Probiotix Health (AQUIS:PBX) — Full year results briefing

0:01 Good morning, ladies and gentlemen, and welcome to the PROBIOTIX HEALTH PLC Full Year Results Investor Presentation. Throughout this recorded presentation, investors will be in listen only mode. Questions are encouraged. They can be submitted at any time via the Q and A tab that's just situated on the right hand corner of your screen. Please just simply type in your questions and press send. The company may not be in a position to answer every question it receives during the meeting itself. However, the company can review all questions submitted today, and we'll publish those responses where it's appropriate to do so on the investor meet company platform.

0:32 And before we begin, I would just like to submit the following poll. And if you would give that your kind attention, I'm sure the company would be most grateful. I would now like to hand you over to the executive management team from PROBIOTIX HEALTH PLC, Arsteen. Marc, good morning. Good morning. Good morning. Good morning, everyone. Thank you for joining, and welcome to this review of the 2023 results.

1:00 Do we okay. Here we go. Okay. So, present at the meeting will be, myself, and, Mark Collingmon, our CFO. Allow me to introduce myself to begin with. I joined PROBIOTIX HEALTH as chief executive officer in January 2023. I have thirty years of of experience in the industry, in building businesses, and in in in in structuring organizations.

1:32 I've held several, senior positions, with with global companies like ADM from The US, Dielen from The US, CEO of, Bifidin, vice president of Christian Hansen, and also worked for BASF Health and Nutrition, a German company for a number of years. Mark, I don't know if you wanna say a few words about yourself before we begin. Yep. Certainly. I I I was

1:57 c I have CFO of OptiBioTX and was part of the team who helped spin out PROBIOTIX and listed it in March 2022. I've got twenty years experience of of PLCs and listing, etcetera. So that's where I am. Okay. Thank you, Mark. Just have a brief look at our safe harbor statement. We don't need to spend much time on that, before we move on to the presentation.

2:32 So what we are covering today are four elements or four topics. We will give, an introduction to probiotics health as this might be the first encounter for some of you with the company, a review of the, of our 2023 performance, highlights from 2023, and then a few comments on the on the focus areas this year. At the end of the session, as already mentioned, there will be a q and a session. So you submit your questions, and we will address those at the end of the question. So once we're not able to to answer or have time to answer, we will we will address after the after the presentation. So so the the our business is built in three pillars, basically.

3:27 First and foremost, we are working with identification and development of probiotic strains, which have a targeted positive impact on cardiometabolic health and healthy aging in general. Secondly, we take these strains. We validate these strains, to ensure that they are safe and they have documented clinical efficacy, when used in human consumption. And lastly, we commercialize the strains through providing, our partners with business to business private label turnkey supplement solutions.

4:07 And the market, just to put a few comments on the market. The market, we are tapping into is a market which at a retail level represented $18,700,000,000.20 23 and is estimated to grow to 27,100,000,000 by the year 2028. The cardiometabolic health, cardiovascular disease is the number one killer in the world today. It's even a larger killer than than cancer. Twenty million people die annually from from one or another type of cardiovascular disease. Of of of these twenty million people, four million deaths can be directly linked to cholesterol levels.

5:05 The good part about this here is really that eighty percent, of the death can be prevented and considered preventable with the right diet, with the right lifestyle changes, and with a combination of supplementing your diet with the necessary nutrients. The the today, there exist very few scientifically documented products, in the supplement category to to to sort of support cardiovascular, or cardiometabolic health. And as such, the opportunity for a company like us and our value proposition is really vast and really attractive as we will be we are tapping into a market with very little competition currently.

5:56 The business is founded on a unique technology platform where we have screened 4,000 strains, probiotic strains. We have selected one strain, our LPLDL strain, which showed excellent properties in the prevention of certain cardiometabolic health indicators. This strain has been protected by 27 global patents and patent applications currently and clinically documented in five independent,

6:34 some of them double blind placebo studies. The LPL strain, which is our proprietary strain, has a clear mechanism of action, supporting cardiometabolic health. As such, these clinical studies we've gone to have shown that the strain has an ability to reduce total cholesterol levels by 36 points up to 36.7%. It has an ability to lower blood pressure by up to 5.1% and it has also shown the ability to lower an indicator for plaque buildup in the arteries called APOB by up to 28.6%.

7:22 So all in all, a very strong clinically documented strain, which we have protected with patents and have shown efficacy of win a number of clinical studies.

7:36 This strain we take into, or we commercialized through, introduction of a range of private label finished turnkey dietary supplement formats in the area of cholesterol lowering, in the area of vascular health and in the area of blood pressure lowering. And as such, we offer these finished turnkey formats to the global dietary supplement industry to be launched under their own brand. And just to give you an idea about where we are at today, these our products are already commercialized and launched by leading brands in a number of countries in The US, in Europe, where where we are we are getting a lot of traction in Germany, in Belgium, in Spain, in Italy.

8:32 And we are even already today out in the South African market. We are in a few Asian markets where we have launched in China and in Malaysia. So we are already present and continuously growing the platform of products out in the market having our LPLDL and our turnkey solutions spaces. Our strategic focus as a company is really R and D and commercialization. So the internal value chain has a focus on strain and clinical development, consumer product development, and obviously business to business sales.

9:21 We have strategically decided to outsource the manufacturing to strategic partners within the industry. So as such, bulk strain manufacturing takes place internally and the finished product consumer product manufacturing also takes place externally, of course, the control of the probiotics team. The commercial execution strategy is treated where the primary focus being Europe and North America in phase one. Phase one is what we are implementing at the moment, what we are already developing at the moment. Europe and North America representing almost 70% of the total dietary supplement market, is where we are investing initially because we believe that that's where we have the fastest and highest return on investment.

10:22 In second phase of the five year planning period here, meaning in 2026, 2027, we are expanding our focus to include certain Asian countries, China, Australia, New Zealand and South Korea as those markets also represent really an attractive attractive markets to us. At the end of the planning period, around 2028, we are going to make an entry into the South American and Latin American region as well. This is the least developed region for products that we are offering. But at the same time, it's also a region where if you get in there, you will be able to get access to some global or regional large brands.

11:20 It requires registration and therefore, it's a longer process. So that's basically our commercial execution focus. Mark, I think then I will hand over to you to give some, some some some highlights of the financial performance last year. That's great. Thank you very much, Steve. But, 2023 was, commercially successful. Obviously, we launched in we listed in 2022, and 2023 was our first

11:56 full year of trading as a separate listed entity from OPTIX HEALTH PLC. So what we've done is we've taken the net sales in 2022 up to from 1.3 to 1.6, which is a 28% increase. But at the same time, 2023 was a year of building the team. Steam came on board in in January 2023, and various members of the team joined throughout the year. It was also a year of transition because we still had, sort of people involved from antibiotics. There was a, a handover, etcetera. So that has all moved forward, and now we are now separate from OPTIX HEALTH PLC, and we are now building our team and moving forward. So we have 28% year on year revenue growth, which is a very good result and also maintaining our gross margin of 50% plus.

12:59 Now, one of the things is as part of the, the year, our costs, yes, went up during the year, but that is a result of building the team and also the overhang from the overlap, if you like, between antibiotics and probiotics. And then if we move on, and this breaks down where the where the increases are. So North America, we're up 895% increase in EMEA. And the rest of the world, we're up 25%. So if you take into account the fact that it was a year of building, a year of overlap, 2023 was a good year.

13:44 Now balance and cash flow. At the January 1 well, we raised cash in March 2022 of 2,500,000. Now the the balance at the January 1 was was 1,740,000. We had our, obviously, our sales of 1.6, cost of sales of $80.01, and our admin cost of 1.55. We had an increase in stock of 23, and the debtors we you know, the year end were down where they were previously. Our creditors were higher than the previous year, but that's more a case of timing rather than anything else. And we ended the year on 1,500,000, which was obviously reported in our accounts last week. Now one of the things I've seen come up within the questions and also on the boards, etcetera, is the the subject of the material uncertainty that's in the accounts, which the auditors put in. It's probably quite a good idea to answer that question now since they said we're talking about cash.

14:53 But as as part of the audit process, the auditors look for comfort that a company has cash for eighteen months from the balance sheet date. The actual legal requirement is twelve months, but auditors look at eighteen months to be sure. Now in common with many companies of our size, we rely on sales to fund the cash requirements of the business going forward. If as part of the audit process, these sales are stress tested, I. E, we discount the sales from what we forecast, then there is a cash balance and the balance is impacted, which is why the emphasis of matter paragraph is in the account. As mentioned in the report, if the sales were not forthcoming as we forecast, then there are a number of other things that we could look at such as cutting costs as well as possibly in addition to raising funds.

15:47 I mean, the matter of it, material uncertainty or emphasis on matter paragraph is not an unusual occurrence for a company at our stage or our size. So I hope I've answered that question. But I should also point out that our interims for, you know, the looking at our accounts up to the end of June, We are on track, and we have no reason to believe that the sales will not come through as forecast. So, hopefully, I've answered that question. Sorry, Steen. You want to No. No. No. No. No. I think that that that completes my section. So I'll hand back over to Steen. Yep. Thank you, Mark.

16:34 Then let's let's look at some of the the activities that we embarked on in in 2023. The the the the sort of process was really implementing a targeted strategy with clear objectives, which we did at the beginning of the year of '23. And really this strategy, it is focusing on commercial execution, building sales, building the pipeline, expanding our reach in the markets. It's focusing on product innovation and science to continue to offer differentiation in the market and thereby be able to build barriers around the business and continue to build barriers around the business.

17:25 It's focused around establishing an organization which which allow for building the business and for doing or securing a long term profitable growth to the benefit of investors of the company. And then it's also focusing around expanding the product portfolio to go into a broader indication area of healthy aging, once we have sort of

18:06 taken the potential out of or explored the full potential within the cholesterol and the cardiometabolic health area. And by defining this strategy, we are really tapping into a mega consumer trend. As we all know, we grow older, we are all increasingly focused on also having a healthy lifespan. And our value proposition with the cardiometabolic

18:36 offering, with the cholesterol offering, with the blood pressure offering product range taps very nicely into this megatrend of healthy aging. So as such, we have a five years, some set up, some aspirations for our five year achievements to deliver 10,000,000 in revenue by 2028 and reach an EBITDA of 20% at that time. Obviously, as Mark already mentioned, 2023 has been an investment year where we have built and

19:12 invested in building the platform for the future growth and the future return for investors. So to highlight some of the milestones we achieved, we launched our new convenience direct dose stick urobiologics insta melt. This is a first of its kind in the category of or within the cardiometabolic health category. This stick offers differentiation and offers an alternative to people who have pill or capsule fatigue. And we have high expectations for this dosage formats, especially when we enter into the Asian region where we know it's a good fit with especially the Chinese consumers.

20:08 So really a

20:11 milestone achieved there. We also entered into a five year commercial agreement with Germany's third largest supplement brand, Symbiopharm. They took the product on market Q1 of

20:28 Q3, sorry, Q3 'twenty three and obviously moving business into this year as well. But I will say that the initial results and the initial sort of consumer acceptance has been extremely positive and the product well received. So we have high expectations for that. We also renewed a new or renewed a five year commercial agreement with one of the most, or one of the leading online brands in The US. This this this agreement holds very attractive forecasted growth numbers for the five year period to come. So we also have a lot of continued hope and expectations to that. We signed a distribution agreement with a distributor in Australia to start the process of entering the Asian New Zealand market. And as Australia is really the gateway into China and many other Southeast Asian countries, then we were pleased that we managed to set up and very happy to be able to set up a distribution agreement in Australia.

21:50 We also got our first commercial partner sales into China.

21:55 Again, it's through a European partner, but again, showing extremely promising growth and take off since introduction. And we opened more than 25 new active sales projects, which is significantly

22:13 more than we have done historically. And this is obviously to build the pipeline for the future. And then as Mark already alluded to, we had a process of separating from OPTIBIOTIX, which was ongoing and a part of that was rebranding. And lastly, I would also like to mention that our Italian partner, they came out with a study, including four thirty one people, including our LPLDL, and that study showed, or confirmed, you could say,

23:03 the efficacy I showed on one of the first slides of lowering blood pressure, lowering cholesterol levels significantly. So this study is also a strong communication of the value proposition and the clinical efficacy of our product range. We spent the year on building and we put managed to put together a strong board with long long history of building businesses, long industry experience as well. And we also put together a management team with collectively more than a hundred and forty years of experience within probiotics and within the nutrition segment. So really a management team with a broad network with in-depth understanding of the business and the ideal platform for accelerating the growth.

24:11 So lastly, I would like to put a few words to the focus this year. And the focus this year is really a continuation of what we began last year, but a focus on further accelerating sales growth through a systematic approach to existing customers offering line extensions and also a systematic approach to expand the customer portfolio in Europe and in The U. S, as I mentioned on our strategic slide. We're building and expanding the getting new projects into the sales project pipeline to secure long term and future growth as well.

25:06 And then we are finishing building the commercial platform in The US and Europe, meaning basically finishing the process of

25:17 getting resources in sales resources in Europe and in U. S. And the core organization, as you saw on the previous slide, is really 90% in place. There are a few things that still needs to be put in place and separated out from OPTIBIOTIX, which we are also doing this year. And then we are focusing on building the clinical or starting, not building, but starting starting to build the clinical platform for future expansion into the healthy aging category once we have sort of taken the full potential out of the cholesterol and blood pressure area.

26:06 So basically, I think that concludes the formal part of the presentation. Perfect. Steen, Mark, if I may just jump back in there. Thank you very much indeed Ladies for your presentation this and gentlemen, please do continue to submit your questions just by using the Q and A tab that's situated on the top right hand corner of your screen. But just while the company take a few moments to review those questions that were submitted already, I would just like to remind you that a recording of this presentation, along with a copy of the slides and the published Q and A, can all be accessed via your investor dashboard. Steen, Mark, we obviously received a number of pre submitted questions ahead of today's event as well as, as you can see there in the Q and A tab, we've also received a number of questions throughout your presentation this morning as well.

26:56 So firstly, thank you to all of those on the call for taking the time to submit their questions. And Steen, Marc, if I may just hand back to you just to read out those questions and give your responses where it's appropriate to do so, and then I'll pick up from you at the end. Thank you. Absolutely. We have a question here. When do you expect to move to a more liquid exchange so we can actually trade the shares? How will that impact existing holders with this lump in share price? Mark, I think that's maybe something for you to Yes. Certainly. The yeah. There's been much talk about moving moving to AIM, but, I mean, there's I know there's a lot to talk about. I know some trading shares on AIM, etcetera. But the the big the big issue with moving to AIM is, obviously, you would have to pay quite significant amount of fees for advisers to move over from one market to the next.

27:56 At the moment, we don't have a a plan in place to move over to aim and as aim us at the moment. The the idea the plan is to build shareholder value as per the presentation we've made and build the turnover and move forward to 2028. Okay. Thank you, Mark. Then there's a question. Are you still exploring the use of LPLDL in yogurt and dairy products? We as part as part of the strategy we defined in 2023, we are focusing our resources on exploring the potential within the dietary supplement area, because we believe that's where we have the highest return on investment, short and medium term.

28:53 So we are not proactively pursuing the dairy and yogurt business at the moment. It's still an interesting business to look at, but it's our second priority. What we are doing is we are on a, you could say, more opportunistic basis or in certain countries, we are looking at opportunities that are especially attractive. For instance, in China, we are working on a few projects in yogurt because those are driven by some of the large dairy players in China. And we have assessed that that will that can give an attractive return on potential. But short answer, focus is on dietary supplements short term. Longer term, we will move to food and yogurt.

29:54 Okay. So we have another one here saying, will you need to raise funds? If so, how given the increased costs? Right. I'm I can I would Yeah? I would refer you back to what I said about the, the material uncertainty or emphasis of massive paragraph that's in the account. We have a forecast, and like all lots of other companies our size, we depend on sales. So we have our sales forecast where we where there are no red flags as to whether the forecast is incorrect or anything like that. So we can never say never we would raise funds, but at the moment, that's where we are.

30:44 Thank you, Mark. Next question. Whilst year on year revenue growth looks impressive at 28%, the increase is 300,000, which doesn't cover this directors' remuneration of over GBP 500,000. Are shareholders getting value for money? I think I can or you can but I can address that. I think we already sort of addressed it in the presentation where we said that we 2023 was an investment year. We are building the organization that costs some money, but obviously, that's done to secure long term return to investors. And as you saw from the numbers in the strategic overview, we are aiming at a reasonable profitability and revenue by 2028.

31:40 So really, this is the investment we are doing to secure the long term strategy. Okay. Okay. We can the next one. It's disappointing that shareholders' communications with PROBIOTIX is, to put it mildly, now I cannot I'm not English native speaking. So but I think the essence is this is a public list, the company and shareholders deserve better. How will the Board be addressing going forward? I can also, let me answer that. Again, 2023 was a year where we had maximum focus on building the business and getting the structure together. Keep in mind, we were spun out of, Opti Biologics in 2022.

32:39 I joined January 2023, and, and the team was put together during 2023. So so so the honest feedback would be that we have had our focus on getting the structure together, securing sales, growing the business. And admittedly, we have not been, communicating that much, with the shareholders. We will be picking up on that, and we will get it into a more formalized structure, with this one here being the first of its kind of the meetings. So we will pick up and be more systematic in our communication going forward. Let me see.

33:30 Then we have a question. What is the company? And it's probably for you, Mark. What is the company doing to address the value since listing? Well, the yes. The the the company is doing I mean, like, a number of companies that the investors on this call will be invested in, lots lots of companies have been severely affected over the last two or three years, and a number of companies have lost significant value over those years. The way PROBIOTIX is going to react is move forward with a strategic plan as outlined in the presentation, build customer value and shareholder value by working towards £10,000,000 turnover and £2,000,000 of EBIT of 20% of EBITDA, £2,000,000 EBITDA.

34:22 That's That's what we do to rebuild the value. But we have, as many other companies have been severely affected by market events over the last two or three years. Thank you, Mark. And then we have a question. What are the criteria for selecting new commercial partners and distributors? The what we are looking at is we are entering into what you could call long term relationships. And we are looking at when we enter into partnerships, we're looking at brands who are willing to invest in building a position for a product in the cholesterol lowering or the blood pressure lowering segment. So typically, we would look for companies who are already active in the cardiometabolic health space and who has a strategy of long term investment and in growing brands that are scientifically documented.

35:29 So we are basically not going for, what you would say, the low end of the market where price is the driver and where, clinical documentation So so so so we would this is typically how we would select select our partners and distributors. And then we would look at at someone who is covering either country or region depending on where in the world we are operating. Okay. Let me see if there are, let me just go through some of the other questions here to see if there are.

36:27 I think we, hit that one. You already touched that one. It says extremely let me see. Then there is a question here. Why do you persist in selling COPIOTIX HEALTH in The U. S. And content several limits or content several severely limited in The EU? Yet, red yeast has a safe structure as lower statin, which surely undermines the whole recent result data for COBIOTIX as a non statin alternative.

37:21 This is yes, you are absolutely right. This is the case. And what you will also notice is that we are now increasing focus on the pure LPL. This is really what we are positioning. This is the pure LPL version of our product. That is what we want to use as the core for growing the business. But when this is set, there are certain countries in Europe where red yeast rice has a very strong link to cholesterol in the supplement market. And in these markets, we obviously will continue to position X3, but will make a transition into a clean label product only containing LPLDL over time.

38:18 Okay. Then there's a question. Why not India? That's that's easy to answer. We we simply taking the the approach that we are a small company. We want to provide return to investors, return to the business, as fast and as best possible. And we believe we have a much higher return of investment rate by focusing our resources on US and Europe because there are a number of trade barriers, especially in India with stability, with import duties.

39:04 So we basically take the decision not not to approach that market in phase one. Let me see. This one we can this one here, I'm not so there is a question that we are still highly dependent on one specific customer, which, or a few specific customers, what are we doing to diversify our partner base? I, I think this is this is what the exercise is all about. This is what we are doing. We are expanding our reach with building our, our pipeline of sales projects by adding commercial resources, being much more active in the market, getting directly not to distributors but to direct sales efforts, get in touch with the potential partners to broaden the portfolio and make sure that the dependency of single customers is decreased.

40:24 I think those are there are a few few few more, but I think they are better answered as a very specific, they're better answered through a direct response. So I think those are the questions. Perfect. Perfect, Steen, Mark. That's great. Thank you very much indeed for addressing all of those questions that came in from investors. And of course, we will give you back all of the questions that were submitted, immediately after the presentation has ended. Just for you to review to then add any additional response, of course, where it's appropriate to do so. And we'll publish all those responses out on the platform. But Steen, perhaps before really just looking to redirect those on the call to provide you with their feedback, which I know is particularly important to yourself and the company, if I could please just ask you for a few closing comments to wrap up with, that would be great. Absolutely.

41:15 So first of all, thank you very much for taking your time to participate. And I would say we are as hopefully Mark and I, we have been able to communicate, we are looking at a very positive growth scenario. There are a lot of opportunities. And we are basically now at a point where we are having our ducks in a row and we are ready to start accelerating the execution and really tap into this huge potential in the market. So we see the future as being very bright, being very positive and are looking forward to, on a more regular basis, keeping you updated so you can follow more closely the development.

42:10 And we are looking forward to sharing good news with you, going forward. So thank you once again all for participating. That's great. Steen, Mark, thank you once again for updating investors this morning. Could I please ask investors not to close this session as you'll now be automatically redirected, for the opportunity to provide your feedback in order that the management team can really better understand your views and expectations? This will only take a few moments to complete, but I'm sure it'll be greatly valued by the company. On behalf the management team of PROBIOTIX HEALTH PLC, we would like to thank you for attending today's presentation. That now concludes today's session. So good afternoon to you all. Thank you.