AFT Pharmaceuticals Limited

Thank you for standing by and welcome to the AFT Pharmaceuticals 2023 Full Year Results Analyst Briefing. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press the star one again. For operator assistance throughout the call, please press star zero. And finally, I would like to advise all participants that this call is being recorded. Your speakers today are Dr. Hartley Atkinson, CEO, and Malcolm Tovey, CFO. I'd now like to welcome Dr. Hartley Atkinson, CEO, to begin the conference. Dr. Hartley, over to you.

Good. Thank you very much. Thank you, everyone, for joining the call today. So, look, what I'd like to do is just to flick through the presentation. I'll do some of it, and Malcolm will do other parts, the financial parts, and then, as you said, questions. So, obviously, there's page number one, which refers to this full financial year. Then page number two is the standard disclaimer, so if you can please read that in your own time. Page number three, basically what we're saying is we're pleased to be declaring our maiden dividend and we're pleased to also have yet another year of record revenue. In fact, if you look at the graph on the bottom, you can see that over the last 10 years, we've almost, not quite, but almost quadrupled revenue, which we're really pleased with just getting that ongoing growth. And if anything, we're pleased to see it starting to almost slightly hockey stick as well, which is what we've been working hard to achieve. So the overall operating revenue grew 20% to $157 million, with primarily organic growth. We had a launch of 22 new products in Australasia, and we continued our international expansion. Operating profits, excluding licensing income, I think as we've tried to deal with before, we do have, which is positive in many ways, but also can skew things or make it harder to interpret. We do have some lumpy licensing income that comes around various milestones, mainly at the moment connected to max GZIC IV in the United States. If we just look at the basic operating revenue from product sales and profits from that, profits did actually grow 38% to 18.8 mil. And as we signalled at the half, what we had done is we did want to make the decision to put quite a lot more investment, 8 mil of investment into new Australian sales force and new global distribution capabilities and also new product development as well and new products. If we include the licensing income, we're getting profit of $19.7 million, slightly down on last year where we had very positive contribution from some lumpy licensing income. If you look at the graph, I guess, at the bottom on the right, I think that gives you a reasonable representation of how things are going. Very much FY17 was our first full year after listing where we'd explain to people that we did need to spend quite a lot on R&D and that we would make losses in the short term and then we did explain to people that we would aim to break even which we did then in FY19 and you can see that we are making steady progress and obviously that's what we're working on going forward. So we have our standard business areas, Australasia, Australia and New Zealand. We have about 150 products presently going out across 7,700 pharmacies with a majority of those in the Australian market. Asia, we have a range of products presently that are sold through licensees and distribution partners. We have strengthened things up though with offices, head office in Hong Kong, and offices in Singapore as well, and that's part of our aim too. The rest of the world, overall, we are commercialising product presently in 61 countries, including Australia and New Zealand, so take those out. It's 59 countries outside ANZ, and we do have agreements presently in more than 100 countries, so continuing to roll those out as well. Moving to the next page, number four, if you just look at the overall summary, we can see that we did get growth across all our markets. Basically, the major chunk of the growth came from our Australasian business, where we grew that by $26.3 million. International, if you include licensing income, it did dip from $13.1 to $11.7. If you smooth it out and take out the licensing income, which was over $6 million, we actually did grow product sales by 71%. So we did see good underlying product growth and we would be working hard to get that to pick up further. The growth primarily has been led by the OTC channel, but you can still see we're getting significant contribution from hospital business and prescription business, but certainly quite a lot of our growth did really come this last year from the OTC business. So that's that page. Moving on to page number five, looking to Australia, which is our key market presently. Sales grew 22.8% to 94.1 million. We had always kind of tentatively hoped we might hit 100, but we haven't quite. But certainly, obviously, that is a target we very much want to do, to move through that 100 million sales in the Aussie market. OTC Channel was a standout performer, up 29.7%. We got some really good growth in our pain segment, had a very good launch of our Maxagesic hot shrimp sachet, which also helped the result. We did invest a fair chunk of money in product promotion and also a new GP sales force, which we do believe in the long term can deliver some good results just to also increase that promotion to doctors as well. So that sort of did have a bump up, but look, we're not looking to hire any extra GP sales reps. We're really just getting that down and getting that going. Hospital channel, we saw a bit of growth, 14%, and that was mainly with injectable products. So that's that page, and moving on to page number six, New Zealand. We got pleasing growth. It grew 26% from $35 to $44 million. Certainly we saw things easing up after a release of COVID restrictions, and we got some good growth as well in our next GZIC product as well, which is very pleasing. Hospital, we grew 20%, and actually we got a lot of prescription growth too. That actually grew at 50%. Certainly we could see better access to GPs as the pandemic pressures kind of eased off. I think a lot of people didn't go to doctors during the COVID period, and that certainly restricted some of their sales, and we could see that turn around as things eased off. Moving now on from page six to page seven, just a summary slide talking about NPD, a new product pipeline. This is what we worked on a lot over the COVID period where we were restricted and basically we couldn't travel, but we were able to really pad out our pipeline and actually we're carrying on doing this. Basically we were able to launch 22 products during this last financial year. 11 of those were OTC and we had been able to, I think we talked at the half year, we had about over a three year period we had about 70 products or 72 products but even taking this financial year off we're still continuing to pad out our NPD pipeline and we've got 68 plan new product launches over the next three years. Some of these products, what we're also doing, there is definitely an angle where we believe we can significantly grow Singapore and Hong Kong by choosing those markets and putting some of the products we're launching in Australia and New Zealand and put them into those markets as well. And that's something that we're working on at the moment to really accelerate the product offerings in those markets. So moving on to page number eight, Asia. So basically sales rose by 24% to $6.8 million, which is a reasonable result, but certainly we do see better potential in Asia to accelerate and grow that more as time goes by. It takes a while to get some of these things into place. The OTC channel is still relatively small, but we certainly saw that starting to contribute more. If you look at the graph on the pie graph on the far right side, The OTC was relatively small at about 8% and now that's close to the 15% and we want to keep on growing that as well. So we are working through our Timor Global site. We have a number of products approved for cross-border trade into China. But there are other angles around that as well, which we're looking to expedite. Also looking at further product approvals and then launches in China, not just through the cross-border channel. Obviously, there's a lot of people in China. It is the world's second biggest market, so that's one that we are interested in and see some good potential. We have expanded our distribution capabilities across the region. We've launched in some new markets like for example we launched in Indonesia, I think the world's fourth most popular country and we also launched in South Korea as well and we're really pleased to see something like Mexagesic IV, the sales have gone very well in South Korea and certainly well ahead of their forecasts. So that's only the first six months and we see further progress kind of going forward. Moving on to slide number nine. Yeah, look, probably the important thing here, just to clarify, is that if you look at the top graph on the left, we had quite a lot of contribution last year. We had a big chunk, six point something million dollars of licensing income which we're obviously pleased to get. But it does make the result a bit lumpy and looks as though the sales went down, which it did overall. But if you take the licensing income out, we grew the underlying product sales and royalties grew by 71%. So they grew to $10.8 million and we see good potential for further growth going forward. Certainly a number like $10.8 is nowhere near where it should be and that's what we're working hard on getting that number up. We did make progress in other difficult regulatory jurisdictions. We were pleased to get our first US approval with Massachusetts rapid tablets. Presently we're having a number of discussions just working the best way to get the launch When I mean that, I mean the best way for AFT. There's various options there. Probably we look to sacrifice licensing income in return for a bigger profit share down the track, and that's really what we're talking to people about. And then also Europe. Europe's probably still our main market at the moment. There's Europe and the Middle East. So we're getting some good sales growth out of Europe. What we've done is we set up our own UK entity, AFT Pharmaceuticals UK Limited, and also some of that NPD that we are driving in New Zealand, Australia, we're also going to route that through up into the UK, which there is a good opportunity for that now because the key change is the UK does not sit in with Europe. So it literally sits out by itself and actually fits in quite nicely with Australia. So those two markets do go together quite well, and certainly the UK is a decent-sized market with a population of about 65 or 67 million people. So that is obviously a work in progress. We don't have any sales from it yet, but we should start to record our first sales during this financial year. Next, suggesting IAB launch, this, the upfront payment of about $6 million, that depends on the launch date. The launch date we said will be in calendar 24, so obviously that's going to have quite a swing factor on this year's profit, which is why we've actually pulled licensing income out. So all going well, assuming we get USFDA approval in October, the launch could be anywhere from February to March to April sort of thing. So it could slip into this year or it could slip out of this year. But overall, the big picture, that wouldn't be a disaster, but clearly it would have an impact on the profit for this year, just to explain that. You can see the graph top right, the number of countries continues to grow. I guess the only comment is although we look at countries, probably you also have to consider large countries like the US. We'll only tick that number off by one, but obviously makes more of a difference because the US is the world's largest farmer market. That's page number nine. Clicking on to page number 10. You can see a global graph where the aim we have is to turn as much of it possible from white and blue into yellow. So we are making progress. We're getting more yellow as time goes on. Yellow meaning where MexiGESA has been launched. So launched it across a good chunk of continental Europe now and also Canada and Mexico and Central America. So we're still working on licensing in more difficult markets like China. We've certainly got interest there, just come back from a two-week trip, meeting various parties in mainland China and also Japan as well. Brazil is the other market that's quite different and also quite challenging. So we are working on that as well. But look, we're making overall progress where we are getting more countries launched, which is the yellow colours. That's page number 10. Page number 11, what maybe isn't so apparent but we do believe is really important is the R&D pipeline. And we do see some significant potential for that in the medium to long term as well. As you can see, maxillofacial IV in the US, we're targeting approval. This calendar year, we have a PDUFA date from FDA of October 2023. And that's when they have to get back to us with a viewpoint on additional data, which was only just around something called extractable and legibles. which we got various US labs to do tests on it, and we worked closely with HICMA, who are very experienced in that area, who also helped us, so we would be hopeful that we should secure approval. Maxogestic dry stick, we continue to work on that and target to complete that during this calendar year. We've got a day-night variant, which we are filing at the moment, literally the first filing. And we also have a patented cold flu and sinus kit, which we have already launched in Australia as our first market. And we would look to commercialise that in some additional markets. And naso-stiff intranasal, we have had some challenges with that project. We visited the factory that makes the transducers in China. We're doing a bit of work around that. So that is delayed, but we still see that getting back on track and getting clinical studies underway next year. We really, we planned on them this year. So this can happen with R&D projects. They're not everything simple, and that's also why you do have a variety of projects, but we are confident we can still expedite that project. Antibiotic eye drop, this is potentially a pretty big market. We license in technology from a U.S. company, and we're just underway with the drug development presently. So this is for antibiotic-resistant drug infections, which could cause people to go blind. That's pretty important, and that's underway presently. Flicking to the next page, page number 12, got a number of projects here. Some are at early stage, some are quite well advanced. We have one we call SD, so that's been filed. We've got our first filing, it's a dermatology drug. Scrawly birthmarks, we licensed that from Massey Ventures, which is part of Massey University. Just doing the initial formulation work on that, so that has a patent on it. going out until the mid to late 20s, 30s. And that topical treatment is probably birthmarks, which does affect quite a lot of newborns, and certainly presently there aren't treatments that are topical for this sort of condition. There is an oral formulation, which is quite toxic, and therefore is only used in really serious cases. And this potentially also is a really big market as well. Gastroenterology is one of our focus areas. We've got a number of advances we've been able to make. We have a project we've called KW and we have three different dose forms. The first two we will be filing this year so that's really good progress and we've got a combination one which we're still in the development phase. got another enema that we're filing this year as well. And also, we do have work in CBD and we're making some good progress there. That is certainly a very crowded area. Our main target would be the Australian OTC market. And given it's just so crowded, we'd rather keep the timelines confidential on that one where most of our competitors from the rooftops when they've advanced something or other, but we'd just rather try and see if we can get to market first or second or something like that. So that's that page number 12 and clicking on to page 13, I will hand over to our CFO. Yeah, thanks, Hartley.

So looking on the top line, revenue up 20% to $157 million. Gross profit up 18%, $73 million. Operating expenses up a little bit more at 28%, as we explained, the main reason for that is the investment behind the new products and the full-time GP sales force in Australia. So operating profit of just under $20 million, which is in line with last year, but bear in mind that there's an additional $6 million licensing income in last year. So good growth if you extract the licensing income. We're back into a taxpaying position now, so the higher tax cost to leave us with profit after tax of $10.6 million. On the next slide, we're introducing EBITDA, and we will continue now to talk about EBITDA. Primarily, the banking facility is now the covenants are based on EBITDA, and our dividend policy is also based on EBITDA as a ratio to net debt. We're just showing at the bottom what the revenue and the gross profit looks like without the license income. Again, targeting the gross profit margin in that 45% to 50% range. Then we're obviously very pleased to be announcing a dividend today of 1.1 cents per share, which is 11% of our net profit after tax, a little bit lower than our policy. We've indicated that we want to get into that 20 to 30 range of normalised net profit. It will always be dependent on what our capital requirements are. And we were a little bit higher than we want to be with our target debt. So we want our net debt to be around about one times even at dark. At year-end, it was 1.4. And especially with the growth opportunities we've got going, we think that that is a proven way to start the dividend at 11%. If we turn on to the next slide, the balance sheet. So net debt is in line with last year at just under $30 million. The new facility with the BNZ goes out to April 2026 and it has no, there's one more repayment of $1 million in June and then there's no more repayments required on that facility. So repaid $4 million, by the time we would have repaid $4 million. In this year we've repaid $4 million, yes. The working capital, which is the current assets and the cash left for current liabilities, that grew in line with revenue at about 20%, so it's 48 million at the minute, and then our total equity is 73 million, up from 62 million last year. In return for the cash flow, so 11.6 out of the operating activities, 9 of that into investing activities and just under 7 mil of cash financing activities, that includes the 4 mil repayment. So that's really the 4 mil going at lower cash is the repayment at the net debt, with the net debt staying level at just under 30 mil. And so we have closing cash of 3 million. I'll turn it back to you then, Harlan.