Bubs Australia’s China revenue dives as distributors struggle amid boardroom putsch

The goat milk-focused infant formula company expects its sales in China to crash to as low as $13.5m this year as its former chief executive calls for all directors to go.

Bubs founder and former CEO Kristy Carr says the company needs a boardroom refresh. John Feder/The Australian.

China revenue has collapsed at goat milk-focused infant formula brand Bubs as its sacked founder pushes for a spill of the company’s board.

Revenue from China in the three months to March 31 dived 57 per cent to $2.6m compared with the previous corresponding period. Bubs is now forecasting full year China revenue of $13.5-13.8m versus last year’s $53.6m.

The company attributed the plunge to an exclusive Chinese distribution agreement it signed with AZ Global, which has struggled to sell products. “Significant amounts of finished goods inventory (are) still held in trade, predominantly Bubs Supreme,” Bubs said in a statement to the ASX.

It comes as Bubs founder Kristy Carr has rallied a group of shareholders – including billionaire pharmacy baron Jack Gance – to spill the board after she was sacked as the company’s chief executive earlier this month. Ms Carr hopes to install former A2 Milk Asia Pacific boss Peter Nathan as Bubs’s next chief executive.

Bubs must now hold a general meeting for shareholders to vote on Ms Carr’s proposals within two months.

Peter Nathan is well liked in investment circles.

Mr Nathan is well regarded in investment circles with those who backed him at A2 lining their pockets after the share price surged from 56c in 2015 to a peak of almost $20 in mid 2020.

But like Bubs, A2’s China revenue was hit hard from the pandemic-fuelled collapse of the Chinese daigou, or reseller market, with the company losing more than 75 per cent of its market value in the past three years.

It is understood AZ Global subsidiaries Willis Trading and Alice Trading owe Bubs about $5.7m. Bubs efforts to get the debt repaid have so far been unsuccessful. When she was chief executive, Ms Carr wrote a letter to Willis and Alice, requesting that there be no outstanding balances by the end of this month, when the exclusive distribution agreement expires.

AZ Global, which is also an investor of Bubs, has now joined Ms Carr’s push to spill the board.

“Sales in April and May have followed the H2 YTD trend and Bubs Sales of IMF (infant milk formula) and Adult Nutrition in the China crossborder e-commerce and on-line to off-line channels via AZ Global continue to remain below expectations,” Bubs said in a statement to ASX.

The company also said Jackie Lin, who has been seconded from C2 Capital – which is a private equity backed by Alibaba and owns 10 per cent of Bubs – to complete a review of Bubs’s China business.

While some investors have said Mr Lin’s appointment is a conflict, Bubs reiterated on Friday that he was engaged because of its knowledge of the China market.

“The company has already made significant progress on right sizing the cost base supporting the China business and resetting the China strategy with a view to creating a truly diversified multichannel approach. The company will comment further on its future prospects in China once its strategic review is complete,” Bubs said.

While Bubs’s China business has been underperforming, its US operation is on track to near triple revenue to $22m versus last year’s $8.1m after the company gained temporary import approval under President Joe Biden’s “Operation Fly Formula” to help alleviate America’s infant formula shortage.

In the three months to March 31, Bubs’s US business generated $4.6m in revenue and in the financial year to April, sales have hit $17.6m.

“Bubs is on track to meet all regulatory milestones for permanent access to the US market and is working closely with the FDA (Food and Drug Administration) and other stakeholders to secure ongoing availability for Bubs in the US market,” Bubs said.

“As previously reported, Bubs ex-factory sales to retail stockists in the US have been steadily building after the slowdown in Q2, as retailers sold through the initial ‘Operation Fly Formula’ pipe-fill.”

Its core Australian business also reported a revenue boost, leaping 41 per cent to $4.26m in the third quarter. Full year Australian revenue is forecast to be $14.5-14.9m compared with $12.9m last year.

Other international revenue jumped 67 per cent to $922,000 during the quarter. It expects to deliver full year net revenue of $4.5-5m versus $2.8m last year.

The company holds $29.2m in cash reserves as of May 31.