Thank you for standing by, and welcome to the AFT Pharmaceuticals 2021 half year results analyst briefing. All participants are in listen-only mode. There will be a presentation followed by a question and answer session. If you wish to ask a question, you will need to press the star key followed by the number one on your telephone keypad. I would now like to hand the conference over to Hartley Atkinson, CEO. Please go ahead. Good. Thank you very much, and welcome everyone to the presentation of our half year FY 2022 investor presentation. Now, the presentation is on the website so I'll just be going through that, and I'll read out the page numbers as I go. Page number two is the standard disclaimer notice. If you could please take that as read. Looking to page number three, what we have here is looking at our growth over this time period. On that top figure, 1H 2022, you can see we have NZD 55 million of sales revenues from total operations, which is a 14% increase on the prior year. Looking down at the bottom, graphs, we have operating profits on the left, and that shows we've got about a 2.3 x improvement in our half year operating profit. On the bottom right, that's translating through into a 3.5 x improvement in net profit before tax. Look, you can see it's very much what we've talked about over the years where we floated, we raised money to invest in R&D, which we did. We made some losses initially, which we forecast, and then we moved from that forward to profit, and we're working on building a profit at the moment. That's that. Page number three. Moving on now to page number four, extending the foundations for AFT's future growth. As we said, without belaboring the point, we've had a lot of COVID curfews, and it has been a challenging environment. What we've been focused on is still delivering results, which, you know, have to be fair and frank, have been tempered by COVID, also getting well set up for the future as well. Our core Australasian market, we had a number of new product launches in the last half, but actually much more launches going to happen over the next six months and in fact over the next 18 months, we have around 30 new product launches. The Maxigesic commercialization, which is our first lead R&D product, there will be others, but this is the first lead product. We have continued to commercialize that. We've sustained our market leadership in Australia. We've had good growth, actually about 18% sales growth of Maxigesic in the Australian market. Also our licenses, we've done a lot of work around increasing our number of licensees and also including a number of registrations, including you would've seen earlier in the year, we confirmed a landmark licensing deal with Hikma for the United States. The tablets, we're just working through with those. We're selling in more and more countries as time goes on. We've launched recently in Switzerland, Greece, and Lithuania. You know, which all basically it's adding country on country. In Asia, we're accelerating our pace there, where we set up an office in Hong Kong with an Asian head, Lorraine Poppleton. Also too, we have started our e-commerce work with Tmall, but we are looking to really accelerate and extend that and watch out for future announcements in that space. Look, you know, R&D portfolio is still very important, and basically, we are starting soon a new study with Pascomer in a new indication. Also we've got ongoing development of different Maxigesic dose forms and our NasoSURF drug delivery system. Moving on then to page five. It's just the strategic and operational update title page, and that leads into page six. The title of page six is Australia grows despite lockdowns. We definitely saw some impacts around the East Coast eastern states lockdowns. The growth, to be frank, in Australia was positive but muted. We see that as, you know, picking up, though, over this next half year as the eastern states have opened up. We've certainly seen that with our field force out. You know, we've had to work pretty hard with wholesalers because actually we've been getting reports of stockouts, which actually is in some ways a positive thing because it means that our sales are growing faster than their forecast. We'll keep on pushing very hard in the Australian market because that is our main market. Our Maxigesic and Eye Care ranges have led growth. For, as I said before, Maxigesic, for example, is growing about 18% in Australia, and we've also seen good growth with our Eye Care range. OTC revenue has been dampened. We'll show you a photo later on which will kind of explain what I'm talking about, but that'll come later. Product launches. We've had, you know, some launches, but also some delays where we're keener to launch in the second half when things kinda open up, and they certainly have opened up in Australia. Literally, we have 30 new product launches planned over the next 18 months, and we see that as being helpful to keep on driving our Australian business. That's page number six, and then to flick onto page number seven. New Zealand, you know, we've had some restrictions. Obviously, you know, we've got ongoing, frustrating, restrictions, but generally probably still less lockdown than the same time period last year. We certainly have been able to grow the New Zealand business by around about 15% or over 15%. We've seen growth in our OTC channel, which has reflected somewhat more normal trading, although still not as open as would benefit sales of our OTC products. We've had good sales with Vitamin C Lipo-Sachets and Maxigesic leading our OTC sales growth. Actually had good growth in the hospital channel with a 23% lift in antibiotic sales, so for infections. Prescription channel, we had also 15% growth there as things returned more to normal, although as we know, not totally to normal. That's page seven. Flicking on now to page eight, which is talking about Asia. As you can see on the graph on the left, our revenue, and we did flag this last year. We saw a slight dip but improving margins last year. This year we're seeing sales back in growth mode with a 32% growth in the first half compared to the first half of last year. We've had good growth in the hospital business with some strong growth there. Long term, one of our key things is aimed at extending our reach into China. You know, we appreciate there's always some things written about China around risk and things like that. You know, it is still a large, significant market with 1.4 billion people. What we've started with initially is a Tmall store with a trial offering of only three products. You know, this is what we want to work on really expanding over time. At the moment, we're still in the trial phase, but we're looking to extend that. Yeah, Maxigesic, we did have quite some large stockpiling last year, and we have seen this with international. We can see that some of our markets, they did stockpile it, and then that does tend to weaken sales as they have to clear through the sales. We're seeing those sales in Singapore starting to clear. We'd expect that to pick up. What we've done in Singapore as well, as you may have seen, is we did a deal with ASX-listed McPherson's, and they can help us really expand in the medium to long term our OTC distribution in the Singapore market. Slide number nine, this is the international. Overall revenue grew 74% this half year versus last half year. Licensing income for this particular half has been a strong contributor. Again, when we looked carefully, we saw, you know, that there was some stockpiling last year, and certainly markets like Europe and the Middle East were impacted quite significantly by COVID, which did restrict sales and therefore they probably had too much stock. They stockpiled. That has had some impact. Look, we can see sales increasing, and if you look at that, the royalties, for example, have more than doubled. That's consistent with sales growing and clearing the stockpiles. That's really what has happened. That's page number nine. Moving to page number 10. We have the Maxigesic global update map. What we are seeing here is we're seeing the yellow territories, which is ones where Maxigesic has been launched. We are progressively getting more yellow over time. In terms of gaps, you know, the white territories where we have not yet licensed, we are working at the moment with some discussions in Brazil. We're filing as well in the Brazilian market, regardless of whether we have a licensee, but we do anticipate that we will get one. China is a significant market, being one of the largest in the world. We are presently working on an agreement with a company in China, and we hope to be able to make announcements at some stage in the future. Japan, we have had some meetings with the PMDA, the Japanese regulator, to clarify a pathway, and we see that in due course, we will get an agreement in Japan, but that has not eventuated yet. Look, it's just really carrying on. Some of these approvals do take a while. You know, we've seen in Africa, for example, that definitely has slowed down on the regulatory front, talking to our licensees where, for example, you know, some places like Kenya and Nigeria used to be quite quick. With impacts of COVID in Africa, which currently is quite a problem, a lot of the regulators have slowed down. However, the main regulated markets such as Western Europe and United States and Canada, things have definitely improved quite significantly. That's that page. Moving on to page number 11, looking at our rollout across the world. You know, what we've seen is last year we achieved sales or orders in 43 countries. This year, we're targeting around 53 countries. We are making progress. It is a rollout. You know, we've had the launches, as I mentioned, of tablets in Switzerland, Greece and Lithuania. The IV has been launched in Germany and Austria. Look, it's fair to say with the IV, too, that you know last year and even the first part of this year has been a challenging time for any companies launching, mainly because as hospitals are inundated with COVID in Europe, really, doctors are not open to discussing new pain treatments. That you know certainly has slowed down the offtake. You know, once things clear, we see that we'll make good progress. Certainly, we're pleased to see that our licensee in Germany achieved a better than expected pricing for Maxigesic on their German formularies, which is very important because Europe, every country has this thing where they look at the other countries to see what the pricing is, and then that sets the pricing for the whole market. Oral liquid. Registering kids products, as I think I mentioned before, has always been a tough regulatory task, and we're pleased that we achieved our first European registrations in Italy and in Malta. At the moment we are doing what's called Mutual Recognition Procedure in additional countries. That is an important step as well. Look, that's page number eleven, and flicking on to page number twelve. What is important as well is our research and development, because that will also internationally be our future growth engine. Basically on that top slide, we've tried to show you our progress over time with R&D spend. You know, the last couple of years we spent about NZD 9 million, so last year, NZD 9.4 million, year before NZD 9.2 million. It's generally recorded as a mixture of expensed R&D and capitalized, so that's just done under the relevant accounting standard. This year, we have increased R&D a bit, and we've spent about NZD 5.2 million so far, and we're foreseeing in the full year, we'll spend somewhere between NZD 11 million-NZD 12 million in R&D spend. We see probably going forward, it'll be a similar kind of number. Basically, Maxigesic dose forms, we've got a number of studies underway. We're just finalizing our big cold and flu study for Maxigesic Cold and Flu. That'll be finalized this financial year. Pascomer is our dermatology drug. You can see the picture on the right of the girl with growths on her face. Yeah, this actually is kind of a mild case, maybe going towards moderate. On a 0 to 5 rating scale, this would be about 2. You know, you can just imagine that as it gets towards 5, you know, it's very disfiguring. And you know, this is one of the reasons just to point out to people that AFT exists. You know, we want to provide products to, you know, real live patients that actually help them. And this is a very worthwhile project because it can treat, you know, these horrible skin conditions. Basically we've licensed Pascomer to North America with a company called Timber, and in Europe, we've licensed it to another European company based out of Hamburg called Desitin. Presently we have completed enrollment in our phase II/III pivotal study, which, you know, has been a challenge. It's not been a walk in the park. We've had 17 sites around the world, anywhere from Christchurch to Brisbane to Taiwan, with about six sites in the United States, including Mayo Clinic, and then a number of sites across Europe, including Navarra and Madrid in Spain, and then sites in Eastern Europe going through to Serbia, Czech Republic, et cetera. That has been a challenge with the pandemic. You know, we managed to complete our study enrollment, and we'd be looking to analyze the data and have data mid-2022. Obviously it'll be very interesting. We'll be waiting with bated breath to see what the study results are. NasoSURF, we are commencing soon our first clinical study, our proof of concept clinical study with our NasoSURF. That's the device on the top right. You can see it's like a nifty little kind of a device that delivers drug intranasally. Instead of having an injection, you can use this system. We also have other products under development. We have our medicinal cannabis program, which is well underway. Crystawash Extend is a long-acting hand sanitizer that protects you for 24 hours, Crystaderm as well. We've got a number of other projects actually. We are ramping up our R&D, and we'll be able to tell you more about that in future. That's page number 12, and then the title page number 13, Financial Performance. It is time for me to hand over to our expert in numbers, our CFO, Malcolm Tubby. Thanks, Hartley. Yeah, slide 14, revenue of NZD 55.5 million, which Hartley's taken us through in detail, an increase of 14%. Benefiting from the gross profit, in particular, benefits from the license income. That rises at a higher rate of 31% because it's a 100% margin, the license income. Gross profit up to NZD 26.7, and that represents a 48% margin. We do show the margin without the license income down the smaller table at the bottom of the page, and you can see we've increased the gross profit margin on product sales and royalty to 43.2%. We've been able to put some price increases in, and we're starting to see the benefit of those. Operating expenses increased to NZD 21.2, and they increased 1.7 percentage points of revenue up to 38.2%. That reflects the investment into the R&D that Hartley took us through. We have invested some more into sales and marketing behind our Australasian brands. We have increased a bit of personnel in the corporate costs to assist us with our future growth. That leaves us with an operating profit of NZD 5.5 million. Net finance expense, we've, BNZ have worked well with us, and we've been able to switch NZD 5 million from the working capital facility into a Business Finance Guarantee Scheme loan, and that generates some additional savings for us in our interest costs, which is very beneficial for us. That gives us a net profit after tax of NZD 4.2 million, up two and a half times on the same time last year. If we move on to slide number 15, just highlights here from the balance sheet. We are maintaining our elevated inventory levels at around the 34.4 million dollar mark. That's around about 6 months worth of stock. We will continue to do that until we see things settling down. Freight, we are seeing a little tiny movement, improvement in the freight area. Particularly costing seems to be reached its peak at this stage, touch wood. It's gonna still be quite a journey before we get back to full normality. We think it's the right decision to hold this inventory and be able to supply the market. Cash improves from the money generated from the operating profits. Net debt reduces to NZD 32.5 million, and we're targeting to bring that down to the sort of NZD 25 million-NZD 30 million range. Total assets stay around the same, just over NZD 100 million, and the equity improves NZD 4 million, which is from the P&L. We're up to NZD 41 million equity now. Turning to slide 16, cash flow highlights. NZD 6.8 million generated from the operating activities. NZD 2.8 million investing, that's predominantly the R&D that we capitalize. The financing activities are interest. The net increase in cash is NZD 2.7 million. The first presentation we put out this morning had NZD 4.7 million. We have issued a new one, which is on the website. It's NZD 2.7 million. We add that to the opening cash balance of NZD 3.2 million to come to a closing balance of NZD 6 million. We'll move on to the next slide, and I'll pass back to Hartley. Thank you, Malcolm. Summary and outlook is page 17, and then moving on to page 18. Look, this is just a summary of sort of our outlook. I mean, I just draw you to the picture on page 18, you know. In case you sort of think, you know, that we're kind of over-exaggerating some of this COVID impact, you know, this is an example of one of our pharmacy customers. You know, it could be in Australia or it could be in New Zealand. You know, I think, as you can appreciate from looking at it, a picture tells 1,000 words. You know, it just shows why our OTC sales do get impacted in this particular situation, because literally you can't get near them. You know, that's obviously been one of the challenges. Clearly that's what we're looking forward to, the situation easing, which it has in Australia and parts of New Zealand, it has as well, and we look forward to further restrictions reducing. Look, I mean, just not to dwell on problems, I mean, we've certainly, regardless, we've had positive achievements across our key markets, where we've seen pretty good growth in New Zealand and Asia. We're making good progress with commercializing Maxigesic, and we've nailed down some key things like, you know, our licensing deal with Hikma. I mean, it just pays to sort of make the point that, you know, some of these agreements, as you may or may not be aware, there was a bit of discussion around this sort of thing at the end of our financial year. You know, these agreements are very complex, and we do think long term, you know. Basically, the Hikma one happened just after our closing balance date for the last financial year. Maybe, you know, we could have rushed it through and given up on a whole lot of points, but it's really important to think long term. That one did take a little bit longer than we thought, but we still managed to close that off during this financial year rather than last financial year. The important thing is that we've really done the deal, and we believe it's a good deal and good terms for AFT. We've moved on as well, you know, to gain acceptance by U.S. FDA of our Maxigesic IV application. We were pleased to see actually the PDUFA date. There's normally a bit of a range, but we actually got the bottom end of the range, which means it's a bit earlier than we thought. The PDUFA date is June 2022. Basically that's the date the FDA has to get back to us with all their questions. Provided we can answer all those questions in a timely manner, then we would achieve registration that date. Otherwise, we could have a slight delay. Clearly, our aim will be to hit that June PDUFA date. Look, as we've noted, there's been some supply disruptions. Just generally, product launches take a bit longer because getting shipments and things is a more protracted exercise. Once we have got them, as Malcolm's mentioned, we hold extra inventory, you know, but they generally do slow your launches down because it takes longer to get stock. It is what it is. We've seen some slowdown in some territories with regulatory approvals, you know, due to COVID conditions. They will happen, and they are happening, and that's the important thing. Lockdowns, travel restrictions, government-imposed limits and things, you know, have impacted our OTC business, which normally is a very, you know, bellwether kind of thing, where sales progress, you know, pretty well regardless of economic conditions. This has been one of the few things really that could have impacted OTC sales. You know, having said that, we've still got pretty reasonable results, and we're well set up going forward. That's really the key, you know, message. That's page 18. Then look, just to look to finalize on page 19, the overview and focus for the remainder of FY 2022, and our outlook. You know, it's looking at further driving international sales, so we want to accelerate the number of new countries we're launching Maxigesic in. Obviously then it's growing sales in our newly launched markets, Canada, Germany, Switzerland, for example. It's rolling in the new line extensions, Maxigesic IV, the hot drink, we're having our first launch in Australia, quite soon, you know, at the end of this year, start of next year. That's our first launch for that one. Oral liquid, we're working on launching that in Europe following our first registrations. It's extending still further our international licensing agreements. It's looking to add other major jurisdictions like Brazil, China and Japan. Those are all pretty reasonable sized markets, so we'll look to add them. What we do see as well, though, is the feedback we're getting from all our licensees is, you know, they're saying to us, "What else have you guys got coming? Because, you know, we see that you do have products with innovation, products with points of difference. We wanna make sure we keep engaged with you so that as you get new products, we can look at them." Really, we see that as a positive going forward, where we've got this network around the world that we can tap into with our R&D portfolio. That's that. Then, you know, locally, our biggest sales are still Australia and also New Zealand. Really wanna drive our Maxigesic sales, and we've got our line extensions, as I mentioned, the hot drink coming. You know, and in many ways the toughest time was when we just had the Maxigesic tablet. A lot of, I know we talked to some of our larger competitors who've actually been quite surprised how well we've done with just kind of one product line. Literally going forward, we will get a lot more product lines, and that will actually help us. That, that's an important part of the strategy going forward. Then it's the ongoing in-licensing to expand the ANZ business. I mean, one of the positives actually of this current COVID is that we've had a lot of time at home, and therefore actually we've done more in-licensing than what we would've done. This is now starting to feed, you know, into our business, where we literally are targeting the launch over the next 18 months of an additional 30 products into the Australian and also New Zealand market. In terms of financial outlook, I appreciate things are still changeable, but you know, as long as we don't get any major curveballs in our markets, we still foresee that we will hit our guidance of NZD 18 million-NZD 23 million. You know, some have said it's pretty brave making sort of guidance in these conditions. You know, look, we are working very hard. We realize these things are important, and things are changeable, but we're definitely working hard to hit what we said we'd do. That assumes, you know, things like the market doesn't change drastically. Dividend policy is something I know we've been asked quite frequently by investors, and it is as we've always said, you know, we're targeting to get debt down to that NZD 25 million-NZD 30 million level. As long as we're hitting our earnings targets, you know, we certainly the company sees that it would be able to pay a dividend in those circumstances, and that is our aim. Look, thank you very much for your attention and happy to take and try and answer any questions. Thank you. Thank you. If you wish to ask a question, please press star one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star two. If you're on a speaker phone, please pick up the handset to ask your question. Your first question comes from Matt Montgomerie with Forsyth Barr. Please go ahead. Hey, Hartley. Can you hear me? Yes. Yep. Thank you. Cool, thank you. I'd just be interested to hear if you're able to provide any insight into assumptions around one licensing income for the year. From memory, I think the full year was around NZD 4 million-NZD 6 million, clearly already at the midpoint. Just wondering if you could expand on that for the remainder of the year. I mean, I'll let Malcolm answer part of this. You know, I mean, we've always historically had a skewed year where we trade and we have a lot better profit contribution from the second half as opposed to first half. You know, we basically looked at our predicted launches and our sales patterns and yeah, we're still getting the result coming within that guidance provided there's no drastic market change. Malcolm, do you want to add to that? Because yeah, it's your area. No, that's probably about it. In terms of licensing income, we don't forecast any other big amounts coming in. You know, and if we do get those, if they're significant, we'll announce those to the market. Great. Maybe just secondly on the Australia business, so just interested in your view, thinking more beyond FY 2022 here, if you've sort of seen any change to that sort of NZD 100 million revenue ambition over the next two or three years? Following on from that, if you know, the last 12 months with COVID has caused any change to the way you do business in that market. If so, what could that mean? Yeah, look, to be frank, it hasn't really given us any changes. I mean, we had some slow spots in this first six months. We've seen quite a significant pickup. Now teams are back up and running, especially in the eastern states. You know, as I mentioned actually in sort of passing, I know that I picked up literally a couple of days ago, our team's working pretty hard because they're having some complaints with some of our wholesalers running out of stock. You know, but that's a good thing and a bad thing because we are fixing it, but what it means is our sales patterns are accelerating past the wholesalers' traditional sales. That's a good sign, an early kind of indicator that sales are ramping up. I know certainly look, I mean, as you know, Victoria and New South Wales are now well and truly, you know, out and about, and that really helps things. We don't see any change in the next two or three years of our target to hit that NZD 100 million. We slowed down maybe some of our new product launches 'cause we didn't really wanna do them during lockdown, you know, so our sort of new launches will help as well. Yeah, it's really just very much carrying on, appreciating curveballs and COVID, but really the general business and the strategy does not really change. It's important that we keep on advancing things, and that's really what we're doing. Great. Thank you. Yeah, that's all from me for now. Once again- Thanks, guys. Thank you. If you wish to ask a question, please press star one on your telephone and wait for your name to be announced. Your next question comes from Christian Bell with Jarden. Please go ahead. Yeah. Hi, Hartley and Malcolm. Just a couple of questions from me. Just firstly, the increase in royalties, is that from selling across more countries or better sales rates with existing customers or a combination of both? It's a combination of both, but the more established markets have. We've seen them recovering well and— Yeah, they did that last year, you know, like established markets. It was quite interesting looking at the sales graphs. You know, they stocked up and bought stock to cover themselves, and then there were some dips, but they rebound it pretty strongly, you know, in the last sort of time period. Obviously that's flowed through, as Malcolm said, to the royalties going up. Okay, cool. Then just, I guess almost building off one of the previous questions. You don't sort of assume too much license revenue going into the second half, but obviously quite a strong second half is implied. You also kinda mentioned that your assumption is that conditions don't change materially from here, and you've got them in the maintenance of margins. If conditions were to improve from here, does that mean there is upside to your or is there kind of more at the upper end of guidance and then the lower end is, I guess, the status quo? That wrapped up a little bit unfortunately, Christian. I think that you were talking about where the growth's going and you mentioned license income. We don't see it increasing. It's not being the same amount as it was in the first half. It's not gonna be that same amount doubling up again, but in the second half. That means that overall the margin effect will decline as the sales from products grow, if that makes sense. Yeah. We've got some price increases, you know, which Malcolm touched upon. I mean, a lot of them, you often can't do them straight away. You have to notify customers on date X. You know, like the new price will apply. Some of those will start to come in over the second half, which will also be helpful. Also some of them, you know, only come in at the end of the financial year. Generally, though, I guess the other assumption where, I mean, the most important thing is actually the Australian market and the international markets. Really we're planning that we wouldn't have sort of, say, further lockdowns in Australia, you know, that would block off pharmacies in the way that we showed in that photo during the presentation. It's sort of assuming things carry on really, as per now at the moment. Yeah. Yeah. I guess to probably frame my question better, does the bottom end of guidance reflect conditions not changing from here, and then the top end of guidance assumes perhaps a better recovery from here? Yeah. I mean, we appreciate it's quite a wide guidance and really, I guess the reason it's quite wide is because, you know, just how changeable things are. I think that's probably fair, isn't it, Malcolm, I guess, is it? Yeah. Well, there is, with that license income, there is some potential for some commercial milestones to be coming through. That sort of impacts on that range as well. Okay. If we felt comfortable to narrow it, we would, Christian, but that is the, you know, when we run through the numbers, we still do come up with that range. Yeah. Okay. I guess what I'm just trying to get at is, you know, if there is a better recovery from the current conditions, there probably is a little bit of upside. Yeah. Yeah. I mean, is it kind of a fair statement to make? I'd love it to be more than 23. Yeah. No, look, I still think, you know, we're sort of saying in current, you know, situation, we're just looking to get, you know, within the guidance and we will be satisfied, you know, with that sort of result, just given that it is. You know, there's still elements of changeability and stuff, but yeah, it is what it is. Cool. Great. Thank you. Just lastly from me, the price increases, what were those for? Does that include some Maxigesic products? Yeah, there's a bit of Maxigesic, bit of OTC, and then internationally we've been able to put some increases in. Yeah. That's only from orders that, you know, after we've made that announcement, then they'll make the order. There is quite a time lag to those. Yeah, I mean, there's been some quite significant increases, as you know, in freight. But also some of the active ingredient costs like paracetamol, you know, used to be actually pretty cheap, and then the price has pretty much doubled actually. I mean, at this stage we put a what we call a surcharge. Depends how you define it. We've called it a surcharge, you know. The API price came down again, we've certainly cut it back. But I mean, you know, we've actually absorbed that in the first half and we've worn that as a company. That has hit our margin a bit. However, as Malcolm's noted, we have, you know, we should be able to get that price increase or those surcharges coming through for the second half, and that'll help. Great. Thank you. Let's talk again. Thank you. This is our last call for questions.