Happenstance played a big role in the boost to the June quarter performance by Bubs Australia (ASX:BUB) which was in the right place at the right time with the right product when the US government came looking for urgent supplies of infant formula to fill a gap caused by poor management and production delays at a giant factory owned by one of the world’s biggest pharma companies, Abbott Labs.
Abbott allowed production and quality problems at its big US infant formula plant to go unresolved and its 48% share of this vital market ended up turning it into a target for disgruntled consumers and governments.
To fill the gap caused by the closure and repairs to the Abbott plant, the Biden administration came calling on Bubs for product and the small Australian company complied and as a result saw an explosive growth in June quarter sales which it says will continue on into 2022-23 for a while at least.
Bubs said that for the three months ended to June 30, it saw a 278% increase in gross revenue from the final quarter of 2020-21 to $48.1 million.
This in turn saw Bubs’ second half gross revenue growing 168% to $65.7 million and its full year gross revenue more than doubling to $104.2 million.
Analysts said this rapid growth obviously strained Bubs’ finances – despite the big sales growth, Bubs recorded an operating cash outflow of $6.7 million for the quarter and $10.2 million for the year.
Bubs continues to expect to report underlying EBITDA of greater than $2.4 million for the year to June. (This excludes non-cash equity compensation expenses such as share based payments and equity linked transactions.)
Despite that Bubs’ CEO Kristy Carr was happy with the company’s performance and results.
“The last quarter has seen the business reach critical mass following exceptional growth across Australia, China, and rapid expansion in the USA with our involvement in the Biden-Harris Administrations’ Operation Fly Formula initiative aimed at helping to mitigate the ongoing infant formula shortage crisis,” she said in Wednesday’s update.
“This business diversification and increased scale of our most profitable products and channels has flowed through to our operating margins, delivering profitability for the full year (excluding non-cash equity compensation expenses).
Bubs’ infant formula products are now sold in over 5,400 stores across 34 US states. This includes the four largest retailers of infant formula: Walmart, Kroger, Albertsons/Safeway and Target.
Ms Carr is confident that the 4th quarter performance is a stepping stone to bigger things in the US.
“We are confident of the long-term growth prospects for the USA now that the Food and Drug Administration has committed to a framework for suppliers like Bubs, who have already been approved to import infant formula products, to remain on shelf beyond November 2022,” she said on Wednesday.
“As a result, we envisage the USA will become a lead export market opportunity on par with China in the future.
On China, the company’s decision to reward a key daigou seller with shares in exchange for sales appears to be working with corporate daigou sales up 1,201% during the fourth quarter.
Bubs shares jumped 6.5% to 57 cents.