other Provisions Total Assets Net Assets Capital & reserves Called up share capital Share premium account Capital redemption reserve FX reserve Share based payment reserve P&L account Minority interests Total shareholders' funds Source: Company historic data 8

9 Powered by TCPDF ( Head of Corporate Gilbert Ellacombe Direct: Tel: Investor Access Hannah Crowe Ben Ferguson Direct: Direct: Tel: Tel: This report is intended for Professional Clients, Self-certified High Net Worth or Sophisticated Investors only. Equity Development is regulated by the Financial Conduct Authority Equity Development Limited ( ED ) is retained to act as financial adviser for various clients, some or all of whom may now or in the future have an interest in the contents of this document and/or in the Company. In the preparation of this report ED has taken professional efforts to ensure that the facts stated herein are clear, fair and not misleading, but make no guarantee as to the accuracy or completeness of the information or opinions contained herein. This document has not been approved for the purposes of Section 21(2) of the Financial Services & Markets Act 2000 of the United Kingdom ( FSMA ). Any person who is not a relevant person under this section should not act or rely on this document or any of its contents. Research on its client companies produced and distributed by ED is normally commissioned and paid for by those companies themselves ( issuer financed research ) and as such is not deemed to be independent, as defined by the FCA, but is objective in that the authors are stating their own opinions. This document is prepared for clients under UK law. In the UK, companies quoted on AIM are subject to lighter due diligence than shares quoted on the main market and are therefore more likely to carry a higher degree of risk than main market companies. This report is being provided to relevant persons by ED to provide background information about the subject matter of the note. This document does not constitute, nor form part of, and should not be construed as, any offer for sale or purchase of (or solicitation of, or invitation to make any offer to buy or sell) any Securities (which may rise and fall in value). Nor shall it, or any part of it, form the basis of, or be relied on in connection with, any contract or commitment whatsoever. Self certification by investors can be completed free of charge at ED may in the future provide, or may have in the past provided, investment banking services to the Company. ED, its Directors or persons connected may have in the future, or have had in the past, a material investment in the Company. More information is available on our website Equity Development, 15 Eldon Street, London, EC2M 7LD. Contact: info@equitydevelopment.co.uk