Bubs Australia
Annual Report 2021

Plain-text annual report

READY TO REBUILD FY21 Annual Report Bubs Australia Limited and Controlled Entities ACN 060 094 7422021TABLE OF CONTENTS 04 08 10 12 14 20 22 23 24 26 28 30 32 34 36 38 44 56 61 62 64 66 68 70 72 119 120 01 02 03 04 FY21 REVIEW FINANCIAL HIGHLIGHTS FROM OUR CHAIR FROM OUR CEO CEO YEAR IN REVIEW BOARD OF DIRECTORS KEY MANAGEMENT PERSONNEL EXECUTIVE LEADERSHIP OUR BUSINESS OUR CORE STRATEGIC PRIORITIES OUR UNIQUE VALUE PROPOSITION FY22 STRATEGIC FOCUS ON 4 SALES CHANNELS BUILDING ON SOLID FOUNDATIONS BUBS DAIRY NUTRITIONALS PRODUCTION FACILITY 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 2021. 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 01 FY21 REVIEW Financial Highlights From our Chair From our CEO CEO Year in Review Board of Directors Executive Leadership 4 5 KEY MILESTONE EVENTS COVID-19 PANDEMIC IMPACT & RESPONSE Protecting employees, prioritising liquidity and balance sheet. Managing supply chain and inventory in the channel in response to demand shocks. ESTABLISHED WHOLLY OWNED CHINA ENTITY BUBS SHANGHAI COMPANY Ability to directly manage sales relationships and in-market customers to optimise value chain and margin growth. AUSSIE BUBS™ USA LAUNCH FDA LABEL COMPLIANT TODDLER FORMULA First production shipped. Launching on Walmart.com and Amazon.com Sept 2021. #1 ADULT GOAT DAIRY CAPRILAC® BRAND RANKING FOR TMALL GLOBAL 618¹ Amongst all imported adult goat milk brands. MORE THAN DOUBLED DOMESTIC MARKET SHARE² FASTEST GROWING INFANT FORMULA MANUFACTURER2 Woolworths, Coles and Chemist Warehouse 50% GENDER EQUALITY4 BOARD REPRESENTATION Supporting both Gender and Cultural diversity future needs across the business. TOP 3 IMPORTED GOAT INFANT FORMULA BRAND IN CHINA 618 #3 on Alibaba Tmall Global3 and #2 brand on JD Global.3 LAUNCHED BUBS RANGE IN REDMART SINGAPORE Received Malaysia Parent’s Choice Award for Bubs® Organic Formula 6 7 ¹ Q4 FY21 official results in unit sales data CapriLac from Tmall Global2 IRI Scan Data, Dollars ($000’s) Market Share Growth % YA, Coles, Woolworths and AU My Chemist Group combined to MAT 04/07/2021.3 Bubs Goat Milk Formula GMV (Gross Merchandise Value) Q4 FY21 growth pcp from Tmall Global (TDI and Tmall Flagship Store) & JD Global (JDI) platform data.4 50:50 Gender Equality reached with the appointment of Katrina Rathie on 21 July 2021. Bubs Australia Limited and Controlled EntitiesAnnual Report for the year ended 30 June 202101 FY21 REVIEW Financial HightlightsFINANCIAL HIGHLIGHTS Financial Performance ASX 300 Bubs Australia FY21 results impacted by global pandemic with some growth in core product and focus channels. $46.8m Group Gross Revenue1 +26% Goat Infant Formula China CBEC gross revenue¹ growth pcp. +12% Total gross revenue1 exports growth pcp to China CBEC channel. +51.5% Bubs Australia fastest growing Infant Formula manufacturer² in Woolworths, Coles and Chemist Warehouse. +57% International gross revenue1 growth ex-China pcp, (including ingredient sales). +34% 2H FY21 Corporate Daigou gross revenue1 growth on 1H FY21. $27.9m Robust balance sheet. Cash reserves as at 30 June 2021. 8 9 7 ¹ 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. ² IRI Scan Data, Dollars ($000’s) Growth 51.5% YA, Coles, Woolworths and AU My Chemist Group combined to MAT 04/07/2021.Bubs Australia Limited and Controlled EntitiesAnnual Report for the year ended 30 June 202101 FY21 REVIEW Financial HightlightsFROM OUR CHAIR Agility and resilience — the hallmark of our response. “ Our organisation’s strength is now stronger than ever. “ Dear Shareholders, For the second consecutive year, the theme of disruption, reset and resilience is once again a key feature of my report for the Financial Year 2021. Over the past financial year Bubs has been focused on sustainable strategic responses to the disruption wrought by COVID-19 on our business, and that of our industry. Following the initial pantry stocking that peaked in March 2020 and producing to that demand, we were confronted with significant and prolonged impacts of border closures and demand disruption from which the financial year commenced. This signalled a need to reconsider our channel strategy, in order to sustain demand growth that continues to exist in our key global markets. We knew the year ahead would be difficult. Despite the challenging circumstances from which we commenced the year, our unique and resilient business model, along with our collaborative strategic partnerships, provided us with the agility to refine our supply chain, including rightsizing our milk pool to match demand and adopt new route to market strategies for China, whilst building our momentum internationally. Our vertically integrated business model provides us with unrivalled proprietary insight into the supply chain process. The lessons learned over the last year and knowing what products work in the ‘new world’ have placed the business in a position where we can become less reliant on physical international border traffic and more resilient to future expansion options across the 10 new digital eco-system and global export markets. While the year’s total Domestic and China sales are down compared to FY20, we have seen stabilisation over the last three quarters with growth in some key areas, since the initial demand shock impact and low point of the first quarter sharp decline in revenues, following the border closures and immediate contraction in the Daigou personal shopper business. Pleasingly, during the year, Bubs representation expanded across the domestic grocery and pharmacy channels and we now have coverage on par with leading multinational Infant Formula brands. Bubs was the fastest growing infant formula manufacturer2 in FY21 showing significant growth and increased share across Coles, Woolworths and Chemist Warehouse, despite an overall category decline. At the same time, our China strategy has been reinvigorated to deliver significant advances throughout the year and we have been pleased to see the continued deepening of our productive relationship with channel partners such as Alibaba for the development, promotion, and distribution of our infant and adult dairy products. Direct sales to China, while down on last year, showed quarter-on-quarter growth over the last three quarters, partially offsetting the domestic contraction in Daigou sales. Within our China channel, the Cross-Border e-Commerce (CBEC) Channel gross revenue1 increased by 12 percent. DENNIS LIN Executive Chairman With the rapid trend towards China channel merging across omni-channel and digitalisation, we took the strategic decision to establish our own operating subsidiary in Shanghai to manage all China trade with our e-commerce partners. This provides us with operational oversight to drive growth across the reimagined Daigou 2.0 omnichannel sales model and growing our Online-to-Offline (O2O) sales via Mother & Baby and community stores. Daigou 2.0 has effectively merged with the cross-border e-commerce channel (CBEC) and is no longer considered a ‘grey channel’. Its legitimacy has been established via participation in the Chinese government tax system. Daigou 2.0 has now been reinvented as a digital social selling channel, including live streaming e-commerce with delivery ex-Australia or via cross-border warehouses in China. Despite the continued disruption and challenges we have faced, we continue to sustain investment in marketing resources for the future to build “new user”, customer acquisition and brand equity in our key markets, particularly China, redirecting and up-weighting our marketing effort to accelerate the growth of our Cross- Border e-Commerce business in China. Our strategy of regional diversification in FY21, whilst disrupted by the setbacks of the difficult Covid conditions, has yielded solid results with a 57% increase in gross revenue (including ingredient sales) to other geographies beyond China. Over this year, we have continued to nurture our partnerships across South East Asia, covering Mother and Baby retail chains and e-Commerce platforms. Last year we flagged North America as our next target and the lessons learned in responding to the pandemic sharpened our focus on the most appropriate market entry strategy. The creation of our USA entity, Aussie Bubs Inc, and the successful development, production and importation of two new toddler formula products aligned to FDA label compliance, was another hallmark achievement of this financial year. Our inaugural USA launch is on track for September 2021, with Aussie Bubs™ set to launch on Walmart.com and Amazon.com. That we can consider these diverse options to grow internationally is based on our agility, scale and established supply chain security. Our approach will be disciplined choosing new markets that have the highest potential to leverage our unique advantage as a premium dairy nutrition specialist and Australian leader in goat dairy production. With our unique supply chain and focus on products developed to sustain competitive advantage, we are well positioned re-establish growth momentum in FY22. Our organisation strength is now stronger than ever, with the deepening of our bench strength. The May 2021 appointment of Fabrizio Jorge as Chief Operating Officer to drive Bubs global growth market diversification strategy and Katrina Rathie, a global brand trademark and consumer law specialist as Non-Executive Director, have provided us with strong foundations to support our global growth ambitions. Importantly, these appointments have also resulted in approximately 50:50 gender and cultural diversity across our Board and Executive Leadership team. Fabrizio brings more than 24 years of experience in the global dairy industry including nutritional and speciality milk powders forged with Fonterra and Nestlé covering Australia, Asia, Oceania and Africa. Appointed in July 2021, Katrina is an internationally recognised leading Intellectual Property and consumer brands lawyer, for the main part as an equity partner in King Wood Mallesons for 27 years. Her skills will be invaluable as we enter the next phase of our brand driven global development. Meanwhile, our COVID-19 mitigation continues to keep the Bubs Family safe and ensures continuity of production as an essential service to meet changing demand patterns during this challenging period. FY21 has been a particularly difficult year as the pandemic and other macro factors challenged our resolve and business model. At the same time, it provided us with visibility that our brands do resonate with consumers in key markets around the world, and that our business model is one of strength that can stand the test of these catastrophic events. As we put a disappointing year behind us, our deliberate strategic responses to the impact and reset of the past financial year have placed us in a position of resilience from which we can rebuild. As we enter this next phase of our development, I am grateful for Kristy Carr’s leadership particularly during these last 12 months, and I looking forward to working with her, our Leadership Team and Board of Directors and continuing to support our long-term vision of becoming a major global dairy- based business focused on infant and family nutrition. 11 1 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.2 IRI Scan Data, Dollars ($000’s) Growth YA, Coles, Woolworths and AU My Chemist Group combined to MAT 04/07/202.Bubs Australia Limited and Controlled EntitiesAnnual Report for the year ended 30 June 202101 FY21 REVIEW From Our Chair01 FY21 REVIEW From Our CEO FROM OUR CEO Reset strategy built on strong foundations Dear Shareholders, Throughout the year our Bubs Family and strategic partners have risen to the challenge of the prolonged impact of the pandemic. I have been incredibly proud of their agility and resilience, as we continue to reset our business in response to the COVID-19 induced changes in the macro environment. The continuing impact of the ongoing border closures, from the onset of the pandemic up to this point, remains the single most adverse disruption on the business and our FY21 performance. With the lack of tourists and international students, the domestic Daigou channel trade was the most significantly impacted. We saw a sharp decline in conventional Daigou channel contribution to domestic sales and ongoing disruption to outbound supply chain logistics with increased international freight costs. Considering that conventional domestic Daigou sales had made up a significant proportion of the Australian infant formula category sales, it is unsurprising that our gross revenues1 were adversely impacted leading to a FY21 decrease of 24 percent year-on-year to $46.8 million. The impact of this sudden disruption to demand signaled the need for the conventional Daigou channel route, previously dominated by inbound visitors and pack & send parcels, to rapidly digitise their social commerce platforms. Anticipating this need to pivot and adapt to a new business model, we have executed a deliberate strategy and worked in collaboration with our strategic channel partners to reset both our supply chain and China channel strategies. We now see the emergence “ We are pleased to see the resulting positive outcome of these reset efforts, with momentum and resilience demonstrated in our second half. “ of the Corporate Daigou channel reinvention, with omni-channel sales offering centralised fulfilment from Australia and via shipment to bonded warehouses in China, providing us with more transparency and bringing us closer to our end consumers. We are pleased to see the resulting positive outcome of these reset efforts, with momentum and resilience demonstrated in our second half. We have experienced half-on-half group gross revenue1 growth of 10 percent and fourth quarter results being just 4 percent below pcp as a result of increased domestic penetration and channel shifts in our China and International trade. In collaboration with our strategic channel partners, we saw Corporate Daigou gross revenue1 increase 34 percent in the second half of FY21 compared to the first half, which was up 17 percent on the same period last year (2H FY20). Our Cross-Border e-Commerce business also demonstrated solid growth, increasing 12 percent year-on-year with Bubs® Goat Infant Formula up 26 percent. KRISTY CARR Chief Executive Officer We see this as a very encouraging trend, aligning with the work we have done to 1) prioritise cash conversion, albeit at a loss, from bulk powder excess inventory, and 2) overhaul and right-size our supply chain to ensure a more balanced supply and demand profile. Having managed through this volatile period, we are confident that our supply chain is fit for purpose in the post-COVID paradigm – with a much clearer view of what is in the inventory pipeline, particularly with our new corporate structure in China. The company is now well placed to go forward and we expect to see growth momentum across all channels in FY22. We focused on ensuring the fundamentals of our business and our ability to rebuild would be protected. With this in mind, we took the decision to resist pressures to push stock into our sales channels, and instead sold excess bulk powder at a loss in order to prioritise cashflow. These proactive steps have allowed us to maintain a healthier inventory position which was more closely aligned to demand as we move into FY22. This period of stabilised demand has come after what was a challenging first quarter, with the knock-on effects of the late FY20 sudden surge in demand caused by pantry stocking. The subsequent demand shock following on from the border closures and loss of the Daigou personal shopper trade was the key contributor to the excess inventory position. Since then, we are encouraged to see Domestic retail sales stabilise and increasing sales of cross-border e-Commerce into China, offsetting some of the loss of Daigou traffic, and the rebuilding of the Daigou omni- channel sales model reactivated. 12 13 1 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.Bubs Australia Limited and Controlled EntitiesAnnual Report for the year ended 30 June 20212 01 FY21 REVIEW CEO Year in Review CEO YEAR IN REVIEW 6600..00 4400..00 2200..00 00..00 --2200..00 --4400..00 --6600..00 --8800..00 --110000..00 Consolidated domestic position: growing volume and share outperforming the category. During the year we added over 1300 distribution points for Bubs® products: Woolworths continued to carry our entire range of eight infant formula products across a targeted selection of its 700 stores; Bubs Organic® Grass-fed Formula is now ranged in 720 Coles stores while Bubs® Goat Formula increased to cover 760 stores. This strong grocery footprint is complemented by national ranging of all 40 Bubs products in Chemist Warehouse, our second largest shareholder and strategic retail partner. In addition, our brand distribution is supported by our national ranging in Good Price Pharmacies, Baby Bunting and Big W. Bubs Australia is now the fastest growing Infant Formula manufacturer, more than doubling market share, with scan sales increasing 51.5 percent year-on-year1, at a time when the Total Category is in sharp decline, down 46 percent on prior year1. Notwithstanding the strength of our Australian retail sales, following the retraction of the Daigou trade, year-on-year domestic gross revenues2 were down 38 percent. Overall, Domestic gross revenues2 represented 57 percent of our business. China Cross-Border e-Commerce momentum continued throughout the year resulting in a 26 percent increase in Bubs® Goat Infant Formula gross revenue2 over last year. Bubs® Goat Infant Formula ranked #6 in Tmall Global & JD Global combined, across all Chinese and Imported Goat Formula brands3 . On a year-on-year basis, gross revenue2 direct to China was down 11 percent and represented 25 percent of group gross revenue2 for the year. Meanwhile, we continue to work closely in partnership with Alibaba to maximise the China eCommerce opportunity. As recently announced, the Company established a wholly owned subsidiary in China, Bubs (Shanghai) Trading Co. Ltd., providing improved control of margins and market focus. Our go-forward operation model for China will continue to focus on integrated e-Commerce channels with fulfilment delivery ex-Australia or via bonded warehouses within China, including Online-to- Offline (O2O) covering General Trade and Mother & Baby stores, livestreaming e-Commerce and social selling channels. FY21 INFANT FORMULA CATEGORY RETAIL SCAN DOLLAR SALES (%) GROWTH1 BY MANUFACTURER (MAT) FY21 INFANT FORMULA CATEGORY RETAIL SCAN DOLLAR SALES (%) GROWTH¹ BY MANUFACTURER (MAT) COLES, WOOLWORTHS & CHEMIST WAREHOUSE COLES, WOOLWORTHS & CHEMIST WAREHOUSE COMBINED 51.5% ALL LEADING GLOBAL BRANDS & MULTINATIONALS -9.8 -11.0 #2 Manufacturer #3 Manufacturer #6 Bubs AUSTRALIAN MADE & AUSTRALIAN OWNED -9.8 Other Manufacturers “ Bubs Australia is now the fastest growing Infant Formula manufacturer, more than doubling market share, with scan sales increasing 51.5 percent year-on-year1. “ -46.2 Total Category -42.7 #1 Manufacturer -56.6 #5 Manufacturer -82.1 #4 Manufacturer TOTAL INTERNATIONAL +26% pcp Solid growth +26% pcp FY21 increase in infant formula CBEC channel gross revenue1. Momentum building in International markets for Bubs portfolio Following expansion beyond Vietnam into Malaysia and Singapore, total International gross revenue2 (including ingredient sales) experienced significant revenue growth of 57%, accounting for 18% of Group gross revenue2. Post balance date, the Company announced plans to enter North America with confirmed distribution on Walmart.com and Amazon.com from September 2021. This is an important milestone in the company’s continued implementation of its market diversification strategy to expand Bubs award-winning Clean Label formulations across global markets. gross revenue2 growth International markets (including ingredient sales) 14 Annual Report for the year ended 30 June 2021 15 1 IRI Scan Data, Dollars ($000’s) Growth YA, Coles, Woolworths and AU My Chemist Group combined to MAT 04/07/202.2 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 Bubs Goat Milk Formula GMV (Gross Merchandise Value) Q4 FY21 growth pcp from Tmall Global & JD Global platform data.01 FY21 REVIEW CEO Year in Review Financial Overview: COVID-19 impacted gross margin In line with previous reporting, the global pandemic and subsequent adverse channel mix impacted gross margins and our gross revenue1 to revenue ratio resulting in our group gross margin2 for branded products falling to 21 percent from 24 percent in FY20. Bubs® Infant Formula sales continued to be the most profitable element of the business and we were able to maintain premium pricing on Bubs® Goat Infant Formula, resulting in gross margin2 of 34 percent, approximately the same as FY20. Increased trade co-op investment increased the difference between gross revenue1 and revenue. This was partially offset by the corresponding reduction in above the line brand marketing expense. Taking into account COVID-19 driven inventory adjustments, penalties for shortfalls in reserved manufacturing capacity, and the decision to sell excess bulk powder at a loss to preserve cash conversion, group gross margin entered negative territory with a $7.3 million loss. This led to an underlying EBITDA loss for the Group of $28.5 million. Disciplined OPEX management Over the year, notwithstanding significant increase in international freight costs, our distribution cost / gross revenue ratio stood at 4 percent, versus 3 percent in FY20. Marketing costs decreased 28 percent as we redirected our investment to in-channel trade promotion and in-store activation. As we built our team in Australia and China to support the future needs of the business, our employee cost3 increased by 8 percent, while administration costs4 increased by $2.7 million to cover bad debt provisions, increased costs for NPD, IP protection in new International markets and donations. Impairment Combined with short term sharp demand contraction in Daigou channel, a conservative growth rate adopted in the sales forecast due to prolonged uncertainties caused by ongoing pandemic and the longer than expected SAMR approval time frame, this has reduced the valuation of CGUs. As a result, a non-cash impairment of $44.6m relating to Nulac Foods CGU and Deloraine Dairy CGU was recognised. Strong Balance Sheet Group liquidity remains strong with $27.9 million in cash reserves as at 30 June 2021. In addition, we are in the process of renewing our $10 million working capacity facility with the maturity date in September 2022 and are confident that the facility will be renewed. “ Bubs is well placed with strong foundations, brand share growth, and a robust balance sheet to go forward with a sustainable growth strategy as the Australian lead challenger brand in infant nutrition. “ 34% Bubs Goat Infant Formula product margin¹. Outlook Bubs is well placed with strong foundations, brand share growth, and a robust balance sheet to go forward with a sustainable growth strategy as the Australian lead challenger brand in infant nutrition. Continued focus on our core business and competencies, coupled with the operational changes we have executed in response to the pandemic, mean Bubs is well positioned to rebuild from a strong foundational base with a rebalanced inventory position to meet stabilised demand. We remain confident in the unique strengths of Bubs business model and our organisational agility will enable us to navigate the ongoing macro challenges posed by COVID-19, and we anticipate rebuilding towards a sustained growth trajectory in FY22. Since the initial COVID-led channel disruption impact occurred most heavily in the first quarter, our China strategy has been re-engineered in collaboration with our strategic partners to deliver significant advances throughout the year. We remain committed to continuing to build the Bubs® brand in China, and expect sales momentum to continue across all Channels. In addition to building our hero product lines in our established channels, we plan to stretch Bubs® brand awareness to support new categories in line with our position as a specialist producer of dairy based nutritional products. We will also pursue our global expansion strategy to consolidate our regional market penetration, and launch into North America. The Company remains confident that the Bubs® brand and business model, along with adapted route-to-market strategies and sufficient cash reserves, will deliver sustained growth in FY22 and beyond. Our ability to survive the worst of the pandemic was helped greatly by the support of our major shareholders, strategic partners, suppliers and the extended Bubs Family whose ongoing commitment in Bubs journey to becoming a global dairy company and category leader in infant nutrition is sincerely appreciated. I look forward to the business returning to growth, as we continue to expand our global reach. KRISTY CARR Chief Executive Officer 16 Annual Report for the year ended 30 June 2021 17 1 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.2 Gross margin is calculated as (revenue – production costs) / revenue.3 Employee costs exclude share based payments.4 Administrative and other costs do not include depreciation and amortisation.01 FY21 REVIEW COVID—19 Disruption COVID-19 DISRUPTIONS COVID-19 RESPONSE Global macro forces impacting sales channels created a significant demand and supply shock. FY21 focused on the immediate need to mitigate impact from excess inventory in channel. Our response throughout FY21 focused on four pandemic phases to protect our base for rebuild. Strengthening our foundations to mitigate future demand shocks. IMMEDIATE IMPACT Urgent action was required to actively manage supply and excess inventory due to unforeseen demand disruption. Australian Border Closures Infant Formula Total Category decline in Australian Grocery and Pharmacy -46%1 Traditional Daigou shopping significantly declined in domestic retail channel, and gift stores. China Channel Disruption Channel shifting moved consumers online. High cost of airfreight had immediate impact. Omni-channel sales approach emerged, with O2O and social commerce becoming more significant. Export to SE Asia Disrupted Prolonged lockdowns delayed ranging reviews, limited retailer distribution, and caused regulatory delays. Significant impact due to retail shutdown and economic stress. 2 2 Y F CHANNEL & PRODUCT REINVIGORATION • Protect our core product base, key channels and strategic partnerships. • Identify growth opportunities within each of our sales channels for new products and new markets. • Improve capacity utilisation in Deloraine facility. STOCK MANAGEMENT • Redirected stock to China offshore warehouse in response to border closures. • Ensured excess inventory was largely retained in Bubs warehouse. Despite significant demand disruption, resisted pressure to increase stock in the channel. CHANNEL & SUPPLY RESET 1 2 Y F • Supporting greater resilience. Resized the milk pool to reflect volatility in demand forecasts. • Redirected marketing investment to support domestic trade and China inbound omni-channel marketing via social commerce. • Made difficult decision to sell excess bulk powder at a loss in order to prioritise cash flow and took proactive steps to provide for stock in order to maintain a healthier inventory position in FY22. • Restabilised price architecture in China market. • Rapid growth in Domestic consumer demand providing strong home base. d l i u b e R 4 # — e c n e i l i s e R 3 # — t e s e R 2 # — t c a p m I 1 # 18 Bubs Australia Limited and Controlled Entities Annual Report for the year ended 30 June 2021 19 1 IRI Scan Data Dollars ($000’s) Growth YA, Coles, Woolworths and AU My Chemist Group combined at MAT 04/07/2021. 01 FY21 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 2021 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 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 Executive Director from 1July 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. KRISTY CARR Managing Director BBus (Bachelor Degree of Business) – Managing Director (appointed 22 December 2016) MS KATRINA RATHIE Non-Executive Director B Com (Accounting & Financial Management)/LLB UNSW Sydney, FAICD (appointed 21 July 2021) 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 2006. Mrs Carr has not held any other Directorships in publicly listed companies in the past three years. Ms Rathie is an experienced Non- Executive Director and lawyer. She has strong business leadership skills and was formerly Partner in Charge, Sydney of King & Wood Mallesons, a top tier global elite law firm where she led the Sydney office. With over 35 years working as a trusted advisor to ASX and Fortune 500 companies particularly in the FMCG, brands, consumer and retail sectors, Ms Rathie brings deep sectorial, governance, regulatory and international experience to the Bubs board which she joined in July 2021. Ms Rathie was named overall winner of the Board & Management category in the AFR 100 Women of Influence Awards 2019. She is a member of Chief Executive Women and a Fellow of the Australian Institute of Company Directors. Ms Rathie has not held any other Directorships in publicly listed companies in the past three years. MATTHEW REYNOLDS Non-Executive Director B.Sc (Hons), LLB (Hons), MQLS - Non-Executive Director (appointed 22 December 2016). (retired 21 July, 2021) STEVE LIN Non-Executive Director M.B.A. in Economics from Harvard College (appointed 18 April 2019) MR JAY STEPHENSON Company Secretary MBA, FCPA, FGIA, MAICD, CPA (Canada), CMA (Canada) – Company Secretary (appointed 1 September 2015) 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. Mr Lin has over 25 years of investment, operations and management experience in Asia across Morgan Stanley in New York and later in Goldman Sachs’ Merchant Banking Division in Hong Kong and Tokyo. As President and CEO – Asia of GMAC Commercial Holding Corp., Mr Lin managed a multi-billion dollar portfolio of real estate investments. A co-founder of non-profit company, Hands On Tokyo, and board member of two universities in China, with a M.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. 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. 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 (Executive Chairman) 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 20 Bubs Australia Limited and Controlled Entities Annual Report for the year ended 30 June 2021 21 01 FY21 REVIEW Executive Leadership KEY MANAGEMENT PERSONNEL EXECUTIVE LEADERSHIP 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. FABRIZIO JORGE Chief Operating Officer Born in Brazil, Fabrizio Jorge brings 24 years of experience in the global consumer goods and dairy industry, including nutritional and specialty milk powders. Fabrizio was the General Manager for Fonterra Brands for Thailand, Laos and Myanmar and held full P&L responsibility for Fonterra Australia’s Ingredients business with sales to over 50 export markets. Fabrizio’s extensive experience with Fonterra included responsibility for South East Asia sales, South America Ingredients operations, and Product General Manager for nutrtional and specialty formulated milk powders Fabrizio joined Bubs Australia in May 2021. DAVID ORTON VIVIAN ZURLO RICHARD PAINE General Manager Commercial Chief Marketing & Innovation Officer Chief Manufacturing Officer 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 joined Bubs Australia in March 2017. Vivian has over 20 years’ marketing and 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 industry specialising in the nutritional ingredient and nutraceutical space. He has broad dairy expertise covering commercial and operational management from milk collection through to ‘whole of manufacture’ in both medium size private to larger listed entities. Richard joined Bubs Australia in February 2019. 22 Bubs Australia Limited and Controlled Entities Annual Report for the year ended 30 June 2021 23 02 OUR BUSINESS Our Core Strategic Priorities Our Unique Value Proposition FY22 Strategic Focus On 4 Sales Channels Building On Solid Foundations Bubs Dairy Nutritionals Production Facility 24 25 02 OUR BUSINESS Building on Solid Foundations OUR CORE STRATEGIC PRIORITIES Since listing, our core strategic focus remains unwavering and has been successfully strengthened in both our core business as well as via extensions into new markets and category growth opportunities. E R U T U F I S U C O F C G E T A R T S 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 coverage and growth via distribution, marketing and production partners. ACCELERATING GLOBAL REACH Rapid growth of global expansion driving brand equity across all key markets. I L A N O T A D N U O F S K C O L B G N D L U B I I 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 in key markets. Domestic retail distribution strength across all major retailers. 26 Bubs Australia Limited and Controlled Entities Annual Report for the year ended 30 June 2021 27 02 OUR BUSINESS Building on Solid Foundations OUR UNIQUE VALUE PROPOSITION 360º integrated business model, combining the best of an ingredient and manufacturing business, together with a brand-led and consumer focused portfolio driven business. HIGH MARGIN DAIRY SPECIALIST Infant Formula as the Crown Jewel of dairy porfolio with exclusive Australian goat dairy farmer milk supply and vertical supply chain know how. ASX: BUB Bubs Australia BRAND-LED Most comprehensive infant nutrition portfolio. SUPPLY CHAIN SECURITY VALUABLE ASSETS 100% owned and controlled Infant grade dairy facility with China certification. R&D TECHNICAL EXPERTISE 28 Bubs Australia Limited and Controlled Entities Annual Report for the year ended 30 June 2021 29 02 OUR BUSINESS Building on Solid Foundations FY22 STRATEGIC FOCUS ON 4 SALES CHANNELS We have identified 4 strategic sales channels that are complementary to unlock value. Each business unit has distinctive features and different opportunities for sustained profitable growth. 1. Australia & New Zealand 2. China 3. Other International 4. B2B Dairy Solutions CCuussttoommeerr && CCoonnssuummeerr CCeennttrriicc –– EExxcceelllleennccee iinn QQuuaalliittyy • Opportunity for a significant local challenger brand with strong home market engagement with domestic consumers. • China routes to market now omni-channel with CBEC, Daigou, O2O and General Trade merging into one via online sales, live-streaming and social selling. • Consolidate • Grow specialist growth in existing SEA penetration with opportunity to enter new markets: USA and South Korea. dairy solution co- manufacture and end-to-end new product development for global customers. : S U C O F : I I S C T S R E T C A R A H C Y E K : I S E C N E T E P M O C S B U B BBUUBBSS EEXXPPEERRTTIISSEE INGREDIENT & VERTICAL SUPPLY CHAIN EXPERTS CUSTOMER & CONSUMER INSIGHT FOCUS R&D FUNCTIONAL WELLNESS EXPERTISE SPECIALIST DAIRY MANUFACTURING 30 Bubs Australia Limited and Controlled Entities Annual Report for the year ended 30 June 2021 31 02 OUR BUSINESS Our Brands BUILDING ON SOLID FOUNDATIONS TO ACCELERATE GLOBAL GROWTH Our strong brand portfolio is spearheaded by Bubs®, our hero brand driving value creation across the business and into new markets. Our goat dairy specialist brand CapriLac® supports optimisation of brand equity value conversion from our milk pool. 32 Bubs Australia Limited and Controlled Entities Annual Report for the year ended 30 June 2021 33 02 OUR BUSINESS Optimised Supply Chain BUBS DAIRY NUTRITIONALS PRODUCTION FACILITY Australia’s leading goat dairy producer UNIQUE SUPPLY CHAIN MODEL Our secure supply chain integrating farm to production, provides traceability, scalability and flexibility. SCALABLE MANUFACTURING Flexible manufacturing capability across multiple packaging formats with potential for expansion. UNDERPINNED BY GOAT DAIRY DOMINANCE Bubs is the market leader in goat dairy products across Australia and owns exclusive access to its goat milk pool. 34 Bubs Australia Limited and Controlled Entities Annual Report for the year ended 30 June 2021 35 100% ownership of Australia Deloraine Dairy, based in Dandenong South and purpose built with advanced infrastructure and capacity to process up to 10 million tins per annum.03 DIRECTORS REPORT Director’s Report Remuneration Report Independent Auditors Report Lead Auditor’s Independence Declaration 36 37 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 The Group achieved gross revenue1 of $46.8 million (24% down on FY20) and revenue $39.3 million (28% down on FY20). The decrease in gross revenue is mainly due to the sharp decline in demand the Group has experienced in the Corporate Daigou channel under the challenging COVID environment. The shortfall in the Corporate Daigou channel was partially offset by the strong performance in domestic retail sales and cross border e-commerce distribution channel. Bubs Infant Formula is the fastest infant manufacturer across Woolworths, Coles and Chemist Warehouse with combined retail scan sales growth of 51.5%2. Due to the impact from COVID, the Group redirected short term domestic brand marketing investments towards greater emphasis on domestic in store trade spend investments. These investments focused on in store activation to support the new product range Vita Bubs and national ranging of Bubs Organic Grass Fed Formula. This had an adverse impact on Group’s revenue, as a result the costs are recognised as a deduction of gross revenue. Despite the contraction of the Corporate Daigou channel, we have seen continuing strong Chinese consumer demand for Bubs Goat Infant Formula. Bubs Goat Infant Formula revenue in cross border e-commerce distribution channel increased 26% compared to FY20. Group gross margin decreased to $7.3 million loss. This was primarily driven by industrial bulk powder sales at a loss and $12.6 million in inventory written down/ write off. Other factors contributing to the decreased gross margin includes the redirection of domestic marketing investment in the short term towards trade spend, as well as the adverse change in channel mix due to the contraction of the more profitable Corporate Daigou channel. Bubs Goat Infant Formula product margin was 34%3 in FY21 which is consistent with FY20. The Group’s gross margin excluding inventory provision was 14%3 compared to 22% in FY20. The Group’s gross margin for branded products (excluding bulk powder and raw material sales) was 21%5 in FY21. Distribution costs to gross revenue ratio increased from 3% to 4%. Employee costs4 increased 8% due to the new resources to support the ability of our organisational capability to sustain the long term growth. We now have Fabrizio Jorge as Chief Operating Officer to spearhead global expansion and our on the ground China team executing the Group’s new China Strategy. Increased administrative and other costs1 is mainly due to bad debts provision and increased costs for NPD and IP protection in international markets and donations. The brand marketing investment decreased 28% compared to FY20. This is mainly due to the short term domestic brand marketing investment redirecting to in-store trade spend investment. We continued to make significant and essential investment in brand marketing with a focus on building brand awareness, new customer acquisition and channel capacity in China and other international markets. It is important to note that the overall statutory net loss of $74.7 million for FY21 includes a total $44.6 million (FY20: Nil) non-cash impairment relating to the Nulac Foods cash generating unit and Deloraine Dairy cash generating unit driven by the conservative outlook the Group has adopted over next 5 years due to the prolonged uncertainties. This does not detract from the strategic value of the Nulac Foods and Deloraine Dairy acquisition which delivered a provenance market advantage and vertical integrated supply chain security to the Group, essential to a sustainable future. On a statutory basis, loss after tax was $74.7 million (FY20: $7.8 million). EBITDA loss was $73.1 million (FY20: $11.3 million) and underlying EBITDA loss was $28.5 million (FY20: $11.3 million). EBITDA Loss and underlying EBITDA loss for FY21 compared to FY20 is set out in the table below. Loss before tax Interest income Finance cost EBIT Loss Depreciation and amortisation EBITDA Loss Impairment Underlying EBITDA Loss FY21 FY20 (77,878,500) (16,100,700) 144,774 317,504 (1,507,582) (1,380,255) (76,515,692) (15,037,949) (3,405,018) (3,730,852) (73,110,674) (11,307,097) (44,640,260) - (28,470,414) (11,307,097) The Group continues to maintain a strong balance sheet position with $27.9 million cash and cash equivalents at 30 June 2021 (30 June 2020: $26.0 million) and minimal external debt at balance date. Inventory has returned to a healthier position of $20.5 million as at 30 June 2021. In FY20, the Group made a conscious decision to carry a higher level of inventory to protect potential supply chain disruption in the challenging conditions under COVID. Subsequently, the Group experienced the sharp disruption to the Corporate Daigou channel as well as fluctuations in demand caused by pantry stocking in multiple markets. Given the Group has taken on the position not to over stock the distribution channels, this has resulted in a $12.6 million in inventory write down/ write off against the finished goods on hand and raw materials (including bulk powder). The inventory write off expense also includes $850,000 take or pay penalty payments to the third-party manufacturers due to the shortfall of the annual commitment volume as a result of COVID. While the Group’s finished goods position has improved since 30 June 2020, the raw materials position is expected to further improve in FY22. 31% of inventory is in finished goods as at 30 June 2021 (30 June 2020: 53%). 1 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. 2 IRI Scan value scan sales data, Coles, Woolworths and Chemist Warehouse combined MAT to 4.07.2021. 3 Gross margin is calculated as (revenue – production costs) / revenue. 4 Employee costs exclude share based payments. 5 Administrative and other costs do not include depreciation and amortisation 38 39 Bubs Australia Limited and Controlled EntitiesAnnual Report for the year ended 30 June 202103 DIRECTOR’S REPORT 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. Management have sensitised the revenue, operating costs and cashflow impacts to take consideration of potential reduced trading activities caused by challenging macro dynamics. 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 ceasing all non-essential and non-committed capex in the next 12 months. As at 30 June 2021, the Group balance sheet reflects a net current asset position of $41 million and net asset position of $87 million. The liquidity of the Group remains strong. In addition, we are in the process of renewing the NAB working capital facility of $10 million with the maturity date in September 2022 and are confident that the facility will be renewed. As at 30 June 2021, the undrawn balance remains at $8 million which is consistent with prior periods. In all scenarios modelled, our liquidity requirements are within the $10 million working capital facility and we will be 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. INDEMNIFICATION AND INSURANCE OF DIRECTORS & 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 Officers 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. PRINCIPAL ACTIVITIES PROCEEDINGS ON BEHALF OF THE GROUP The Group offers high quality range of organic baby food, goat milk and organic cow’s milk infant formula products, adult goat milk powder products and fresh dairy products. The Group also provides canning services of nutritional dairy products. 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. 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. ROUNDING The Group was not a party to any such proceedings during the year. 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 No item, transaction or event of a material or unusual nature has arisen in the interval between the end of the financial year and the date of this report, in the opinion of the directors of the Group, that would significantly affect the operations of the Group, the results of those operations, or the state of affairs of the Group, in future financial years. DIVIDENDS No dividends have been paid or declared since the start of the financial year (2020: Nil). 40 The financial report is presented in Australian dollars and all values are rounded to the nearest dollar. GENDER DIVERSITY The Group has a strong commitment to diversity and recognises the value of attracting and retaining employees with different backgrounds, gender, culture, knowledge, experience and abilities. Diversity contributes to the Group’s business success and benefits individuals, clients, teams, shareholders and stakeholders. The Group’s business policies, practices and behaviours promote diversity and equal opportunity and creates an environment where individual differences are valued and all employees have the opportunity to realise their potential and contribute to the Group’s success. As at 30 June 2021 As at 30 June 2020 Male Percentage Male (%) Female Percentage Female (%) Male Percentage Male (%) Female Percentage Female (%) Board Senior management Employees Total 3 1 21 25 75% 50% 60% 61% 1 1 14 16 25% 50% 40% 39% 3 2 20 25 75% 50% 61% 61% 1 2 13 16 25% 50% 39% 39% 41 Bubs Australia Limited and Controlled EntitiesAnnual Report for the year ended 30 June 202103 DIRECTOR’S REPORT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 10 June 2024 0.10 0.10 0.65 All unissued shares are ordinary shares of the Group. 4,770,810 4,770,810 2,000,000 NON-AUDIT SERVICES No non-audit services were provided by Deloitte during the year ended 30 June 2021. Details of amounts paid or payable to the auditor 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. 42 43 Bubs Australia Limited and Controlled EntitiesAnnual Report for the year ended 30 June 202103 DIRECTOR’S REPORT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 2021 were: • Dennis Lin (Executive Chairman) • 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) • Fabrizio Jorge1 (Chief Operating Officer) • David Orton1 (General Manager Commercial) • Richard Paine1 (Chief Manufacturing Officer) • Vivian Zurlo1 (Chief Marketing and Inventory Officer) 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. 1 Due to the changes in corporate structure during the year, Richard Paine, David Orton and Vivian Zurlo ceased being a KMP on 3 May 2021. Fabrizio Jorge became a KMP on 3 May 2021. 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 2021, participants may achieve a maximum STI of between 6% and 33% 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. 44 45 Bubs Australia Limited and Controlled EntitiesAnnual Report for the year ended 30 June 202103 DIRECTOR’S REPORT Remuneration Report (Audited)TOTAL FIXED REMUNERATION (TFR) SHORT-TERM INCENTIVE PLANS KMP EXECUTIVES During the year, the KMP executives of TFR were as follows: The FY21 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 Executive Chairman Dennis Lin $250,000 Nil Chief Executive Officer and Managing Director Kristy Carr $450,000 $6,000 Chief Financial Officer Iris Ren $250,000 Chief Operating Officer2 Fabrizio Jorge $400,000 General Manager Commercial2 David Orton $240,000 Chief Manufacturing Officer2 Richard Paine $250,000 Chief Marketing & Innovation Officer2 Vivian Zurlo $235,000 Nil 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: 2021 2020 2019 2018 2017 Revenue 39,312,738 54,644,952 43,914,853 16,906,256 3,932,298 EBITDA. • Business Management – cash generation, capital management, working capital management. • Business Strategy – development, approval, implementation and achievement. The following table provides details of the maximum STI that each KMP is entitled to receive: KMP Dennis Lin Kristy Carr Iris Ren Fabrizio Jorge3 David Orton3 Richard Paine3 STI - $150,000 $15,000 - $60,000 $15,000 STI % of TFR - 33% 6% - 25% 6% - 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 100% is measured against Business measurement - EBIT Loss (76,515,692) (15,037,949) (35,144,011) (66,025,718) (5,078,230) Vivian Zurlo3 - Share price at year end Basic loss per share Total dividend (cents per share) 0.435 0.925 0.12 - 0.01 - 1.13 0.08 - 0.78 0.20 - 0.25 0.02 - 2 Due to the changes in corporate structure during the year, Richard Paine, David Orton and Vivian Zurlo ceased being a KMP on 3 May 2021. Fabrizio Jorge 3 Due to the changes in corporate structure during the year, Richard Paine, David Orton and Vivian Zurlo ceased being a KMP on 3 May 2021. Fabrizio Jorge became a KMP on 3 May 2021. became a KMP on 3 May 2021. 46 47 Bubs Australia Limited and Controlled EntitiesAnnual Report for the year ended 30 June 202103 DIRECTOR’S REPORT Remuneration Report (Audited)LONG-TERM INCENTIVE PLANS CEO’S FY18 GRANT OF OPTIONS 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. 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: 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. • 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. These options expired on 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. 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 didn’t meet the vesting condition before the expiry date. CEO’S FY21 GRANT OF OPTIONS KMP’S FY21 GRANT OF OPTIONS The FY21 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: The FY21 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. • Tranche 1 (200,000 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 (200,000 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 23 November 2023. The expiry date of the options is 10 June 2024. 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. The gross revenue and normalised EBITDA performance hurdle was chosen to be consistent with the Executive Chairman and CEO’s options vesting conditions and considered 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. 48 49 Bubs Australia Limited and Controlled EntitiesAnnual Report for the year ended 30 June 202103 DIRECTOR’S REPORT Remuneration Report (Audited) EXECUTIVE CONTRACTS Directors are also reimbursed for travel and other expenses incurred in attending to Board meetings and the Group’s affairs. 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. COMPANY SECRETARY KMP executive Notice period by the Group Notice period by Executive Payment in lieu of notice Dennis Lin (Executive Chairman) 3 months 3 months Kristy Carr (Chief Executive Officer and Managing Director) 3 months 3 months Iris Ren (Chief Financial Officer) 3 months 3 months Fabrizio Jorge (Chief Operating Officer)4 3 months 3 months David Orton (General Manager Commercial)4 3 months 3 months Richard Paine (Chief Manufacturing Officer)4 3 months 3 months Vivian Zurlo (Chief Marketing and Innovation Officer)4 3 months 3 months Yes Yes Yes Yes Yes Yes Yes 4 Due to the changes in corporate structure during the year, Richard Paine, David Orton and Vivian Zurlo ceased being a KMP on 3 May 2021. Fabrizio Jorge became a KMP on 3 May 2021. NON-EXECUTIVE DIRECTORS’ REMUNERATION The Group’s remuneration policy for non-executive directors aims to ensure that the Group can attract and retain suitably qualified and experienced directors having regard to: • the level of fees paid to non-executive directors of other comparable Australian listed companies; • the growing size and complexity of the Group’s operations; • the responsibilities and work requirements of Board members; and • the skills and diversity of Board members. Under the ASX Listing Rules, the total amount paid to all non-executive directors in any financial year must not exceed the amount fixed in a general meeting of the Group. This amount is currently $300,000 as determined by Shareholders at the AGM held on 18 November 2009. The Board’s present policy is that all non-executive directors, 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 FY21, non-executive chairman and directors’ remuneration was as follows: Title Non-Executive Director Non-Executive Director *Steve Lin’s services were remunerated by C2 Capital Partners. 50 Name Annual remuneration Matthew Reynolds Steve Lin $40,000 $40,000* 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 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. 51 Bubs Australia Limited and Controlled EntitiesAnnual Report for the year ended 30 June 202103 DIRECTOR’S REPORT Remuneration Report (Audited) DETAILS OF THE NATURE AND AMOUNT OF EACH ELEMENT OF THE REMUNERATION Table A(2): Remuneration for Non-executive Directors for the year ended 30 June 2021 Short Term Post- Employment Other Long Term Salary & fees $ Non- monetary $ Super- annuation $ Long service leave $ Share based payments – options $ Matthew Reynolds Steve Lin (2) Dennis Lin (1) Total 2021 40,000 2020 40,000 2021 40,000 2020 40,000 2021 - 2020 46,027 2021 80,000 2020 126,027 - - - - - - - - 3,800 3,800 - - - 4,373 3,800 8,173 - - - - - - - - - - - - - - - - Total $ 43,800 43,800 40,000 40,000 - 50,400 83,800 134,200 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 FY20 and FY21. Table A(1): Remuneration for KMP for the year ended 30 June 2021 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 % 2021 243,269 19,231 23,111 1,973 (1,207,997) (920,413) 131% 2020 99,934 7,998 - - 9,494 252 1,207,997 1,325,678 91% 2021 427,500 34,615 75,000 6,000 40,613 49,330 - 633,058 12% 2020 270,000 23,077 150,000 6,000 25,650 5,251 (1,349,046) (869,068) 138% 2021 - - - - - - 2020 68,031 6,407 - 2,500 6,463 45,212 2021 238,942 19,231 15,000 2020 212,385 16,923 15,000 2021 167,905 15,579 - 2020 211,538 16,923 10,000 2021 201,343 16,228 12,658 2020 238,462 19,231 2021 189,263 15,254 2020 194,615 5,385 2021 64,658 4,974 2020 - - - - - - - - - - - - - - - - - 22,700 4,504 20,177 2,985 15,951 2,913 20,096 3,140 19,128 2,004 22,654 1,475 17,980 1,752 18,488 695 6,143 - 31 - - - - - - - - - - - - - - 0% 128,613 0% 300,377 5% 267,470 6% 202,348 0% 261,697 4% 251,360 6% 281,822 0% 224,249 0% 219,183 0% 75,806 0% - - 2021 1,532,880 125,112 102,658 6,000 145,624 62,507 (1,207,997) 766,783 2020 1,294,965 95,944 175,000 8,500 123,022 59,010 (141,049) 1,615,392 Dennis Lin (2) Kristy Carr Anthony Gualdi (3) Iris Ren David Orton (4) Richard Paine (4) Vivian Zurlo (4) Fabrizio Jorge (4) Total (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. (4) Due to the changes in corporate structure during the year, Richard Paine, David Orton and Vivian Zurlo ceased being a KMP on 3 May 2021. Fabrizio Jorge became a KMP on 3 May 2021. 52 53 Bubs Australia Limited and Controlled EntitiesAnnual Report for the year ended 30 June 202103 DIRECTOR’S REPORT Remuneration Report (Audited) FULLY PAID ORDINARY SHARES OF BUBS AUSTRALIA LIMITED SHARE BASED PAYMENTS Table B: Movement in the shares of Bubs held, directly, indirectly or beneficially, by each KMP, including their related parties. Table C: Share-based payments granted as remuneration to KMP Purchase of shares Other change Shares disposed At the end of the year Grant date Number of options granted Fair Value of options granted Exercise price per option Expiry date Number vested Number expired Number forfeited Number cancelled At the beginning of the year 13,620,600 16,761,600 - 12,000,000 - - - - - - - - - - 1,500 1,500 - - - - Kristy Carr (1) Anthony Gualdi (2) Steve Lin(3) Dennis Lin Matthew Reynolds Iris Ren David Orton (4) Richard Paine (4) Vivian Zurlo (4) Fabrizio Jorge (4) 2021 2020 2021 2020 2021 2020 2021 2020 2021 2020 2021 2020 2021 2020 2021 2020 2021 2020 2021 2020 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 13,620,600 (3,141,000) 13,620,600 - - (2,000,000) 10,000,000 - - - - - - - - - - - - - - - - - - - - - - - - - - 1,500 1,500 - - - - Number of options held at the end of the period 4,770,810 4,770,810 4,770,810 4,770,810 400,000 - 400,000 - 400,000 - 400,000 - 400,000 - Dennis Lin Kristy Carr Iris Ren Fabrizio Jorge(1) David Orton(1) Richard Paine(1) Vivian Zurlo(1) 2021 - - - - - 2020 29/11/2019 4,770,810 $0.9838 $0.10 29/11/2022 2021 23/11/2020 4,770,810 $0.6132 $0.10 23/11/2023 2020 - - - - - 2021 10/06/2021 400,000 $0.1541 $0.65 10/06/2024 2020 - - - - - 2021 10/06/2021 400,000 $0.1088 $0.65 10/06/2024 2020 - - - - - 2021 10/06/2021 400,000 $0.1541 $0.65 10/06/2024 2020 - - - - - 2021 10/06/2021 400,000 $0.1541 $0.65 10/06/2024 2020 - - - - - 2021 10/06/2021 400,000 $0.1541 $0.65 10/06/2024 2020 - - - - - - - - - - - - - - - - - - - - - 4,770,810 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - (1) Due to the changes in corporate structure during the year, Richard Paine, David Orton and Vivian Zurlo stopped being a KMP on 3 May 2021. Fabrizio Jorge became a KMP on 3 May 2021 END OF REMUNERATION REPORT (AUDITED) This directors’ report is signed in accordance with a resolution of the board of directors: [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] Due to the changes in corporate structure during the year, Richard Paine, David Orton and Vivian Zurlo ceased being a KMP on 3 May 2021. Fabrizio Jorge became a KMP on 3 May 2021. Dated: 31 August 2021 DENNIS LIN EXECUTIVE CHAIRMAN SYDNEY 54 55 Bubs Australia Limited and Controlled EntitiesAnnual Report for the year ended 30 June 202103 DIRECTOR’S REPORT Remuneration Report (Audited)56 57 Bubs Australia Limited and Controlled EntitiesAnnual Report for the year ended 30 June 202103 Independent Auditor’s Report58 59 Bubs Australia Limited and Controlled EntitiesAnnual Report for the year ended 30 June 202103 Independent Auditor’s Report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 2021 The Board of Directors Bubs Australia Limited 23-29 Nina Link Road Dandenong South VIC 3175 Dear Board Members AAuuddiittoorr’’ss IInnddeeppeennddeennccee DDeeccllaarraattiioonn ttoo BBuubbss AAuussttrraalliiaa LLiimmiitteedd 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 year ended 30 June 2021, I declare that to the best of my knowledge and belief, there have been no contraventions of: • The auditor independence requirements of the Corporations Act 2001 in relation to the audit; and • Any applicable code of professional conduct in relation to the audit. Yours faithfully DELOITTE TOUCHE TOHMATSU Andrew Lian Sun Partner Chartered Accountants Liability limited by a scheme approved under Professional Standards Legislation. Member of Deloitte Asia Pacific Limited and the Deloitte organisation. 60 61 Bubs Australia Limited and Controlled EntitiesAnnual Report for the year ended 30 June 202103 Independent Auditor’s Report 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 62 63 CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME Revenue Cost of sales Gross profit/ (loss) Other Income Share of net profits/ (loss) of associate accounted for using the equity method Distribution and selling costs Marketing and promotion costs Administrative and other costs Impairment 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. 64 Note B2 B3 B3 C5 B3 B3 B5 B4 B4 2021 $ 39,312,738 (46,587,926) (7,275,188) 523,764 (687,323) (1,992,844) (7,175,341) (15,182,292) (44,640,260) (86,208) 144,774 (1,507,582) (77,878,500) 3,140,580 (74,737,920) (10,204) (10,204) (74,748,124) (0.12) (0.12) 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) 65 Bubs Australia Limited and Controlled EntitiesAnnual Report for the year ended 30 June 202104 FINANCIAL STATEMENTS Consolidated Statement of Profit or Loss and Other Comprehensive Income 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 Other assets GST receivable Plant and equipment Right of use assets Intangible assets Investment in associates Total Non-Current Assets Total Assets Liabilities Current Liabilities Trade and other payables Contract liabilities Lease liabilities Borrowings Provisions Share based payment liability 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 C3 C11 C4 C8 C5 E C6 C7 C8 C9 C10 C11 C12 C8 C10 C11 C12 B5 D5 D6 30/06/2021 $ 27,883,202 8,643,277 686,435 417,036 20,546,605 58,176,555 391,545 267,691 4,146,761 1,622,575 41,267,323 45,883 47,741,778 105,918,333 8,010,503 28,297 426,667 2,000,000 1,326,911 417,036 4,510,181 16,719,595 1,738,076 173,180 267,691 - - 2,178,947 18,898,542 87,019,791 274,851,116 2,988,548 (22,414) (190,797,459) 87,019,791 30/06/2020 $ 26,025,575 6,619,072 1,271,122 956,045 30,602,156 65,473,969 382,985 255,768 4,067,769 2,081,000 88,504,687 743,542 96,035,751 161,509,720 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 The accompanying notes form part of these financial statements. 66 67 Bubs Australia Limited and Controlled EntitiesAnnual Report for the year ended 30 June 202104 FINANCIAL STATEMENTS Consolidated Statement of Financial Position CONSOLIDATED STATEMENT OF CHANGES IN EQUITY 2021 Issued Capital $ Share Based Payments Reserve $ Foreign Currency Translation Reserve $ Accumulated Losses $ Total equity $ Balance at 1 July 2020 236,965,360 11,005,047 (12,210) (116,059,539) 131,898,658 Comprehensive income Loss for the year Other comprehensive loss Total comprehensive loss Transactions with owners in their capacity as owners: - - - Issue of shares D5 38,907,402 Capital raising costs, net of tax D5 (1,021,646) - - - - - Share based payment expense/ (benefit) D6 Share based payment expense/ (benefit) – Corporate transaction D6 - - (1,207,998) (6,808,501) - (74,737,920) (74,737,920) (10,204) - (10,204) (10,204) (74,737,920) (74,748,124) - - - - - - - - 38,907,402 (1,021,646) (1,207,998) (6,808,501) Balance at 30 June 2021 274,851,116 2,988,548 (22,414) (190,797,459) 87,019,791 2020 Issued Capital $ Share Based Payments Reserve $ Foreign Currency Translation Reserve $ Accumulated Losses $ 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 year 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/ (benefit) D6 Share based payment expense / (benefit) – 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 The accompanying notes form part of these financial statements. The accompanying notes form part of these financial statements. 68 69 Bubs Australia Limited and Controlled EntitiesAnnual Report for the year ended 30 June 202104 FINANCIAL STATEMENTS Consolidated Statement of Changes in Equity CONSOLIDATED STATEMENT OF CASH FLOWS Note D4 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 Purchases of intangible assets Payments for interests in associates Net payments to Nulac vendors relating to Nulac Foods acquisition and disposal of joint ventures Net cash used in investing activities Cash flows from financing activities Proceeds from share issue Exercise of options Capital raising costs 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. 2021 $ 43,560,575 (66,098,975) 155,720 (247,578) (22,630,258) (602,145) 7,653 (5,000,000) (7,800) - - (5,602,292) 32,098,901 - (1,459,495) (549,229) 30,090,177 1,857,627 26,025,575 27,883,202 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 70 71 Bubs Australia Limited and Controlled EntitiesAnnual Report for the year ended 30 June 202104 FINANCIAL STATEMENTS Consolidated Statement of Cash Flows NOTES TO THE FINANCIAL STATEMENTS A. BASIS OF PREPARATION 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 31 August 2021. The directors have the power to amend and reissue the financial report. The financial statements, apart from the cash flow information, have been prepared on an accruals basis and are based on historical costs. 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 2021. The financial report is presented in Australian dollars, which is Bubs Australia Limited’s functional and presentational currency. The Group is a for-profit entity that is a listed public company limited by shares, incorporated and domiciled in Australia. A description of the nature BASIS OF PREPARATION 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’). SIGNIFICANT ACCOUNTING JUDGEMENTS AND ESTIMATES The preparation of the financial statements requires management to judgements, estimates make 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. Reference Recoverability of trade and other receivables Note C1 Valuation of inventory Recoverability of intangibles Recognition and recoverability of deferred tax assets Share based payments Note C2 Note C5 Note B5 Note G2 72 73 Bubs Australia Limited and Controlled EntitiesAnnual Report for the year ended 30 June 202104 FINANCIAL STATEMENTS Notes to the Financial Statements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 Australia China Other International Total In FY20 and FY21, the Group had identified a single operating segment being the sale of nutritional food, 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. 2021 $ 2020 $ 20,436,532 36,540,584 10,465,477 12,692,522 8,410,729 5,411,846 39,312,738 54,644,952 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 Food and Vitamins Sale of Adult Goat Dairy Products Sale of Raw Materials Canning services 2021 $ 19,290,709 1,459,480 14,265,575 3,344,601 952,373 Total revenue from contracts with customers 39,312,738 2020 $ 29,845,732 2,604,513 17,827,278 2,340,973 2,026,456 54,644,952 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 1 external customers who generated greater than 10 percent of the Group’s revenue at 30 June 2021 amounting to $6,163,200. 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. SALE OF PRODUCTS The Group has identified the following revenue streams by product type: • Infant Formula • Baby Food and Vitamins • Adult Goat Dairy Products • Raw materials 74 75 Bubs Australia Limited and Controlled EntitiesAnnual Report for the year ended 30 June 202104 FINANCIAL STATEMENTS Notes to the Financial Statements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. Provision of canning services 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. 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. B.3 EXPENSES Cost of sales Production costs Inventories written off / provision Total Included in administrative and other expenses are the following: Listing and registry fees Accountancy and legal fees Insurance Travel costs Consultancy fee Occupancy costs Credit losses 2021 $ 33,976,039 12,611,887 46,587,926 437,320 1,295,996 666,094 219,193 548,344 144,187 718,782 2020 $ 42,639,299 1,637,109 44,276,408 397,964 673,298 485,233 421,412 214,317 127,698 17,788 Depreciation and amortisation 3,405,018 3,730,852 Employee costs Wages and salaries Superannuation Share based payments Total Other expenses Corporate transaction accounting expense Total Finance costs Interest expense Interest expense on lease liabilities Unwinding of consideration payable Total 5,762,627 492,955 (1,207,998) 5,047,584 86,208 86,208 255,168 125,987 1,126,427 1,507,582 5,334,823 443,096 (141,049) 5,636,870 349,209 349,209 193,703 149,860 1,036,692 1,380,255 76 77 Bubs Australia Limited and Controlled EntitiesAnnual Report for the year ended 30 June 202104 FINANCIAL STATEMENTS Notes to the Financial Statements B.4 LOSS PER SHARE (LPS) B.5 INCOME TAXES Loss attributable to the Group used in calculating basic and diluted EPS (74,737,920) (7,771,138) Consolidated profit or loss 2021 2020 Weighted average number of ordinary shares for basic EPS 603,627,471 538,114,198 Basic LPS (dollars) Diluted LPS (dollars)* (0.12) (0.12) (0.01) (0.01) * The Group has granted 11,541,620 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. 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. 2021 $ 2020 $ - (27,207) - - Income tax benefit Current tax Adjustments in respect of prior years Deferred tax 3,167,787 8,329,562 Income tax benefit reported in the statement of profit or loss 3,140,580 8,329,562 Numerical reconciliation of income tax benefit and tax at the statutory rate Accounting loss before income tax benefit 77,878,500 16,100,700 Income tax benefit calculated at 30% (2020: 30%) 23,363,550 4,830,210 Effect of different tax rates of subsidiary operating in other jurisdiction (73,560) - Tax effect of amounts not taxable in calculating income tax benefit: Allocable cost amount relating to Deloraine acquisition - (531,743) Share based payments Non-deductible costs Impairment 362,399 42,315 (338,007) (174,108) (13,392,078) - Deferred consideration payable fair value movement (337,928) (311,008) Income tax losses not recognised Temporary difference not recognised Other (5,415,204) (1,081,414) - - 79,849 (347,897) Adjustments in respect of prior years (27,027) - Income tax losses recognised Income tax benefits - 4,821,793 3,140,580 8,329,562 78 79 Bubs Australia Limited and Controlled EntitiesAnnual Report for the year ended 30 June 202104 FINANCIAL STATEMENTS Notes to the Financial Statements Deferred tax assets/(liabilities) arise from the following 2021 Opening Balance Recognised in Profit or Loss Recognised in equity Closing Balance Trade and other receivables 104,828 394,223 Inventories 294,986 1,884,012 Intangible assets (14,112,908) 912,054 Plant and equipment (421,721) 110,016 Right of use assets (624,300) 126,544 Lease Liabilities 776,681 (127,258) Trade and other payables Provisions 69,433 154,348 2,637 58,695 Carried forward tax losses 9,381,711 226,496 - - - - - - - - - 499,051 2,178,998 (13,200,854) (311,711) (497,756) 649,423 72,070 213,043 9,608,207 Capital raising costs 771,313 (419,631) 437,848 789,530 (3,605,635) 3,167,787 437,848 - 2020 Opening Balance Recognised in Profit or Loss Recognised in equity Closing Balance Trade and other receivables - 104,828 Inventories 112,392 182,594 Intangible assets (14,770,024) 657,116 Plant and equipment 48,481 (470,208) Right of use assets Lease Liabilities Trade and other payables Provisions - - - - (624,300) 776,681 69,433 154,348 - - - - - - - - 104,828 294,986 (14,112,908) (421,727) (624,300) 776,681 69,433 154,348 Carried forward tax losses 1,418,030 7,479,070 484,611 9,381,711 Capital raising costs 837,095 - (65,782) 771,313 (12,354,026) 8,329,562 418,829 (3,605,635) 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 2021, Bubs has recognised deferred tax assets of $14,010,321 (2020: $11,553,301) 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 2021, the Group had $6,774,353 (2020: Nil) of unrecognised tax losses and $1,081,414 temporary (2020; Nil) of unrecognised differences. 80 81 Bubs Australia Limited and Controlled EntitiesAnnual Report for the year ended 30 June 202104 FINANCIAL STATEMENTS Notes to the Financial Statements 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 Other receivables Receivable from associates 30/06/2021 $ 30/06/2020 $ 8,410,194 4,451,294 (717,691) 296,213 654,561 (10,525) 360,515 1,817,788 8,643,277 6,619,072 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. The following table details the risk profile of trade receivables based on the Group’s provision matrix. TRADE RECEIVABLES - DAYS PAST DUE 30/06/2021 Not past due <30 days 31-60 days 61-90 days 91-120 days >120 days Total KEY ESTIMATE AND JUDGEMENT Estimated total gross carrying amount at default Lifetime ECL 15,709 4,865 755 - - 696,362 717,691 717,691 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 The Group’s exposure to credit risks related to trade and other receivables are disclosed in Note D2 Financial risk management. 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. The Group considers a financial asset in default when internal or external information indicates is unlikely to receive the that the Group outstanding contractual amounts in full before taking into account any credit enhancements held by the Group. 82 83 Bubs Australia Limited and Controlled EntitiesAnnual Report for the year ended 30 June 202104 FINANCIAL STATEMENTS Notes to the Financial Statements C.2 INVENTORIES Raw materials Finished goods 30/06/2021 $ 30/06/2020 $ 14,278,685 14,266,867 6,267,920 16,335,289 20,546,605 30,602,156 The amount of inventory that was written off during the year was $2,173,988 (2020: $547,873). An inventory obsolescence provision $9,587,899 (2020: $983,290) was recognised as an expense during the year. A take or pay penalty $850,000 (2020: Nil) was recognised as an expense during the year, disclosed as part of inventory write off expense. The cost of inventories recognised as an expense during the year in respect of continuing operations was $32,164,537 (2020: $38,849,052). RECOGNITION AND MEASUREMENT C.3 OTHER ASSETS Current Prepayments and other assets Deposits paid Inventories paid in advance Non-current Security bond 30/06/2021 $ 30/06/2020 $ 256,972 385,773 43,690 686,435 497,175 586,286 187,661 1,271,122 391,545 382,985 RECOGNITION AND MEASUREMENT INVENTORIES PAID IN ADVANCE 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 KEY ESTIMATES AND JUDGEMENTS RECOVERY OF INVENTORY 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. 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 FY22. end consumer demand Changes in trading and economic conditions, and changes in country specific regulations, may impact these estimations in future periods. 84 85 Bubs Australia Limited and Controlled EntitiesAnnual Report for the year ended 30 June 202104 FINANCIAL STATEMENTS Notes to the Financial Statements C.4 PLANT AND EQUIPMENT RECOGNITION AND MEASUREMENT Building and improvements $ Production equipment $ Motor Vehicle $ Office equipment $ Total $ As at 1 July 2019 1,371,300 2,826,677 25,000 143,669 4,366,646 Additions Disposals 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 Additions Disposals 118,767 (4,830) 646,123 - - - 46,442 (13,464) 811,332 (18,294) As at 30 June 2021 1,502,807 3,568,600 25,000 191,295 5,287,702 Accumulated Depreciation and impairment As at 1 July 2019 Depreciation Disposals As at 30 June 2020 Depreciation Impairment Disposals (16,170) (81,320) - (97,490) (83,758) (102,165) (416) (175,276) (2,083) 12,143 - (265,298) (209,260) (116,587) (269,167) 413 - (2,499) (2,083) (1,801) - (34,120) (34,250) 6,762 (61,608) (35,704) (4,829) 8,730 (152,870) (292,929) 18,905 (426,895) (330,805) (392,384) 9,143 As at 30 June 2021 (297,422) (743,725) (6,383) (93,411) (1,140,941) Net book value As at 30 June 2020 1,291,380 2,657,179 As at 30 June 2021 1,205,385 2,824,875 22,501 18,617 96,709 97,884 4,067,769 4,146,761 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 15-20 years 12-19 years 10 years 2-13 years 86 C.5 INTANGIBLE ASSETS Goodwill $ Brand name $ Licence $ Priority right $ Customer contract/ list $ Recipes $ Patents, trademarks and software $ Total $ 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 - - - - - - - - - - - - 7,800 7,800 (66,722) (66,722) 90,614,673 4,691,634 38,489,095 1,800,000 6,759,764 47,740 104,260 142,507,166 As at 1 July 2019 Additions Disposals As at 30 June 2020 Additions Disposals As at 30 June 2021 Accumulated amortisation and impairment (49,138,940) (349,901) (300,000) (847,852) (47,740) (46,113) (50,730,546) As at 1 July 2019 Amortisation Disposal - - As at 30 June 2020 (49,138,940) Amortisation - Impairment (40,901,662) Disposals - - - - - - (1,749,504) (900,000) (648,199) - - - - - (33,152) (3,330,855) - - (2,099,405) (1,200,000) (1,496,051) (47,740) (79,265) (54,061,401) (1,749,504) (600,000) (648,199) (3,093,031) - - - (215,488) - - - - (23,853) (3,021,556) (1,083) (44,211,264) 54,379 54,379 As at 30 June 2021 Net book value At 30 June 2020 As at 30 June 2021 (90,040,602) (6,941,940) (1,800,000) (2,359,738) (47,740) (49,822) (101,239,842) 41,475,733 4,691,634 36,389,690 600,000 5,263,713 574,071 4,691,634 31,547,155 - 4,400,026 - - 83,917 88,504,687 54,437 41,267,323 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 (2020: $1,165,712); Nulac Foods $6,302,161 (2020: $31,218,363) and Deloraine Dairy $33,745,013 (2020: $56,036,695). 87 Bubs Australia Limited and Controlled EntitiesAnnual Report for the year ended 30 June 202104 FINANCIAL STATEMENTS Notes to the Financial Statements 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 2021, 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 2021 2020 1,165,712 1,165,712 4,100,000 28,077,406 - 16,924,256 5,265,712 46,167,374 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. 88 89 Bubs Australia Limited and Controlled EntitiesAnnual Report for the year ended 30 June 202104 FINANCIAL STATEMENTS Notes to the Financial Statements 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 whether goodwill and intangibles with indefinite useful lives are impaired at least annually and whenever an indicator of impairment exists. 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 2021 Infant Food Co CGU and Nulac CGU 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 prepared by the management. In light of the current impact of COVID-19 on the Group’s performance in FY21, management has reviewed the assumptions applied to the value in use models for goodwill impairment 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 2021. The value in use models are considered to reflect a base case of cashflows and appropriate discount rate. KEY ASSUMPTIONS 2021 2020 CGUs Infant Food Co Nulac Foods Infant Food Co Nulac Foods Discount rate (post tax) 12.93% 11.90% 12.93% 11.90% Discount rate (pre tax) 18.50% 17.00% 18.50% 17.00% Terminal growth 2.00% 2.00% 2.00% 2.00% 90 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 FY21, and 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. Revenue growth – Revenue projections have been constructed with reference to the FY21 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. 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% (2020: 2.0%) 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 impairment testing, management determined the carrying amount of Nulac CGU exceeded its recoverable amount, resulting in a goodwill impairment of $23,977,406. The recoverable amount for the Infant Food Co CGU exceeded its carrying amount and therefore no impairment loss has been recognised. There is $3.4 million headroom for Infant Food Co CGU. Any adverse changes in the assumption will possibly result in an impairment. 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. Management has identified that a reasonably possible change in three key assumptions could result an impairment in Infant Food Co CGU and a further impairment for Nulac Foods as shown in the following table. Discount rate Budgeted gross revenue growth Budgeted gross margin Deloraine Dairy CGU Management engaged an independent external valuation specialist to perform a valuation on Deloraine Dairy CGU. The valuation was determined on a value in use basis using a discounted cash flow approach based on financial budgets and five-year forward plans prepared by management. The predominant driver of the valuation is the application of the SAMR accreditation and CNCA license renewal. As Impact on recoverable amount % change Infant Food Co Nulac Foods 1.5% -5% -1% (6,118,543) (29,659,407) (8,843,387) (2,286,385) (6,327,996) (1,328,969) a result, eight broad scenarios were developed to capture a range of expected future possibilities based on the projections prepared by the management. A pre-tax discount rate of 17.86% (2020: 17.01%) and post-tax discount rate of 12.5% (2020; 11.91%) and terminal growth rate of 2.0% (2020: 2.0%) were adopted in the valuation model. Based on the outcome of each scenario, the CGU value adopted in the external valuation report is between $30 million and $45 million. Management has adopted a mid- point valuation of $37.5m which resulted in a goodwill impairment of $16,924,256 and an impairment of $3,738,597 in other assets within the CGU. 91 Bubs Australia Limited and Controlled EntitiesAnnual Report for the year ended 30 June 202104 FINANCIAL STATEMENTS Notes to the Financial StatementsC.6 TRADE AND OTHER PAYABLES Trade payables Other payables Customer deposits Payable to associates C.7 CONTRACT LIABILITIES 30/06/2021 $ 30/06/2020 $ 5,383,123 7,559,124 Contract liabilities 1,927,930 2,773,565 684,545 14,905 609,884 61,007 8,010,503 11,003,580 2021 $ 28,297 28,297 2020 $ 67,234 67,234 $64,807 included in contract liabilities at 30 June 2020 was recognised as revenue during the year. No revenue was recognised in the current year that related to performance obligations that were satisfied in the prior year. As at 30 June 2021, a total of $113,182 Payroll tax payable were deferred to FY22 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. C.6 The carrying value of trade and other payables approximates their fair value. 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. 92 93 Bubs Australia Limited and Controlled EntitiesAnnual Report for the year ended 30 June 202104 FINANCIAL STATEMENTS Notes to the Financial Statements C.8 LEASES RIGHT OF USE ASSETS LEASE LIABILITIES Cost At 1 July 2020 Additions At 30 June 2021 Accumulated Depreciation and Impairment At 1 July 2020 Depreciation Impairment At 30 June 2021 Carrying amount At 30 June 2020 At 30 June 2021 Buildings $ Equipment $ Total $ 2,444,996 76,042 2,521,038 - - - 2,444,996 76,042 2,521,038 (421,805) (403,721) (36,612) (18,233) (18,092) (440,038) (421,813) (36,612) (862,138) (36,325) (898,463) 2,023,191 1,582,858 57,809 39,718 2,081,000 1,622,575 The Group leases several assets including buildings and IT equipment. The lease terms range from 1.2 – 10 years (2020: 1.2 - 10 years). Extension options are included in a number of leases across the group. These are used to maximise operational flexibility in terms of managing the assets used in the group’s operations. The majority of extension options held are exercisable only by the group and not by the respective lessor. AMOUNTS RECOGNISED IN PROFIT AND LOSS Depreciation expense on right-of-use assets Interest expense on lease liabilities Impairment Expense relating to short-term leases The total cash outflow for leases amount to $549,229 (2020: $553,633). 30/06/2021 $ 30/06/2020 $ 421,813 125,987 36,612 104,393 440,038 149,860 - 19,812 Current Non-current Maturity analysis Year 1 Year 2 Year 3 Year 4 Year 5 Onwards 30/06/2021 $ 30/06/2020 $ 426,667 422,805 1,738,076 2,166,131 2,164,743 2,588,936 531,663 550,557 499,199 532,824 502,266 499,444 512,266 502,267 393,347 512,266 - 393,347 2,438,741 2,990,705 Less unearned interest 273,998 401,769 Total 2,164,743 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. 94 95 Bubs Australia Limited and Controlled EntitiesAnnual Report for the year ended 30 June 202104 FINANCIAL STATEMENTS Notes to the Financial StatementsRECOGNITION AND MEASUREMENT 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 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. C.9 BORROWINGS Current 2021 $ 2020 $ 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 (2020: $10 million) with $2 million drawn at 30 June 2021 (2020: $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. 96 97 Bubs Australia Limited and Controlled EntitiesAnnual Report for the year ended 30 June 202104 FINANCIAL STATEMENTS Notes to the Financial Statements C.10 PROVISION Current Annual leave and long service leave Other provision Non - Current Long service leave Make good provision 30/06/2021 $ 30/06/2020 $ 536,963 789,948 1,326,911 82,105 91,075 173,180 365,653 235,616 601,269 59,520 89,321 148,841 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. A provision was raised for associated costs to settle a claim in relation to the price difference on milk supplied by Central Dairy Goats Limited (‘CDG’) from 1 October 2020 to 30 June 2021. Further details are disclosed in Note D7 Contingent Liabilities. C.11 SHARE BASED PAYMENT LIABILITY Current Non-Current 2021 $ 2020 $ 417,036 956,045 267,691 255,768 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. C.12 DEFERRED CONSIDERATION 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 2020 $8,383,754 Unwinding of the deferred consideration payable recognised in profit or loss in the current period $1,126,427 Deferred consideration paid in the current period Balance at 30 June 2021 ($5,000,000) $4,510,181 98 99 Bubs Australia Limited and Controlled EntitiesAnnual Report for the year ended 30 June 202104 FINANCIAL STATEMENTS Notes to the Financial Statements 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, Australia and New Zealand Bank Limited, Commonwealth Bank of Australia and Bank of the West. 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 FY21, 16% of sales were to one customer (2020: 19% 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. The Group considers a financial asset in default when internal or external information 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 related party credit risk and 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 2021 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) Other receivables GST receivable Deposits paid 100 2021 $ 2020 $ 27,883,202 26,025,575 8,347,064 6,258,557 296,213 684,727 385,773 360,515 1,211,813 586,286 37,596,979 34,442,746 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 2021 $ 2020 $ 6,036,129 4,995,348 1,782,376 1,203,758 528,560 - - 56,241 3,210 - 8,347,064 6,258,557 101 Bubs Australia Limited and Controlled EntitiesAnnual Report for the year ended 30 June 202104 FINANCIAL STATEMENTS Notes to the Financial Statements Movement in allowance for doubtful debts Allowance of doubtful debts Balance at beginning of the year 2021 $ 2020 $ 10,525 3,755 Amount charged to the statement of profit or loss and other comprehensive income 730,009 17,788 Provision utilised Balance at the end of year (22,843) (11,018) 717,691 10,525 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, USA 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 in material exposure and sensitivity to movements 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. 2020 Movement on exchange rate NZD USD RMB Euro Net exposure 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) 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. Contractual undiscounted maturities of financial liabilities 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 (2020: $2,000,000) drawn at 30 June 2021. Total limit of facility is $10,000,000. 2021 Contractual cashflows Carrying amount Total 2 months or less 2-12 months 1-2 years 3-5 years More than 5 years 2021 Movement on exchange rate NZD USD RMB Euro Net exposure 102 Net exposure on reporting date (Payable)/Receivable Impact on pre-tax profit / (loss) Non-derivative financial liabilities $ (93,641) 258,680 (39,417) (13,960) 111,662 +10% $ 8,513 (23,516) 3,583 1,269 (10,151) -10% $ (10,405) 28,742 (4,380) (1,551) 12,406 Lease liability 2,164,743 2,438,741 88,610 443,053 499,199 1,407,879 Deferred consideration payable Trade and other payables 4,510,181 5,000,000 - 5,000,000 7,995,598 7,995,598 7,995,598 Borrowings 2,000,000 2,000,000 2,000,000 Payable to associates 14,905 14,905 14,905 - - - - - - - - - - - 16,685,427 17,449,244 10,099,113 5,443,053 499,199 1,407,879 - - - - - - 103 Bubs Australia Limited and Controlled EntitiesAnnual Report for the year ended 30 June 202104 FINANCIAL STATEMENTS Notes to the Financial Statements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 D.3 CASH AND CASH EQUIVALENTS Cash at bank and on hand 2021 $ 27,883,202 27,883,202 2020 $ 26,025,575 26,025,575 Interest is earned at floating rates based on daily bank deposit rates. 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. D.4 CASH FLOW INFORMATION Reconciliation of after tax profit with net cash flows from operating activities 2021 $ 2020 $ (Loss) after income tax expense for the year (74,737,920) (7,771,138) Income tax benefit Share-based payments (3,140,580) (8,329,562) (1,207,998) (141,049) Unwinding of deferred consideration payable 1,126,427 1,036,692 Impairment loss 44,640,260 - Depreciation and amortisation 3,774,182 4,063,818 Equity accounting profit Foreign currency reserve 697,659 286,929 (10,204) (14,177) Loss on disposal of intangible assets 12,344 - Loss on disposal of plant and equipment 1,498 19,079 Decrease / (increase) in trade and other receivables (2,122,970) 2,124,832 Decrease / (increase) in inventories 10,055,551 (16,049,756) Decrease / (increase) in other assets 576,126 (17,545) Increase / (decrease) in trade and other payables (3,044,614) 2,764,925 Increase/ (decrease) in provisions 749,981 109,872 Net cash outflow from operating activities (22,630,258) (21,917,078) 104 105 Bubs Australia Limited and Controlled EntitiesAnnual Report for the year ended 30 June 202104 FINANCIAL STATEMENTS Notes to the Financial Statements D.5 SHARE CAPITAL D.6 SHARE BASED PAYMENTS RESERVE 30/06/2021 30/06/2020 Shares $ Shares $ Balance at the beginning of the year 11,005,047 24,878,923 Share based payment (1,207,998) (141,049) 30/06/2021 $ 30/06/2020 $ Movement in share capital Share based payment – Corporate transaction (6,808,501) (13,732,827) Balance at beginning of the year 560,295,334 236,965,360 509,590,057 189,059,150 Balance at the end of the year 2,988,548 11,005,047 Share based payment expense – Corporate transaction 12,356,627 6,808,501 12,356,627 13,732,827 Exercise of options - - 1,506,545 150,655 Placement of shares 35,371,844 28,297,475 31,578,947 30,000,000 Share purchase plan 4,751,775 3,801,426 5,263,158 5,000,000 Share issue transactions costs (net of tax) - (1,021,646) - (977,272) Balance at end of year 612,775,580 274,851,116 560,295,334 236,965,360 Fully paid ordinary shares carry one vote per share and carry right to dividends. Fully paid ordinary shares have no par value. 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 tranche 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. Due to the economic interruptions caused by COVID-19, Chemist Warehouse was not able to meet its sales performance targets for the year ending 30 June 2021. As a result, the fourth tranche of 12,356,627 ordinary shares were not issued. The remaining 12,365,627 ordinary shares will be issued 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 year ending 30 June 2022. D.7 CONTINGENT LIABILITIES On 18 December 2020, Central Dairy Goats Limited (‘CDG’) commenced proceedings in the High Court of New Zealand for breach of contract, alleging that Bubs New Zealand Pty Ltd (‘Bubs’) had incorrectly interpreted the price review mechanism in the Milk Supply Agreement between the parties dated 21 December 2018. Registry of the High Court of New Zealand and defended the summary judgement application. Judgement was handed down on 28 May 2021 in favour of Bubs. Despite the circumstances, CDG have indicated that they are prepared to continue the litigation beyond summary judgement to a full trial. On 21 December 2020, CDG filed in the High Court for declaratory relief in the form of a summary judgement to affirm their interpretation of the contract and recover back payment for the period from 1 October 2020 to present. On 18 May 2021, Bubs appeared in the Wellington In the event that the matter does progress to a full trial, the Group continues to monitor the potential exposure and seek legal advice. 106 107 Bubs Australia Limited and Controlled EntitiesAnnual Report for the year ended 30 June 202104 FINANCIAL STATEMENTS Notes to the Financial Statements E. ASSOCIATES Summarised financial information of the associate is set out below: 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. In April 2021, the Group and the Beingmate reached an agreement to unwind Bubs Brand Management. As at 30 June 2021, the liquidation process of Bubs Brand Management was yet to be finalised. Summarised financial information of the associate is set out below: 30/06/2021 30/06/2020 Current assets Non-current assets Current liabilities Non-current liabilities Net assets Loss for the year Revenue Loss before tax Income tax expense Loss for the year Other comprehensive income 1,313,080 - (1,216,902) (2,539) (93,639) 3,470,506 (1,402,659) - (1,402,659) - 3,218,647 224,674 (1,842,764) (83,124) (1,517,433) 6,580,963 (547,628) (8,487) (556,115) - Total comprehensive loss for the year (1,402,659) (556,115) 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 93,639 45,883 45,883 1,517,433 743,542 743,542 On 19 June 2020, Capela Dairy Nutrition Co. Pty Ltd (‘Capela Dairy’) was established and was a wholly owned subsidiary of the Group. On 1 March 2021, 80% interest in Capela Dairy was transferred to Grand Products Investment Pty Ltd (‘Grand Products’) at a price of $80. No trading activities incurred up to 1 March 2021. The Group is not required to contribute any working capital. The Group has determined that it does not have joint control of Capela Dairy and is therefore outside the scope of AASB 11 Joint Arrangements. As such, The Group’s investment in Capela Dairy will be accounted for as an associate under AASB 128 Investments in Associates and Joint Ventures. Current assets Non-current assets Current liabilities Non-current liabilities Net assets Loss for the year 30 June 2021 Revenue Loss before tax Income tax expense Loss for the year Other comprehensive income Total comprehensive loss for the year 30/06/2021 2,941 - (44,795) - (41,854) - (41,954) - (41,954) - (41,954) 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 (20%) Proportion of the Groups ownership interest in the associate (20%) Carrying amount of the investment in the associate (41,854) (8,371) - 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. 108 109 Bubs Australia Limited and Controlled EntitiesAnnual Report for the year ended 30 June 202104 FINANCIAL STATEMENTS Notes to the Financial Statements 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 2021 % Owned 2020 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% Ordinary 100% 100% Aussie Bubs Inc USA Trading Company Ordinary 100% - F.3 PARENT ENTITY INFORMATION Set out below is the supplementary information of the legal parent entity. Result of parent entity Loss for the year 2021 $ 2020 $ (Restated) (78,759,315) (50,175,353) Other comprehensive income - - Total comprehensive loss for the year (78,759,315) (50,175,353) Financial position of parent entity at year end Current assets Total assets Current liabilities Total liabilities Issued share capital Reserves Accumulated losses Total Equity 827,357 981,810 69,644,362 123,796,982 5,340,186 1,262,482 4,649,797 9,902,003 302,849,909 264,964,153 2,963,760 10,990,615 (240,819,104) (162,059,789) 64,994,565 113,894,979 As a result of completing the annual review of the parent entity’s financial information, management have identified a number of insignificant corporate expenses and equity accounted investment entries recorded in the group consolidation but not posted in the previously reported parent entity numbers and as a result the comparatives have been restated. 110 111 Bubs Australia Limited and Controlled EntitiesAnnual Report for the year ended 30 June 202104 FINANCIAL STATEMENTS Notes to the Financial Statements 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 2021 $ 2020 $ 1,846,650 1,694,436 149,424 62,507 131,195 59,010 (1,207,997) (141,049) 850,583 1,743,592 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 Amounts owed by related parties 2021 $ 2020 $ 2021 $ 2020 $ 2021 $ 2020 $ 2021 $ 2020 $ KMP of the group Professional services fee to BDO Australia Ltd - - - 39,488 - 14,148 - - Joint venture in which the parent is a venturer: Capela Dairy Nutrition Co Pty Ltd Bubs Brand Management Shanghai Co. Ltd 41,681 - - - - - 41,681 - 3,111,752 6,734,364 14,905 185,296 14,905 61,007 - 1,817,788 1 In FY20, a higher probability was applied to vesting conditions of Executive Chairman’s 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. Total 3,153,433 6,734,364 14,905 224,784 14,905 75,155 41,681 1,817,788 All of the above transactions were considered to be on an arms’ length basis. 112 113 Bubs Australia Limited and Controlled EntitiesAnnual Report for the year ended 30 June 202104 FINANCIAL STATEMENTS Notes to the Financial Statements G.2 SHARE BASED PAYMENTS 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 Kristy Carr and other employees during the period is as follows: Share based payments expense in relation to options exercisable is as follows: Employee options Employee options Employee options 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 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 Options expired during the year (Exercisable at $0.10) Options granted to the current CEO during the year (Exercisable at $0.10) Options granted to the KMP during the year (Exercisable at $0.65) Balance at 30 June 2021 Options on issue at 30 June 2021 are as follows: 2021 $ 2020 $ - (1,349,046) (1,207,998) 1,207,997 (1,207,998) (141,049) Options # 6,277,355 (1,506,545) 4,770,810 9,541,620 (4,770,810) 4,770,810 2,000,000 11,541,620 Options Chairman issued to in FY20: the Executive Options issued to the CEO in FY21: Options issued to the Employees in FY21: 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 $60m in gross revenue and $4m 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 $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 $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 FY20 expire on 29 November 2022. The options issued in FY21 expire on 23 November 2023. 1,000,000: 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. 1,000,000: vest 3 months after issue and on the achievement of $60m in gross revenue and $4m in normalised EBITDA as at the Company’s full year results and expire on termination of employment. The options issued in FY21 expire on 10 June 2024. Exercise price ($) 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 0.1 0.71 23-Nov-20 60% 23-Dec-23 Nil 0.11% $0.61 2,385,405 $1,462,730 0.65 0.49 14-Apr-21 60% 10-Jun-24 Nil 0.11% $0.1541 1,600,000 $246,560 0.65 0.41 27-Apr-21 60% 10-Jun-24 Nil 0.11% $0.1088 400,000 $43,520 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. 114 115 Bubs Australia Limited and Controlled EntitiesAnnual Report for the year ended 30 June 202104 FINANCIAL STATEMENTS Notes to the Financial Statements G.3 AUDITORS REMUNERATION G.5 ACCOUNTING POLICIES AND NEW ACCOUNTING STANDARDS During the financial year the following fees were paid or payable for services provided by the auditor of the Group: PRINCIPLES OF CONSOLIDATION Audit services Audit or review of the financial statements – Deloitte 296,760 245,000 2021 $ 2020 $ Non audit services Agreed upon procedures G.4 SUBSEQUENT EVENTS - - 296,760 245,000 No matter or circumstance has arisen since 30 June 2021 that has significantly affected or could significantly affect the reported results from operations or financial position for the year then ended. 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. The consolidated financial statements incorporate the assets and liabilities of all subsidiaries of Bubs Australia Limited (‘company’ or ‘parent entity’) as at 30 June 2021 and the results of all subsidiaries for the year then ended. Bubs Australia Limited and its subsidiaries together are referred to in these financial statements as the ‘Group’. Subsidiaries are all those entities over which the Group has control. The Group controls an entity when the Group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power to direct the activities of the entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are deconsolidated from the date that control ceases. transactions, balances and unrealised Intercompany gains on transactions between entities in the Group are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of the impairment of the asset transferred. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group. 116 117 Bubs Australia Limited and Controlled EntitiesAnnual Report for the year ended 30 June 202104 FINANCIAL STATEMENTS Notes to the Financial StatementsGOING CONCERN the directors’ consideration of As part of the appropriateness of adopting the going concern basis in preparing the financial statements, a range of scenarios have been reviewed. Management have sensitised the revenue, operating costs and cashflow impacts to take consideration of potential reduced trading activities caused by challenging macro dynamics. 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 ceasing all non-essential and non-committed capex in the next 12 months. As at 30 June 2021, the Group balance sheet reflects a net current asset position of $41 million and net asset position of $87 million. The liquidity of the Group remains strong. In addition, we are in the process of renewing the NAB working capital facility of $10 million with the maturity date in September 2022 and are confident that the facility will be renewed. As at 30 June 2021, the undrawn balance remains at $8 million which is consistent with prior periods. In all scenarios modelled, our liquidity requirements are within the $10 million working capital facility and we will be 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. 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 64 to 118 and the Remuneration report on pages 44 to 55 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 2021 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 NEW, REVISED OR AMENDING ACCOUNTING STANDARDS AND INTERPRETATIONS ADOPTED b.) There are reasonable grounds to believe that the Company will be able to pay its debts as and when Several other amendments and interpretations were applied for the first time in the 2021 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 2021. The impact of these new or amended Accounting Standards to the Group’s consolidated financial statements are not expected to be significant. 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 2021. 3. The directors draw attention to Note A to the consolidated financial statements, which includes a statement of compliance with International Financial Reporting Standards. 118 119 Signed in accordance with a resolution of the directors: Dated at Sydney this 31st day of August 2021 DENNIS LIN EXECUTIVE CHAIRMAN Bubs Australia Limited and Controlled EntitiesAnnual Report for the year ended 30 June 202104 FINANCIAL STATEMENTS Notes to the Financial Statements 05 OTHER INFORMATION 120 OTHER INFORMATION The following additional information is required by the Australian Securities Exchange in respect of listed public companies. 1. SHAREHOLDING AS AT 19 AUGUST 2021 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 Total Total holders 22,712 3,058 1,227 638 457 1,421 29,493 Units 71,912,855 45,860,678 31,283,853 23,131,494 21,356,702 419,229,998 612,229,998 % Units 11.74 7.48 5.11 3.77 3.49 68.41 100.00 B Unmarketable parcels Minimum Parcel Size Holders Minimum $ 500.00 parcel at $ 0.4200 per unit 1,191 7,451 Units 5,602,017 C Voting rights The voting rights attached to each class of equity security are as follows: Ordinary shares: each ordinary share is entitled to one vote when a poll is called, otherwise each member present at a meeting or by proxy has one vote on a show of hands D Top 20 shareholders – Ordinary Shares Rank Name 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. C2 CAPITAL GLOBAL EXPORT-TO-CHINA FUND CW RETAIL SERVICES PTY LTD HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED CITICORP NOMINEES PTY LIMITED CARR FAMILY PTY LIMITED J P MORGAN NOMINEES AUSTRALIA LIMITED WROXBY PTY LTD BNP PARIBAS NOMINEES PTY LTD ACF CLEARSTREAM INFANT FOOD BUSINESS PTY LIMITED STABLE CHARTER LIMITED A Z GLOBAL CORPORATION PTY LTD MR BENJAMIN PAUL LANDON MS CATHERINE JANE TAYLOR MR RUPERT ROBIN SOAR NATIONAL NOMINEES LIMITED BNP PARIBAS NOMINEES PTY LTD CUSTODIAL SERVICES LIMITED MR JUN HUA CHEN 19. WAIRAHI INVESTMENTS LIMITED 20. BNP PARIBAS NOMINEES PTY LTD Units % of Units 76,288,510 12.45 24,713,254 18,990,448 18,376,480 13,620,600 11,511,022 6,383,333 5,153,333 5,0000,000 4,615,385 4,097,911 4,000,270 3,000,000 2,772,039 2,492.162 2,433,022 2,326,111 2,000,000 2,000,000 1,861,345 4.03 3.10 3.00 2.22 1.88 1.04 0.84 0.82 0.75 0.67 0.65 0.49 0.45 0.41 0.40 0.38 0.33 0.33 0.30 Totals: Top 20 holders of ORDINARY FULLY PAID SHARES (TOTAL) 211,635,225 34.54 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 11,541,620 options on issue. 122 123 Bubs Australia Limited and Controlled EntitiesAnnual Report for the year ended 30 June 202105 OTHER INFORMATIONCORPORATE DIRECTORY ASX: BUB Bubs Australia DIRECTORS COMPANY SECRETARY Dennis Lin Jay Stephenson Kristy-Lee Newland Carr Matthew Reynolds (Retired on 21 July 2021) Steve Lin Katrina Rathie (Appointed on 21 July 2021) 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 Touche Tohmatsu 477 Collins Street Melbourne VIC 3000 AUSTRALIAN SECURITIES EXCHANGE ASX Code: BUB 124 INVESTOR RESOURCE CENTRE www.investor.bubsaustralia.com Bubs Australia Limited and Controlled Entities05 OTHER INFORMATION

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