Health: Bubs bathes market in milk as it spends up large on sales growth

Baby food and formula seller Bubs Australia (ASX:BUB) has knocked just over $1m off its half-year losses and lifted revenue by almost 40 per cent.

Sales across all sectors were significantly higher, but the company’s spend-money-to-earn-money approach means it’s also burning through cash.

The normalised EBITDA (earnings before interest, tax, depreciation and amortisation) loss of $3.7m is equivalent with last year’s half-year loss of $3.6m, and negative cashflow came in at $16m in the half.

Bubs had $39m left in the bank at the end of December.

The stock peaked in May 2019, but has been trending downwards since.

No Coronavirus disruption

The company, which saw 19 per cent of revenue come from China in the six months to December 31, says the coronavirus epidemic has not caused much disruption.

It says Chinese buying has been reinforced by a Chinese government statement issued on February 8 recommending consuming 300g of dairy per day to maintain good health, and a supply chain based in Australia.

However, it’s finding that moving goods to and within China has become more difficult.

Sales lift

Bubs made a $7.6m loss in the first half of 2020, and $27m in revenue.

The cost of sales lifted and marketing costs quadrupled, but employee costs were cut in half.

Bubs made its name selling goat-based baby formula but has since branched out into a variety of different baby foods and dairy powders.

It says 74 per cent of revenue still comes from Australia.

The half-year has seen a solid growth trajectory with gross revenue of $28.75m, up 37 per cent on the same period last year,” CEO Kristy Carr said.

“Bubs Infant Formula was the key driver of growth with attributable gross revenues up 77 per cent compared to the prior corresponding period. Revenue of adult goat milk powder has also increased 30 per cent over the same period.”

She said the company had increased marketing to deepen brand engagement with Chinese consumers, launched in Vietnam, and a new agreement with Woolworths in Australia “is set to double retail exposure for the complete portfolio of Bubs Infant Formula”.

Sales in Australia were up 30 per cent thanks to a distribution agreement with Chemist Warehouse and daigou (Chinese for ‘to buy on behalf of’) sales, China direct sales were up 19 per cent, and revenue from international markets excluding China increased 1108 per cent.

In other ASX health news:

Keytone Dairy (ASX:KTD) has received a new order, ahead of schedule, from Walmart China for approximately $350,000 in product. The company says the coronavirus epidemic has caused the postponement of a small number of Chinese orders but is not expected to have a material impact on financial performance.