Bubs CEO hopeful warns on risk of write-down
Peter Nathan, the man seeking to become Bubs Australia’s new chief executive in a boardroom coup, says the baby formula company is facing a write-down given it has not achieved its aggressive sales targets in China.
He remains “extremely confident” in the long-term prospects of the brand.
Kristy Carr, the company’s co-founder and former chief executive, is leading a group of dissident investors looking to spill the Bubs board led by chairwoman Katrina Rathie and targeting directors Paul Jensen, Reg Weine and Steven Lin.
Mr Lin is Bubs’ biggest shareholder, controlling 10.3 per cent of its equity via C2 Capital Partners, where he is managing partner. C2 is backed by China’s Alibaba Group.
Boardroom ructions escalated over the past 12 months, culminating with Ms Carr and former executive chairman Dennis Lin being ousted, while a review is under way which has led to several key roles in China and the US being eliminated.
The Australian Financial Review revealed on May 31 that the dissident shareholder group would attempt to install James Jackson as non-executive chairman, Rupert Soar as a non-executive director, and Mr Nathan – who helped turn The a2 Milk Company into a global giant and formerly was CEO of the Asia business – into the top job.
“One would assume there will be some write-off. That needs to be said, and that is based on the fact that the forecast wasn’t achieved,” Mr Nathan said.“What I am saying is in the longer term, I’m extremely confident about the capacity of the channel to further engage both consumers and also resellers and retailers, retailers being in the [offline to online] space, leveraging the technology that AZ Global has to further drive growth.”AZ Global is Bubs’ key distribution partner in the Chinese export market.
Ms Carr said the firing of two of the most senior marketing staffers with digital experience leading the program to lift US brand awareness and sales showed the board lacked an understanding of future growth drivers.She pointed to an episode of Disney’s The Kardashians where Khloé Kardashian shared that she feeds her son goat formula, although the reality star did not name-check the Bubs brand.“This endorsement is something most brands can only dream of, it’s worth millions,” Ms Carr said. “The only credit the new board can take for this celebrity endorsement is that they just sacked the head of influencer and social marketing, who made this happen.”She added that the removal of key employees in the US and China appeared to be targeted at those individuals who were working closely with her and Mr Lin on the group’s previous strategy.
The non-executive directors sought to pause Bubs’ China joint venture in April, days before Dennis Lin was forced out of Bubs. Ms Carr said multiple brands, large and small, had trouble with oversupplying China on the back of strict zero COVID-19 policy and further outbreaks.Mr Nathan said with any product launch, as was the case with the Bubs Supreme tins held by AZ Global, there would be a bit of “a leaping into the unknown”. He called the AZ Good Pass IT system “industry leading”, offering “significant competitive advantages” for engagement with the consumer, but also to manage inventory, and monitor offtake “more effectively than anywhere else in the industry”.AZ Global works with hundreds of the largest resellers of formula in China, who sell to mother and baby stores, e-commerce platforms, and residential communities and private networks.
Mr Nathan was not aware of the details around the $5.7 million owned to Bubs by AZ Global, but said that the latter was financially strong.Alibaba, AZ Global and other platforms will all remain key to the strategy under his leadership, if he is elected at a shareholder meeting yet to be called by the company.Ms Rathie – who joined the Bubs board in 2021 – has accused former management of pursuing a failed China strategy which left the company in financial strife. Revenue from China tumbled 57 per cent in the three months to March 31, the company has previously reported, and AZ Global is sitting on thousands of pallets of stock.
“I want to engage with Alibaba and cross border e-commerce retailers. But I would also say it is clear that it appears to be a conflict if you have a major shareholder effectively representing one retailer,” he said.Mr Nathan defended his reputation and accomplishments at much larger rival a2 Milk, which he left in May 2021, after its fourth downgrade amid COVID-19 related inventory build-up.“You’ve got to look at my time at a2 in its entirety.
And there would not be, I don’t think, any other executive, apart from [former CEO] Geoff Babidge who could claim the type of value creation that occurred, even after the problems that existed after COVID,” he said.“When I resigned from the business there was $895 million in cash in the bank. So, the business was in extraordinarily strong state.“Also, the share price was worth about 150 times more after the downgrades than what it was when I started, so if anyone can point to value creation that they were involved with which was greater than mine, then please let me know.”
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