Bubs (ASX:BUB) share price sinks 7% after posting $74.7 million loss

This infant formula company has posted a huge loss in FY 2021…

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The Bubs Australia Ltd (ASX: BUB) share price is under pressure on Tuesday following the release of its full year results.

In morning trade, the struggling goat milk infant formula company’s shares are down 7% to 39 cents.

Bubs share price sinks after posting $74.7 million loss

  • Revenue down 24% year on year to $46.8 million
  • Underlying EBITDA loss of $28.5 million
  • Statutory loss after tax of $74.7 million
  • Cash balance of $27.9 million

What happened in FY 2021 for Bubs?

For the 12 months ended 30 June, Bubs reported a 24% decline in revenue to $46.8 million. This was driven by a 44% decline in Australian sales to $20.4 million and a 17.5% decline in China sales to $10.47 million.

Things were much worse on the bottom line, with the company posting a massive loss after tax of $74.7 million. The latter appears to be weighing heavily on the Bubs share price today. However, it is worth noting that some of this loss reflects a $44.6 million non-cash impairment relating to the Nulac Foods cash generating unit and Deloraine Dairy cash generating unit. This was driven by the conservative outlook the company has adopted over next five years due to the prolonged uncertainties.

On an underlying basis, Bubs reported an operating loss of $28.5 million. This reflects its weaker sales, a $12.6 million inventory write down, and the sale of excess bulk powder at a loss to maximise its cash conversion.

This left Bubs with a cash balance of $27.9 million, which management believes is sufficient to fund its FY 2022 growth plans. Though, that seems unlikely to ease concerns that the company will require yet another capital raising in the near future. This could be another factor weighing on the Bubs share price today.

What did management say?

Bubs’ Founder and Chief Executive Officer, Kristy Carr, said: “There is no doubt that the disruptions caused by the COVID-19 pandemic significantly impacted our performance, with international border closures triggering a severe demand shock and sharp decline in revenues in the first quarter, followed by subdued Daigou sales throughout the remaining three quarters. In addition, we experienced disruption and increased costs associated with outbound international supply chain logistics.”

“As we pivoted to new ways of doing business, resetting our supply chain, and working closely with our key domestic and international trading partners, our agility and resilience have underpinned our momentum toward a rebuild phase, following the setback in the first quarter. The strategies implemented to redirect product through the eco system led to an uplift in the second half delivering ten percent half-on-half growth, and we can report that our fourth quarter gross revenues were only four percent below the fourth quarter of FY20.”

Mrs Carr added: “In response to the COVID driven demand shock, we followed a strategy of resisting pressure to push inventory to distributor channels and instead took the position of discounting sales of bulk powder to clear excess inventory and prioritise cash conservation. This enabled the Company to return to a balanced inventory position, with milk supply rightsized to match stabilised offtake demand forecasts.”

What’s next for Bubs?

No guidance has been provided for the year ahead. However, Bubs appears optimistic it could be a better year.

Bubs’ CEO Kristy Carr commented: “Bubs is well placed with strong foundations, brand share growth, and a robust balance sheet to go forward with a sustainable growth strategy as the Australian lead challenger brand in infant nutrition.”

“The company is now well placed to go forward and we expect to see growth momentum across all channels in FY22.”

Bubs share price performance

The Bubs share price has unfortunately destroyed significant wealth over the last 12 months.

Following today’s decline, the Bubs share price is now down 58% over the period. This compares to a 24% gain by the ASX 200 index over the same period.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has recommended BUBS AUST FPO. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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