Medical Developments International Limited (MVP) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the Medical Development International HY '25 Half Year Results Call. [Operator Instructions] I would now like to hand the conference over to Mr. Brent MacGregor, CEO. Please go ahead.

Thank you very much. Good morning, everyone, and welcome to today's investor briefing for Medical Development International FY '25 half year results. I'm Brent MacGregor, the CEO; and I'm joined today by Anita James, our Chief Financial Officer. So today, I'm going to share with you an overview of our results and the company's achievements in the year and take you through our drivers of future growth. Anita is then going to speak to the financials in more detail before I provide you with some closing remarks. And then as usual, there'll be plenty of time for questions at the end of the presentation. Okay. So let's move to Slide 3. So in the first half of FY '25, we delivered a step-change improvement in revenue, in earnings and in cash flow. Our group revenue was up 33%. Our underlying EBIT was improved by $8 million, and our free cash flow has improved by $6.8 million over the prior corresponding period. Now as a result, we are in a much stronger financial position than we have been for several periods. And we're making good progress on so this in our strategy as well. Our volumes are growing margins are higher and our costs are lower. And we of course, we're managing our balance sheet with discipline. Now there's work still to do, of course, but the foundations from which we are now building our strong. And so let me take you through further detail of our process in the slides ahead. So let's move to Slide 4 and our key messages for the presentation this morning. So as mentioned, we've delivered strongly improved financial results. Our Pain Management and our Respiratory segments have performed well, our targeted pricing initiatives have been implemented, and the efficiency programs we put in place in the last year have made a meaningful impact on our costs. Now alongside the improvements in our financial results, we have been making good progress on our strategy. Penthrox volumes are higher in most markets, and we have positive signals from the Irish regulator on our pediatric submission in Europe. In our Respiratory franchise, we continue to generate share growth in the U.S. market, while our leading share is being maintained here in Australia. Overall, we maintain a positive outlook for the remainder of the year. So let me move to Slide 5 now and our strategic priorities. We set 4 to for ourselves at the start of FY '25, as you see here on the slide. First, the targeted -- targeting a step change improvement in margins through pricing and efficiency; the second priority, to increase penetration of Penthrox in Australia; the third, about growing Penthrox in global markets with their primary focus in the year being the U.K. and Europe. And overall, the next few slides I'm going to take you through is progress towards these strategic priorities in a little more detail. Our fourth priority that you see here on this slide is to continue to grow our Respiratory franchise with a particular focus on the U.S. We don't have a slide in the deck today that speaks to this. However, the results in the period illustrates the good progress we're making, and you will see that more clearly when Anita takes you through the financials. Okay. So let's start going through it. We move to Slide 6. So our target to achieve margins that fully reflect the value proposition of Penthrox in all markets and to operate with a strong cost discipline. That's what this priority is about. So again, our earnings in the first half included benefits of $6.6 million from pricing and efficiency. And this includes a benefit of $2.6 million from enhanced pricing here in Australia, and that was aligned with changes to Penthrox pricing on the PBS. And we have improved economic terms in our U.K. and Ireland agreement. Annualized benefits from these initiatives of $3.5 million. Now our earnings also reflect efficiency that's of $4 million, and this is to drive efficiency initiatives that we implemented in the second half of FY '24 as well as ongoing cost discipline throughout the year. Now we will realize leverage from our cost base over time as we continue to grow volume. Now let's move to Slide 7. We'll talk to the Australian -- accelerating penetration of Penthrox in Australia. So we continue to make progress on this front as well with increasing penetration in the hospital segment. So demand from this segment in the first half of FY '25 was up 52% on the same period last year. Now granted, while that's off a smaller base, it does at least continue to affirm our belief any opportunity for Penthrox in the hospital setting. Now also during this period, the Queensland List of Approved Medicines, what we call the LAM, amended their listing of Penthrox to include use in all public hospital emergency departments. The LAM is the official statewide formulary for medicines approved for use in all Queensland health, public hospitals and institutions. So we're encouraged that this amendment can support the broader use of Penthrox in Queensland over time. Now further to that, as we've spoken previously, changing long-held behaviors in favor of a well-regarded product like Penthrox takes time and a targeted effort, and addressing how to influence and shift behavior has been a key focus of our strategic efforts this year. And we have implemented on this front, several medical engagement initiatives to accelerate the behavioral change that's required to embed Penthrox as a standard of care in the hospital ED. I want to draw your attention to a key initiative that we took in the first half of this year, which was an effort -- a presentation that was delivered at the Australasian College of Emerging Medicine at their Annual Scientific Congress that was in November. And we had our lead clinical investigator, Michael Barrett, from University Hospital of Dublin. He was the lead investigator of our MAGPIE pediatric study. He delivered a presentation on the results of that study on the main agenda, and we followed that up with a speaker tour through Melbourne, Sydney and Adelaide where the focus on all of dinner meetings was on the use of Penthrox in emergency department settings for children. Now building an expert network like this in Australia that can establish advocacy in key institutions and facilitate behavioral change, that's going to remain a key focus of our medical engagement efforts. So as you can see from that, we are leveraging the data from that MAGPIE pediatric study, which I say as a door opener, but a broader arsenal of evidence that can fuel the medical engagement approach may be required in time. And the capital raise that we completed last July provides us with some of that funding capacity to address these needs going forward. Let me mention as well that the development of an expert network in Australia can also be leveraged in support of our partner efforts in international markets. So speaking of which, let's go there now on Slide 8. And this Slide 8 details our growth strategy for international markets. So we continue our momentum here for Penthrox in these markets and with still significant runway for further growth. And again, a bit repetitive but as a reminder for most of you, we submitted our pediatric application to the European Reference Regulatory Agency back in August of last year, August 2024. And as I already mentioned, a successful outcome would broaden the addressable market for Penthrox in select markets to children from 6 years of age. Now a decision from that Reference Regulatory Authority is expected by August of this year. And this does offer an opportunity for a step change in demand over the coming years. Now our priority in Europe is also to establish an operating model that is efficient and better able to accelerate market penetration. And this has included the transition to a partner model in France and in Switzerland, and we have spoken to this already in a number of occasions. So during the period, Penthrox distribution arrangements for Switzerland were finalized with our new partner, Labatec. Labatec is a privately owned Swiss-based pharma company that has extensive experience in the hospital segment. So planning for the transfer of distribution in Switzerland is tracking well, and we expect that transition to be completed in Q4 of FY '25. Now we are also continuing to advance partner negotiations for distribution of Penthrox in France. This has taken time, we understand, but we feel very confident now that we're in the final step and it is imminent. so much so that we believe we will be able to transition that distribution arrangement to occur in Q1 of FY '26. So our transition to a partner-supported operating model in Switzerland and in France is expected for us to accelerate product adoption in these markets. So on that point, let me hand over now to Anita, and she'll walk you through our results over the past year in more detail. Anita?

Thank, you Brent, and good morning, everyone. I'm pleased with the results that we have -- these results reflect the many levers we have worked on over the last 12 months to deliver a step change improvement in financial performance and drive the delivery of strategy. To recap the headlines, at the top line, we delivered 33% growth. Pain Management, up 37% and Respiratory, up 26%. Underlying EBIT improved by $8 million. We have delivered an underlying EBIT profit, albeit small for the first time for several periods. Reported EBIT improved by $13 million without the share-based payment expense of $5 million we recognized in the prior year. Net profit after tax was a profit of $300,000. Moving ahead to Slide 11 and the Pain Management segment. Revenue here was up 37% with strong growth in Europe and Australia, offset slightly by lower revenues in our Rest of World markets. Pricing was strongly improved in Australia, the U.K. and Ireland, delivering $2.6 million in higher revenues in the period with an annualized benefit of $3.5 million. Underlying demand in Europe was up 22% with good growth in all markets. The Nordics was particularly pleasing, up 40% and France continued to deliver growth despite limited commercial activity. Phasing of deliveries helped our European result in the first half with deliveries into the U.K. and Ireland favoring the first half. However, timing had an adverse impact on our Rest of World markets with volumes here down slightly on the prior year. In our Respiratory segment on Slide 12, we also delivered good growth. Revenue here was up 26%. We have continued to grow share in the U.S. with revenues up 23%, and we saw improved demand conditions in Australia with revenue up 25%, another very pleasing result for this segment. Moving now to Slide 13 and the key changes to underlying EBIT in the half. You can see the chart -- see on the chart on this slide, the meaningful change delivered through pricing and efficiency. Pricing increased earnings by $2.6 million in the period and efficiency improved earnings by $4 million. The overall impact to earnings from changes in volume was $700,000 with growth in Penthrox in Australia and Europe and growth in Respiratory in the U.S. and Australia. Other cost and revenue changes were $600,000 positive. This included some favorable FX gains in the period, mostly on inflation and the absence of noncapital project costs that were incurred in the prior year. These benefits were partly offset by general inflationary impacts. Moving ahead to Slide 14 and our balance sheet and cash flow. In line with our improved earnings, operating cash flow was strongly improved. CapEx was down with lower spend on MAGPIE and the pause in U.S. projects in the current year. Improved operating cash flow and lower CapEx delivered a $6.8 million improvement to free cash flow. Cash at the end of the period was $17.6 million following the raise earlier in the year and positive momentum in free cash flow, our balance sheet is well capitalized. Operating cash flows in the second half are expected to be positive, but we will have movements in working capital in line with seasonal demands across the quarters. CapEx for the second half is expected to be higher than the first, with full year CapEx at around $2 million. Thank you. That concludes my comments on the financials. I'll now hand back to Brent to close.

Thanks, Anita. So this brings me to our final slide of the presentation. So again, in summary, we are on track to deliver strong improved earnings and cash flow in FY '25. We've already generated $6.6 million in earnings benefits from pricing and efficiency, and we expect to deliver $8 million in benefits by the end of the fiscal year. And so finally, to our earnings outlook, I want to mention that phasing and movements in foreign exchange rates are expected to result in earnings that are lower in the second half of FY '25 compared to the first half. Now notwithstanding that point, the group expects underlying EBIT for the full year to be strongly improved on FY '24, driven mainly by that $8 million in benefits from the higher prices and the operational efficiencies. And lastly, let me close on this point that the group remains on track to generate positive operating cash flow for the second half of FY '25. So thank you for coming on the call today. Now let's open the floor for questions.

[Operator Instructions] Your first question is a webcast question from Matt Joass from Maven Funds who asks, how much of the Australian emergency room unit uplift came from Queensland? What were the main drivers?

Yes. I would say that the percentage is mainly from Queensland is probably mainly from New South Wales. We've had some -- we've had good uptick and some of our top customers on our customer list are New South Wales based. Queensland Health overall continues to be our most important customer in the world. But I think there's been -- I'd say from a hospital perspective, there's been greater uptake in New South Wales, relatively speaking, through the first half of this year in the hospital segment. As for what the key drivers are, we continue to engage on a narrower set of hospitals. Some of those hospitals already were users of Penthrox and they've increased their use. And we've seen new hospitals coming on board. And I would say the primary driver, Matt, has really been honestly, around those key benefits that Penthrox represents and they are seeing the utility of putting Penthrox in the ED from not just from an efficiency perspective in terms of patient throughput, but just from the basic benefits of using Penthrox for acute trauma pain relative to other analgesic options that they have.

Your next question is also from Matt who asks, can you talk more about why H2 is expected to be weaker? Again, what are the primary drivers?

Matt, yes, I'll take that one. We've actually really called it out in the outlook phasing movements in FX. We spoke through the presentation just in terms of timing of deliveries into Europe, and that's the primary driver in terms of phasing between the 2 quarters. FX was a positive for us in the first half, on translation and mostly really risen through sharp changes in the exchange rate really towards the end of December between the Aussie and the euro and the pound. I wouldn't be banking on those in the second half. If they -- if we did get benefits, that's great. I guess it's a little bit of a wait and see in terms of what happens there. But they're the main drivers. In terms of the underlying pricing environment and cost environment, we expect that to be largely in line.

[Operator Instructions] Your next question is from Daniel Hurren from MST Marquee who asks, Anita, could you talk to potential quarterly volatility around cost lines for the back half of the year? Same question for working cap, please.

Dan, yes, for sure. Look, in terms of changes in costs across the second half, operating costs should be reasonably stable. And as I said, reasonably consistent with the first half, but for a little bit of phasing. In terms of working cap, that will move around a little. We did see that in the first half, where we saw a working capital build in Q1 and a release in Q2. I expect something similar to occur between 3 and 4 or so. Exactly how that lies, we'll wait and see. But across the 2 quarters, working capital position will be well maintained as we've demonstrated for several periods now. And as we guided, we do expect to achieve operating cash flow positivity in the second half.

There are no further questions at this time. I'll now hand back to Mr. MacGregor for closing remarks.

Okay. This may be a record for us in terms of half year results. Hopefully, it's a product of the amount of good news that we're able to share and how good we're feeling about results through the first half of the year and what we're projecting as the outlook for the full year. Yes, I'll say again is thank you for coming on the call. Those of you who came on the call, you have any questions you want to flick to us afterwards, don't hesitate. Otherwise, we'll close the call. Thank you again, and we look forward to seeing you down the road.

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