Bubs Australia says the completion of its two-month strategic review – a five-point plan to get the business back on track – will deliver positive cash flow for the beleaguered infant formula company in FY25.
Independent non-executive board member and seasoned FMCG executive, Reg Weine, drove the review for the board, drawing on his experience, the executive team, and external advisors including Kidder Williams managing director David Williams.
While there are five points of the plan: USA growth engine; China reset; Portfolio optimisation; Sweat the assets; and Working capital, all eyes were on the board’s proposal to turn around its China business. After all, its poor performance started the chain of events that have led to today.
The strategy is to take a multi-channel go-to-market approach under new China general manager, Jackie Lin. Lin, also the vice president of Bubs’ largest shareholder, C2 Partners, has a background in international trade and ecommerce development with almost four years working for the Alibaba Group.
New trade partners and distributors will be sought, with its Willis Trading agreement ending on 30 June and a legal review underway with Alice Trading.
Weine said it was imperative to stop the decline in shareholder value.
Bubs share price has dropped 80.7 per cent from $0.96 cents on 3 July 2020 to $0.185 on 3 July 2023.
Since the company’s IPO in January 2017, the company accumulated $240 million in losses and had seven capital raises. Investors in each of those saw a material decline in their investment ranging from -59 per cent to -81 per cent, the board said.
“Capitalising on our first mover advantage in the US and resettling China are two significant components of our strategic plan. We have a clear competitive advantage in goat infant and adult nutrition, and we need to focus our efforts on this part of our portfolio.
“With a greater focus on working capital, and tighter control on costs, we will quickly reduce the monthly cash burn, extend the runway, and deliver sustainable shareholder value,” Weine said.
In looking to sweat the assets, Weine said the company’s state-of-the-art manufacturing facility in Deloraine was under-utilised and only running at around 31 per cent capacity.
The company will revisit China’s State Administration for Market Regulation (SAMR) registration, as well as explore toll manufacturing and private label opportunities to boost its utilisation.
There will also be a greater focus on premiumisation and investment in core brands, with Weine saying the company is “a market leader in its hero goat product segment pioneering the IMF category in the US and China”. There will be production rationalisation, a repositioning of bovine IMF products and greater innovation.
For the US market, the plan is more steady as she goes, growing its presence in major retailers and ecommerce platforms as well as meeting the requirements and deadlines to gain FDA permanent access to the US market.
In terms of working capital, Bubs said its annual operating expenses have already been reduced by around $10 million, and the board expects the monthly cash burn to be more than halved from $5 million to $2 million from Q2FY24.
The board said the growth plans are fully funded and plans are in place to liquidate excess inventory. It will also maintain its marketing investment at 15 per cent of net sales.
Bubs chair Katrina Rathie said the board was confident the right people and structures were now in place.
“We now have the right governance structure and operational teams in place and have identified the key people and strategic partners to execute with precision to deliver strong and profitable growth,” Rathie said.
Bubs’ FY24 outlook
- Net sales revenue $80m, up 35% on previous year;
- gross profit margin 40%;
- continued FDA progress ;
- renewed focus on infant and adult goat nutrition;
- working capital improvements;
- improved transparency and governance; and
- positive cash flow in FY25.
The extraordinary general meeting is set for 27 July.
