LIFTING OFF
INTO GLOBAL GROWTH
FY20 Annual Report
Bubs Australia Limited and Controlled Entities ACN 060 094 7422020For personal use only TABLE OF
CONTENTS
04
06
08
10
12
18
20
22
24
26
28
30
32
34
40
52
56
58
60
62
64
66
68
117
118
01
02
03
04
FY20 REVIEW
FINANCIAL HIGHLIGHTS
FROM OUR CHAIR
FROM OUR CEO
CEO YEAR IN REVIEW
BOARD OF DIRECTORS
EXECUTIVE LEADERSHIP
OUR BUSINESS
BUILDING ON SOLID FOUNDATIONS
OUR BRANDS
ONE BRAND, MULTIPLE FEEDING OCCASIONS
OPTIMISED SUPPLY CHAIN
DIRECTOR’S REPORT
DIRECTOR’S REPORT
REMUNERATION REPORT
INDEPENDENT AUDITORS REPORT
LEAD AUDITOR’S INDEPENDENCE DECLARATION
FINANCIAL STATEMENTS
CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
CONSOLIDATED STATEMENT OF CASH FLOWS
NOTES TO THE FINANCIAL STATEMENTS
DIRECTOR’S DECLARATION
05
OTHER INFORMATION
GENERAL INFORMATION
The financial statements cover Bubs Australia Limited for the year ended
30 June 2020. The financial statements are presented in Australian dollars,
which is the Bubs Australia Limited functional and presentational currency.
Bubs Australia Limited registered office is:
23 Nina Link, Dandenong South
VIC 3175 Australia
Bubs Australia Limited principal place of business is:
2-4/6 Tilley Lane, Frenchs Forest
NSW 2086 Australia
For personal use only 01
FY20
REVIEW
Financial Highlights
From our Chair
From our CEO
CEO Year in Review
Board of Directors
Executive Leadership
4
5
01For personal use only
FINANCIAL HIGHLIGHTS
Financial Performance
ASX 300
Bubs Australia
FY20 results were driven by the
strong performance of Bubs®
Infant Formula in all retail
channels and regions.
$62m
Group Gross Revenue1
+32%
Group Gross Revenue1 pcp
+32%
Direct sales to China growth pcp
55%
Infant Formula Share
Group Gross Revenue1
5x
Export sales growth pcp to
emerging markets outside of China
+69%
Infant Formula Gross
Revenue1 growth pcp
$26m
Cash reserves as at
30 June 2020
6
7
7
1Gross revenue is a non-IFRS measure. Non-IFRS measures have not been subject to audit or review. Gross revenue represents the revenue recognised without rebates and marketing contribution.Bubs Australia Limited and Controlled EntitiesAnnual Report for the year ended 30 June 202001 FY20 REVIEW Financial HightlightsFor personal use only FROM OUR CHAIR
Dear Shareholders,
I am pleased to advise, over the past financial year Bubs
has achieved numerous important milestones within our
business strategy to deliver a record operating result of
$62 million in gross revenue1, up 32% on FY19, with a
24% increase in revenue to $55 million.
Importantly, the COVID-19 mitigation measures that
we took on the ground have kept the Bubs family safe
and ensured continuity of production as an essential
service to meet unexpected sporadic peaks in demand
during this difficult period. Our unique and robust
business model, along with our collaborative strategic
partnerships, meant we were able to mitigate supply
chain risks and quickly adapt our China route-to-market
strategy in response to shifts in channel dynamics.
During the year we relocated our headquarters to our
state-of-the-art Deloraine manufacturing facility in
Dandenong South, Victoria, to be close to our farmers,
suppliers, and key customers.
As a sign of our growing maturity and long-term
investment growth potential, in September 2019 Bubs
Australia entered the S&P/ASX 300, a position the
Company retained when the ASX Quarterly Index was
rebalanced in June 2020 (now ranked 244).
Bubs domestic footprint expanded significantly in the
back half of the financial year with our Infant Formula
range now retailed in over 2,000 outlets. Domestic
revenue accounted for 67% of Group revenue. We have
now established an optimal domestic national footprint
in both the grocery and pharmacy channels – strongly
positioning Bubs as a challenger brand with coverage on
par with leading multinational Infant Formula brands.
It is because of this unique position as an Australian
children’s nutrition specialist, that we continue to
expand the Bubs® brand offering into high margin
adjacent categories. As we enter FY21, our hero
product innovation; ‘Vita Bubs™’ children’s vitamin and
mineral supplements range, will further expand our
brand touchpoints across more consumer needs and
occasions. With this development, we are also pleased
to have further strengthened our strategic equity-linked
partnership with Chemist Warehouse, who will be our
launch retail partner ranging the new product line in 400
stores from October 2020.
Our China strategy has made significant advancements
throughout the year, with direct sales delivering a 32%
uplift over the full year compared to 2019. We have been
pleased to see the continued deepening of our productive
relationship with Alibaba through a Master Distribution
Agreement with its Centralised Import Procurement (CIP)
division for the development, promotion, and distribution
of our adult goat dairy products. We are privileged to
have this important relationship with Alibaba, and the
support and insights of C2 Capital Partners.
Towards the backend of the financial year we
experienced the disruption of the macro-environment
with the global pandemic limiting inbound Chinese
tourists and international students, along with prolonged
lead-times and the rising cost of airfreight logistics.
Whilst this significantly impacted on personal Daigou
shoppers within the domestic retail market, we also saw
an accelerated shift in purchasing behaviour across all
other channels, indicating Chinese consumer demand for
our premium products remains strong.
In response to this shift in channel demand, we
continue to invest marketing resources for the future
to build customer acquisition and brand equity in our
key markets, particularly China. We have focused on
redirecting and up-weighting our marketing effort to
accelerate the growth of our Cross-Border eCommerce
business in China.
Market access to China’s General Trade Channel remains
a key objective for our future growth strategy and will
undoubtedly provide material upside to the Company’s
revenues and profitability. Given the current macro
geo-political landscape and increasing regulatory risks,
we will look to produce Bubs® Chinese label Goat Infant
Formula products in China, utilising our own Australian
premium goat milk source. On 24 August 2020, Bubs
entered a Memorandum of Understanding to acquire
an ownership interest in Beingmate’s facility located
in Beihai, China, and secure exclusive use of a SAMR
approved brand slot.
This evolution of our China market access strategy
is only made possible through our existing strong
partnership with Beingmate, a public company listed
on the Shenzhen Stock Exchange with a market
capitalisation of RMB5.5bn (c.A$1.1bn) and reported
revenues for FY19 of RMB2.8bn (c.A$572 million).
Beingmate was the first Infant Formula company to
obtain certification when the new registration system
was established.
“I am more confident than ever that Bubs has achieved the right
foundations and initial scale to realising our long-term ambition to
becoming a major global food business, spearheaded by the best
Australia has to offer in specialised infant nutrition.”
We are confident this step up in our collaboration with
one of the largest Chinese owned enterprises in the
infant formula industry, coupled with the additional
capability to manufacture locally in China, will secure
our State Administration for Market Regulation (SAMR)
brand registration and provide Bubs with a faster route-
to-market with full access to distribute our products in
Mother and Baby stores. Bubs intends to withdraw the
existing SAMR brand applications previously made by
Deloraine, and resubmit differentiated super-premium
formulations targeting consumers in tier-one cities.
Importantly, this “Created by Bubs®” strategy also
enables Bubs to retain secure and proprietary ownership
of our brand production slots and is underpinned by
our vertically integrated business model. This provides
us with unrivalled proprietary insight into the supply
chain process, and the ability to provide 100% Australian
premium goat milk. Our “Created by Bubs®” strategy can
also be applied to other regulatory jurisdictions in the
future.
To that end, the Company has advanced our commitment
to regional diversification in FY20 by entering a
partnership with Vietnam TVV Service and Trading
Company to distribute Bubs® products in Vietnam’s
leading Mother and Baby retail chains. The Vietnam
market has delivered material growth throughout the
year and will remain a key focus for the business.
With representation well established in all major
Australian retailers, as well as increasing penetration
into China and Vietnam, we have a strong platform to
provide major global growth momentum in FY21 and
beyond. Now that we have reached a position of scale
and established supply chain security, we will evaluate
and enter further new markets which have the highest
potential to leverage our unique advantage as a premium
children’s nutrition specialist and Australian leader in
goat dairy production.
In my first year as Executive Chairman, I would like
to thank shareholders and our partners for their
unwavering support and my special thanks to the
wonderful Bubs family who responded so well to the
challenging macro dynamics that confronted all of us on
a professional and personal level.
I am confident our competitively advantaged business
model is well positioned for continued rapid growth, with
a pathway to profitability in the near term. I am looking
forward to working with our Leadership Team and Board
of Directors to implement the next phase of our growth
strategy, including pursuing new markets and product
categories, further collaborative strategic partnerships,
and evaluating M&A opportunities to support our long-
term vision of becoming a major global food business.
DENNIS LIN
Executive Chairman
8
9
1Gross revenue is a non-IFRS measure. Non-IFRS measures have not been subject to audit or review. Gross revenue represents the revenue recognised without rebates and marketing contribution.Bubs Australia Limited and Controlled EntitiesAnnual Report for the year ended 30 June 202001 FY20 REVIEW From Our ChairFor personal use only 01 FY20 REVIEW From Our CEO
FROM OUR CEO
Dear Shareholders,
2020 will be remembered as the year the COVID-19
global pandemic disrupted life to an unimaginable
level, and perhaps changed the relationship between
consumers and brands forever.
I am enormously proud of the Bubs family, who remained
diligent and agile, overcoming countless operational
challenges brought on by evolving market dynamics. Our
team continued to thrive - whether working remotely or
on the production floor, demonstrating passion, pace and
purpose. I am confident that our unique business model,
underpinned by supply chain security and manufacturing
flexibility, will enable us to continue to navigate COVID-19
impacts into FY21.
Critical progress was made throughout the year on
expanding our infant nutrition portfolio and distribution
footprint, ensuring we maintained strong growth
momentum in our performance. FY20 gross revenue1
increased 32% year-on-year to $62 million, and despite
the challenges and disruption caused by COVID-19,
second half gross revenue was up 28% over prior year.
It was a mark of our organisational strength,
foundational building blocks, and strategic focus that
we were able to continue to supply through the sudden
demand surges caused by ‘pantry stocking’ in the third
quarter, as well as accommodate the shifts in channel
demand and the disruption to international logistics that
followed.
Despite the obvious challenges that arose from the
COVID-19 global pandemic in the second half of the
financial year, we achieved an increase in our normalised
gross margin2, increasing to 24%, versus 21% in
FY19 and 14% in FY18, derived from increased scale,
optimised channel and product mix, and improvements
to supply chain operational efficiencies. This validates
our decision to acquire the Deloraine manufacturing
facility in 2019, with further margin improvements
expected to be made in FY21.
Infant Formula revenue continued to shine as the most
profitable growth engine of the business, up 58% to $30
million in revenue. The Bubs® brand portfolio of products
now accounts for 60% of group revenue, versus 49% in
FY19.
Our three key markets saw strong growth throughout the
year and we have been privileged to have the support
from our strategic partners across our key channels and
markets, particularly Alibaba and Chemist Warehouse.
We welcomed the step change agreement with
Woolworths to carry our entire range of eight Infant
Formula products across a targeted selection of its
700 stores from May 2020. In June, further new supply
agreements were secured for Bubs Organic® grass-fed
cow’s milk formula to be ranged in 482 Coles stores and
all 130 Big W stores, as well as the full Bubs® portfolio
to be ranged in 52 Baby Bunting stores. This significant
increase in distribution footprint led to a 270% increase
in Infant Formula gross revenue in domestic retailers in
the fourth quarter compared to prior year.
China momentum continued throughout the year, with
direct revenue increasing 32% year-on-year to $13
million, representing 23% of Group revenue. Other
international markets experienced five-fold growth,
accounting for 10% of Group gross revenue, driven
largely by the successful launch of Bubs® infant nutrition
products in Vietnam.
We continue to work closely in partnership with Alibaba
to maximise the China eCommerce opportunity. During
the year Bubs® achieved the fastest growing imported
brand share across the Alibaba ecosystem, with a 90%
uplift in Q4 FY20 Gross Merchandise Value (GMV) pcp.
Post balance date the Company has entered into a
Memorandum of Understanding with Bubs Joint Venture
partner, Beingmate, to acquire an ownership interest
in one of their registered manufacturing facilities
in Beihai, China. Beingmate owns the largest Infant
Formula portfolio in China, including 51 products across
17 brands, that are all successfully registered with the
State Administration for Market Regulation (SAMR), and
distributed throughout 30,000 Mother and Baby stores.
Beingmate offer Bubs unparalleled expertise advising on
Chinese regulatory compliance and product registration
and have an impeccable track record in Food Safety and
Quality Assurance. Their Research and Development
Centre is a certified post-doctoral research station,
making them an ideal partner to co-produce Bubs®
Chinese label products in-market. We are confident
this will fast track the registration process, ultimately
“Despite the challenging macro environment, the Bubs family
continues to thrive with passion, pace and purpose. We are
now ideally positioned to deliver on the next phase of our
global growth strategy.”
Group liquidity remains strong with $26 million in
cash reserves as at 30 June 2020. We have taken the
precaution of increasing our working capacity facility to
$10 million with $8 million undrawn.
I would like to take this opportunity to sincerely thank
our shareholders, partners, suppliers and the extended
Bubs family for their continued support and ongoing
belief in Bubs journey to becoming a global food
company and category leader in infant nutrition. I look
forward to continuing to build our brand-led growth
trajectory, as we accelerate our global expansion,
creating new generations of happy, healthy bubs.
KRISTY CARR
Chief Executive Officer
providing Bubs with widespread access to China’s
lucrative Mother and Baby store channel.
Product innovation continued to be an integral
component of our growth strategy, as we launched
multiple new products and brands in the Adult Goat Dairy
sector to cater for differentiated target segments and
nutritional needs. We also extended the Bubs® Infant
Formula portfolio offering to include Junior Nutrition,
catering for 3-12 year olds.
In addition, we are excited to enter the high margin
adjacent Vitamin and Mineral Supplements category
with the launch of ‘Vita Bubs™’ in October 2020.
The significant show of support from our strategic
relationship with Chemist Warehouse, now committed
to ranging all forty of Bubs® products, is a further
testament to our continued success in this channel.
We continue to make digitally-led brand building
investment in our Bubs® hero brand in key markets,
boosted by the recent appointment of former Miss
Universe and new mum, Jennifer Hawkins, as Bubs®
Global Brand Ambassador.
It is with this position of strength in our brand reach and
relevance, our multi-market manufacturing capabilities
and collaborative strategic partnerships, that we are well
placed to accelerate domestic and international growth,
driving profitability into the near term future.
10
11
1Gross revenue is a non-IFRS measure. Non-IFRS measures have not been subject to audit or review. Gross revenue represents the revenue recognised without rebates and marketing contribution.2 Normalised gross margin is a non-IFRS measure. Non-IFRS measures have not been subject to audit or review. Normalised gross margin is calculated as (Revenue – Production Costs) / Revenue. Revenue excludes one off discount to CapriLac® old packaging adult powder products($1.6m)Bubs Australia Limited and Controlled EntitiesAnnual Report for the year ended 30 June 2020For personal use only 01 FY20 REVIEW CEO Year in Review
CEO YEAR IN REVIEW
Category Performance – Bubs Infant
Formula shines as growth engine
Infant formula was the stand out in FY20 performance
with a 58% increase in revenue to $30 million, now
accounting for 55% of Group revenue, compared to only
43% in FY19. As the growth engine of our business, and
most profitable sector of the Group portfolio, Bubs®
Infant Formula remains our key driver for brand building
investment and long-term sustainable growth profile.
A refreshed range of newly packaged and formulated
CapriLac® adult goat milk powder products were
successfully launched through Alibaba in the fourth
quarter. Our product innovation has led the expansion
of our Adult Goat Dairy portfolio across multiple brands
to cater for different target segments and functional
nutritional needs.
Domestic performance – Strong foothold
in all major retailers
Bubs domestic retail footprint expanded significantly
in the back half of the financial year with Bubs® Infant
Formula coverage more than doubling to over 2,000
retail touchpoints with our domestic market now
accounting for 67% of group revenues. Incremental
supply agreements with Chemist Warehouse,
Woolworths, Coles, Big W and Baby Bunting led to
domestic retail gross revenue growth increasing 270% in
the fourth quarter compared to the same prior period.
However, overall domestic full-year revenue increased
by only 9% on 2019, offset by a second half contraction in
the Daigou channel as a result of the COVID-19 pandemic
causing a significant reduction in Chinese tourists and
students, together with increasing costs and prolonged
delivery times for international logistics.
($million)
40
35
30
25
20
15
10
5
0
($million)
60
50
40
30
20
10
29.8
+58%
18.9
+278%
5.0
FY18
FY19
FY20
54.6
5.4
12.7
36.5
+501%
+32%
+9%
43.9
0.9
9.6
33.4
16.9
0.3
2.5
14.1
FY18
FY19
FY20
China channel shifts - Accelerating
importance of Cross-Border eCommerce
Responding rapidly to channel shifts in consumer
demand, increased marketing investment drove Cross-
Border eCommerce (CBEC) revenue to China upward,
delivering a 32% uplift year-on-year, now representing
23% of our total business. Bubs® was the fastest growing
imported brand on the Alibaba ecosystem – up 90% year-
on-year.
As well, China direct gross revenue in the fourth quarter
were up 26%, further demonstrating Chinese consumer
demand for our premium products remains strong.
The successful CapriLac® relaunch also supported our
China growth with 170% uplift in Q4 gross revenue
compared to Q4 2019.
International expansion – Market
diversification
Earlier this financial year we launched Bubs® Infant
Formula and organic baby food portfolio in Vietnam
with great success, driving a five-fold increase in Export
revenue outside of China, contributing 10% of our total
Group revenues (up from 2% contribution share in FY19).
Gross margin expansion – Pathway to
profitability
Our vertically integrated business model and unique
‘one-step’ production process provided Bubs with supply
chain security and agility to respond quickly to changes
in demand, particularly during the sudden surge driven
by ‘pantry stocking’ across all of our key markets in the
third quarter.
This end-to-end control over our supply chain, optimised
product assortment towards Infant Formula, improved
allocation of our milk pool, together with increased scale
delivered an improvement in normalised gross margin1
of three percentage points to 24% in FY20 (compared to
21% FY19 and 14% in FY18).
Infant Formula will continue to be our highest margin
product with the full benefit of wholesale list price
increases in May 2020 and further supply chain
efficiencies to be achieved via implementation of margin
improvement initiatives in FY21.
($million)
6
5
4
3
2
1
0
5.4
+501%
0.9
0.3
FY18
FY19
FY20
24%
21%
14%
FY18
FY19
FY20
12
Annual Report for the year ended 30 June 2020
13
Bubs® Infant Formula RevenueRevenue by MarketAustraliaChinaOther InternationalOther International RevenueNormalised Group Gross Margin11 Normalised gross margin is a non-IFRS measure. Non-IFRS measures have not been subject to audit or review. Normalised gross margin is calculated as (Revenue – Production Costs) / Revenue. Revenue excludes one off discount to CapriLac® old packaging adult powder productsFor personal use only 01 FY20 REVIEW CEO Year in Review
Post balance date
strategic developments
While this report reflects FY20 developments, apart from
our trading performance, work has continued on product
innovation and laying the groundwork for creating new
revenue streams via market access and geographical
expansion in FY21.
Vita Bubs™ – entry into Vitamin and Mineral
Supplements category
Among these initiatives is an expansion into the high
margin adjacent category of Children’s Vitamin and
Mineral Supplements (VMS) with the launch of ‘Vita
Bubs™,’ announced in July 2020.
This is a key strategic development as we take advantage
of a white space opportunity for a children’s product
in the A$2.3bn Australian VMS market, leveraging our
unique positioning as an Infant Nutrition and Australian
Goat Dairy specialist.
Having already secured brand loyalty and trust with an
existing consumer base in what is a highly sensitive
and emotional purchase decision tree, the launch of Vita
Bubs™ is a natural extension of this trust. We are thrilled
to be partnering with Chemist Warehouse, the clear retail
leader for this category accounting for over half of all
VMS sales. All eight new products will be available in 400
Chemist Warehouse stores from October 2020.
Jennifer Hawkins appointed as Bubs Global Brand
Ambassador
In July 2020, the Company announced the appointment
of Jennifer Hawkins, a much-loved Australian icon and
new mum herself, as Bubs® Global Brand Ambassador.
Jennifer provides strong brand alignment with Bubs®
core positioning and values, and will exclusively
represent the Bubs® entire product portfolio. She will
appear on all media platforms to support consumer
awareness, education and ongoing engagement with new
parents in all markets, as well as providing strong social
influence within her own following of over two million
fans.
China in-market manufacturing – Securing and
fast tracking SAMR registration
In August 2020, the Company announced it had entered
a Memorandum of Understanding with existing Joint
Venture partner Beingmate to locally produce Bubs®
Chinese label Goat Milk Infant Formula products in a
China registered facility, whilst still utilising Bubs® brand,
intellectual property and Australian premium goat milk
source.
”We continue to focus and invest in
our strategic priorities to deliver on
our long-term ambition of becoming
a major global food company,
spearheaded by Australian
premium infant nutrition, and
underpinned by our domination
in Goat Dairy production.”
The milestone agreement would result in Bubs acquiring
an ownership interest in one of Beingmate’s five
approved facilities located in Beihai, China, providing
Bubs with exclusive use of an approved SAMR brand
slot and unique proprietary formulation. Beingmate
would assist in developing, manufacturing and obtaining
the State Administration for Market Regulation (SAMR)
registration for Bubs® Chinese label Goat Milk Infant
Formula products.
Once registered, the Bubs-Beingmate Joint Venture
Company will distribute the products within their existing
network of 30,000 Mother and Baby stores. Both parties
are confident this manufacturing merger with one of the
largest Chinese owned enterprises, coupled with a stake-
holding in a domestic facility for local manufacture,
will place Bubs in the best possible position to achieve
successful brand registration to gain full market access
to China’s General Trade Channel in the shortest possible
timeframe.
Meanwhile Bubs intends to withdraw existing brand
applications previously made by Deloraine and resubmit
differentiated premium formulations that adhere to any
amendments in the China GB-national food guidelines,
expected to be published in the near term.
Each of these two approaches provide the cornerstone
for our “Created by Bubs®” market access and global
expansion strategy.
Outlook
The Company anticipates continued benefit from its unique integrated business model and key competitive
advantage stemming from Bubs® unrivalled provenance brand story in premium infant nutrition.
We expect Bubs® Infant Formula to be the engine room for accelerated profitable growth across all key channels
and markets. To that end, we can see pathways for the Company to an aspirational revenue goal of $400 million and
gross margin floor of 40% by 2025.
Looking ahead, the effects of the COVID-19 pandemic will continue to have long-lasting effects on many sectors of
the economy, resulting in new ways of doing business and engaging with consumers. Whilst there remains general
uncertainty around the long-term disruption of the pandemic, Management and the Board remain optimistic and
retain a high level of confidence in the strengths of Bubs business model to continue to navigate these challenges
and leverage ongoing opportunities for international growth and product expansion with the support and
collaboration of our key strategic partners.
14
Annual Report for the year ended 30 June 2020
15
Outlook
The Company anticipates continued benefit from its
unique integrated business model and key competitive
advantage stemming from Bubs® unrivalled provenance
brand story in premium infant nutrition.
We expect Bubs® Infant Formula to be the engine room
for accelerated profitable growth across all key channels
and markets. To that end, we can see pathways for the
Company to an aspirational revenue goal of $400 million
and gross margin floor of 40% by 2025.
Looking ahead, the effects of the COVID-19 pandemic will
continue to have long-lasting effects on many sectors of
the economy, resulting in new ways of doing business
and engaging with consumers. Whilst there remains
general uncertainty around the long-term disruption
of the pandemic, Management and the Board remain
optimistic and retain a high level of confidence in the
strengths of Bubs business model to continue to navigate
these challenges and leverage ongoing opportunities
for international growth and product expansion with the
support and collaboration of our key strategic partners.
Concept label only.Concept label only.Concept label only.For personal use only 01 FY20 REVIEW COVID—19 Impact
COVID-19 IMPACT
Significant pantry stocking
brought forward demand.
Australian domestic
consumption from local
consumers now returning to
pre-COVID levels.
Increasing demand evident in
China for brands manufactured
in China for Chinese babies.
Australian consumers also
demanding more Australian
made products.
Channel shifting towards
Cross Border e-Commerce
(CBEC) China sales growing
and strategic partnership with
Alibaba strengthening.
As an essential service, there
was no disruption to production
or material impact to supply
chain over the period.
Fluctuating demand surges
managed at Deloraine with
ability to rapidly increase
production.
Vertical integration model
and local procurement policy
provided control and flexibility in
supply chain.
Temporary closure of borders
to Chinese tourists and students,
as well as rising cost of
airfreight and prolonged delivery
lead times has impacted Daigou
domestic sales.
China SAMR regulatory
process continues to be
delayed.
Market access for SAMR
brands manufactured and
registered in China is continuing
and provides most favourable
route to market. Opportunity to
continue to leverage strategic
partnership with Beingmate
China via Joint Venture to
develop locally approved SAMR
Chinese label products.
Additional health and safety
measures put in place across
production floor and flexible
remote working.
Agile and responsive culture
enabled quick redeployment of
team resources in response to
changing channel and marketing
dynamics, and acceleration of
24/7 production to fulfil sudden
surges in demand driven by
pantry stocking.
16
Bubs Australia Limited and Controlled Entities
Annual Report for the year ended 30 June 2020
17
Consumer Behaviour & Consumption ChannelsSupply Chain ResilienceRegulatory & Market AccessPeople & CultureFor personal use only
01 FY20 REVIEW Board Of Directors
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 2020 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
Executive Chairman
GradDipAppFin, CA, Solicitor of the Supreme Court of
Queensland – Executive Chairman (appointed 22 October
2019), Chairman and Non – executive Director (resigned 21
October, 2019)
Mr Lin focuses on high growth branded businesses that
are looking to expand globally, and has been part of Bubs
Australia board since its listing. He works closely with the
team in creating, setting and executing strategic priorities
for the business, especially in relation to international
markets and vertical integration. He speaks fluent
Chinese Mandarin and Japanese. In addition, Mr Lin is co-
founder and chairman of Cortina Capital, an independent
private equity fund that focuses on investing in health and
wellness brands.
Mr Lin was appointed as a non-executive director
of Buderim Group Limited on 3 November 2017 and
executive director from 1 July 2020 and a non-executive
director of Synertec Corporation Limited on 20 August
2019. Mr Lin was appointed as a non-executive director of
Ecargo Holdings Limited on 9 April 2019 and resigned on
30 October 2019. Mr Lin completed his contract with BDO
on 30 June 2020.
Managing Director
BBus (Bachelor Degree of Business) – Managing Director
(appointed 22 December 2016)
Mrs Carr is the Chief Executive Officer of Bubs Australia
Limited and holds a Bachelor of Business Degree
(Queensland University of Technology). She has a proven
track record of leading and building successful brands
and businesses spanning Australia and Asia Pacific over
the past 25 years. Kristy’s passion is in creating and
developing new business opportunities that not only make
a difference in the world we live in today, but also closely
identify with emerging global consumer trends. Kristy
has lived and worked in Hong Kong for over a decade and
travelled extensively throughout Asia for both business
and leisure. It is with this experience that she founded
Bubs when on maternity leave with her first of three
daughters in 2005.
Mrs Carr has not held any other Directorships in publicly
listed companies in the past three years.
MATTHEW
REYNOLDS
STEVE
LIN
MR JAY
STEPHENSON
Company Secretary
MBA, FCPA, FGIA, MAICD, CPA (Canada),
CMA (Canada) – Company Secretary
(appointed 1 September 2015)
Mr Stephenson has been involved
in business development for over
30 years including approximately
26 years as Director, Chief Financial
Officer and Company Secretary for
various listed and unlisted entities
in resources, IT, manufacturing,
food, wine, hotels and property. Mr
Stephenson has been involved in
business acquisitions, mergers,
initial public offerings, capital
raisings, business restructuring as
well managing all areas of finance
for companies.
Non-Executive Director
B.Sc (Hons), LLB (Hons), MQLS -
Non-Executive Director (appointed 22
December 2016)
Mr Reynolds is a Partner at Thomson
Geer 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 the
Queensland Law Society.
Mr Reynolds was a director in
publicly listed G8 Education Limited
(ASX: GEM) retiring from the board
on the 31st of August 2017.
Non-Executive Director
(appointed 18 April 2019)
Mr Lin has over 25 years of
investment, operations and
management experience in Asia.
He started his career in investment
banking at Morgan Stanley in New
York. He then joined Goldman
Sachs’ Merchant Banking Division in
Hong Kong and Tokyo and invested
in private equity, real estate and
epical situations opportunities.
Mr Lin became the President and
CEO – Asia of GMAC Commercial
Holding Corp., managing a multi-
billion dollar portfolio of real estate
investments and loans. Thereafter,
he co-founded a non-profit
organisation, Hands On Tokyo, joined
Laureate Education as President and
CEO – North Asia and served on the
board of two universities in China.
Mr Lin has a B.A. in Economics from
Harvard College.
Mr Lin has not held any other
Directorships in publicly listed
companies in Australia in the past
three years.
All 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 (Resigned as Non-executive Director on
21 October 2019 and appointed as Executive
Chairman on 22 October 2019)
K Newland Carr (Executive Director)
M Reynolds (Non-executive Director)
S Lin (Non-executive Director)
Held
14
14
14
14
Attended
14
14
14
14
18
Bubs Australia Limited and Controlled Entities
Annual Report for the year ended 30 June 2020
19
For personal use only 01 FY20 REVIEW Executive Leadership
EXECUTIVE
LEADERSHIP
DENNIS
LIN
Executive
Chairman
Mr Lin focuses on high growth
branded businesses that are looking
to expand globally, and has been
part of Bubs Australia board since
its listing. He works closely with
the team in creating, setting and
executing strategic priorities for the
business, especially in relation to
international markets and vertical
integration. He speaks fluent
Chinese Mandarin and Japanese.
In addition, Mr Lin is co-founder
and chairman of Cortina Capital, an
independent private equity fund that
focuses on investing in health and
wellness brands.
KRISTY
CARR
Founder
CEO
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.
IRIS
REN
Chief Financial
Officer
Iris Ren spent 3 years in KPMG’s
CFO Advisory division where she
specialised in providing IFRS
advisory services and transaction
support to public and private entities
to achieve positive accounting and
commercial outcomes. Prior to that,
Iris worked for 7 years in the audit
and assurance division of BDO and
is a current member of the Institute
of Chartered Accounts Australia. Iris
joined Bubs Australia in February
2018.
DAVID
ORTON
VIVIAN
ZURLO
RICHARD
PAINE
General Manager
Commercial and Operations
General Manager
Marketing
General Manager
Dairy Operations
David Orton has been in FMCG sales
and operations for the last 25 years
where he held senior roles with
Henkel Beauty Care, SC Johnson &
Sons and several other multinational
firms responsible for overseeing
sales and the ultimate profitability
of the company. David was
appointed as Bubs General Manager
Commercial in Jan 2018 responsible
for all domestic sales, commercial
planning and operations. David
joined Bubs Australia in March 2017.
Vivian has over 20 years’ marketing
& commercial experience in senior
marketing positions across various
consumer goods categories at FMCG
multinationals. Vivian is responsible
for marketing, brand development
and product innovation leadership
across all markets. Vivian brings
her extensive marketing strategy,
consumer insights, brand strategy
and product innovation experience.
Vivian joined Bubs Australia in July
2019.
Richard Paine has over 25 years
manufacturing and management
experience in the Australian dairy
specialising in the nutritional
ingredient and nutraceutical space.
He also has broader dairy expertise
covering commercial and operational
management from milk collection/
milk pool through to ‘whole of
manufacture’ in both medium size
private to larger listed entities.
Prior to this, Richard held several
senior operational management
roles including roles reporting to
CEOs. Richard joined Bubs Australia
February 2019.
20
Bubs Australia Limited and Controlled Entities
Annual Report for the year ended 30 June 2020
21
For personal use only 02
OUR
BUSINESS
Building on Solid Foundations
Our Brands
One Brand, Multiple Feeding Occasions
Optimised Supply Chain
22
23
For personal use only
02 OUR BUSINESS Building on Solid Foundations
BUILDING ON SOLID FOUNDATIONS TO
ACCELERATE GLOBAL GROWTH
Since listing Bubs has become Australia’s leading producer of goat dairy and one of the fastest growing infant formula brands. Bubs is well positioned to become a major global
consumer food business spearheaded by infant nutrition and underpinned by a unique goat dairy supply chain.
MAXIMISE BRAND
EQUITY GROWTH
Building brand
equity and
awareness to
increase market
share in all key
markets.
OPTIMISE
GOAT DAIRY
LEADERSHIP
Optimise supply
chain integration
and capability to
drive efficiencies
and improve
margins.
DRIVE
INNOVATION
Drive consumer
led innovation
in emerging and
adjacent categories.
LEVERAGE
STRATEGIC
PARTNERSHIPS
Accelerate market
access into China
via localised
manufacturing of
SAMR product.
ACCELERATING
GLOBAL REACH
Rapid growth of
global expansion
driving brand equity
across all key
markets.
Bubs is an authentic
trusted brand with
unique proposition
operating in an attractive
high growth market.
Clear market leader in
goat dairy production
with supply chain
security and scalability.
Ownership of registered
manufacturing facility
with impeccable R&D,
QA and manufacturing
capabilities.
Strategic collaborative
partners with industry
giants in key markets.
Domestic retail
distribution strength
across all major
retailers.
24
Bubs Australia Limited and Controlled Entities
Annual Report for the year ended 30 June 2020
25
For personal use only 02 OUR BUSINESS Our Brands
OUR BRANDS
26
Bubs Australia Limited and Controlled Entities
Annual Report for the year ended 30 June 2020
27
Our portfolio of brands is led by Bubs®, our hero brand and the catalyst for value creation across the business.Our goat dairy specialist brands: CapriLac®, Deloraiane® and Capela® optimise brand equity value conversion from our milk pool.For personal use only 02 OUR BUSINESS One Brand, Multiple Feeding Occasions
ONE BRAND,
ONE BRAND,
MULTIPLE FEEDING OCCASIONS
MULTIPLE FEEDING OCCASIONS
GOAT INFANT FORMULA
VITAMIN & MINERAL SUPPLEMENTS
COW INFANT FORMULA
SNACKS
CEREAL
28
Bubs Australia Limited and Controlled Entities
Annual Report for the year ended 30 June 2020
JUNIOR NUTRITION
POUCHES
1
29
Bubs® caters for all feeding occasions throughout a child’s development. Bubs® is a brand driven by it’s core – centered around children’s nutritional needs in key consumption occasions.For personal use only 02 OUR BUSINESS Optimised Supply Chain
OPTIMISED
SUPPLY CHAIN
UNIQUE SUPPLY
CHAIN MODEL
Our secure supply chain
integrating
farm to production, provides traceability,
scalability and flexibility.
SCALABLE
MANUFACTURING
100% ownership of Australia Deloraine
Dairy, holder of only 1 of 15 CNCA
accredited infant formula China
manufacturing licences in Australia.
No.1
Australia’s largest
goat dairy producer
UNDERPINNED BY GOAT
DAIRY DOMINANCE
Bubs is the market leader in goat dairy
across Australia and owns exclusive
access to its goat milk pool.
30
Bubs Australia Limited and Controlled Entities
Annual Report for the year ended 30 June 2020
31
Bubs unique vertical integration model continues to be our foundational strength.For personal use only 03
DIRECTOR’S
REPORT
Director’s Report
Remuneration Report
Independent Auditors Report
Lead Auditor’s Independence Declaration
32
33
For personal use only
DIRECTOR’S
REPORT
SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS
There was no significant change in the state of affairs of the Group during the financial year.
REVIEW OF OPERATIONS AND FINANCIAL RESULTS
Normalised financial performance for FY20 compares to FY19 in the table below.
Loss before tax
Interest income
Finance cost
Depreciation and amortisation
EBITDA
Profit on disposal of joint ventures
Inventories written off1
Share based payments
Share based payment expense – Corporate transaction
Employee benefit expense - Nulac acquisition
FY20
FY19
(16,100,700)
(35,582,033)
317,504
455,554
(1,380,255)
(893,576)
(3,730,852)
(1,178,954)
(11,307,097)
(33,965,057)
-
937,185
(450,619)
(404,442)
141,049
(1,346,954)
-
-
(20,425,504)
(5,897,633)
FINANCIAL PERFORMANCE AND OPEX MANAGEMENT
Top line gross revenues2 for the year were $62 million (up 32% over FY19), while revenue was $55
million (24% upon FY19). Normalised gross margin3 improved to 24% from 21% in FY19.
Our financial result for the year reflects solid underlying growth momentum despite the impact of
channel shifts brought on by the COVID-19 global pandemic. Importantly, our distribution costs to
revenue ratio remained consistent year-on-year in spite of the disruption to international logistics.
Corporate transaction accounting and legal expense
(349,209)
(897,327)
Discount to Caprilac old packaging adult powder product
(1,564,025)
-
Employee costs provision - ex CEO
Normalised EBITDA
-
(235,616)
(9,084,293)
(5,694,766)
Our employee costs4 to revenue ratio remained consistent year on year, supporting the ability of our
organisational capability to sustain continued growth.
Meanwhile, the Group continues to maintain a strong balance sheet and liquidity position with $26 million cash and cash
equivalents, and minimal external debt at balance date.
The increased inventory position of $30.6 million is in part due to the constrained fourth quarter
performance and in part planned increase in inventory coverage to protect our supply chain against
ongoing COVID-19 disruption. 53% of inventory is in finished goods.
Throughout the year, we continued to make significant and essential investment in brand marketing,
increasing our spend to 18% of revenue, predominantly due to our increasing domestic presence and
leveraging China in-market customer acquisition. This is an investment where the benefits will be
realised in future years. We expect this marketing investment to revenue ratio to be reduced in FY21.
We also invested in channel capacity, new product development across multiple brands and categories,
and our end-to-end supply chain. Within this, trade marketing spend increased in line with our
expanded distribution footprint across domestic retailers.
On a statutory basis, loss after tax was $7.8m (FY19: $35.5m). Normalised EBITDA loss was $9.1m
(FY19: $5.7m loss) adjusted for transactions that are one off in nature, Mergers & Acquisitions in
nature and share based payments of the Group.
2 Gross revenue is a non-IFRS measure. Non-IFRS measures have not been subject to audit or review. Gross revenue represents the revenue recognised
without rebates and marketing contribution.
3 Normalised gross margin is a non-IFRS measure. Non-IFRS measures have not been subject to audit or review. Normalised gross margin is calculated as
(Revenue – Production Costs) / Revenue. Revenue excludes one off discount to Caprilac old packaging adult powder products ($1.6m).
4 Employee costs exclude share based payments and employee benefit expense – Nulac acquisition.
MITIGATING COVID-19 IMPACT – DEMONSTRATING RESILIENCE AND AGILITY
Importantly, throughout this period of growth, we have also been focusing on responsibly operating in the face of the
pandemic for six months without incident and believe the risk of enforced factory closure is extremely low given infant
formula is the sole source of nutrition for non breastfed babies.
We have implemented additional health and safety measures, including splitting work teams and zones in our Deloraine
production facility, to reduce the risk of a major supply disruption and the health and safety of our team remains paramount.
Whilst the second half macro environment was challenging for the industry, with a significant amount of pantry stocking in
the third quarter bringing forward sales, the Australian consumer demand is now showing signs of moving back towards
normal pre-COVID levels. Meanwhile, a sharp reduction in Chinese students and tourists and increasing outbound shipping
costs has triggered a channel shift away from the Daigou channel and towards China’s Cross-border eCommerce platforms.
In light of these factors, the company undertook a deep examination of the potential short and long-term consequences
of the pandemic at both the supply chain and manufacturing level, and sales prospects going forward under a range
of scenarios based on the duration of restrictions in all key markets. The increased potential for WH&S regulations,
likelihood of manufacturing interruption, freight and transport availability and pricing, terms of trade (including
receivables management) and the likely rate of recovery of business in affected sales channels, primarily the Daigou
channel were also evaluated.
1 Of the $547,873 inventory written off in FY20, $450,619 was due to discontinued products and one off write offs.
34
35
Bubs Australia Limited and Controlled EntitiesAnnual Report for the year ended 30 June 202003 DIRECTOR’S REPORTFor personal use only Whilst there has been re-weighting of the Daigou channel throughput toward Cross-Border eCommerce platforms, as
future Chinese students and visitors return when international borders open and passenger planes resume, we are
optimistic this will in turn have a positive impact on a rebound in the Daigou channel in the long-term. However, it is
anticipated short-term growth will be impacted by the downward pressure being experienced in this outbound consumer-
to-consumer channel.
The ability to have line of sight on inventory through our channel partners enabled Bubs to sustain and increase our
wholesale list price and avoid the push of inventory into the field ahead of end consumer off-take demand, Bubs products
have not incurred heavy discounting which has been evident in the category in recent months. Management are focused
on a balanced supply and demand ratio, and will continue to be demand-led whilst closely managing the amount of
inventory in-market to protect margins and avoid any negative impact to our pricing architecture. This is considered
paramount to delivering on our China strategic objectives.
GOING CONCERN
As part of the directors’ consideration of the appropriateness of adopting the going concern basis in preparing the
financial statements, a range of scenarios have been reviewed. The assumptions modelled are based on the estimated
potential impact of COVID-19 along with our proposed responses over the course of the next 12 months. These include a
range of estimated impacts primarily based on length of time various levels of restrictions are in place and the severity of
the consequent impact to our relevant distribution channels. For the channels that have adversely impacted by COVID-19
and expected to contribute significant incremental revenue growth to the Group in FY21, we have sensitised the revenue,
operating costs and cashflow impact of reduced trading activities. A key judgement applied in the base case scenario
is the trading activities back to pre-COVID level in Q3 FY21 for the distribution channels that have been adversely
impacted. Under each scenario, mitigating actions are all within management control and can be initiated as they relate
to discretionary spend, and do not impact the ability to meet demand. These actions include reduced administration
and marketing costs and stopping all non-essential and non-committed capex in the next 12 months. We believe that
the risk of enforced factory closure is extremely low as an essential service under Victoria Stage 4 restriction and
have implemented additional health and safety measures in our Deloraine factory to reduce the risk of a major supply
disruption. In the event of enforced factory closure temporarily, we have enough inventory to meet the end consumer
demand. We have assumed no significant structural changes to the business will be needed in any of the scenarios
modelled. As at 30 June 2020, the Group balance sheet reflects a net asset position of $132 million and the liquidity of
the Group remains strong. We have recently increased NAB working capital facility to $10 million with undrawn balance
of $8 million at 30 June 2020. The maturity date of the facility is 21 May 2021. In all scenarios modelled, our liquidity
requirements are within the $10 million working capital facility and able to repay the drawdown balance in full before
the expiry date. On the basis of these reviews, the directors consider it is appropriate for the going concern basis to be
adopted in preparing the financial statements.
PRINCIPAL ACTIVITIES
The Group offers a great range of organic baby food, goat milk infant formula products, the adult goat milk powder
products and fresh dairy products. The Group also provides canning services of nutritional dairy products.
ENVIRONMENTAL REGULATIONS
The Group is not aware of any matter which requires disclosure with respect to any significant environmental regulation
in respect of its operating activities.
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 24 July 2020, Bubs issued 12,356,627 fully paid ordinary shares to Chemist Warehouse Retail Group upon satisfying
its sales performance condition of meeting minimum sales target for the year ended 30 June 2020.
On 24 August 2020, Bubs has entered into a Memorandum of Understanding with Beingmate Co., Ltd under which Bubs
has the opportunity to acquire an ownership interest in one of Beingmate’s Infant Formula manufacturing facilities in
Beihai China, and obtain Beingmate’s support in securing a State Administration for Market Regulation (SAMR) brand slot,
with the objective of producing Bubs® China label Goat Milk Infant Formula using 100% Bubs Australian goat milk. Bubs
intends to withdraw the existing SAMR brand applications previously made by Deloraine, and resubmit differentiated
super-premium formulations targeting consumers in tier-one cities.
Bubs continues to monitor milk supply in line with projected demand and conduct pricing reviews with suppliers. As part
of the FY21 review process, some milk supply agreements have been reset to better align volumes and reduce costs.
This restructure included terminating without penalty the guaranteed supply under the CIBUS Australia Milk Supply
Agreement from 31 December 2020, and forgoing the call option over CIBUS farms. In addition, the Company entered
into a new Milk Supply Agreement with a Victorian supplier who is expected to replace and exceed CIBUS volume over
time, thereby better aligning with the Company’s demand profile in the short term whilst safeguarding Bubs provenance
positioning and long-term supply chain security, including meeting future demand for SAMR China label products. This
replacement in supply partners is expected to significantly improve raw material costs and cashflow management from
January 2021.
COVID-19 IMPACT
The COVID-19 pandemic has caused unprecedent social and economic disruption. The Group has to date demonstrated
resilience in the face of the COVID-19 pandemic, supported by a strong underlying consumer demand for our products
and the focus of the Board and management team on key initiatives, including:
• Continued operation of Deloraine factory as an essential service under Victoria stage 4 restriction;
• The implementation of additional health and safety measures, including splitting work teams and zones in our
Deloraine production facility, to reduce the risk of a major supply disruption;
• Working from home arrangement for head office staff;
• Continued close cooperation with our key suppliers;
• Increased levels of safety stock to mitigate future supply chain disruption
Other than the event 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.
36
37
Bubs Australia Limited and Controlled EntitiesAnnual Report for the year ended 30 June 202003 DIRECTOR’S REPORTFor personal use only DIVIDENDS
GENDER DIVERSITY
No dividends have been paid or declared since the start of the financial year (2019: 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, Deloitte, 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.
PROCEEDINGS ON BEHALF OF THE GROUP
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.
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.
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 2020
As at 30 June 2019
Male
Percentage
Male (%)
Female
Percentage
Female (%)
Male
Percentage
Male (%)
Female
Percentage
Female (%)
Board
Senior
management
Employees
Total
3
2
20
25
75%
50%
61%
61%
1
2
13
16
25%
50%
39%
39%
3
3
15
21
75%
75%
54%
58%
1
1
13
15
25%
25%
46%
42%
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
19 January 2021
29 November 2022
0.10
0.10
4,770,810
4,770,810
All unissued shares are ordinary shares of the Group.
NON-AUDIT SERVICES
No non-audit services were provided by Deloitte during the year ended 30 June 2020.
Details of amounts paid or payable to the auditor for other assurances 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.
38
39
Bubs Australia Limited and Controlled EntitiesAnnual Report for the year ended 30 June 202003 DIRECTOR’S REPORTFor 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. The
disclosures in this report have been audited.
The KMP of the Group for the year ended 30 June 2020 were:
• Dennis Lin (Executive Chairman, appointed on 22 October 2019)
• Matthew Reynolds (Non-executive Director)
• Steve Lin (Non-executive Director)
• Kristy-Lee Newland Carr (Chief Executive Officer and Managing Director)
• Iris Ren (Chief Financial Officer)
• David Orton (General Manager Commercial)
• Richard Paine (General Manager Dairy)
• Anthony Gualdi (Operations Director, resigned on 30 November 2019)
• Vivian Zurlo (General Manager Marketing, appointed on 1 July 2019)
REMUNERATION STRUCTURE
In consultation with external remuneration consultants, the Board seeks to set aggregate compensation at a level that
provides the Group with the ability to attract and retain directors and KMP 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 and KMP is reviewed annually. The overall level of executive
reward takes into account the performance of the Group over a number of years.
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 so 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.
VARIABLE REMUNERATION
Short term incentive (STI)
The STI focuses on performance goals which align with the Group’s direction, driving outcomes,
differentiating high performance and rewarding delivery over the financial year. STI values are generally
calculated as a percentage of fixed remuneration. STI values and performance targets are approved by
the Board. For the year ended 30 June 2020, participants may achieve a maximum STI of between 14%
and 50% of TFR, with the STI payable up to the maximum subject to achievement of financial targets and
specific agreed personal objectives, aligning with the strategic objectives of the Group.
Performance against financial targets is compared with the Group’s budget, and achievement of
personal objectives is tracked and discussed through the performance period as part of the Group’s
management process.
STI payments are determined and paid annually following the finalisation of audited Group results and
are contingent on achievement of Group financial targets and specific agreed personal objectives.
Long term incentives (LTI)
The LTI programs provide the potential for KMPs to receive payment over and above fixed
remuneration and short term incentive. 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 which 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.
40
41
Bubs Australia Limited and Controlled EntitiesAnnual Report for the year ended 30 June 202003 DIRECTOR’S REPORT Remuneration Report (Audited)For personal use only TOTAL FIXED REMUNERATION (TFR)
SHORT-TERM INCENTIVE PLANS
KMP EXECUTIVES
During the year, the KMP executives of TFR were as follows:
The FY20 STI awards are set based on achievement against a combination of financial and non-financial KPIs. These are
used to ensure a balance between short term financial measures and more strategic non-financial measures which in the
medium to longer term will support the growth of the Group.
Performance is measured against the following KPIs:
Title
Name
Annual Base Salary
Allowance
• Financial – actual results compared to budgeted results for items including revenue, gross margin and normalised
EBITDA.
Executive Chairman
(appointed on 22 October 2019)
Chief Executive Officer and
Managing Director
Dennis Lin
$150,000
Nil
• Business Management – cash generation, capital management, working capital management.
Kristy Carr
$300,000
$6,000
• Business Strategy – development, approval, implementation and achievement.
Chief Financial Officer
Iris Ren
General Manager Commercial
David Orton
$220,000
$220,000
General Manager Dairy
Richard Paine
$250,000
General Manager Marketing
(appointed on 1 July 2019)
Operations Director
(resigned on 30 November 2019)
Vivian Zurlo
$200,000
Anthony Gualdi
$200,000
$6,000
Nil
Nil
Nil
Nil
GROUP’S FINANCIAL PERFORMANCE
The following table provides details of the relationship between KMP’s TFR and the summary of Group’s financial performance:
2020
2019
2018
2017
2016
Revenue
54,644,952
43,914,853
16,906,256
3,932,298
3,659,328
EBIT Loss
(15,037,949)
(35,144,011)
(66,025,718)
(5,078,230)
(1,308,057)
Share price at year
end
Basic loss per
share
Total dividend
(cents per share)
0.925
0.01
-
1.13
0.08
-
0.78
0.20
-
0.25
0.02
-
-
-
-
The following table provides details of the maximum STI that each KMP is entitled to receive:
KMP
Dennis Lin
Kristy Carr
Iris Ren
David Orton
Richard Paine
Vivian Zurlo
Anthony Gualdi
STI
-
$150,000
$30,000
$80,000
-
-
-
STI
% of TFR
-
50%
14%
36%
-
-
-
Performance
measurement
-
100% is measured against
delivery of Business Strategy
50% is measured against
Business Management and
50% is measured against
Financial
100% is measured against
Financial
-
-
-
42
43
Bubs Australia Limited and Controlled EntitiesAnnual Report for the year ended 30 June 202003 DIRECTOR’S REPORT Remuneration Report (Audited)For personal use only Tranche 2 and 3 options were offered to and accepted by the current CEO Kristy Carr on 29th June 2018 with the value of
$0.68 for each option and an exercise price of $0.10. These tranches have not yet vested.
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
Notice period by the
Group
Notice period by
Executive
Payment in lieu of
notice
Kristy Carr (Managing Director)
3 months
3 months
Dennis Lin (Executive Chairman, appointed
on 22 October 2019)
3 months
3 months
Kristy Carr (Chief Executive Officer and
Managing Director)
3 months
3 months
Iris Ren (Chief Financial Officer)
3 months
David Orton (General Manager Commercial)
3 months
Richard Paine (General Manager Dairy)
3 months
3 months
3 months
3 months
Vivian Zurlo (General Manager Marketing,
appointed on 1 July 2019)
3 months
3 months
Anthony Gualdi (Operations Director
resigned on 30 November 2019)
3 months
3 months
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
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 Plans are determined by and at the sole discretion of the Board.
EXECUTIVE CHAIRMAN’S FY20 GRANT OF OPTIONS
The FY20 LTI plan awards were divided in 2 tranches and vest subject to the gross revenue and normalised EBITDA
performance hurdle calculation in any of a three-year performance period and continuing employment:
• Tranche 1 (2,385,405 options) will vest 3 months after issue and on the achievement of
$50,000,000 in gross revenue and $2,000,000 in normalised EBITDA as at the Company’s full
year results; and
• Tranche 2 (2,385,405 options) will vest 3 months after issue and on the achievement of
$60,000,000 in gross revenue and $4,000,000 in normalised EBITDA as at the Company’s full
year results.
The expiry date of the options is 29 November 2022.
The gross revenue and normalised EBITDA performance hurdle was chosen as being a performance measure
appropriate to current circumstances of the Group given the Group’s short term objective is to continue to build strong
sales momentum and deliver profitable growth.
CEO’S FY18 GRANT OF OPTIONS
The FY18 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:
• Tranche 1 (3,578,108 options) will vest on the achievement of $15,000,000 in gross revenue
or achievement of $500,000 in EBIT.
• Tranche 2 (2,385,405 options) will vest on the achievement of $30,000,000 in gross revenue
and $2,000,000 in EBIT
• Tranche 3 (2,385,405 options) will vest on the achievement of $50,000,000 in gross revenue
and $4,000,000 in EBIT.
Performance hurdles must be achieved in any consecutive 12 month period and are not cumulative in nature.
Options in respect of Tranche 1 do not have an explicit service condition and Tranches 2 and 3 have a three-month service
condition after the issue date and the continuing employment. The expiry date of the options is 19 January 2021.
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.
Tranche 1 was granted to the Group’s previous CEO Nicholas Simms. The options vested in FY18 and were subsequently
cancelled in FY19.
44
45
Bubs Australia Limited and Controlled EntitiesAnnual Report for the year ended 30 June 202003 DIRECTOR’S REPORT Remuneration Report (Audited)For personal use only
NON-EXECUTIVE DIRECTORS’ REMUNERATION
DETAILS OF THE NATURE AND AMOUNT OF EACH ELEMENT OF THE 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:
Table A(1): Remuneration for KMP for the year ended 30 June 2020
• 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, other than the chairman,
be paid $40,000, per annum, exclusive of superannuation in accordance with statutory rates as remuneration for their
services as directors.
For FY20, non-executive chairman and directors’ remuneration was as follows:
Title
Name
Annual remuneration
Non-Executive Chairman (resigned on 21 October 2019)
Dennis Lin
Non-Executive Director
Non-Executive Director
Matthew Reynolds
Steve Lin
$150,000
$40,000
$40,000*
*Steve Lin’s services were remunerated by C2 Capital Partners.
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, Executive Chairman, was a strategic advisor in an accounting firm up to 30 June 2020. The Group contracted
professional services from the accounting firm to the amount of $39,488 in FY2020 (2019: $181,794), with an outstanding
balance at 30 June 2020 of $14,149 (2019: $64,538).
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.
Short Term
Post-
Employment
Other Long
Term
Salary &
fees
$
Annual
leave $
Cash
bonus
$
Non-
monetary
$ (1)
Super-
annuation
$
Long service
leave
$
Share based
payments –
options
$
Total
$
Perfor-
mance
related
%
Dennis Lin (2)
2020
99,934
7,998
2019
-
-
-
-
2020
270,000 23,077 150,000
2019
285,000 23,077
2020
68,031
6,407
2019
190,769 15,385
-
-
-
2020
212,385 16,923
15,000
2019
137,513 11,170
20,000
2020
211,538 16,923
10,000
2019
138,282 11,170 100,000
2020
238,462 19,231
2019
89,041
6,849
2020
194,615 5,385
2019
-
-
-
-
-
-
Kristy Carr
Anthony
Gualdi (3)
Iris Ren
David Orton
Richard Paine
Vivian Zurlo
Total
-
-
-
9,494
252
1,207,997 1,325,678
91%
-
-
-
-
25,650
5,251
(1,349,046)
(875,068)
137%
6,000
27,075
18,768
1,346,954 1,706,874
79%
2,500
6,463
45,212
6,000
18,123
4,674
-
-
-
-
-
-
-
-
20,177
2,985
13,064
824
20,096
3,140
13,137
892
22,654
1,475
8,459
98
18,488
695
-
-
-
-
-
-
-
-
-
-
-
-
128,613
0%
234,951
0%
267,470
6%
182,571
11%
261,697
4%
263,481
38%
281,822
0%
104,447
0%
219,183
0%
-
2020 1,294,965 95,944 175,000
2,500
123,022
59,010
(141,049)
1,609,392
2019
840,605 67,651 120,000
12,000
79,858
25,256
1,346,954 2,492,324
46
47
(1) Non-monetary benefits include motor vehicle and travel allowances.
(2) Dennis Lin was appointed as an executive chairman on 22 October 2019.
(3) Anthony Gualdi resigned on 30 November 2019.
Bubs Australia Limited and Controlled EntitiesAnnual Report for the year ended 30 June 202003 DIRECTOR’S REPORT Remuneration Report (Audited)For personal use only
Table A(2): Remuneration for Non-executive Directors for the year ended 30 June 2020
FULLY PAID ORDINARY SHARES OF BUBS AUSTRALIA LIMITED
Short Term
Post-
Employment
Other Long
Term
Salary & fees
$
Non-
monetary
$
Super-
annuation
$
Long service
leave
$
Share based
payments –
options
$
Matthew
Reynolds
John
Gommans
Steve Lin (2)
Dennis Lin (1)
Total
2020
40,000
2019
40,000
2020
-
2019
31,969
2020
40,000
2019
8,000
2020
46,027
2019
150,000
2020
126,027
2019
229,969
-
-
-
-
-
-
-
-
-
-
3,800
3,800
-
3,037
-
-
4,373
14,250
8,173
21,087
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Total
$
43,800
43,800
-
35,006
40,000
8,000
50,400
164,250
134,200
251,056
Perfor-
mance
related
%
-
-
-
-
-
-
-
-
-
-
(1) Dennis Lin resigned as a Non-executive Director on 21 October 2019 and was appointed as an executive chairman on 22 October 2019.
(2) Steve Lin’s services were remunerated by C2 Capital Partners in FY19 and FY20.
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
16,761,600
20,761,600
12,000,000
17,676,600
-
-
-
-
-
-
-
19,200,671
-
-
-
-
1,500
1,500
-
-
Kristy Carr (1)
Anthony Gualdi
(2)
Steve Lin(3)
Dennis Lin
Matthew
Reynolds
John Gommans
(4)
Iris Ren
David Orton
Richard Paine
Vivian Zurlo
2020
2019
2020
2019
2020
2019
2020
2019
2020
2019
2020
2019
2020
2019
2020
2019
2020
2019
2020
2019
Purchase of
shares
Other change
Shares
disposed
At the end of
the year
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(3,141,000)
13,620,600
(4,000,000)
16,761,600
(2,000,000)
10,000,000
(5,676,000)
12,000,000
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
19,200,671
-
-
-
-
1,500
1,500
-
-
[1] Shares are held under Carr Family Pty Limited.
[2] Shares are held under Infant Food Business Pty Limited. Anthony Gualdi resigned on 30 November 2019.
[3] At 30 June 2019 and 30 June 2020, 76,288,510 shares were held by C2 Capital Partners, of which Steve Lin is the Managing Director.
[4] 19,200,671 shares were held by J Gommans on resignation date. At resignation date, J Gommans close family member held 19,200,671 shares as part of
the acquisition of Nulac Foods Pty Ltd on 20 December 2017.
48
49
Bubs Australia Limited and Controlled EntitiesAnnual Report for the year ended 30 June 202003 DIRECTOR’S REPORT Remuneration 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
Number
cancelled
Dennis
Lin
Kristy
Carr
2020
29/11/2019 4,770,810 $0.9838
$0.10
29/11/2022
2019
2020
2019
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
2018
29/06/2018
4,770,810) $0.6836
$0.10
19/01/2021
2020
2019
-
-
Nicholas
Simms
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
2018
14/12/2017 8,348,918 $0.7106
$0.10
19/01/2021
3,578,1082
-
-
-
-
-
-
-
-
Number of
options held
at the end of
the period
4,770,810
-
4,770,810
4,770,810
4,770,810
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
3,578,1082
4,770,8101
-
3,578,108
(1) As a result of her appointment to the position of CEO, tranche 2 and tranche 3 options were offered to and accepted by Kristy Carr in FY18. The tranche 2
and tranche 3 options issued to Nicholas Simms were forfeited.
(2) 3,578,108 options vested in FY18 and were subsequently cancelled in FY19. As such, these options are unable to be exercised.
END OF REMUNERATION REPORT (AUDITED)
This directors’ report is signed in accordance with a resolution of the board of directors:
Dated: 31 August 2020
DENNIS LIN
EXECUTIVE CHAIRMAN
SYDNEY
50
51
Bubs Australia Limited and Controlled EntitiesAnnual Report for the year ended 30 June 202003 DIRECTOR’S REPORT Remuneration Report (Audited)For personal use only 52
53
Bubs Australia Limited and Controlled EntitiesAnnual Report for the year ended 30 June 202003 Independent Auditor’s ReportFor personal use only 54
55
Bubs Australia Limited and Controlled EntitiesAnnual Report for the year ended 30 June 202003 Independent Auditor’s ReportFor personal use only 03 Lead Auditor Independence Declaration
Deloitte Touche Tohmatsu
ABN 74 490 121 060
477 Collins Street
Melbourne, VIC, 3000
Australia
Phone: +61 3 9671 7000
www.deloitte.com.au
31 August 2020
The Board of Directors
Bubs Australia Limited
23-29 Nina Link
Dandenong South VIC 3175
Dear Board Members
Bubs Australia Limited
In accordance with section 307C of the Corporations Act 2001, I am pleased to provide the
following declaration of independence to the directors of Bubs Australia Limited.
As lead audit partner for the audit of the financial report of Bubs Australia Limited for the
financial year ended 30 June 2020, I declare that to the best of my knowledge and belief,
there have been no contraventions of:
(i) the auditor independence requirements of the Corporations Act 2001 in relation
to the audit; and
(ii) any applicable code of professional conduct in relation to the audit.
Yours faithfully
DELOITTE TOUCHE TOHMATSU
Lian (Andrew) Sun
Partner
Chartered Accountants
Liability limited by a scheme approved under Professional Standards Legislation.
Member of Deloitte Asia Pacific Limited and the Deloitte organisation.
56
57
Annual Report for the year ended 30 June 2020For personal use only
04
FINANCIAL
STATEMENTS
Consolidated Statement of Profit or Loss
and Other Comprehensive Income
Consolidated Statement of Financial
Position
Consolidated Statement of Changes in
Equity
Consolidated Statement of
Cash Flows
Notes to Financial Statements
Director’s Declaration
Other Information
58
59
For personal use only CONSOLIDATED STATEMENT OF
PROFIT OR LOSS AND OTHER
COMPREHENSIVE INCOME
Revenue
Cost of sales
Gross Profit
Other Income
Share of net profits of joint ventures accounted for using the equity
method
Distribution and selling costs
Marketing and promotion costs
Administrative and other costs
Share based payment expense – Corporate transaction
Other expenses
Interest income
Finance cost
Loss before tax
Income tax benefit
Loss for the year after tax
Other comprehensive income
Other comprehensive income that may be reclassified to profit or
loss in subsequent periods (net of tax)
Exchange difference on translation of foreign operations
Other comprehensive income, net of tax
Total comprehensive loss for the year
Loss per share
Basic (loss) per share (dollars)
Diluted (loss) per share (dollars)
The accompanying notes form part of these financial statements.
60
Note
B2
B3
B3
B3
B3
B5
B4
B4
2020
$
54,644,952
(44,276,408)
10,368,544
377,697
(272,496)
(1,885,185)
(9,907,735)
(13,369,565)
-
(349,209)
317,504
(1,380,255)
(16,100,700)
8,329,562
(7,771,138)
(14,177)
(14,177)
(7,785,315)
(0.01)
(0.01)
2019
$
43,914,853
(35,301,918)
8,612,935
1,238,845
-
(1,468,069)
(4,056,514)
(18,148,377)
(20,425,504)
(897,327)
455,554
(893,576)
(35,582,033)
72,797
(35,509,236)
-
-
(35,509,236)
(0.08)
(0.08)
61
Bubs Australia Limited and Controlled EntitiesAnnual Report for the year ended 30 June 202004 FINANCIAL STATEMENTS Consolidated Statement of Profit or Loss and Other Comprehensive IncomeFor personal use only
CONSOLIDATED STATEMENT OF
FINANCIAL POSITION
Assets
Current Assets
Cash and cash equivalents
Trade and other receivables
Other assets
GST receivable
Inventories
Total Current Assets
Non-Current Assets
GST receivable
Plant and equipment
Right of use assets
Intangible assets
Investment in joint ventures
Total Non-Current Assets
Total Assets
Liabilities
Current Liabilities
Trade and other payables
Contract liabilities
Lease liabilities
Borrowings
Provisions
Share based payment liability
Employee benefit liability - Nulac acquisition
Consideration payable
Deferred consideration payables
Total Current Liabilities
Non-Current Liabilities
Lease liabilities
Provisions
Share based payment liability
Deferred consideration payables
Deferred tax liabilities
Total Non-Current Liabilities
Total Liabilities
Net Assets
Equity
Issued capital
Share based payments reserve
Foreign currency translation reserve
Accumulated losses
Total Equity
Note
D3
C1
C3
C11
C2
C11
C4
C8
C5
E
C6
C7
C8
C9
C10
C11
C12
C8
C10
C11
C12
B5
D5
D6
30/06/2020
$
26,025,575
6,619,072
1,654,106
956,045
30,602,156
65,856,954
255,768
4,067,769
2,081,000
88,504,687
743,542
95,652,766
161,509,720
11,003,580
67,234
422,805
2,000,000
601,269
956,045
-
-
4,510,181
19,561,114
2,166,131
148,841
255,768
3,873,573
3,605,635
10,049,948
29,611,062
131,898,658
236,965,360
11,005,047
(12,210)
(116,059,539)
131,898,658
30/06/2019
$
23,291,058
15,552,802
1,636,563
1,946,169
14,552,400
56,978,992
593,477
4,213,775
-
91,782,992
1,030,470
97,620,714
154,599,706
8,931,497
926,382
-
2,000,000
2,357,410
1,946,169
6,700,000
238,095
5,000,000
28,099,553
-
553,949
593,477
7,347,062
12,354,026
20,848,514
48,948,067
105,651,639
189,059,150
24,878,923
1,967
(108,288,401)
105,651,639
The accompanying notes form part of these financial statements.
62
63
Bubs Australia Limited and Controlled EntitiesAnnual Report for the year ended 30 June 202004 FINANCIAL STATEMENTS Consolidated Statement of Financial PositionFor personal use only
CONSOLIDATED STATEMENT
OF CHANGES IN
EQUITY
2020
Issued Capital
$
Share Based
Payments
Reserve
$
Foreign
Currency
Translation
Reserve
$
Retained
Earnings
$
Total equity
$
Balance at 1 July 2019
189,059,150
24,878,923
1,967
(108,288,401)
105,651,639
Comprehensive income
Loss for the period
Other comprehensive income
Total comprehensive income
Transactions with owners in
their capacity as owners:
-
-
-
Issue of shares
D5
48,732,827
Exercise of options
D5
150,655
Capital raising costs, net of tax
D5
(977,272)
-
-
-
-
-
-
Share based payment expense
D6
Share based payment expense –
Corporate transaction
D6
-
-
(141,049)
(13,732,827)
-
(7,771,138)
(7,771,138)
(14,177)
-
(14,177)
(14,177)
(7,771,138)
(7,785,315)
-
-
-
-
-
-
-
-
-
-
48,732,827
150,655
(977,272)
(141,049)
(13,732,827)
Balance at 30 June 2020
236,965,360
11,005,047
(12,210)
(116,059,539)
131,898,658
2019
Issued Capital
$
Share Based
Payments
Reserve
$
Foreign
Currency
Translation
Reserve
$
Retained
Earnings
$
Total equity
$
Balance at 1 July 2019
142,189,264
3,106,465
-
(72,779,165)
72,516,564
Comprehensive income
Loss for the period
Other comprehensive income
Total comprehensive income
Transactions with owners in
their capacity as owners:
-
-
-
Shares issued at acquisition
13,384,615
Issue of shares
32,738,477
Exercise of options
D5
791,081
Capital raising costs, net of tax
D5
(44,287)
-
-
-
-
-
-
-
Share based payment expense
D6
Share based payment expense –
Corporate transaction
D6
-
-
1,346,954
20,425,504
-
(35,509,236)
(35,509,236)
1,967
-
1,967
1,967
(35,509,236)
(35,507,269)
-
-
-
-
-
-
-
-
-
-
-
-
13,384,615
32,738,477
791,081
(44,287)
1,346,954
20,425,504
Balance at 30 June 2020
189,059,150
24,878,923
1,967
(108,288,401)
105,651,639
The accompanying notes form part of these financial statements.
The accompanying notes form part of these financial statements.
64
65
Bubs Australia Limited and Controlled EntitiesAnnual Report for the year ended 30 June 202004 FINANCIAL STATEMENTS Consolidated Statement of Changes in EquityFor personal use only
CONSOLIDATED STATEMENT OF
CASH FLOWS
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
Net payments to Deloraine vendors relating to Deloraine acquisition
Payments for subsidiaries net of cash acquired
Purchases of intangible assets
Payments for interests in associates
Net payments to Nulac vendors relating to Nulac Foods acquisition and disposal of joint ventures
Proceeds from disposal of Coach House Dairy assets
Repayment to a related party
Net cash (used in) / from investing activities
Cash flows from financing activities
Proceeds from share issue
Exercise of options
Capital raising costs
Repayment of the shareholder loan from the Deloraine Dairy vendors (pre-acquisition shareholders)
Repayment of lease liabilities
Net cash from financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents at the beginning of the financial year
Total cash and cash equivalents at the end of the year
The accompanying notes form part of these financial statements.
2020
$
65,487,490
(87,444,781)
383,665
(343,452)
(21,917,078)
(166,861)
864
(2,205,073)
-
(52,550)
(1,030,470)
(5,245,095)
-
-
(8,699,185)
35,000,000
150,655
(1,396,102)
-
(403,773)
33,350,780
2,734,517
23,291,058
26,025,575
2019
$
40,061,416
(57,415,513)
369,910
(174,180)
(17,158,367)
(82,730)
1,709
-
(15,956,865)
-
-
(7,950,232)
500,000
600,000
(22,888,118)
32,738,477
791,081
(44,287)
(8,790,630)
-
24,694,641
(15,351,844)
38,642,902
23,291,058
66
67
Bubs Australia Limited and Controlled EntitiesAnnual Report for the year ended 30 June 202004 FINANCIAL STATEMENTS Consolidated Statement of Cash FlowsFor personal use only
NOTES TO THE FINANCIAL
STATEMENTS
A.
BASIS OF PREPARATION
CORPORATE INFORMATION
The financial statements cover 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 2020. The financial report is
presented in Australian dollars, which
is Bubs Australia Limited’s functional
and presentational currency.
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 30 August 2020. The
directors have the power to amend
and reissue the financial report.
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
The Group applies AASB 16 Leases for
the first time. The nature and effect of
the changes as a result of adoption of
these new accounting standards are
described below.
The 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
comply with
(‘IASB’).
The financial statements, apart from
the cash flow information, have been
prepared on an accruals basis and
are based on historical costs.
AASB 16 LEASES
AASB 16 Leases supersedes AASB 117 Leases and introduces significant changes to lessee accounting by removing the
distinction between operating and finance lease and requiring the recognition of a right-of-use asset and a lease liability
at commencement for all leases, except for short-term leases and leases of low value assets when such recognition
exemptions are adopted.
The Group has applied AASB 16 using the cumulative catch-up approach which requires the Group to recognise an asset
at amount equal to liability at the date of initial application.
The Group’s accounting policy for Leases and impact on adoption is as follows.
Impact of the new definition of a lease
The Group has made use of the practical expedient available on transition to AASB 16 not to reassess whether a contract
is or contains a lease. Accordingly, the definition of a lease in accordance with AASB 117 and Interpretation 4 will
continue to be applied to those leases entered or changed before 1 July 2019. AASB 16 determines whether a contract
contains a lease on the basis of whether the customer has the right to control the use of an identified asset for a period
of time in exchange for consideration. The Group applies the definition of a lease and related guidance set out in AASB 16
to all lease contracts entered into or changed on or after 1 July 2019. AASB 16 will not significantly change the scope of
contracts that meet the definition of a lease for the Group.
Impact on Lessee Accounting
Applying AASB 16, for all leases, the Group:
• Recognises right-of-use assets and lease liabilities in the consolidated statement of financial position, initially
measured at the present value of the future lease payments, with the right-of-use asset adjusted by the amount of any
prepaid or accrued lease payments.
• Recognises depreciation of right-of-use assets and interest on lease liabilities in the consolidated statement of profit or
loss.
• Separates the total amount of cash paid into a principal portion (presented within financing activities) and interest
(presented within financing activities) in the consolidated statement of cash flows.
• Lease incentives (e.g. rent free period) are recognised as part of the measurement of the right-of-use assets and lease
liabilities whereas under AASB 117 they resulted in the recognition of a lease incentive, amortised as a reduction of
rental expenses on a straight line basis.
Under AASB 16, right-of-use assets are tested for impairment in accordance with AASB 136 Impairment of Assets.
For short-term leases (lease term of 12 months or less) and leases of low-value assets (which includes tablets and
68
69
Bubs Australia Limited and Controlled EntitiesAnnual Report for the year ended 30 June 202004 FINANCIAL STATEMENTS Notes to the Financial StatementsFor personal use only SIGNIFICANT ACCOUNTING JUDGEMENTS AND ESTIMATES
The preparation of
the financial
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.
Recoverability of intangibles
Valuation of inventory
Recoverability of intangibles
Recognition and recoverability of deferred
tax assets
Share based payments
Reference
Note C1
Note C2
Note C5
Note B5
Note G2
personal computers, small items of office furniture and telephones), the Group has opted to recognise a lease expense on
a straight-line basis as permitted by AASB 16. This expense is presented within ‘Administrative and other costs’ in profit
or loss.
The Group has used the following practical expedients when applying the cumulative catch-up approach to leases
previously classified as operating leases applying AASB 16:
• The Group has applied a single discount rate to a portfolio of leases with reasonably similar characteristics.
• The Group has elected not to recognise right-of-use assets and lease liabilities to leases for which the lease term ends
within 12 months of the date of initial application.
Financial impact of initial application of AASB 16
The weighted average lessees incremental borrowing rate applied to lease liabilities recognised in the statement of
financial position on 1 July 2019 is 5.35%.
The following table shows the operating lease commitments disclosed applying AASB 117 at 30 June 2019, discounted
using the incremental borrowing rate at the date of initial application and the lease liabilities recognised in the statement
of financial position at the date of initial application.
Operating lease commitments at 30 June 2019
Short-term leases and leases of low-value assets
Present value of the lease payments due in periods covered by extension options that are
included in the lease term and not previously included in operating lease commitments
Effect of discounting the above amounts
Lease liabilities recognised at 1 July 2019
$
3,522,540
(1,651)
23,448
(552,177)
2,992,160
The Group has recognised right-of-use assets $2,521,038 and lease liabilities $2,992,160 upon transition to AASB 16. The
difference represents the lease incentive recognised at 30 June 2019 under AASB 117 Leases.
70
71
Bubs Australia Limited and Controlled EntitiesAnnual Report for the year ended 30 June 202004 FINANCIAL STATEMENTS Notes to the Financial StatementsFor personal use only B.
GROUP PERFORMANCE
This section explains the results and performance of the Group
for the year, including segment information, earnings per share
and taxation.
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.
Geographic information
Revenue (by region)
Australia
China
Other International
Total
In FY19 and FY20, the Group had identified a single
operating segment being the sale of nutritional food, fresh
products, adult powder and providing canning services
of nutritional dairy products. 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.
2020
$
2019
$
36,540,584
33,392,866
12,692,522
9,622,100
5,411,846
899,887
54,644,952
43,914,853
B.2
REVENUE
Set out below is the disaggregation of the Group’s revenue from contracts with customers:
Type of goods and services
Sale of Infant Formula
Sale of Baby Organic Food
Sale of Adult Powder
Sale of Fresh Dairy Products
Sale of Raw Materials
Canning services
2020
$
29,845,732
2,604,513
14,378,082
3,449,196
2,340,973
2,026,456
2019
$
18,936,215
2,708,393
15,611,244
5,939,231
337,304
382,466
Total revenue from contracts with customers
54,644,952
43,914,853
RECOGNITION AND MEASUREMENT
Under AASB 15 Revenue from Contracts with Customer, revenue is recognised at an amount that reflects
the consideration to which an entity expects to be entitled in exchange for transferring goods or services
to a customer. The standard requires entities to exercise judgement, taking into consideration all of the
relevant facts and circumstances when applying each step of the model to contracts with their customers.
The standard also specifies the accounting for the incremental costs of obtaining a contract and the costs
directly related to fulfilling a contract and comparatives were not restated.
The revenue information above is based on the locations of the customers.
The Group had 2 external customers who generated greater than 10 percent of the Group’s revenue at 30 June 2020
amounting to $17,220,404. The Group had 3 external customers who generated greater than 10 percent of the Group’s
revenue at 30 June 2019 amounting to $20,926,237.
Sale of products
The Group has identified the following revenue streams by product type:
•
Infant Formula
• Baby Organic Food
• Adult Powder
• Fresh Dairy Products
• Raw materials
72
73
Bubs Australia Limited and Controlled EntitiesAnnual Report for the year ended 30 June 202004 FINANCIAL STATEMENTS Notes to the Financial StatementsFor personal use only
For all revenue streams, the Group’s contracts with customers for the sale of products include one performance
obligation. The Group has concluded that revenue from sale of products should be recognised at the point in time when
the products are transferred to the customer, generally on delivery of the products or when the goods are picked up
at the Group’s warehouse. The Group recognises revenue from the sale of goods measured at the fair value of the
consideration received or receivable, net of returns, volume rebates and marketing contribution.
Rebates and marketing contribution
Rebates and marketing contribution with customers are recognised as a reduction of revenue. Under AASB 15 Revenue
from Contracts with Customer, marketing contributions give rise to variable consideration. To estimate the variable
consideration to which it is entitled, the Group applies the ‘most likely amount method’ for contracts with marketing
contribution. The selected method that best predicts the amount of variable consideration is primarily driven by the
marketing contribution agreed with the customers. The Group then applies the requirements on constraining estimates of
variable consideration and recognises a refund liability for the expected future rebates.
B.3
EXPENSES
Cost of sales
Production costs
Net realisable value adjustments
Obsolete inventory provision
Inventories written off
Total
2020
$
2019
$
42,639,299
34,520,080
105,946
983,290
547,873
36,993
-
744,845
44,276,408
35,301,918
Canning services
Included in administrative and other expenses are the following:
The Group provides the canning services for nutritional dairy products. The Group recognises revenue from the canning
services measured at the fair value of the consideration received or receivable. The revenue represents the Group’s right
to an amount of consideration that is unconditional. Where the Group controls the promised goods before transferring
them to the customers, the Group is a principal and recognises the full amount of goods and canning services as
revenue when the production is complete. Where the Group does not control the promised goods and solely provides
canning services to the customers, the Group is an agent and recognises the revenue for the canning services when the
production is complete.
Where contracts with customers have minimum volume commitments over the term of the agreement and the customer
is not able to fulfil minimum volume commitment, the Group is entitled to charge a penalty fee of the shortfall volume.
This gives rise to variable consideration. To estimate the variable consideration to which it is entitled, the Group applies
the ‘expected value method’.
KEY ESTIMATE AND JUDGEMENT
The Group estimates variable consideration to be included in the transaction price for the sale of products with rebates
and market contribution. Determining whether a customer will be likely entitled to a rebate will depend on the customer’s
historical rebates entitlement and accumulated purchases to date.
The Group estimates variable consideration to be included in the transaction price of the canning service with minimum
volume commitments. The Group estimates the expected volume based on customer forecasts and accumulated
purchases to date.
Listing and registry fees
Accountancy and legal fees
Insurance
Travel costs
Consultancy fee
Occupancy costs
Credit losses
Depreciation and amortisation
Retainer fee with UphamGo Australia
Employee costs
Wages and salaries
Superannuation
Share based payments
Employee benefit expense – Nulac acquisition
Total
Other expenses
Corporate transaction accounting expense
Total
Finance costs
Interest expense
Interest expense on lease liabilities
Unwinding of consideration payable
Total
397,964
673,298
485,233
421,412
214,317
127,698
17,788
3,730,852
-
5,334,823
443,096
(141,049)
-
5,636,870
349,209
349,209
193,703
149,860
1,036,692
1,380,255
313,136
493,372
408,667
672,754
764,843
383,122
42,150
1,178,954
429,265
4,461,758
299,294
1,346,954
5,897,633
12,005,639
897,327
897,327
174,180
-
719,396
893,576
74
75
Bubs Australia Limited and Controlled EntitiesAnnual Report for the year ended 30 June 202004 FINANCIAL STATEMENTS Notes to the Financial StatementsFor personal use only
B.4
LOSS PER SHARE (LPS)
B.5
INCOME TAXES
2020
2019
Loss attributable to the Group used in calculating basic and diluted EPS
(7,771,138)
(35,509,236)
Consolidated profit or loss
Weighted average number of ordinary shares for basic EPS
538,114,198
455,620,266
Basic LPS (dollars)
Diluted LPS (dollars)*
(0.01)
(0.01)
(0.08)
(0.08)
* The Group has granted 9,541,620 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.
Income tax benefit
Current tax
Deferred tax
2020
$
2019
$
-
-
8,329,562
72,797
RECOGNITION AND MEASUREMENT
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.
Income tax benefit reported in the statement of profit or loss
8,329,562
72,797
Numerical reconciliation of income tax benefit and tax at the statutory rate
Accounting Loss before income tax benefit
16,100,700
35,582,033
Income tax benefit calculated at 30% (2018: 27.5%)
4,830,210
9,785,059
Tax effect of amounts not taxable in calculating income tax benefit:
Share of profit of joint ventures
-
51,552
Allocable cost amount relating to Deloraine acquisition
(531,743)
-
Share based payments
42,315
(370,412)
Share based payment - Corporate transaction
-
(5,617,014)
Non-deductible costs
(174,108)
(31,407)
Employee benefit liability - Nulac acquisition
-
(1,621,849)
Deferred consideration payable fair value movement
(311,008)
(197,834)
Income tax losses not recognised
-
(1,865,952)
Other
(347,897)
(59,346)
Income tax losses recognised
4,821,793
-
Income tax benefits
8,329,562
72,797
76
77
Bubs Australia Limited and Controlled EntitiesAnnual Report for the year ended 30 June 202004 FINANCIAL STATEMENTS Notes to the Financial StatementsFor personal use only
Deferred tax assets/(liabilities) arise from the following
2020
Opening Balance
Recognised in
Profit or Loss
Recognised in
equity
Closing Balance
Trade and other receivables
-
Inventories
Intangible assets
Plant and equipment
Right of use assets
Lease Liabilities
Trade and other payables
Provisions
112,392
(14,770,024)
48,481
-
-
-
-
104,828
182,594
657,116
61,535
(624,300)
776,681
69,433
154,348
-
-
-
-
-
-
-
-
Carried forward tax losses1
1,418,030
7,479,070
Capital raising costs
837,095
-
484,611
(65,782)
104,828
294,986
(14,112,908)
110,016
(624,300)
776,681
69,433
154,348
9,381,711
771,313
Allocable cost amount relating to
Deloraine acquisition
-
(531,743)
-
(531,743)
(12,354,026)
8,329,562
418,829
(3,605,635)
2019
Opening Balance
Recognised in
Profit or Loss
Recognised in
equity
Closing Balance
Trade and other receivables
Inventories
Intangible assets
Capital raising costs
Plant and equipment
(7,355)
64,803
(2,321,203)
837,095
-
Carried forward tax losses
1,426,660
7,355
47,589
(21,998)
-
48,481
(8,630)
-
-
-
112,392
(12,426,823)
(14,770,024)
-
-
-
837,095
48,481
1,418,030
1 As at 30 June 2020, deferred tax assets of $9,381,710 (FY19: $1,418,030) relating to tax losses were recognised and expected to be utilised in the
foreseeable future.
-
72,797
(12,426,823)
(12,354,026)
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
(‘TCG’) and Bubs Australia Limited is the head entity of the tax consolidated group.
KEY ESTIMATE AND JUDGEMENT
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, in the year ended 30 June 2020, Bubs
has recognised deferred tax assets of $11,553,301
(2019: $94,797) primarily relating to carried forward
tax losses and temporary differences impacting the
profit or loss. 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.
Assumptions about the generation of future
taxable profits depend 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 income tax
legislation.
for
the
in expectations
Changes
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 2020, the Group had nil (2019: $8,988,100)
of unrecognised tax losses.
78
79
Bubs Australia Limited and Controlled EntitiesAnnual Report for the year ended 30 June 202004 FINANCIAL STATEMENTS Notes to the Financial StatementsFor personal use only
C.
OPERATING ASSETS AND LIABILITIES
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.
C.1
TRADE AND OTHER RECEIVABLES
Trade debtors
Allowance for credit losses
Deferred consideration receivable
Other receivables
Working capital adjustment
Receivable from associates
30/06/2020
$
30/06/2019
$
4,451,294
7,580,552
(10,525)
(3,755)
-
360,515
-
3,493,000
956,828
2,794,927
1,817,788
731,250
6,619,072
15,552,802
The following table details the risk profile of trade receivables based on the Group’s provision matrix.
TRADE RECEIVABLES - DAYS PAST DUE
30/06/2020
Not past due <30 days
31-60 days 61-90 days 91-120 days >120 days
Total
Estimated total
gross carrying
amount at default
Lifetime ECL
5,723
98
4,704
-
-
-
10,525
10,525
TRADE RECEIVABLES - DAYS PAST DUE
30/06/2019
Not past due <30 days
31-60 days 61-90 days 91-120 days >120 days
Total
Estimated total
gross carrying
amount at default
Lifetime ECL
2,192
1,152
253
117
41
-
3,755
3,755
The Group’s exposure to credit risks related to trade and other receivables are disclosed in Note D2 Financial risk management.
RECOGNITION AND MEASUREMENT
The Group initially measures a financial asset at its fair value plus, in the case of a financial asset not at fair value
through profit or loss, transaction costs. Trade receivables are measured at the transaction price determined
under AASB15 Revenue from Contracts with Customers. Further details are disclosed in Note B2 Revenue.
Financial instruments are subsequently measured at fair value through profit or loss (FVPL), amortised
cost, or fair value through other comprehensive income (FVOCI). The classification is based on two criteria:
the Group’s business model for managing the assets; and whether the instruments’ contractual cash flows
represent ‘solely payments of principal and interest’ on the principal amount outstanding (the ‘SPPI criterion’).
The Group’s trade and other receivables and financial assets are measured at amortised cost that are held
within a business model with the objective to hold the financial assets in order to collect contractual cash
flows that meet the SPPI criterion.
The Group adopted a forward-looking expected credit loss (ECL) approach for impairment losses for ECLs
for financial assets not held at FVPL.
ECLs are based on the difference between the contractual cash flows due in accordance with the
contract and all the cash flows that the Group expects to receive. The shortfall is then discounted at an
approximation to the asset’s original effective interest rate.
KEY ESTIMATE AND JUDGEMENT
RECOVERY OF DEFERRED TAX ASSETS
For trade receivables, the Group has applied the
standard’s simplified approach and has calculated
ECLs based on lifetime expected credit losses. The
Group has established a provision matrix that is based
on the Group’s historical credit loss experience,
adjusted for forward-looking factors specific to
the debtors and the economic environment.
80
81
Bubs Australia Limited and Controlled EntitiesAnnual Report for the year ended 30 June 202004 FINANCIAL STATEMENTS Notes to the Financial StatementsFor personal use only
C.2
INVENTORIES
30/06/2020
$
30/06/2019
$
Raw materials
14,266,867
2,624,457
Finished goods at cost
16,335,289
11,927,943
30,602,156
14,552,400
C.3
OTHER ASSETS
Prepayments and other assets
Deposits paid
Inventories paid in advance
Security bond
30/06/2020
$
30/06/2019
$
497,175
586,286
187,661
382,985
239,219
596,939
426,717
373,688
1,654,106
1,636,563
The amount of inventory that was written off during the period was $547,873 (2019: $744,845).
An adjustment of 105,946 (2019: $36,993) was made on inventories carried at net realisable value.
An inventory obsolete provision $983,290 (2019: $nil) was recognised as an expense during the year. $38,849,052 (2019: $30,668,221)
inventories were recognised as an expense during the year.
RECOGNITION AND MEASUREMENT
Inventories paid in advance
RECOGNITION AND MEASUREMENT
Deposits paid
Inventories paid in advance represent payments for purchases of finished goods prior to ownership passing
to the Group.
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.
Deposits paid represent payments to suppliers in relation to goods received or services rendered. These
deposits are refundable to the Group.
Security bond
Security bond represents payments to the landlord securing the obligations of the Group under the lease
contract of the Deloraine Dairy site.
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. Management
assessed
of
inventories based on the estimated
recoverability
the
ongoing impact from COVID-19 on
distribution channels and estimated
in FY21.
end consumer demand
Changes in trading and economic
conditions, and changes in country
specific regulations, may
impact
these estimations in future periods.
82
83
Bubs Australia Limited and Controlled EntitiesAnnual Report for the year ended 30 June 202004 FINANCIAL STATEMENTS Notes to the Financial StatementsFor personal use only
C.4
PLANT AND EQUIPMENT
RECOGNITION AND MEASUREMENT
Building and
improvements
$
Production
equipment
$
Motor Vehicle
$
Office
equipment
$
Total
$
Cost
As at 1 July 2018
Additions
-
-
73,730
45,777
-
-
Acquisition of a subsidiary
1,371,300
2,707,170
25,000
Disposals
-
-
-
45,309
36,950
70,730
(9,320)
119,039
82,727
4,174,200
(9,320)
As at 30 June 2019
1,371,300
2,826,677
25,000
143,669
4,366,646
Additions
Disposal
17,570
-
124,452
(28,652)
-
-
24,842
(10,194)
166,864
(38,846)
As at 30 June 2020
1,388,870
2,922,477
25,000
158,317
4,494,664
Accumulated Depreciation
As at 1 July 2018
Depreciation
Disposal
As at 30 June 2019
Depreciation
Disposal
-
(16,170)
-
(16,170)
(81,320)
(52,062)
(50,102)
-
(102,165)
-
(416)
-
(416)
(175,276)
(2,083)
-
12,143
-
(19,672)
(22,483)
8,035
(34,120)
(34,250)
6,762
(71,734)
(89,172)
8,035
(152,871)
(292,929)
18,905
As at 30 June 2020
(97,490)
(265,298)
(2,499)
(61,608)
(426,895)
Net book value
As at 30 June 2019
1,355,130
2,724,512
As at 30 June 2020
1,291,380
2,657,179
24,584
22,501
109,549
4,213,775
96,709
4,067,769
Plant and equipment are stated at historical cost less
accumulated depreciation and impairment. Historical cost
includes expenditure that is directly attributable to the
acquisition of the items.
Depreciation is calculated on a straight-line basis to write
off the net cost of each item of plant and equipment over
their expected useful lives as follows:
The residual values, useful lives and depreciation methods are
reviewed, and adjusted if appropriate, at each reporting date.
An item of plant and equipment is derecognised upon
disposal or when there is no future economic benefit to the
Group. Gains and losses between the carrying amount and
the disposal proceeds are taken to profit or loss.
Building and improvements
Production equipment
Motor Vehicle
Office equipment
17-19 years
12-19 years
10 years
2-13 years
84
C.5
INTANGIBLE ASSETS
Goodwill
$
Brand
name
$
Licence $
Priority
right
$
Customer
contract/
list
$
Recipes
$
Patents,
trademarks
and
software
$
Total
$
Cost
As at 1 July
2018
Acquisition of
a subsidiary
Addition
Disposal
As at 30 June
2019
Addition
Disposal
As at 30 June
2020
-
-
73,690,417
5,091,634
-
3,765,731
47,740
52,188
82,647,710
16,924,256
-
-
-
-
(400,000)
38,489,095
3,094,033
-
-
1,800,000
-
-
(100,000)
-
-
-
58,444
58,565,828
-
-
1,800,000
(500,000)
90,614,673
4,691,634
38,489,095
1,800,000
6,759,764
47,740
110,632
142,513,538
-
-
-
-
-
-
-
-
-
-
-
-
52,550
52,550
-
-
90,614,673
4,691,634
38,489,095
1,800,000
6,759,764
47,740
163,182
142,566,088
Amortisation and impairment
As at 1 July
2018
Amortisation
Disposal
As at 30 June
2019
Amortisation
Disposal
As at 30 June
2020
Net book value
At 30 June
2019
As at 30 June
2020
(49,138,940)
-
-
(49,138,940)
-
-
-
-
-
-
-
-
-
(442,687)
(46,196)
(28,241)
(49,656,064)
(349,901)
(300,000)
(420,466)
(1,544)
(17,872)
(1,089,783)
-
-
15,301
-
-
15,301
(349,901)
(300,000)
(847,852)
(47,740)
(46,113)
(50,730,546)
(1,749,504)
(900,000)
(648,199)
-
-
-
-
-
(33,152)
(3,330,855)
-
-
(49,138,940)
(2,099,405)
(1,200,000)
(1,496,051)
(47,740)
(79,265)
(54,061,401)
41,475,733
4,691,634
38,139,194
1,500,000
5,911,912
41,475,733
4,691,634
36,389,690
600,000
5,263,713
-
-
64,519
91,782,992
83,917
88,504,687
Brand name, customer contract/list, licence, priority right and
goodwill are allocated to the following cash generating units
(CGUs) for the purposes of impairment testing: Infant Food
Co $1,165,712 (2019: $1,165,712); Nulac Foods $31,218,363
(2019: $32,457,159) and Deloraine Dairy $56,036,695 (2019:
$58,095,603).
85
Bubs Australia Limited and Controlled EntitiesAnnual Report for the year ended 30 June 202004 FINANCIAL STATEMENTS Notes to the Financial StatementsFor personal use only
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.
LICENCE
The licence represents the CNCA (Certification and Accreditation Administration of the People’s Republic of
China) licence that Deloraine Dairy currently holds. The licence is amortised on a straight-line basis over the
period of the expected benefit, being the finite life of 22 years.
CUSTOMER CONTRACT/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.
PRIORITY RIGHT
Priority right represents the priority right of processing and manufacturing goat milk at Uphamgo Australia.
The amount is amortised on a straight-line basis over the two year agreement with the commencement date
of 28 February 2018.
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:
Infant Food Co
Nulac Foods
Deloraine Dairy
2020
2019
1,165,712
1,165,712
31,218,363
32,457,159
56,036,695
58,095,603
88,420,770
91,718,474
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.
86
87
Bubs Australia Limited and Controlled EntitiesAnnual Report for the year ended 30 June 202004 FINANCIAL STATEMENTS Notes to the Financial StatementsFor personal use only
KEY ESTIMATES AND JUDGEMENTS
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 2020
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.
In light of the current impact of
COVID-19 on the Group’s performance
has
2HFY20, management
in
impairment
reviewed the assumptions applied
in use models for
to the value
goodwill
testing and
made additional adjustments to the
five-year forward plans used in the
Group’s impairment testing in order
to reflect the estimated impact from
COVID-19 based on
information
available as at 30 June 2020. The
value in use models are considered to
reflect a base case of cashflows and
appropriate discount rate.
KEY ASSUMPTIONS
2020
2019
CGUs
Infant Food Co Nulac Foods
Deloraine
Dairy
Infant Food Co Nulac Foods
Deloraine
Dairy
Discount rate (post tax)
12.90%
11.90%
11.91%
12.90%
11.90%
11.91%
Discount rate (pre tax)
18.50%
17.00%
17.01%
18.50%
17.00%
17.01%
Terminal growth
2.00%
2.00%
2.00%
2.50%
2.50%
2.50%
SENSITIVITY TO CHANGE IN ASSUMPTIONS
The calculation of value in use for the above CGUs is most
sensitive to the following assumptions:
• Gross margins
• Discount rates
• Revenue growth during the forecast period
• Growth rates used to extrapolate cash flows beyond the
forecast period (terminal growth rate)
Gross margins – Gross margins are based on budgeted
margins for FY2020, and conservative estimates for future
years, which have been adjusted where appropriate to
account for expected future trading conditions. Consideration
has been given to the growth profile of each CGU when
forecasting future margin returns.
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.
The Group has not adjusted the discount rates in light of the
current impact of COVID-19 as the Group has incorporated
the risk into five-year forward plans and reflected in the value
in use models for goodwill impairment testing.
Revenue growth – Revenue projections have been constructed
with reference to the FY20 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 regions. In addition, the Group made
further adjustments on revenue growth in FY21 to reflect
the estimated impact from COVID-19. Lower revenue for the
first quarter were assumed in the distribution channel that
have been adversely impacted from COVID-19. A gradual
return of trading activities is assumed with no return to pre
COVID-19 levels until Q3 FY21. Management assesses the
reasonableness of the growth assumptions by reviewing
the achieved growth of comparable entities in the nutritional
products industry.
Terminal growth rate – A terminal growth rate of 2.0%
(2019: 2.5%) has been used for future cash flow growth
beyond the five-year forecast period for all CGUs. This is a
conservative rate when compared to annual growth rates
during the forecast period.
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, the recoverable amount of each
CGU exceeded its carrying amount and no impairment loss
has been recognised on intangible assets that are subject
to goodwill impairment testing.
Management has identified that a reasonably possible change
in three key assumptions could reduce the headroom of each
CGU as showing in the following table. However, it would not
result in an impairment.
Impact on headroom
% change
Infant Food Co
Nulac Foods
Deloraine Dairy
Discount rate
Budgeted gross revenue growth
Budgeted gross margin
1.5%
-5%
-1%
(13,808,595)
(6,265,855)
(12,316,889)
(21,526,640)
(5,274,381)
(5,370,753)
(13,122,716)
(3,247,141)
(3,098,950)
The gross margin would need to adversely change by
4.45% before the recoverable amount of Infant Food Co
CGU and Nulac Foods CGU would be equal to the carrying
amount. Management has conducted sensitivity review on
the forecast revenue, it would not result in an impairment
if the revenue of each of the three CGUs is 10% lower than
the forecast. No reasonably possible change in discount
rate as described above would result in an impairment to
any CGUs.
The Group believes that the assumptions adopted in the
value in use calculations reflect an appropriate balance
between the Group’s experience to date and the uncertainty
associated with the COVID-19 pandemic. Whilst the
disruption caused by COVID-19 to the business may impact
short term results, the expected timing and nature of any
such disruptions is not expected to impact the long-term
performance of the Group’s business and result of our
impairment testing. Accordingly, the Group has concluded
that no impairment is required based on current market
and economic conditions and expected future performance.
88
89
Bubs Australia Limited and Controlled EntitiesAnnual Report for the year ended 30 June 202004 FINANCIAL STATEMENTS Notes to the Financial StatementsFor personal use only C.6
TRADE AND OTHER PAYABLES
C.7
CONTRACT LIABILITIES
Trade payables
Other payables
Customer deposit
Priority right payable
Payable to associates
2020
$
2019
$
7,559,124
4,152,617
Contract liabilities
2020
$
67,234
67,234
2019
$
926,382
926,382
$27,546 included in contract liabilities at 30 June 2019
was recognised as revenue during the year and $881,236
deposit received pre Deloraine acquisition was refunded
to the customer. No revenue was recognised in the current
year that related to performance obligations that were
satisfied in the prior year.
2,773,565
1,345,667
609,884
602,743
-
1,800,000
61,007
1,030,470
11,003,580
8,931,497
As at 30 June 2020, a total of $400,932 PAYG payable, GST
payable and FBT payable were deferred to September
2020 as part of the benefits received by the Group during
the COVID-19 period.
RECOGNITION AND MEASUREMENT
TRADE AND OTHER PAYABLES
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
C.6
CUSTOMER DEPOSIT
Customer deposits are cash considerations received from customers in relation to the packaging service to be
provided by the Group after obtaining the approval from the People’s Republic of China on its brand slot application
(“SAMR registration”). Deposits are refundable to the customer.
There is no impact on the accounting for the Group’s financial liabilities under AASB 9 Financial Instruments.
RECOGNITION AND MEASUREMENT
Contract liabilities are obligations to transfer goods or services to a customer for which the Group has received
consideration (or an amount of consideration is due) from the customer. If a customer pays consideration before the
Group transfers goods or services to the customer, contract liabilities are recognised when the payment is made or
the payment is due (whichever is earlier). Income received in advance are recognised as revenue when the Group
satisfies the performance obligations under the contract.
90
91
Bubs Australia Limited and Controlled EntitiesAnnual Report for the year ended 30 June 202004 FINANCIAL STATEMENTS Notes to the Financial StatementsFor personal use only
C.8
LEASES
RIGHT OF USE ASSETS
Cost
At 1 July 2019
Additions
Buildings
$
Equipment
$
Total
$
2,444,996
76,042
2,521,038
-
-
-
At 30 June 2020
2,444,996
76,042
2,521,038
Accumulated depreciation
At 1 July 2019
-
-
-
Charges for the period
421,805
18,233
440,038
At 30 June 2020
Carrying amount
At 30 June 2020
421,805
18,233
440,038
2,023,191
57,809
2,081,000
The Group leases several assets including buildings and IT equipment. The lease terms range from 1.2 – 5.75 years (2019:
2.2 - 6.75 years).
AMOUNTS RECOGNISED IN PROFIT AND LOSS
Depreciation expense on right-of-use assets
Interest expense on lease liabilities
Expense relating to short-term leases
The total cash outflow for leases amount to $553,633.
30/06/2020
$
440,038
149,860
19,812
LEASE LIABILITIES
Current
Non-current
Maturity analysis
Year 1
Year 2
Year 3
Year 4
Year 5
Onwards
Less unearned interest
Total
30/06/2020
$
422,805
2,166,131
2,588,936
550,557
532,824
499,444
502,267
512,266
393,347
2,990,705
401,769
2,588,936
The Group does not face a significant liquidity risk with regard to its lease liabilities. All lease obligations are
denominated in Australian dollars.
RECOGNITION AND MEASUREMENT
Further details are disclosed in Note A.
92
93
Bubs Australia Limited and Controlled EntitiesAnnual Report for the year ended 30 June 202004 FINANCIAL STATEMENTS Notes to the Financial StatementsFor personal use only C.9
BORROWINGS
Current
2020
$
2019
$
2,000,000
2,000,000
2,000,000
2,000,000
The Group has a working capital facility with National
Australia Bank. Total limit of the facility is $10 million with
$2 million drawn at 30 June 2020 (2019: $2 million). 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 due to relatively short term maturity.
C.10
PROVISION
Current
Annual leave and long service leave
Lease incentive
Supplier contract liability
Other provision
Non - Current
Long service leave
Lease incentive
Make good provision
2020
$
365,653
-
-
235,616
601,269
59,520
-
89,321
148,841
2019
$
291,870
29,924
1,800,000
235,616
2,357,410
25,505
441,198
87,246
553,949
RECOGNITION AND MEASUREMENT
ANNUAL LEAVE AND LONG SERVICE LEAVE
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.
SUPPLIER CONTRACT LIABILITY
Deloraine Dairy entered into a manufacturing agreement which has minimum volume commitments over
the term of the agreement. Where Deloraine Dairy is not able to fulfil minimum volume commitments, it is
required to make production shortfall payments. A provision is raised when production thresholds have not
been met.
OTHER PROVISION
An employee costs provision relating to the expected termination settlement with the previous CEO.
94
95
Bubs Australia Limited and Controlled EntitiesAnnual Report for the year ended 30 June 202004 FINANCIAL STATEMENTS Notes to the Financial StatementsFor personal use only
C.11
SHARE BASED PAYMENT LIABILITY
C.12
DEFERRED CONSIDERATION
Current
Non-Current
2020
$
2019
$
956,045
1,946,169
255,768
593,477
As part of the Chemist Warehouse transaction the Group
engaged in FY19, the Group is required to pay cash for
the GST component relating to the shares to be issued to
Chemist Warehouse. This has been presented as a share
based payment liability. This amount is expected to be fully
recoverable and a corresponding GST receivable has been
recorded.
As part of the acquisition of Deloraine Dairy in FY19, a deferred consideration of $15 million is payable in cash over the
three year period. The fair value of the deferred consideration is estimated by calculating the present value of future
expected cashflow.
A reconciliation of fair value measurement of the deferred consideration payable is provided below:
Balance at 30 June 2019
$12,347,062
Unwinding of the deferred consideration payable recognised in profit or loss in the current period
$1,036,692
Deferred consideration paid in the current period
Balance at 30 June 2020
($5,000,000)
$8,383,754
96
97
Bubs Australia Limited and Controlled EntitiesAnnual Report for the year ended 30 June 202004 FINANCIAL STATEMENTS Notes 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.
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.
CREDIT RISK MANAGEMENT
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.
are
customers
for
analysed
New
individually
creditworthiness,
taking into account credit ratings where
available, financial position, previous
trading experience and other factors.
There is significant concentration of
credit risk within the Group. In FY20, 19%
of sales were to one customer (2019:
24% sales to one customer). There is no
history of default for this customer.
For trade receivables and contract
assets, the Group has applied the
standard’s simplified approach and
has calculated ECLs based on lifetime
expected credit losses.
in default when
information
The Group considers a financial
asset
internal or
external
indicates that
the Group is unlikely to receive the
outstanding contractual amounts in full
before taking into account any credit
enhancements held by the Group.
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.
As at 30 June 2020 there were no derivative financial
instruments in place. Specific risk management objectives and
policies are set out below.
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 monitoring customer credit risk,
customers are assessed individually by
their debtor ageing profile. Monitoring of
receivable balances on an ongoing basis
minimises the exposure to bad debts.
OTHER CREDIT RISK
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.
Ageing of trade receivables at the reporting date:
Maximum exposures to credit risk at balance date:
Cash and cash equivalent (counterparty risk)
Trade receivables (customer credit risk)
Deferred consideration receivable
Working capital adjustment
Other receivables
GST receivable
Deposits paid
98
2020
$
26,025,575
6,258,557
-
-
360,515
1,211,813
586,286
2019
$
23,291,058
8,308,047
3,493,000
2,794,927
956,828
2,539,646
596,939
34,442,746
41,980,445
Neither past due nor default
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
2020
$
2019
$
4,995,348
3,447,415
1,203,758
4,747,038
56,241
3,210
-
99,502
1,039
13,053
6,258,557
8,308,047
99
Bubs Australia Limited and Controlled EntitiesAnnual Report for the year ended 30 June 202004 FINANCIAL STATEMENTS Notes to the Financial StatementsFor personal use only
Movement in allowance for doubtful debts
Allowance of doubtful debts
Balance at beginning of the year
2020
$
2019
$
3,755
1,266
Amount charged to the statement of profit or loss and other comprehensive income
17,788
42,150
Provision utilised
Balance at the end of year
(11,018)
(39,661)
10,525
3,755
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 transactions in Australia, New
Zealand, China and Europe and is exposed to currency risk
arising from movements in the currencies of those countries
against the AUD dollar.
Expressed in AUD dollars, the table below indicates material
exposure and sensitivity to movements in exchange rates on
the profit 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.
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.
Net exposure on reporting
date (Payable)/Receivable
Impact on pre-tax profit / (loss)
$
(800,571)
253,428
98,332
179,782
(269,029)
+10%
$
72,779
(23,039)
(8,939)
(23,039)
17,762
-10%
$
(88,952)
28,159
10,926
19,976
(29,891)
2020
Movement on exchange rate
NZD
USD
RMB
Euro
Net exposure
100
2019
Movement on exchange rate
NZD
USD
RMB
Euro
Net exposure
Net exposure on reporting
date (Payable)/Receivable
Impact on pre-tax profit / (loss)
$
(271,771)
14,761
59,414
196,045
1,551
+10%
$
24,706
(1,342)
(5,401)
(17,822)
(141)
-10%
$
(30,197)
1,640
6,602
21,783
(172)
INTEREST RISK MANAGEMENT
The Group’s main interest rate risk arises from borrowings, which expose the Group to cash flow interest rate risk. The risk is
considered immaterial.
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
(2018: $2,000,000) drawn at 30 June 2020. Total limit of facility
is $10,000,000.
Contractual undiscounted maturities of financial liabilities
2020
Contractual cashflows
Carrying
amount
Total
2 months
or less
2-12
months
1-2 years
2-5 years
More than
5 years
Non-derivative financial liabilities
Lease liability
2,588,936
2,990,705
91,759
458,798
532,824
1,513,977
393,347
8,383,754
10,000,000
-
5,000,000
5,000,000
Deferred consideration
payable
Trade and other
payables
11,003,580 11,003,580 11,003,580
Borrowings
2,000,000
2,000,000
2,000,000
Payable to associates
61,007
61,007
61,007
-
-
-
-
-
-
-
-
-
-
-
-
-
-
24,037,277 26,055,292 13,156,346
5,458,798
5,532,824
1,513,977
393,347
101
Bubs Australia Limited and Controlled EntitiesAnnual Report for the year ended 30 June 202004 FINANCIAL STATEMENTS Notes to the Financial StatementsFor personal use only 2019
Contractual cashflows
Carrying
amount
Total
2 months
or less
2-12
months
1-2 years
2-5 years
More than
5 years
D.4
CASH FLOW INFORMATION
Non-derivative financial liabilities
Consideration payable
238,095
238,095
Employee benefit
liability - Nulac
acquisition
Deferred consideration
payable
6,700,000
6,700,000
12,347,062 15,000,000
Priority right payable
1,800,000
1,800,000
-
-
-
-
Trade and other
payables
5,498,284
5,498,284
5,498,284
Borrowings
2,000,000
2,000,000
2,000,000
238,095
6,700,000
-
-
-
-
5,000,000
5,000,000
5,000,000
1,800,000
-
-
-
-
-
-
-
-
-
-
-
-
Payable to associates
1,030,470
1,030,470
1,030,470
-
Supplier contract
liability
1,800,000
1,800,000
1,000,000
800,000
31,413,911 34,066,849
9,528,754
14,538,095
5,000,000
5,000,000
D.3
CASH AND CASH EQUIVALENTS
Cash at bank and on hand
2020
$
26,025,575
26,025,575
2019
$
23,291,058
23,291,058
-
-
-
-
-
-
-
-
-
Reconciliation of after tax profit with net cash flows from operating activities
2020
$
2019
$
(Loss) after income tax expense for the year
(7,771,138)
(35,509,236)
Income tax benefit
Share-based payments
(8,329,562)
(72,797)
(141,049)
1,346,954
Share-based payments - Corporate transaction
-
20,425,504
Unwinding of deferred consideration payable
1,036,692
719,396
Employee benefit expense – NuLac acquisition
-
13,847,865
Depreciation and amortisation
4,063,818
1,178,954
Equity accounting profit
Foreign currency reserve
Gain on disposal of JVs
Gain on disposal of Coach House Dairy assets
286,929
(187,464)
(14,177)
1,967
-
-
(937,185)
(15,301)
Gain on disposal of plant and equipment
19,079
(424)
Interest is earned at floating rates based on daily bank deposit rates.
Decrease / (increase) in trade and other receivables
2,124,833
(5,578,137)
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 inventories
(16,049,756)
(7,423,338)
Decrease / (increase) in other assets
(17,545)
4,272,024
Increase / (decrease) in trade and other payables
2,764,925
(9,613,288)
Increase/ (decrease) in provisions
109,873
386,139
Net cash outflow from operating activities
(21,917,078)
(17,158,367)
102
103
Bubs Australia Limited and Controlled EntitiesAnnual Report for the year ended 30 June 202004 FINANCIAL STATEMENTS Notes to the Financial StatementsFor personal use only
D.5
SHARE CAPITAL
Movement in share capital
D.6
SHARE BASED PAYMENTS RESERVE
30/06/2020
30/06/2019
30/06/2020
$
30/06/2019
$
Shares
$
Shares
$
Balance at the beginning of the year
24,878,923
3,106,465
Balance at beginning of the year
509,590,057
189,059,150
436,194,415
142,189,264
Issue of shares as part of acquisition
-
-
15,384,615
13,384,615
Share based payment expense – Corporate
transaction
12,356,627
13,732,827
-
-
Exercise of options
1,506,545
150,655
7,910,805
791,081
Placement of shares
31,578,947
30,000,000
-
-
Share purchase plan
5,263,158
5,000,000
50,100,222
32,738,477
Share issue transactions costs (net of tax)
-
(977,272)
-
(44,287)
Balance at end of year
560,295,334
236,965,360
509,590,057
189,059,150
Fully paid ordinary shares carry one vote per share and carry right to dividends. Fully paid ordinary shares have no par
value.
Share based payment
(141,049)
1,346,954
Share based payment – Corporate transaction
(13,732,827)
20,425,504
Balance at the end of the year
11,005,047
24,878,923
The equity settled payments reserve is used to record
the value of share-based payments. Further details are
disclosed in Note G2 Share based payments.
Share based payment – Corporate transaction represents
the value of shares that the Group has issued to Chemist
Warehouse Retail Group during the period. The value of
the shares was transferred to the issued capital with a
reduction in the share based payments reserve.
An initial tranche of 2,974,272 fully paid ordinary shares
was issued to Chemist Warehouse Retail Group on 2
September 2019 upon Chemist Warehouse stocking the
products in accordance with the Heads of Agreement. The
second tranche of 9,382,355 fully paid ordinary shares
was issued on 23 December 2019 upon the approval at
Bubs’ 2019 AGM.
The third tranches of 12,356,627 fully paid ordinary
shares were issued on 24 July 2020 upon satisfying its
sales performance condition of meeting minimum sales
target for the year ending 30 June 2020.
The remaining 24,713,254 fully paid ordinary shares will
be issued in two annual tranches, each of 12,356,627
shares upon the future satisfaction of sales performance
targets by Chemist Warehouse relating to the actual sales
of Bubs products in Chemist Warehouse stores for the
years ending 30 June 2021 and 30 June 2022.
D.7
CONTINGENT LIABILITIES
As at 30 June 2020, there were no material contingent liabilities (2019: $nil).
104
105
Bubs Australia Limited and Controlled EntitiesAnnual Report for the year ended 30 June 202004 FINANCIAL STATEMENTS Notes to the Financial StatementsFor personal use only
E.
ASSOCIATES
On 6 May 2019, the Group and Beingmate Baby & Child Food Co., Ltd (‘Beingmate’) established a joint venture company
Bubs Brand Management Shanghai Co. Ltd (‘Bubs Brand Management’). The Group contributed 49% of registered capital
RMB 4,900,000 in FY20.
Summarised financial information of the associate are set out below:
Current assets
Non-current assets
Current liabilities
Non-current liabilities
Net assets
Loss for the year ended 30 June 2020
Revenue
Loss before tax
Income tax expense
Loss for the year
Other comprehensive income
Total comprehensive loss for the year
Reconciliation of the above summarised financial information to the carrying amount of the
investment in Associate recognised in the consolidated financial statements
Net assets of associate (49%)
Proportion of the Groups ownership interest in the associate (49%)
Carrying amount of the investment in the associate
30/06/2020
3,218,647
224,674
(1,842,764)
(83,124)
(1,517,433)
6,580,963
(547,628)
(8,487)
(556,115)
-
(556,115)
1,517,433
743,542
743,542
RECOGNITION AND MEASUREMENT
The Group has determined that it does not have joint control of Bubs Brand Management and is therefore
outside the scope of AASB 11 Joint Arrangements. As such, The Group’s investment in Bubs Brand Management
will be accounted for as an associate under AASB 128 Investments in Associates and Joint Ventures.
The financial results of the associate are used by the Group to apply the equity method. Where associates
apply different accounting policies to the Group, adjustment are made upon application of the equity method.
Investments in associates are carried in the consolidated Statement of Financial Position at cost plus
post-acquisition changes in the Group’s share of net assets of the associates, less impairment in value.
The consolidated Statement of Profit or Loss reflects the Group’s share of the results of operations of the
associate.
Where there has been a change in the associates OCI or equity, the Group recognises its share of any changes
and discloses this, when applicable in the consolidated Statement of Other Comprehensive Income.
When the Group’s share of losses in an associate equals or exceeds its interest in the associate, including
any unsecured long term receivables and loans, the Group does not recognise further losses unless it has
incurred obligations or made payments on behalf of the associate.
106
107
Bubs Australia Limited and Controlled EntitiesAnnual Report for the year ended 30 June 202004 FINANCIAL STATEMENTS Notes to the Financial StatementsFor personal use only
F.
GROUP STRUCTURE
F.1
PARENT ENTITY
Bubs Australia Limited is the ultimate parent of the Group.
F.2
SUBSIDIARIES
Country of
incorporation
Principal
Activity
Class or
Shares
% Owned
2020
% Owned
2019
The Infant Food Holding
Co. Pty Limited
Australia
Non-trading
Ordinary
100%
100%
The Infant Food Co. Pty Limited
Australia
Trading
Company
Ordinary
100%
100%
Bubs IP Pty Ltd (formerly Bubs
Australia Pty Limited)
Australia
Holder of IP and
trademarks
Ordinary
100%
100%
Nulac Foods Pty Ltd
Australia
Bubs New Zealand Pty Limited
New Zealand
Australia Deloraine Dairy Group
Limited
British Virgin
Island
Australia Deloraine Dairy Pty Ltd
Australia
Trading
Company
Trading
Company
Non-trading
Holding
Company
Trading
Company
Ordinary
100%
100%
Ordinary
100%
100%
Ordinary
100%
100%
Ordinary
100%
100%
F.3
PARENT ENTITY INFORMATION
Set out below is the supplementary information of the legal parent entity.
2020
$
2019
$
Result of parent entity
Loss for the year
(49,811,208)
(29,036,379)
Other comprehensive income
-
-
Total comprehensive loss for the year
(49,811,208)
(29,036,379)
Financial position of parent entity at year end
Current assets
Total assets
Current liabilities
Total liabilities
981,810
8,340,374
123,148,102
152,318,984
1,192,920
3,225,016
9,832,442
23,103,651
Issued share capital
264,127,057
216,220,846
Reserves
10,884,247
24,878,923
Accumulated losses
(161,695,644)
(111,884,436)
Total Equity
113,315,660
129,215,333
108
109
Bubs Australia Limited and Controlled EntitiesAnnual Report for the year ended 30 June 202004 FINANCIAL STATEMENTS Notes 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 payments1
Key management personnel disclosures
2020
$
2019
$
1,694,436
1,270,224
131,195
59,010
100,944
25,256
(141,049)
1,346,954
1,743,592
2,743,378
1
In FY19, a higher probability was applied to vesting conditions of CEO options. Due to the impact of COVID-19, the probability of satisfying those conditions
has been significantly reduced which has resulted in a negative balance.
TRANSACTIONS WITH RELATED PARTIES
The following table provides details of transactions that were entered into for the relevant financial year.
Sales to
related parties
Purchases from
related parties
Amounts owed to
related parties
Loan to
related parties
Amounts owed by
related parties
2020
$
2019
$
2020
$
2019
$
2020
$
2019
$
2020
$
2019
$
2020
$
2019
$
-
-
39,488
181,794
14,148
64,538
-
-
-
-
KMP of the group
Professional
services fee to
BDO Australia
Ltd
Joint venture in
which the parent
is a venturer:
Cibus Goats
(Australia) Pty
Ltd
New Zealand
Nutritional
Company
UphamGo
Australia Pty Ltd
Associate
Bubs Brand
Management
Shanghai
Co. Ltd
-
-
-
6,838
-
-
5,648,592
9,335,643
-
110,535
-
7,722,603
-
-
-
29,037
-
-
6,734,364
-
185,296
-
61,007
-
-
-
-
-
-
-
-
-
-
-
-
-
-
1,817,788
-
1,817,788
-
-
-
-
111
Total
6,734,364 117,373 224,784 22,888,632 75,155
93,575
All of the above transactions were considered to be on an arms’ length basis.
110
Bubs Australia Limited and Controlled EntitiesAnnual Report for the year ended 30 June 202004 FINANCIAL STATEMENTS Notes to the Financial StatementsFor personal use only
G.2
SHARE BASED PAYMENTS
Share based payments expense in relation to options exercisable is as follows:
Employee options issued to the current CEO
Employee options issued to the Executive Chairman
The movements in the options are as follows:
Balance at 1 July 2018
Options cancelled during the year (Exercisable at $0.10)
Options exercised during the year (Exercisable at $0.10)
Balance at 30 June 2019
Options exercised during the year (Exercisable at $0.10)
Options granted to the Executive Chairman during the year (Exercisable at $0.10)
Balance at 30 June 2020
2020
$
2019
$
(1,349,046)
1,346,954
1,207,997
-
(141,049)
1,346,954
Options #
17,766,268
(3,578,108)
(7,910,805)
6,277,355
(1,506,545)
4,770,810
9,541,620
Options on issue at 30 June 2020 are as follows:
Options issued to the current CEO in FY18:
Options issued to the Executive Chairman in FY20:
2,385,405: vest 3 months after issue and on the
achievement of $30m in gross revenue and $2m in
EBIT in any consecutive 12 month period and expire on
termination of employment; and
2,385,405: vest 3 months after issue and on the
achievement of $50m in gross revenue and $2m in
normalised EBITDA as at the Company’s full year
results and expire on termination of employment.
2,385,405: vest 3 months after issue and on the
achievement of $50m in gross revenue and $4m in
EBIT in any consecutive 12 month period and expire on
termination of employment.
2,385,405: vest 3 months after issue and on the
achievement of $60m in gross revenue and $4m in
normalised EBITDA as at the Company’s full year
results and expire on termination of employment.
The options issued in FY18 expire on 19 January 2021.
The options issued in FY20 expire on 29 November 2022.
The fair value of the options granted was measured during
the year using the Black-Scholes pricing model, taking into
account the terms and conditions upon which the options
were granted.
The details of the fair value of the options offered to Dennis Lin during the period is as follows:
Exercise price ($)
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
0.10
1.08
29-Nov-19
65%
29-Nov-22
Nil
0.65%
$0.98
2,385,405
$2,346,761
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.
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.
112
113
Bubs Australia Limited and Controlled EntitiesAnnual Report for the year ended 30 June 202004 FINANCIAL STATEMENTS Notes to the Financial StatementsFor personal use only G.3
AUDITORS REMUNERATION
During the financial year the following fees were paid or payable for services provided by the auditor of the Group:
2020
$
2019
$
Audit services
Audit or review of the financial statements – Deloitte
245,000
-
Audit or review of the financial statements – Ernst & Young
Completion audit of Australia Deloraine Dairy Group at acquisition date
– Ernst & Young
Non audit services
-
-
-
434,436
41,434
-
245,000
475,870
G.4
SUBSEQUENT EVENTS
On 24 July 2020, Bubs issued 12,356,627 fully ordinary paid
shares to Chemist Warehouse Retail Group upon satisfying
of sales performance target for the year ended 30 June
2020. Further details are disclosed in Note D6 Share based
payments reserve.
On 24 August 2020, Bubs has entered into a Memorandum
of Understanding with Beingmate Co., Ltd under which
Bubs has the opportunity to acquire an ownership interest
in one of Beingmate’s Infant Formula manufacturing
facilities in Beihai China, and obtain Beingmate’s support
in securing a State Administration for Market Regulation
(SAMR) brand slot, with the objective of producing Bubs®
China label Goat Milk Infant Formula using 100% Bubs
Australian goat milk. Bubs intends to withdraw the existing
SAMR brand applications previously made by Deloraine,
and resubmit differentiated super-premium formulations
targeting consumers in tier-one cities.
Bubs continues to monitor milk supply in line with projected
demand and conduct pricing reviews with suppliers. As part
of the FY21 review process, some milk supply agreements
have been reset to better align volumes and reduce costs.
This restructure included terminating without penalty the
guaranteed supply under the CIBUS Australia Milk Supply
Agreement from 31 December 2020, and forgoing the call
option over CIBUS farms. In addition, the Company entered
into a new Milk Supply Agreement with a Victorian supplier
who is expected to replace and exceed CIBUS volume
over time, thereby better aligning with the Company’s
demand profile in the short term whilst safeguarding
Bubs provenance positioning and long-term supply chain
security, including meeting future demand for SAMR China
label products. This replacement in supply partners is
expected to significantly improve raw material costs and
cashflow management from January 2021.
COVID19- IMPACT
The COVID-19 pandemic has caused unprecedent social and
economic disruption. The Group has to date demonstrated
resilience in the face of the COVID-19 pandemic, supported
by a strong underlying consumer demand for our products
and the focus of the Board and management team on key
initiatives, including:
• Continued operation of Deloraine factory as an essential
service under Victoria stage 4 restriction;
• The implementation of additional health and safety
measures, including splitting work teams and zones in
our Deloraine production facility, to reduce the risk of a
major supply disruption;
• Working from home arrangement for head office staff;
• Continued close cooperation with our key suppliers;
• Increased levels of safety stock to mitigate future
supply chain disruption
Other than the events stated above, no matter or
circumstance has arisen since 30 June 2020 that has
significantly affected or could significantly affect the
reported results from operations or financial position for
the year then ended.
G.5
ACCOUNTING POLICIES AND NEW ACCOUNTING STANDARDS
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 2020
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.
Intercompany
transactions, balances and unrealised
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.
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.
114
115
Bubs Australia Limited and Controlled EntitiesAnnual Report for the year ended 30 June 202004 FINANCIAL STATEMENTS Notes to the Financial StatementsFor personal use only GOING CONCERN
As part of the directors’ consideration of the appropriateness
of adopting the going concern basis in preparing the
financial statements, a range of scenarios have been
reviewed. The assumptions modelled are based on the
estimated potential impact of COVID-19 along with our
proposed responses over the course of the next 12 months.
These include a range of estimated impacts primarily
based on length of time various levels of restrictions are
in place and the severity of the consequent impact to
our relevant distribution channels. For the channels that
have adversely impacted by COVID-19 and expected to
contribute significant incremental revenue growth to the
Group in FY21, we have sensitised the revenue, operating
costs and cashflow impact of reduced trading activities.
A key judgement applied in the base case scenario is the
trading activities back to pre-COVID level in Q3 FY21 for the
distribution channels that have been adversely impacted.
Under each scenario, mitigating actions are all within
management control and can be initiated as they relate to
discretionary spend, and do not impact the ability to meet
demand. These actions include reduced administration
and marketing costs and stopping all non-essential and
non-committed capex in the next 12 months. We believe
that the risk of enforced factory closure is extremely
low and have implemented additional health and safety
measures in our Deloraine factory to reduce the risk of a
major supply disruption. In the event of enforced factory
closure temporarily, we have enough inventory to meet the
end consumer demand. We have assumed no significant
structural changes to the business will be needed in any
of the scenarios modelled. As at 30 June 2020, the Group
balance sheet reflects a net asset position of $132 million
and the liquidity of the Group remains strong. We have
recently increased NAB working capital facility to $10
million with undrawn balance of $8 million at 30 June
2020. The maturity date of the facility is 21 May 2021. In
all scenarios modelled, our liquidity requirements are
within the $10 million working capital facility and able to
repay the drawdown balance in full before the expiry date.
On the basis of these reviews, the directors consider it is
appropriate for the going concern basis to be adopted in
preparing the financial statements.
NEW, REVISED OR AMENDING ACCOUNTING STANDARDS AND INTERPRETATIONS ADOPTED
Other than the first time adoption of AASB 16 Leases,
several other amendments and
interpretations were
applied for the first time in the 2020 financial period, but
do not have a material impact on the consolidated financial
statements of the Group.
Any new, revised or amending Accounting Standards or
Interpretations that are not yet mandatory have not been
early adopted.
NEW ACCOUNTING STANDARDS AND INTERPRETATIONS NOT YET MANDATORY OR EARLY
ADOPTED
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 2020.
The impact of these new or amended Accounting Standards
to the Group’s consolidated financial statements are not
expected to be significant.
FINANCIAL STATEMENTS Director’s Declaration
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 60 to 116 and the Remuneration report
on pages 40 to 50 in the Directors’ report, are in accordance with the Corporations Act 2001, including:
i.
Giving a true and fair view of the Group’s financial position as at 30 June 2020 and of its performance for
the financial year ended on that date; and
ii.
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. The directors have been given the declarations required by Section 295A of the Corporations Act 2001 from the chief
executive officer for the financial year ended 30 June 2020.
3. The directors draw attention to Note A to the consolidated financial statements, which includes a statement of
compliance with International Financial Reporting Standards.
Signed in accordance with a resolution of the directors:
Dated at Sydney this 31st day of August 2020
DENNIS LIN
EXECUTIVE CHAIRMAN
116
117
Bubs Australia Limited and Controlled EntitiesAnnual Report for the year ended 30 June 202004 FINANCIAL STATEMENTS Notes to the Financial StatementsFor personal use only
05
OTHER
INFORMATION
118
For 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 20 AUGUST 2020
A
Distribution of shareholders
Range
1 - 10,000
10,001 - 20,000
20,001 - 30,000
30,001 - 40,000
40,001 - 50,000
50,001 Over
Rounding
Total
Total holders
25,751
2,979
1,191
511
394
1,107
Units
78,998,333
44,587,192
30,399,674
18,396,184
18,463,408
381,867,170
31,933
572,651,961
B
Unmarketable parcels
Minimum Parcel Size
Holders
Minimum $ 500.00 parcel at
$ 0.9150 per unit
547
2,538
C
Voting rights
% Units
13.80
7.79
5.30
3.21
3.22
66.68
0.00
100.00
Units
1,013,637
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
D
Top 20 shareholders – Ordinary Shares
Rank Name
C2 CAPITAL GLOBAL EXPORT-TO-CHINA FUND
CW RETAIL SERVICES PTY LTD
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED
CITICORP NOMINEES PTY LIMITED
J P MORGAN NOMINEES AUSTRALIA LIMITED
CARR FAMILY PTY LIMITED
INFANT FOOD BUSINESS PTY LIMITED
MR GONG XU
BNP PARIBAS NOMINEES PTY LTD
STABLE CHARTER LIMITED
BNP PARIBAS NOMINEES PTY LTD
A Z GLOBAL CORPORATION PTY LTD
MS CATHERINE JANE TAYLOR
MR BENJAMIN PAUL LANDON
RHB SECURITIES SINGAPORE PTE LTD
MR RUPERT ROBIN SOAR
CUSTODIAL SERVICES LIMITED
NATIONAL NOMINEES LIMITED
MICHEAL WALTER DANIEL + NIGEL GEOFFREY BURTON + MICHAEL MURRAY
BENJAMIN
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
Units
% of Units
76,288,510
13.32
24,713,254
22,458,978
20,474,568
14,376,358
13,620,600
10,000,000
5,700,00
5,018,595
4,615,385
4,524,924
4,512,911
4,003,612
4,000,270
3,558,000
2,772,039
2,073,566
2,071,701
1,800,000
4.32
3.92
3.58
2.51
2.38
1.75
1.00
0.88
0.81
0.79
0.79
0.70
0.70
0.62
0.48
0.36
0.36
0.31
MR DENNIS BARRY STAMP + MS CHRISTINE DIANNE STAMP
1,520,000
0.27
Totals: Top 20 holders of ORDINARY FULLY PAID SHARES (TOTAL)
228,103,271
39.83
2.
CORPORATE DIRECTORY
A
B
C
D
E
F
The name of the Company Secretary is Jay Richard Stephenson
Registered office
23 Nina Link, Dandenong South, VIC 3175 Australia
Principal 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 9,541,620 options on issue.
120
121
Bubs Australia Limited and Controlled EntitiesAnnual Report for the year ended 30 June 202005 OTHER INFORMATIONFor personal use only
CORPORATE
DIRECTORY
ASX: BUB
Bubs Australia
DIRECTORS
COMPANY SECRETARY
Jay Stephenson
Dennis Lin
(Resigned as Non-executive Director
on 21 October 2019, Appointed as
Executive Chairman and Director on
22 October 2019)
Kristy-Lee Newland Carr
Matthew Reynolds
Steve Lin
REGISTERED OFFICE
AND DOMICILE
Bubs Australia Limited is a
company limited by shares,
incorporated and domiciled
in Australia.
Its registered office is:
23 Nina Link
Dandenong South
VIC 3175 Australia
SHARE REGISTRY
AUDITORS
Computershare Investor
Services Pty Limited
Level 2
Reserve Bank Buidling
45 St George’s Terrace
Perth WA 6000
Deloitte
477 Bourke Street
Melbourne VIC 3000
AUSTRALIAN
SECURITIES EXCHANGE
ASX Code: BUB
122
INVESTOR RESOURCE CENTRE
www.investor.bubsaustralia.com
Bubs Australia Limited and Controlled Entities05 OTHER INFORMATIONFor personal use only