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BUBS AUSTRALIA LIMITED — Capital/Financing Update 2023
Nov 23, 2023
64582_rns_2023-11-23_b3268b8d-eb97-44e0-9111-233ee6e8114b.pdf
Capital/Financing Update
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Capital Raising Investor Presentation
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November 2023
Not for release or distribution in the United States
CAPITAL RAISING PRESENTATION | NOVEMBER 2023
DISCLAIMER
This investor presentation ( Presentation ) is dated 24 November 2023 and has been prepared by Bubs Australia Limited (ACN 060 094 742) ( Bubs or the Company ). By attending an investor presentation or briefing, or accepting, accessing or reviewing this Presentation, you acknowledge and agree to the terms set out below.
This Presentation has been prepared in relation to
· a placement of new fully paid ordinary shares in Bubs to new institutional investors and certain existing institutional shareholders under section 708A of Corporations Act 2001 (Cth) ( Corporations Act ) ( Placement ); and
· an offer of new fully paid ordinary shares in Bubs to eligible Bubs shareholders in Australia and New Zealand under a share purchase plan in accordance with ASIC Corporations (Share and Interest Purchase Plans) Instrument 2019/547 (SPP).
Summary information
This Presentation contains summary information about Bubs and its subsidiaries (Group) and their activities current as at 24 November 2023. It should be read in conjunction with Bubs’ most recent financial report and Bubs’ other periodic and continuous disclosure information lodged with the Australian Securities Exchange (ASX), which is available at www.asx.com.au. No representation or warranty, express or implied, is made as to the accuracy, adequacy or reliability of any statements, estimates, opinions or other information contained in this Presentation, except to the extent required by law. Reliance should not be placed on information or opinions contained in this Presentation and, subject only to any legal obligation to do so, Bubs does not have any obligation to correct or update the content of this Presentation. This Presentation has been prepared by Bubs based on information available to it, including information from third parties, and has not been independently verified.
Not financial product advice or offer
This Presentation does not and does not purport to contain all information necessary to make an investment decision, is not intended as investment or financial advice (nor tax, accounting or legal advice), must not be relied upon as such and does not and will not form any part of any contract or commitment for the acquisition of shares in Bubs. Any decision to buy or sell securities or other products should be made only after seeking appropriate financial advice. This Presentation is of a general nature and does not take into consideration the investment objectives, financial situation or particular needs of any particular investor.
Any investment decision should be made solely on the basis of your own enquiries. Before making an investment in Bubs, you should consider whether such an investment is appropriate to your particular investment objectives, financial situation or needs. Bubs is not licensed to provide financial product advice in respect of its shares.
This Presentation is for information purposes only and is not a prospectus, product disclosure statement or other offering document under Australian law or any other law (and will not be lodged with the Australian Securities and Investments Commission (ASIC) or any foreign regulator). This Presentation is not, and does not constitute, an invitation or offer of securities for subscription, purchase or sale in any jurisdiction.
The distribution of this Presentation in jurisdictions outside Australia may be restricted by law and you should observe any such restrictions. Any failure to comply with such restrictions may constitute a violation of applicable securities laws. In particular, this Presentation may not be distributed or released in the United States. The shares in Bubs have not been, and will not be, registered under the U.S. Securities Act of 1933, as amended (U.S. Securities Act), or the securities laws of any state or other jurisdiction of the United States, and may not be offered or sold, directly or indirectly, in the United States, unless they have been registered under the U.S. Securities Act (which Bubs has no obligation to do or procure) or are offered or sold in a transaction exempt from, or not subject to, the registration requirements of the U.S. Securities Act and any other applicable U.S. state securities laws. Refer to the Appendix of this Presentation for further details about international offer restrictions.
Investment risk
An investment in Bubs shares is subject to known and unknown risks, some of which are beyond the control of Bubs and its directors. Bubs does not guarantee any particular rate of return or the performance of Bubs nor does it guarantee any particular tax treatment. You should have regard to (amongst other things) the risk factors outlined in the Appendix of this Presentation when making your investment decision. Cooling off rights do not apply to the acquisition of shares in Bubs.
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CAPITAL RAISING PRESENTATION | NOVEMBER 2023 DISCLAIMER
Financial information
Unless otherwise stated, all dollar values are in Australian dollars ($ or A$). A number of figures, amounts, percentages, estimates, calculations of value and fractions in this presentation are subject to the effect of rounding. The financial information in this Presentation has not been audited.
Effect of Rounding
A number of figures, percentages, estimates, calculations of value and fractions in this Presentation are subject to the effect of rounding. Accordingly, the actual calculation of these figures may differ from the figures set out in this Presentation.
Past performance
Past performance, including past share price performance of Bubs and pro forma financial information given in this Presentation, is given for illustrative purposes only and should not be relied upon as (and is not) an indication of Bubs’ views on its future financial performance or condition. Past performance of Bubs cannot be relied upon as an indicator of (and provides no guidance as to) the future performance of Bubs. Nothing contained in this Presentation nor any information made available to you is, or shall be relied upon as, a promise, representation, warranty or guarantee, whether as to the past, present or future.
Future performance and forward-looking statements
This Presentation contains certain “forward-looking statements”. The words “expect”, “anticipate”, “estimate”, “intend”, “believe”, “guidance”, “should”, “could”, “may”, “will”, “predict”, “plan” and other similar expressions are intended to identify forward-looking statements. Indications of, and guidance on, future earnings and financial position and performance are also forward-looking statements. Forward-looking statements, opinions and estimates provided in this Presentation are based on assumptions and contingencies that are subject to change without notice and involve known and unknown risks and uncertainties and other factors that are beyond the control of Bubs, its directors and management. This includes statements about market and industry trends, which are based on interpretations of current market conditions.
Forward-looking statements are provided as a general guide only and should not be relied upon as an indication or guarantee of future performance. Actual results, performance or achievements may differ materially from those expressed or implied in such statements and any projections and assumptions on which these statements are based. These statements may assume the success of Bubs’ business strategies. The success of any of those strategies will be realised in the period for which the forward-looking statement may have been prepared or otherwise. Readers are cautioned not to place undue reliance on forward-looking statements and except as required by law or regulation, none of Bubs, its representatives or advisers assumes any obligation to update these forward-looking statements. No representation or warranty, express or implied, is made as to the accuracy, likelihood of achievement or reasonableness of any forecasts, prospects, returns or statements in relation to future matters contained in this Presentation. The forward-looking statements are based on information available to Bubs as at the date of this Presentation. Except as required by law or regulation (including the ASX Listing Rules), none of Bubs, its representatives or advisers undertakes any obligation to provide any additional or updated information whether as a result of a change in expectations or assumptions, new information, future events or results or otherwise. Indications of, and guidance or outlook on, future earnings or financial position or performance are also forwardlooking statements.
Disclaimer
To the maximum extent permitted by law, Bubs and the Lead Manager and their related bodies corporate and affiliates, and their respective officers, directors, employees, agents and advisers: (i) disclaim all responsibility and liability (including, without limitation, any liability arising from fault, negligence or negligent misstatement) for any loss arising from this Presentation or reliance on anything contained in or omitted from it or otherwise arising in connection with this Presentation; (ii) disclaim any obligations or undertaking to release any updates or revision to the information in this Presentation to reflect any change in expectations or assumptions; and (iii) do not make any representation or warranty, express or implied, as to the accuracy, reliability, completeness of the information in this Presentation or that this Presentation contains all material information about Bubs or that a prospective investor or purchaser may require in evaluating a possible investment in Bubs or acquisition of shares in Bubs, or likelihood of fulfilment of any forward-looking statement or any event or results expressed or implied in any forward-looking statement.
You acknowledge and agree that determination of eligibility of investors for the purposes of the Placement and SPP is determined by reference to a number of matters, including legal requirements and the discretion of Bubs and the Lead Manager and each of Bubs and the Lead Manager disclaim any duty or liability (including for fault or negligence) in respect of the exercise or otherwise of that discretion, to the maximum extent permitted by law.
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Overview
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CAPITAL RAISING PRESENTATION | NOVEMBER 2023
TODAY’S PRESENTERS
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Reg Weine
Chief Executive Officer and Managing Director
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Appointed Chief Executive Officer and Managing Director in Aug-23
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- 25 years experience in FMCG and agri-food
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Former CEO of Bulla Dairy Foods
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Richard Paine
Chief Operating Officer
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Member of Bubs’ senior leadership team since 2019
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- 25 years manufacturing and management experience
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Experience in Australian dairy industry and milk procurement
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Robin Johnston
Chief Financial Officer - Interim
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- 30 years experience in senior finance roles across the retail, wholesale distribution/logistics and FMCG sectors
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CAPITAL RAISING PRESENTATION | NOVEMBER 2023
EXECUTIVE SUMMARY
| 1 2 |
Slide 6 of 41 Investment highlights New management team embedded with significant experience in infant formula, FMCG and branding #1 Goat Formula brand in Australia1 and USA2 based on market share Access to the A$8.1 billion USA IMF market2 USA, Australia and ROW achieved strong underlying revenue growth compared to FY22 USA market expansion is the medium-term strategic priority State-of-the-art manufacturing facility at Deloraine, the only Australian manufacturing facility selling infant formula product directly into the USA Capital raise Bubs is undertaking a capital raising via an institutional Placement of $14.0m and a share purchase plan (SPP) of up to $14.0m The capital raise is expected to accelerate growth in USA, positioning Bubs to pursue profitable growth and maximise long term shareholder value The net proceeds will be used to fund investment in US growth, expanding capacity and inventory to mitigate stock shortages, and regulatory costs in the USA to obtain FDA approval Q1 FY24 performance Q1 FY24 gross revenue of $24.3m, up 21.7% on Q4 FY23 USA gross revenue of $11.6m, up 24.1% on prior corresponding period (pcp) (Q1 FY23: $9.3m) Q1 FY24 operating cash outflow reduced to $4.4m Achieved 3% week-on-week growth in Amazon in the USA in Q1 FY24 Cash burn 44% lower versus pcp Strategic review update In Jul-23, Bubs announced a detailed strategic review identifying 5 key pillars to provide a strong foundation for sustainable growth Bubs is executing on its 5 point plan including a strategic pivot to the USA On track for permanent access to the US IMF market by Oct-25 Second production shift at Deloraine expected to commence in H2 FY24 to satisfy increased USA demand China reset with two new Daigou partners and CBEC trade partner appointed Circana MAT To 22/10/2023 Value Sales $'s Woolworths, Coles & Chemist Warehouse Combined Circana Weekly To 29/10/2023 Value Sales $'s Total US Multi-Outlet (Nb Excludes Online) Powder, RTD's, Electrolytes & Liquid Concentrates |
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USA INVEST FOR GROWTH
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CAPITAL RAISING PRESENTATION | NOVEMBER 2023
BUBS IS RANGED WITH THE MAJOR US RETAILERS
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CAPITAL RAISING PRESENTATION | NOVEMBER 2023
USA GROWTH ENGINE
Weekly USA Revenue & Tins Sold[1]
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$800 18,000
$700 16,000
$600 14,000
12,000
$500
10,000
$400
8,000
$300
6,000
$200
4,000
$100 2,000
$0 0
Revenue (LHS) Tins Sold (RHS)
US$'000 Tins Sold
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Q1 gross revenue of $11.6m, up c.24% versus pcp (Q1 FY23: $9.3m)
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1 goat milk in the U.S, with over 280,000 tins sold by the end of October 2023[1 ] compared to 400,000 in full year FY23
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Bubs® ranged in over 5,900 stores across the USA
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Unit sales decreased at the end of October as retailers ran out of stock due to high demand. Bubs is currently using air freight to deliver stock to US retailers (at a higher cost). Bubs intends to use part of the capital raise proceeds to invest in an inventory build to mitigate future stock shortages
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Bubs is commencing a second production shift at Deloraine in Q2 FY24 intended to service the increase in demand and provide for sufficient inventory for the remainder of FY24
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CAPITAL RAISING PRESENTATION | NOVEMBER 2023
USA REVENUE CONTRIBUTION
Amazon contributed 54% of Bubs’ weekly US revenue at the end of October 2023
Revenue Split by Channel (w/e 8 Jan 2023)[1]
Revenue Split by Channel (w/e 29 Oct 2023)[1]
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7%
17%
24%
US$401k US$705k
39% 54%
59%
Amazon Bricks and Mortar Other
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Total weekly revenue averaging US$400k on Amazon in Oct-23
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Bubs® products were the fourth and eighth best-selling baby formula products on Amazon platform during Sep-23
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Total weekly revenue in bricks and mortar stores averaged $270k in Oct-23 (vs $200k Jan-23), with increased throughput driven by better shelf visibility, new in-store planograms and effective trade marketing activities and in-store activation
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CAPITAL RAISING PRESENTATION | NOVEMBER 2023
CAPACITY EXPANSION
Second shift now required to service growth, driven by strong customer demand in the USA
Deloraine Utilisation
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100%
90%
80% 38%
70%
69%
60%
50%
40%
30% 62%
20%
31%
10%
0%
FY23 FY24
Utilisation Headroom
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First shift production is now approaching capacity
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Cannot currently meet growing demand, driven predominantly by strong US growth
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Second shift required to service strong demand in the USA
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Second shift scheduled to commence in late January 2024
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Daily production currently expected to double from 12,500 to 25,000 tins
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COMPANY OVERVIEW
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CAPITAL RAISING PRESENTATION | NOVEMBER 2023
KEY INFANT FORMULA MARKETS WHICH BUBS PLAYS IN Bubs is aiming to increase market share in the two largest infant formula markets
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$8.1b [1] $40.4b [2]
Total U.S. infant Total China infant
formula market formula market
$0.3b [3]
Total AU infant
formula market
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1 Circana Weekly To 29/10/2023 Value Sales $'s Total US Multi-Outlet (Nb Excludes Online) Powder, RTD's, Electrolytes & Liquid Concentrates
2 Euromonitor
3 Circana MAT To 22/10/2023 Value Sales $'s Woolworths, Coles & Chemist Warehouse Combined Slide 13 of 41
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CAPITAL RAISING PRESENTATION | NOVEMBER 2023
FY24 Q1 GROUP FINANCIAL REVIEW Strong revenue growth in Australia and the USA
Group Revenue Q1 FY24
Product Mix
USA now represents 48% of Group revenue
Infant formula contributed 83% of gross revenue
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12
11
10
9
8
7
6
5
4
3
2
1
-
Australia China USA ROW
Q1 FY23 Q1 FY24
$’m
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2%
15%
83%
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Infant formula Adult formula Other
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CAPITAL RAISING PRESENTATION | NOVEMBER 2023
1 DOMESTIC GOAT FORMULA BRAND Bubs holds 51% of the domestic retail goat formula market
Total Australian Goat IMF Market Share[1]
Market Share % Of Total Infant Milk Formula By Brand[1]
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5.0%
4.5%
4.0%
3.5%
3.0%
3.0%
2.5%
2.0%
1.5%
1.0%
0.5%
0.0%
Qtr To Qtr To Qtr To Qtr To Qtr To Qtr To
24/01/21 25/07/21 23/01/22 24/07/22 22/01/23 23/07/23
Total Bubs Goat Brand A Brand B
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26%
51%
23%
Bubs Brand A Brand B
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1 Source: Circana Quarter To 22/10/2023 Value Sales $'s Woolworths, Coles & Chemist Warehouse Combined
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CAPITAL RAISING PRESENTATION | NOVEMBER 2023
OUTLOOK
Revenue target is on track ($80m in FY24) and Bubs expects to be cash flow positive in FY25
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Forecast FY24 net revenue $80m – tracking above forecast
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Targeted gross margin @40% - broadly in-line on an underlying basis[1]
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Continued FDA progress – on track with final stage clinical trial underway
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Expected cash burn reduced from $5m per month to $2m[2] per month from Q2 FY24 - ahead of plan in Q1 ($1.5m per month). Expected to fluctuate for the rest of the year due to costs associated with airfreight, FDA regulatory costs and 2nd production shift commencing H2 FY24 to satisfy increased USA demand
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Maximise opportunities for whole of product portfolio – ahead of plan and accelerating
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Expecting to be cash flow positive with positive trading EBITDA in FY25 – on track and highly confident in our business model
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1 Underlying excludes one-off, non-recurring items
2 Excluding air freight, FDA regulatory costs and the 2 [nd] production shift, underlying cash burn is forecast at approximately $2m per month from Q2 FY24 Slide 16 of 41
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CAPITAL RAISING PRESENTATION | NOVEMBER 2023
EXECUTING ON 5 POINT STRATEGIC PLAN
Working capital and cost discipline
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Portfolio
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USA growth engine optimisation
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$11.6m Q1 FY24 30% underlying gross revenue (up gross margin in 24% on pcp) FY23[2]
China Reset
Sweat the asset
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Deloraine utilisation increased to 33%,
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Two new Daigou partners and a new CBEC trade partner appointed
- Monthly cash burn reduced to $1.5m in Q1 FY24 (target was $2.0m)
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Second production shift scheduled to commence in H2 FY24
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Achieving 3% week Eliminating commence in H2 appointed $2.0m) on-week growth in products with low FY24 Substantial progress Cost out program the USA in Q1 FY24 margin Daily production made in the CBEC and right-sizing
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Bubs products contributions expected to double channel and strong initiatives well ranged in over Continued from 12,500 to growth in adult underway 5,900 US grocery & investment in core 25,000 tins formula sales, contributing to a pharmacy stores[1] brands, with Continually seeking providing further lower cash burn
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1 Goat Formula committed new opportunities opportunities to rate than targeted brand in USA[1] marketing spend at to increase acquire additional Realisation of 15% of sales utilisation, including Caprilac CBEC impaired inventory co-manufacturing distributors in FY24
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1 Circana Weekly To 29/10/2023 Value Sales $'s Total US Multi-Outlet (Nb Excludes Online) Powder, RTD's, Electrolytes & Liquid Concentrates
2 Underlying gross margin excluding net inventories provision / reversal Slide 17 of 41
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CHINA RESET
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CAPITAL RAISING PRESENTATION | NOVEMBER 2023
CHINA RESET
Despite a slow start to the year, we expect China to grow strongly in H2 FY24
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CAPITAL RAISING PRESENTATION | NOVEMBER 2023
CHINA RESET
Bubs and Caprilac brand position strengthened and now recovering as demonstrated through “11.11” event
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Bubs and Caprilac Tmall Flagship Store GMV results during 24[th] Oct. – 9[th] Nov.
Flagship Store GMV results
Operation optimization for sustainable growth
- During 11.11, one of the top-ranking Stage 1 formula in imported goat IMF category
Increasing penetration and leading the
category
- No.1 imported goat adult milk formula on Tmall Global and CBEC
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Bubs 71.21% YoY
Caprilac 15.14% YoY
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Offtake by units grew approx. 74% YoY, payment conversion rates also increased 97% YoY, significant indication of operational turn-around
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CBEC (Tmall Flagship Store) new customer count grew 171% YoY during 11.11 promotion period
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Key sales channel showed average transaction price improvement compared with same period last year
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On Tmall Direct Import (key sales channel), offtake by units also grew 18% YoY while average transaction price improved from last year
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New customer YoY growth at double digits
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New product included in this 11.11 generated
incremental growth
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Bubs is recovering towards a healthy, balanced business in the China market
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Customer loyalty - Caprilac is the top repeat purchase brand in the adult milk formula category
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CAPITAL RAISING PRESENTATION | NOVEMBER 2023
CIIE – CHINA INTERNATIONAL IMPORT EXHIBITION
Bubs team at CIIE
Clients and government officials visit at booth
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FDA PATHWAY PROGRESSING
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CAPITAL RAISING PRESENTATION | NOVEMBER 2023
REGULATORY APPROVALS
Bubs is on track for permanent FDA approval by Oct-25, with the USA poised to deliver substantial growth via e-commerce and traditional retail
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May 2022 : FDA exercised Enforcement Discretion for all six Bubs Formulas
Jun 2023 : FDA audit of Bubs Deloraine manufacturing facility
July 2022 : FDA announces Bubs can stay in the US under Enforcement Discretion beyond November 2022
July 2023 : Protein Efficiency Ratio (PER) Study data complete
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Dec 2022 : FDA issues Bubs a Letter of Acknowledgement for Bubs to proceed with permanent regulatory pathway
Sep 2024 : Growth Monitoring Study (GMS) clinical trial data due
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Oct 2024 : Deadline to submit permanent infant formula submission to FDA
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Oct 2025 : Deadline for FDA No Objection and Transition Guidance ends
Permanent access granted
Bubs expects to incur approximately $9m of FDA regulatory costs to obtain permanent access to the US IMF market (c. $4m incurred to date)
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CAPITAL RAISING PRESENTATION | NOVEMBER 2023
THE BUBS INVESTMENT PROPOSITION
Bubs is a global market leader with a differentiated premium goat-based product offering, operating in both the IMF and Adult Nutrition categories
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Significant addressable market in the USA
Bubs has a capital light asset base with operating leverage and significant scope to sweat the assets
Australian provenance, reputation & and access to high quality dairy ingredients
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Differentiated premium goatbased product offering supported by growing bovine range in both IMF and Adult Nutrition
Bubs is growing rapidly in the US market where penetration is low, providing a long runway for sustained growth
The only infant formula manufacturing facility in Australia currently selling directly into the USA, with significant production capacity available
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CAPITAL RAISING
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CAPITAL RAISING PRESENTATION | NOVEMBER 2023
CAPITAL RAISING OVERVIEW
OFFER SIZE AND STRUCTURE Institutional Placement raising $14.0 million and Share Purchase Plan (SPP) to raise up to $14.0 million (Bubs reserves the right, in its absolute discretion, to decrease the amount to be raised under the SPP or scale back applications at its discretion).
OFFER PRICE
The institutional placement and SPP is priced at $0.125 per share, representing:
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24.2% discount to last close at $0.165
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25.5% discount to the 5-day VWAP[1] of $0.168
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27.2% discount to the 30-day VWAP[1] of $0.172
RANKING
New shares issued under the Placement and SPP will rank equally with existing Bubs shares on issue.
PLACEMENT
Placement proposed to result in approximately 112.0 million new shares being issued, representing approximately 14.9% of Bubs’ existing issued share capital. The Placement is not underwritten.
SPP
Bubs will offer all eligible shareholders the opportunity to participate in a non-underwritten SPP. The SPP is capped at $30,000 per eligible shareholder with a registered address in Australia or New Zealand at 7:00pm (Sydney time) on 23 November 2023. The SPP aims to raise up to $14 million and Bubs reserves the right to scale back applications under the SPP on a pro rata basis to existing shareholdings at its discretion, which may result in the SPP raising less than this amount[2] . SPP is scheduled to open on 1 December 2023 and scheduled to close at 5.00pm (Sydney time), 15 December 2023.
LEAD MANAGER AND BOOKRUNNER
Bell Potter Securities Limited
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CAPITAL RAISING PRESENTATION | NOVEMBER 2023
USE OF FUNDS
The capital raise will enable Bubs to accelerate growth in the USA, invest to expand production to pursue growth, and seek permanent access to the USA infant formula market
| $ million | ||
|---|---|---|
| INVESTMENT IN SALES AND |
Additional marketing investmentintendedto increase brand awareness, accelerate growth and | 4.0 |
| MARKETING FOR GROWTH | market share | |
| INVESTMENT TO DOUBLE |
Second production shift at Deloraine scheduled to commence H2 FY24 requiring an investment in | 4.0 |
| PRODUCTION TO MEET | working capital | |
| GROWTH |
Additional headcount required at Deloraine to handle additional production volumes | |
| | Inventory build in the USAaiming toensure service levels are maintained | |
| | Additional funds required to fast-track growth in the USA market opportunity andtocontinue to | |
| scale operations for profitable growth | ||
| USA FDA REGULATORY COSTS |
Ongoing costs to enrol newborns into the GMS study, enabling Bubs to meet FDA regulatory | 5.0 |
| requirements | ||
| | GMS stage of the FDA approval process originally commenced with 12 clinical sites across the USA, | |
| which has now increased to 26 to remain on schedule | ||
| RAISING COSTS |
Costs associated with the Placement and SPP | 1.0 |
| PLACEMENT FUNDS | $14.0 | |
| ADDITIONAL MARKETING AND |
Any additional funds raised under the SPP required for marketing expenditure and investment in | Up to $14.0 |
| WORKING CAPITAL INVESTMENT |
working capital to accelerate growth |
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CAPITAL RAISING PRESENTATION | NOVEMBER 2023
PRO FORMA LIQUIDITY OVERVIEW
Bubs will have $40.6m of pro forma liquidity following completion of the institutional Placement of $14.0 million
| Impact on shares on issue | ||
|---|---|---|
| Post-equity raise pro forma | million | % |
| Pre-raise ordinary shares2 | 753.1 | 87% |
| Approx. new shares issued (Placement) | 112.0 | 13% |
| Approx. shares post equity raise | 865.1 | 100% |
| Pro forma liquidity | ||
|---|---|---|
| $ million | Pre-equity raise |
Post-equity raise |
| Cash | $21.6 | $34.6 |
| Drawn debt | ($2.0) | ($2.0) |
| Net Cash | $19.6 | $32.6 |
| Undrawn debt facility | $8.0 | $8.0 |
| Available liquidity | $27.6 | $40.6 |
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CAPITAL RAISING PRESENTATION | NOVEMBER 2023
INDICATIVE TIMETABLE
| EVENT | DATE |
|---|---|
| Trading halt | Wednesday, 22 November 2023 |
| Record date for SPP | 7:00pm (AEDT) Thursday, 23 November 2023 |
| Placement results announced and SPP announced Trading halt lifted |
Friday, 24 November 2023 |
| Settlement of Placement Shares | Wednesday, 29 November 2023 |
| Allotment and trading of Placement Shares | Thursday, 30 November 2023 |
| SPP Offer opens and booklet made available | Friday, 1 December 2023 |
| SPP Offer closes | 5:00pm (AEDT) Friday, 15 December 2023 |
| SPP results announced Settlement of SPP shares |
Thursday, 21 December2023 |
| Issue and Allotment of SPP shares | Friday, 22 December 2023 |
| Shares commence trading on normal basis | Wednesday, 27 December 2023 |
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The timetable for the Placement and the SPP is indicative and remains subject to change at Bubs’ discretion, subject to compliance with applicable laws and ASX Listing
Rules. Any changes will be advised to ASX.
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APPENDICES
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CAPITAL RAISING PRESENTATION | NOVEMBER 2023
KEY RISKS
There are a number of risks that are both specific to Bubs and its subsidiaries (Group) and of a general nature, which may affect the future operating and financial performance of the Group and the outcome of any investment in the Group.
This section describes some, but not all, of the material business risks that may be associated with an investment in the Group or in Bubs shares and the occurrence or consequences of some of the risks described below are partially or completely outside the Group’s control. Additional risks and uncertainties that the Group is unaware of, or that it currently considers to be immaterial, could also become important factors that adversely affect the future performance of the Group and in Bubs shares. Before making an investment decision, you should consult your financial or other professional adviser and carefully consider the risks described in this section, as well as other information in this presentation.
1. OPERATING RISKS
Vertical supply chain risk
Access to a safe and secure continual supply of goat and bovine milk is a key foundational strength for Bubs and its ability to support ongoing rising domestic and US consumption as well as global expansion. The ability to flexibly manage the goat milk supply chain from farm to production is reliant on the Group’s continual strategic partnerships for milk powder processing. Ownership of the Group’s own canning facility is also critical to support its vertically integrated supply chain. Should there be interruptions or delays to, or failures in, the Group’s supply chain or should there be other economic or environmental events which impact these stakeholders or otherwise impact forecasting reliability, this could negatively impact the Group’s ability to meet consumer demand, and in turn adversely affect sales and margins, reducing overall profitability. Bubs’ margins will also be impacted by the cost of inputs such as milk and milk powder processing.
Infant formula registration in the United States
There is a risk that the FDA may not approve Bub’ application for permanent access to the US infant formula market, which would impact future operational and financial performance.
As part of the FDA permanent approval process, Bubs must undertake a growth monitoring study (GMS) where newborns must be enrolled by 14 days of age, fed with Bubs formula or control formula and monitored for 16 weeks. There is a risk that Bubs may not be able to enrol a sufficient number of newborns on a timely basis or without higher than anticipated costs and complete the GMS by the October 2024 deadline.
FDA approval is required to distribute infant formula in the United States. Bubs has received enforcement discretion from the U.S. FDA to import six Bubs infant formula products into the U.S. The deadline to submit the request for permanent access to the U.S. infant formula market is October 2024, with the FDA deadline for no objection being October 2025. If Bubs did not ultimately receive permanent approval or if the costs of the process required to obtain approval are higher than anticipated this may have an adverse impact on the financial position and performance of Bubs.
Additional requirements for capital
The Directors consider that, on receipt of funds from the Placement and SPP, the Group will have sufficient working capital to carry out its objectives. However, financial resources are limited and there is a risk that Bubs may never achieve profitability. Bubs may be required to raise additional funds from time to time to finance its long term objectives.
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CAPITAL RAISING PRESENTATION | NOVEMBER 2023
KEY RISKS
The Group’s ability to raise sufficient further capital within an acceptable timeframe will vary according to a number of factors. Any additional equity funding not undertaken on a pro rata basis will dilute existing shareholders.
Financing facilities
Bubs has in place, and the Group has access to, a credit facility with a term expiring in September 2024. If Bubs is unable to extend or refinance this facility, it may have an adverse impact on the financial position and performance of Bubs.
Day-to-day operational risk
The Group is subject to a range of operational risks, including damage to operating assets and equipment, equipment failures or breakdowns, human error, accidents, IT system failures, external services failure, industrial action or disputes and natural disasters. The occurrence of any of these matters – including, in particular, at the Deloraine Facility – may adversely affect the ability of Bubs to supply product and therefore the financial position and performance of Bubs.
Ability to sustain value creation from goat dairy source
The Group’s ability to build robust and long-term channels for sales and marketing of goat dairy products, is reliant on its ability to build and sustain brand equity and relationships in the current portfolio and innovation pipeline across all goat dairy brands. Any disruption to its strategic relationships across any of its key markets could impact the Group’s expansion plans.
Reliance on third parties generally
As part of its ongoing commercial activities the Group enters into contracts with various third parties, including suppliers, processors, distributors and customers. Any inability of these third parties to meet their commitments under such arrangements may adversely impact on the Group’s business, operations and financial position.
Consumer demand and concentration
Adverse changes in consumer demand, in particular for the Group’s infant milk formula products, could have an adverse impact on the Group’s financial performance and future prospects of the business.
Given the concentrated nature of the Group’s customer base, any reduction in the demand of those customers could materially impact the Group’s financial position.
Intellectual property
While the Group seeks to protect its intellectual property rights, a failure or inability by Bubs to enforce its intellectual property rights these may diminish Bubs’ brand value and harm its future growth prospects. Additionally, this intellectual property may be devalued by quality issues, disputes and litigation or negative publicity. This may have an adverse effect on customer loyalty, relationships with suppliers, employee retention, and overall demand for the Group’s products.
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KEY RISKS
Loss of key personnel and recruitment of suitable employees
The Group is dependent upon the experience of its Directors, key senior management and staff generally. The loss of any key personnel and suitable employees, as well as high staff turnover could cause disruption to the conduct of the Group’s business in the short term resulting in the loss of valuable corporate knowledge and negatively affect the Group’s operating and financial performance.
Disputes or litigation
The Group may be the subject of complaints, proceedings, class actions (including consumer / customer class actions, securities / shareholder class actions and employee class actions), prosecutions, disputes, claims or litigation by or bring the same against, customers, suppliers, employees, regulatory bodies or other third parties. The Group’s business activities and operations are located in various countries around the world. Any litigation, class actions, prosecutions, regulatory investigations, claims or disputes (including the cost of settling claims and operational impacts and any other compensation or damages that may be required to be paid) and/or conduct on the Group’s part enabling a counterparty (supplier or customer) to terminate or vary an existing contractual arrangement could adversely affect the Group's business, operating and financial performance.
The Company is currently in negotiations with its former joint venture counterparties in China (Zhitong (Hangzhou) Health Technology Co., Ltd, Heilongjiang Anjia Dairy Co., Ltd (Anjia) and Zhikang (Hangzhou) Health Technology Co., Ltd) regarding the winding up of the joint venture arrangements between the Company and those parties. These negotiations include the Company seeking to recover trademarks which were transferred to Anjia under the joint venture arrangements on the basis that for the duration of any joint venture Bubs has a perpetual licence to use those trademarks. Should these negotiations fail to achieve a commercially agreed outcome, the Company intends to pursue the return of these trademarks through appropriate legal channels.
Technology, cybersecurity and privacy
The Group may be subject to computer server failures, computer viruses, unauthorised access, cyber-attacks and other similar disruptions. There is a risk of an unforeseen network outage. The occurrence of any of these, could result in loss or damage to the Group’s data and processes, including a loss of critical information, particularly potentially sensitive personal and financial data from customers, damage to the reputation and financial performance of the group and staff not being able to work. Additionally, the Group may incur significant costs in mitigating the damage suffered and protecting against future technological failures.
Occupational Health and Safety Risk
Like many businesses, Bubs is exposed to risks of potential harm and or injuries to the employees (including contractors) as a result of Bubs’ business activities and processes.
Reputational risk and branding
Maintaining the strength of the Group’s reputation is important to retaining and increasing the Group’s customer base and successfully implementing its growth strategy. There is a risk that Bubs’ reputation could be affected by the actions of third parties, such as business partners, and its customer base. There is also a risk that unforeseen issues or events may arise that adversely affect the Group’s reputation.
For instance, any negative press surrounding Bubs, or any reduction in product quality may adversely affect brand reputation and value. In addition, if Bubs is unable to respond quickly to rectify any issues, this may also adversely impact its brand reputation and value. If Bubs’ reputation is diminished, this could result in customers ceasing to purchase its products. It may also impede Bubs’ ability to compete successfully and may adversely affect Bubs’ future financial performance.
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KEY RISKS
Growth strategy execution and business model disruption
The Company may not be able to execute effectively the strategies for its current and future acquired businesses. Future growth strategies which target expansion of existing business could expose Bubs to additional or unforeseen costs, which may strain financial or management resources. There is also a risk of disruption to Bubs’ business model and/or those of its suppliers due to factors that are outside the control of Bubs and could adversely impact financial performance. Any disruption to the Australian and global economy, may adversely impact upon the Company’s ability to drive its growth agenda in the short and medium term.
Revenue recognition and cash flow management
The recognition of revenue in accordance with the accounting standards does not necessarily align with the timing of receipt of cash by Bubs. As a result, Bubs has a relatively high level of working capital requirement which needs to be carefully managed to ensure that the business operates at an appropriate level. There is a risk that the working capital requirement of the business may increase in the future, in particular if the period between recognition of revenue and receipt of cash increases which may adversely affect Bubs' financial performance in a particular period or generally.
General economic conditions
Bubs’ operating and financial performance is influenced by a variety of general economic and business conditions in Australia and overseas. A prolonged deterioration in general economic conditions, including a decrease in consumer and business demand, persistently high inflation, an economic recession or downturn, volatility in commodity and financial markets (including interest rates) would likely have a adverse effect on the Company’s business or financial condition (or both). This risk is heightened in the current uncertain economic environment. In light of recent global macroeconomic events, many countries are experiencing an economic downturn of uncertain severity and duration which will affect discretionary consumer spending and, in turn, the operating and financial performance of the Group. In particular, changes in the macroeconomic environment which are beyond the control of Bubs and may be exacerbated in an economic recession or downturn, include, but are not limited to:
-
changes in inflation, interest rates, commodity prices and foreign currency exchange rates;
-
changes in employment levels and labour costs, which will affect the cost structure of the Group;
-
changes in aggregate investment and economic output; and
-
other changes in economic conditions which may affect the revenue or costs of the Group.
Customer risk
There is a risk that one of Bubs’ customers (an e-commerce platform such as Amazon or one of our retailers), may delete one of Bubs’ products from its website or product range offering, which may adversely impact on the future operational and financial performance of Bubs.
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KEY RISKS
2. COMPLIANCE AND REGULATORY RISKS
Foreign regulatory risk and regulatory risk
Laws and regulations affect the Group’s operations. There is a risk that a failure to comply with such laws or an adverse decision or change in policy by a regulatory authority could occur which may result in the loss of key permits or approvals or in penalties, damages or fines. There is a risk that any such failure to comply could materially reduce the Group’s revenues and/or increase its costs.
Product contamination, recall and food safety
As a supplier of food and infant nutritional products, the Group’s ability to ensure the health and safety and quality of its products is paramount to its ongoing ability to ensure consumer trust and maintenance of the Group’s brand equity. However, there remains a risk of food contamination and product recalls which could have a adverse effect on the Group’s brand and therefore impact its financial performance.
Environmental, Social and Governance Risk
Bubs also faces the risk of increasing public scrutiny, and more extensive laws and regulations related to environmental and social factors. Failure to act responsibly, or any perception that Bubs did not act responsibly in a number of social and environmental areas, such as environmental management, corporate governance and transparency, and address issues like modern slavery in all aspect of its business could impact Bubs financially and reputationally, and also expose Bubs to potential legal risks.
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KEY RISKS
3. FINANCIAL, MARKET AND COMPETITION RISKS
Economic, political and general market risks
There are general risks associated with investments in equity capital such as Bubs shares. Share market conditions may affect the value of Bubs shares, regardless of their operating performance. This may result in the market price for shares issued under the Placement or SPP Offer being less or more than the offer price.
Many factors may affect the market price of shares and some of these include: general movements in Australian and international securities markets; investor sentiment; Australian and international economic conditions and outlooks; changes in investor sentiment towards specific sectors of the market; changes in interest rates and the rate of inflation; changes in foreign exchange rates; changes in government legislation and policies, in particular taxation laws; announcement of new technologies; international trade disputes and tariffs; pandemics such as COVID-19; geo-political instability, the conflict in Ukraine, the conflict in the Middle East, the including international hostilities and acts of terrorism; natural disasters; labour strikes; demand for and supply of Bubs shares; announcements and results of competitors; and analyst reports.
Geopolitical tensions
Shifts in geopolitical tensions between Australia and other countries where the Group supplies its products may change or worsen, which result in higher tariffs imposed on Australian dairy sector exports and negatively impact on the Group’s financial performance.
Competition risk
The Group operates in a highly competitive consumer goods industry against global entities with often greater access to capital and resources. There is a risk that existing or new market entrants may attempt to grow their market share through acquisitions, increased advertising or price cutting. This may cause the Group’s market share to contract, resulting in a decline in revenue and possible negative effect on future performance.
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KEY RISKS
4. GENERAL INVESTMENT RISKS ASSOCIATED WITH BUBS SHARES
General risks associated with investments in equity capital
There are general risks associated with any investment in a company listed on the ASX. The market price of the New Shares may be less or more than the offer price under the Placement or SPP depending on the financial and operating performance of the Group and other factors over which the Group has no control. These other factors include general movements in Australian and overseas equity capital markets; changing investor sentiment; Australian and international economic conditions and outlook; changes in domestic or international fiscal, monetary, regulatory and other government policies, changes in interest rates and the rate of inflation, changes in government legislation (including tax laws and policies), the development of new technologies and displacement of existing technologies; geopolitical conditions and instability such as acts or threats of terrorism or military conflicts; and developments and general conditions in the markets in which Bubs proposes to operate and which may impact on the future value and pricing of shares. No assurances can be given that the New Shares will trade at or above the Placement Price. None of Bubs, its Board or any other person guarantees the market performance of the New Shares. Investors should also note that the historic share price performance of the Group shares provides no guidance as to its future share price performance.
Liquidity and realisation risk
While Bubs shares are listed on ASX, there can be no assurance of an active market for Bubs shares or that the price of those shares will increase. There may be relatively few potential buyers or sellers of Bubs shares at any time. This may increase the volatility of the market price of Bubs’ shares. It may also affect the prevailing market price at which shareholders are able to sell their Bubs’ shares.
Foreign exchange risk
Bubs prepares its financial statements in Australian dollars. The majority of Bubs’ revenue is currently generated outside of Australia and is denominated in foreign currencies. Therefore, Bubs is exposed to the risk that a rise or fall in the value of the Australian Dollar against a foreign currency may impact the value of its assets, liabilities, revenues and costs, and consequently its financial results.
This risk may be increased where the value of a foreign currency against the Australian Dollar becomes more volatile. Any adverse impact on Bubs’ profitability may impact its ability to declare and pay dividends and to service any future indebtedness.
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KEY RISKS
Changes in accounting policy
Australian Accounting Standards (AAS) are set by the Australian Accounting Standards Board (AASB) and are outside the control of the Group, the Directors and Bubs management. The AASB may introduce new or refined AAS, which may affect future measurement and recognition of key statement of profit or loss and statement of financial position items, including revenue and receivables.
There is also a risk that interpretations of existing AAS, including those relating to the measurement and recognition of key statement of profit or loss and statement of financial position items, including revenue and receivables, may differ. Changes to AAS issued by the AASB, or changes to the commonly held views on the application of those standards, could adversely affect the financial performance and position reported in the Company’s consolidated financial statements.
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INTERNATIONAL OFFER RESTRICTIONS
This document does not constitute an offer of new ordinary shares (“New Shares”) of the Company in any jurisdiction in which it would be unlawful. In particular, this document may not be distributed to any person, and the New Shares may not be offered or sold, in any country outside Australia except to the extent permitted below.
Cayman Islands
No offer or invitation to subscribe for New Securities may be made to the public in the Cayman Islands or in any manner that would constitute carrying on business in the Cayman Islands.
Hong Kong
WARNING: This document has not been, and will not be, registered as a prospectus under the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap. 32) of Hong Kong, nor has it been authorised by the Securities and Futures Commission in Hong Kong pursuant to the Securities and Futures Ordinance (Cap. 571) of the Laws of Hong Kong (the “SFO”). Accordingly, this document may not be distributed, and the New Shares may not be offered or sold, in Hong Kong other than to “professional investors” (as defined in the SFO and any rules made under that ordinance).
No advertisement, invitation or document relating to the New Shares has been or will be issued, or has been or will be in the possession of any person for the purpose of issue, in Hong Kong or elsewhere that is directed at, or the contents of which are likely to be accessed or read by, the public of Hong Kong (except if permitted to do so under the securities laws of Hong Kong) other than with respect to New Shares that are or are intended to be disposed of only to persons outside Hong Kong or only to professional investors. No person allotted New Shares may sell, or offer to sell, such securities in circumstances that amount to an offer to the public in Hong Kong within six months following the date of issue of such securities.
The contents of this document have not been reviewed by any Hong Kong regulatory authority. You are advised to exercise caution in relation to the offer. If you are in doubt about any contents of this document, you should obtain independent professional advice.
Singapore
This document and any other materials relating to the New Shares have not been, and will not be, lodged or registered as a prospectus in Singapore with the Monetary Authority of Singapore. Accordingly, this document and any other document or materials in connection with the offer or sale, or invitation for subscription or purchase, of New Shares, may not be issued, circulated or distributed, nor may the New Shares be offered or sold, or be made the subject of an invitation for subscription or purchase, whether directly or indirectly, to persons in Singapore except pursuant to and in accordance with exemptions in Subdivision (4) Division 1, Part 13 of the Securities and Futures Act 2001 of Singapore (the “SFA”) or another exemption under the SFA.
This document has been given to you on the basis that you are an “institutional investor” or an “accredited investor” (as such terms are defined in the SFA). If you are not such an investor, please return this document immediately. You may not forward or circulate this document to any other person in Singapore.
Any offer is not made to you with a view to the New Shares being subsequently offered for sale to any other party in Singapore. On-sale restrictions in Singapore may be applicable to investors who acquire New Shares. As such, investors are advised to acquaint themselves with the SFA provisions relating to resale restrictions in Singapore and comply accordingly.
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INTERNATIONAL OFFER RESTRICTIONS
New Zealand
This document has not been registered, filed with or approved by any New Zealand regulatory authority under the Financial Markets Conduct Act 2013 (the “FMC Act”).
The New Shares are not being offered or sold in New Zealand (or allotted with a view to being offered for sale in New Zealand) other than to a person who:
-
is an investment business within the meaning of clause 37 of Schedule 1 of the FMC Act;
-
meets the investment activity criteria specified in clause 38 of Schedule 1 of the FMC Act;
-
is large within the meaning of clause 39 of Schedule 1 of the FMC Act;
-
is a government agency within the meaning of clause 40 of Schedule 1 of the FMC Act; or
-
is an eligible investor within the meaning of clause 41 of Schedule 1 of the FMC Act.
United Kingdom
Neither this document nor any other document relating to the offer has been delivered for approval to the Financial Conduct Authority in the United Kingdom and no prospectus (within the meaning of section 85 of the Financial Services and Markets Act 2000, as amended (“FSMA”)) has been published or is intended to be published in respect of the New Shares.
The New Shares may not be offered or sold in the United Kingdom by means of this document or any other document, except in circumstances that do not require the publication of a prospectus under section 86(1) of the FSMA. This document is issued on a confidential basis in the United Kingdom to “qualified investors” within the meaning of Article 2(e) of the UK Prospectus Regulation. This document may not be distributed or reproduced, in whole or in part, nor may its contents be disclosed by recipients, to any other person in the United Kingdom.
Any invitation or inducement to engage in investment activity (within the meaning of section 21 of the FSMA) received in connection with the issue or sale of the New Shares has only been communicated or caused to be communicated and will only be communicated or caused to be communicated in the United Kingdom in circumstances in which section 21(1) of the FSMA does not apply to the Company.
In the United Kingdom, this document is being distributed only to, and is directed at, persons (i) who have professional experience in matters relating to investments falling within Article 19(5) (investment professionals) of the Financial Services and Markets Act 2000 (Financial Promotions) Order 2005 (“FPO”), (ii) who fall within the categories of persons referred to in Article 49(2)(a) to (d) (high net worth companies, unincorporated associations, etc.) of the FPO or (iii) to whom it may otherwise be lawfully communicated (“relevant persons”). The investment to which this document relates is available only to relevant persons. Any person who is not a relevant person should not act or rely on this document.
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INTERNATIONAL OFFER RESTRICTIONS
United States of America
This document may not be distributed or released in the United States. This document does not constitute an offer to sell, or a solicitation of an offer to buy, any securities in the United States or any other jurisdiction in which such an offer would be illegal.
The New Shares to be offered and sold in the Placement and the SPP have not been, and will not be, registered under the U.S. Securities Act or the securities laws of any state or other jurisdiction of the United States. Accordingly, the New Shares to be offered and sold in the Placement may not be offered or sold in the United States except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the U.S. Securities Act and any other applicable U.S. state securities law. The New Shares to be offered and sold in the SPP may not be offered and sold to any person in the United States or to any person that is acting for the account or benefit of a person in the United States.
British Virgin Islands
The New Shares may not be offered within the British Virgin Islands unless the Company or the person offering such securities on its behalf is licensed to carry on business in the British Virgin Islands. While the Company is not licensed to carry on business in the British Virgin Islands, the New Shares may be offered in the British Virgin Islands from outside the British Virgin Islands.
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