Wellnex Life Limited (22W0.F) Earnings Call Transcript & Summary

Good morning, everyone. Happy Monday. Thank you for joining us today. My name is Patrick Nelson, and I'll be hosting today's session, but we're joined by Executive Chairman, Ash Vesali of Wellnex Life, and this is an investor briefing. The format for the briefing is going to be Ash has got a couple of slides to run through, but predominantly, this is a Q&A session for shareholders meeting Ash and the ability for you to ask any questions you've got of Ash. And now a couple of housekeeping matters first. Any advice contained in today's presentation is general only. The information that we're presenting is for your -- for educational purposes. Past performance is not reliable of future performance. And if you've got any questions at all today, you can put them into the question box, and I will call them out. So welcome to the session. As I mentioned, Ash is going to be doing a short intro with a couple of slides, and then we'll go into questions. Now we did send out a Q&A session after the AGM the other day. And there will be a deck or a new investor presentation released to market in the next week, and there will be another session off the back of that. And the cadence of communication going forward will be, if there is any material information that -- or any ASX announcements, we will host a quick page turn along with a Q&A. And Ash is keen after a couple of months getting into the business and reorganizing things to get a regular communication with investors, the market and with shareholders. So again, thanks for everyone for coming on the call today. Now in terms of -- for those of you that are seeing Ash the call for the first time, ash has a long experience operating in highly manufacturing and top-tier consulting. He supported ASX Boards on strategy, governance, performance improvement and many other elements. So he was brought in several months ago or around 6 months ago to do a review of the business. And off the back of that review, he'd identified that the company had a couple of really strong core assets, Pain Away and the contract manufacturing business, but there was a lot of too much capital and also focus spread across loss-making brand development. And he saw a pathway to profitability by refocusing the resources and then on focusing on areas where they have proven revenue generation. All that needed to occur was a reorder of focus on that and some cost cutting. So he was brought in after that review and then stepped in into an Executive Chair role to oversee the -- I guess, the turnaround story for Wellnex. So Ash, thank you for joining us today. We've got a couple of slides for you to step through, and then I'll come back and we'll get into some Q&A.

Good morning, everyone, and thank you, Pat, for inviting me, and good morning, everyone, on the line. Just to give a quick overview of Wellnex in case you haven't came across of it, and then we can go to Q&A. So Wellnex, we are leading brands, category products, manufacturers, and we have opportunity to become a globally significant in the area we are focusing. Our aim is basically bringing a core category products that have a potential and significant opportunity to grow and increasing also our contract manufacturing, which is one of our core pillars of the business. Overall, that we are seeing the pharma business is changing. We are seeing a steady flow of product developments reducing within the big pharmaceutical, and we are seeing them putting a significant effort across sales and marketing within expansions. So there's opportunity for them to outsource some of their activities and licensing and there's opportunity for organizations like Wellnex to pick up some of those licensings and partner with some of the big pharmaceutical, which is we are in that position, and we are leading that activity going forward. If I look at where we are from our product portfolio, we have a first-in-class liquid paracetamol and ibuprofen that we are working with a big manufacturers and pharmaceuticals like Haleons that provide Panadol brands and Arrotex and Wagner, which is a joint owned brand within Wellnex. And within the brand portfolio, obviously, we have our golden asset of Pain Away. It's the #1 topical pain relief brand in Australia, and we are looking to take that brand to a next level at the global level. Overall, if I give you a summary Wellnex as a business, we are a very capital-light business model. We have even gone larger in the past few months. We have managed to grab attention of the big pharmaceutical, the way we are operating and the way we are developing, and we have a significant brand and royalty behind our products. and we are ready to take this to the next stage.

Yes. So can I ask you about this because you say you're capital light, but the business has been hemorrhaging money. And this statement of capital light has been made to us before. I mean are you capital -- are you saying you're capital light now? I mean how do you make that statement?

We are in transition to becoming a capital light. We went through a phase that we spent a significant amount of capital in product development and we built a team in that product development. And obviously, when you go through a journey of product development and commercialization, that requires a significant amount of capital. And the business went through the period that we keep raising capital or raising capital, but also in the same way we ban that cash as we were going with our productive development.

So what have you done to address that?

What we have done, we refocused on our portfolio and we looked at our entire portfolio. We pick up our golden assets, and we are in the position of rescaling our noncore assets, and we're reducing activity on those noncore assets and we're reducing spend both from the trade point of view and from a marketing point of view. And we are also stopping all product development on new category and new brands. That does not mean -- we are not stopping product development for NPDs and new variation of our core brand of Pain Away but with all the brands, we're stopping those product development.

Yes. Okay. So then -- so maybe can you quantify like -- I mean what does all of that mean in terms of how much cost are you cutting? You mentioned from marketing and product development. Can you just talk about what that looks like?

Yes, if I look at the business, last financial year, our operating expenses was at $10.8 million. We are on track to take up to 40% of that. So my target is to operate around $6 million on operating cost per annum. And we are in the process of executing some of those pipeline at the moment. We will see some of that savings will come through this financial year, then the full benefit will come across the next financial year. And with that, what we said, we will then see our margin increase. This is where my focus is, how do we increase the margin of the business and bring our P&L into a more healthier way.

Yes. So how far into that cost-cutting journey are you? I know the benefits that you talk about flowing through next calendar year, but will those costs have been cut by the time we get to the end of this calendar year?

If I look at it, we have restructured the business. Back in June, the business was 14 FTE. We are a team of 7 people within the business. So we have cut the headcount by half. We have significantly in the process of reducing some of the trade spend and marketing activity around our noncore assets, and that has reduced our expenses in that area. We are also looking at some of our supplier agreement right now, and we are in the discussion and negotiation to refine some of those. So that's coming.

Is there a risk that you do this and then you also cut revenue and cut at the same time by making these decisions?

No, definitely not. Revenue growth still remains the focus. We are removing the operating costs that more related to the structure of the business but with the brand itself and our core assets, and we are continuously with the growth of that brand. And that's including investment to create variation of those brands and new product development within that brand. So that's still a key focus for us, and expansion to other markets will remain a key focus for us to increase that presence.

I mean, Pain Away is the marquee brand or the -- then how do you grow this? What steps do you to grow the Pain Away brand?

Pain Away, we have a very significant footprint within Australian markets. We are in every single pharmacies. We are in every groceries, and we are -- we have a very trusted brand with our buying. Where we are focusing to take Pain Away next for us is the international market. We really need to expand this potentially, we start with U.K., and we are in the discussions around that, and we are negotiating a distribution at the moment. With that said, if we'd be able to get the Pain Away in the shelves in U.K. pharmacies, that will generate a significant valuation behind our brand and behind Wellnex. So that's where we are putting our attention at the moment.

So you showed a slide on the big pharma industry and the changes that are happening there. So I mean they've stopped their own brand development. Is the opportunity to be able to demonstrate that Pain Away is as the all-natural topical pain relief kind of a solution relevant into other markets, U.K., U.S., wherever it might be, is that kind of part of this strategy to make it a valuable brand that they may want to choose to buy off Wellnex at a point in time?

Yes, that's exactly. We are in that approach and that path showing that we have done the core R&D. We have built the markets which we have our penetration with the market, and we have significant growth potential. So from big pharma looking at asset like Pain Away, for them is pick and plug into their portfolio and to their marketing engine and just grow it from there, that's how we are positioned at the moment. We have had a few conversations with markets and pharmaceutical around how they would see Pain Away and how would they will see in their portfolio, and the story has been positive, the feedback so far.

So Pain Away in itself, what's the kind of general -- I'm not looking for a forward-looking statement. I don't want to put you on the spot, but I mean, last year, for example, how much revenue did it generate?

Last year, we were around just under $14 million. We are pushing it to hit $15 million this year.

So $15 million, what -- maybe talk us through the numbers behind that at a high level, so people just can understand what they've got their hands on you and Pain Away in itself?

Yes. If I look at it, it's a beautiful product sitting here and we are seeing a [ $15 million ], we're looking as a target on working with the team for annual revenue, but if I look at it, we're seeing a gross profit of roughly around 50%, 55%. That is very, very possible to the business, and it's really helping where they're the business. And if I remove that operating cost and we clean up the business and clean the house, we're looking at we will have around $5 million to $5.5 million EBITDA positive just from the Pain Away, which is a core contribution to the margin.

Yes. Okay. And so then what's that worth? I mean you can prove that into the U.K. revenue aside -- revenue growth aside. I mean there are other brands that are sold on some pretty decent multiples, I guess, maybe we'll leave it at that. I don't want to put you on the spot any further. Moving on from that, then you've got the contract manufacturing. So Haleon here in Australia use the liquid paracetamol, their Panadol product. And then you've had some movement into the European market. What's the strategy over the next 6 to 12 months on that front?

Contract manufacturing is very, very niche revenue engine for us, and we have significant potential to increase the footprint of our contract manufacturing. My focus is where are we going to target across Europe and Eastern Europe and how we can expand the footprint around that area. While we need to work with the pharmaceutical and the local regulators to fast track the implementation and introduction to some of the new markets and the time frame is it varies from time to time, but overall, the big picture of this is very exciting for us. What I'm looking to also to do is we as we go and introduce to the new market and new countries, we are setting up a new agreements around our pricing and our IP licensing fee, and that gives us a potential to also increase our margin in this area further. So if I look at the Pain Away, it can become a significant opportunity for us within the next 5 years. It has a significant potential to grow further. Where I wanted to see it is becoming a very, very stable recurring revenue at the back of the house that it just generates cash for us and we can take the margin out of it and contribute to the business. We grow other brands in the future.

Robert's asked, how protected is the Pain Away formula?

We own the formulations and we own the IP. We own the TGA rights, obviously. And we have the IP around manufacturing process.

In terms of cutting costs, I mean, has there been any, I guess, pains around reorganizing the team and I guess, getting focused on that, that has an impact on how you're trading?

The trading hasn't impacted. Our attention and focus to maintain our customer relationship has still been our prime focus. We are maintaining very strong relationship with the buyers from the pharmacies and the groceries, where we are looking at our strategy on how we put in the next brand reviews into them. Obviously, as I mentioned, within the Pain Away, we are introducing new variation of the Pain Away on the new product development, and we will be looking to put that into the markets. So we are in discussion with the buyers. So no, the front of the house and our relationship with our customers remain our focus. It's a critical area. As I said, we are just looking at refining some of the back end of the house processes and bringing some more structure management and governance into the place.

There was a focus from previous management on coming up with new brands, new products, designing those products, getting approval from those products and then going through the process of marketing. Now the success the company has had has been on -- it's created a good product, which is obviously now selling through Haleon and other groups or partnering with other groups on and you've got Pain Away. There are other brands -- what happens with those brands now because you mentioned this cost cutting do are they extinguished? Are they sold? Are they put on ice? Or do they just [ pop ] along for the time being?

It's a combination of a bit of all, I have to say. What we are doing, we're reducing our efforts on an investment on some of the brand that was previously created. Obviously, as I mentioned, creating new brands and taking it to the market as expensive. Products and market reputation also is an expensive activity. Yes. So we have back on some of the investments, and we have scaled back on pushing some of those new brands to the market. I mean we're in discussion with potential few buyers that have shown interest in acquiring the brand from us. We are in those discussions. And if we don't be able to find a right level of the commercial value to exit the brand, we will potentially put them on ice for a short period of time. And we will focus on core activities of Pain Away and contract manufacturing. My core focus is to bring business to profitability and cash flow positive. That's the direction where we are taking. Pain Away and contract manufacturing will get us there, and we are in the track to achieve that number that I want within this financial year. For the future, as we grow and as we are profitable business, we are steady and stable business, then we have potential to bring additional brands if we need to, but that's something that we can look into later.

Yes. I don't want to sort of get crystal balls out worry about that too much. But I mean is your thoughts that you become a business that buys brands if the opportunity is there? And then why is that a strategy that makes sense? Why is there a market opportunity for doing that?

I'm refining our operating model and the structure of the business around adding and creating value to step to brands. So if we see a potential brands that have significant for growth, we can add value to it, we bring it to the Wellnex house and within the within Wellnex, we give it the care and the love and care that required that we can increase its valuation, increase its market, increase its penetration, we know we are in the right spot in...

Is that a strategy about just growing profitable brands? Or is it also an element of what this backdrop of the pharma industry where brands aren't being developed, so you can pick one up, clean it up and then prepare it to connect to the big pharma world?

In line with that and there are plenty of brands in the market at the moment that we can pick them up. And we can the reformulate them or repackage them, remarket them and regrow them in different. So we know we have the skill set within the business to turn off that element. We are doing that with Pain Away at the moment. So in the future, if you said to me, this is another brand, we bring it to the house, and we can add a valuation by 2x, 3x and then later on, we exit that brand within the 3 or 4 years' time, that's a beautiful way of putting the dividends to our shareholders.

Yes. Okay. So the I guess what -- one last question on this and then, I imagine that other shareholders are thinking it as well. I mean what went wrong? And how do we know that going forward, we're not going to have the same problem that we've just had with the business that's represented? It had a forecast to get profitable. It forecasted it was capital-light. How can you convince us that this is now -- that these challenges aren't going to be ongoing?

What went wrong simply we started getting involved with too many brand creations and investing on too many brands and spreading very thin. The focus and attention just spread it across everywhere. The cash burning at also spend across so many pillars of the business, and that was a core fundamental issue within the business. So what we have done, we have paused that. We stopped that. The other challenge we had, we try and we're still working to refine that is our forecasting. We -- some of our forecasting needed to be soft of be readjusted, be more pragmatic, what we can achieve and what's realistic than having a very ambitious forecast that we previously put into the market. And because of those ambitious forecast we previously put in the market, we never managed to hit our numbers and hit -- gain the results we want. So we're looking to be more focused with our forecast, what we can achieve and what needs to be realistic and then also from the operating costs, what we put in -- what we are posing basically.

Okay. Now a bit of change at a Board level. Can you now maybe just talk us through what is the makeup of the Board?

As of just the AGM opportunity, unfortunately, we lost Ruari, who was our Director within the U.K. market. He -- obviously, he didn't gain sufficient vote for his selection process. Currently, I'm chairing the Board. I have Mr. Eric Jiang as our Independent Director and Mr. Jeffrey Yeh as our other director within the business. We are putting a news into the market that we'll be looking for -- searching a new director for our U.K. within the due course, and we'll start that activity over the next few weeks.

So is there a requirement to have a U.K. director?

No, it's not a mandate. It's a sort of best practice within the market we are seeing. We are still listed the U.K. market. And while we are listed to the U.K. market, I do prefer to have a U.K. director and maintain the relationship with some of the investors over there.

So the U.K. listing happened before your time. But -- and [ Zelman's ] asked a question here. I might shorten it a little bit, [ Zelman ] limited what you probably can say on this topic. But is there tangible benefits for being dual listed for a company Wellnex' size?

There's a -- I need to answer the question in two ways. Short answer is no. Wellnex is too small to be dual listed. And being a listed in U.K. is costing us a lot at the moment. So that's one of my key focus in meeting the business how -- where we go with our U.K. strategy. If we have another 2 or 3 brands similar to Pain Away in our portfolio, and we were looking in the U.K. market, London listing will be a very, very beneficial for us.

Yes. So there could be a world where you get some traction and all of a sudden it makes sense, there could be also you need to think about all of these things like everything else you're going through a process on and that's what we can say on that matter for now, but thanks for the question, [ Zelman ]. So I mean you mentioned focused on profitability. And then beyond that, it's looking at what potential brands are out there that you potentially can buy and build up, continue to grow, Pain Away into new markets, continue to let the contract manufacturing strategy rollout to new markets. So you've got quite a simple business now in terms of what's in front of you from having a big suite of different brands that were going through different stages of development. Is that an accurate synopsis of where you're at, at the moment? What would you say what would you add to that?

Yes, that is pretty accurate. We're already focusing on 2 pillars and we're simplifying the business. Again, at the moment, my focus is to simplify the business, remove any distraction we have and bring the whole team's attention and focus to those 2 core pillars.

And just going back to the Board. So I mean, obviously, Eric's been there for a while, so there's a continuity, which is probably nice to have someone that's been around for a while. Jeffrey Yeh is a really interesting operator in the Australian market. Maybe a couple of words on Jeffrey and his background for shareholders is across it.

Jeffrey is obviously, it's one of the owners of Homart, is another major pharmaceutical manufacturer and they're based in Sydney. Their business over $100 million valuation at the moment.

Revenue.

Revenue.

Sorry valuation really high.

Sorry. Revenue. They have a significant reputation in the Australian market. And we have the pleasure of having Jeffrey on Board and also as an investor in the company, and it's great to work with him on a regular basis.

Yes. Yes. So a nice tight little team and a Board now. I think before -- last time, we blinked after the U.K. IPO, there were 6 or 7 directors on the Board. So that's tidied up, smaller headcount day-to-day, narrower focus.

Yes. On a stage, we had Board member than sort of almost the same as the team of the operation team. So that's a significant reduction. Yes.

Yes. All right. Now has anyone got any questions for Ash beyond the ones that have come through already? And -- okay. So Richard has asked, how is the search for a CEO to replace a Zack Bozinovski, going? When do you think you will have a replacement into that role? And what are your plans once you step back from your current? Is it 3 days a week you're in the business at the moment?

No, going forward, I'm getting involved over the next few months? I have demanded from the Board for them December onwards I will operate at 5 days a week. So we have the focus and attention the business require. And as the new CEO come, I will start stepping back.

Yes. Okay. So -- and I don't want put words in your mouth, but I imagine that the new CEO search starts once you've got the shopping order and you can demonstrate a profitable business, you're going to get open up a pool of CEOs, a lot more than trying to find one at this moment in time. Is that accurate?

Yes, correct. We do need a new CEO coming to the business and to start focusing on sales and marketing and driving the business forward. My current focus is exactly get the house clean and get our operation clean. We established some of our processes, set up the governance and set up the strategy. When we are in a really nice ship good position, then we can hand the strategy for broad to our new CEO. So we will start starting the search in the new year.

Yes. And then once you find the right person, will you remain on in a non-executive chair role? What's your thoughts there?

Yes. I will basically support the new CEO until he or she become comfortable within the business. I'm going to set up certain strict KPIs, both from the growth and operations that we want. That's something that's this business really need and had a strong KPI implementation and performance in the past. And then as the new CEO sort of becoming more comfortable, I'll start reducing my days that I'm operating within the business and will ultimately end up taking the Chair role and remove from being Executive Chair.

Yes, yes. [ Shirag ] has said, how is the company -- okay. Sorry. How is the company looking to address existing debt given the U.K. listing was all about paying off existing debt?

Yes. Obviously, we do need to clean up our balance sheet. We do carry a certain amount of debt at the moment on our books, and my focus is to clean up that. We have a few strategy in discussion at the moment with the Board, and we have a few lines to activate. So I will address the market very soon in the new year with our next steps?

So is your thinking that once you've got the company into a stronger EBITDA positive territory, then that will open up your options for addressing that.

Correct. Yes. Yes. One is the performance of the company. We need to show we are on an EBITDA positive path or we need to obviously see the share prices sort of lifting up. Obviously, we understand where we are with our share market today, and that's my focus is.

And [ Shirag ] has asked what's the -- and I'll because there's a reference to share price, and I don't like asking executives and directors questions about share prices on live sessions. I'll have I'll go at answering the first part of it, but what about the current share price and liquidity going forward? So this has been something that we've spoken to and trying to be encouraging more communication out of Wellnex for some time before Ash. So after the U.K. listing, the company went to ground and didn't have too much to say. We haven't had any real updates, been a point of frustration for all shareholders, us included. Ash has wanted to get into the business and get teams organized before he came and started talking to investors. He's done that in short order. And the plan from here is to continuously provide updates. There is a bit of a program of getting out a new investor presentation, which will articulate the strategy a little bit more clearly. That's with Ash at the moment. And I imagine in the next week or so, definitely before Christmas, that will be out. And then as news lands and we get through different periods, more updates and more focus on it. And I think that for people and shareholders that watching on without getting clarity about what Ash has actually been doing, there has been a concern that things are going further in the wrong direction, right? Hopefully, you can now see that work was done to do a proper strategic review and then work his way in -- well, as the Board made the decisions to bring Ash on, now that's being addressed and now things are turning around. So sorry for jumping in and answering that question, but just to respond to the share price and liquidity. What will drive share price and liquidity is people looking at this business and going, hey, Pain Away brand, that product is worth quite a lot of money, right? You could sell that on in good condition for quite a lot, based on something that's turning over $15 million potentially making $5 million or $6 million. So that in itself is worth something. And if you look at our market valuation at the moment, maybe you can go, well, if I understand the business isn't going out the door backwards and I understand what Pain Away is worth, maybe people can start thinking about the valuation and becoming a bit more comfortable about going back on the boards and buying Wellnex. But I think we needed to address the investor confidence around that. It is a turnaround story that's what needed to happen. And then as I think people become comfortable with that, and we see things going, I think there's potential, lots of potential of Wellnex, right? But not knowing all of that, it gets difficult to get confident about going on. Just because it's cheap doesn't mean it's a good buy, if that makes sense. So we need to be able to see more in it. So that was -- anyway. So obviously, I thought about this a bit as well, [ Shirag ]. So now the other -- Robert's asked the question, what is the future for Wakey Wakey and Nighty Night?

I think that's going along with a product portfolio that I mentioned. Wakey Wakey and Nighty Night sit within the range with those products that we're scaling back. We're removing investments and trade investments and marketing activities on this going forward. And we are -- we look at potentially either exiting those brands or putting them on ice if we need to.

So any of those secondary and put them in that category are up for potential sale? Or if that's not viable, then you would just leave them there, sitting there in your portfolio that may be put on ice?

Yes. Yes. Exactly both. We -- again, as I mentioned, we are in discussion with a potential buyer on this, these 2 specific brands. And if the acquisition doesn't go through, we potentially can look at holding the activity and reducing the activity on those 2 brands.

Beautiful. All right. Richard, I will confirm that number for you and come back. Let me do that before quoting a number on a live session. But yes, I'll come back to you on that, those numbers. Any other final questions before we call the session to a halt? All right. Look, thanks for everyone getting on the session today. We appreciate you taking the time. Ash, thank you very much for coming on. As we've mentioned, we look forward to getting more updates from Ash and the Wellnex team in the near future. And yes, Ash, thanks again. I'll leave the last word with you.

Thank you. Probably the only word I want to say to our shareholders is I know it's been a tough journey in the past 12 months. I know the business sort of gone left to right and up and down, but we are a stable business. We have a very strong asset, and we have a very strong direction where we're going there. I have a very strong trust and focus with my team where we want to go from our P&L point of view and obviously cleaning our balance sheet. And we're looking to achieve those numbers. So I'm looking forward to continue having your support in our journey.

Thanks, Ash. Thank you, everyone, for taking the time. Cheers.

Thank you.