Domestic markets holding the fort...
Australia, the largest single market for AFT, was the clear outperformer in FY25,
registering revenue growth of 17.5% y-o-y to N
Z$127.1m (16.5% y-o-y growth in H225) and accounting for 61.6% of group revenues. Growth was
driven by increased traction from existing products, particularly in the eye-care,
pain relief and iron supplements categories within OTC, as well as hospital-focused
injectables and prescription drugs. Note that AFT has invested heavily in new product
launches (both in-house and in-licensed) over the past couple of years, and we believe
this will help drive future growth as these products gain a market foothold. Operating
profit for the region grew an impressive 64.2% y-o-y to N
Z$25.5m (FY24: N
Z$15.5m), with the margin improving by 5.7pp to 20%. This was driven by targeted investments
in marketing and product promotion as well as in growing the sales force. Note that
c 85% of the full-year operating profit was derived from H225 at an impressive margin
of 28.2%. Management has indicated the need to materially increase the sales force
in the field, which might put downward pressure on margins in the near term but should
increase operating leverage in the medium term. AFT expects revenue growth to continue
at a double-digit rate in domestic markets and has guided for a slight improvement
in operating margins in FY26.
AFT’s home market, New Zealand, also delivered double-digit revenue growth (+10.4%
y-o-y to N
Z$53.8m), based on the same drivers as Australia. In particular, eye-care, pain relief and
dermatology were the outperformers within OTC, with further support from injectables
and prescription drugs. In both markets, the sales channel is dominated by OTC, contributing
over 50% to sales, to our knowledge. Operating profit, excluding group head office
costs, increased by 20.4% to N
Z$8.8m from N
Z$7.3m in FY24 (the margin improved from 14.9% to 16.3%), primarily driven by revenue growth,
although the margin improvement suggests certain savings on costs as well. Including
head office-related expenses, the segment reported an operating loss of N
Z$2.3m, similar to the FY24 figure.
… while international markets recover
H125 was a rare miss for AFT in its international growth efforts, with temporary sales
disruptions across both the Asian and international segments. Encouragingly, the issues
have since resolved, which is reflected in the strong recovery in H225. Revenue from
Asia, after declining 18.1% y-o-y in H125, ended the year up 3.7% (N
Z$11.1m), driven by a solid 26.1% y-o-y growth in the second half. This, we believe, was due
to a combination of demand recovery from South Korea (a key market for Maxigesic IV)
and growing traction from the cross-border e-commerce channel in China, especially
for iron and vitamin supplements. Operating profit declined by 29% to N
Z$1.8m (from N
Z$2.5m in FY24; the margin dipped to 16.0% from 23.4% in FY24), weighed down by the H125
softness and increased spend on marketing and business development activities, in
particular the setting up of business hubs in Singapore and Hong Kong.
The international segment (excluding Asia) was the worst hit by disruptions during
the period, with a H125 revenue decline of 56.7% y-o-y due to inventory destocking
by several international customers. The situation has since improved, with H225 revenues
growing 89% over H125 to N
Z$10.5m. However, the H125 softness weighed on the FY25 results (revenues of N
Z$16.0m), with the international business being the only segment to register a year-on-year
sales decline (down 42.3% overall and down 20.1% in product sales and royalties).
The segment also registered an operating loss of N
Z$7.3m, which we believe was due to a mix of lower sales throughput, limited licensing income
in FY25 (N
Z$0.7m vs N
Z$8.5m, of which N
Z$6m included the milestone payment from Hikma Pharmaceuticals for the launch of Maxigesic
IV in the US) and substantial investment in developing business hubs in the UK, the
US, Canada and South Africa. We understand that management invested over N
Z$2.5m in establishing the international business hubs in FY25 and expects the UK to break
even in FY26. Management has guided for an improvement in licensing income in FY26,
supported by licensing discussions, although we expect margins to continue to be affected
in the near term due to ongoing investments, before delivering results in the medium
to long term.
Exhibit 1: FY25 results by region |
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Source: AFT Pharmaceuticals. Note: *Operating profit (loss) attributed to New Zealand
includes head office costs |