ANNUAL REPORT
Bubs Australia Limited and Controlled Entities | ACN 742 094 060
For personal use only TABLE OF
CONTENT
GENERAL INFORMATION
CORPORATE DIRECTORY
CHAIRMAN’S LETTER
CEO’S LETTER
01 | THE BOARD OF DIRECTORS
02 | DIRECTORS REPORT
03 | REMUNERATION REPORT (AUDITED)
04 | INDEPENDENT AUDITOR’S REPORT
05 | LEAD AUDITOR’S INDEPENDENCE DECLARATION
06 | CONSOLIDATED STATEMENT OF PROFIT AND LOSS
AND OTHER COMPREHENSIVE INCOME
07 | CONSOLIDATED STATEMENT OF FINANCIAL POSITION
08 | CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
09 | CONSOLIDATED STATEMENT OF CASH FLOWS
10 | NOTES TO THE FINANCIAL STATEMENTS
11 | DIRECTOR’S DECLARATION
OTHER INFORMATION
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GENERAL INFORMATION
The financial statements cover Bubs Australia Limited for the year ended 30
June 2018. The financial statements are presented in Australian dollars, which
is Bubs Australia Limited’s functional and presentational currency.
Bubs Australia Limited’s registered office and principal place of business is:
2-4/6 Tilley Lane, Frenchs Forest
NSW 2086 Australia
For personal use only CORPORATE
DIRECTORY
DIRECTORS
COMPANY SECRETARY
Dennis Lin (Chairman)
Kristy-Lee Newland Carr
Matthew Reynolds
Johannes Gommans
(appointed 20 December 2017)
Jay Stephenson
SHARE REGISTRY
AUDITORS
Computershare Investor
Services Pty Limited
Level 2
Reserve Bank Building
45 St George’s Terrace
Perth WA 6000
Ernst & Young
200 George Street
Sydney NSW 2001
REGISTERED OFFICE
AND DOMICILE
Bubs Australia Limited is a
company limited by shares,
incorporated and domiciled in
Australia.
Its registered office is:
2-4/6 Tilley Lane, Frenchs
Forest
NSW 2086 Australia
AUSTRALIAN
SECURITIES EXCHANGE
ASX Code: BUB
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Bubs Australia Limited and Controlled EntitiesAnnual Report for the year ended 30 June 2018Corporate DirectoryFor personal use only CHAIRMAN’S LETTER
Dear Shareholders
I am pleased to report that since listing in 2017, we
have achieved our intermediate strategic goals on our
journey toward becoming a leading infant nutrition
brand, both here and in Asia, reshaping our destiny as we
invest and build momentum for the future.
At the end of the 2018 Financial Year we can report that
Bubs® products are available domestically through ranging
in more than 2,000 stores including major supermarkets
and pharmacy chains, as well as now being available
through all major China facing eCommerce platforms.
Strategically, the most important development during the
year was the Nulac Foods Pty Ltd (Nulac Foods) acquisition
which brought security of goat milk supply and positioned
Bubs® as the only vertically integrated producer of goat
milk infant formula in Australia with an exclusive access to
13 million litres of goat milk per annum, including from the
largest milking goat herd in Australia.
Moreover, the Nulac Foods transaction gave Bubs a unique
capacity to offer product integrity and traceability for its
goat milk formula from the farm gate to the point of sale –
the ‘pathway to provenance’ so critical to appealing to the
Chinese market, where goat milk based formula is one of
the fastest growing segments of the infant formula market.
Our China strategy advanced significantly, securing a brand
nomination with Australia Deloraine Dairy, a manufacturing
facility licensed by the Chinese regulators, and with our
product registration application now with SAMR. We also
opened an office and cross functional team in Shanghai.
Bubs® significantly expanded its cross-border eCommerce
capability including agreements with New Times Asia,
Alibaba Group and its physical distribution footprint via
QianJiaWanPu, the largest distributor of infant formula
in China. The Group has also been actively engaging the
Australian Daigou community, sponsoring industry events,
key opinion leaders and syndication of Bubs digital content
through Tmall, Taobao and WeChat.
In addition, in 2018, Bubs Australia announced the completion
of a substantially oversubscribed share Placement, raising
$40 million from professional and sophisticated investors
to enhance the Company’s financial flexibility and provide
working capital to support new strategic opportunities and
growth momentum, particularly in relation to China market
development, further enhancement of our supply chain
integration and new milk supply agreements.
It is important to note that the overall statutory net loss of
$64.66 million for FY18 includes a $48.23 million (FY17: Nil)
non-cash impairment of goodwill relating to the Nulac Foods
cash generating unit driven by an increase in the value of
the shares issued to the vendors of Nulac Foods between
entering into the purchase agreement on 3 November 2017
and completion on 20 December 2017.
This does not detract from the strategic value of the Nulac
Foods acquisition which delivered an unrivalled ‘provenance
story’ and supply chain security to the Group, essential
to a sustainable future. It is not related to past business
performance or any known reduction in expectations of
future performance.
Marking our growing maturity and investor support for our
vision, Bubs Australia was included in the ASX Top 500 All
Ordinaries Index, greatly increasing liquidity and ability for
institutions to invest in the Group.
Looking ahead, we are confident that with our domestic
business performing strongly, we are well positioned to
take advantage of the opportunities to realise our ambitions
for business growth in China and beyond.
During the year, gross sales increased to $18.42 million,
a 330% uplift in net revenues over the prior year, with
material growth across all our core product offerings in
both Bubs® and CapriLac® product ranges.
None of this could have been achieved without the
dedication of our team and the support of our investors. On
behalf of the Board, I thank you all.
DENNIS LIN
Chairman
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Bubs Australia Limited and Controlled EntitiesAnnual Report for the year ended 30 June 2018Chairman’s letterFor personal use only CEO’S LETTER
Dear Shareholders
The group’s continuing focus on its four-pillar
combined with underlying
in supply chain and capabilities,
continues to deliver controlled and measured growth.
strategy, which
investments
Positive momentum continued with quarter-on-quarter
sales growth totaled $18.42 million for the full year, with
a material uplift in sales visible across all core product
offerings, both domestically and in China.
Bubs® infant formula grew strongly, delivering 117%
year-on-year growth, and a 306% increase in total net
revenue when aggregated with the growth attributable
to the Nulac Foods acquisition, including CapriLac® and
Coach House Dairy® products.
Throughout the year, the Company focused on expanding
key points of domestic distribution, including securing
new ranging across its product portfolios in Woolworths,
Costco, Aldi, Metcash, Chemist Warehouse and other
leading pharmacy banners, as well as increasing store
counts in longstanding retail partners Coles and Big W.
Bubs® infant formula sales increased by 33% in Coles in
FY18, making it the fastest growing brand in value over
the last 26 weeks as at 30 June 2018 versus the prior
year (Source: Nielsen Scan Sales Data).
Although sales momentum continued strongly, our
investment activities led to an operating loss, including
the costs incurred outside of the operation of the Group,
high costs associated with developing products suitable
for direct importation into China, provisions to meet
China’s regulatory requirements, and establishing an
office and cross functional team in Shanghai.
The key strategic development during the year was the
establishment of Bubs® as a leader in Australia’s goat
dairy landscape. The investment in Nulac Foods Pty Ltd
has given us insight and control over our supply chain
and the establishment of our provenance story, from
the packaged product back to the paddock. Bubs® now
has exclusive long-term access to more than 65% of
Australia’s total goat milk production at a fixed price.
Together with our New Zealand milk pool, we can now
produce up to 1,500 tonnes of milk powder annually.
In June 2018, Bubs Australia announced a binding long-
term agreement with Australia Deloraine Dairy, one of
the fifteen infant formula manufacturing facilities in
Australia licensed to produce infant formula for export
to China by the appointed Chinese regulatory body. Bubs®
infant formula range has been nominated as one of their
three brand slots providing a pathway towards achieving
SAMR (formerly CFDA) registration.
Successful registration will enable Bubs® Chinese labeled
infant formula products to be sold over the counter in a
country that boasts over 80,000 Mother and Baby stores,
putting Bubs® Infant Milk Formula in reach of the world’s
largest market for infant food products. In China, goat
milk based formula represents 5-10% share of the infant
formula category, is premium priced and estimated to be
growing at above 28% CAGR for the period 2016 – 2020
[Source: Euromonitor and AC Nielsen].
Following successful import registration, Bubs Organic®
baby food products have launched into the first Mother
and Baby stores in China via a new partnership with
QianJiaWanPu, the largest distributor of infant formula
in China covering a network of over 80,000 specialty
retail stores of which 50,000 are considered core stores.
The New Times Asia partnership enhances our China
expansion capability. In addition to servicing major
platforms previously partnered with Bubs®, New Times
Asia has already secured incremental online ranging
on Suning, Mia, Jumei, Yuou, and Baobaoshu. The New
Times Asia agreement will at least double our net sales
revenue of Bubs® and CapriLac® products in China with
a with a total sales commitment for purchase orders
valued at $17M in FY19, $24M in FY20 and $37M in FY21.
The Merchant Service Agreement with Alibaba Group led
to the opening of a Bubs® and CapriLac® Flagship Stores
on Tmall Global.
More recently, Bubs Australia entered into an Agreement
with HiPac; an Online-to-Offline (O2O) distributor for
Mother and Baby stores in China, providing Bubs® with an
on-shelf brand recognition prior to registration of Bubs
infant formula.
business, consolidate the Nulac Foods acquisition and
progress our capabilities with regard to penetrating
the Chinese market with the aforementioned merchant
agreements. This
investment however, unavoidably
generated a loss before tax.
Towards year-end we undertook a very successful capital
raising that will provide the necessary working capital
and inventory management to support growth in market
development including supplying QianJiaWanPu and New
Times Asia, supply chain security, brand marketing and
infant nutritionals product innovation. The new capital is
expected to support the next stage of growth and take
the company to profitability.
In addition,
in market
to better support growth
development, sales, brand marketing, customer service,
and regulatory compliance, we opened a representative
office in Shanghai with cross functional team led by
Charles Li; an infant formula industry specialist and
Bubs Australia’s Chief Operating Officer - China.
In the meantime, financial results for this year reflect
continuing significant and essential investment in channel
capacity, as we continue the momentum in our domestic
Outlook:
transitions
the business
Looking ahead, as
from
being largely a marketing enterprise to a full-fledged
manufacturing and distribution business, we are also
investing in building our organisational capacity – ‘bench
strength,’ and in the coming months will be making
several key appointments to the team.
Meanwhile, given the company is still in a development
phase, and investing heavily in supply chain scalability
and capability,
‘yield management,’ and managerial
strength, as well as pursuing a pipeline of new products,
any attempt to provide a forecast could be misleading.
We are building a robust platform for the long-term and
that requires some patience, but we are confident we are
on the right path.
We thank you for your ongoing support.
KRISTY CARR
Chief Executive Officer
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Bubs Australia Limited and Controlled EntitiesAnnual Report for the year ended 30 June 2018CEO’s letterFor personal use only 01
THE BOARD OF
DIRECTORS
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For personal use only THE BOARD
OF DIRECTORS
The directors present their report together with the
consolidated financial statements of Bubs Australia
Limited as a consolidated entity consisting of Bubs
Australia Limited (the “Company”) and the entities it
controlled (“the Group”) for the financial year ended 30
June 2018 and the auditor’s report thereon.
The names of the directors in office at any time during
or since the end of the financial year are:
DENNIS
LIN
KRISTY
CARR
GradDipAppFin, CA, Solicitor of the Supreme Court of
Queensland – Chairman and Non-Executive Director
(appointed 22 December 2016)
BBus – Chief Executive Officer and Executive Director
(appointed 22 December 2016)
Kristy Carr has an in-depth knowledge of the infant nutrition
category and retail sector, with a proven track record of
leading and building successful brands and businesses over
the past 20 years. Prior to Bubs®, Kristy held international
marketing and business development roles based in Hong
Kong. It is with this expertise that Kristy founded Bubs® in
2006 and continues to lead a talented team in delivering on
her original vision to make Bubs® a successful global brand.
Ms Carr has not held any other Directorships in publicly listed
companies in the past three years.
Dennis Lin is a Partner of BDO in Australia and the firm’s China
Advisory Services national leader. He advises on commercial
aspects of transactions and acts as the lead advisor to foreign
entrepreneurial investors on merger and acquisition and
capital markets activities, with particular interests in food and
agribusiness, and technology sectors. His focus is in facilitating
the growth of businesses as they become public, particularly
in relation to corporate level reporting and governance. Mr Lin
was previously a specialist tax practitioner for over 10 years
with Mallesons, PricewaterhouseCoopers and Deloitte. He
speaks fluent Chinese Mandarin, and is a Chartered Accountant
and Solicitor of the Supreme Court of Queensland and remains
a current practitioner of both professions. He is a director of
BDO (Qld) Pty Ltd.
Mr Lin was appointed as a non-executive director of Buderim
Group Limited on 3 November 2017 and a non-executive
director of Ecargo Holdings Limited on 9 April 2018.
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MATTHEW
REYNOLDS
JOHN
GOMMANS
JAY
STEPHENSON
B.Sc (Hons), LLB (Hons), MQLS -
Non-Executive Director
(appointed 22 December 2016)
B.Agr Sc - Non-Executive Director
(appointed 20 December 2017)
MBA, FCPA, FGIA, MAICD, CPA (Canada),
CMA (Canada) – Company Secretary
(appointed 1 September 2015)
John Gommans comes
from a
dairy farming family and pioneered
the goat milk powder industry in
Australia. In 2005, John purchased a
dairy production facility and farm in
the Gippsland region. This was the
genesis of NuLac Foods, which went
on to become the largest producer
of goat milk products in Australia
and has now been acquired by Bubs
Australia. John is responsible for the
management of the company’s milk
supply and production facility.
Mr Gommans has not held any
other Directorships in publicly listed
companies in the past three years.
Matthew Reynolds is a Partner at HWL
Ebsworth lawyers who specialises in
capital markets (retail and wholesale),
debt capital markets (wholesale) and
mergers and acquisitions (public and
private) including private equity. He
holds a Bachelor of Political Science
& Economics (Hons) and a Bachelor
of Laws (Hons) and is a member of
both the Queensland Law Society and
Company Law Committee, Queensland
Law Society. Mr Reynolds is currently
a director on the ASX listed Axsess
Today Limited (ASX: AXL), and holds
directorships in unlisted companies
including local subsidiaries of Thai-
listed Minor International PLC, Ignite
Energy Limited.
Mr Reynolds was a director in publicly
listed G8 Education Limited (ASX: GEM)
retiring from the board on the 31st of
August 2017.
resources,
Jay Stephenson has been involved
in business development for over
30 years
including approximately
24 years as Director, Chief Financial
Officer and Company Secretary fo r
various listed and unlisted entities
in
IT, manufacturing,
food, wine, hotels and property. Mr
Stephenson has been involved in
business
acquisitions, mergers,
capital
initial
raisings, business restructuring as
well managing all areas of finance for
companies.
offerings,
public
Other than John Gommans, directors have been in office since the start of the financial year to the date of this report unless
otherwise stated.
RECORD OF ATTENDANCE AT THE BOARD MEETINGS
Director attendance at Board meetings during the year is set out below.
D Lin (Non- executive Chairman)
K Newland Carr (Executive Director)
M Reynolds (Non-executive Director)
J Gommans (Non-executive Director)
Held
10
10
10
6
Attended
10
10
10
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Bubs Australia Limited and Controlled EntitiesAnnual Report for the year ended 30 June 2018The Board of DirectorsFor personal use only 02
DIRECTORS
REPORT
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For personal use only DIRECTORS
REPORT
SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS
On 20 December 2017, Bubs Australia Limited acquired
100%
of the issued
shares in Nulac
Foods Pty Ltd;
49.9%
of the issued
shares in
Uphamgo
Australia Pty Ltd;
49.9%
of the issued
shares in
New Zealand
Nutritional Goat
Company Limited;
49.9%
of the issued
shares in Cambria
Management
Company Pty Ltd;
49.9%
of the issued
units in Cambria
Unit Trust.
The integration with Nulac Foods Pty Ltd has transformed the Group’s business with a material uplift in sales visible across
all core product offerings. The acquired business of Nulac Foods Pty Ltd contributed revenues of $10,065,968 and net loss
of $1,177,159 to the Group for the period from 21 December to 30 June 2018.
REVIEW OF OPERATIONS AND FINANCIAL RESULTS
FINANCIAL PERFORMANCE
The Group achieved net revenue of $16,906,256 (2017: $3,932,298) and an loss after income tax
$64,658,942 (2017: $5,059,242). The operating loss reflects the fact the business is still in the
development phase including the high costs of new product development, expenses related to
expanding the domestic and China sales channels and investing in systems and processes to
integrate the Nulac Foods Pty Ltd.
The overall position includes certain non-recurring expenses. These items are the corporate
transaction expenses of $1,061,847 (2017: $1,722,893) associated with the acquisition of Nulac
Foods Pty Ltd, $7,502,367 (2017: $nil) expense relating to the contingent consideration of $13.4
million payable to the Nulac Foods Vendors for future satisfaction of certain performance targets,
recorded in employee costs given one of the KPIs relates to continued employment of Nulac Foods
Vendors, $48,234,760 goodwill impairment (2017: $nil) relating to Nulac Foods cash generating
unit.
As at 31 December 2017, the Group recorded a goodwill amount of $72,212,166 relating to the
acquisition of Nulac Foods Pty Ltd on the acquisition date of 20 December 2017. The significant
goodwill balance primarily arose due to 67.5% of the consideration paid being in the form of
shares issued in Bubs Australia Limited and the rapid growth in the share price leading up to
acquisition date. At 30 June 2018, the Group has performed a calculation of the recoverable
amount of the Nulac Foods Cash Generating Unit based on a value in use impairment model. The
difference between the recoverable amount determined by the value in use and the carrying value
of assets in the Nulac Foods cash generating unit has resulted in an impairment to goodwill of
$48,234,760. This impairment had no impact on the cash or operational aspects of the Group.
REVENUE AND PROFITABILITY
At an operating level, net sales increased 330% compared to FY17. Domestic gross sales increased
335% compared to FY17 with a 507% increase during the third and fourth quarters compared to the
same periods in the previous year.
Domestic sales account for 84% of gross revenue, with 14% of revenue generated from China cross
border e-commerce sales, and the remaining 2% from other emerging international markets.
China gross sales increased 307% on FY17 with a 644% increase during the fourth quarter compared
to the same period in the previous year. This represents the strong traction the Bubs product range
is now gaining in the Chinese market following the deployment of marketing resources and sales
channel contract wins with New Times Asia.
Gross margin has been adversely affected in FY18 compared to FY17 due to the change in product mix
with the acquisition of Nulac Foods. However, the positive blended margin combined with the strong linear
growth in sales is beginning to erode the high operating and administrative costs indicative of a business
in the growth phase. As sales continue to grow with strong gross margin and the number of one-off costs
(capital raising costs, as well as costs associated with acquisition and integration of systems and processes)
decrease, the Group forecasts a significant improved profit or loss position in FY19.
FINANCIAL POSITION
The Group currently hold $38,642,902 in cash at 30 June 2018 (2017: $5,306,746). The cash available
has significantly increased due to the successful capital raising during the year. The external debt at
30 June 2018 is $2,000,000 (2017: Nil) which was inherited from the acquisition of Nulac Foods Pty
Ltd. The directors are confident of the Group’s ability to continue as a going concern and meet its debts
and future commitments as and when they fall due and payable.
PRINCIPAL ACTIVITIES
The Group offers a great range of organic baby food and goat milk infant formula products. Since the acquisition of Nulac
Foods Pty Ltd, the range of products have been expanded to the goat milk and fresh dairy products.
LIKELY DEVELOPMENTS
The Group expects to experience continued strong growth in the key domestic retail space and China e-commerce platforms.
Net revenue is expected to increase at least 100% due to the $17,000,000 sales contract for FY19 with New Times Asia.
The strong sales will be driven by strategic investment in marketing activities to establish brand awareness and continued
expansion of the Group’s distribution channels.
Operationally, the partnership with Australia Deloraine Dairy Pty Ltd enables the Group to have the capacity to support
the strong domestic and China demand of baby infant formula. With investments in whey capture and processing this will
further enhance the vertical integration and security of the Group’s supply chain.
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Bubs Australia Limited and Controlled EntitiesAnnual Report for the year ended 30 June 2018Directors ReportFor personal use only ENVIRONMENTAL REGULATIONS
PROCEEDINGS ON BEHALF OF THE GROUP
The Group is not aware of any matter which requires disclosure with respect to any significant environmental regulation in
respect of its operating activities.
No person has applied for leave of court to bring proceedings on behalf of the Group or intervene in any proceedings to
which the Group is a party for the purpose of taking responsibility on behalf of the Group for all or part of those proceedings.
CORPORATE GOVERNANCE
The Group’s corporate governance statement sets out the key features of the Group’s governance framework and
practices. The Group has adopted corporate governance policies and practices which are designed to support and promote
the responsible management and conduct of the Group. The Group’s corporate governance statement can be found at
https://www.asx.com.au/asxpdf/20180606/pdf/43vldgzjlb5bg7.pdf.
EVENTS SUBSEQUENT TO THE END OF THE REPORTING PERIOD
On 4 September 2018, Kristy Carr, the company Founder and Managing Director stepped into the role of the Chief Executive
Officer. Nicholas Simms employment with the company was terminated on 20 September 2018.
On 20 December 2016, Nicholas Simms was granted a total of 3,578,108 options. These options were granted prior to
Nicholas Simms being appointed as CEO, as part of his compensation as a commercial director of the company. These
options were issued as an incentive for Nicholas Simms to join the company and accordingly were not linked to any
performance-based milestones. There were no performance or service conditions required to exercise the options, and the
options were not dependent on the ongoing employment of Nicholas Simms by the Company. The 3,578,108 options vested
in FY2017 and were exercised post 30 June 2018.
Other than the events noted above, no item, transaction or event of a material or unusual nature has arisen in the interval
between the end of the financial year and the date of this report, in the opinion of the directors of the Group, that would
significantly affect the operations of the Group, the results of those operations, or the state of affairs of the Group, in future
financial years.
DIVIDENDS
No dividends have been paid or declared since the start of the financial year (2017: Nil).
INDEMNIFICATION AND INSURANCE OF DIRECTORS AND OFFICERS AND AUDITORS
The Group has paid insurance premiums in respect of Directors’ and Officers’ liability insurance for current and past
directors and officers. Insurance does not indemnify the Directors and Offices where there is conduct involving lack of
good faith.
During the financial year, the Group paid a premium in respect of a contract insuring the Directors’ and Officers’ against a
liability incurred as such a Director or executive officer to the extent permitted by the Corporations Act 2001. The contract of
insurance prohibits disclosure of the nature of the liability and the amount of the premium. To the extent permitted by law,
Bubs has agreed to indemnify its auditors, Ernst & Young, as part of the terms of its audit engagement agreement against
claims by third parties arising from the audit.
The Group has not otherwise, during or since the end of the financial year, except to the extent permitted by law, indemnified
or agreed to indemnify an officer or auditor of the Group against a liability incurred as such an officer or auditor.
The Group was not a party to any such proceedings during the year.
ROUNDING
The financial report is presented in Australian dollars and all values are rounded to the nearest dollar unless otherwise
stated under the option available to the Group under ASIC Corporations Instrument 2016/191.
GENDER DIVERSITY
The Group has a strong commitment to diversity and recognises the value of attracting and retaining employees with
different backgrounds, gender, culture, knowledge, experience and abilities. Diversity contributes to the Group’s business
success and benefits individuals, clients, teams, shareholders and stakeholders. The Group’s business policies, practices
and behaviours promote diversity and equal opportunity and creates an environment where individual differences are
valued and all employees have the opportunity to realise their potential and contribute to the Group’s success.
As at 30 June 2018
As at 30 June 2017
Male
Percentage
Male (%)
Female
Percentage
Female (%)
Male
Percentage
Male (%)
Female
Percentage
Female (%)
Board
Senior
management
Employees
Total
3
3
7
13
75%
75%
58%
65%
1
1
5
7
25%
25%
42%
35%
2
2
2
6
67%
100%
40%
60%
1
-
3
4
33%
-
60%
40%
UNISSUED SHARES UNDER OPTIONS
At the date of this report, unissued shares of the Group under option are:
Expiry Date
Exercise Price
Number of Shares
20 December 2019
19 January 2021
0.10
0.10
5,839,242
8,348,918
All unissued shares are ordinary shares of the Group. 4,770,810 options issued to the CEO were forfeited and 4,770,810
options were granted to the Managing Director.
3,578,108 shares have been issued subsequent to year-end on exercise of options.
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Bubs Australia Limited and Controlled EntitiesAnnual Report for the year ended 30 June 2018Directors ReportFor personal use only NON-AUDIT SERVICES
The Group may decide to employ the auditor on assignments additional to their statutory audit duties where the auditor’s
expertise and experience with the Group are important. During the year ended 30 June 2018, the Group’s auditor, Ernst &
Young was engaged to perform an agreed upon procedure on the existence and valuation of inventories of Nulac Foods Pty
Ltd at 20 December 2017. No other non-audit services were provided by Ernst & Young during the year ended 30 June 2018.
The Board has considered the non-audit services provided during the year by the auditor and is satisfied that the provision
of those non-audit services during the year by the auditor is compatible with, and did not compromise, the auditor
independence requirements of the Corporations Act 2001 for the following reasons:
all non-audit services were subject to the corporate governance procedures adopted by the Group and have been
reviewed by the Board to ensure they do not impact the integrity and objectivity of the auditor; and
the non-audit services provided do not undermine the general principles relating to auditor independence as set out
in APES 110 Code of Ethics for Professional Accountants, as they did not involve reviewing or auditing the auditor’s
own work, acting in a management or decision making capacity for the Group, acting as an advocate for the Group or
jointly sharing risks and rewards.
Details of amounts paid or payable to the auditor for non-audit services provided during the year are outlined in Note G3 to
the financial statements.
A copy of the auditor’s independence declaration as required under Section 307C of the Corporations Act 2001 is attached
to this financial report.
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Bubs Australia Limited and Controlled EntitiesAnnual Report for the year ended 30 June 2018Directors ReportFor personal use only 03
REMUNERATION
REPORT
(AUDITED)
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For personal use only REMUNERATION
REPORT (AUDITED)
KEY MANAGEMENT PERSONNEL
The term key management personnel (KMP) refers to those persons having the authority and responsibility for planning,
directing and controlling the activities of the Group, directly or indirectly and includes any director of the Group.
In addition to the Board of Directors, the KMP of the Group for the year ended 30 June 2018 were the following senior executives:
Nicholas Simms (Chief Executive Officer)
Kristy-Lee Newland Carr (Managing Director)
Anthony Gualdi (Operations Director)
REMUNERATION STRUCTURE
VARIABLE REMUNERATION
The Long-Term Incentive (LTI) programs provide the potential for executives to receive payment over
and above fixed remuneration. These programs are discretionary, appropriate to the results delivered
by the Group, and based on the principle of reward for performance.
The purpose of the LTI is to focus the executives’ efforts on the achievement of sustainable long-term
shareholder value creation and the long-term financial success of the Group.
The provision of LTI plan awards via options for ordinary shares encourages long-term share exposure
for the executives and, therefore, drives behaviours that align with the interests of our shareholders.
The Board believes a three-year performance period provides a reasonable period to align reward
with shareholder return and also acts as a vehicle to help retain the KMP, align the business planning
cycle, and provide sufficient time for the longer-term performance to be achieved.
TOTAL FIXED REMUNERATION (“TFR”)
The Board seeks to set aggregate compensation at a level that provides the Group with the ability to attract and retain
directors of the highest calibre, whilst incurring a cost that is acceptable to shareholders. The amount of aggregate
compensation sought to be approved by shareholders and the manner in which it is apportioned amongst the directors is
reviewed annually. The overall level of executive reward takes into account the performance of the Group over a number
of years.
The Board seeks to set aggregate compensation at a level that provides the Group with the ability to attract and retain
directors of the highest calibre, whilst incurring a cost that is acceptable to shareholders. The amount of aggregate
compensation sought to be approved by shareholders and the manner in which it is apportioned amongst the directors is
reviewed annually. The overall level of executive reward takes into account the performance of the Group over a number
of years.
KMP EXECUTIVES
During the year, the KMP executives of TFR were as follows:
FIXED REMUNERATION
Employee’s fixed remuneration is based on a matrix of an individual’s skills and experience,
their individual performance and their current level of remuneration relative to the market.
Fixed remuneration is reviewed on an annual basis, and where appropriate, is adjusted based on
consideration of individual performance and market remuneration movement. The overall level of
key management personnel reward takes into account the performance of the Group over a number
of years. This ensures that the Group attracts, motivates, and retains top talent executives to ensure
they can deliver on the Group’s business strategy and contribute to the Group’s ongoing financial
performance.
Total fixed remuneration (TFR) comprises of base salary, superannuation in accordance with the
statutory rates and allowances. The Board reviews and approves all changes to fixed remuneration.
Title
Name
Base Salary
Allowance
Chief executive officer
Nicholas Simms
Managing Director
Kristy Carr
Operation Director
Anthony Gualdi
$245,833*
$245,833*
$200,000
Nil
$6,000
$6,000
*As a result of the Group’s performance review, base salary increased from $200,000 to $250,000 per annum effective from
1 August 2017.
24
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Bubs Australia Limited and Controlled EntitiesAnnual Report for the year ended 30 June 2018Remuneration Report (Audited)For personal use only GROUP’S FINANCIAL PERFORMANCE
FY17 GRANT OF OPTIONS
The following table provides details of the relationship between KMP’s TFR and the Group’s overall financial performance:
Net Revenue
EBIT
Share price at
year end
Basic loss per
share
Total dividend
(cents per share)
2018
16,906,256
-66,025,718
2017
3,932,298
-5,078,230
2016
3,659,328
-1,308,057
2015
1,818,770
-248,391
2014
1,134,091
-1,424,446
0.78
0.20
-
0.25
0.02
-
-
-
-
-
-
-
-
-
-
LONG-TERM INCENTIVE PLANS
Each option granted represents a right to receive one fully paid share in the Group once the option vests and is exercised.
The number of options and the vesting conditions issued under the LTI Plan are determined by and at the sole discretion of
the Board.
CEO’S FY18 GRANT OF OPTIONS
The FY2018 LTI plan awards were divided in 3 tranches and vest subject to the gross revenue or EBIT performance hurdle
calculation over a three-year performance period and continuing employment:
Tranche 1 (3,578,108 options) will vest on the achievement of $15,000,000 in gross sales or
achievement of $500,000 in EBIT.
Tranche 2 (2,385,405 options) will vest on the achievement of $30,000,000 in gross sales and
$2,000,000 in EBIT
Tranche 3 (2,385,405 options) will vest on the achievement of $50,000,000 in gross sales and
$4,000,000 in EBIT.
Options in respect of tranche 1 do not have an explicit service condition and Tranches 2 and 3 have a three-month explicit
service condition.
The gross revenue or EBIT performance hurdle was chosen as being a performance measure appropriate to current
circumstances of the Group, with progress easily tracked against agreed performance targets, encouraging CEO engagement
and aligning with shareholder objectives.
In FY2018, the CEO Nicholas Simms was granted a total of 8,348,918 options (granted on 14 December 2017) with the value
of $0.71 for each option and an exercise price of $0.10. 3,578,108 options relating to tranche 1 vested in FY2018 and no
options were exercised in FY2018.
As a result of appointing Kristy Carr to the position of CEO, tranche 2 and tranche 3 options were offered to and accepted by
Kristy Carr on 29th June 2018. The vesting conditions for tranche 2 and tranche 3 options issued to Nicholas Simms will not
be met. As a result, these options were considered forfeited.
On 20 December 2016, Nicholas Simms was granted a total of 3,578,108 options with the value of $0.06 for each option
and an exercise price of $0.10. These options were granted prior to Nicholas Simms being appointed as CEO, as part of his
compensation as a commercial director of the Group. These options were issued as an incentive for Nicholas Simms to join
the Group and accordingly were not linked to any performance-based milestones. There were no performance or service
conditions required to exercise the options, and the options were not dependent on the ongoing employment of Nicholas
Simms by the Group. The 3,578,108 options vested in FY2017 and were exercised post 30 June 2018.
EXECUTIVE CONTRACTS
The remuneration and other terms of employment for KMP executives are covered in formal employment contracts. The
Group may terminate an executive immediately for cause, in which case the executive is not entitled to any payment other
than the value of total fixed remuneration (and accrued entitlements) up to the termination date.
KMP executive
Nicholas Simms (CEO)
Kristy Carr (Managing
Director)
Anthony Gualdi (Operation
Director)
Notice period by the
Group
Notice period by
Executive
Payment in lieu of notice
3 months
3 months
3 months
3 months
3 months
3 months
Yes
Yes
Yes
NON-EXECUTIVE DIRECTORS’ REMUNERATION
The Group’s remuneration policy for non-executive directors aims to ensure that the Group can attract and retain suitably
qualified and experienced directors having regard to:
the level of fees paid to non-executive directors of other comparable Australian listed companies;
the growing size and complexity of the Group’s operations;
the responsibilities and work requirements of Board members; and
the skills and diversity of Board members.
Under the ASX Listing Rules, the total amount paid to all non-executive directors in any financial year must not exceed the
amount fixed in a general meeting of the Group. This amount is currently $300,000 as determined by Shareholders at the
AGM held on 18 November 2009. The Board’s present policy is that all non-executive directors be paid $30,000, per annum,
inclusive of superannuation in accordance with statutory rates as remuneration for their services as directors.
26
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Bubs Australia Limited and Controlled EntitiesAnnual Report for the year ended 30 June 2018Remuneration Report (Audited)For personal use only For FY18, non-executive directors’ remuneration was as follows:
DETAILS OF THE NATURE AND AMOUNT OF EACH ELEMENT OF THE REMUNERATION
Title
Non-Executive Chairman
Non-Executive Director
Non-Executive Director
Name
Dennis Lin
Matthew Reynolds
Johannes Gommans
Remuneration
$30,000
$30,000
$17,415
Directors are also reimbursed for travel and other expenses incurred in attending to Board meetings and the Group’s affairs.
COMPANY SECRETARY
Jay Stephenson is contracted on a monthly basis as Company Secretary at a rate of $30,000
per annum.
OTHER RELATED PARTY TRANSACTIONS WITH KMP
Dennis Lin, a Non-Executive Director is a partner in an accounting firm. The Group contracted professional service from
the accounting firm to the amount of $461,256 in FY2018 (2017: $25,997), with an outstanding balance at 30 June 2018 of
$53,480 (2017: $22,050).
Table A(1): Remuneration for KMP for the year ended 30 June 2018
Short Term
Post-
Employment
Salary
& fees
$
Annual
leave $
Non-
monetary
$
Superannuation
$
Other
Long
Term
Long
service
leave
$
Share
based
payments
– options
$
Total
$
Performance
related
%
2018
225,833 5,385
6,000
21,454
19,549
2,092
280,313
1%
2017
200,000 1,650
6,000
19,000
3,700
-
230,350
-
2018
228,525 5,385
2017
150,000 8,391
-
-
21,710
2,295
2,542,604 2,800,519
90%
14,250
-
213,330
385,971
0%
2018
181,154 6,154
6,000
17,210
7,793
-
-
218,311
-
231,189
-
K N Carr
N Simms
A Gualdi
In FY17, Anthony Gualdi, an Operations Director, leased a premise in Narrabeen to the Group. An expense of $19,934 was
incurred with no outstanding balance at 30 June 2017. No such expense was incurred in FY18.
2017
200,000 2,489
6,000
19,000
3,700
Johannes Gommans, a Non-Executive Director is a director in Cibus Goats (Australia) Pty Ltd, Uphamgo Australia Pty Ltd
and New Zealand Nutritional Goat Company Limited. The related party transactions are set out below:
Purchases from
related parties $
Amounts owed to
related parties $
Loan to related
parties $
Amounts owed by
related parties $
Purchase from Cibus
Goats (Australia) Pty
Ltd
Purchase from New
Zealand Nutritional
Company
Purchase from
UphamGo Australia
Pty Ltd
Loan to Uphamgo
Australia Pty Ltd
2018
2017
2018
2017
2018
2017
2018
2017
2,894,258
629,748
-
-
1,575,013
441,999
-
-
4,771,541
1,337,677
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
600,000
-
600,000
-
Apart from the details disclosed above, no director or any other related party has entered into any other material contracts with
the Group since the end of the previous financial year. All of the above transactions were considered to be on an arms’ length basis.
J R
Stephenson
(3)
2018
-
2017
15,000
-
-
-
-
-
-
-
-
-
-
-
15,000
-
-
2018
635,512 16,924
12,000
60,374
29,637 2,544,696 3,299,143
-
Total
2017
565,000 12,530
12,000
52,250
7,400
213,330
862,510
-
(1) Non-monetary benefits include motor vehicle and travel allowances.
(2) Total remuneration disclosed in FY17 annual report was $868,323. The difference is due to the insurance premiums of
$5,813 not disclosed in the table above.
(3) J R Stephenson is not a KMP in FY18.
28
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Bubs Australia Limited and Controlled EntitiesAnnual Report for the year ended 30 June 2018Remuneration Report (Audited)For personal use only Table A(2): Remuneration for Non-executive Directors for the year ended 30 June 2018
FULLY PAID ORDINARY SHARES OF BUBS AUSTRALIA LIMITED
Short Term
Post-
Employment
Other
Long
Term
Salary &
fees
$
Non-
monetary
$
Superannuation
$
Long
service
leave
$
Share based
payments –
options
$
Total
$
Performance
related
%
2018
30,000
-
-
-
-
30,000
-
2017
-
500,000
20,261,600
D Lin(1)
M Reynolds
J Gommans(2)
2017
13,699
-
1,301
-
-
15,000
-
2018
27,397
-
2,603
-
-
30,000
-
2017
N Simms
2018
2017
13,699
-
1,301
-
-
15,000
-
D Lin
2017
2018
2017
2018
15,904
-
1,511
-
-
17,415
-
2017
-
-
-
-
-
-
-
Table B: Movement in the shares of Bubs held, directly, indirectly or beneficially, by each KMP, including their related parties.
At the
beginning of
the year
Purchase of
shares
Other
change(3)
Shares
disposed
At the end of
the year
K N Carr(1)
2018
20,761,600
-
-
-
-
20,761,600
20,761,600
A Gualdi(2)
2018
21,011,600
-
-
3,335,000
17,676,600
-
-
-
-
-
-
-
-
-
750,000
20,261,600
-
21,011,600
-
-
-
-
-
-
-
-
-
-
-
-
-
-
19,200,671
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
19,200,671
-
M Reynolds
2018
J
Gommans(4)
2017
2018
2017
[1] Shares are held under Carr Family Pty Limited
[2] Shares are held under Infant Food Business Pty Limited
[3] FY18 Other change relates to shares in Bubs Australia Limited received by as part of the acquisition of Nulac Foods Pty
Ltd on 20 December 2017.
FY17 Other change relates to shares in Bubs Australia Limited received by as part of the reverse acquisition of The Infant
Food Holding Co Pty Ltd.
[4] In addition to 19,200,671 shares held by J Gommans, J Gommans close family member holds 19,200,671 shares as part
of the acquisition of Nulac Foods Pty Ltd on 20 December 2017.
Total
2018
73,301
-
4,114
-
-
77,415
2017
27,398
-
2,602
-
-
30,000(3)
(1) Non-executive director fee was payable to BDO Australia Ltd.
(2) J. Gommans services was paid by Uphamgo Australia Pty Ltd in FY18 (2017: Nil).
(3) Total remuneration disclosed in FY17 annual report was $41,626. The difference is due to the insurance premiums of
$11,626 not disclosed in the table above.
30
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Bubs Australia Limited and Controlled EntitiesAnnual Report for the year ended 30 June 2018Remuneration Report (Audited)For personal use only
SHARE BASED PAYMENTS
Table C: Share-based payments granted as remuneration to KMP
Grant date
Number
of options
granted
Fair Value
of options
granted $
Exercise
price per
option $
Expiry
date
Number
vested
Number
exercised
Number
forfeited
Nicholas
Simms
Kristy
Carr
2018
14/12/2017
8,348,918
$0.7106
$0.10
19/01/2021
3,578,108
2017
20/12/2016
3,578,108
$0.06
$0.10
20/12/2019 3,578,108(2)
2018
29/06/2018 4,770,810(1)
$0.6836
$0.10
19/01/2021
2017
-
-
-
-
-
-
-
-
-
-
-
4,770,810(1)
-
-
-
(1) As a result of appointing Kristy Carr to the position of CEO, tranche 2 and tranche 3 options were offered to and accepted
by Kristy Carr. The vesting conditions for tranche 2 and tranche 3 options issued to Nicholas Simms will not be met. These
options were considered forfeited.
(2) 3,578,108 options were exercised post 30 June 2018.
END OF REMUNERATION REPORT (AUDITED)
This directors’ report is signed in accordance with a resolution of the board of directors:
Dated: 28 September 2018
DENNIS LIN
Chairman
32
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Bubs Australia Limited and Controlled EntitiesAnnual Report for the year ended 30 June 2018Remuneration Report (Audited)For personal use only 04
INDEPENDENT
AUDITOR’S
REPORT
34
35
For personal use only 36
37
Bubs Australia Limited and Controlled EntitiesAnnual Report for the year ended 30 June 2018Independent Auditor’s ReportFor personal use only 38
39
Bubs Australia Limited and Controlled EntitiesAnnual Report for the year ended 30 June 2018Independent Auditor’s ReportFor personal use only 40
41
Bubs Australia Limited and Controlled EntitiesAnnual Report for the year ended 30 June 2018Independent Auditor’s ReportFor personal use only 05
LEAD AUDITOR’S
INDEPENDENCE
DECLARATION
42
43
For personal use only 44
45
Bubs Australia Limited and Controlled EntitiesAnnual Report for the year ended 30 June 2018Lead Auditor’s Independence DeclarationFor personal use only 06
CONSOLIDATED
STATEMENT OF
PROFIT AND
LOSS AND OTHER
COMPREHENSIVE
INCOME
46
47
For personal use only CONSOLIDATED STATEMENT OF
PROFIT AND LOSS AND OTHER
COMPREHENSIVE INCOME
Revenue
Cost of sales
Other Income
Share of net profits of joint ventures accounted for using the
equity method
Distribution and selling costs
Employee costs
Marketing and promotion costs
Occupancy costs
Administrative and other costs
Goodwill impairment
Other expenses
Interest income
Finance cost
Loss before tax
Income tax benefit
Loss for the year
Other comprehensive income
Total comprehensive loss for the year
Loss per share
Basic (loss) per share (dollars)
Diluted (loss) per share (dollars)
Note
B1
B2
B1
E2
B2
B2
C4
B2
B2
B4
B3
B3
2018 $
16,906,256
(15,232,562)
61,410
132,437
(859,956)
(12,527,112)
(855,004)
(373,458)
(3,981,122)
(48,234,760)
(1,061,847)
59,955
(255,422)
(66,221,185)
1,562,243
(64,658,942)
-
(64,658,942)
(0.20)
(0.20)
2017 $
3,932,298
(3,075,900)
12,957
-
(272,106)
(1,815,935)
(811,361)
(135,607)
(1,189,683)
-
(1,722,893)
12,957
(12,777)
(5,078,050)
18,808
(5,059,242)
-
(5,059,242)
(0.02)
(0.02)
48
49
The accompanying notes form part of these financial statements.
Bubs Australia Limited and Controlled EntitiesAnnual Report for the year ended 30 June 2018Consolidated Statement of Profit and Loss and Other Comprehensive IncomeFor personal use only
07
CONSOLIDATED
STATEMENT OF
FINANCIAL
POSITION
50
51
For personal use only CONSOLIDATED STATEMENT OF
FINANCIAL POSITION
Assets
Current Assets
Cash and cash equivalents
Trade and other receivables
Other assets
Inventories
Total Current Assets
Non-Current Assets
Plant and equipment
Intangible assets
Investment in joint ventures
Total Non-Current Assets
Total Assets
Liabilities
Current Liabilities
Trade and other payables
Borrowings
Provisions
Contingent payables
Consideration payable
Total Current Liabilities
Non-Current Liabilities
Provisions
Contingent payables
Deferred tax liabilities
Total Non-Current Liabilities
Total Liabilities
Net Assets
Equity
Issued capital
Options Reserve
Accumulated losses
Total Equity
52
Note
D4
C1
C3
C2
C4
E2
C5
C6
C7
E1
E1
C7
E1
B4
D6
D7
2018 $
38,642,902
4,012,822
4,887,537
6,018,518
53,561,779
47,305
32,991,646
2,368,351
35,407,302
88,969,081
5,304,475
2,000,000
151,694
3,350,000
1,488,327
12,294,496
5,654
4,152,367
-
4,158,021
16,452,517
72,516,564
142,189,264
3,106,465
(72,779,165)
72,516,564
2017 $
5,306,746
924,106
444,517
984,968
7,660,337
66,026
1,275,447
-
1,341,473
9,001,810
1,100,168
-
177,830
-
-
1,277,998
-
-
199,338
199,338
1,477,336
7,524,474
15,082,928
561,769
(8,120,223)
7,524,474
The accompanying notes form part of these financial statements.
53
Bubs Australia Limited and Controlled EntitiesAnnual Report for the year ended 30 June 2018Consolidated Statement of Financial PositionFor personal use only
08
CONSOLIDATED
STATEMENT OF
CHANGES IN
EQUITY
54
55
For personal use only CONSOLIDATED STATEMENT OF
CHANGES IN EQUITY
2018
Issued Capital $ Option Reserve $
Retained
Earnings $
Total equity $
2017
Issued Capital $ Option Reserve $
Retained
Earnings $
Total equity $
Balance at 1 July 2017
15,082,928
561,769
(8,120,223)
7,524,474
Balance at 1 July 2016
8,400,000
-
(3,060,981)
5,339,019
Comprehensive income
Loss for the year
-
Other comprehensive
income
Total comprehensive
income
Transactions with own-
ers in their capacity as
owners:
Shares issued at acqui-
sition
-
-
D6
54,529,906
Issue of shares
D6
74,784,419
Exercise of options
D6
500
-
-
-
-
-
Capital raising costs, net
of tax
D6
(2,208,489)
-
Issue of options
-
2,544,696
(64,658,942)
(64,658,942)
-
-
(64,658,942)
(64,658,942)
-
-
-
-
54,529,906
74,784,419
500
(2,208,489)
2,544,696
Comprehensive income
Loss for the year
-
Other comprehensive income
-
Total comprehensive income
-
Transactions with owners in
their capacity as owners:
Issue of shares
6,832,863
Capital raising costs
(149,935)
-
-
-
-
-
Issue of options
-
561,769
(5,059,242)
(5,059,242)
-
-
(5,059,242)
(5,059,242)
-
-
-
6,832,863
(149,935)
561,769
Balance at 30 June 2018
142,189,264
3,106,465
(72,779,165)
72,516,564
Balance at 30 June 2017
15,082,928
561,769
(8,120,223)
7,524,474
The accompanying notes form part of these financial statements.
The accompanying notes form part of these financial statements.
56
57
Bubs Australia Limited and Controlled EntitiesAnnual Report for the year ended 30 June 2018Consolidated Statement of Changes in EquityFor personal use only
09
CONSOLIDATED
STATEMENT OF
CASH FLOWS
58
59
For personal use only CONSOLIDATED STATEMENT OF
CASH FLOWS
Note
D5
Cash flows from operating activities
Receipts from customers
Payments to suppliers and employees
Interest received
Interest paid
Net cash used in operating activities
Cash flows from investing activities
Purchases of property, plant and equipment
Proceeds from disposal of property, plant and equipment
Purchase of intangible assets
Payments for subsidiaries net of cash required
Payments for interests in joint ventures
Cash acquired from acquisitions
Loan to a related party
Net cash used in investing activities
Cash flows from financing activities
Proceeds from share issue
Capital raising costs
Proceeds / (repayment) of borrowings
Net cash from financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents at the beginning of the financial year
Cash and cash equivalents at the end of the financial year
2018 $
17,528,164
(30,271,765)
59,955
(90,906)
(12,774,552)
(29,025)
-
-
(22,763,687)
(2,235,914)
-
(600,000)
(25,628,626)
74,784,419
(3,045,085)
-
71,739,334
33,336,156
5,306,746
38,642,902
2017 $
3,924,057
(6,020,531)
3,410
(3,230)
(2,096,294)
(54,813)
27,988
(990)
-
-
5,510,699
-
5,482,884
28,000
(149,935)
(39,515)
(161,450)
3,225,140
2,081,606
5,306,746
60
61
The accompanying notes form part of these financial statements.
Bubs Australia Limited and Controlled EntitiesAnnual Report for the year ended 30 June 2018Consolidated Statement of Cash FlowsFor personal use only 10
NOTES TO THE
FINANCIAL
STATEMENTS
62
63
For personal use only NOTES TO THE
FINANCIAL STATEMENTS
A.
BASIS OF PREPARATION
CORPORATE INFORMATION
The financial statements covers Bubs
Australia Limited as a consolidated
entity consisting of Bubs Australia
Limited and the entities it controlled
(“the Group”) for the year ended 30
June 2018. The financial report is
presented in Australian dollars, which
is Bubs Australia Limited’s functional
and presentational currency.
The Group is a for-profit entity that
is a listed public company limited by
shares, incorporated and domiciled in
Australia. A description of the nature
BASIS OF PREPARATION
TThe financial report is a general
purpose financial report, which has
been prepared in accordance with
Australian Accounting Standards
and Interpretations issued by the
Australian Accounting Standards
Board (‘AASB’) and the Corporations
Act 2001. These financial statements
International
also
Financial Reporting Standards as
issued by the International Accounting
Standards Board (‘IASB’).
comply with
by
required
When
Accounting
Standards, comparative figures have
been adjusted to conform to changes
in presentation for the current financial
year.
of the Group’s operations and its
principal activities is included in the
directors’ report, which is not part of
the financial report.
The annual report was authorised for
issue, in accordance with a resolution
of directors, on 28 September 2018.
The directors have the power to
amend and reissue the financial
report.
The financial statements, apart from
the cash flow
information, have
been prepared on an accruals basis
and are based on historical costs,
the
except where applicable, by
measurement at fair value of selected
non-current assets and financial
assets and liabilities.
The financial report is presented in
Australian dollars and all values are
rounded to the nearest dollar unless
otherwise stated under the option
available to the Group under ASIC
Corporations Instrument 2016/191.
SIGNIFICANT ACCOUNTING JUDGEMENTS AND ESTIMATES
the financial
The preparation of
statements requires management to
make
judgements, estimates
and assumptions. The most significant
use of judgements and estimates has
been applied to the following areas.
Refer to the respective notes for
additional details.
Valuation of inventory
Recoverability of intangibles
Recognition of deferred tax assets
Employee benefits valuation
Share based payments
Contingent payable
Reference
Note C2
Note C4
Note B4
Note D3
Note G2
Note D3
65
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Bubs Australia Limited and Controlled EntitiesAnnual Report for the year ended 30 June 2018Notes to the Financial StatementsFor personal use only B.
GROUP PERFORMANCE
B.2
EXPENSES
2018 $
2017 $
This section explains the results and performance of the Group
for the year, including segment information, earnings per share
and taxation.
The Group’s key performance measures are segment revenue
and segment results before interest, tax, depreciation and
amortisation.
B.1
OPERATING SEGMENTS
Operating segments are identified on the basis of internal
reports about components of the Group that are regularly
reviewed by the chief operating decision maker (the Board)
in order to allocate resources to the segment and assess
its performance.
In 2017 and 2018, the Group had identified a single
operating segment being the sale of nutritional food, fresh
products and powder. Accordingly, the financial information
presented in the consolidated statement of profit or loss and
other comprehensive income and consolidated statement
of financial position was the same as that presented to the
chief operating decision maker.
GEOGRAPHIC INFORMATION
Net revenue (by region)
Australia
China
Other International
Total
2018 $
2017 $
14,077,135
3,034,967
2,552,797
582,722
276,324
314,609
16,906,256
3,932,298
The revenue information above is based on the locations of the customers.
The Group had one external customer who generated greater than 10 percent of the Group’s revenues. For the year ended
30 June 2018, the revenue for the customer amounted to $3,898,576 (2017, $2,090,515).
RECOGNITION AND MEASUREMENT
Revenue is recognised and measured at the fair value of the consideration received or receivable.
Sale of goods revenue is recognised at the point of sale, which is where the risks and rewards are transferred
to the customer, recovery of the consideration is probable and there is no continuing management involvement
with the goods. For majority of the revenue, it is recognised where the customer has taken delivery of the
goods. For the remaining revenue, the risk and rewards are transferred at a different point in time. Revenue
is recognised net of trade discounts and volume rebates.
Cost of sales
Production costs
Net realisable value adjustments
Inventories written off
Total
14,621,935
351,825
258,802
15,232,562
Included in administrative and other expenses are the following:
Listing and registry fees
Accountancy and taxation fees
Insurance
Travel costs
Consultancy fee
Bad and doubtful debts
Depreciation and amortisation
Total
Employee costs
Wages and salaries
Superannuation
Share based payments
Contingent consideration payable
Total
Other expenses
Corporate transaction accounting
expense
Total
Finance costs
Interest expense
Unwinding of consideration payable
Total
286,609
286,590
231,158
510,283
506,293
12,135
309,007
2,142,075
2,365,386
114,663
2,544,696
7,502,367
12,527,112
1,061,847
1,061,847
90,975
164,447
255,422
3,071,505
-
4,395
3,075,900
157,120
132,133
37,567
150,040
56,405
2,534
116,534
652,333
1,165,179
88,987
561,769
-
1,815,935
1,722,893
1,722,893
12,777
-
12,777
66
67
Bubs Australia Limited and Controlled EntitiesAnnual Report for the year ended 30 June 2018Notes to the Financial StatementsFor personal use only B.3
LOSS PER SHARE (LPS)
B.4
INCOME TAXES
Loss attributable to the Group used in calculating basic and diluted EPS
(64,658,942)
(5,059,242)
Consolidated profit or loss
Weighted average number of ordinary shares for basic EPS
325,899,681
203,025,125
Income tax benefit
2018
2017
Basic LPS (dollars)
Diluted LPS (dollars)*
(0.20)
(0.20)
(0.02)
(0.02)
* The Group has granted 17,766,268 options to employees that could potentially dilute basic earnings per share in the
future, but were not included in the calculation above because they are anti-dilutive for the period(s) presented.
Subsequent to year end, 3,578,108 options were exercised. There is no effect on the Basic LPS calculation.
Current tax
Deferred tax
Income tax benefit reported in the statement of profit or loss and other
comprehensive income
2018 $
2017 $
-
-
1,562,243
18,808
1,562,243
18,808
Numerical reconciliation of income tax benefit and tax at the statutory rate
Accounting Loss before income tax benefit
(66,221,185)
(5,078,050)
RECOGNITION AND MEASUREMENT
Income tax benefit calculated at 27.5% (2017: 27.5%)
(18,210,826)
(1,396,464)
Basic EPS is calculated as net loss attributable to the group divided by the weighted average number of ordinary
shares outstanding during the financial year.
Diluted EPS adjusts the figures used in the determination of basic earnings per share to take into account the
after income tax effect of interest and other financing costs associated with dilutive potential ordinary shares and
the weighted average number of shares assumed to have been issued for no consideration in relation to dilutive
potential ordinary shares.
Tax effect of amounts not taxable in calculating income tax benefit:
Prior year adjustment
Share profit of joint ventures
Goodwill impairment
Share based payments
(132,456)
(36,390)
13,264,559
-
-
-
699,791
154,486
Non-deductible acquisition cost
292,008
473,796
Contingent payable
Consideration payable fair value movement
2,069,879
45,223
-
-
Income tax losses not recognised
431,576
654,641
Other
Income tax benefits
14,393
94,733
(1,562,243)
(18,808)
68
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Bubs Australia Limited and Controlled EntitiesAnnual Report for the year ended 30 June 2018Notes to the Financial StatementsFor personal use only DTL
DTA
KEY ESTIMATE AND JUDGEMENT
Movement in temporary
differences
Provisions
Intangible
assets
Capital
raising
costs
Other
Tax
losses*
At 30 June 2016
Deferred income tax (expense)
/ benefit
At 30 June 2017
Deferred income tax (expense)
/ benefit
Acquired through business
combination
Allowable tax deduction
recognised in owner equity
At 30 June 2018
-
-
-
-
-
-
-
(218,146)
18,808
(199,338)
78,135
(2,200,000)
-
-
-
-
-
-
837,095
-
-
-
-
-
-
Total
(218,146)
18,808
(199,338)
57,448
1,426,660
1,562,243
-
-
-
-
(2,200,000)
851,231
(2,321,203)
837,095
57,448
1,426,660
-
*As at 30 June 2018, deferred tax assets of $1,426,660 (FY17: Nil) were recognised and offset against the deferred tax liability from
taxable temporary differences.
RECOGNITION AND MEASUREMENT
The income tax expense or benefit for the year is the tax payable on that year’s taxable income based on the
applicable income tax rate for each jurisdiction, adjusted by the changes in deferred tax assets and liabilities
attributable to temporary differences, unused tax losses and the adjustment recognised for prior years, where
applicable.
Deferred tax assets and liabilities are recognised for temporary differences at the tax rates expected to be applied
when the assets are recovered or liabilities are settled, based on those tax rates that are enacted or substantively
enacted, except for:
When the deferred income tax asset or liability arises from the initial recognition of goodwill or an asset or
liability in a transaction that is not a business combination and that, at the time of the transaction, affects
neither the accounting nor taxable profits; or
When the taxable temporary difference is associated with interests in subsidiaries, associates or joint
ventures, and the timing of the reversal can be controlled and it is probable that the temporary difference
will not reverse in the foreseeable future.
Deferred tax assets are recognised for deductible temporary differences and unused tax losses only if it is
probable that future taxable amounts will be available to utilise those temporary differences and losses.
Deferred tax assets and liabilities are offset only where there is a legally enforceable right to offset current tax
assets against current tax liabilities and deferred tax assets against deferred tax liabilities; and they relate to
the same taxable authority on either the same taxable entity or different taxable entities which intend to settle
simultaneously.
Bubs Australia Limited and its 100% owned Australian resident subsidiaries formed a tax consolidated group.
Nulac Foods Pty Ltd joined the tax consolidated group on 20 December 2017. Bubs Australia Limited is the head
entity of the tax consolidated group.
RECOVERY OF DEFERRED TAX ASSETS
Judgement is required to be made
by the group in assessing whether
deferred
tax assets and certain
deferred tax liabilities are recognised
on the consolidated statement of
financial position. As detailed above,
at 30 June 2018, Bubs has recognised
deferred tax assets of $1,426,660
relating to a portion of its available
current year tax losses and temporary
differences. Deferred tax assets are
recognised for unused tax losses,
unused tax credits and deductible
temporary differences, to the extent
that it is probable that future taxable
profits will be available against
which they can be used. Probable is
considered more likely than not.
Judgement is required when deferred
tax assets are reviewed at each
reporting date. Deferred tax assets
may be reduced to the extent that it is
no longer probable that future taxable
profits will be available.
future
Assumptions about the generation
taxable profits depend
of
on management’s estimates of
future cash flows. These depend on
estimates of future sales, operating
costs, capital expenditure, dividends
and other
capital management
transactions. Judgements are also
required about the application of
legislation.
income tax
Changes in expectations for the future
performance of the business may
impact the amount of deferred tax
assets recoverable and recognised
on
the statement of financial
position and the amount of other tax
losses and temporary differences
not yet recognised. At 30 June
2018, the Group had $6,100,064 of
unrecognised tax losses. The Group is
currently undergoing an assessment
of the availability of these losses
to
tax
the Group. The potential
benefit relating to future tax losses,
in addition to that detailed above,
has not being recognised due to the
history of recent losses incurred by
the Group.
70
71
Bubs Australia Limited and Controlled EntitiesAnnual Report for the year ended 30 June 2018Notes to the Financial StatementsFor personal use only C.
OPERATING ASSETS AND LIABILITIES
C.2
INVENTORIES
This section provides details of the Group’s operating assets, and liabilities incurred as a result of trading activities, used to generate
the Group’s performance.
2018 $
2017 $
C.1
TRADE AND OTHER RECEIVABLES
Trade debtors
Allowance for doubtful debt
Loan to Uphamgo Australia Pty Ltd
Other receivables
2018 $
2,855,303
(1,266)
600,000
558,785
4,012,822
2017 $
908,743
(5,000)
-
20,363
924,106
Other receivables include a working capital adjustment
$92,499 relating to the acquisition of Nulac Foods Pty Ltd.
Further details of business combination are disclosed in Note
E1: Acquisition of subsidiary.
The Group’s exposure to credit risks related to trade and
other receivables are disclosed in Note D2 Financial risk
management.
Raw materials
499,388
-
Finished goods at cost
5,519,130
984,968
6,018,518
984,968
The amount of inventory that was written off during the period was $258,802 (2017: $4,395).
An adjustment of $351,825 (2017: Nil) was made on inventories carried at net realisable value.
RECOGNITION AND MEASUREMENT
Inventories are valued at the lower of cost and net realisable value. Cost is calculated using weighted average
methods. Net realisable value represents the estimated selling price in the ordinary course of business, less
estimated costs of completion and the estimated costs necessary to make the sale.
RECOGNITION AND MEASUREMENT
Trade and other receivables are recognised initially at fair value. Subsequent to initial recognition, they are
measured at amortised cost using the effective interest rate method, less any impairment losses. The carrying
value of trade and other receivables approximates their fair value.
Collectability of trade receivables is reviewed on an ongoing basis. Debts which are known to be uncollectable
are written off by reducing the carrying amount directly. A provision for impairment of trade receivables is
raised when there is objective evidence that the Group will not be able to collect all amounts due according to
the original terms of the receivables. Significant financial difficulties of the debtor, probability that the debtor
will enter bankruptcy or financial reorganisation and default or delinquency in payments (more than 60 days
overdue) are considered indicators that the trade receivable may be impaired. The amount of the impairment
allowance is the difference between the asset’s carrying amount and the present value of estimated future cash
flows, discounted at the original effective interest rate. Cash flows relating to short-term receivables are not
discounted if the effect of discounting is immaterial.
Collectability of trade receivables is reviewed on an ongoing basis and written off by reducing the carrying value
when known to be uncollectable. The impairment amount is recognised within administrative costs.
KEY ESTIMATES AND JUDGEMENTS
RECOVERY OF INVENTORY
Estimation of net realisable value
includes assessment of expected
future turnover of inventory held for
sale and the expected future selling
price of such inventory. Changes in
trading and economic conditions,
in country specific
and changes
these
regulations, may
estimations
in future periods.
impact
72
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Bubs Australia Limited and Controlled EntitiesAnnual Report for the year ended 30 June 2018Notes to the Financial StatementsFor personal use only C.3
OTHER ASSETS
Prepayments and other assets
Inventories paid in advance
2018 $
703,595
4,183,942
4,887,537
2017 $
34,567
409,950
444,517
RECOGNITION AND MEASUREMENT
Inventory paid in advance represents payments for purchases of finished goods prior to ownership passing
to the Group.
C.4
INTANGIBLE ASSETS
Cost
As at 1 July
2016
Acquisition of a
subsidiary
As at 30 June
2017
Acquisition of a
subsidiary
As at 30 June
2018
Amortisation
and impairment
As at 1 July
2016
Amortisation
Impairment
As at 30 June
2017
Goodwill $
Brand
name $
Recipes $
Customer
list $
Patents,
trademarks
and software
$
Total $
1,478,251
591,634
47,740
265,731
51,198
2,434,554
-
-
-
-
990
990
1,478,251
591,634
47,740
265,731
52,188
2,435,544
72,212,166
4,500,000
-
3,500,000
-
80,212,166
73,690,417
5,091,634
47,740
3,765,731
52,188
82,647,710
(904,180)
-
-
(904,180)
-
-
-
-
-
-
-
(27,102)
(150,847)
(3,358)
(1,085,487)
(9,547)
(53,201)
(11,862)
(74,610)
-
-
-
-
(36,649)
(204,048)
(15,220)
(1,160,097)
(9,547)
(238,639)
(13,021)
(261,207)
-
-
-
(48,234,760)
(46,196)
(442,687)
(28,241)
(49,656,064)
Amortisation
-
Impairment
(48,234,760)
As at 30 June
2018
Net book value
(49,138,940)
74
75
At 30 June 2017
574,071
591,634
11,091
61,683
36,968
1,275,447
At 30 June 2018
24,551,477
5,091,634
1,544
3,323,044
23,947
32,991,646
Brand name, customer list and goodwill are allocated to
the following cash generating units (CGUs) for the purposes
of impairment testing: Infant Food Co $1,174,297 (2017:
$1,227,388); Nulac Foods $80,026,618 (2017: Nil).
Bubs Australia Limited and Controlled EntitiesAnnual Report for the year ended 30 June 2018Notes to the Financial StatementsFor personal use only As at 31 December 2017, given the acquisition of the Nulac
Foods business had only recently been completed, it had been
accounted for on a provisional basis using the acquisition
method of accounting. The Group has undertaken further
assessment of the fair value of consideration and the net
assets acquired. The movements in goodwill is presented
below:
As at 31 December 2017
Provisional adjustments
As at 30 June 2018
Goodwill balance
71,951,583
260,583
72,212,166
RECOGNITION AND MEASUREMENT
Intangible assets acquired separately are capitalised at cost and from a business combination are capitalised at fair
value as at the date of acquisition. Following initial recognition, the cost model is applied to the class of intangible
assets.
GOODWILL
Goodwill is recognised on business acquisitions, representing the excess of the fair value of the consideration
transferred over the Group’s interest in the net fair value of the identifiable assets, liabilities and contingent
liabilities of the business recognised at the date of acquisition. Goodwill is initially recognised as an asset
at cost and is subsequently measured at cost less any accumulated impairment losses. For the purposes of
impairment testing, goodwill acquired in a business combination is, from the date of acquisition, allocated to
the Group’s cash-generating units that are expected to benefit from the synergies of the combination.
BRAND NAMES
Brand names are considered to have an indefinite life and are not amortised. As at 30 June 2018, these assets
were tested for impairment.
CUSTOMER LIST
Customer lists acquired in a business combination are amortised on a straight-line basis over the period of
their expected benefit, being their finite life of 10 years.
IMPAIRMENT TESTING FOR CASH-GENERATING UNITS (CGUS) INCLUDING GOODWILL
GOODWILL AND BRAND NAMES ALLOCATION
For the purposes of impairment testing, goodwill and brand names are allocated to the Group’s CGUs which represent the
lowest level within the Group at which goodwill and brand names are monitored by internal management and are no higher
than an operating segment as follows:
CGUs
Infant Food Co
Nulac Foods
2018
2017
1,1,65,705
1,165,705
76,712,166
-
77,877,871
1,165,705
RECOGNITION AND MEASUREMENT
The Group assesses, at each reporting date, whether there is an indication that an asset may be impaired.
If any indication exists, or when annual impairment testing for an asset is required, the Group estimates the
asset’s recoverable amount. An asset’s recoverable amount is the higher of an asset’s or CGU’s fair value less
costs of disposal and its value in use. The recoverable amount is determined for an individual asset, unless
the asset does not generate cash inflows that are largely independent of those from other assets or groups of
assets. When the carrying amount of an asset or CGU exceeds its recoverable amount, the asset is considered
impaired and is written down to its recoverable amount.
In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-
tax discount rate that reflects current market assessments of the time value of money and the risks specific to
the asset. In determining fair value less costs of disposal, recent market transactions are taken into account.
If no such transactions can be identified, an appropriate valuation model is used. These calculations are
corroborated by valuation multiples, quoted share prices for publicly traded companies or other available fair
value indicators.
The Group bases its impairment calculation on detailed budgets and forecast calculations, which are prepared
separately for each of the Group’s CGUs to which the individual assets are allocated. These budgets and
forecast calculations generally cover a period of five years. A long-term growth rate is calculated and applied
to project future cash flows after the fifth year.
Impairment losses of continuing operations are recognised on the consolidated statement of profit or loss and
other comprehensive income.
76
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Bubs Australia Limited and Controlled EntitiesAnnual Report for the year ended 30 June 2018Notes to the Financial StatementsFor personal use only KEY ESTIMATES AND JUDGEMENTS
SENSITIVITY TO CHANGE IN ASSUMPTIONS
GOODWILL AND INTANGIBLES
Judgements are made with respect
to identifying and valuing intangible
assets on acquisitions of new
businesses. The Group assesses
intangibles
whether goodwill and
lives are
indefinite useful
with
impaired at least annually. These
calculations involve judgements to
estimate the recoverable amount of
the cash-generating units to which
the goodwill and intangibles with
indefinite useful lives are allocated.
ANNUAL IMPAIRMENT TESTING AT 30 JUNE 2018
The recoverable amount of the CGUs
to which goodwill and indefinite life
brand names were allocated has
been determined on a value in use
basis using a discounted cash flow
approach, and projections based
on financial budgets and five-year
forward plans approved by the Board.
KEY ASSUMPTIONS
2018
2017
CGUs
Infant Food Co
Nulac Foods
Infant Food Co
Nulac Foods
Discount rate (post tax)
Discount rate (pre tax)
Terminal growth
12.9%
18.5%
2.5%
11.9%
16.4%
2.5%
12.1%
17.3%
2.1%
-
-
-
The calculation of value in use for the above CGUs is most
sensitive to the following assumptions:
Gross margins
Discount rates
regions. A conservative approach has been adopted by the
Group to reduce the risk of inflating estimated recoverable
values. Management assesses the reasonableness of the
growth assumptions by reviewing the achieved growth
of comparable entities in the same, or related, industry
segments.
Revenue growth during the forecast period
Growth rates used to extrapolate cash flows beyond
the forecast period (terminal growth rate)
Terminal growth rate – A terminal growth rate of 2.5%
(2017: 2.1%) has been used for future cash flow growth
beyond the five-year forecast period for both CGUs. This is
a conservative rate when compared to annual growth rates
during the forecast period.
Gross margins – Gross margins are based on budgeted
margins for FY2019, and conservative estimates for
future years, which have been adjusted where appropriate
to account
trading conditions.
Consideration has been given to the growth profile of each
CGU when forecasting future margin returns.
for expected
future
Discount rates – Discount rates represent the risks specific
to each CGU, taking into consideration the time value of
money and individual risks of the underlying cash flows
expected from the CGU being assessed. CGU specific risk is
incorporated by applying individual beta factors.
The discount rate calculation is based on the specific
circumstances of each CGU and its operating segments
and is derived from its weighted average cost of capital
(WACC). The WACC takes into account both debt and equity.
The cost of equity is derived from the expected return
on investment by the CGU’s investors. The cost of debt is
derived from the interest rate of the CGU’s working capital
facility.
Revenue growth – Revenue projections have been
constructed with reference to the FY2018 results and
five-year forward-looking plans with the earlier years
being estimated through specific volume assumptions
based on known opportunities, while years thereafter are
adjusted for performance trends across the particular
The terminal value (being the total value of expected cash
flows beyond the forecast period) is discounted to present
values using the discount rate specific to each CGU.
As a result of this testing, goodwill relating to the Nulac
Foods CGU was considered impaired. Other CGU assets,
including working capital were assessed as being fully
recoverable, with no impairment booked on these items.
The total impairment charge to goodwill relating to
the Nulac Foods CGU was $48,234,760. The goodwill
impairment is driven by an increase in value of the shares
issued to the vendors of NuLac Foods between entering
into the purchase agreement on 3 November 2017 and
completion on 20 December 2017.
The recoverable amount of the Infant Food Co’s CGU
exceeded its carrying amount. As a result, no impairment
loss has been recognised on either goodwill or the brand
name (2017: $nil).
Management has identified that a reasonably possible
change in three key assumptions could have an impact on
the recoverable amount of each CGU. The following table
shows the impact on the recoverable amount. Any change
to the Nulac Foods CGU would result in further impairment.
None of the changes below would result in an impairment
to the Infant Food Co CGU:
78
79
Discount rate
Budgeted gross revenue growth
Budgeted gross margin
Impact on recoverable amount
% change
Infant Food Co
Nulac Foods
0.5%
-5%
-1%
(1,657,138)
(1,490,696)
(7,023,165)
(1,533,681)
(2,574,546)
(2,981,022)
Bubs Australia Limited and Controlled EntitiesAnnual Report for the year ended 30 June 2018Notes to the Financial StatementsFor personal use only C.5
TRADE AND OTHER PAYABLES
Trade payables
Other payables
2018 $
4,231,394
1,073,081
2017 $
558,175
541,993
5,304,475
1,100,168
RECOGNITION AND MEASUREMENT
Trade and other payables are initially recognised at fair value, and subsequently carried at amortised cost due to
their short-term nature, and they are not discounted. They represent liabilities recognised when the Group becomes
obligated to make future payments resulting from the purchase of goods and services. The amounts are unsecured.
The carrying value of trade and other payables approximates their fair value.
C.6
BORROWINGS
Borrowings
2018 $
2017 $
2,000,000
2,000,000
-
-
Nulac Foods Pty Ltd has a working capital facility with National Australia Bank. The aggregate amount of $2 million was
fully drawn down at 30 June 2018. Bubs Australia Limited is the guarantor of the facility.
RECOGNITION AND MEASUREMENT
Borrowings are initially recognised at the fair value of the consideration received, net of transaction costs.
They are subsequently measured at amortised cost using the effective interest method.
The carrying value of borrowings approximates their fair value.
C.7
PROVISION
Current
Annual leave and long service leave
Non - Current
Long service leave
2018 $
2017 $
151,694
177,830
151,694
177,830
5,654
5,654
-
-
RECOGNITION AND MEASUREMENT
Provision is made for benefits accruing to employees in respect of wages and salaries, annual leave and long
service leave when it is probable that settlement will be required and they are capable of being measured
reliably.
Provisions made in respect of employee benefits expected to be settled within 12 months are measured at
their nominal values using the remuneration rate expected to apply at the time of settlement.
Provisions made in respect of employee benefits which are not expected to be settled within 12 months are
measured as the present value of the estimated future cash outflows to be made by the Group in respect of
services provided by employees up to the reporting date.
80
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Bubs Australia Limited and Controlled EntitiesAnnual Report for the year ended 30 June 2018Notes to the Financial StatementsFor personal use only D.
CAPITAL AND FINANCIAL RISK MANAGEMENT
This section outlines how the Group manages its capital structure and its exposure to financial risk, and provides details of its
balance sheet liquidity and access to financing facilities.
D.1
CAPITAL MANAGEMENT
The Group’s objectives when managing capital is to safeguard
its ability to continue as a going concern so that in due course it
can provide returns for stakeholders and maintain an optimum
capital structure.
In order to maintain or adjust the capital structure, the Group
manages the level of debt such that it remains prudent and
facilitates the execution of the operational plan and provides
flexibility for growth.
D.2
FINANCIAL RISK MANAGEMENT
Exposure to credit risk, foreign currency risk and liquidity risk
arises in the normal course of the Group’s business.
As at 30 June 2018 there were no derivative financial
instruments in place. Specific risk management objectives and
policies are set out below.
The Group’s financial risk management processes and
procedures seek to minimise the potential adverse impacts
that may arise from the unpredictability of financial markets.
Policies and procedures are reviewed periodically to reflect
both changes in market conditions and changes in the nature
and volume of Group activities.
The Group uses various methods to measure different types
of risk exposures. These methods include ageing analysis
for credit risk, and sensitivity analysis in the case of foreign
exchange risks and equity price risk.
In 2018, there were no changes in liabilities arising from
financing activities.
CREDIT RISK MANAGEMENT
Credit risk is the risk of financial loss to the Group if a customer or the counterparty to a financial instrument fails to meet its
contractual obligations, and arises principally from the Group’s receivables from customers.
Maximum exposures to credit risk at balance date:
2018 $
2017 $
Cash and cash equivalent (counterparty risk)
38,642,902
5,306,746
Trade receivables (customer credit risk)
Loan to Uphamgo Australia Ltd
Other receivables
82
2,854,037
903,743
600,000
558,785
-
20,363
42,655,724
6,230,852
COUNTERPARTY RISK
At balance date, the Group’s bank
accounts were held with National
Australia Bank Limited and Australia
and New Zealand Bank Limited.
The Group does not have any other
concentrations of counterparty credit
risk.
CUSTOMER CREDIT RISK
The Group’s exposure to customer
credit risk is influenced mainly by
the individual characteristics of each
customer. The majority of sales are
to major retailers with established
creditworthiness and minimum levels
of default. Other sales are made cash
on delivery.
are
customers
New
analysed
individually for creditworthiness, taking
into account credit ratings where
available, financial position, previous
trading experience and other factors.
their debtor ageing profile. Monitoring
of receivable balances on an ongoing
basis minimises the exposure to bad
debts.
There is significant concentration of
credit risk within the Group. In 2018,
22.96% of sales were to one customer,
whom is a major retailer (2017: 52.99%
sales to one customers). There is no
history of default for this customer.
A provision for impairment is recognised
when there is a clear indication that an
individual trade receivable is impaired.
In monitoring customer credit risk,
customers are assessed individually by
OTHER CREDIT RISK
The Group is exposed to related party
credit risk and other credit risk. In
monitoring other credit risk, the related
parties and counterparties are analysed
individually for creditworthiness, taking
into account credit ratings where
available, financial position and other
factors.
Ageing of trade receivables at the reporting date:
Neither past due nor impaired
Past due but not impaired
Past due up to 30 days
Past due 31 to 60 days
Past due 61 to 90 days
Past due more than 90 days
2018 $
1,642,546
1,048,085
81,418
46,304
35,684
2,854,037
2017 $
712,806
75,120
90,303
42,241
(16,727)
903,743
83
Bubs Australia Limited and Controlled EntitiesAnnual Report for the year ended 30 June 2018Notes to the Financial StatementsFor personal use only Movement in allowance for doubtful debts
Allowance of doubtful debts
Balance at beginning of the year
Amount charged to the statement of profit or loss and other comprehensive income
Provision utilised
Balance at the end of year
2018 $
2017 $
5,000
12,135
(15,869)
1,266
-
5,000
-
5,000
MARKET RISK
Market risk is the risk that changes in
market prices will affect the Group’s
income or the value of its holdings
in financial instruments. The Group’s
activities expose it primarily to the
financial risks of changes in foreign
currency exchange rates to the AUD
dollar.
Market risk exposures are monitored
by management on an ongoing basis
and there has been no change during
the year to the Group’s exposure to
market risks or the manner in which
it manages and measures risk.
FOREIGN CURRENCY RISK MANAGEMENT
The Group enters into the transaction in Australia, New
Zealand, and China and is exposed to currency risk arising from
movements in the currencies of those countries against the
AUD dollar.
or loss of the Group based on closing exchange rates as at 30
June, applied to the Group’s financial assets/(liabilities) at 30
June.
Expressed in AUD dollars, the table below indicates exposure
and sensitivity to movements in exchange rates on the profit
Exchange rates and assets and liabilities held in foreign
currencies will fluctuate over the course of normal operations.
The analysis is performed consistently from year to year.
2018
Net exposure on
reporting date
Impact on pre-tax profit / (loss)
Movement on exchange rate
$
+10% $
+10% $
NZ Dollar
US Dollar
RMB Dollar
Net exposure
2017
510,189
23,424
139,624
673,237
Net exposure on
reporting date
(49,785)
(2,876)
(12,693)
(65,354)
(52,527)
3,515
15,514
71,556
Impact on pre-tax profit / (loss)
Movement on exchange rate
$
+10% $
+10% $
NZ Dollar
US Dollar
Net exposure
84
8,506
41,159
49,665
(773)
(3,742)
(4,515)
945
4,573
5,518
INTEREST RISK MANAGEMENT
The Group’s main interest rate risk arises from borrowings, which expose the Group to cash flow interest rate risk.
2018
Profit or loss
Fixed rate instruments
Borrowings
Nominal amount
25bp increase
25bp decrease
2,000,000
2,630
(2,630)
In FY2017, the Group was not exposed to cash flow interest rate risk.
LIQUIDITY RISK MANAGEMENT
Liquidity risk is the risk that the Group will be unable to
meet its obligations as they fall due. This risk is managed by
establishing a target minimum liquidity level, ensuring that
ongoing commitments are managed with respect to forecast
available cash inflows.
The Group holds significant cash reserves which enable it to
meet its obligations as they fall due, and to support operations
in the event of unanticipated external events.
The Group has one working capital facility with $2,000,000
(2017: Nil) fully drawn down at 30 June 2018.
Contractual undiscounted maturities of financial liabilities
The Group’s financial liabilities consist entirely of trade payables and accruals.
Carrying
amount
Total
2 months
or less
2-12
months
1-2 years
2-5 years
More than
5 years
Contractual cashflows
Non-derivative
financial liabilities
Consideration
payable
1,488,327
1,488,327
Contingent payable
7,502,367
7,502,367
-
-
1,488,327
-
3,350,000
4,152,367
Trade and other
payables
5,304,475
5,304,475
5,304,475
Borrowings
2,000,000
2,000,000
2,000,000
-
-
-
-
16,295,169 16,295,169
7,304,475
4,838,327
4,152,367
-
-
-
-
-
In FY2017, financial liabilities comprise trade and other payables which mature on terms of between 0 and 90 days.
-
-
-
-
85
Bubs Australia Limited and Controlled EntitiesAnnual Report for the year ended 30 June 2018Notes to the Financial StatementsFor personal use only D.3
FAIR VALUE MEASUREMENT
The Group uses valuation techniques that are appropriate
in the circumstances and for which sufficient data are
available to measure fair value, maximising the use of
relevant observable inputs and minimising the use of
unobservable
inputs.
All assets and liabilities for which fair value is measured
or disclosed in the financial statements are categorised
within the fair value hierarchy, described as above, based
on the lowest level input that is significant to the fair value
measurement as a whole:
LEVEL
1
Quoted (unadjusted) market
prices in active markets for
identical assets or liabilities
LEVEL
2
LEVEL
3
Valuation techniques for which
the lowest level input that is
significant to the fair value
measurement is directly or
indirectly observable
Valuation techniques for which
the lowest level input that is
significant to the fair value
measurement is unobservable
LEVEL 3 FAIR VALUES
The following table shows a reconciliation from the opening balances to the closing balances for Level 3 fair values.
Balance at 1 July2017
Amount recognised in profit and loss in the current year
Balance at 30 June 2018
Contingent payable
-
7,502,367
7,502,367
VALUATION TECHNIQUES AND SIGNIFICANT UNOBSERVABLE INPUTS
The following tables show the valuation techniques used in measuring Level 3 fair values for financial liabilities measured
at fair value in the statement of financial position, as well as the significant unobservable inputs used.
Type
Valuation technique
Significant unobservable
inputs
Inter-relationship between
significant unobservable
inputs
For assets and liabilities that are recognised in the financial
statements at fair value on a recurring basis, the Group
determines whether transfers have occurred between
levels in the hierarchy by re-assessing categorisation
(based on the lowest level input that is significant to the
fair value measurement as a whole) at the end of each
reporting period.
Contingent payable
The following table shows the carrying amounts and fair values of financial assets and financial liabilities including their
levels in the fair value hierarchy.
Contingent payable
Carrying value
Total
7,502,367
Level 1
-
Fair value
Level 2
-
Level 3
7,502,367
The fair value measurement for the contingent payable has been categorised as Level 3 fair values based on the inputs to
the valuation techniques used.
The probability attached to
each KPI is between 50-
100%.
Risk adjusted discount rate
is 17.79%
The estimated fair value
would increase (decrease) if:
the probability attached
to each KPI is higher
(lower); or
the risk-adjusted
discount rate is lower
(higher).
A total amount of $13.4
million is payable by the
Group in relation to
Uphamgo Australia Pty Ltd
upon the satisfaction of
certain performance targets.
Refer Note E1. The valuation
is probability weighted based
on the Group’s assessment
of each individual KPI. The
lowest probability has been
adopted in determining the
contingent payable given
that all KPIs need to be met,
the amount in respect of the
Year 2 KPI has been present
valued using a risk adjusted
discount rate.
86
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Bubs Australia Limited and Controlled EntitiesAnnual Report for the year ended 30 June 2018Notes to the Financial StatementsFor personal use only RECOGNITION AND MEASUREMENT
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date. The fair value measurement is based on
the presumption that the transaction to sell the asset or transfer the liability takes place either:
In the principal market for the asset or liability; or
In the absence of a principal market, in the most advantageous market for the asset or liability
The principal or the most advantageous market must be accessible by the Group.
The fair value of an asset or a liability is measured using the assumptions that market participants would
use when pricing the asset or liability, assuming that market participants act in their economic best interest.
A fair value measurement of a non-financial asset takes into account a market participant’s ability to generate
economic benefits by using the asset in its highest and best use or by selling it to another market participant
that would use the asset in its highest and best use.
D.5
CASH FLOW INFORMATION
Reconciliation of after tax profit with net cash flows from operating activities.
2018 $
2017 $
(Loss) after income tax benefits for the year
- 64,658,942
- 5,059,242
Income tax benefits
- 1,562,242
-18,808
Share-based payments
2,544,696
561,769
Unwinding of contingent payable
164,447
-
Depreciation and amortisation
309,007
116,534
48,234,760
- 132,437
-
-
-
-
1,722,893
8,350
D.4
CASH AND CASH EQUIVALENTS
2018 $
2017 $
Goodwill impairment
Share of profit of joint ventures
Cash at bank and on hand
38,642,902
5,306,746
Corporate transaction accounting expense
38,642,902
5,306,746
Loss on disposal of property, plant and equipment
Decrease / (increase) in trade and other receivables
- 911,915
- 604,455
Interest is earned at floating rates based on daily bank deposit rates. The carrying value of cash assets approximates their
fair value.
Decrease / (increase) in inventories
- 1,137,101
1,482,205
RECOGNITION AND MEASUREMENT
Cash and cash equivalents in the statement of financial position comprise cash at bank and in hand and
short-term deposits with an original maturity of three months or less that are readily convertible to known
amounts of cash, and which are subject to an insignificant risk of changes in value.
The carrying value of cash and cash equivalents approximates their fair value.
Decrease / (increase) in other assets
- 4,413,480
-
Increase / (decrease) in trade and other payables
8,809,137
- 386,868
Increase/ (decrease) in provisions
- 20,482
81,328
Net cash outflow from operating activities
- 12,774,552
- 2,096,294
88
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Bubs Australia Limited and Controlled EntitiesAnnual Report for the year ended 30 June 2018Notes to the Financial StatementsFor personal use only D.6
SHARE CAPITAL
D.8
OPERATING LEASE COMMITMENTS
2018
2017
Shares
$
Shares
$
The Group has entered into operating leases for office and industrial premises. All lease contracts contain market review
clauses in the event that the Group exercises its option to renew.
Movement in share capital
NON-CANCELLABLE OPERATING LEASE PAYMENTS
Balance at beginning of the year
238,820,888
15,082,928
25,000
8,400,000
-
-
75,140,888
6,804,862
At the end of the reporting period, the future minimum lease payments under non- cancellable operating leases are payable
as follows:
Deemed reverse acquisition on
Bubs Australia Limited by IFHC
Issue of shares as part of
acquisition / reverse acquisition
76,802,684
54,529,906
163,375,000
Exercise of options
5,000
500
-
Placement of shares
8,331,933
4,999,160
280,000
Share purchase plan
112,233,910
69,785,259
Share issue transaction costs,
net of tax
-
(2,208,489)
-
-
-
-
28,000
-
(149,934)
Less than one year
Between one and five years
More than five years
2018 $
117,603
137,209
-
2017 $
48,754
8,152
-
254,812
56,906
Balance at end of year
436,194,415
142,189,264
238,820,888
15,082,928
Fully paid ordinary shares carry one vote per share and carry right to dividends.
D.7
RESERVE
Balance at the beginning of the year
Share based payment
Balance at the end of the year
RECOGNITION AND MEASUREMENT
The determination of whether an arrangement is or contains a lease is based on the substance of the
arrangement at inception date, whether fulfilment of the arrangement is dependent on the use of a specific
asset or assets and the arrangement conveys a right to use the asset, even if that right is not explicitly
specified in an arrangement.
2018 $
2017 $
561,769
2,544,696
3,106,465
-
561,769
561,769
GROUP AS A LESSEE
Leases under which a significant proportion of the risks and
rewards remain with the lessor are classified as operating
leases. Operating lease payments are recognised as an
operating expense in the statement of profit or loss and
other comprehensive income on a straight line basis over
the lease term. Operating lease incentives are recognised
as a liability when received and subsequently reduced by
allocating lease payments between rental expense and
reduction of the liability.
OPTION RESERVE
The employee equity settled payments
reserve is used to record the value of
share-based payments provided to
key management personnel. Further
details are disclosed in Note G2 Share
based payments.
D.9
CONTINGENT LIABILITIES
As at 30 June 2018, there were no material contingent liabilities (2017: $nil).
90
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Bubs Australia Limited and Controlled EntitiesAnnual Report for the year ended 30 June 2018Notes to the Financial StatementsFor personal use only E.
ACQUISITION OF SUBSIDIARY AND JOINT VENTURES
E.1
ACQUISITION OF SUBSIDIARY
On 20 December 2017, Bubs Australia Limited acquired 100% of the issued shares in NuLac Foods Pty Ltd, a goat dairy sales and
marketing business, with the following purchase consideration:
Cash
Deferred consideration
Deferred cash adjustment
Ordinary shares issued
Total Purchase Consideration
$
25,000,000
1,323,880
(92,499)
54,529,906
80,761,287
Deferred consideration of up to $1,488,327 is payable in cash
in the event that any of the 9,417,350 options outstanding
as at 20 December 2017 are exercised, to adjust for the
dilution of the consideration shares. Payments are due
to be made within 30 days of the relevant option exercise
date. The value of the consideration payable of $1,323,880
was estimated by calculating the present value of future
expected cash flows.
At the date of acquisition it was deemed that these options would not be exercised within 12 months and therefore
was recorded as a non-current liability and present valued accordingly. At 30 June 2018, this amount has been
recorded as a current liability on the consolidated statement of financial position. The difference of $164,447 has
been recorded as a finance cost in the consolidated statement of profit or loss and other comprehensive income.
A reconciliation of fair value measurement of the deferred consideration payable is provided below:
As at 1 July 2017
Liability arising on acquisition
Unwinding of the consideration payable recognised in profit or loss
As at 30 June 2018
-
$1,323,880
$164,447
$1,488,327
92
In addition, a cash adjustment is expected to be made in
October 2018 relating to a working capital adjustment
based on the values of certain accounts on the balance
sheet of NuLac Foods Pty Ltd as at the acquisition date,
including inventories, receivables and trade and other
payables. The adjustment has been estimated as a cash
payment to the Group of $92,499.
ANALYSIS OF CASHFLOWS ON ACQUISITION
Cash consideration
Cash balances acquired
Net outflows of cash
The fair value of the 76,802,684 shares issued as part of the
consideration ($54,529,906) was based on the published
share price on 20 December 2017 of $0.71 per share.
$
25,000,000
(399)
24,999,601
A total amount of $1,061,857 transaction costs in relation to the acquisition are included in cash flows from operating activities.
ASSETS AND LIABILITIES ACQUIRED
The fair value of the assets and liabilities recognised as a result of the acquisition are as follows:
Cash and cash equivalents
Trade receivables
Inventories
Other current assets
Intangible assets: brands and trademarks
Intangible assets: customer relationships
Investments in joint ventures
Trade and other payables
Trade refinance facility
Deferred tax liability
Net Assets
Total Purchase Consideration
Goodwill
$
399
1,065,737
3,896,449
86,444
4,500,000
3,500,000
2,235,914
(2,535,822)
(2,000,000)
(2,200,000)
8,549,121
80,761,287
72,212,166
93
Bubs Australia Limited and Controlled EntitiesAnnual Report for the year ended 30 June 2018Notes to the Financial StatementsFor personal use only TRANSACTIONS RECOGNISED SEPARATELY FROM THE ACQUISITION
A total amount of up to $13.4
million is payable by The Group in
relation to Uphamgo Australia Pty
future satisfaction
Ltd upon
the
of certain performance
targets,
including production, specification,
quality assurance and continuous
employment related targets. This
amount includes up to $6.7 million
payable following the achievement of
the performance targets in the period
ending 20 December 2018, and up
to $6.7 million payable following the
achievement of
the performance
in the period ending 20
targets
December 2019. These payments
are not contingent consideration as
defined in the Australian Accounting
Standards, and instead are accounted
for
in accordance with AASB119
– Employee Benefits, as expenses
relating to future activities including
continuing services of employees
of Uphamgo Australia Pty Ltd.
$7,502,367 representing the expense
from the day of the acquisition to
30 June 2018 has been recorded as
Employee costs in the Consolidated
Statement of Profit or Loss and other
comprehensive
income.
$3,350,000 has been recorded as a
current liability on the consolidated
statement of financial position as
this amount relates to the first
payment payable 12 months after the
acquisition. The remaining amount
has been recognised as a non-current
liability as this relates to the second
payment payable 24 months after the
acquisition. This amount reflects the
present value of future cash outflows.
REVENUE AND PROFIT CONTRIBUTION
The acquired business of NuLac
Foods Pty Ltd contributed revenues
loss of
of $10,065,968 and net
$1,177,159 to the Group for the period
from 20 December to 30 June 2018.
The calculation of pro-forma revenue
and profit for the period ended
30 June 2018 as if the acquisition
had occurred on 1 July 2017 is
impracticable due to the significant
estimates required for retrospective
restatement following a significant
restructure of the operations of NuLac
Foods Pty Ltd undertaken prior to the
date of acquisition.
RECOGNITION AND MEASUREMENT
The acquisition method of accounting is used to account for business combinations regardless of whether
equity instruments or other assets are acquired.
The consideration transferred is the sum of the acquisition date fair values of the assets transferred,
equity instruments issued or liabilities incurred by the acquirer to former owners of the acquiree and
the amount of any non-controlling interest in the acquiree. For each business combination, the non-
controlling interest in the acquiree is measured at either fair value or at the proportionate share of the
acquiree’s identifiable net assets. All acquisition costs are expensed as incurred to profit or loss.
On the acquisition of a business, the Group assesses the financial assets acquired and liabilities assumed
for appropriate classification and designation in accordance with the contractual terms, economic
conditions, the Group’s operating or accounting policies and other pertinent conditions in existence at
the acquisition date.
Contingent consideration to be transferred by the acquirer is recognised at the acquisition date fair
value. Subsequent changes in the fair value of the contingent consideration classified as an asset or
liability is recognised in profit or loss. Contingent consideration classified as equity is not remeasured
and its subsequent settlement is accounted for within equity.
The difference between the acquisition date fair value of assets acquired, liabilities assumed and any non-
controlling interest in the acquiree and the fair value of the consideration transferred and the fair value
of any pre-existing investment in the acquiree is recognised as goodwill. If the consideration transferred
and the pre-existing fair value is less than the fair value of the identifiable net assets acquired, being a
bargain purchase to the acquirer, the difference is recognised as a gain directly in profit or loss by the
acquirer on the acquisition date, but only after a reassessment of the identification and measurement of
the net assets acquired, the non-controlling interest in the acquiree, if any, the consideration transferred
and the acquirer’s previously held equity interest in the acquirer.
Business combinations are initially accounted for on a provisional basis. The acquirer retrospectively
adjusts the provisional amounts recognised and also recognises additional assets or liabilities during
the measurement period, based on new information obtained about the facts and circumstances that
existed at the acquisition date. The measurement period ends on either the earlier of (i) 12 months from
the date of the acquisition or (ii) when the acquirer receives all the information possible to determine
fair value.
94
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Bubs Australia Limited and Controlled EntitiesAnnual Report for the year ended 30 June 2018Notes to the Financial StatementsFor personal use only E.2
JOINT VENTURES
On 20 December 2017, the Group acquired:
49.9%
of the issued
shares in
Uphamgo
Australia Pty Ltd;
49.9%
of the issued
shares in
New Zealand
Nutritional Goat
Company Limited;
49.9%
of the issued
shares in Cambria
Management
Company Pty Ltd;
and
49.9%
of the issued
units in Cambria
Unit Trust.
The Group’s investments in Uphamgo Australia Pty Ltd, New Zealand Nutritional Goat Company Limited, Cambria
Management Company Pty Ltd and Cambria Unit Trust are accounted for as joint ventures under AASB 128 Investments in
Associates and Joint Ventures.
Summarised financial information of the joint ventures and reconciliation with the carrying amount of the investment in the
consolidated financial statements are set out below:
Uphamgo
Australia Pty Ltd
New Zealand
Nutritional Goat
Company Limited
Cambria Unit
Trust*
Total
322,183
2,212,075
1,036,955
3,571,213
Current assets (including
cash and cash equivalents
$1,119,881)
Non-current assets
108,315
81,177
3,795,844
3,985,336
Current liabilities
258,810
1,772,945
1,044,008
3,075,763
Net assets (100%)
171,688
520,307
3,788,791
4,480,786
Group’s share of net assets
(49.9%)
Carrying amount of interest in
joint venture
85,672
259,635
1,890,607
2,235,914
85,672
259,635
1,890,607
2,235,914
Profit and loss performance from the date of acquisition to 30 June 2018
Revenue
3,241,770
1,307,940
150,000
4,699,710
Cost of sales
(1,333,620)
(1,227,620)
-
(2,561,240)
Administration expenses
(983,696)
(65,181)
(102,835)
(1,151,712)
Depreciation and amortisation
(73,094)
Salaries and wages
(583,490)
-
-
Net interest income / (expense)
Income tax expense
Profit and total comprehensive
income (100%)
Group’s share of total
comprehensive income (49.9%)
Investment in joint venture
-
-
-
(57,175)
(130,269)
-
(583,490)
(8,474)
(8,474)
881
-
881
267,870
16,020
(18,484)
265,406
133,667
7,994
(9,224)
132,437
2,368,351
97
96
*Cambria Management Company Pty Ltd is the trustee of Cambria Unit Trust.
Bubs Australia Limited and Controlled EntitiesAnnual Report for the year ended 30 June 2018Notes to the Financial StatementsFor personal use only RECOGNITION AND MEASUREMENT
A joint venture is a type of joint arrangement whereby the parties that have joint control of the arrangement
have rights to the net assets of the joint venture. Joint control is the contractually agreed sharing of control
of an arrangement, which exists only when decisions about the relevant activities require the unanimous
consent of the parties sharing control.
The Group’s investments in its joint venture are accounted for using the equity method. Under the equity
method, the investment in a joint venture is initially recognised at cost. The carrying amount of the
investment is adjusted to recognise changes in the Group’s share of net assets of the joint venture since the
acquisition date. Goodwill relating to the joint venture is included in the carrying amount of the investment
and is not tested for impairment separately.
An impairment loss in respect of an equity-accounted investee is measured by comparing the recoverable
amount of the investment with its carrying amount. An impairment loss is recognised in profit or loss,
and is reversed if there has been a favourable change in the estimates used to determine the recoverable
amount.
Upon loss of joint control over the joint venture, the Group measures and recognises any retained investment
at its fair value. Any difference between the carrying amount of the joint venture upon loss of joint control
and the fair value of the retained investment and proceeds from disposal is recognised in profit or loss.
F.
GROUP STRUCTURE
F.1
PARENT ENTITY
Bubs Australia Limited is the ultimate parent of the Group.
F.3
PARENT ENTITY INFORMATION
Set out below is the supplementary information of the legal parent entity.
2018 $
2017 $
Result of parent entity
Loss for the year
(60,274,364)
(1,562,023)
Other comprehensive income
-
-
Total comprehensive loss for the year
(60,274,364)
(1,562,023)
Financial position of parent entity at year end
Current assets
Total assets
Current liabilities
Total liabilities
50,757,799
5,234,093
98,572,983
21,576,824
4,805,059
525,603
8,963,614
525,603
F.2
SUBSIDIARIES
Bubs Australia
Limited (formerly
Hillcrest Litigation
Services Limited)
The Infant Food Co.
Pty Limited
Bubs IP Pty Ltd
(formerly Bubs
Australia Pty
Limited)
Country of
incorporation
Principal
Activity
Australia
Non-trading
Holding Company
Class or Shares % Owned 2018 % Owned 2017
Ordinary
-
-
Issued share capital
169,350,961
43,063,145
Australia
Trading Company
Ordinary
100%
100%
Australia
Holder of IP and
trademarks
Ordinary
100%
100%
Nulac Foods Pty Ltd
Australia
Trading Company
Ordinary
100%
-
Reserves
3,106,465
561,769
Accumulated losses
(82,848,057)
(22,573,693)
Total Equity
89,609,369
21,051,221
98
99
Bubs Australia Limited and Controlled EntitiesAnnual Report for the year ended 30 June 2018Notes to the Financial StatementsFor personal use only G.
OTHER DISCLOSURES
G.1
RELATED PARTY TRANSACTIONS
KEY MANAGEMENT PERSONNEL
Key management personnel are defined as those persons having significant authority and responsibility for planning,
directing and controlling the activities of the Group.
Key management personnel compensation:
Short-term employee benefits
Post-employment benefits
Long-term benefits
Share-based payments
Key management personnel disclosures
2018 $
2017 $
737,737
616,928
64,488
29,637
2,544,696
3,376,558
54,852
7,400
213,330
892,510
TRANSACTIONS WITH RELATED PARTIES
The following table provides details of transactions that were entered into for the relevant financial year.
Purchases from
related parties
Amounts owed to
related parties
Loan to related
parties
Amounts owed by
related parties
2018 $
2017 $
2018 $
2017 $
2018 $
2017 $
2018 $
2017 $
-
19,934
-
19,934
-
-
-
-
461,256
25,997
53,480
22,050
-
-
-
-
2,894,258
1,575,013
4,771,541
-
-
-
629,748
-
-
-
-
-
441,999
-
-
-
-
-
1,337,677
-
-
-
-
-
Premises in
Narrabeen
leased by
Anthony Gualdi
to the Group
Professional
services fee to
BDO Australia
Ltd
Purchase from
Cibus Goats
(Australia) Pty
Ltd*
Purchase from
New Zealand
Nutritional
Company
Purchase from
UphamGo
Australia Pty
Ltd
Loan to
Uphamgo
Australia Pty
Ltd
-
-
-
-
600,000
-
-
600,000
-
600,000
-
Total
9,702,068
45,931
2,462,904
41,984
600,000
100
101
*Bubs Australia is committed to purchase a minimum of 3,140,000 Litres of milk from Cibus Goats (Australia) Pty Ltd each
year during the term of the contract. J. Gommans is a director in Cibus Goats (Australia) Pty Ltd.
All of the above transactions were considered to be on an arms’ length basis.
Bubs Australia Limited and Controlled EntitiesAnnual Report for the year ended 30 June 2018Notes to the Financial StatementsFor personal use only G.2
SHARE BASED PAYMENTS
The options reserve is used to recognise the grant date fair value of options issued to employees but not exercised. The
movement in the options reserve is as follows:
Balance at 1 July 2016
Options issued during the period:
- Exercisable at $0.10 employee options expiring 20.12.2019
3,578,108
213,330
- Exercisable at $0.10 consultant options expiring 20.12.2019
5,839,242
348,439
Options #
$
The details of the fair value of the options issued to Nicholas Simms during the period is as follows:
Employee options
Employee options*
Employee options*
Exercise price ($)
Share price at date of issue ($)
0.10
0.79
0.10
0.79
0.10
0.79
Grant date
14 December 2017
14 December 2017
14 December 2017
Expected volatility (%)
90%
90%
90%
Expiry date
Expected dividends
Risk free interest rate
Value per option ($)
Number of options
Total value of options
19 January 2021
19 January 2021
19 January 2021
Nil
2.08%
$0.7106
3,578,108
$2,542,620
Nil
2.08%
$0.7106
2,385,405
$1,695,080
Nil
2.08%
$0.7106
2,385,405
$1,695,080
Balance at 30 June 2017
Options issued during the period:
9,417,350
561,769
*As a result of appointing Kristy Carr to the position of CEO, the vesting conditions for tranche 2 and tranche 3 options
issued to Nicholas Simms will not be met. As a result, these options were considered forfeited.
- Exercisable at $0.10 employee options expiring 19 January 2021 issued to the CEO
3,578,108
2,542,604
- Exercisable at $0.10 employee options expiring 19 January 2021 issued to the
Managing Director
- Exercisable at $0.10 employee options expiring 19 January 2021 issued to the
Managing Director
Balance at 30 June 2018
2,385,405
1,570
2,385,405
522
17,766,268
3,106,465
The employee options are exercisable as follows:
Options on issue at 30 June 2017:
Options issue during the period:
Employee options of 3,578,108: These options were
granted prior to 30 June 2017 and the related share
based payment expense was recorded in the year
ended 30 June 2017. They are immediately exercisable
with no required service period and do not expire on
termination of employment; and
Consultant options of 5,839,242: These options were
granted prior to 30 June 2017 and the related share
based payment expense was recorded in the year
ended 30 June 2017. These options have a vesting
condition that the share price of Bubs Australia
Limited must be at least 12.5 cents before they are
exercisable. There is no required service period for
the consultant options.
3,578,108 options were exercised post 30 June 2018.
3,578,108: vest on the achievement of $15m in gross
sales or $500,000 in EBIT and expire on termination of
employment;
2,385,405: vest 3 months after issue and on the
achievement of $30m in gross sales, or $2m in EBIT
and expire on termination of employment; and
2,385,405: vest 3 months after issue and on the
achievement of $50m in gross sales and $4m in EBIT
and expire on termination of employment.
3,578,108 options vested during FY2018.
The fair value of the options granted was measured using
the Black-Scholes pricing model, taking into account the
terms and conditions upon which the options were granted.
The details of the fair value of the options offered to Kristy Carr during the period is as follows:
Exercise price ($)
Share price at date of issue ($)
Grant date
Expected volatility (%)
Expiry date
Expected dividends
Risk free interest rate
Value per option ($)
Number of options
Total value of options
Employee options
Employee options
0.10
0.78
0.10
0.78
29 June 2018
29 June 2018
70%
70%
19 January 2021
19 January 2021
Nil
2.13%
$0.6836
2,385,405
$1,630,722
Nil
2.13%
$0.6836
2,385,405
$1,630,722
RECOGNITION AND MEASUREMENT
The fair value of options granted is recognised as an employee expense with a corresponding increase in
equity. The fair value is measured at grant date and spread over the period during which the employees
become unconditionally entitled to the options. The fair value of the options granted is measured using the
Black-Scholes pricing model, taking into account the terms and conditions upon which the options were
granted. The amount recognised as an expense is adjusted over the period to reflect the number of awards
for which the related service and non-market vesting conditions are expected to be met, but is not adjusted
when market performance conditions are not met.
Expected volatility has been based on an evaluation of the historical volatility of the Group’s share price,
particularly over the historical period commensurate with the expected term. The expected term of the
instruments has been based on historical experience and general option holder behaviour.
102
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Bubs Australia Limited and Controlled EntitiesAnnual Report for the year ended 30 June 2018Notes to the Financial StatementsFor personal use only KEY ESTIMATE AND JUDGEMENT
Estimating fair value for share-based payment transactions
requires determination of the most appropriate valuation
model, which depends on the terms and conditions of the
grant. This estimate also requires determination of the
most appropriate inputs to the valuation model including
the expected life of the share option, volatility and dividend
yield and making assumptions about them.
G.3
AUDITORS REMUNERATION
During the financial year the following fees were paid or payable for services provided by the auditor of the Group:
Audit services
Audit or review of the financial statements – Ernst & Young
177,400
95,000
2018 $
2017 $
Non audit service
Agreed upon procedures
G.4
SUBSEQUENT EVENTS
12,000
189,400
-
95,000
G.5
ACCOUNTING POLICIES AND NEW ACCOUNTING STANDARDS
The acquisition of subsidiaries is accounted for using the
acquisition method of accounting. A change in ownership
interest, without the loss of control, is accounted for as
an equity transaction, where the difference between the
consideration transferred and the book value of the share
of the non-controlling interest acquired is recognised
directly in equity attributable to the parent.
Where the Group loses control over a subsidiary, it
derecognises the assets including goodwill, liabilities and
non-controlling interest in the subsidiary together with any
cumulative translation differences recognised in equity.
The Group recognises the fair value of the consideration
received and the fair value of any investment retained
together with any gain or loss in profit or loss.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements incorporate the
assets and liabilities of all subsidiaries of Bubs Australia
Limited (‘company’ or ‘parent entity’) as at 30 June 2018
and the results of all subsidiaries for the year then ended.
Bubs Australia Limited and its subsidiaries together are
referred to in these financial statements as the ‘Group’.
Subsidiaries are all those entities over which the Group
has control. The Group controls an entity when the Group
is exposed to, or has rights to, variable returns from its
involvement with the entity and has the ability to affect
those returns through its power to direct the activities of
the entity. Subsidiaries are fully consolidated from the
date on which control is transferred to the Group. They are
deconsolidated from the date that control ceases.
transactions, balances and unrealised
Intercompany
gains on transactions between entities in the Group are
eliminated. Unrealised losses are also eliminated unless
the transaction provides evidence of the impairment of the
asset transferred. Accounting policies of subsidiaries have
been changed where necessary to ensure consistency with
the policies adopted by the Group.
GOING CONCERN
On 4 September 2018, Kristy Carr, the company Founder
and Managing Director stepped into the role of the Chief
Executive Officer. Nicholas Simms employment with the
company was terminated on 20 September 2018.
In FY2017, Nicholas Simms was granted a total of 3,578,108
options (granted on 20 December 2016). These options
were granted prior to Nicholas Simms being appointed as
CEO, as part of his compensation as a commercial director
of the company. These options were issued as an incentive
for Nicholas Simms to join the Company and accordingly
are not linked to any performance-based milestones. There
were no performance or service conditions required to
exercise the options, and the options were not dependent
on the ongoing employment of Nicholas Simms by the
Company. The 3,578,108 options vested in FY2017 and
were exercised post 30 June 2018.
Other than the events stated above, no matter or
circumstance has arisen since 30 June 2018 that has
significantly affected, or could significantly affect the
reported results from operations or financial position for
the year then ended.
The accounts have been prepared on the going concern basis. This assumes that the Group will be able to pay its debts as
they fall due in the normal course of business.
NEW, REVISED OR AMENDING ACCOUNTING STANDARDS AND INTERPRETATIONS ADOPTED
The Group has adopted all of the new, revised or amending
Accounting Standards and Interpretations issued by the
Australian Accounting Standards Board (‘AASB’) that are
mandatory for the current reporting year. The changes in
standards had no material impact on the Group’s financial
position or comprehensive income for the year.
Any new, revised or amending Accounting Standards or
Interpretations that are not yet mandatory have not been
early adopted.
104
105
Bubs Australia Limited and Controlled EntitiesAnnual Report for the year ended 30 June 2018Notes to the Financial StatementsFor personal use only NEW ACCOUNTING STANDARDS AND INTERPRETATIONS NOT YET MANDATORY OR EARLY
ADOPTED
AASB 16: LEASES (APPLICABLE TO THE GROUP FOR THE YEAR BEGINNING 1 JULY 2019).
Australian Accounting Standards and Interpretations that
have recently been issued or amended but are not yet
mandatory, have not been early adopted by the Group for
the annual reporting year ended 30 June 2018.
The Group’s assessment of the impact of these new or
amended Accounting Standards, most relevant to the
Group, are set out below.
AASB 9: FINANCIAL INSTRUMENTS AND ASSOCIATED AMENDING STANDARDS
(APPLICABLE TO THE GROUP FOR THE YEAR BEGINNING 1 JULY 2018)
The new standard is effective for accounting periods
beginning on or after 1 July 2018 and will replace existing
accounting standards. The standard introduces a new
approach for classification and measurement; impairment
of financial instruments by introducing a forward-looking
‘expected loss’ impairment model for recording expected
credit losses; and hedge accounting.
The key changes that affect the Group on initial application
include upfront accounting for expected credit loss. Given
the general quality and short term nature of the Group’s
trade receivables, there is no material impact expected on
the introduction of an expected-loss impairment method.
AASB 15: REVENUE FROM CONTRACTS WITH CUSTOMERS (APPLICABLE TO THE GROUP
FOR THE YEAR BEGINNING 1 JULY 2018)
the cumulative effect of retrospective application to
incomplete contracts on the date of initial application.
The Group has elected to transition to the new standard
using the cumulative effect method and elected to apply
the complete contracts practical expedient. As at 1 July
2018, there were no incomplete contracts. As a result, no
restatement of the comparative periods is expected.
The Group has performed a preliminary assessment
of the impact resulting from the application of AASB 15.
Based on the assessment performed to date, the standard
is not expected to have a material impact on the Group’s
revenue streams from the supply of goods and associated
rebates provisions. The timing of the recognition of product
sales and the basis for the Group’s estimates of sales
deductions under AASB118 Revenue are expected to be
consistent with those to be adopted under AASB 15. The
Group is considering the disclosure requirements of AASB
15 including the disaggregation of revenue in the financial
report.
The new standard is effective for accounting periods
beginning on or after 1 January 2018 and will replace the
current accounting requirements applicable to revenue
with a single, principles-based model.
The core principle of the Standard is that an entity will
recognise revenue to depict the transfer of promised
goods or services to customers in an amount that reflects
the consideration to which the entity expects to be entitled
in exchange for the goods or services. To achieve this
objective, AASB 15 provides the following five-step process:
identify the contract(s) with a customer;
identify the performance obligations in the contract(s);
determine the transaction price;
allocate the transaction price to the performance
obligations in the contract(s); and
recognise revenue when (or as) the performance
obligations are satisfied.
The transitional provisions of this Standard permit an
entity to either: restate the contracts that existed in each
prior period presented per AASB 108: Accounting Policies,
Changes in Accounting Estimates and Errors (subject to
certain practical expedients in AASB 15); or recognise
The transitional provisions of AASB 16 allow a lessee to
either retrospectively apply the Standard to comparatives
in line with AASB 108 or recognise the cumulative effect
of retrospective application as an adjustment to opening
equity on the date of initial application.
The Group has not yet quantified the impact on its
reported assets and liabilities on adoption of AASB 16. The
quantitative effect will depend on, inter alia, the transition
method chosen, the extent to which the Group uses the
practical expedients and recognition exemptions, and any
additional leases that the Group enters into. The Group
expects to disclose its transition approach and quantitative
information before adoption.
When effective, this Standard will replace the current
accounting requirements applicable to leases in AASB 117:
Leases and related Interpretations. AASB 16 introduces
a single lessee accounting model that eliminates the
requirement for leases to be classified as operating or
finance leases.
The main changes introduced by the new Standard include:
recognition of a right-of-use asset and liability for all
leases (excluding short-term leases with less than 12
months of tenure and leases relating to low-value assets);
depreciation of right-of-use assets in line with AASB
116: Property, Plant and Equipment in profit or loss
and unwinding of the liability in principal and interest
components;
variable lease payments that depend on an index or a
rate are included in the initial measurement of the lease
liability using the index or rate at the commencement date;
by applying a practical expedient, a lessee is permitted to
elect not to separate non-lease components and instead
account for all components as a lease; and
additional disclosure requirements.
OTHER AMENDMENTS
The following new or amended standards are not expected to have a significant impact on the Group’s consolidated
financial statements.
Classification and
Measurement of Share-
based Payment Transactions
(Amendments to AASB 2).
Sale of Contribution of
Assets between an Investor
and its Associate or Joint
Venture (Amendments to
AASB 10 and AASB 128).
Foreign currency
transactions and advance
consideration (Amendments
to AASB Interpretation 22)
106
107
Bubs Australia Limited and Controlled EntitiesAnnual Report for the year ended 30 June 2018Notes to the Financial StatementsFor personal use only 11
DIRECTOR’S
DECLARATION
108
109
For personal use only DIRECTOR’S DECLARATION
1.
IN THE OPINION OF THE DIRECTORS OF BUBS AUSTRALIA
LIMITED (THE ‘COMPANY’):
A|
The consolidated financial statements and notes that are set out on pages 44 to 106 and the
Remuneration report on pages 24 to 32 in the Directors’ report, are in accordance with the
Corporations Act 2001, including:
Giving a true and fair view of the Group’s financial position as at 30 June 2018
and of its performance for the financial year ended on that date; and
Complying with Australian Accounting Standards and the Corporations
Regulations 2001; and
B|
There are reasonable grounds to believe that the Company will be able to pay its debts as
and when they become due and payable.
2.
3.
THE DIRECTORS HAVE BEEN GIVEN THE DECLARATIONS
REQUIRED BY SECTION 295A THE CORPORATIONS ACT 2001
FROM THE CHIEF EXECUTIVE OFFICER FOR THE FINANCIAL
YEAR ENDED 30 JUNE 2018.
THE DIRECTORS DRAW ATTENTION TO NOTE A TO THE
CONSOLIDATED FINANCIAL STATEMENTS, WHICH INCLUDES
INTERNATIONAL
A STATEMENT OF COMPLIANCE WITH
FINANCIAL REPORTING STANDARDS.
Signed in accordance with a resolution of the directors:
Dated at Sydney this 28th day of September 2018
DENNIS LIN
Chairman
110
111
Bubs Australia Limited and Controlled EntitiesAnnual Report for the year ended 30 June 2018Director’s DeclarationFor personal use only OTHER INFORMATION
The following additional information is required by the Australian Securities Exchange in respect of listed public companies.
1.
SHAREHOLDING AS AT 25 SEPTEMBER 2018
A|
Distribution of shareholders
Range
1 - 1,000
1,001 - 5,000
5,001 - 10,000
10,001 - 100,000
100,001 Over
Rounding
Total
Total holders
2,268
5,443
2,847
3,967
411
Units
1,542,503
15,363,201
22,349,572
117,035,045
285,215,536
14,936
441,505,857
% Units
0.35
3.48
5.06
26.51
64.60
0.00
100.00
B|
Unmarketable parcels
Minimum $ 500.00 parcel at $
0.6300 per unit
794
Minimum Parcel Size
Holders
1,325
Units
639,645
C|
Voting rights
The voting rights attached to each class of equity security are as follows:
Ordinary shares: each ordinary share is entitled to one vote when a poll is called, otherwise each member present at a
meeting or by proxy has one vote on a show of hands
A|
Top 20 shareholders – Ordinary Shares
Rank Name
Units
% of Units
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
CARR FAMILY PTY LIMITED
PENELOPE ANNE GANDAR
JOHANNES THEODORUS MARIA GOMMANS
MR RUPERT ROBIN SOAR
MS CATHERINE JANE TAYLOR
INFANT FOOD BUSINESS PTY LIMITED
WF INVESTMENT HOLDINGS PTY LTD
J P MORGAN NOMINEES AUSTRALIA LIMITED
NEXT STEP GLOBAL LIMITED
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED
BNP PARIBAS NOMINEES PTY LTD
CITICORP NOMINEES PTY LIMITED
CA INVESTMENT CORP PTY LTD
INFANT FOOD BUSINESS PTY LIMITED
MAGIC HOME LIMITED
MR HONGTAO ZHANG
MRS MELINDA JANE COATES
INSPIRING FUTURE LIMITED
MR NICHOLAS CHARLES EDWARD SIMMS
BERNE NO 132 NOMINEES PTY LTD
20,761,600
19,200,671
19,200,671
19,200,671
19,200,671
14,061,600
13,789,440
10,553,147
8,532,502
8,123,951
4,208,894
4,202,336
3,800,000
3,615,000
3,043,200
2,580,000
2,550,000
2,540,222
2,009,198
1,632,960
4.70
4.35
4.35
4.35
4.35
3.18
3.12
2.39
1.93
1.84
0.95
0.95
0.86
0.82
0.69
0.58
0.58
0.58
0.46
0.37
Totals: Top 20 holders of ORDINARY FULLY PAID SHARES (TOTAL)
182,806,734
41.41
2.
CORPORATE DIRECTORY
A|
B|
C|
D|
E|
The name of the Company Secretary is Jay Richard Stephenson
Principal registered office
2-4/6 Tilley Lane, Frenchs Forest, NSW, Australia, 2086
Registers of securities
Computer Investor Services Pty Ltd
Stock exchange listing
Quotation has been granted for all the ordinary shares of the Company on all member
exchanges of the Australian Securities Exchange Limited
Unquoted securities
Options over unissued shares
The Group has 14,188,160 options on issue.
112
113
Bubs Australia Limited and Controlled EntitiesAnnual Report for the year ended 30 June 2018Other informationFor personal use only www.investor.bubsaustralia.com
For personal use only