Anagenics : FY2022 Annual Report

2022

ANNUAL REPORT

(ASX: AN1)

CONTENTS

03

OUR VALUES

Equality

Trust

OUR STORY

Anagenics limited has its origins in Science, first listing on the ASX as a Biotech company in 2005.

Our Story

04

Highlights F22

05

Chairman's Report

06

CEO's Report

10

Directors' Report

29

Corporate Governance

31

Annual Financial Report

79

Auditor's Independence Declaration

80

Independent Auditor's Report

84

Additional Information for Listed Entities

87

Corporate Directory

Innovation

Entrepreneurship

OUR PURPOSE

Contribute to youthful, healthy longevity with effective and trusted science-based solutions.

Whilst our business has developed and changed, we continue to provide clinically validated anti-aging products for hair, skin and body. Our original brand, evolis®, was born out of the desire to help men and women who experience significant hair concerns over their lifetime. Fundamentally driven by science (proprietary FGF5 inhibitor technology), the patent protected évolis® product range offers a naturally based, clinically validated solution to hair aging and hair loss.

Today, Anagenics is a growing wellness, health and beauty business with a strong portfolio of functional skin, hair and wellness brands. The business transformation was significantly accelerated in 2021 with the acquisition of BLC Cosmetics - a beauty distribution business supporting iconic prestige brands such as Thalgo, Hydropeptide, Comfort Zone, Priori and recently Inika Organic. Our portfolio of intellectual property, brands and products are varied and sold worldwide. We continue to invest in innovative products and technologies that cater to the overall wellness of consumers. Recently we have licensed our intellectual property to partners with the focus and expertise to effectively commercialise the assets, reducing the risk and expense associated with the process, but maintaining the upside of long term royalty streams, payable upon success.

Anagenics is focused on delivering superior returns for all stakeholders. The success of Anagenics depends on the partnership between brands, employees, customers and shareholders. Anagenics is committed to sustainability principles by pursuing partnerships with like-minded brands and implementing programs to reduce the environmental impact of its packaging and manufacturing operations. We acknowledge that our people are core to our success and share our fundamental values of diversity, innovation, integrity and entrepreneurship.

We seek to deliver consistent returns to shareholders and target profitability and positive cashflow from the repositioned platform. Our revenue growth depends on consistently executing on brand positioning and partnering across different platforms, including both traditional channels and digital channels (direct to consumer). Our immediate priority is to grow our revenue rapidly but efficiently through accretive acquisitions of synergistic businesses and brands.

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HIGHLIGHTS F22

The key milestone of note for the year was the acquisition of BLC Cosmetics in late 2021. This strategically important acquisition significantly increased scale of the Group and instantly allowed for diversification across 13 brands, in new channels and product categories.

CHAIRMAN'S REPORT

In writing my first Chairman's report of Anagenics I am mindful that this is a well-trodden path for long term shareholders.

Likewise I am thankful for the support and assistance provided by my fellow board members Martin, Dennis and Phil during the year, and for the demonstration of their commitment to the business and shareholders by taking no fees for the past six months.

The Group continued to deliver on its revenue growth strategy despite the significant challenge of the COVID19 pandemic and its particular impact on the Advangen Japan Business.

In addition to the pandemic, uncontrollable regulatory changes in China restricted trade flows into our single largest target market. Despite this we continued to develop our products and grow total revenue on the prior year.

The integration of the BLC business into Anagenics commenced with the successful merger of warehouse operations in March 2022. This was an important first step designed to deliver on synergies as promised. Similar restructuring initiatives across the remaining back end business functions also commenced in F22 and the benefit from this will be evidenced in cost savings for the Group over F23.

In February 2022, Anagenics also announced important succession changes to both the Board and executive management team needed to position the Group for its next stage of development. As part of this continued evolution, Matthew Dudek was appointed to the position of Acting CEO to lead Anagenics on its next chapter of growth and business transformation. Immediately following this change, a strategic review of the business commenced prioritising those initiatives designed to generate additional revenue and redeploy resources efficiently needed to support profitability and operating cashflow. The full benefit of these changes will be realised in F23 as the business transformation evolves.

Anagenics finished F22 with stronger foundations. Profit was impacted by one-off costs associated with structural changes and asset impairments totalling $1.8M. However the full year contributions of BLC performance, investment in key revenue channels and the annualisation of cost saving and other M&A planned strategies will significantly assist profitability and improve operating cashflow over F23.

REVENUE	GROSS PROFIT
$10.0M	$5.1M
(up 37%)	(55%)
NUMBER OF	NUMBER OF
ACTIVE	ACTIVE
CUSTOMERS	BRANDS
6,758	14
NUMBER OF	FINISHED GOODS
SUBSCRIBERS	(total SKUs)
9,457	1,417

I cannot avoid the reality that whilst the business has achieved significant milestones during the year, ultimately it has not delivered on shareholder expectations, which is an unsustainable position.

I do not intend to write a similar report for the F23 year.

F22 was a year of significant change, a transformational acquisition, Board changes, change of CEO, additional responsibilities for the management team, business divestment and addition of major new shareholders.

Pleasingly the BLC acquisition has exceeded expectations which has resulted in the deferred payment for outperformance being triggered to Hancock and Gore (H&G). H&G has agreed (subject to upcoming shareholder approval) for the payment to be made entirely as new ordinary shares at a premium to recent share price levels, highlighting the confidence of H&G in its ability to assist in the transformation of Anagenics.

Whilst the year has had its challenges, and economic headwinds have created tough conditions for micro- cap companies, it has also provided favourable dynamics for mergers and acquisitions of synergistic businesses which we are currently actively pursuing.

The Board is grateful to the management team led by Matthew Dudek for driving the first stages of business transformation and in integrating the BLC business seamlessly into the group, whilst also continuing to drive business improvement, add new brands and product lines and divest the Japanese subsidiary.

The Board also extends its gratitude to Maria Halasz and Bruce Gordon for the dedication to their roles over a long period.

F23 will be a year of further change. It will not be possible for the Company to achieve its goals of sustainable profitability without further acquisitions, and the Board is delighted to have been able to attain the services of Scott Greasley to specifically target opportunities.

Anagenics has a compelling base of prestige brands, unique IP, innovative brand partners, and a strong and dedicated management team complimented with strong distribution channels and routes to market. We are positioned to significantly leverage this expertise in F23.

Ultimately the Board is responsible for setting the expectations of what success looks like for the year ahead. In terms of measurable targets for F23 I see the following as being within the control of the business and for which we should ultimately be held accountable;

• Continued improvement in profitability and key metrics of core business
• Increased investor awareness of Anagenics and share price improvement
• Continued development of management strength and capabilities
• Meaningful organic growth
• Acquisition of at least one synergistic business with maintainable EBITDA > $1M
• Annualising profitability no later than Q4

Alexander (Sandy) Beard

Chairman

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Anagenics 2022

CEO'S REPORT

Dear Shareholder,

Anagenics commenced the year known as Cellmid. Over the year it acquired a new beauty distribution business, experienced a milestone change in both executive leadership and ownership, and just recently announced its intention to divest of its heritage business - Advangen Inc (Japan). This journey identifies with change and underscores how events and circumstances can evolve so remarkably even in just one year.

Total revenue and other income for the Group improved 37% to $10.0M in FY22 largely due to the part year contribution of the BLC. The underlying EBITDA loss in the year was $2.9M (FY21: $2.7M). Despite the continued uncertainty and disruption from the COVID-19 pandemic, the Group continued to focus on revenue growth by investing in its e-commerce channels, pursuing opportunities in China, restructuring internally to drive efficiencies and prepare for any new opportunities (and challenges) coming our way in F23.

Anagenics is committed to providing our customers with trusted scientifically validated products as well as recognised, prestige beauty offerings across a variety of product categories and distribution channels.

Business transformation - beginning of a new journey

Upon appointment to Acting Chief Executive Officer (in March 2022), my senior leadership team and I immediately directed the business on a transformational journey. The change commenced with a detailed business review with the objective of resetting strategic priorities, redeploying existing resources towards capitalising on immediate revenue opportunities and the simplification of the Group's operations needed to unlock cost savings. The benefits from these changes are already apparent. Total costs savings in the last quarter to June 22 were

$0.2M and are estimated to annualise to over $1.0M next financial year. Our priority remains to grow our revenue and further simplify the business to ensure we are cost efficient as we target positive cashflow and profitability.

BLC Cosmetics

As noted, Anagenics added another significant chapter to its long history with the acquisition of BLC Cosmetics in November 2021.

This important acquisition significantly increased scale to the Group and opened it up to 13 new brand opportunities across different channels and categories.

BLC comes with an established sales network throughout Australia, distributing into professional beauty channels, including over 1,000 beauty salons and spas. Contributing $5.8M in revenue in F22

(9 months) it is a profitable business with an iconic portfolio of assets represented by international cosmeceutical skin care brands such as HydroPeptide and Priori as well as prestige European professional anti-aging brands, namely Thalgo and Comfort Zone.

We commence F23 by continuing to invest in BLC's expansion with the addition of a new Australian beauty brand - Inika Organic. An all-natural, certified, unique offering in the beauty market, BLC has been appointed the exclusive distributor servicing the Australian salon and spas in Australia. This partnership is expected to generate upwards of $1.5M in additional sales in F23 and contributing positively to profit and cashflow.

Merger and Acquisition (M&A)

As previously announced, our priority is to identify new business investments to further scale the Anagenics business. This is needed to drive growth in revenue across different channels and deliver profit. Working closely with our strategic shareholder (Hancock & Gore) we plan to execute further accretive acquisitions of businesses in F23 (such as BLC) and where appropriate invest further in unique brands.

We now have a strong pipeline of advanced opportunities from which to explore profitable and complementary businesses which once combined should generate revenue and additional cost synergies operating under a common business structure.

New product development and agreements

We will continue to invest in our unique product technology whilst expanding our product offering.

"Let There Be Hair", our new ingestible supplement has seen a steady increase in volumes over the past year. It is now one of our leading products sold online and by subscription. This along with other products, and the introduction of new hair science based technologies are new initiatives currently in plan and represent a key revenue strategy designed to capitalise on trends in both the hair-loss and beauty market in F23.

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Similarly, we continue to leverage our proven technology under specific licensing agreements ("White Label"). Collaborating with our existing partners (O&M, Pump) we will pursue similar opportunities with new partners as we strategically grow volumes through this channel.

Investment in e-Commerce

The Group continues to develop its in house digital marketing capabilities needed to build direct to consumer and third party e-commerce channels by investing in specialist resourcing, social media and performance marketing campaigns. We believe the opportunities in the e-commerce channel for our brands are important and complementary, particularly after acquiring BLC where there is significant opportunity to add scale and grow revenue in this channel. Similarly, in the US market, where we continue to partner with large e-commerce retailers such as Amazon, Dermstore and Macys.com.

China

The China market continues to present itself as a significant opportunity for many businesses, including Anagenics.

The consumer demand for hair loss, health and anti- aging in China is a global phenomenon predicting revenues upwards of $15 billion by 2030.

In F22, total revenue from this market for the group had unfortunately decreased on the prior year mainly due to changes in strict government regulations around the importation, marketing and sale of special use cosmetic products into mainland China. Volumes in the region were further impacted by strict rolling lockdowns across major cities due to COVID-19 disruption. Collectively the impact was most significant on our Japanese business where revenue for Advangen Japan declined by 50% to $2.2M (2021: $4.3M).

In Australia however, cross border e-commerce (CBEC) continued to strengthen over F22 through our partnership and collaboration between Advangen Australia and our agent Aeon International. Sale volumes on Tmall Direct and JD Direct (two of the largest platforms reaching up to 80% of CBEC sales) increased three-fold on the prior year to $0.3M in F22 and is expected to significantly grow again in F23.

Despite these short term challenges, China remains a significant opportunity in the global hair loss and beauty market for Anagenics and therefore remains a key business strategy in F23 and beyond.

Summary and outlook

As we continue to transform the business in F23 we expect to experience headwinds in the form of macroeconomic forces, resource constraints and shortages and extended lead times on international supply chains. It will be necessary to evolve our plans to ensure we are best positioned to meet the opportunities and challenges as they present themselves. With the acquisition of BLC and restructuring made to date, I believe Anagenics now has a good foundation from which to grow organically and scale through M&A opportunities as we continue to target profitability and positive cashflow.

The Anagenics team and I look forward to what lies ahead.

I would like to personally acknowledge our employees for their dedication and significant contribution over the past year. In particular to our new BLC employees, who have become an integral part of the Anagenics family today and into the future. Thank you !

Matthew Dudek

CEO

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