A $63 million equity raise to support growth opportunities in the US has been announced by infant formula maker Bubs (ASX: BUB), which has spent the last two months helping alleviate a product shortage in the North American market.
Announced today, Sydney-based Bubs will dilute its pool of shares to raise the capital, issuing 121.2 million new shares under the equity raising, equating to around 19.8 per cent of the company’s existing issued capital.
Of the total funds, $32.4 million will be issued as part of an institutional placement of new shares, while the remainder will be raised under an entitlement offer.
Bubs says the equity raise will give it additional balance sheet flexibility to support growth initiatives, particularly in the US where the company’s plans are 18 months ahead of schedule according to CEO and founder Kristy Carr.
“Identified as a strategic priority two years ago, recent events have fast-tracked USA by at least 18 months, and this is now set to be a significant revenue and profit driver for the business,” said Carr, referring to Bubs’ efforts in resupplying the US with infant formula following a shortage that arose from a product recall at one of the country’s largest milk formula laboratories.
“The company is working in collaboration with the US Government to facilitate a regulatory pathway to continue to supply safe infant formula products to American families for the long-term.”
As part of ‘Operation Fly Formula’, Bubs has committed to ship 1.25 million cans (equivalent to around 27.5 million bottles) of baby formula in total to the US - an effort which scored Bubs a Twitter shout-out from US President Joe Biden earlier this year.
As part of this push, Bubs has secured multiple major supply agreements over the last six months with high-profile US retailers including Walmart, Kroger, Target, Albertsons, H-E-B and Meijer.
The company will also use the funds to build up inventory, expand its canning capabilities at its Deloraine, Tasmania manufacturing plant to triple the amount that can be packaged, and to cover the costs associated with the raise.
According to a Bubs investor presentation, expansion of the Tasmanian plant - expected to cost $12 million - will increase the company’s output from 10 million tins per year to 30 million.
“Despite a challenging macro environment, Bubs is delighted to return to a high growth trajectory with record revenues and strong momentum across all key business segments, resulting in groupwide gross margin improvements and delivery of first profit,” Bubs executive chairman Dennis Lin said.
“The equity raising will ensure that the company is well capitalised to pursue our growth opportunities going forward.”
The company also announced today it is anticipating to report its first ever year of EBITDA profitability, estimating it will achieve $2.4 million on that metric. FY22 gross revenue is also set to exceed $100 million for the year, significantly up from the $46.8 million achieved last financial year.
“Following the completion of the equity raising, and after transaction costs, Bubs expects to be well capitalised to fund future growth opportunities.”
The institutional placement of $32.4 million is priced at 52 cents per new share, representing an 18.8 per cent discount to the last traded price of 64 cents per share on Monday.
Under the entitlement offer, existing shareholders can subscribe for one new share for every 10.42 existing shares held as of 7 July, with all new shares issued at a price of 52 cents per new share.
Bubs rewards largest customer for cooperation during US shortages
The single largest customer of Bubs has been rewarded by the infant formula maker today for its cooperation and assistance in making Operation Fly Formula a success to date.
As previously announced, Bubs was going to give Willis Trading, a subsidiary of Hong Kong Stock Exchange-listed Alpha Professionals, around 10 million BUB shares if the parent company made $50 million worth of purchases between 1 July 2021 to 30 June 2022.
However, in light of the “unexpected opportunity” for Bubs to urgently supply the US with its infant formula, Willis Trading worked closely with the Australian company to reduce safety stock and orders so that inventory could be redirected to families in need.
In recognition of this assistance, Bubs has altered its share subscription agreement with Willis Trading so that targets will be met if Alpha Group purchases products equivalent to $44 million during the period from 1 July 2021 to 30 June 2022 - paid prior to 15 August 2022.
“Entering into the Amendment Deed containing the New FY22 Sales Target maintains the strong business relationship with Willis Trading and incentivises Willis Trading to achieve a materially higher sales volume of Bubs and CapriLac products in FY23 of no less than A$80 million for equity incentives to apply in FY23,” Bubs said.
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