Good morning, ladies and gentlemen. On behalf of the Bubs Australia Limited board, I'd like to acknowledge the people of the Wurundjeri Nation as the traditional custodians of land upon which we meet, as well as the other lands on which we gather remotely today. I'd like to pay my respects to elders, past, present, and emerging, and pay my respects to all First Nations people in the Bubs Australia community. It's my very great pleasure to welcome you to the Bubs Australia Limited 2023 annual general meeting. It's the appointed time of 11:00 A.M., and we have a quorum present, and I now declare the meeting open. I'm Katrina Rathie, Chair of Bubs Australia. I would like to introduce you to my fellow directors, who are all present today. Steve Lin, Paul Jensen, and Reg Weine, closest to me.
I'd also like to introduce our Company Secretary, Jay Stephenson, on my far right. Also in attendance is our Interim CFO, Robin Johnson, Chief Operating Officer, Richard Paine, and General Counsel, Peter Cope, in the front row here. Welcome. I'd also like to warmly welcome Julie Carey, Pradeep De Silva, and Amy from our auditors, KPMG, also in the front row here, and Vanessa Murphy, our partner from Hall and Wilcox, who's in attendance today, along with representatives from Computershare. And of course, I am most pleased to warmly welcome all those shareholders who are here in person and online today. Thank you very much for your attendance, and I'd also like to welcome the Kidder Williams team. The notice for this annual general meeting was circulated to shareholders within the required period, and copies of the notice were available from the registration desk.
I'll take the notice as read. I'd like to describe the voting procedures that will apply to this meeting, as recommended by the ASX and ASIC. Votes on each resolution will be taken by way of a poll. Only Bubs Australia Limited shareholders or their duly appointed representatives or proxies are eligible to vote at the meeting. Shareholders and proxy holders present today would have received on registration a voting card that provides for the holding of a poll on the resolutions to be put to shareholders. You'll need to complete the card in order for your vote to be counted. If you have any questions, please speak to a representative of the company or the share registry before lodging your completed poll card. I'll come back to those requirements when we get there.
During consideration of the items of business of the meeting, you'll be given time to complete your poll voting card. The poll vote voting cards will be collected at the end of the meeting and counted by the share registry. The results of the poll will be notified to the ASX and published on the company's investor website following the meeting. Shareholders attending online today were asked to submit questions in advance on any matters relevant to the business of the annual general meeting by the seventh of November. No questions were received. At this meeting, there will be seven items of business, including six shareholder resolutions. Each resolution will be proposed and be voted on as a simple majority to be carried by way of a poll. There have been proxies received in respect of today's resolutions, which I'll disclose when the resolutions are considered.
As set out in the notice of meeting, it's intended that any undirected proxies given to the Chair will be voted in favor of the relevant resolution. I will offer shareholders present in the room the opportunity to ask questions before the poll on each resolution, and once all six resolutions have been voted on, I will offer shareholders present the opportunity to ask questions about the business of the company during the period to which the AGM relates. Before we move on to the formal business of today's meeting, I'd like to address shareholders in relation to the company's progress in 2023 and our objectives going forward. After which time, our CEO and Managing Director, Reg Weine, will address the meeting.
After the meeting, there'll then be an opportunity with directors to meet in a more informal atmosphere with each of you over refreshments in the foyer, and I do hope that you will join us. A copy of my address and the CEO's presentations have just been lodged with the ASX and will be published in the Investor section of the company's website. In my Chair's address today, I'd like to provide shareholders with some context of our strategy, including the medium-term activities that we are implementing to improve revenue and earnings and to fully realize the potential of the company. I will also discuss the new leadership appointments that we've made over the last year. I'm privileged to have been appointed your Chair.
Your board and our newly refreshed management team have been working very hard over the course of the year to deliver long-term sustainable value creation for our Bubs shareholders. While our share performance has been disappointing over the past year, we are pleased to report that we're making steady progress against our strategic plan announced in July 2023 and are already starting to see some green shoots. Despite the challenges of the past 12 months, the core activities in our key markets of U.S.A and Australia, with the exception of China, have been pleased overall. Some of the highlights of the past year included Bubs being named by Austrade as Australian Exporter of the Year in November of 2022, acknowledging the remarkable success of Operation Fly Formula, as well as Bubs' expedited market entry to the United States in the second half of 2022.
The Food and Drug Administration's June 2023 audit of our exceptional canning facility, Deloraine, located here in Victoria, our successful completion of the Protein Efficiency Ratio study, and the recent commencement of patient enrollment in our clinical trial in America as we move steadily towards our goal of securing permanent market access to the U.S.A, the second largest formula market in the world. We've also received strong investor feedback and endorsement for the board and management's five-point strategic plan to grow and restore shareholder value. We have introduced governance changes to ensure that we have an independent board with skilled committees, appropriate management oversight, and to ensure that our corporate governance is broadly consistent with ASX corporate governance principles. As a board, we understand and acknowledge that there remains much work to do. Therefore, we've moved quickly to implement several initiatives to build a stronger business.
These include board renewal, a refreshed executive leadership team, and a new five-point strategic plan. With these building blocks in place, our focus from here is to work hard to grow revenue, contain costs, and maximize shareholder value. In March 2023, the board appointed Paul Jensen as an independent Non-Executive Director and Chair of Bubs Audit and Risk Committee, and Paul has already made a considerable and positive impact. In April 2023, Reg Weine was appointed to the board as an independent Non-Executive Director. These two appointments were made to bolster the board's independence and skills in governance and to support Bubs' global expansion and growth plans.
With Reg's appointment as Bubs' CEO and Managing Director at the end of August, and in order to ensure the majority independent status of the board, the board proposes to recruit a new independent and appropriately skilled non-executive director in 2024. Let me now provide some further detail on the Bubs executive leadership team, who are responsible for driving and executing on our strategy. Reg Weine was appointed Bubs Australia's CEO and Managing Director in late August. Reg is experienced high executive with over 25 years in the FMCG and agri-food sectors, and over 15 years in international markets and trade. Most importantly, Reg has previously led growth companies, and he is a measured, hardworking executive who's trusted by the board to always act in the best interest of our company and our shareholders.
Richard Paine, our Chief Operating Officer, is a 30-year veteran in dairy supply chain and operations, including experience in key roles at Bega Cheese and Murray Goulburn. Richard has been an integral member of Bubs' executive leadership team for the past 4.5 years, and I'd like to take this opportunity to thank Rich for his leadership as the Bubs interim CEO for 5 months this year. Robin Johnson joined our team as interim CFO in April. He is a highly accomplished CFO with 30 years of experience in senior finance roles across the retail, wholesale, distribution, logistics, and FMCG sectors, and he's brought a renewed focus on budgeting, cost discipline, risk mitigation, and working capital optimization, which may be music to your ears.
Peter Cope, General Counsel, is an experienced lawyer and general counsel, having spent 20 years in the legal profession and in private practice, including roles in the energy, dairy, and aviation sectors with AusNet, Murray Goulburn, and Melbourne Airport. Peter is making great progress to resolve outstanding disputes while protecting Bubs' commercial position and our valuable brands and IP. I'd also like to acknowledge Julia Baldock, Global Head of Marketing and Innovation. Julia is a passionate, results-driven marketer with over 20 years experience in innovation, brand marketing, and development across global markets. She has a brand and customer-focused lens and is working on Bubs' packaging and product innovation, and she recently returned from a successful visit to Vietnam and China, two of Bubs' key markets. In addition to the Bubs executive leadership changes, we also made two key appointments during the year in our U.S. and China markets.
These in-country leadership roles, both in China and the U.S.A, have been successful in providing increased leadership, accountability, clarity, and focus to these important growth markets. The company is fortunate in having high caliber individuals in Chris Lotsaris, who is our General Manager, U.S.A, and Jackie Lin, our General Manager, China, as capable in-country leads with full P&L responsibility and accountability. I'd like to acknowledge the strong contributions made by our refreshed executive leadership team, including Chris and Jackie. In April, we announced the board-led strategic review of the business that culminated in a five-point strategic plan released to the market in July to responsibly manage capital and to grow and maximize shareholder value. The key strategic pillars of the plan include: the U.S.A as the growth engine of the company, a reset in China, portfolio optimization, sweating our assets, and working capital and cost discipline.
In his address, our CEO, Reg Weine, will provide further details on our strategy, together with an update on our progress against the key priorities for financial year 2024. Suffice to say, the diversification away from a China-heavy strategy has been timely on the back of the Operation Fly Formula. It allows the Bubs business to de-risk and grow revenue in a sustainable manner for the long term, while still retaining the ability to work through a more calibrated and considered access process and business model for China.
As an Australian with a Chinese cultural background, I must say that it was very pleasing to see Prime Minister Anthony Albanese and Senator, the Honorable Penny Wong, in China last week, where Bubs was exhibiting at the China International Import Exhibition, and we look forward to the restoration of trade and the 50-year cooperation between our respective companies. So in summary, despite the challenges of the past year, Bubs remains a business and a brand that is growing strongly in our markets. We have a refreshed board and executive leadership team. We have a clear strategy that positions the business for sustained growth, which I'm pleased to say is already yielding positive results. The Bubs board and our management team are committed to executing our strategy and determined to restore shareholder value and confidence in the company.
On behalf of the board, I want to sincerely thank our people, our customers, suppliers, and most importantly, our shareholders for your continued support of Bubs. I'd now like to hand over to Reg to provide his first CEO address, and warmly thank him on behalf of our shareholders and our community for taking on this role.
Thank you, Katrina, and good morning, everyone. It's wonderful to see some familiar faces and some of our shareholders in the room today. If we move on to the business of the meeting, I would like to share a presentation that includes a quick recap of the FY 2023 results, progress against our strategic plan, a Q1 performance update, and then the outlook for the remainder of FY 2024. I will start my CEO presentation with a quick recap on the FY 2023 results. Looking at our P&L for last year, revenue was down 32.4% on prior year due to a reduction in China revenue. The fall in China revenue was partially offset by growth in the U.S.A and domestic markets.
Underlying gross margin of AUD 17.9 million, or 30%, is broadly in line with FY 2022 due to our continued strong product mix and reduced bulk sales in FY 2023. Marketing costs increased 57%, reflecting the investment in the U.S.A market, where Bubs now holds a 95% share of the goat infant formula market and where we are investing for growth. Our administrative and other costs increased due to some large one-off expenses, such as FDA-related costs, capital raising costs, legal fees, retention payments, and ERP implementation costs. We took up an impairment of AUD 36.2 million, recognized to intangibles, including brand names, licenses, and customer contracts. One-offs include the following: non-recurring, non-cash items, share-based payments of AUD 0.6 million, inventory provision of AUD 27.3 million, credit losses of AUD 6.8 million, and aforementioned intangible asset impairment of AUD 36.2 million.
Obviously, not a great set of numbers for last year, but I think the key message I want shareholders to take away from this slide is that we have completely de-risked the balance sheet and we are now investing for growth. I think this slide is important because it demonstrates three things. Firstly, just how significant the decline in China ex-factory sales year-on-year were. The second thing it highlights is the rapid growth in the U.S.A. And thirdly, if you can look beyond the China performance, the rest of the Bubs business and geographies actually performed well year-on-year. I will now move on to our strategy and how we are executing against our five strategic pillars. As Katrina said, in July, we announced our strategic review and our simple but achievable five-point plan to responsibly manage capital and maximize shareholder value.
The five strategic pillars of our plan are: U.S.A is the engine, China requires a reset, we need to optimize our portfolio, we must sweat our assets, and we have to better manage working capital and be more disciplined around costs. I'm pleased to say we're already making solid progress against each of our strategic pillars and our new GMs, Chris Lotsaris, U.S.A, and Jackie Lin in China, continue to build momentum in their respective markets. I will now talk to each strategic pillar and our progress to date. The U.S.A remains our big bet and our growth engine, and we have grown revenue 200% year-on-year, and we expect FY 2024 revenue to grow by a further 100% over FY 2023.
As you know, Bubs were granted a unique opportunity under the U.S. Enforcement Discretion and Operation Fly Formula, and the company has made the most of this opportunity with broad distribution across the U.S. We are well distributed across almost all of the major brick-and-mortar retailers, and we are stocked in approximately 5,900 outlets across the U.S.A. The biggest driver of our recent U.S. sales performance, outside of Amazon, which I'll talk to separately, has been the increased throughput or velocity in each retail store on the back of new in-store planograms, better shelf visibility, and the effectiveness of Bubs trade marketing activities and in-store activation. Our growth in Amazon has been extraordinary, and Amazon has grown from 7% of our U.S. revenue to 54% of our U.S. revenue in less than a year.
We are now averaging more than $400,000 a week in Amazon, and we have the fourth and eighth best-selling infant formula products on the Amazon platform, which is amazing. This graph is our volume growth by month, in-scan sales. So these are sales out of stores, achieved in our brick-and-mortar retailers, which I just showed you, and on the Amazon platform combined. And it represents true consumer demand, not just pipe fill or infill. We couldn't be happier with our sales momentum at present, and if anything, we could have achieved even higher sales, if not for some supply chain shortages due to the increased demand in the U.S., which I'll talk to in the next slide.
As we are investing for growth in the fast-growing U.S market, where we have a first-mover advantage in goat formula, and to ensure we are driving velocity and pull-through in those key retail stockers, for the successful and initial Fly Formula pipe fill. With Bubs' Amazon sales growth compounding at 3% a week, compounding at 3% a week in the first quarter of this year, and the improved performance in our brick-and-mortar retailers on the back of the new planograms, we have unfortunately become a victim of our own success and have experienced some stock shortages during late October and early November. Pleasingly, Richard and I got a text message before we walked in this morning to say that last week we had a record in Kroger, Walmart, and Target. So despite some stock shortages, our sales continue to be very robust.
So despite this, we remain on track to grow our revenue in the U.S by more than 100% over FY 2023. And so strong has been our demand in the US that we have had to air freight finished tins of formula to meet the demand. This is not ideal. Air freight is frightfully expensive and also because we can't afford to let our service levels and fill rates drop with our key brick-and-mortar retailers as we lead into range reviews. We will continue to closely monitor the demand patterns in the US, and we aim to increase our safety stock levels over the next three to six months to avoid repeated out-of-stocks and the need for air freight. The U.S is not just all about Amazon and brick-and-mortar retailers.
We also have to build the brand, increase brand awareness, and encourage consumer trials of the Bubs portfolio of products. During October, Bubs exhibited at the American Academy of Pediatrics conference in Washington, D.C., which I attended. It's the largest pediatric conference in the United States. The reason we exhibit there is because healthcare professionals are an important cohort that influences U.S. moms looking to bottle feed or supplementary feed their infants and toddlers. We were thrilled with the level of engagement during the conference, with many pediatricians mentioning how popular our Bubs brand was with many of their patients and how important availability and accessibility of our brands is, given the infant milk formula crisis of 2022.
Many pediatricians also mentioned the strengths in our hero goat formula and that our Clean Label Nutrition and Purity Award was a strong differentiator, and enhanced formulations are welcomed by American moms and families. Bubs remains on track for permanent FDA regulatory approval and access to the second-largest infant formula market in the world. I'm hoping that you all saw our clinical trial update provided to the ASX in September that highlighted our clinical trial, and growth monitoring study has commenced right on schedule. Bubs' clinical trial involves a nationwide growth, tolerance, and safety study of healthy term infants consuming Bubs infant formulas monitored by healthcare professionals. The study evaluates all three stage one formulas in the market, including goat milk and two cow milk products, as well as a commercially available formula as the control sample.
We continue to meet the regulatory milestones and remain on track for permanent access to the U.S.A market in 2025. I'll now share a recent news piece that went to air while I was in the U.S. on Fox News relating to our clinical trial.
Remember the infant formula shortage? It's hard to forget. It left rows of empty store shelves and put desperate parents in a bind for feeding their own babies. Now, a local doctor is conducting a study of formula shipped in from overseas to see if it can help shore up supplies right here in the U.S. Fox News' Nicole Fierro is on it live in studio with those details. Nicole?
Yeah, Bubs Australia supplied the United States during the formula shortage crisis last year. Now they're going to conduct a study that includes infants right here in Colorado to try to continue to stick around in the U.S. long term. At Advanced Pediatric Associates, the heart of the practice is centered around healthy little ones.
Babies are my thing.
Dr. Stephanie Stevens has been a pediatrician for decades, and over the last 2 years, she saw firsthand the impact of dwindling formula supplies.
Many families really struggled with trying to figure out how to feed their babies. They were using formula, the babies were growing and thriving, and all of a sudden, they had this fear.
Stevens saw a lifeline when the federal government allowed foreign infant formula manufacturers to bring their products into the U.S. Now, she's compelled to lead a study here in the metro area, looking to keep one of those brands here long term, the Australian-based company, Bubs.
They airlifted over 1 million pounds of infant formula, and they were first to bring it in in May of 2022. But in order to become a permanent fixture in the marketplace, they do have to provide the data that's required by the Infant Formula Act, and they also have to prove that their babies that are exclusively fed their products grow like other products that are approved in the U.S. now.
It's been a great formula. It's been a life-saving measure for a lot of families, and to be able to have another option in the U.S. for formula is always a good thing.
Dr. Stevens will conduct the Colorado studies. They're looking for infants to start before the time they're 14 days old.
We can get them free formula. We can watch their baby's growth and really make sure that they're growing and thriving on this formula, and then they can be a part of really making some difference for other babies as well.
And so the study includes four months of free formula and checkups, and then part of the additional compensation includes two more months of formula for free. We have all the details on our website, KDVR.com. Live in-studio, Nicole Fierro.
I trust that you enjoyed that clip, and I think it tells the story well, and also highlights that the U.S. infant formula crisis of 2022 is still firmly on people's minds. I do get a lot of shareholder questions relating to the cost of the FDA regulatory approval process and specifically the clinical trial costs. Hopefully, this graph will give you a better understanding of the overall costs and also the timing and phasing of that expenditure. As you can see, we've already incurred approximately 45% of the total regulatory costs, with a big chunk related to the clinical trial and patient recruitment expected in Q2, right now, of this year, before it'll taper off, leading into FY 2025.
This is because we're activating 26 clinical sites all the way across the U.S.A for patient recruitment, and, therefore, a large part of the expense is front-end loaded. Moving to our second pillar and our China reset. The China market is the world's largest infant formula market and is critically important to most infant milk formula manufacturers and brand owners, and it is strategically important for Bubs. Our Q1 China gross revenue of AUD 3.8 million was down 51% on the prior corresponding period, as Bubs continues to reset its approach to the China market.
I firmly believe the Q1 result is encouraging given the setbacks we faced in this market due to the continued overhang of stock held by Bubs' former distributor, which will be removed by the end of this calendar year, so only another six weeks or so before we have clean air. I have no doubt the second half of the year will deliver a significantly improved result in China, and while the headline factory sales figures in Q1 were disappointing, Bubs did achieve 58% growth in the CBEC channel in September. Bubs also experienced strong growth in adult formula sales, which were up 863% or 8x the prior corresponding period. I think this result actually understates the performance and opportunity for Bubs Caprilac Adult Nutrition range in China, which was also partly constrained by stock availability during the quarter.
This growth also reflects the new management team's portfolio optimization strategy and focused investment in Bubs' hero brands being key tenants of the five-point strategic plan. We have some new and improved formulas coming soon and plans to participate in the China gifting market, so we see continued growth from adult nutrition in China. I guess, the best demonstration of our improved outlook and confidence in China is evidenced by our performance in last week's Double Eleven or Singles Day promotion, which is China's largest and biggest sales event of the year. Our Bubs sales were up 71% on last year, and our Caprilac sales were up 15% on last year. Caprilac was number one adult goat milk product sold on Tmall Global and CBEC during Double Eleven, and we grew our new customers and repeat purchases significantly.
Our average transaction value also increased, both Bubs and Caprilac, and Jackie and the team are doing a fabulous job to rapidly branded sales whilst maintaining our premium brand positioning. In early November, just a couple of weeks ago, Bubs participated in the China International Import Exhibition, as Katrina said, and as you can see, we had a stand or a booth befitting a market-leading premium brand. As Katrina mentioned, our Prime Minister, Anthony Albanese, was at the fair, and in this slide, you might recognize our former Premier of Victoria, Mr. John Brumby, and Victoria's Commissioner to Greater China, Brett Stevens. Overall, it was a great trade show that showcased our wonderful portfolio of Australian-made premium infant formula and adult nutrition. Our third strategic pillar, portfolio optimization, and we've moved quickly to address some gaps in our portfolio, enhance our formulations, and refresh our packaging.
In this slide, you can see our new label and smaller 20-ounce tin for the U.S. market, as well as our yet-to-be-launched new and improved formula of Caprilac adult goat powder. On this slide, you'll see our new look and refreshed label, which we plan to launch globally next year. The changes to our packaging design are intended to increase the premium look and feel, make it easier for consumers to discern between goat and bovine, enhance our shelf appeal, maintain our distinctive assets, and importantly, provide a much stronger call-out of the product attributes that moms really care about. We've only made these changes after extensive research in Australia, China, and the U.S. Here's another example of our Bubs Organic zero- to 12-month product offering and the new-look label.
I think it's really interesting, in the U.S., they don't offer their consumer stage one, two, three, and four like we do in Australia. And what our research told us was American moms and consumers found that a barrier to purchase. They found it confusing that we had zero to six and six to 12. Hence, the change to a, zero to 12, one tin option on the right of the screen. Strategic pillar four was to sweat the asset, and we're committed to sweating our state-of-the-art Deloraine manufacturing facility here in Melbourne. The exciting news is that we now need to move to a second shift, commencing in January next year, to meet the accelerating demand in the U.S. and other markets.
We are currently recruiting and training additional staff, and our second shift will double daily production from 14,000 tins to 28,000 tins, and at the same time, will improve plant efficiencies, overhead absorption, and cost. The last time we ran a double shift was to support Operation Fly Formula, which was pipe fill or fill in. This type of shift is needed because true demand throughput in the U.S is so strong. Strategic pillar five, and the last of our pillars, is working capital and cost discipline. In terms of cash flow and expenses, I'm very pleased to report that our Q cash outflow reduced to AUD 4.4 million, as working capital and cost discipline initiatives were implemented. This reflects a AUD 3.5 million improvement on the corresponding period, or a 44% reduction in the cash flow.
Monthly operating cash outflow for the quarter reduced to AUD 1.5 million, which was better than our forecast. However, it will increase in quarters 2 to 4, with additional clinical trial costs, and air freight, which are one-off in nature and are non-recurring as we move into FY 2025. The clinical trial costs have increased. They were AUD 2.9 million in Q1. As I mentioned, we're adding clinical trial sites across the U.S.A as we look to accelerate patient enrollment to meet the FDA time. This is the next investment and cost of doing this, but as I said, these are abnormal, non-recurring expenses. Having said all of that, our assumption in underlying operating cash flow remain unchanged. Just recapping our Q1 performance.
Strong sales momentum continued with gross revenue up 21.7% on Q4 of FY 2023, and we are currently tracking ahead of our internal budget of AUD 80 million in net sales for the year and are cautiously optimistic. You should expect to see our sales revenue accelerate in the second half of the year, and our year-on-year growth rate will increase significantly now that we've cycled to one of last year. Our U.S.A growth engine delivered gross revenue of AUD 11.6 million for the quarter, up 24% on prior corresponding period, and represented 48% of group gross revenue. Our domestic was all very strong, delivering 36% growth on prior corresponding period and a record market share result. Our domestic share of the total infant milk formula category has now increased to over 5%, and we've overtaken Bellamy's.
Overtaken Bellamy's in terms of market share. I think this underpins the strength of our brand, our go-to-market strategy, and our sales and marketing efforts. Our success in Amazon talks to the strength of the Bubs brand as well, and how it's resonating with American consumers. As I mentioned, currently ranked 4th and 8th, all infant formula products sold on the Amazon platform, depending on the week. Importantly, we rank number one for organic search for goat infant milk formula. We are the number one goat formula brand in Australia, 50% share, and in the U.S.A, we currently have a 95% share. Infant formula, Q1 gross revenue of AUD 17.5 million was up 41% on the prior corresponding period, excluding Supreme sales.
So more than 70% of everything we sell is now from our high-margin infant formula ranges, which is really encouraging. But as I said, we're not a one-trick pony. We do have a great adult nutrition brand in Caprilac, which delivered sales growth in Q1 of 868%, 8 times the prior corresponding period, albeit off a low base. But we do see continued upside potential for this brand and reach in China, Southeast Asia and also in the U.S.A. With our strong focus on working capital and operational expenses, as at 30 September, we had AUD 21.6 million in total cash and cash equivalents, plus a further AUD 8 million of undrawn debt facilities available to us and enabling us to continue to execute our current strategy.
This chart, this chart shows how our business is on prior corresponding period in all geographies other than China, which I've already said will accelerate in the second half of the year as we continue to work hard to open new markets and territories to allow us to expand globally. Moving to the outlook for the remainder of FY 2024, we said we'd deliver AUD 80 million net revenue, and we're currently tracking ahead of forecast. We are targeting gross margins of 40%, and we are broadly in line on an underlying basis. We're selling slow-moving, obsolete stock at a discount. Those both dilute gross margin percentage. Our FDA and regulatory pathway remains on track, and with our final stage clinical trial underway. Our focus on working capital and costs delivered a better-than-expected result in Q1.
However, we do expect it to be lumpier in the next quarters, as I said, just associated with meeting the accelerated demand in the U.S.A and the commencement of our clinical trial. As you've heard through the presentation today, our portfolio optimization is ahead of plan and working well. To round out the outlook, we are expecting to be cash flow positive and trading EBITDA positive in FY 25, next financial year. We remain on track, and we're highly confident in our business model. To close my presentation today, I would like to finish slides on the Bubs investment proposition. These are the six key ingredients that I will make us a strong investment proposition and that contribute to our competitive moat. We have a large addressable growing market worth $100 billion globally. We're a capital-light business with significant operating leverage.
Australian products and access to high-quality dairy ingredients remains a strength. Our Bubs portfolio is differentiated and distinctive. We're the only Australian FDA-approved infant formula manufacturing facility, with permanent access to the U.S. expected to be granted in 2025. Bubs is growing 100% year-on-year in the U.S., where penetration of goat is very, very low, providing a long runway for sustained growth. That concludes my CEO presentation, and I'll now hand you back, Chair Katrina, for the business of the meeting.
Thank you very much, Reg, for that, informative, update and address. It was really great to hear all of that, that working. And now to the formal part of the meeting. We now turn to the first item of business of the meeting, which is a consideration of the audited financial statements and related reports for the year ended 30 June 2023. The Corporations Act requires that the audited financial statements and related reports for the 2023 financial year be considered at the meeting. I confirm that these reports were made available to shareholders on the seventh of September. As I mentioned previously, the Company's auditors are KPMG, and the team, including Partner Julie Carey, is at the meeting today, able to answer any questions on the conduct of the audit or the content of the auditor's report.
I am advised by the auditors that no relevant questions of their attention were received by any participants online at the meeting, and so I would now like to ask whether there are any questions or comments on the Company's financial and related reports for the year ended 30 June 2023 from the people in the room? If not, I would ask the Company Secretary, Jay, to record that the audited financial 2023 financial and related reports have been received and considered by shareholders, and I'll move to Resolution One. The next item of the business, Resolution One, is a non-binding resolution to adopt the Company's remuneration report, which is set out in the Company's 2023 annual report. The vote on this resolution is advisory only.
However, the Board will take into account any discussion on this resolution and the outcome of the vote when considering the future remuneration, policies, and practices of the company. The resolution appears on the screen, and I will take it as being read. Details of the valid proxy votes on the resolution also appear on screen, and as I mentioned previously, I intend to invite any undirected proxies in favor of the chair, in favor of the resolutions. Are there any questions on this Resolution One from anyone in the room? If not, I now put the resolution to the meeting and ask that you complete your poll voting card for Resolution One, and I will now move to Resolution Two.
The next item of business, Resolution Two, relates to the re-election of Mr. Steve Lin, who retires as a director by rotation in accordance with the constitution of the Company, and being eligible, is re-elected as a non-executive director of the Company. Steve was appointed to the Board in 2019, nominated by C2 Capital, pursuant to a share subscription agreement with Bubs. Steve represents Bubs' largest shareholder, C2 Capital. Under the share subscription agreement, C2 Capital has the right to appoint a nominee director if it holds 10% or more of the shares of Bubs. If the resolution to re-elect Steve as a director is not passed at this meeting, it's important for shareholders to know that C2 Capital has a right to appoint a new director to the Board.
The Board considers that Steve brings significant beneficial experience of the China and Asian markets, and as a director of several North American consumer product companies, brings significant FMCG and cross-border experience to Bubs. Steve is a member of the Nomination and Remuneration Committee and the Audit and Risk Committee. The resolution appears on the screen, and I will take it as being read. Details of the proxy votes on the resolution also appear on the screen, and the Board unanimously recommends that shareholders vote Steve's re-election to the Board. Is there anyone in the audience who would like to ask a question on the resolution? If not, I now put the resolution to the meeting and ask that you complete your poll voting card for Resolution Two, please. I'll now move to Resolution Three.
The next item of business, Resolution Three, relates to the election of Mr. Paul Jensen, who retires as a director in accordance with the constitution of the company, and being eligible, is elected as a non-executive director of the company. Paul was appointed to the board in March 2023 to fill a casual vacancy, and is the independent chair of the Audit and Risk Committee. Paul brings significant experience in chairing several audit and risk committees of ASX-listed companies, has deep experience in finance, and an international career in risk management with Lloyds Bank. Paul is passionate about growing local businesses and serves on the Australian Made Campaign board.
The resolution appears on the screen, and I'll take it as being read. Details of the valid proxy votes on the resolution also appear on screen. The board unanimously recommends that shareholders vote for Paul's re-election to the board. Is there anyone who would like to ask a question on this resolution?
If not, I will now put the resolution to the meeting and ask that you complete your poll voting card for Resolution Three. I'll now move to Resolution Four. The next item of business, Resolution Four, relates to the grant of performance share rights to Mr. Reg Weine, who you've just heard from, that for the purposes of ASX Listing Rule 10.14, and for all other purposes, approval is given for the issuance of performance rights to the company's Chief Executive Officer and Managing Director, as his short-term incentive on the terms and conditions set out in the explanatory statement. The resolution appears on the screen, and I will take it as being read.
Details of the valid proxy votes on the resolution also appear on the screen, and I now put the resolution to the meeting and ask that you complete your poll voting card for Resolution Four. The board unanimously recommends that shareholders vote in favor of this resolution. Is there anyone who would like to ask a question on this resolution? If there are no questions, I'll now move to Resolution Five. The next item of business, Resolution Five, relates to the grant of performance rights to Mr. Reg Weine. That for the purposes of ASX Listing Rule 10.14, and for all other purposes, approval is given for the issuance of performance rights to the company's Chief Executive Officer and his long-term incentives on the terms and conditions set out in the explanatory statement. The resolution appears on the screen. I'll take it as read.
Details of the valid proxy votes on the resolution also appear on the screen, and the board unanimously recommends that shareholders vote in favor of this resolution. Is there anyone who would like to ask a question on this resolution? If not, I'm pleased to move forward and put the resolution to the meeting and ask that you complete your poll voting card for Resolution Five. And finally, I'll now move to Resolution Six, which is the grant of performance rights to Mr. Reg Weine, and for the purpose of ASX Listing Rule 10.14, and for all other purposes, approval is given for the issuance of performance rights to the company's Chief Executive Officer and his sign-on incentive on the terms and conditions set out in the explanatory statement. The resolution appears on the screen, and I'll take it as read.
The proxy of votes are also there. The board unanimously recommends that shareholders vote in favor of this resolution. Is there anyone who would like to ask a question on this resolution? If not, you've made my life very easy, and I now put the resolution to the meeting and ask that you please complete your poll voting card for this resolution. So, ladies and gentlemen, are there any questions from shareholders in the room about anything that relates to the business of the annual general meeting for the financial year ending 30 June 2023? Yes, sir, I see your hand up there. A microphone will be brought to you, please.
Hi, thank you. I'd like to know more about the AUD 30-odd million impairment. Could you let us know more about that impairment? What is it about, and why is that provided? Thank you.
Yes. The question relates to the AUD 30 million impairment that was made in relation to the Deloraine facility, and I may ask our Chair of the Audit and Risk Committee, Paul Jensen, to answer that question, if I may.
The impairment is a process which is run, that we work through internally, which looks at the income-generating capacity of the Deloraine plant. And this is a process that we run through internally as a management team. And that process is also required and looked at very closely by our auditors, 'cause we have to come up with a basis of valuation for that asset that sits on our balance sheet. And as at 30 June, when we ran those models, those financial models, we found that we could not justify without taking, models are slightly complicated, but we'll say that because they rely on some assumptions that go into the financial model. And we found it challenging to find justifiable assumptions which produced a valuation that we had on the balance sheet.
... hence, when we ran the model, a lower valuation was derived, and hence, there was an impairment of the AUD 30-odd million.
Can I add something?
Certainly.
In regard to the impairment, as I put up in the FY 2023 highlight slide, we had impairment of AUD 36.2 million, and as Paul said, the bulk of that was Deloraine facility, which was AUD 28.9 million. That was the vast majority, smaller amounts for brand names of AUD 4.1 million, and customer contracts of AUD 3.2 million. I think it's worth just remembering that the carrying value of the Deloraine facility had an underlying assumption that we had a SAMR registration that was coming our way, and that we'd be launching a Chinese label product into the China market. I think you all know that the SAMR registration process for the last couple of years has effectively been on hold.
As far as I know, there haven't been any infant formula manufacturers in Australia granted a new SAMR registration under the new GB Standards. So as a consequence of that, we have to pare back the carrying value.
Are you suggesting that there's some equipment there that is, could be written off?
Sorry, I didn't hear the question. Could you repeat it?
Does it mean that there are some facilities there that will be written off, and if there are, what are these facilities related to?
No, no. What we've done is written down the carrying value of the assets in the sheet. So we still own the assets. We're still running the factories, so there's no change there. But the future cash flows that were predicated on a SAMR registration, those assumptions have changed.
It's a financial impairment, not a physical impairment.
And non-cash.
It's a non-cash, book impairment, if you like. There's no change to the physical facilities, at all. Does that answer your question?
More or less?
Mm-hmm.
Thank you. Are there any other questions in the room? Yes, sir. A microphone's just going to be brought to you.
Thank you. Tony Blake, a shareholder. With the going to a second shift, the availability of additional raw materials in the form of goat's milk, is that going to be readily available?
Yeah, great question, Tony. I'm actually gonna throw to Richard, who's our Chief Operating Officer, who's at the front of the room. Love to give Richard the opportunity to respond to that question, but I think the short answer is we've got plenty of raw material, but Richard, do you want to add some color to that?
Yeah, sure. Sure. Thanks, Reg. A great question, and we believe that there's certainly adequate goat milk powder available to us. We've got contractual arrangements in place with both farmers and other suppliers to ensure that that's the case. And we're very confident in the supply chain both in the goat milk powder and the other base powders and other ingredients, in fact, that we can service our business plan and the model for the future. So not a problem.
Yeah. So just adding to that, I think we've got a really robust supply chain that can support our growth for years to come. I think one of the challenges that Richard and the team face is, you've got to be really good at sales and operations planning. A lot of our dairy ingredient suppliers require sort of six months lead time and visibility of our demand. And when you've got a business that's growing 100%, you do have some growing pains. So it's not easy for Richard and the team, but we don't think we're gonna run out of any dairy ingredients anytime soon. Thanks, Tony.
Thank you for the question. Are there any more questions in the audience today?
Yes.
Yes, sir. The microphone is being brought up from the back. Oh, sorry, from the front.
Thank you. Thank you for the great presentation, Katrina and Reg. That was very informative. My question is around the great work that's happening in the U.S. markets, this whole clinical trials and the projections and the assumptions we've got around the success of that clinical trial. And also, have we considered any competitors in the future? If there is, I believe you're saying that we are the only company in the goat market space in the U.S. market, and a lot of these projections are on the basis of that. Just interested to see if we've factored, if there is a competition or a competitor to us in the market, and if there's any risks, and if we're prepared for it.
Absolutely. I'm going to ask Reg to answer that question because he has just been in the United States and been involved in the trial.
Yeah. So great, double-barreled question. So I might start with the second part of the question, which is around competitors. So we do have a very significant competitor, that came into the U.S., with temporary enforcement discretion, which is Kendamil. It's a brand out of the U.K. It's a lovely, premium, positioned product that, offers a goat infant formula. So we don't expect our market share to be maintained at 95% going forward. But if you look at the landscape domestically, we've maintained a sort of 50%+ share of category, and that's probably our ambition. Kendamil, in entering the U.S.A., partnered just with Target.
So where Bubs went broad and wide with 15 retailers across the country, Kendamil decided just to partner with Target, and I'd say, you know, observation, it's been quite a successful partnership for them, and they'll now start to... Once that exclusivity period with Target has ended, they'll start to spread a little bit wider. You also have Kabrita, which is another European goat manufacturer that's likely to come onto the shelves in January of next year. So there will be more competitor intensity. Good news is, we've got the first mover advantage. As I said, we're getting record sales weekly in our brick-and-mortar retailers, and obviously, we've got a dominant position in Amazon, which I think will be hard to be dislodged from that position.
But, you know, we're not resting on our laurels, and we're watching our competitors very closely. In regard to the clinical trial, we've got 26 sites. We've got to recruit 400-odd patients. There'll be a certain dropout rate in that process. The actual trial itself is not an efficacy trial, so we're not proving up a novel drug. It's really just ensuring that patients who are fed Bubs products grow as per the standard growth curve. And this is a clinical trial that many other infant formula manufacturers have successfully passed. We also have leading physicians and clinicians working with us who have actually run, successfully, these trials in the past, so we're very confident. The biggest challenge is getting the patients enrolled. You know, that's taking us longer than we anticipated, hence, we've got more sites.
That's probably the only, you know, hurdle that we've got to get across. Does that make sense? Great.
Thank you, Reg. Great question. Any other questions from the audience? If not, I will then move on to the poll procedure. All resolutions at this meeting have now been put to shareholders, and so we'll move on to the poll procedure. I now appoint and request a representative of the company's share registry, Computershare, who has examined and prepared summaries of the proxy forms received, to act as Returning Officer and conduct the poll. I think Chris here is here with our wonderful ballot box, which matches the Bubs colors even. And so I n ow ask that you complete your voting cards if you've not already done so. Once you've completed your poll voting card, please place your card in the poll box, which Chris will bring around.
If you need help completing your poll card, please speak to Chris, as you move around the room. Has everyone who wishes to vote completed their poll card? I'll now ask Chris to go around and get them. I think I have one. Any more votes, or are we all done and dusted? All good. Fantastic. Well, thank you. I now declare the poll closed. The formal results of the poll will be notified to the ASX after the meeting and will be posted on the Bubs investor website at investor.bubsaustralia.com. Ladies and gentlemen, that concludes the business of the meeting, and I now declare the meeting closed. I would like to thank shareholders and our advisors for your attendance and ongoing support of Bubs.
My fellow directors and members of the Bubs executive leadership team would be delighted if you will join us for refreshments and any further questions you may have in the foyer outside. Thank you, and good afternoon.