Bubs Australia Limited

Good day and welcome to the Bubs Australia limited party of 26 results. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number 1 on your telephone keypad. If you would like to withdraw your question, please press star 1 again. For operator assistance throughout the call, please press star 0 and finally, I would like to advise all participants that this call is being recorded. Thank you. I'd now like to welcome Joe Coutts, CEO, to begin the conference. Joe, over to you.

Thank you very much and good morning everybody. We're here this morning to talk about our R1F26 results. If we could tab please. And if we could tab again please. Just as we get started at BUDS we acknowledge the traditional custodians of the lands on which we operate. We pay our respects to elders past and present. Please. I'm Joe Coote, CEO at BUDS. I've been in my role now just seven months so very excited and proud to share with you our half month results. I'm joined here this morning by Naomi Iqbaluq, our CFO. So this morning we'll take you through the headlines of our results. We'll update on our trading markets. Then Naomi will take over and walk us through our financial results. and then we'll round out with a strategy update. Yes, so as I said I'm very excited and proud of the team actually to report that we have exceeded our commitments in H1 of F26. These results have been achieved through certain strategic clarity, focus on growth, and then a lot of disciplined execution, particularly in relation to our stock rationing and our air freight. But overall, it's a great result. If I just headline through the main numbers, revenue was $55.5 million, which was up 14% from prior year. There's a heavy weighting of the U.S. market, which quarter over quarter grew, sorry, over half grew 48%. Our gross profit exceeded our guidance at 48. Our underlying EBITDA previously was 4.4 million positive, which on a comp basis cycles off a negative 0.7, so we're very happy with that. Then those factors together draw us to today share an upgraded outlook for F26. We're feeling very positive about these results and through the balance of the year. A couple of other highlights just as we get started. We have now moved from strategy development into strategy deployment and so it's very pleasing to share that we have now got a number of initiatives that are rolling forward and I'll share some of the outcomes that we've delivered at the back end of this presentation. One of the core things we're focused on is building a high performing culture. We've done quite a lot of work on this in the half. We've got a group of people now very motivated and committed. We have very clear accountabilities focused around executing in the day and also building a stronger business in the future through deploying strategic initiatives. Over the half, we've made five leadership appointments, one of which myself. We've got a new leader from outside the business leading our commercial business in the USA. We've set up a global chief marketing officer also based up in the US. We've also secured the gentleman Chris Lazarus who is running the US to come back to Australia and he's running Australia and the rest of the world after having delivered great outcomes in his time in the US. Finally we've brought on a leader of our corporate services group. So there's a lot going on at the leadership level but also more broadly we have done our inaugural team engagement survey and we're focused on working with the teams to deliver our high performance outcomes. Finally, U.S. market access. We continue to make strong progress with the FDA. Interesting to note that overnight one of our competitors in the U.S. has secured permanent access, and so that's a precedent that we believe stands up in good stead to continue our positive engagement. That, please. Then if we tab again I'll start to talk about the markets. Just as we're getting started on our markets it's just important to note that we live in a dynamic global environment. I think it's unprecedented in a lot of ways, certainly in the 30 years that I've been in business. As we look at it there's really three things that we feel are dynamics that are impacting our business. Firstly, the demographic forces. So in the mass market globally in infant formula, there are some negative impacts from declining birth rates. I would call out China as one example where the birth rate was down 17% and then the infant formula dollar sales were down 5%. But pleasingly, our business in China is growing. So we have a strong business model and a strong brand. The other thing to note in terms of demographics is that Our consumers, we're very clear who they are. They're a premium natural consumer. So these cohorts of parents are looking for products similar to the products that we have that are a little differentiated from the mass market. They do tend to attract a higher margin and so that's the sub-category of the broader category that BUBS participates in. From a regulatory and geopolitical, we are watching with interest rate, environment, currency with our exposure to the US. strengthening of the Aussie against the US with the Aussie currently spot rate a little over 70. So we're watching that. Obviously the tariff environment is interesting to say the least. There's a lot of volatility there. We did watch the recent high court decision in the US and we are working with our advisors in the US to optimise our position in the US in relation to tariffs. Finally, competitors and consumers. There has been globally two quality issues in our industry. They're being managed and worked through. We are well aware of those issues and we're very confident in our quality systems and we continue to move forward on the basis of the strong quality reputation that we have as bubs and obviously from our Australian source. So to summarise, we feel well positioned to navigate the dynamic global environment. Our brand resonates strongly with our targeted consumers. We operate in diversified markets so we have some ability to move between those markets and finally we have an attractive margin structure given we have the exposure to the premium natural oil sub-segment. Going into the US market, we've seen very strong volume and value growth in the half We have worked very well with the large retailers and so if you look at the overall category, we're fortunate to participate in that premium natural category which is up 44% against the total category only up 3%. We're 8% of that premium natural subcategory and so in terms of then the retailers that look to work with, we've done some great work and we're just cycling through at the moment the annual range review process. We're at target, we'll increase stores, we'll increase the number of products that we have in stores. Amazon gives us the natural coverage and we're number one in GOAT on Amazon. Walmart very pleasingly we're stepping up very significantly in store count and also the number of products we have in their stores and then additionally very pleased to note that we have ranging at Sprouts which is one of the top premium natural banners in the US and then Sam's Club which is part of the Walmart group is the club element of that business and we set secured ranging at Sam's Club. So if I go straight to the bottom right you can see the chart there. At the start of February this year we were a little over 5,500 stores. We're now going into a cycle of growth as these retailers do their annual resets and so by the end of the year We're forecasting to be over 8,500 stores with those additional placings. So we're going into a very exciting time where the business will work through the intake of those products and we believe that that will be a positive for us as we move forward. During the half we did cycle through some stock rationing. We were rationing the US as a priority. We did undertake an air freight program. I'm very proud that the team executed that very well operationally. We did maintain service level. A lot of that was recognised by the retailers with these additional ranging outcomes that we've secured. With the new marketing focus based up in the US, we are very clear who our consumer is. We are moving more and more to some of the next generation digital platforms like TikTok. We've got exposure to Reddit. AI is becoming a real reality in search and so our marketing has been related to secure those exposures and we feel really good going forward in relation to our prospects in the US. So moving through to China, it's encouraging performance in China. Our growth interestingly in the past period has been concentrated in the second and third where we are seeing a preference for some of the consumers to move to premium products like Buffs. We're very happy that we're running a very strong business in China, great team. Again, some of the macro headwinds, but because we're in that premium subcategory or imported product, because we have a great team, we're doing well. Interestingly, in the half, we did rebalance our stock, so we had a little bit of additional We've run that down so our sell-out looks higher than our sell-in and that sets us up really well for the second half. We're very pleased with the channel performance. The online to offline, the O to O channel is going great guns for us. We've secured an additional 77% of stores and our sales through in those stores is up 50%. CBEC, which is the imported product, we've maintained our number one position on Tmall. and we have worked through some of the stock rationing and the stock balancing challenges now and then coming into the second half we believe we're well set for sustained growth in China. The chart on the bottom right really shows the story. The two channels we play in, the O2O and the CBEC, both showing strong growth. Australia we're very focused on. investing to re-establish our growth trajectory. Fair to say that while we've maintained our number one GOAT position, we need to do better in Australia. We're working on that. One of the key things we've done, we've entered the year with our advertising promotion set at about 8% of net sales. In the second half, that's been upgraded to 12%. We've started that. We've seen some positive results. We did do a little bit of price activity, which has been well received by our consumers and retailers. We have started to activate through healthcare professionals. We have improved on-shelf availability as we've worked through the stock rationing, and we feel really well set to see a continuation of growth in the Australian markets. I would note also that we did discontinue our food portfolio in the half and so we're very, very focused on our core range of infant formula and as we go forward we believe we'll be cycling into stronger performance in our core home market of Australia. So our final segment is our rest of world segment. Again, we were impacted by some stock rationing. Additionally, we did have some regulatory challenges, particularly in the Vietnam market where the health authority has changed some of their requirements. So we've been very diligent to work that through with our distributor partner Ms Chow. So we have re-signed our distributor relationship. That business has a great capability in healthcare professionals where we believe We do well in terms of reaching the parents that will be great customers for bubs. During some of the challenges, we've done a great job to maintain supply. We are active on some of the very modern platforms up there on the right. There's actually a picture of myself on my trip up to Vietnam on TikTok. We do a number of in-store activations, so that other picture is an in-store activation in the modern trade where we have a very strong following. Japan continues to be a strong market for bubs and then Malaysia is an emerging market where we've doubled distribution points in the last 12 months. So it's been resilient against some of the challenges and again we feel positive moving forward with our positions in the rest of the world markets. We tab and as we tab I'll hand over to Naomi Malouk, our CFO, and she'll take us through the financial results.

Good morning everyone and really pleased to be here today. If we could just tab across to the income statement please. So looking at the P&L, the great takeaway here is our underlying EBITDA result which came in at $4.4 million. versus 0.7 million on the prior corresponding period. The EBITDA reported number came in at 3 million versus 0.6 in the prior corresponding period. The revenue increase in the USA was the major driver for these results, increasing by 48%. Overall, revenues were up by 14% versus the prior corresponding period. Growth profit also held up surprisingly well despite the impacts of air freight and tariffs but we still managed to come in at 48% and the product mix in terms of more sales being sold through into the USA allowed us to achieve this result despite the additional tariffs and air freight we incurred. Operating expenses came in approximately 3% down to $24.5 million versus $25.2 million, and this was primarily due to the completion of the FDA growth studies. So overall, ending the year at $4.4 million on an underlying basis, which was a great result for Bob's. We can move across now to the balance sheet. The key takeaway on the balance sheet is the inventory number. You can see that it has increased from $20.1 million to $28.1 million. We are still progressing through with our inventory rebuild and that will carry on for the next half. We expect that number to be approximately $8 million to $10 million higher by the time we get to the end of this financial year. You can see trade and other receivables have also increased by 3.7 million. That is in line with the increase in revenues. Trade and other payables also up to 15.7 million from 10.3 and that is largely due to extra payments to suppliers for raw materials, in particular goat milk solids and fresh milk supply from Australian farms. You'll also see there that our right of use assets have increased up to $6.1 million. This is simply due to the renewal of the lease at our Deloraine Dairy facility, which is our manufacturing and head office site in Dandenong South. Move across now to cash flow. The main takeaway here on the cash flow is obviously the net cash used in operating activities. So we had a net cash outflow of $5.7 million versus an outflow of $0.5 million at the half last year. This was largely expected and most of it relates to the inventory rebuild process, which we are still currently in the middle of. And as I mentioned earlier, we will continue to invest in inventory in the second half. One of the key takeaways subsequent to December of 2025 is obtaining formal approval from NAB to extend the limit on our working capital facility. So that has actually increased up from $10 million to $20 million and will be very helpful as we go through this inventory rebuild process. Moving across now to margin, we can see that margin has been maintained at 48%. It is down slightly from the 50% but well above the guidance we were giving of the 40% to 45% range. As I said previously, we have incurred tariffs and air freight which has been significant. Despite those facts, we've been able to deliver more of our revenues in the USA market which are at a higher margin and that's helped us to achieve a really, really positive result. As we cycle through to the next half, we actually anticipate to incur a higher level of air freight and tariffs and so we still expect margins to come in at the 40% to 45% range by the time we get to the end of the year. Moving across to net working capital. We can see networking capital has gone up. We are landing in at 33.4 million for the first half versus 23.2. This all relates to the inventory build and the increasing inventories, mainly from 20 million to 28. You can see, however, that the average networking capital as a percentage of sales has dropped down to 23.9%. It was 25.8 at H2 FY25 and then at H1 it was 30.7. That measure really just shows how efficient we are in terms of delivering additional revenues against our working capital and it just shows that we have the ability to generate more sales on an average basis versus our net working capital. Inventory came in at 28.1. If you look at the chart just below, we were at 30.3 at the same point last year. So you can see we are quite low given the uplifting revenues. You can see inventory as a percentage of sales is down to 26%. We expect that to pair back up to around 30% by the time we get to the end of the year. Moving now to the FY26 EBITDA guidance bridge on a full year basis. You can see we landed last year on an underlying number of 0.6 million. We're expecting to come in at 9.5 million on an underlying basis by the end of this year. And our EBITDA reported number is expected to come in at 4.5 million. So the main impacts there are the air freight and penalty tariff which we're assuming to come in around $5.8 million. We also had a one-off payment from Alison Willis in relation to the legal proceedings and that was $0.8 million. We do not expect any further funds to be received in relation to this legal proceeding. I'll now just summarise the FY26 outlook that we've provided. We do anticipate revenues to come in at $120 to $125 million. It reflects 22% to 27% growth on the prior corresponding period. As I mentioned earlier, We're still targeting that 40% to 45% range on gross profit. That will be lower than what we have delivered for the first half. But as Joe alluded to at the beginning of the call, there's lots of moving pieces there. We have additional air freight coming in, additional tariffs on non-AU products. and we are living in a very dynamic and changing world with Donald Trump, and who knows where the tariffs will land. So those are some of the moving pieces that we're dealing with at the moment. In terms of reported EBITDA, we're going to land at between $4 and $6 million, and the underlying is going to come in at between $9 and $11 million. That concludes the financial review. I'll hand back now to Jo for a strategy update.