Investor call transcript – Probi partnership

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PROBI INVESTMENT AND PARTNERSHIP BRIEFING
INVESTOR CALLTRANSCRIPTION
7 July 2021

Brian Watson: Good morning. Thanks for joining us. It's Brian Watson here, CEO of Blis
Technologies. And with me in the room are Tony Offen, the Chair of the Blis and
Richard Wingham, our CFO. On today's call's I’ll provide an overview of the long-
term strategic partnership with Probi that we announced this morning. And at the end
of my presentation, we'll answer any questions that you may have.
My presentation today is based on a slide set that we've recently released to the
NZX. So you're welcome to grab those slides and follow through the presentation as I
discuss it. I wanted to start by saying, this is a really exciting day for us at Blis. This
partnership represents a major growth initiative for us, and it also represents a long-
term strategic collaboration with Probi.
Slide 2 The main terms that we've announced today are an establishment of a licence and
supply agreement to drive increased revenue for Blis as we go forward. The
elements of that revenue are based on us granting Probi the right to manufacture our
key probiotic strains, BLIS K12™ and BLIS M18™, and sell those products as
ingredients and finished goods and pay a licence fee for those rights. It also
represents the opportunity to continue to collaborate on future products, if and when
they come through our pipeline.
As part of the agreement there is a strategic investment by Probi of $9.18m, which
enhances the Blis capital position. That investment is based on the issue of new
shares, which results in a 13% shareholding, post issue. It provides Blis with the
capital to support major growth initiatives that we see and have communicated
previously. The shares were issued at a 5% discount to the 20 day VWAP, as of the
5th of July.
More broadly, the relationship also focuses on collaboration across R&D, and the
opportunity to leverage each other's probiotic strengths, and strengths in probiotic
innovation. As part of the agreement, we will also have the Probi CEO join the Blis
board, and that will occur post the ASM, on the 21st of July.
Slide 3 Some background on Probi – it’s one of the largest probiotic companies in the world.
They are based in Sweden and were founded in 1991. They have an extensive
global presence, with operations and offices across the US, Sweden and Singapore,
and they have a strong and broad portfolio of products focused on digestive health,
immunity, iron absorption, bone health, women's health, and stress and mental
health. Interestingly, their product mix is complementary to the Blis product mix,
rather than then competing with a product mix that we offer.
Probi's a fully integrated company, focused on researching, manufacturing and
delivering probiotics as supplements and functional foods. They're recognised for

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their expertise in managing stable, live bacteria from R&D, right through all of the
manufacturing processes and ultimately delivering health benefits to global
consumers. Probi has operations across 40 markets and holds more than 400
patents globally.
The market cap for Probi as of the end of trading yesterday in Sweden was 7.07
billion Swedish krona, which is approximately NZ$1.1 billion. So a significant
company for us to partner with as we move forward.
Slide 4 Covering the scope of the collaboration in more detail, and how that will deliver
significant value to both parties - the primary opportunity for Blis is the substantial
revenue growth we see through collaboration with Probi and their significant market
penetration globally. The other key component of the agreement is the capital funds
of $9.18 million, which gives us the funds for investing in our own growth initiatives as
we move forward. For Probi, the opportunity and why they are so excited about the
relationship, is our strains and the recognition of our strains as leaders within oral
health. They have the opportunity to expand their portfolio and leverage that portfolio
into their strong and existing customer base globally.
More broadly beyond those commercial elements, we see significant opportunities to
collaborate on R&D, both companies being recognised as having expertise in
developing innovative probiotic solutions. Probi is an organisation that is focused on
strong evidence based probiotic solutions. So there is the opportunity for both
companies to collaborate on broadening the scientific and clinical validation of our
probiotic offers within the market. Probi is also recognised as a high quality contract
manufacturer, providing both fermentation of probiotics, development, and finished
product manufacturer capability, which we have the opportunity to tap into, and
supply the Northern Hemisphere markets better as we move forward. There are also
opportunities for Blis to cross licence the Probi strains and build out our finished
product portfolio. And we see some exciting opportunities for us to do just that with
the high quality Probi strains, moving forward.
Slide 5 Looking at some of our key focus areas, both in the near term and longer term - our
focus immediately is very much around rapid implementation of the growth
opportunity we see within this agreement. We'll be quickly working with Probi to
transfer our technology related to M18™ and K12™, to enable them to develop our
strains under licence. We'll also quickly undertake training of the Probi field force, an
extensive field force globally, to enable them to engage with customers and build and
grow the opportunity for our strains globally. And then longer term, we will continue
our endeavour and collaboration with Probi, focused on R&D, looking at how we
leverage both parties' expertise in establishing a mutually agreeable R&D plan as we
go forward.
Cross licencing will be a focus for us as we move forward, and how we can tap into
the Probi technology and build out our portfolio of finished products under the Blis
brand, and then also looking at opportunities to work with them in their co-
manufacturing capability, so we can better service the Northern Hemisphere markets
as we move forward.

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Slide 6 I want to talk a little bit about the use of the capital funds. As I've stated, we now
have $9.18 million in funds. Our focus for those funds as we move forwards will be
looking to invest in accelerating our growth priorities, which we have communicated
to the market several times through our year end annual reports and recent market
updates. The priorities for us in the near term are around further investment in our
skincare launch, and the activity to support the building of awareness and penetration
of their attractive cosmetic skincare market. And also investing in our direct to
consumer activity, supporting our endeavours within the US on Amazon, cross-
border e-commerce to China consumers through our Tmall flagship store, Australasia
and Canada being the other priorities for our direct to consumer e-commerce
investment.
The funds will also be utilised to accelerate our new product development. We have
exciting late phase new product development opportunities, the key one being our
probiotic toothpaste, which we've previously announced to the market. So we will
accelerate that and bring it to market as quickly as possible. We also see exciting
opportunities in new strain development. We have a library of probiotic strains that
we're rapidly screening, and we will move that through development as we go
forward and use funds to accelerate that endeavour.
Finally, we see the opportunity to further build the capability within the business.
We've recently brought onboard an e-commerce director. Funds will be allocated
towards building out that team and their capability. But we also see the opportunity of
bringing onboard further capability within our marketing team to drive our
commercialization as we go forward.
Your first question comes from Hamish Edgar of Sinclair investments. Please go
ahead.
Hamish Edgar: Hi. Thanks Brian. It's a superb announcement. Could you just give a little bit of colour
in terms of where this relationship came from. Were Probi an existing smaller
customer, or how did this relationship develop?
Brian Watson: Thanks, Hamish. That's a good opportunity to give a bit of context, actually. So Probi
is our single largest customer within the US market. They currently utilise our strains
for producing finished products for their customer base. They are extremely
enthusiastic supporters of our strains, recognise the uniqueness they represent
within the marketplace, and clearly see significant opportunity to continue to grow the
opportunities with their customer base more broadly. Contextually, they have one
individual that's been pursuing opportunities for our strains within the US market.
They have a broader sales team that we will quickly bring on board and that will
quickly open up new opportunities that both parties see as we go forward.
Hamish Edgar: Is there potential operational and/or logistics opportunities around this, in terms of
manufacturing closer to market at a better sort of cost point, et cetera?
Brian Watson: As I've highlighted, they do have significant contract manufacturing capability within
the US market, both at a fermentation level, when producing the probiotic ingredient,
as well as contract manufacturing capability around finished products and delivering

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in finished products. So there is an opportunity for us to leverage that and exactly as
you say, operational efficiency, being closer to the key markets in the Northern
Hemisphere as we go forward.
Hamish Edgar: Excellent. All right. Thank you very much. And congratulations again. Just a fantastic
deal.
Brian Watson: Thanks, Hamish.
Your next question comes from Warren Head of MG Publications. Please go ahead.
Warren Head: Thank you. Good morning, gentlemen. And congratulations. As you're probably
aware, I've been following your stock for some years now, and have thankfully used it
in the winter time, and I've often wondered whether or not big contracts were the
solution going forward. And I'm curious to know whether or not the Swedish group
have downstream alliances with any large organisations, such as the health sector in
Europe, or in United States, or indeed in governmental areas, in terms of mass use
of a product, like police forces on the front line, et cetera. I wonder if I could have a
comment about the relationship, in terms of scale, in the marketing sense? I mean,
from a small New Zealand company, hooking onto a large Swedish conglomerate,
but with a key product, it seems to me to be quite a big step up in terms of accessing
their marketing reach. I'm not quite sure just exactly what yours is quite currently.
Brian Watson: Great question and it gives me the opportunity to talk to a bit of the strengths of
Probi, absolutely in line with what you've characterised there. I'd invite you to have a
look on the Probi website to review some of the recent collaborations, and longer
term collaborations that they have announced. They have a very significant network
of well-established brands and marketing organisations globally, particularly strong in
the US market, the leading market for probiotics globally, but strong in Europe and
rest of world as well. So one of the extremely attractive things of the relationship
we've formed with Probi is that network and deep collaboration that they already
have established, that our strains can essentially tap into as we go forward, and
securing licence revenue as they do broaden that out and increase sales of our
strains.
Warren Head: Quite obviously it would take enormous and unachievable amount of capital to
achieve the position that they've got. You'd be looking at a decade long, or longer for
a Kiwi company to get to that scale.
Brian Watson: Yes, that's absolutely right. This really does accelerate our scale and that's the strong
intent from both companies as we go forward.
Warren Head: Can you give us a little bit of information please about the e-commerce on each side?
You've mentioned, of course, the Tmall approach that Blis has, which is outstanding
in terms of its reach. So there's something to offer back to the Swedish company in
terms of access through your channels as well.
Brian Watson: A similarity between the two companies is that we both are dedicated probiotic
specialists. We both are integrated, Probi being more fully integrated than us. But

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where we've moved is very much around selling our own finished products as
branded products, exactly as you say, within the e-commerce space. Probi is more
focused on selling both ingredients and what you would characterise as private label
offers to other brand owners. So there's a nice complementary piece there. We're not
competing with each other. And what is attractive to Probi is the way we have more
fully gone down the path of our own finished product sales into e-commerce.
Warren Head: Right. And I take it from that, that this agreement cuts back the other way as well,
that you could market using a label Probi product as a Blis product in the
marketplace.
Brian Watson: Yeah, that's absolutely part of the intent of the relationship, is that we have the
opportunity to tap into their technology and private label offers into our own portfolio
as we go forward. And the beauty of that, it just leverages our existing position
across various e-commerce platforms and even in retail.
Warren Head: Right. Do you export from New Zealand by way of air freight? Is that how you move it
out?
Brian Watson: Yes, we do. Yeah. The speed to market, temperature control, and so air freight is our
method of moving product. I suppose the beauty of the product is they're relatively
lightweight, high value goods to ship by air freight. Somewhat more challenging
environments at the moment with air freight, because of COVID and the lack of
passenger airlines, which was quite a bit of the capacity in air freight, but this
relationship potentially builds some efficiency into the way we supply offshore
markets.
Warren Head: Right. And finally, if I might, because I'm asking a few questions here, the intellectual
property sits back home in New Zealand?
Brian Watson: Very much. We retain ownership of our intellectual property. Probi retains their own
intellectual property. When we collaborate and combine, we have a process that we'll
go through on how we both utilise combined strengths as we go forward.
Warren Head: Thanks very much.
Your next question comes from Mark Devcich of Pie.
Mark Devcich: Hi, Brian. Congratulations on the deal. Looks like a good one.
Brian Watson: Thanks Mark.
Mark Devcich: Just got a couple of questions. So firstly, what... Your sales into Probi in the US, I
think you mentioned that they're your biggest buyer. How much does that represent
of your US sales at the moment?
Brian Watson: We haven't disclosed that. All we're characterizing is that they are our biggest
customer, and we see significant opportunity to grow with them from here. At this
stage, we're not ready, we're not disclosing that level of detail, Mark.

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Mark Devcich: Given that you're licencing the strains to them, does that kind of cannibalise your own
ingredients business?
Brian Watson: No, we will continue to generate the revenue from the existing business they have.
And then from that point build and generate revenue from new business, and it is a
non-exclusive agreement. So we can continue to supply our other customer base,
and continue to grow our outside of Probi customer base as well. And both parties
are very comfortable with that process. So it's incremental and complementary to
what we'll continue to do as we go forward.
Mark Devcich: Got it. Okay. And on the licencing, are you able to maybe give us some colour on
how lucrative that is to you and also are there minimum levels that they have to
meet?
Brian Watson: So it is attractive and we do retain, through the licence royalties, a very attractive
return. And obviously that essentially goes to our earnings, bottom line. We've been
able to negotiate a licence margin that is attractive for us, and is the reason we've
gone forward with the agreement.
In terms of minimum levels they have to meet, they've given us forecasts as we go
forward. Because it is a non-exclusive arrangement and we continue to build the rest
of our business around it, there aren't actually minimums there, but there is a
significant incentive for them to grow the business, and we see the clear opportunity
to grow the business with them as we go forward.
Mark Devcich: How long will it take to licence their strains that they have into some new finished
products that Blis will sell direct to consumer?
Brian Watson: We'll go through a process of putting their finished product offers, essentially, into our
NPD process and work through our priorities, and where they sit. And there already
are some attractive targets we see within that, but it will go through our process. The
beauty of those product offers is their business model essentially is in creating
private label, finished products that can be immediately drawn down and
manufactured using their manufacturing. So the time to market is dramatically
accelerated, because they're ready now type propositions, turnkey type propositions.
Thank you. There are no further questions at this time. I'll now hand back to Mr.
Watson for closing remarks.
Brian Watson: Thank you everybody for taking the time to listen in, and thank you for the questions.
We are more than happy to take any other additional calls of interest, but if not, thank
you for your time and have a great day.
[END OF TRANSCRIPT]