Bubs shrugs off coronavirus impact

Bubs shrugs off coronavirus impact

While Australia's tourism and retail markets are suffering from the impact of coronavirus Covid-19 a leading exporter of infant milk formula is thriving.

Goat milk formula producer Bubs (ASX: BUB) says business has hardly been impacted as a result of Covid-19, with distribution problems being the main issue faced by the company at this time.

China is one of Bubs' key markets, and with infant formula perceived as an essential pantry item by the Chinese the company says it is well placed to support parents' focus on food security and the health of their children.

"Whilst it is too early to quantify any future impact, to date Bubs Australia has seen no diminution of demand and minimal disruption to the business due to the Coronavirus outbreak," says Bubs.

"As routine shopping becomes challenging, long-life dairy powder is becoming an important nutrition source and pantry item, reinforced by the Chinese government statement issued on 8 February 2020 regarding the 'Nutrition Intake Guideline of Prevention and Treatment of Coronavirus', recommending consuming 300g of dairy per day."

In fact, from mid-February Bubs has witnessed increased purchase activity of its products via its Corporate Daigou Channel. Daigou is a form of cross-border exporting in which shoppers outside of China purchase commodities for customers back home.

"Bubs proudly sources goat milk and packaging materials for infant formula and adult dairy products from Australia/NX," says Bubs.

"The Company's supply chain for manufacturing has therefore not been impacted."

Bubs boosted by strong domestic performance

Bubs Australia released its 1H20 results today, with an increase in domestic sales contributing to consistent growth momentum for the company.

Gross revenue was up 37 per cent to $28.8 million on the back of sales growth for its infant formula products.

Sales generated in Australia were up 30 per cent on 1H19, representing 74 per cent of the group's gross revenue.

Bubs says this growth was driven by the expansion of 30 products into Chemist Warehouse and increasing consumer demand for Bubs infant formula via its Daigou channel.

China direct sales were also up by 19 per cent, representing 19 per cent of gross revenue for the half.

The Chinese market was particularly hungry for the company's infant formula products, with Bubs reporting sales to China nearly doubling during the half.

"During the period, the Company made significant increased investments in developing channel capacity and increased marketing to support our stronger domestic distribution presence and deepen Bubs brand engagement with Chinese consumers to drive sales across all retail channels," says Bubs founder and CEO Kristy Carr.

"In addition, we invested in the launch of Bubs products into Vietnam and in the development of new products across multiple segments that will be launched in the second half of FY20."

Bubs' overall statutory EBITDA loss of $5.25 million compares to an $8.52 million loss in 1H19 and includes transaction expenses and finance costs relating to ongoing M&A activity and discontinued inventory.

In February Bubs signed a pivotal deal with Australia's largest retailer Woolworths.

The company's first agreement with Woolworths in February 2018 involved stocking its goat's milk infant formula in 120 stores, but the expanded deal now encapsulates the entire range of eight infant formula products across a targeted selection of 700 outlets nationwide.

Bubs expects these new sales opportunities will materially add to its domestic revenue.

Shares in Bubs are down 1.38 per cent to $0.72 per share at 12.47pm AEDT.

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