Bubs rebuilds momentum in China despite a slide in group revenue

Bubs rebuilds momentum in China despite a slide in group revenue

Infant formula group Bubs Australia (ASX: BUB) has clawed back most of it lost ground in China with export sales through the company's daigou channel rising 38 per cent in the March quarter.

Export sales to China, which were impacted by border closures last year, have rebounded sharply in the past six months to now be just 15 per cent below pre-COVID levels. At the end of December, sales to China were lagging by 55 per cent compared to the previous corresponding period.

Bubs has reported group revenue of $11.8 million for the three months to the end of March, down 40 per cent compared to a year earlier when "pantry stocking" led to record quarterly revenue of $19.7 million.

Company founder and CEO Kristy Carr notes the strength of sales to China as a highlight for the period.

"Our China business across both our infant nutrition and dairy portfolios is showing strong growth momentum, with export revenue generated from all branded English-label product sales into China increasing 42 per cent compared to the prior corresponding period, and up 28 per cent quarter-on-quarter, now contributing 30 per cent of third-quarter revenue," she says.

"Our daigou channel sales continues to show growth of 19 per cent quarter-on-quarter, with Bubs Infant Formula the mainspring, growing at 38 per cent quarter-on-quarter."

To bolster margins and operational flexibility, Bubs has set up a wholly owned China subsidiary to replace the joint-venture agreement with Beingmate, building on existing direct-sales partnerships with China customers.

However, Carr warns that high volatility remains for the company through its daigou channel, while in Australia she says the company is making strides in expanding its retail footprint.

Bubs says it remains the fastest growing infant formula manufacturer across Chemist Warehouse, Coles and Woolworths with retail scan data showing offtake sales up 37 per cent compared to the previous corresponding period.

"This quarter marked significant increases in distribution points across leading Australian retailers," says Carr.

"During the quarter our footprint also increased with a new supply agreement with Good Price Pharmacy to range 28 Bubs Infant Formula and Baby Food products within their national network of pharmacies."

Carr says that despite being unable to replicate the abnormally high revenue performance of the FY20 third quarter, she was pleased with accelerated growth momentum across the company's key business segments.

"We continue to build on our presence in Malaysia and Vietnam. We are also well progressed with registration in Korea and Redmart in Singapore, with first shipments for both markets expected to be delivered in the fourth quarter of FY21.

"As assuring as the progress in these key areas is, we continue to be mindful that the ongoing effects of the COVID-19 pandemic will continue to impact performance whilst the macro environment remains challenging."

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