what does mla own?, page-4

Guys,

As I understand it. MLA provides most of the initial equipment (manufactured in Asia) for Medivet US and also ongoing consumerables for Medivet throughout US. They take a margin, not sure exactly what and Medivet takes a margin as well. Medivet US is responsible for signing up vets etc.

When a vet practice in US decides to move into "on practice" stem cell treatments they buy the initial equipment which MLA sources and sells. So news of major vet group taking on Medivet process means MLA has to fund short term working capital until paid by vets but terms should be short with margin added and then there is repeat business of consumerables.

In addition to US, MLA is also the distributor (under Medivet Tuta)in the UK and equipment provider so margin higher but the cost of sales team is met by MLA. MLA has funded the set up of a lab in UK for vet training and stem cell storage for clients who wish to pay monthly/quarterly charge to store pets stem cells for latter use.

The stem cell business would seem to be a small but hopefully growing part of the business.

Currently the majority of sales are from own IP products supplied to hospitals and vet practice in the disposable space eg plastic tubing for blood bags, burettes, pumps etc. They supply to most of the hospitals around Australia both private and public, either under their name Tuta, Clements etc or toll manufacture for bigger companies that supply to the same hospitals. This is repeat business which is typically done under 1-3 year contracts.

A few years back they moved from in house Aust manufacturing to supplier arrangements from Asia, so should benefit from currency strength.

They are also willing to pay royalties for patented IP, based on sales achieved, to groups such as Analytica (ALT) (auto flush burette) to add technology to differentiate and provide superior cost saving products to customers.

Be aware uptake can be slow even when it is superior/cheaper product because of attitude of "why change suppliers", or the current product is good enough can dominate. That said once the shift happens the rewards are great.

IMHO and DYOR the company currently appears to have a solid base of revenue with a number of potentially large irons in the fire. The cash burn appears minimal circa $250k a quarter which would be about breakeven except for one offs and increasing working capital as new initiatives are funded.

I heard from doctors that even the hospital sector has been hit by the current economic conditions, with hospitals prefering to run down stocks etc but this should only be short run issue because people still get sick and at some stage elective surgery will bounce back and stocks will be rebuilt. Vets are also commenting on owners delaying vet visits because of the conditions

In short not expecting big sales growth in the current half due to both of the above.

More broadly the medical supply business in Aust seems to have a couple of big players providing commodity products but many small players providing smaller run high margin products. It's ripe for consolidation. Not sure what part MLA will play but given size of business and positioning I would have thought it's reasonably well placed.

Hope this helps and DYOR etc etc