AFT Pharmaceuticals Limited

I would now like to hand the conference over to Hartley Atkinson, CEO. Please go ahead.

Hartley Atkinson Thank you very much and thank you everyone for joining our call today. What we'll do is we'll go through the presentation and then as has been mentioned have time for questions afterwards. I'll just read out the page numbers as well so that everyone knows where we're at in terms of the presentation pages. So look, first page obviously and then the second page is the disclaimer which I assume everyone is well aware of and has read. Moving now to page three which is just look a brief summary of kind of where we're at. We have our established Australia New Zealand business, pleased to have good sales growth of 23% across both Australia and New Zealand. Certainly Australia was very solid with 31% growth. New Zealand as well though grew at 8% and the OTC business which is the front end higher margin consumer business still grew at 12% so we're still getting good performance in the New Zealand market. And then looking across to the box on the right at the top, what we are putting a lot of work in at the moment is continuing to expand our global footprint, so Europe, the UK and the EU, North America, US, Canada, then Asia, doing a lot of work on there, including China, but not just China, we have Singapore, Malaysia, Hong Kong, Korea, and then also South Africa, a lot of work has gone into that business over the last few months. And then looking down the second row, certainly the innovative R&D pipeline It's still a really important part of our business going forward. We have made good progress as well with our big project for off-patent injectables. But actually, interestingly, we're working hard on a project that will also add IP to this as well. And we're hoping to be able to announce something in the future about this project, which we see would add considerable value to our existing project. project and there are some significant global market opportunities and that's sort of really important part of our business and that's why you know we're spending a reasonable amount of money on R&D and then on the right on that second row importantly we've got five R&D programs which are being commercialized had a number of meetings got a number of projects underway we did close five agreements in the first half but we do have a lot of other agreements that are under negotiation presently. And then just in terms of around the globe, we are now selling in 85 countries. We've added some countries like Egypt and Thailand to the list. So flicking on to the next page, page number four, you can see on the bottom, you can see the sales graph. Certainly, the first half sales were a touch under $115 million. So they were growing overall, including licensing income, were growing at 33% overall, which we saw as a pleasing result. Certainly Australia, we had good growth, but also Asia and international as well where we did have some headwinds last year in that first half, now cleared them away and they're sort of on to where more we would have expected. The international business hubs, you know, that's certainly a key, and that does take time, and there's a lot of work that has to go into them as well, but certainly both South Africa and the UK we believe will start to contribute to earnings sometime in the second half of this financial year. EBIT was up. Operating profit, which I guess is the one we tend to look at more, was up to $4.7 million operating profit versus last year we had a loss in the first half. But we are seeing that we are doing increasing, you know, in spend and business development and also R&D. So we still have got that investment. I still think it's probably important to note, though, that, you know, we're increasing gross profit by about 36%. and expenses say we're up 18%, so we're not being silly, we're going hard at investing and growing, but we're not getting ahead of the curve, so that's quite important. So R&D, I think as we mentioned, we're growing that and still reaffirming our target of $300 million for the next financial year. So that's page number four. And moving on to page number five, our largest market, Australia. Yeah, look, 31% growth. The revenues grew to $66.5 million. And we're getting good growth across actually all our channels. If we had to call out anything, we'd probably call out eye care pain relief and our iron supplements which actually interestingly the iron supplements were the first product we ever launched in Australia and you know even many years later we're still getting strong growth from those type of products. Pleasingly as well the operating profit increased from 4 million to 9.6 million and yeah that's consistent we believe in the past we've talked about investment and sales and marketing we increased field force a couple of years ago you know we're seeing it takes a while often to see the of these sort of investments and it's all kind of part of that really. So it's good and we see good support and progress in the Australian market. And flicking on then to the next page, page number six, which is New Zealand. Look, we did see steady growth and we do see ongoing opportunities. Quite frustrating sometimes, the amount of negativity we see in this country. But, you know, look, our OTC business, for example, you know, as I said, grew at 12%, you know, so getting good double-digit growth in our consumer-facing business. So despite various doom and gloom, we're still making good progress in our New Zealand business. And that was mainly led by allergy, dermatology and eye care. So seeing some good advances in those areas. Operating profit improved. It should say, by the way, it says $3 million. should say 3.7 million, which is on the graph on the right. So profit improved, 4.1 million, up from 3.7 million. Primarily really just driven by revenue growth. So that's New Zealand on page number six. Flicking to the next page, page number seven. Yeah, Asia, we're pleased. We got good, sort of strong growth, and also what's important is broadening out across Asia as well. So sales increased to $7.5 million which was up 69% from last year and certainly markets like Korea were back to normal with the doctors back at work. And it is broadening the range of birth like we've launched recently in Thailand to add that. And pleasingly too, we've seen the operating profit rise from 0.5 million to 2.1 million. So that's getting an increase in both sales and profit in that Asian market. Still a lot of potential and a lot of work to do in the Asian market. And flicking on to page number eight is this snapshot of the global map, and you can see we're slowly getting a bit more yellow as time goes on, with yellow being where we've launched product, so a bit more spread around Africa. and North Africa, and then we still need to get some registrations in order to be able to sell in markets like Brazil and some of the other North African markets as well. So that's still underway. And then you see the red dots are where we have our own sales offices and that's where a lot of work is going into consolidating and growing these operations. So certainly South Africa we called out and the UK are ones we see as making contributions in the second half. Canada is a bit further behind and the US is really at a very formative stage. So clicking on now to page number nine, the international expansion page. Now apologies if this top left graph looks a bit rainbow-like. We're just trying to sort of make clear the various parts of it. But you can see basically our sales this first half were $11 million for product sales and $1.9 million for licensing income. Quite a lot of the times, though, licensing income will be things like sales milestones, which is sort of almost part of product sales, really. It's like deferred royalties. So a good chunk of that was actually related to sales milestones. But there's some good progress there. The sales, if you just look at the sales and royalties, they were up 104% from the same period last time. I think as I mentioned before, up to 85 countries now, including a couple of larger countries being Egypt and Thailand. Licensing income was a bit more significant this first half than last year. We did 1.9%. million up from 0.2 million. Yeah look there is still an operating loss within the international mainly because all the R&D is going through that and there's still a lot of R&D work is continuing to grow the R&D pipeline. So that's that slide number nine and clicking on just to quickly go through a bit of a snapshot of our global footprint, just to give you a flavour. Look, we're trying to avoid, to be honest, a blow-by-blow account of exactly what every time, because you can see the overall number. There's a lot of moving parts, and to be frank, sometimes some things will go not as well as we'd hoped, but we work on them. But it's just really the overall number, but we'll just give you a snapshot of some of the things that are kind of underway and stand out to us anyway. So Combagesic tablets in the United Kingdom, yeah making some good progress with distribution there and extended that to two and a half thousand stores, also now selling within independent pharmacies as well. Combagesic IV, which is same as Maxagesic IV, we're just starting to get some momentum now with NHS formery listings. Hospitals are always almost quite painful because there's a lot of barriers and committees you have to go through. So you can't bash away for literally 18 months without a lot happening. But then once you start to make progress, it builds from there. We are busy expanding our product range with both our AFT IP based products and also in-license products. So pipeline and filings is something that's very much a focus in the UK market. And as I mentioned, we're expecting a break even in the second half of this financial year. South Africa, we're making actually quite rapid progress. We have a very experienced CEO there who was ex-head of hospital revision for the biggest pharma company in South Africa. Very lucky to have someone of his caliber, and I think that's really important, actually. We have accelerated our launch program quite a lot. Initially, we planned on about four products. in the second half, but that's going to be much more like 18 products. So that's sort of South Africa's kind of kicking off with a hiss and a roar. And we have got quite a significant existing pipeline and we are keeping adding to that. And we do see that that will contribute to earnings late in the second half. Canada. There's a little bit more just happening. We've just launched Combogesic IV and we're also working on OTC offerings. We have hired a CEO. Once again, a very experienced CEO who used to be head of Aspen Canada and we're also lucky to have him and we've got our own small business. And the key thing really is we've got a number of existing launches planned and a significant launch pipeline. So that's a quick comment on Canada. Flicking now to the next page, number 11. In the United States, which obviously you know is the largest farmer market in the world, We've still got two parts of business. We've got our IP-based products, a couple of patented products registered. So we're launching our OTC products as well, which we're running more ourselves. And then with our patented products, we have licensees. So working still closely with HICMA on our competition IV and competition rapid, and that's still underway. In Europe, last year we talked about we'd acquired some products from a bankrupt German cannabis company that had some pharma licenses. Those are now largely being sorted through the regulatory system and we're just starting the launches literally about now and going into the second half of this financial year. So that progress will start to come through. Then Hong Kong, look, there's a big pipeline, a lot of filings in Hong Kong to really accelerate that. Same in Singapore, which is growing strongly, and we've got a lot of products we're launching there and extending into the private hospital market and also extending our OTC business. We've just got a listing with Guardian, which we haven't been able to get until this date. So there's a lot of potential in the Singapore market as well. Even though it's a small country, still the same population as here in New Zealand. So page number 11, going on to page number 12. For our R&D pipeline, some products we have finished our developments, and we are commercializing them. Just come back from Bio Europe in Vienna, which is very positive. We had packed three-day meetings with a lot of companies that were interested in our products. We did, while we were on the run the last month, we did complete an out-licensing deal to Chengdu-based Grand Life Sciences Group, which is a top five pharma company in China. for our intravenous iron drug. The reason we did that deal was because in China you really can't do drug development and registration without involving a local company. So we're holding off on most of our markets, although interestingly we seem to be getting approached, even if we're not asking for it, by a number of parties that have seen the preliminary study results, which In our view we're quite spectacular, so we are attracting interest whether we're trying or not, but at this stage we've limited it to this China deal, which is also important given China's the world's second largest farmer market. So we have got a number of maxegesic still line extensions to put out with our existing partners, so that's underway. And then we do have some other projects, Christoderm, Mycolet, KiwiSeed and Capsaicin. A number of these, we're getting three of these, we're getting dossiers ready to file into Europe, so to further add to our existing bundle of products. And actually got a lot of interest in some of these products, because there's still very much things that average doctors are going to use for their average patients. There's a lot of interest still in these type of products. So that's kind of important to get some licensing income in to help offset some of the R&D spend. You can see on the graph on the right, R&D spend up a bit, $9.5 million. from 8.9. And look, the R&D is not going to go away. It's going to keep slowly climbing. But we still see there's a big upside from doing the R&D and having the IP-based products. So that's page number 12. I'm flicking on to page number 13. Yeah, this is where we do strongly believe a lot of value resides, which may not really be recognised presently, but I think will become more obvious provided we can successfully develop these products and feed them into both our own markets and our licensee markets. So we've got a big project for hospital injectables. which has been undertaken in China. We've got three dossiers ready already for this calendar year, which is really good progress given this thing only really just started about 14 months ago. So we've made some very good progress on that. One of the key points too is our project to add intellectual property to some of these products, and that's underway. like I mentioned, and that's got a good upside if we can successfully conclude that. There's a migraine project, then PASCOMA for Paul Weinstein, the injectable ion products. So we've completed our first phase three study, which was very positive. And then we have a larger confirmatory phase three study, which will have up to 1,000 patients, which will be undertaken in New Zealand, China, India, the United States, and Europe. So certainly that's a big undertaking. We have got joint funding with Hyloris, a Belgian company, and other agreements like with our licensees in China. They will fund some of the study. So that's just to help keep that R&D cost down. It's an antibiotic eye drop for drug-resistant eye infections. Had our first FDA meeting and looking to submit our IND. So IND means investigational test. New drug and that's what has to be approved by FDA before you can dose a drug into human patients. So that's a key point means middle of next year we should be going into clinical studies, which is important. Scrawby birthmarks. We made really good progress on that actually. Had our first pre-IND meeting with USFDA. My summary of it was actually very positive and if anything slightly simplified the project, which is always welcome. So making good progress. And then we've got the other projects which are still underway in an earlier phase. But that R&D portfolio is, to me, very exciting, and I believe if we can pull it off, it'll be very valuable in time. So that's page number 13, and now I'll flick to page number 14 and hand you over to our CFO, Malcolm Cubby. Thanks, Hartley.

Yeah, so on slide 14, starting revenue of $114.9 million, which Hartley's taken us through in detail. Gross profit of just under 50 million, so growing at a slightly faster rate than revenue with the 1.5 percentage point improvement in the margin. Operating expenses of 45 million, up 18%. So these include the startup and scaling costs of our business hubs, the increase in the R&D spend, and the more one-off nature cost of the ERP migration to NetSuite, which went live on the 1st of October and will be a continuing project through the year. So that gets us down to an operating profit of 4.7 million, up 6.5 million on last year's results, which were impacted by those one-off events that we had. So moving to the balance sheet on slide 15, Increase in working capital up to around $60 million in line with the revenue growth. Net debt staying in around that $20 million mark. We're in advanced discussions for the renewal of the facility, which at the minute it's a three-year term to April 26, so it'll be another three-year term taking us out to and we'll have that in place in the coming weeks. And then moving on to the cash flow on slide 16. So primarily the change in the cash is the increase in working capital. So we drew a little bit down on the net debt, on the debt facility, but it left the net debt around the 20 mil mark. And then we've got the dividend payment in there in financing activities. I'll pass you back to Hartley for the next slide.

Yeah, thank you Malcolm. So look, just to sum up our outlook, I mean the key is we are positioned to drive future growth in both revenue and earnings and that's certainly our goal. Consistent with prior years, we do have over many years seen second half sales and earnings are greater than the first half. So we do see continued expansion in our Australasian portfolio because sometimes people say, well, you're focused on international, but does that mean Australia isn't really going to grow? Look, that's not the case. We still see this good ongoing business in our Australasian portfolio and lots of growth still left. But we do also focus on increasing contributions from our international business hubs as they start to generate scale. But this will be a work in progress and something which will be a multi-year project. Our R&D and international expansion, look, this does come a bit at the expense of short-term earnings, so we are spending money for the future, but they will very much support extension of our growth, which has literally gone on for decades. and that's what we're really focusing on and certainly both product and geographic diversification will also sort of help us as well because it's true when you have lots of countries and lots of things you can always get a road bump somewhere that you can never plan for but having a good diversified portfolio and a good diversified geographic reach we see as being really important. On top of the fact as well that pharma usually is pretty resilient to economic undertones as well. So look, we are spending, so that's sort of the reason why we are just maintaining our 20 to 24 million original guidance. If something changes, we'll certainly inform the market, but at this point in time, We are keeping that guidance and we're also very focused, as we've been saying, on that pathway towards $300 million annual revenue by the end of next financial year. So look, thank you very much and I guess it's a good and opportune time to hand over for any questions there may be. Thank you.

Thank you. If you wish to ask a question, please press star 1 on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star, then 2. If you are on a speakerphone, please pick up the handset to ask your question. Your first question today will come from Matt Montgomery with Forsyth Bar. Please go ahead.

Hi, guys. Good morning. Well done on a solid result. Maybe the first one for me is just on Australia. Clearly a very strong revenue growth in the half. It'd be useful just to provide a bit more colour around what drove that and particularly in relation to the growth between new products that you've been launching relative to the base business in that market.

Yeah Malcolm can answer part of that I guess just quickly my side I mean look it was pretty across the board and there was some very old products were growing pretty strongly like our iron products, our eye care, the hospital business so it was the new products are certainly growing but often it takes a while for them to get to a big enough size that their growth starts to really contribute but Malcolm maybe you can comment a bit further but it was pretty across the board, wasn't it, in general?

Yeah, most of that growth came from the existing products that we've had prior to FY24. Roughly 4% to 5% of that overall growth for Australia and New Zealand came out of new products.

Right, that's very helpful. And then secondly, just in relation to guidance, I suppose, is Would you expect to grow EBIT in the second half of this coming year versus the second half of last year?

Would we expect to grow it? Yeah, you've got some other one-off costs that you need to look at that will be bigger in the second half of this year than last year. So the ERP cost, that's going to carry on through this year. Amortisation, you'll have noticed, is higher now than it was last year, and then the increased R&D spend. Okay.

Just maybe on the R&D spend, where would you expect that to be for the P&L for FY26?

We don't break it down to that level of detail. We set total spend 15, maybe to 17 for the year.

So that's referring to the six in the first half, right?

No, the total saved. The total saved, slide, yeah. Hang on, that was back on slide.

Sorry, I'll just get you to it.

But just through the P&L, like if we double... Yeah, we don't break it down to that level of detail.

Like if we double the first half, would that be fair? Yeah.

Yeah, well, yes, but you may need a little bit more. So the range is 15 to 17 total spend, and most of that would be in the P&L.

Okay. I guess what I'm really trying to get at in the root cause is if you take your second half of last year and then the first half that you've reported today, that equals EBIT of just over 24%. And your guidance midpoint is 22. And you've got very strong growth in the ANZ business with margins being quite high still.

Yeah. So we weren't doing an ERP implementation last year. We are this year. That's an increase in cost. Amortization is double what it was in the first half last year. So you've got to allow for those and then the increased R&D spend.

And what's the ERP cost?

We've moved from Greentree to NetSuite. So we went live on NetSuite on the 1st of October. That's phase one. And now we're moving into ongoing phases of the implementation.

But in terms of the cost on the P&L?

About three quarters of a mil for the first half.

And would be similar in the second half?

Yep.

Okay, I'll leave it there, but maybe we can take it offline.

Yeah, we've still got quite a few costs, I guess, we're saying, Malcolm's saying. You know, we obviously keep closely monitoring, and then if something changes, then we'll obviously inform the market, you know, but at this point in time, we're still maintaining our guidance, is what we're saying.

Once again... If you wish to ask a question, please press star then 1 on your telephone and wait for your name to be announced. Please stand by as we poll for questions. Showing no further questions at this time, I'll now hand the call back to Hartley Atkinson for closing remarks.

Good, thank you very much and thank you everyone for joining the call. Look, just to reiterate, we're pleased with the overall result and as we've said, we're very focused on growing the business. We do have some investment, obviously. I hope people appreciate we're not running off to the market to raise capital. This is all done out of internal profits, which when we talk to pharma companies overseas, they do honestly see that as pretty unusual that we're able to do that. So, yeah, look, it's very much a journey, and we're certainly growth-orientated, and we thank you very much for your attention and support. Thank you.

That does conclude our conference for today. Thank you for participating. You may now disconnect.