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

All right. Good morning, everyone, and thank you for joining us today. While everyone settling in for the session, I'll just go through disclaimers and housekeeping for the session. Any of us contained in today's presentation is general only. It doesn't take into consideration your personal circumstances. You need to decide for yourself whether it's appropriate for you. Past returns are not an accurate indicator of future returns, and the information provided today is for educational purposes. So yes, thank you for everyone taking the time for joining us today. My name is Patrick Nelson, MD at Reach. I'll host the session. And the session format is a Q&A format, and it's been put on off the back of the recent 4Cs, which provided a bit of a trading update and some of the focus for the business and some of the achievements in recent times. So we've got Ash, the new Executive Chair, to come in, answer a couple of questions. We've had a couple of questions sent in. I'll be asking those as well, and I would invite anyone on the session to put questions into the question box at any point in time. I'll endeavor to ask those questions. We expect the session to run for around 30 minutes.

So look, Ash, thanks for coming in and joining us today. You've come into the Executive Chair role and, I guess, since in recent times. I mean what's been the focus for you since joining the company? And I guess, maybe we'll start there.

Good morning. Good morning, Pat. Good morning, everyone online. Obviously, the focus has been clear. We manage to turn around the business, make the business profitable and make sure business stands on its own leg, remove some of the costs that significantly will impact in the operation of the business and focus where we need to go from the growth point of view. That's where we are at this stage.

Yes. I guess, so when you came in, what does the business look like now compared to, I guess, the end of the financial last year when you delivered your report and then started moving in to the business?

Obviously, the business was focusing on multiple brands and multiple directions and different strategy and significantly losing large amounts of capital in different part of the operations. With our -- my transition and my focus was what we need to do to refine our strategy, what we need to do refine our product portfolio and how we further need to refine our operating model and bring further efficiency to the business. So that has taken steps and we've taken steps over a quarter to put in place and we just started seeing the result of those changes coming into place as we speak.

Yes. So obviously, costs have been a key focus. Can you explain what has been achieved there in terms of cost cutting?

Yes. The major change has been in the business, obviously, we have transitioned the business from a team of 14 people now to a team of 7. We really have leaned the operations and the focus. We have put all the efforts into our key assets, which is Pain Away and also contract manufacturing. Within -- further, we have refined our trade investments and how we are looking to manage our trades. And we have, as a result, significantly improved our margin and gross profit within the brand and within overall of the business, which has really helped us in that aspect. And then further, we're looking at how we have refined our other noncore activity and noncore expenses of the business. So basically putting hold on those noncore activities and noncore expenses while we're going through this transition.

So what does that mean to it was in the dollar and cents?

What does it mean dollar and cents? I think we are sitting so far $400,000 savings across what we have achieved. And there's -- further more opportunity that we're working that we can broadcast in the near future.

What do you mean by $400,000 saving?

In cost cutting.

So since June last year...

No, just over a quarter. Since June last year, I think we've seen around -- I need to look at $1.6 million.

$1.6 million.

Yes.

Okay. And so where is that -- where do you -- from June last year, where the company was losing quite a bit of money and a forecast on a number of occasions that was about to turn and become cash flow positive, you came looking at the business back then and now looking at -- maybe you can make some comparisons of where you're sitting.

Yes. The business, again, going from negative cash flow so to the point that we just finished the quarter at a breakeven, that was a key focus for us and key objective for the whole team was. And the way -- the only way we could manage is manage the operations, manage our expenses and put hold on all the additional activity that we needed to do. So that had to be managed very, very accurately and very tightly to make sure we got breakeven targets achieved.

Okay. So you've cut brands and you've cut -- so maybe just talk us through that. So like I mean, if I'm sitting here and I'm going -- I've been told that Pain Away -- sorry, Wakey Wakey, Nighty Night and some of these other brands are the future of the business, you've cut those. Doesn't that mean you're cutting the revenue? Doesn't that mean you're cutting the future ability of the company to make money?

Yes. Correct. The revenue has reduced, as you can see, across our brand, and we just announced that across our 4C. So yes, and that is the result of we putting the Wakey Wakey and Nighty Night slowing the sales activity of that through stopping our trade investments. And we are working to finalize some of our inventory through that process. Where we have seen that has growth benefit for us is increase our margin because some of the investments we were doing across those brands were very costly and we lose a significant amount of money. So that has really shaped our portfolio in there. That's where we put a pause on that, focusing on Pain Away and then focusing on the growth of that one.

So is the company in a better -- I'm just trying to understand.

We are in a better position financially, 100%. We are in a better position from a gross profit margin point of view. We have further cash now to manage some of our expenses. We also have further cash to pay off some of the debt that we had or some accounts payable that was outstanding. So those have really helped us, and that's where we sort of have our focus in the business has been n.

So what now?

What's now is finish the turnaround. The next quarter -- we are transitioning to this quarter 3 with a bigger focus around turning the business towards a profit. We want to see we can achieve that EBITDA positive across the business and become a very sustainable cash flow positive business. And that is goal for this quarter is for myself and the team. And with that also, I really want to look at how we can increase our growth from there. As we coming towards the end of the turnaround, some of those key processes and key changes within the business have been in place now and we can see they are paying back for us. But now -- is now make sure they are stabilized, make sure concrete in the place and again, we can have a more forward-looking into the business.

Okay. There was a question from someone last week that e-mailed in, which was regarding the wages that executives get paid in this business and the cost of running the Board and then some questions around that. And their question was, when are you going to stop paying yourself all these big wages and the Board, et cetera? So maybe you make a comment on what's actually happening and occurring there.

Yes. Obviously, it was -- if I look at the last financial year at the end of June and July this year, we were have a significant high [indiscernible] Executive and the Board. We had 2 CEO in place both on a very high salary. And we were paying $800,000 for the 2 CEOs. And on top of that, we had a 7-member Board member, and we were paying just circa $350,000 Board fees on this. So you're looking business was paying around $1.3 million on expenses of executive and paying the salaries. Obviously, we have paused where we are. Both of our executive previous CEOs have transitioned out. We are looking to bring a new CEO in place. And obviously, we will compensate that CEO in line with where the business is now and how we want the business grow. And the Board also has obviously changed significantly. We went from 7-member Board now to a 3-member So in that range, that salary reduced from you're looking at $350,000 everywhere to just over $180,000 at the moment. Again, those has really also helped our P&L within the business.

Yes. So the focus around the secondary brands you've now paused or are looking to exit out [indiscernible]. You've got 1 brand, which is a product category leader and you've got contract manufacturing, which is the goal of scaling that and globally. I mean where does Pain Away go from here? Is it the focus here just domestically? Or is it an opportunity looking at the U.K.? Is there -- what's the opportunity with Pain Away?

Pain Away remains a very solid well-known trusted brand within Australia. When you look at the market data, where we see it amongst other player and competitors, we're still performing and still competing, and we have a good share of the market because of the trust we have with our consumers. And our focus is to continue growing the Australian market as much as possible, and we are looking at launching new SKUs, new products that's coming up as of April. We also have opened new agreements with Costco and 7-Elevens and Pricelines for those. So that continuous growth of domestic market that remain a focus. But on top of that, we are growing and we are in the process of managing our international expansion. Obviously, we have our New Zealand agreement. We are in the process of finalizing our regulatory approval for U.K. We have our distributor in place. And through our distributor, we have spoken to, obviously, one of the major pharmacy chain in U.K. And as soon as we finalize our reg approval, we can go through the range review with a major pharmacy and looking at the potential of bringing the products on the shelves in the U.K. towards the end of this year or latest by next -- early March '27. If I look at the other markets, China remain a massive significant growth opportunity. You look at the China market, you have major, major pharmacy chains coming out that they have 4,000, 5,000 stores pharmacy that they can distribute at the large scale at the mass scale is a significant potential for us. So that's an area I'm really keen to explore further to how we can exploit the pharmacy chain of China.

So interesting. So what's the backdrop? I mean within big pharma, we saw a couple of years ago, massive costs being cut out of those businesses and far less R&D and product development going on. Is that still the case? And I might just pause there and say, is that still the case?

It is. We're seeing -- we're still seeing the big pharmacies. Well, they have a big R&D focus and research development. But when it comes to consumer products and pharmacy products, they're looking to see what's really available from known brands in the market or the category leaders in the market and how they can maybe secure some of those category leaders into their portfolio. So that trend still continues. And as always, there's opportunity that backing the Pain Away for any potential selling the future valuation and the increase of valuation of the Pain Away.

So I mean how do you think about that? I mean what's potentially Pain Away in isolation worth to a big pharma? And what do they do with it? Is it like here's a category leader, it's an all-natural product, we can put it and then range it and roll it out through our distribution globally. Therefore, if you can do this in Australia, maybe we can do it in the U.K., U.S., China, wherever. How do they pay for the brand though?

Obviously, the way -- if I do a valuation of the brands, it's through multiple layers. You will have the IP, the brand rights, rights we have and what we have around the formulation of the brand. And then obviously, the distribution and trust we have within their [ WIP ], the Australian domestic market and the potential, obviously, the opportunity they have and to look at China market. For example, U.S. market or U.K. market. So you can add a multiplier into that brand and finally when it comes to valuation. And that multiplier, you're looking at somewhere 6 to 8 of the EBITDA. Is that true? I don't see that's an issue and it is the achievable considering what we have seen in the market at the moment.

I mean if you stand everything still right now for Pain Away and apply a multiple like that, I mean what are you multiplying, what number?

$40 million for example on the price points on the valuation of their products. And that's where the core of these assets sits. It's significant.

Yes. And so they just value it on a multiple like that, can they, did they...

We have seen a...

Is there like a push, if you can prove it in the U.K. market that you can open up that valuation if you can get it to the U.S.? Is that the idea there?

And that's where multipliers will increase. If we start 5 or 6x of EBITDA and can prove that you have a very significant distribution channel in China or you have a significant distribution channel in U.K., each of those will add a multiplier along your multiplier. So ideally, can I get to 6 and to 7? Yes, but there is a work need to be done and there's -- that work need to be one, implemented and second, being validated and also sustained.

Do you think about that? Obviously, that's not reflected in your share price at the moment. I mean what do you think you need to do? You've been busy and there's been a bit going on we can see from a cost cutting perspective. And now I guess, we're hearing back your focus on Pain Away and looking forward. I mean what do you need to do from here? What's the next 6 months look like?

Yes. Obviously, I cannot control the share price. I don't have any influence on that. If I look at the share price back in December, we were at the lowest share price we were and started seeing improvement across of January.

Not asking a question from a share price perspective. So maybe I'll steer you away from that.

Yes. What we need to do is continuously building trust, building momentum and showing that we are on the right path and the right target where we are going and seeing the investors.

Right. So let me ask so what is the right path, right? So what do you -- what's the next 6 months for you?

Right path is finalize our turnarounds, make sure the business stands by -- on its own and is profitable. The product can stand. We don't -- we are very in a good position, where our accounts payable and out debts in the control. And from there, we have a very targeted focus where we want to go from the growth point of view. Where do we want to take Pain Away next and potentially what other products we can bring to the business to grow our revenue and further grow our margin.

Yes. And so beyond that, so let's say, how confident are you that things are in place and in chain now? Is this -- do you need to keep making changes or the changes being made and you're now letting the business run?

The changes have been made. It's just a matter of caretaking those changes and protecting those changes to make sure they don't fall part and to make sure they become a bit more sustainable. And then we are in a good path forward from there.

So you're expecting to be profitable in the next 6 months?

That is the goal is. We want to finish the financial year add profits -- with profits. We want to also maintain our steady cash flow within the business. And we are working towards that target and the whole team within the business is driving that at the moment.

Okay. So can you comment on product manufacturing part of the business maybe we start there, and the relationship with Haleon?

Yes. Product manufacturing, obviously, remain a very key opportunity for us in multiple areas. We have a significant relationship with people like Haleon, and we are continuously working through different channels of Haleon to maintain that relationship and grow that relationship. Obviously, Haleon being a joint, there are multiple stakeholders through a different country and different side of the business. And with our small team, we are trying to manage all aspects with Haleon as much as possible. And same with our contract manufacturer who produce the products for us. We are continuously working to refine our operation and how we produce products and how we'd be able to serve our customers across the manufacturing. Additionally, we are also looking at how we can refine our ordering systems and our dispatch process in a way that we can increase our margin across that area too. So it is a steady revenue for us in the background. Can we grow it further? Yes, and it's a process that we need to go through to increase that growth.

Yes. Richard, your next question is potentially gets us into the market-sensitive information. So I'll pass that question on to Ash and maybe he can call you directly on that or he can consider an answer for you, but a good question. All right. So there were some questions about the transition of leadership and management within the business that's been there for quite some time. Do you feel like there's any holes left as a result of that?

Yes. Yes. Obviously, we -- the business had to go through the transitions due to multiple reasons and multiple viewpoints. And we come to a point that we're seeing that transition has coming to the end. And we were shaping the direction of the business. Is there a hole in the business? Not at this stage. Our focus, again, is to -- we have the asset. It just we need to make sure that asset is maintained and one, in line with our products that we have. And potentially, as we transition the new CEO in the future or how we want to give the right KPIs and right mandate towards new CEO to cover any loss of capability and skill set from the past.

Beautiful. All right. Are there any other questions for Ash while we have him on the call today? All right. Not seeing any come through. If anyone's got any further questions, please put through, I think that he's provided quite a detail. And if anyone's got any follow-up questions, you can contact the company or you can contact Reach. We're happy to facilitate getting those answers for you. But otherwise, I guess maybe we just wrap this up. I mean for -- you've kind of came into the business with -- as a consultant in June last year and then I've been working with the Board and in more recent times with the executive and operational team. There's been some significant changes you're landing here. Maybe if you could just tell -- give us a synopsis on from this point, we get to the end of the year, what position do we look at? And then if we get to the end of the calendar this year, what do you think the focus of the business will be at that point in time?

If I look at my view of -- if I look back in 12 months' time, we can say where Wellnex was and where Wellnex is going to be, we were a company that have us focused on so many brands and so many areas, but we are good at what we do, which is taking the products from its infancy through the commercialization with growth and measure the sustained -- the growth sustained within the products. Obviously, we needed to clean the operations, which we have done. There is a potential to continue growing that business. That's remained a focus. So look at -- in 12 months' time, we can look at back and say we went through a patch. We went through a very rough patch, but we have come out of this. We have come as a significant turnaround story, and we have a significant potential in the future to have a different brand of Wellnex.

Yes. Beautiful. All right, guys. Well, thank you very much. Thanks, Ash. And if anyone's got any further follow-ups, please let us know. Otherwise, we look forward to getting, I guess, maybe a bit more of a strategic update from Ash next time we speak and look forward in terms of what some of those plans are. But thanks for taking the time today, Ash. Cheers.

Thank you. Cheers.