Hello, my name's Blair Norfolk, CEO and Founder of Biome Australia. Today I'm here with Paul Hart from Canary Capital. Thanks for joining us, Paul.
Thanks for inviting me, Blair. Pleasure to be here.
Absolute pleasure. So today we're going to go through the first half FY 2024, talk about some of the updates that we shared with the market this morning, and Paul will ask some questions which hopefully will make our strategy and plans for the future a little bit clearer to those that are new to the business. So firstly, Biome recorded AUD 6.02 million for the first half FY 2024, a huge update from the previous corresponding period. But most importantly, for Q2 we recorded AUD 3.3 million in sales, which is also a significant record for Biome. We updated our revenue guidance initially put to market for FY 2024. We previously released in the first half that we would achieve AUD 11.5 million in sales for the full year.
We then upgraded it recently to AUD 12.5 million, and we'd like to think that we can exceed that number as well if things keep tracking upward through the second half of the year. In December, we signed a landmark IP development deal with a key research and development partner in Europe. This deal will be to develop two unique novel probiotic strains which Biome will be able to add into future clinical development, further protect our products, but also add significant asset value to the business as we continue to grow through the next strategic period. We released a new exciting product recently, Biome Cholesterol Probiotic, for launch in the second half FY 2024.
This is a really unique product which fits perfectly into the Activated Probiotics range which has got clinical evidence through several human clinical trials on its effect in lowering cholesterol in patients as a standalone or as an adjunct or complement to those taking statins for managing their cholesterol. Definitely an exciting new product for the range. I think there's a lot of anticipation from our customers, our patients, and also the investment community around this product.
We successfully launched three condition-specific probiotics in the first half FY2024. Those were Biome Dental Probiotic, opening up the business to dental practitioners, a product that significantly reduces cavities, bad breath or halitosis, and also gum disease. A really unique product that we believe has already had significant uptake, but we've already seen significant uptake, but we believe this is going to be a very strong product for Activated Probiotics and Biome into the future.
Biome Lax Probiotic, a probiotic that's clinically trialed to improve stool evacuations and support those struggling with constipation in general. Then finally, Biome Recovery Probiotic, a probiotic that's clinically proven to significantly reduce muscle inflammation and soreness 24 hours after intensive exercise, improving that recovery journey. Again, a really nice, very unique product that is now spread out through our distribution channels around Australia and abroad. The company expects to achieve its first month of positive EBITDA before the end of FY 2024. I would expect a further update on this to follow over the coming months or periods, and we are very excited to share that. Last quarter on our Q2 2024 C, we did announce positive cash flow for the period. However, this was impacted meaningfully by an R&D, an annual R&D rebate.
So we will save that significant update for the coming periods as we continue to grow. Biome recently launched in January into the European health retail market through the U.K. and Ireland channels of community pharmacy and health food stores. This is a big deal for us, showing how we can scale our business internationally, starting with Europe and then starting to look to other territories in the future. We didn't just jump into these markets. We've been there for over 2.5 years working with independent health professionals, whether they be integrative general practitioner doctors, medical specialists, or nutritional therapists in private practice. The foundation of customers and brand loyalty that we developed over those 2+ years in the market over there gave us strong confidence that we were ready to launch into health retail.
The small satellite team of six that we have over there are making really good inroads into gaining distribution with health retail outlets. Finally, significant improvement as far as we're concerned on gross margin. So Biome now reports 60% gross margin, a significant improvement from IPO in November 2020. We reported 52%. So we're really pleased to keep delivering strong improvements in gross margin for the overall business. So Paul, I'd love to hand over to you and ask away.
Certainly. So sales have been growing rapidly, obviously from AUD 7.2 million last year. Your latest forecast is AUD 12.5 million for the year. Can you explain what the main drivers between the rapid growth in sales have been in recent times?
Absolute pleasure. So look, as an early-stage high-growth business, some might assume it's just new distribution and new product launches that are driving our revenue increases. But the most significant contributing factor is same-store sales growth or business development with existing pharmacy accounts. So as it stands, Biome has more than 2,500 pharmacies displaying our product, which is roughly 40% of the market, and more than 2,000 health practitioners as well, which is equivalent, same sort of thing, around 40% of the practitioner market in terms of total distribution. We've been working really hard for the first half of the financial year and the periods before on developing these accounts to optimal levels. So the Biome strategy of practitioner-only and deep-diving education, the target is to have a higher sell-through in each account.
As a result of this, we're really pleased to report that the same-store sales growth is the main contributor.
Great. Your sales education and practitioner-only model is unique in the industry. No one else does it like Biome does. Can you explain how the model works and why it has been so successful in driving sales of the company's probiotics range?
Yes. So a practitioner-only business, by definition, is one that sells their product via the recommendation of a qualified health professional. So Biome's model is we take our own view on what practitioner-only means to us, and the product must still be available for Australians. Our mission is to improve health outcomes with our products but also make the products accessible. So it can't just be in a medical clinic. Because of this, we place a product in community pharmacy behind the counter. So it's behind the pharmacist, traditionally at the script-in counter, giving them something for them to own and for them to talk about. How this model works, though, you have to have trust and build trust with health professionals because the most unique part of our business is the clinical trials supporting our products, the fact that they're clinically proven probiotics supporting different conditions.
It allows us to gain the trust of health professionals, explain how the product works, and then essentially recruit them to have several thousand health professionals actively recommending our product on any day. So rather than the 12 field staff members or practitioner education consultants, as we call them, working, calling on practitioners and pharmacies every day to develop those accounts, we have several thousand health professionals recommending it at any point in time. If we were to distribute the products tomorrow through different online marketplaces or deep-discount chemists, this would unfortunately lose the trust of those health professionals, and we would lose those several thousand health professionals recommending our product, which is a very powerful recommendation when the person in that white coat is suggesting you take something either as a standalone or, in many cases, with our products alongside medications.
Yes, that model is critical because what it leads to is a much higher sales rate in an account and much longer-stickier revenue, longer-term stickier revenue.
Biome recently announced the expansion into European markets with a focus on U.K. and Ireland. Can you explain why those two markets were chosen, and have you got your eye on any other markets to expand into beyond those two?
The million-dollar question. So look, I did talk about this a little bit already in my introduction. However, the U.K. was selected initially because of its Commonwealth ties, the new free trade agreement that we have with Australia with Brexit exiting, Britain exiting the E.U., but also the language and the legal environment, the regulatory environment. It's much more aligned to what we're used to in Australia. So we did a test market, as I said, about 2 to 2.5 years ago in that practitioner channel, led us to get great confidence that this was the best hub for Biome to then start to look at expanding at the right point in time into different European territories. So we've now started in Ireland. We see Ireland is a small population but a terrific market. There's no free healthcare in that market.
The average spend on the average consumer or patient is significantly higher than certain other places in the world, and the adoption rate of probiotics is really high in Ireland. So over the coming one, two, three, four years, we'll start to look at that hub of seven staff that we have in the U.K. to start to run other European territories as satellite regions. So for example, we may recruit a couple of sales and education staff in countries like I'm not suggesting that we're guaranteeing, but countries like Germany, France, Spain, and Italy that have really high probiotic purchase rates and good consumer understanding of a targeted probiotic.
Do those other markets you're talking about, we may potentially see Biome move into over time. Are they larger than U.K. and Ireland?
Yeah. Look, I mean, the U.K.'s got a strong population. I think there's 70+ million versus the Australian population. However, because of the NHS, it's going to be a solid market. We expect the U.K. and Ireland together to be potentially very meaningful. I'm not going to put a forecast to it but very meaningful. However, Germany, Italy, France, and Spain are bigger territories than the U.K. as a standalone. So the combination of these various European territories will absolutely be another Australia, if not greater, over time.
Great. Last question. Finally, the gross margin, as you said earlier, has improved from the low 50s% to 60%, which is a great result, and that's helping the company move towards being cash flow positive, obviously. Can you explain what factors have been driving this improvement in the business, in the gross margin?
Yeah. Absolutely. Look, I mean, I think the key point is, you said, getting toward cash flow positivity. In the 4D that we released to market today, we showed the underlying loss dropped from AUD 1.74 million to AUD 525,000 versus the previous corresponding period. So significant improvement in the underlying loss. Relating to gross margin, it's been significant optimization of logistics and freight, so improving the way we pack containers, significantly reducing the per-pack shipping rate of a single unit of probiotics.
How have you done that?
By stacking containers higher, essentially, and working with more logistics carriers to compete to get more preferential rates. That's one component. The other key component is, as our volume increases, we keep renegotiating with supply partners for all our raw materials, our probiotic strains, and improving our pricing. So it's important to note we haven't actually increased our retail price to customers in the last four years since we launched the Activated Probiotics brand to market. And at the same time, we've increased gross margin from low 50s to 60 percentage points. So we think we've done a pretty good job, and we expect it to maintain or increase over time rather than reduce.
Why have you chosen not to increase prices during the four years?
Look, I mean, people are doing it tough right now, and there was a lot of questions with what would happen to our category. Health does very well in recessionary periods or periods of tough markets. However, we're significantly outgrowing the market. So the category, on average, is growing at about 5% right now. Activated Probiotics is growing between 60% to 100%, depending which part of the industry or which distribution channel we look at. So we are the highest-growth brand in the entire country within complementary medicine, and we want to maintain that. So the last thing we want to do is increase prices for customers that are feeling the pain right now.
Make it more difficult for them to buy products, I suppose.
Exactly.
More expensive. Yep. All right. Well, thanks, and looking forward to the business becoming cash flow positive in the very near future.
Absolute pleasure. Thanks for having me, Paul.