GENERAL: AFT: Annual ReportOpens in a new Window

GROWING

amid global disruption

ANNUAL REPORT 2021

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CONTENTS

At a Glance	4-5
Chairman & CEO's Report	6-10
Business Focus:
- Regional Performance	11-13
- Maxigesic	14-17
- Research & Development	18-19
Sustainability	20-23
People Health & Safety	24-29
Directors	30-31
Management	32-33
Non-GAAP Financial Information	34
Auditors Report	37-39
Financial Statements	40-73
Statutory Disclosures	74-86
Directory	86-87

This report provides a summary review of AFT's operational and financial performance for the year to

31 March 2021 and should be read in conjunction with the company's financial statements on pages 40 to 73 of this report.

The information provided in this

report has been compiled in accordance with relevant law, rules and corporate governance recommendations for investor reporting. Financial information has been prepared in accordance with appropriate accounting standards and has been audited by Deloitte.

Throughout this report we have focused on what we believe matters most to our stakeholders and our business. We have endeavoured to ensure all information

is accurate through internal verification and other approval processes.

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AFT Pharmaceuticals is a growing multinational pharmaceutical business with a broad range

of products, both those it has developed itself and in-licensed from third parties.

AFT's products cover all major pharmaceutical distribution channels: over the counter, prescription, and hospital. Historically, AFT's home markets have been Australia, New Zealand, and Asia. However, the company is out licensing its own products to licensees and distributors to sell in an increasing number of countries around the world.

The company's intensive Research and Development program forms the basis of its international sales strategy.

For more information, visit our website www.aftpharm.com

4 A F T S N A P S H OT

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A L R E P O R T	AFT SNAPSHOT
N U	FY21 FINANCIAL HIGHLIGHTS
A N
U T I C A L S			Total revenue
M AC E
		$113.1m
H AR
		Up 7% from $105.6 million despite disruptions of
T P
		Covid-19
A F
			Operating profit
			$10.8m
			Down 5% on an underlying basis* from $11.4 million
			amid Covid-19 disruption
		Profit after tax
		$7.8m
			Profit after tax on an underlying basis* more than
			double the prior year's result
			Total assets
			$104.7m
			Up 20.2% from $87.1 million following inventory
			increases to ensure supply security

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FY21 OPERATIONAL HIGHLIGHTS

AUSTRALIA

NEW ZEALAND

ASIA

INTERNATIONAL

Revenue: $68.30m up

Revenue: $30.50m up

Revenue: $4.40m down

Revenue: $9.90m up

11%

1%

10%

9%

Operating profit

Operating profit

Operating profit

Operating profit

$7.90m

$4.0m**

$1.50m

$1.40m

Growth Drivers

Growth Drivers

Growth Drivers

Growth Drivers

- Over the counter sales

- Antibiotic sales

- Transition to higher

- New launches

- New products

- New products

margin hospital and

- Broad product range

prescription products

- Antibiotic sales

*Excludes head office costs.

REVENUE BY MARKET FY2021

REVENUE BY MARKET FY2020

$68.3m

$61.4m

$4.4m

$4.9m

$9.9m

$9.1m

$30.5m

$30.1m

Australia

New Zealand

Rest of the World

Asia

AN ENDURING RECORD OF GROWTH

*AFT has used the non-GAAP measures of underlying operating profit and underlying profit after tax and when discussing financial performance in this document. Definitions and reconciliations can be found on page 34 of this report.

**Excluding Head Office costs

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P H A R M AC E U T I C A L S A N N U A L R E P O R T 2 0 2 1

C H A I R M A N A N D C E O ' S R E P O R T

FOCUS ON FUTURE GROWTH CONTINUES

Dear shareholders,

The 2021 financial year has been one of the more challenging in AFT Pharmaceutical's history as business conditions tightened around the world in the wake of the pandemic. Nevertheless, as we report another year of record revenue and a more than doubling in underlying earnings, we can look back on the year with a sense of achievement.

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A F T

We have delivered these improved financial results in the face of multiple Covid-19 supply disruptions, delays to product launches, to regulatory approvals and to manufacturing audits around the world.

Negotiations on licensing and distribution agreements have taken longer than we planned, while lockdowns, travel restrictions and government-imposed limits to medicine supply have disrupted sales through our Over the Counter, Hospital and Prescription channels.

We have dealt with the immediate challenges by adapting AFT's operations. We have launched new products that directly address the new health challenges we face, including hand sanitisers and face masks.

We have increased inventories to manage supply disruptions, particularly in those products where we have seen a surge in Covid-19 related demand, including antibiotics, vitamins and our pain management medicines.

We have diversified our manufacturing base. Maxigesic tablet manufacturing, for instance, now has more geographic diversification with production in India and China and with a European site also close to becoming available. We have also re- engineered our business to engage more online with our stakeholders around the world, in addition to dealing with them face-to-face.

But importantly, we have still retained our focus on the long-term. We are repurposing existing medicines, leveraging our network of international partnerships and then drawing on our years of experience working with regulators, suppliers and distributors to bring these medicines to market.

Over the last year, on multiple counts, we have continued to execute on this strategy. Consequently, we can look through the current turmoil and we

remain confident that we can continue to build on our long, and uninterrupted, record of growth.

FINANCIAL PERFORMANCE

Our results demonstrate resilience, with group operating revenue for the year to 31 March 2021, growing 7% to $113.1 million from $105.6 million in the prior financial year.

All our regions were disrupted by the pandemic. Our largest market Australia grew by 11%, but below what we see as the country's long-term potential. Our Rest of the World segment, which is principally focused on the commercialisation of Maxigesic, grew by 8%. Revenue in our Asian business fell by 10% largely due to its transition to higher-margin hospital products, while growth in New Zealand, up 1%, was hampered by Covid-19 restrictions.

Further detail on the performance of the regions is covered on page 11 of this report.

However importantly, underlying profit after tax more than doubled to $7.8 million from an underlying $2.9 million in the prior year, with the

"We can look through the current turmoil and we remain confident

that we can continue to build on our long record of growth"

David Flacks Chairman (left)

Dr Hartley Atkinson Founder & CEO

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C H A I R M A N A N D C E O ' S R E P O R T	9

2 0 2 1
O R T	increase due principally to significant financing
E P
cost savings achieved from the debt restructuring
R	in early 2020. The prior year's reported net profit
L
of $12.7 million benefited from a $9.8 million non-
U A
recurring gain related to AFT taking full control of
N	the Pascomer dermatological medicine intellectual
N
property.
A

MAXIGESIC AND NEW PRODUCTS

The potential of our Australian business and the continued commercialisation of Maxigesic around the world represent the largest immediate opportunities for the company.

Meanwhile, we expect new product launches in	This proactive approach to inventories, which was
Australasia across our seven core therapeutic	adopted early in the pandemic, has protected us
areas of Eye care, Dermatology, Pain (including	to some extent against the risk of stock-outs due
further Maxigesic line extensions), Hospital,	to shipping and manufacturing delays. We expect
Allergy, Gastrointestinal and Medicated vitamins,	to maintain significant safety stock until we see the
to drive growth in the coming year.	supply risks retreating.

S	Gross profit grew by 1% to $48.8 million from $48.3
AL
million in the prior year, with revenue growth offset
C	by a margin decline of 2.6 percentage points to 43%
T I
primarily due to Covid-19 impacts. Licence income
U
(at a 100% margin) was lower while we endured
E
higher costs due to a weakening of the Australian
AC
and New Zealand dollars through the earlier months
R M
of the pandemic.
P H A
A F T
	125+
		Countries in
		which Maxigesic
		tablets are
		licensed
	Additionally, freight costs, in particular, rose as we
	made more use of air freight to build up stock levels
	to ensure continuity of supply. Over the longer term
	we expect expenses as a proportion of total revenue
	to continue to reduce as revenue from the Rest of
	the World grows.
	Selling and distribution expenses were steady
	at 24% of operating revenue. General and
	administration expenses declined to $7.8 million
	from $9.1 million due primarily to lower legal fees.
	Underlying operating profit (adjusted for the $9.8
	million non-recurring gain in FY2020) declined
	marginally to $10.8 million from $11.4 million in the
	prior year.

We have made very good progress with Maxigesic in terms of advancing licensing and registrations particularly when our achievements are considered alongside the travel bans and lockdowns.

During the 2021 financial year we increased the number of territories where the tablet form of the medication is sold by 15 to 43 with launches in Canada, Eastern Europe, Germany, and Mexico (among others). The intravenous form has been licensed in more than 20 territories since the start of the 2021 financial year.

Shortly after the end of the financial year we achieved the important milestone of licensing Maxigesic IV in the US, a deal that has the potential to deliver milestone payments of up to US$18.8 million as well as a share of future profits.

Further detail on our Maxigesic commercialisation programme is covered in page 14 of this report.

RESEARCH AND DEVELOPMENT

Research development and innovation are the engines of our future growth.

We have achieved some significant research and development milestones. We completed our final Maxigesic IV study of 225 patients in the US and New Zealand despite Covid-19 shutting down many hospitals and restricting patient enrolment. This research was recently published in the significant medical journal Biomedicine & Pharmacotherapy.

We have rapidly innovated to deliver products that meet the new public health requirements including our long-lasting hand sanitiser Crystawash® Extend. Trials of our orphan drug, Pascomer, a topical treatment for facial angiofibromas in tuberous sclerosis complex, have progressed (although there were some delays in the opening months of the pandemic).

We have initiated the development of the first dose form for our NasoSURF drug delivery device and expect to start clinical studies during this financial year. Development of NasoSURF has significant potential to increase the number of drugs used in 100+ patented device.

Meanwhile, AFT continues to carefully run its research and development budgets and to investigate other sources of funding such as international research grants, including grants from the USA. Further detail on our research and development initiatives are covered on page 18 of this report.

BALANCE SHEET

AFT remains well funded following the $12 million capital raise last year.

GOVERNANCE

Reflecting the growing importance of international markets to the future of AFT, the resignation of Nate Hukill after our former major shareholder CRG completed its planned sell down, and the planned retirement of Jim Burns at the next annual meeting, we appointed two new directors.

Anita Baldauf joined the Board in November 2020 and brings to the company broad international experience in the fast-moving consumer goods sector and corporate finance. Then, in early 2021, US-based Dr Ted Witek joined the Board as a non-executive director, strengthening the Board's experience with North American pharmaceutical regulators and markets.

Shareholders will have an opportunity to vote on both directors at our annual meeting in August.

"We have always seen

best-practice governance as fundamental to driving improvements in shareholder value. Meanwhile, as a healthcare company, environmental and social

MAXIGESIC COMMERCIALISATION PROGRESS

Product	Maxigesic tablets	Maxigesic IV	Maxigesic oral solution
Territories	31 March	31 March	31 March	31 March	31 March	31 March
	2021*	2020	2021*	2020	2021*	2020
Licensed	125+	125+	100+	80	100+	100+
Registered	49	44	21	3	-	-
Sold in	43	28	3	-	-	-

*Post balance date we licensed Maxigesic IV in the US and six countries of Latin America.

We had initially anticipated using the new equity to reduce more debt. However, as the ongoing nature of border restrictions became more apparent we took the prudent approach of building inventory levels which with the benefit of hindsight has proven to be an important strategic decision.

As a direct result, total assets increased to $105.0 million from $87.1 million, due primarily to a $10.9 million increase in inventories to $33.7 million. Net debt has fallen to $35.2 million from the $37.1 million at last year end and we have sufficient headroom in our facilities.

outcomes naturally resonate

with us"