Probiotec : Annual Report to shareholders

Contents

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Chairman's Letter to Shareholders

Dear Shareholders,

On behalf of your board of directors, it gives me great pleasure to present to you the 2020 Annual Report for Probiotec Limited (PBP).

Strong financial and operational performance

PBP continued to perform strongly during the 2020 financial year, building on our strategic vision to become Australia's leading manufacturer and provider of innovative healthcare products that improve the wellbeing of our customers.

It was a transformational year for the business including the acquisition of two significant new businesses, a share placement to institutional shareholders, major capital projects, and the final divestment of non-core assets, delivered during an unprecedented period of business disruption caused by Covid-19.

Record revenues of $107 million were accompanied by Earnings Before Interest, Tax, Depreciation and Amortisation (EBITDA) of $16.9 million. These results, ahead of guidance, were delivered throughout the disruption caused to all business segments by the Covid-19 pandemic and demonstrate the resilience and defensive nature of the PBP business. The results are a testament to the leadership of the PBP management team and the dedication and skills of our employees.

Management swiftly enacted Covid safe work plans resulting in all PBP sites operating without interruption throughout the pandemic. These plans held the health and safety of PBP's employees paramount and required significant changes to work practices that were achieved smoothly with the co-operation of all employees.

Covid 19 placed unprecedented supply chain pressure on the business. This required the flexibility of the work force, reinvention of workplace practices, customer and supplier co-operation and nimbleness in execution. It is difficult to convey the pressures and responsibilities placed upon management and the team and I wish to give a sincere thank you to the entire PBP team who showed tremendous commitment and compliance to the strict protocols that were put in place and significant resilience and professionalism in delivering customer performance throughout.

Continued execution of strategic plan

As foreshadowed, 2020 has been a transformative year for PBP with the acquisition of ABS, the acquisition of the assets of CPSA, the completion of construction of a purpose built warehouse and manufacturing facility at 85 Cherry Lane (adjacent to our primary facility in Laverton North, Victoria), the completion of an on-market share placement for $10.6 million and the continued acquisition and on-boarding of new customers and contracts. Pleasingly, the team at PBP were able to execute on the above whilst still delivering outstanding growth across all financial metrics.

The strong result, combined with the confidence your Board has in the future, enabled us to approve the payment of a 3.0 cent per fully franked dividend that saw full year dividends of 4.5 cents per share, an increase of 29% on the prior year.

Board Changes

I would like to thank the former chairman of PBP, Mr Geoff Pearce who resigned on 30 June 2020. Geoff's outstanding leadership and significant contribution to the company over the past 4 years cannot be understated. During this time PBP has undergone a major transformation, expanded geographically through strategic acquisitions, disposed of its branded business and enjoyed extraordinary commercial success that has shaped the company into a leading Australian pharmaceutical and consumer health manufacturer and packer. Geoff has been an outstanding leader of our board and a driver of several of the strategic decisions taken in the business.

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Whilst Geoff has left big shoes to fill, I am both honoured and eager to fulfil the role as chairman and I look forward to working with the board and executive team to lead PBP through the next phase of its transformative journey. I am grateful for the contributions of the entire Board during this period and the constructive and diverse perspectives they have contributed.

The Board also welcomed Mr. Jonathan Wenig as a Non-Executive Director on 1 June 2020. Mr. Wenig's practice and expertise gained with one of Australia's premier commercial law firms, spans the breadth of commercial and corporate law including mergers and acquisitions, technology and financing. With the appointment of Mr. Weing, our Board has strengthened the mix of skills, experience and leadership required and I look forward to Jonathan's ongoing contributions.

Looking to the future

Whilst COVID-related uncertainty remains, the scale of the business has grown significantly following the successful acquisitions and integration, creating greater resilience, scale and business opportunity. We see significant continued opportunities for industry consolidation and benefits of scale.

The management team has developed a strong skillset and capability to identify, acquire and integrate businesses successfully and has demonstrated multiple pathways to deliver earnings growth and build long-term shareholder value. Whilst we cannot accurately forecast the impact of continuing volatile economic conditions, the management team has many levers to pull to deliver earnings growth including cost out, acquisitions and site consolidation.

Over the longer term, we continue our objective to become Australia's leading manufacturer and provider of innovative healthcare products. We believe this goal is achievable over the longer term via multiple avenues including acquisitions, continuing investment in customer and site capabilities (including employees), expanding our relationships with Tier 1 pharmaceutical customers and maximising opportunities that are arising from the onshoring of domestic manufacturing (which continues to gain momentum as a result of the Covid-19 pandemic). To achieve this goal will require the continued support of all our stakeholders, customers, suppliers, employers and shareholders and we are grateful for the opportunity to work with all of you and for your support throughout this period.

Conclusion

As I enter my first year as Chairman, I am delighted to say that we continue to deliver on our strategic plans, and have recently refined, refreshed and developed the possibilities for that strategic plan in light of successful execution. We remain extremely positive about the opportunities for the Company and the continued strengthening of our management team, customer capability and customer base and our dedicated employees.

These results would not have been possible without the leadership, vision and dedication of our CEO Wes Stringer, along with his entire executive team and all the staff at Probiotec. I would like to particularly thank our team in Victoria, who have shown great resilience and commitment during the past 6 months under very trying and disrupted conditions. The entire team's focus on excellence has been demonstrated in this year's result and the positioning of the Company for the future.

We are delighted to bring this result to you and look forward to our continuing journey.

Yours Sincerely,

Sandy Beard

Chairman of the board

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