Clover Corporation Limited

Good morning and thanks very much for joining us. Welcome to the Clover Corporation FY25 results presentation. My name is Peter Davey and I'm the Managing Director and CEO of Clover. And with me is Andrew Allibon. Andrew is the CFO and Company Secretary. And we are very pleased to be taking you through some very good results. So it's lovely to be talking to you again this year. The first slide takes us just a bit of an overview of the company. Clover is a global leader in the microencapsulation of Omega-3s and we service the infant formula and food market. We are in infant formula, we are in functional food and beverage and pharmaceuticals and supplements and certainly over the last 12 to 18 months we've seen a significant differentiation of our products into alternative markets. Our manufacturing footprint is across Australia, New Zealand and Ecuador and later in the presentation I'll talk you through our vertical integration strategy and how that's servicing the business. We have just over 68 employees and we use vertical integration of the business into other suppliers that provide us with a lot of services so it's a fairly light business in terms of the amount of employees we have. We have 22 different products. We have 81 patents, which is a pretty fabulous thing for a relatively small Australian company. And we service over 40 countries in the world. So we are truly a global organization with 99% of the products that we manufacture in Australia exported overseas. It's very pleasing to turn to the results for FY25. We've had a really strong year across all metrics for the business. The revenue position for the year ended at $86 million. That's up 38% on the prior year, which was 62.2%. Really, an interesting conundrum of the year was really the variance in first half to second half. We have seen significant seasonality in the business. The first half, you may recall, was $37.6 million. The second half was $48.4 million. So, We continue to see a stronger second half in the business, which has become a tradition over the years. The EBITDA position was $12.1 million. Our cash and our balance sheet has been really strong. We've seen significant debt reduction. We finished with $8.7 million. And then the overall NPAT position pleasingly is a $7 million result. That's up $5.5 million on the prior year, which was only $1.5 million. And I'm very happy to report that the board has declared a dividend of one cent per share as the final dividend for the year. So overall, great result for the business. Nice to see the business back on track. We've gone through some difficult times, but the fundamentals of this company are extremely strong. So some of the operational highlights for the business for the year. We saw record revenues come through significant growth of new customers. and those new customers that we've added have increased their orders across a period. Our existing customers in the infant formula market have really recognised that they need to change their models and they've expanded into other products like adults, seniors and children's nutritional segments, and our products have supported them in that process. We have gone through a strategy of appointing distributors across markets, so we now have distributors In North America, in some Asian countries, in some European countries, which has really improved our access to other segments of the market, and I'll discuss that in more detail. And we have applied for a global patent for our choline product, which we call Choline XL, and I'll talk more to that as we go through as well. Ecuador, you may recall that we invested in a facility, a greenfield site in Ecuador to extract tuna oil from fish. That facility started coming online and sending oil to Australia in November of 2024. The facility is now operating at about 60% of its capacity and providing 30% of our oil requirement. The plan was that that would supply 50% of our oil requirement and it's well on track to achieve that. The quality and the yield that we're achieving from that facility is outstanding. It's the best quality oil we've ever seen. And overall, we've effectively paid off most of the debt regarding that factory. So it's really only been a very short-term debt. Melody Dairies, which we invested in around 2020, we've seen a really improved performance from that facility as well. We've increased production volumes through the facility, so we're getting a better cost through the business, and Clover is recognising that in its cost of goods, so it's contributing to the margin improvement of the business. We've added some more capacity to the business, and it looks set to have a good year ahead of it. What were the drivers of growth for the FY25 year? Really, there's been some strong parts to the business. The market has certainly recovered and we've seen expansion. So it's given us a better outlook for our core market. We've been a long-time focus supplier into the infant formula market. We differentiated our product and diversified our offering that's allowed us to access other parts of the market. But in that also, our traditional customers have also expanded their products and launched new products. Many of those customers who are producing infant formula are now having seniors' products, recognising that they need to diversify their own businesses. We've seen strong growth in the business across Asia and Europe. Asia does incorporate for us the AMZ business, which has been particularly strong over the last 12 months. And that's really been, again, by diversifying our product offering and getting new segments. We're now supplying into many nutraceutical food and beverages businesses along with our traditional infant formula customer base. And that's really been driven by... our new products that we've launched. So the new products we've launched over the last four to five years have gained traction in the marketplace. They've gained new customers and they're delivering improved margins. That's really the story of the entire year. Our capital strength has been really good. It's reflected in our balance sheet. Our US cash position, both receivables and our cash holdings, have driven a strong balance sheet and the US dollar has provided a natural hedge for the majority of our purchases as well. The investment in Ecuador and Maladies has really driven lower input costs, which has helped us in a margin position, but also given us supply chain security. We are now assured of our product supply and our capability to produce with multiple sites, which helps and provides a better risk mitigation for our customers. And our balance sheet strength provides us with the cash and the position to be able to invest for the future of this company. The discipline in our operations has been strong over the last 12 months. As we saw in the prior year of reduced sales, we put a lot of controls in around our operational business. So tighter inventory controls, the operational efficiencies that we've put through the business, the cost optimization that we've done. has driven improved cash position and improved margin position, and the profitability helps us fund and support growth opportunities for the future. Our product pipeline will continue to grow, and we will start to see things like Colleen Excel launch into the marketplace and allow us to continue to invest in new projects like the Premneo project. I'm going to now turn to the financials, and I'll ask Andrew to take you through Thank you, Andrew.

Thank you, Peter, and good morning, everyone, on the call. In terms of revenue, I won't repeat the numbers. Our Appendix 4E gives a greater breakdown in terms of revenue and segments, which I'm sure there may be questions on that later in the presentation. Peter's talked about EBITDA and our overall results. Pleasingly, our margins, which we've talked about before and certainly Peter has mentioned in reference to our Appendix 4e, we can see that we've had three percentage margin point improvement across from the prior year, upwards of now around 33%, previously 29%. Within our detailed P&L statement, I'll just probably draw your attention to the Appendix 4e, which is obviously not in this presentation, but many of you will have access to that document. We have put some additional disclosure in the result this year and for the prior year comparative around share-based payment reserves. It's not a material amount, but the board... myself and the auditors thought it was prudent that we start to disclose liabilities relating to future performance rights that may vest. And we've had to restate parts of the operating statement to include that adjustment. I'm happy to handle questions on that later, but I thought I'd raise that now whilst I'm talking to the profit and loss. So again, strong second half performance. Operating expenses were up. Strategically, they're up with hires in R&D our quality assurance and support and testing as a result of greater volumes, continued innovation and our regulatory compliance. Notably, year on year within our administration costs, they're up significantly as composed in the prior year where we had nil merit or STI awarded. In the current year, we've taken a larger cost to the books in relation to that future liability. Turning to the balance, the cash flow statement, it's the good news story for the course of the year. Whilst our cash, when we look at FY25 from operating activities at 8.3, is in line or slightly below the prior year, our trade receivables in the final quarter rose significantly, which obviously impacted the payments. from cash receipts from our customers. So we would expect that to be higher. That's the result in terms of timing for the year end. Plant and equipment purchases represent the final installments and payments regarding the Ecuador facility. Dividends paid is noted there at $2.5 million. And our net loan and drawdowns is the good news story where we've used cash last year and this year to pay down the majority of our debt in the business. I think at this point in time, we're remaining with about $0.9 million of debt on the books. Turning to the balance sheet, again, a nice positive story, and I don't want to be repetitive in terms of some of the commentary from Peter. We can clearly see there the trade receivables position rose, as I referenced in the previous slide. Inventories at 24.1. I've been asked previously, where should that balance sit? It's somewhere between there and probably 30 million. And as we closed out the year with the strong orders we fulfilled, we saw our inventory balance depleted. So I'd like to see that move back up into close to that 30 million as we go forward. And as referenced, our current borrowings are at $0.9 million. A really good story. We've used cash to remove that debt and position as well for the future. I've skipped through this pretty quickly. Probably something like the last round of the voting at the Brownlow last night where the result was known and they wanted to get on for the rest of the evening. So, I'll hand it back to Peter now to take you through the new products driving growth.

So let me take you through the future of the business and where we're going to see growth and what's going to drive that position for the future. We've discussed last year the introduction of a new product called Colleen Excel. Colleen, by its nature, is a salt mill. It is the carrier of lipids in the bloodstream of humans. So effectively, if you take DHA or omega-3s, it is the component in your bloodstream that connects it and transports it around your body. In that, it is a very difficult product to use in a manufacturing process. It attracts water naturally from the atmosphere. So when you're trying to use it in a dry blending product like a powder, It turns into a sludge. It gets sticky. And then it dries into very hard rocks. So it's a very extremely difficult product to use. We have successfully been able to turn this product into a free-flowing powder, which is white. It's tasteless. It flows exactly the same as a milk powder. It is unique. No one else in the world has ever been able to achieve this. And so we have... got a solution for customers that are looking forward to using the product. It's an exciting development for the business. We have spent really much of the year trying to turn this into a manufacturable product. So it's one thing to invent something, it's another to actually be able to make it at scale. Pleasingly now, we can do that. So we've taken much of the year to actually turn it into a product that we can manufacture in tonnes rather than in kilos. We've now achieved that. We've got a sustainable, achievable, stable product, which is good. We've presented samples to customers, shown them. Some of them have already used it in trial work, and we're in agreements with some of them around how to use that. It will be a fairly carefully driven process to ensure that we get this right and the customers have good experiences with it. We have applied for a global patent for this product. as Colleen Excel which will cover the manufacturing process and the formulation that it is and give us a global position where we have a unique product for the world. We expect customer trials and we are currently in the process of talking to customers right now about signing agreements and providing them with product that they can do their own shelf life work and trials. understanding that this is going to go into food-style products, nutraceutical products, pharmaceutical-style products, and, of course, infant formula, all of which will take time in terms of going through their own manufacturing processes, their product development, and essentially shelf-life testing. Any new product that's introduced into this world requires that it has to go through a stability testing process, which will be 12 to 24 months. It'll be a frustrating 12 to 24 months because we just want to sell the product. Given that, we will need to find facilities to manufacture that as well. So we are currently searching for factories in which we can make this product at scale. So that will be a development for the future of the business. And then just to understand how choline is required and used, Choline is mandated to be used in infant formula under EU and China law in equal or greater quantities to the level of the DHA or the omega-3 that's put into those products. So, for example, any product that's made in the European market or is destined for the European market must incorporate 20 milligrams of DHA. So therefore, at minimum, you have to use 20 milligrams of choline or more to make it a viable product for that marketplace. So effectively, the entire world needs this product. It's been legislated, but no one has a solution except us to how to make it manufacturable. It's creating significant products for the world market. So it's a great opportunity for the business for the future. We just need to be able to have a factory we can make it in and get customers through the trial process. It's certainly an exciting development that's moved well beyond what I spoke about last time and looking forward to having it as a commercial product in the next 12 to 24 months. A little bit of an update on some other programs. Premneo is a unique emulsion product. It contains omega-3 or DHA. It is unique. It has been through a clinical trial with preterm infants and it is proven to increase the IQ of a preterm infant by 30%. We are in ongoing clinical trial work with experts that would then give us regulatory approval for it. It is a long, frustrating process, but ultimately we hope we will get there. With that going on in the background, we've also had discussions with potential partners to take this product to marketplace and we have got manufacturing negotiations going on where we expect the product will be made in India and it will be made for two categories. Some markets it will be classed as a pharmaceutical, some markets it will be classed as a food for special medical purposes category. And in that, you have to make it under pharmaceutical standards. India is by far the largest manufacturer of pharmaceutical products in the world, and it's quite cost-effective. So hence, we have people there today with manufacturers talking to them. In the adult and infant formula market, I'll give some explanation around this. The global infant formula market appears to have stabilised, and if I can give you some context to that, If you followed the business for some time, you'd be aware that the infant formula world has gone through a number of changes. The channels have changed. The regulatory environment has changed. And also, there's globally a position where markets, the infant formula world is reducing because of the reduction in the birth rate. For us, though... you would see through our results that we've seen growth. That growth has certainly been driven by our customers finding their way through the channel. They have diversified their infant formula products and in those they use our unique products. So our non-allergenic products and our higher levels of fortification allow customers to release new infant formula style products That put them into the premium and super premium segments. Many of our customers have been able to navigate their way back into China through online sales quite successfully. And then most of those customers that we service are now moving away from just being infant formula manufacturers. They have significant asset investment in large spray drying, blending, branding, marketing. And so they're looking to new opportunities and we have gone down that channel with them. So we've seen growth in nutraceuticals products, sports nutrition products, and significantly in the seniors nutrition market. As the birth rate reduces, we're certainly seeing a larger proportion of people in the ageing population, and most of our customers now have launched a seniors' nutrition product, and we have gone down that track with them, both through the application and then finalising products that have been onto the market. Into the other products category, an update on some of those. We have a highly concentrated product powder in omega-3 segment and that is allowing us to get into Nutraceuticals pet food and the food for special medical purposes market. All of them are quite niche products in their own market but they provide solutions to customers to be able to launch new products in those segments. I'm amazed at how much people are willing to put omega-3s into pet food. It's quite significant. The gel form product we've had commercialized in the US for some time and across Europe is on. We actually have commercialized and getting sales in that product. We have got trials going on with products. And then in Asian markets, we are going through regulatory approval of the product. It is a unique, completely different product. It's an emulsion form of DHA. that allows the product to pass through the UHT process and therefore deliver a UHT drink that has fortification with omega-3. No one else in the world can achieve that. And so some markets are looking at it and don't understand it. So certainly for Asia, we're going through some challenges in regulatory. But the US and Europe, we've got some good traction going into that market. And then finally, probiotics. Probiotics is an R&D project that's been going through the business for some time. The challenge with probiotics is that generally the production process is to freeze them. And whilst they're frozen, the probiotic stays dormant. Once they defrost, the probiotic hopefully is alive and then starts to die off. We've been working on formulations where we can microencapsulate the probiotic which would make it available to marketplace and it never defrosts. We've had some success over the last 12 months and we will look to do some project work with customers over the next 12 months to trial the product in more of a production setting than an R&D setting, similar to the path we've taken with the choline product over the last few years. So, the strategy and outlook for the business. It's been a good ride, and we're going to continue down the same track with some variances. We have a significant pipeline of products, and we're looking to accelerate the introduction of some of those new products. Colleen XL will take a large part of our effort over the next 12 to 24 months, but we have other unique products that we have done testing with in the background development, and we intend looking at bringing them to market. with some with individual customers and some that are very market-driven, specific market-driven, that will allow us to get into different markets like the nutraceuticals market and more into the food market. We have instigated a strategy of moving from our own representation to distributor representation and that is only begun in the last 12 months and we are continuing down that track where we are identifying, working with and appointing distributors in market. That does two things. It allows us to expand our reach to market. So whilst we've had a sales force that's been able to access the infant formula customers, which were fairly confined, going through distributors, it gives us a much broader reach to be able to go to much more customers. And those distributors then give us diversification to other markets as well. Our products are very suited to go into other segments like nutraceuticals and food, and we've proven that over the last 12 months, and that's where we've got significant growth. By having the distributors with multiple sales contacts and other customers and other products they take to those customers, it's allowing us to access a much broader market, so we provide growth for the future. And then a large part of our business, and it's always been the biggest part of our business, is that we work with customers to solve their products. So we have our own applications people working in our R&D business up in Brisbane here, and they will work directly with customers to develop solutions for them. And in solving those problems for our customers, it really delivers value and really strong retention with those customers for the future. So with those things in mind and the year behind us, the outlook for the business is that based on the current market and the global conditions, the board expects the first half of FY26 to be in line with the first half of FY25. Remembering that that's the context of what we actually understand at the moment. The forecasts we have from customers are about three months. So that's what we're seeing. and that there is significant seasonality in the business. So as tradition, we probably expect an improvement in the future, but currently what we can see is that it's in line with the first half of FY25. So an additional slide that we've added this year is why invest in Clover Corporation? We are in a significantly large global marketplace that is actually growing. The awareness and understanding of Omega-3s driven by the health and wellness industry, is significant. And we've certainly benefited from that by broadening our product and our market reach. And our unique technologies help solve problems that customers have that allow us to grow the business. We have really long-term supply relationships with the largest infant formula and food manufacturers in the world. And to do that, you have to have significant compliance with regulatory and quality standards, which is very difficult to achieve. We've been working at it for a very long time, and it puts us in a very strong position to be able to grow with new customers, but also retain our existing business. We're a leading provider with the best technology in the marketplace. Our proprietary technology has not just great quality, but it's actual delivery of bioavailability is incredible. We've just completed a testing of our products and shown that the bioavailability, so the human take up of the Omega 3 of our product is higher than using just direct oil. So the gut takes up the oil directly rather than the oil passing through the body. And our product has significant shelf life benefits to other alternative products. Most customers will get 12 to 24 months with using our product. And then we are a specialist that's delivering omega-3s into infant formula, the functional food and pharmaceutical market. And certainly the food and pharmaceutical market are areas of growth which we've started to leverage and we'll get more with our distribution strategy. Overall, we've had a really strong record in terms of being a profitable business. We generate cash quite consistently across the years and we continue to pay dividends, which is a pleasing part of our business. We are positioned well for growth with our innovation pipeline, our continued investment in our R&D business, our sustainability and our supply chain strengths. And with the supply chain strengths, the next slide will give you a good understanding of where we're positioned. We are the only player in the world that has an integrated supply chain system that covers the tuna market. So we produce tuna oil powders. We also do algal oil powders. In terms of the tuna market in Ecuador, we have a facility that takes the heads of the fish that don't go into a can effectively. So it's a very sustainable operation. We take that head, it's crushed. The meal is sold into the marketplace. So 100% is used and the oil is returned to Australia. So there's no wastage in that product whatsoever. That oil comes to Australia where we have our R&D and our refinery. So we refine that oil here and then it gets sent across to our facility in New Zealand where we produce around 50% of our powders. The other 50% is produced in Australia. So we are totally vertically integrated into the business that gives us supply chain control and significant risk reduction. And it has certainly been a strength in the business that's delivering in profitability and growth for the business. Our customers love the fact that we have control over our entire pipeline. The next slide is just an introduction to our board. We've got a great skill set across our board and some incredible people. They are both challenging and directing and certainly seen this business through a challenging period over the last five years to come out the other side with a wonderful result that sits in a direction for the future. In July of this year, we announced the retirement of Graham Billings. Graham's been with the business for 12 years now. So I think us and all shareholders should thank him for his years of service. He's done a wonderful job with his guiding hand. He has been very influential for me and in the direction of this business. So thank you very much to Graham. And we announced at the same time the appointment of Fiona Pierce. Fiona Bills brings significant financial strength into the business. She's got a great background. And already even yesterday at the board meeting, she was a great contributor. Overall, the skill set of the board and the interest of the board has been really a pleasure to work with. And so I think everybody listening as a shareholder of this has got a great board behind them leading and guiding this business. So thank you very much. It's a pleasure to present a good result for the marketplace. And I'm very happy to take your questions with Andrew.