Pharmazen

[Basil]

Nice to see some photo's - but where are the financials.

I am ready for PAZ to stop being a construction company - that seems to be all we have head over the last year or so.

I agree it's completely bizarre that with the year almost over for them they don't provide some financial information with such an update. Draw your own conclusions but I believe if there was good news on that front to share, its highly likely they would have.   I think they've made a complete hash of the Aiora brand and Chemist Warehouse removing it from their stores and it not even being available online at all is pathetic.  The website was first class I thought so if they believe a new website will fix their issues with that brand, I think they are sadly mistaken.  Better bottling / labelling of product might help but it can take decades of serious investment in a new brand (e.g. Blackmores or Swisse) to build a successful supplements business.   I have moved on to another supplement for my eyes that's working very well and won't be back to buying Aiora supplements again in the future. 
What happened to their doggy treat's idea ?...another brand launch failure or did it never get off the ground in the first place?  Again, I am more than happy to shop existing reputable brand doggy treats for our new dog and once we find what he likes we will be sticking with it.

I thought the presentation and narrative about a possible site visit opportunity for shareholders pretty much read like a softening-up process for another capital raise. 

Not surprised there are no bids in the market to buy shares because what financial information are you basing any bid on ?

[Minimoke]

I agree it's completely bizarre that with the year almost over for them they don't provide some financial information with such an update. Draw your own conclusions but I believe if there was good news on that front to share, its highly likely they would have.

Last year at this time they at least said "While our sales and financial performance in the second half of the year is ahead of the first half, it has not seen us make up as much ground as we would have liked, largely a result of issues identified above

I think they've made a complete hash of the Aiora brand and Chemist Warehouse removing it from their stores and it not even being available online at all is pathetic. 

Airoa was (at my CW) a complete minnow. There was rows and rows  of "blackmores" and the like. Aiora had a couple of bottle's on a lower shelf.

The website was first class I thought so if they believe a new website will fix their issues with that brand, I think they are sadly mistaken.  Better bottling / labelling of product might help but it can take decades of serious investment in a new brand (e.g. Blackmores or Swisse) to build a successful supplements business.   I have moved on to another supplement for my eyes that's working very well and won't be back to buying Aiora supplements again in the future.

A few years back at the AGM they mentioned some one famous (a musician / netballer??) who was the bees knees on marketing and a new brand template was being brought out. Its just kinda died along the way.
 

What happened to their doggy treat's idea ?...another brand launch failure or did it never get off the ground in the first place?  Again, I am more than happy to shop existing reputable brand doggy treats for our new dog and once we find what he likes we will be sticking with it.

At the last AGM they said it was too much of a distraction and they had loads of demand for current products.

I thought the presentation and narrative about a possible site visit opportunity for shareholders pretty much read like a softening-up process for another capital raise. 

Not surprised there are no bids in the market to buy shares because what financial information are you basing any bid on ?

They are currently trying to obtain a pile of cash (maybe circa $30m?) and last I heard hadn't been successful. If they are successful they won't need to capital raise. But if they aren't - obviously they will need to find other sources of cash. At the last AGM they indicated current shareholders were pretty well totally tapped out for cash and had no appetite to chuck in more.

I'm still content to hold.  I expect 2023 to be a year without distraction. Just focus 100% on getting product out the door for a healthy margin. Stop building. And don't bother with the distraction of a retail product - let someone else do that with the PAZ ingredients.

Essentially two (and soon three) factories now - they need to maximize out put form each.

I've been watching the build and will be up for a nosey around in the new year. Hopefully they have left-over retail product to hand out.

[Basil]

Wow that's interesting, $30m in this market, good luck with that.
Wasn't the last capital raise $14m? that they stuck it to small shareholders and bypassed them to give far more advantageous terms to the new incoming shareholder supposed to take them through to a high state of profitability?
To me it feels like they keep moving the goal posts from this idea to the next one, constantly thrashing about for something that gels.
All the time their financial disclosure is extremely poor but they expect to keep putting their hand out for more capital.   

P.S. Wanting $30m makes me wonder if there's been a breach of one of the terms under which the preference shares were issued, (was the auditor's insistence these be treated as debt an issue that was ever resolved?) and they want their $14m back plus penalties and interest.
So much going on here that minority shareholders are being kept in the dark about.  No wonder there's no on market bids.
I genuinely hope for shareholders sake they can navigate their way through this.

[Minimoke]

Just to be clear the $30m is simply my back of a matchbox calculation and dependent on a few variables. Could be closer to $20m

It is end of financial year in a few days time, so (pure speculation on my part) perhaps there is something in the wind that is being finalized right now. I'm not aware of anything that is but who knows. But there will be some reason for not mentioning the financials - and hopefully it isn't a negative one.

I think it pretty unlikely there has been any breach - Chair was very adamant that there was nothing likely to trigger action on that front.

They have also gone ahead with construction of Rolleston 2. So I'm presuming no tough financial constraints.

[Basil]

To help the company I am going to list the things here I would like to see before I would ever consider being a shareholder again.

1. Proper interim financial statements.  What they tell people at the half year mark is beyond pathetic.
I realise proper interim financial statements are not a requirement of being listed on the Unlisted market but if they ever want to migrate to a market that's more amenable to raising capital they must lift their game.

2. Get a forecast for every year into the market by the time of the interim report.  Forecasted Sales, gross margin and net profit / loss and abide by the continuous disclosure requirements of the NZX. - Yes, again, pretend you have higher disclosure requirements and abide by them as that's the only way you are going to endear yourself to new shareholders.

3. Transparency, transparency and more transparency.  What are your plans, why did they change, what worked, what didn't work and why etc etc.

4. Be honest with SWOT commentary to shareholders, what are your strengths, weaknesses, opportunities and threats.  How did you mitigate the threats and challenges and how are you planning to manage them in the year ahead.

Nine times out of ten in my experience when you get a presentation like that without any financial information that means they want more money from you but don't want to tell you how they have been trading because its bad news. 

[Minimoke]

To help the company I am going to list the things here I would like to see before I would ever consider being a shareholder again.

1. Proper interim financial statements.  What they tell people at the half year mark is beyond pathetic.
I realise proper interim financial statements are not a requirement of being listed on the Unlisted market but if they ever want to migrate to a market that's more amenable to raising capital they must lift their game.

There is more than one way to raise capital.

I am sure that when they move to another market their accounts will be structured in such a way as to meet that markets reporting structure.

2. Get a forecast for every year into the market by the time of the interim report.  Forecasted Sales, gross margin and net profit / loss and abide by the continuous disclosure requirements of the NZX. - Yes, again, pretend you have higher disclosure requirements and abide by them as that's the only way you are going to endear yourself to new shareholders.

Forecasts are one tool. Directors doing what they say they will do is another. So hard to forecast in covid and Labour government times. Supply chain and labour supply restrictions are well known.

3. Transparency, transparency and more transparency.  What are your plans, why did they change, what worked, what didn't work and why etc etc.

We know what they do. Some stuff is commercially secret.

4. Be honest with SWOT commentary to shareholders, what are your strengths, weaknesses, opportunities and threats.  How did you mitigate the threats and challenges and how are you planning to manage them in the year ahead.

Like MPG and MFB do?

Nine times out of ten in my experience when you get a presentation like that without any financial information that means they want more money from you but don't want to tell you how they have been trading because its bad news. 

I know 100% they are after more cash. They may not want to to report so close to year end for a variety of reasons.

I'm not expecting a flash year end result. Mainly due to covid, build and labour supply issues.

But I do expect these to be done for a strong 2023.

Sometimes I prefer to see bricks and mortar than pages and pages of ESG type financial statements.

[Basil]

Genuine question.  Its one thing to build all these new facilities but where on earth are they going to get the staff to run them ?

Last I recall hearing from them on the extent of the labour supply issue was quite some time back and it sounded like a very serious issue back then when they had a ~ 20% vacancy rate with existing manufacturing facilities and human resource costs were up 31% from memory.  Local advertising was drawing a nil enquiry response, but they thought they could bring in (from memory) work crews from the Islands ?  So they build all this extra new processing plant at great cost and how do they staff it ?

Honestly, I have been looking for a logical reentry point to reinvest some of the spoils of my previous investment foray with PAZ but at this point I have to agree with the market's assessment with no bids, this is presently (based on what extremely scant information is being made public) uninvestable.

The cold reality today after a horrendous 2022 is that unprofitable biotech companies are a dime a dozen on the NASDAQ and from what I am hearing on CNBC, chasing fresh capital for unprofitable tech and biotech companies is nothing but a head banging exercise.  Share price losses of 80-90% for unprofitable tech companies on the US market have been surprisingly common.  What's the real value here with their challenges is anyone's guess. Good luck guys, because I think you are going to need it.

 

[winner (n)]

Staff problems .....robots my dear basil

[Basil]

Yes mate I recall they talked about more automation but that sounds like even more expensive capex to me.
Top ten new robots in 2022.  Grillbot and maidbot sound interesting and could be very useful at BBQ time.  Let me know when I can pick one up from Mitre 10 for $999 😁
https://www.analyticsinsight.net/top-10-newest-robots-rocking-the-digital-sphere-in-2022/#:~:text=Top%20ten%20newest%20robots%20in%20the%20digital%20world,...%208%20Autonomous%20farm%20tractor%20...%20More%20items

[Red Baron]

Genuine question.  Its one thing to build all these new facilities but where on earth are they going to get the staff to run them ?

If they want staff they can get them through these guys:   www.accordant.co.nz
With Accordant being a member of the 8% gross yield club, I am surprised you are not already on board Basil.  Mind you, if you 'change your mind' getting out of AGL could be a problem.....

RB

[Basil]

If only life were so simple when you can't find staff, you engage an employment agency, and all your problems magically disappear.  Bet you all the retirement companies screaming out for hundreds of nurses and caregivers wish they had heard of those magicians. 

[BlackPeter]

If only life were so simple when you can't find staff, you engage an employment agency, and all your problems magically disappear.  Bet you all the retirement companies screaming out for hundreds of nurses and caregivers wish they had heard of those magicians. 

Actually - it is not so hard to get well trained nurses e.g. from the Philippines, from India, from the Ukraine or from various Russian satellite states all quite happy to work in NZ (and more of them than we ever could employ).

The only problem is our xenophobe government and our health workers union who fight every inch the registration of well trained overseas medical staff.

Based on my experience are e.g. German nurses (I am married to one ) better trained than NZ nurses, however they are not allowed to work here as nurse unless they do the full three year course again to get them dumbed down to NZ standards.

But hey - what luxury that we can create our own problems!

[Basil]

Getting this back on track let's have a wild guess as to earnings for FY22 just for fun.
In the last bit of financial information we received they said EBITDA was $1.8m for the half year to 30 June and the outlook was for higher EBITDA in the second half.  Not much to go on but hey, lets have a go.  Lets assume second half EBITDA was higher and guess it at $2.2m up 22% from the first half giving EBITDA for the year of $4.0m.
In 2021 depreciation and interest was $1.74m up a few hundred thousand from the year before due to more depreciation on more plant.  Lets be kind and assume its grown to only $2.0m in FY22 which gives earnings before tax of $2.0m up from last year's loss of ~ $800K.
$2.0m before tax gives after tax earnings of $1.44m and on 254.5m shares that's eps of only 0.566 cps.

Now we turn to what prospective PE to put on this, and I have been watching with huge fascination how the PE's of the tech and biotech companies have been collapsing on the NASDAQ. Great example, which is the talk of Wall St at present, is Tesla down a whopping 73% in the last year from huge heights and now trades on a forward PE in the low 20's !

Tesla grew sales a very handsome 40% last year and has outstanding opportunities for expansion with new factories and models coming.  As ridiculous as this sounds, let's give PAZ the same multiple as Tesla and I think that's being extremely generous given PAZ's very chequered track record and let's assume PAZ can grow eps by 100% in FY23 to 1.13 cps.   (How much it can grow eps in 2023 is frankly anyone's guess and will be heavily dependent on how successfully they tackle their chronic labour shortage problem).  Apply a PE of 23 to that and you get a wild guess at fair value of 23 x 1.13 cps = 26 cps.  That's pushing the boat out as far as is possible for this one I reckon.

I would bid at 26 cents if I really believed the above, (it would be nice to have at least one bid in the market), but I think given the apparent cash squeeze, chronic lack of liquidity, and patchy track record of earnings its somewhere south of there to account for the not insignificant risks involved.  Maybe 20 cents is fair value which sees it down about the same as Tesla in the last year ?

Above is just best guess prognostications based on extremely limited financial information.

 

[Minimoke]

Genuine question.  Its one thing to build all these new facilities but where on earth are they going to get the staff to run them ?

Last I recall hearing from them on the extent of the labour supply issue was quite some time back and it sounded like a very serious issue back then when they had a ~ 20% vacancy rate with existing manufacturing facilities and human resource costs were up 31% from memory.  Local advertising was drawing a nil enquiry response, but they thought they could bring in (from memory) work crews from the Islands ?  So they build all this extra new processing plant at great cost and how do they staff it ?

Honestly, I have been looking for a logical reentry point to reinvest some of the spoils of my previous investment foray with PAZ but at this point I have to agree with the market's assessment with no bids, this is presently (based on what extremely scant information is being made public) uninvestable.

The cold reality today after a horrendous 2022 is that unprofitable biotech companies are a dime a dozen on the NASDAQ and from what I am hearing on CNBC, chasing fresh capital for unprofitable tech and biotech companies is nothing but a head banging exercise.  Share price losses of 80-90% for unprofitable tech companies on the US market have been surprisingly common.  What's the real value here with their challenges is anyone's guess. Good luck guys, because I think you are going to need it.

 

As far as I can tell they will continue to get staff from the Islands. Its physical labour and Nz'ers are too soft to do hard work. Current pay rate has to be a minimum $27.76. So hopefully they are filling their boots before the rates go up to over $29.00 in February.

Their new factory is a stone throw from rolleston. And this is getting more and more "affordable" housing . It has a growing population of industrial workers as the whole of the western side of the railway line gets filled with new industrial businesses.

The new southern motorway also speeds up traffic out to Rolleston. Or conversely getting into town and through to their Ferrymead factory.

While labour supply is tight this ought not be an insurmountable problem.

I remain wanting to see them focussing 100% on manufacture - rather than diverting attention to factory builds. Year end has now closed so looks like we have to wait until April for news on financials. At which point I expect news also on their capital raising success.

[Whome]

I am struggling to understand the change in direction that PAZ has taken in recent years. They spent years establishing a profitable business based on NZ animal derived specialist products like collagen and bone products etc. Ok, so they were minnows in a world market sense but they had a strong moat in that NZ is animal disease free - no F&M, no BSE, no rabies, etc. etc. .. and they already have regulatory approval, which takes years to get, for these intermediary products that the worlds dietary supplement makers pay handsomely for because they are uncontaminated and safe for use in humans.

I initially thought the new manufacturing facilities would be used to gear up and expand on the market advantage they already had, but no, it seems the major new direction is for plant based supplements, and some expansion for the marine mussel based products.

There is no moat to be had with plant based supplements as countries like China and Chile can swamp a market with cheaper derived products of equal quality.

PAZ appear to have been wooed into a bigger is better mode by their new major investor who will profit from selling the end products but PAZ will have invested a heap of money into major expansion that will be way less profitable for PAZ.

The lack of transparency does not help and their claim of commercial sensitivity around future products doesn't wash either. That's a fudge excuse from a company that appears to think it no longer needs small investors. Have I missed something with PAZ ..