Good morning, everyone, and welcome to the Bubs Half One FY24 results briefing. My name is Reg Weine, and I am the CEO and Managing Director of Bubs. Before we get into the result briefing and the slide presentation, I would like to draw your attention to our disclaimer on page 2 of the presentation and now on your screen. The agenda and content for today's presentation will firstly cover the Half One FY24 results and highlights. I will then discuss Bubs strategy and the significant progress we have already made against Bubs' 5-point plan to responsibly manage capital and maximize shareholder value, and I will provide a high-level update on each of the strategic pillars. I'll then briefly touch on what I consider to be the Bubs' investment highlights and the ingredients that I feel make us a strong investment proposition.
I'll then move on to what to expect in Half Two and the outlook. For those that are interested, there is a statutory reconciliation provided on slides 34 and 35. Looking at our Half One FY24 performance, we are very pleased to update the market on our financial results, which clearly demonstrates the progress we have made in a relatively short period of time and which also highlights the momentum behind our business. Gross revenue of AUD 49.2 million was up 30% on Half One FY23, driven by the exceptional growth in the U.S. market where our sales increased 102% over prior corresponding period, and Australia where gross revenue was up 15% on prior corresponding period. Our underlying gross margin was 38%, a 300 basis point improvement on Half One FY23, and was driven by stronger inventory management, geographic and channel optimization, and product mix.
Our operating expense-to-net revenue ratio improved to 53% compared to 78% in Half One FY23 due to the effective cost controls, and this result clearly demonstrates our operating leverage and our pathway to profitability in FY25. I'm pleased to report that Bubs' portfolio is performing strongly, with 75% of our revenue coming from our high-margin infant formula products, and our hero goat products represented 47% of all sales in Half One.
Turning to our balance sheet, we had AUD 27.4 million in cash as of 31 December and a further AUD 9.8 million in our undrawn debt facility, which we haven't utilized. Net cash used in operating activities, including non-recurring items, was 42% lower than the prior corresponding period. Moving to our high-level P&L snapshot, our net revenue for Half One FY24 was AUD 39.4 million, a 25% increase on Half One FY23 and reflecting a higher level of trade investment.
I have already commented on our strong gross margin delivery, which we anticipate will continue to improve. Our operating expenses have decreased significantly, and we also anticipate they will continue to reduce as a percentage of revenue moving forward. Our underlying EBITDA loss for Half One FY24 was AUD 6.2 million, and our statutory loss for the half was AUD 6.7 million. The net loss after tax was AUD 7.7 million. One-off costs incurred in Half One FY24 include FDA regulatory costs of AUD 2.7 million, litigation costs of AUD 1.9 million, and ERP implementation costs of AUD 600,000. Additionally, a AUD 5.6 million inventory provision was reversed in Half One FY24 to account for the sale of inventories previously written off.
Turning to the Bubs balance sheet, following our capital raise late last year, the business had AUD 27.4 million in cash and AUD 9.8 million in an undrawn trade finance debt facility as of 31 December 2023.
Bubs' receivables and payables are broadly in line with what we would expect given the very strong growth in the first half of the year. Pleasingly, Bubs now has a very clean balance sheet after the write-downs and impairment taken up last financial year, June of FY23. Bubs expects to be EBITDA positive and cash flow positive in FY25. As I have already touched on, our underlying gross margin percentage increased 300 basis points over Half One FY23, and as you can see in this slide, it is well up on full year FY23 and trending in the right direction. We do anticipate Bubs' gross margins will continue to improve with our portfolio optimization strategy well advanced, new product launches in Q4, continued channel and geographic mix benefits, reduced bulk sales, and better revenue management.
At a group level, we will continue to target our gross margins at 40% or better. Bubs' revenue mix is also improving, with 75% of all revenue now from our high-margin infant formula products and 15% coming from adult nutrition. Bubs canning services is our third-party low-margin contract packing, which we will no longer be doing now that our factory is full on a double shift. Raw materials represent bulk sales of aged base powder inventory not suitable for infant formula or adult nutritional products, which you should expect to see less of moving forward. I will now move on to our strategy update and how we are executing against our 5 strategic pillars. You may recall in early July of last year, we announced our strategic review and our simple but achievable 5-point plan to responsibly manage capital and maximize shareholder value.
The 5 strategic pillars of our plan are: the USA is our growth engine, China requires a reset, we need to optimize our portfolio, we must sweat our assets, and we have to be better at managing our working capital and be more disciplined around costs. I'm really pleased to say we have made outstanding progress against each of our strategic pillars, and while we have a huge amount of momentum behind the business, there is still more to do. I'm also pleased that we have done what we said we would do and our progress to date as we track towards being cash flow break-even in FY25. We said we'd achieve full year net revenue of AUD 80 million or AUD 100 million gross revenue in FY24, and we are currently tracking ahead of forecast.
We said we needed our gross margin percentage to be 40%, and we were broadly in line on an underlying basis, and we would expect Half Two gross margin delivery to be stronger than Half One. Critically, we continue to make our meaningful progress on the FDA approval for permanent access to the USA market, and I'm pleased to say that we now have 160 infants enrolled in our growth study. At the outset of the year, we set ourselves a target to reduce the cash burn to AUD 2 million a month from Q2 onwards. At the end of Half One, our year-to-date performance is in line with this objective, despite higher-than-anticipated FDA costs and the necessary air freight costs we incurred to meet the growth in demand in the USA.
Portfolio optimization was important to support our revenue and gross margin targets, and we are well ahead of where I thought we would be at this stage, with new packaging and new products launching in Q4 of this financial year. And finally, we have been very clear on our ambition to be trading EBITDA and cash flow positive in FY 2025, and we remain very much on track. Now, looking at each strategic pillar in a little more detail, the U.S. remains our big bet and growth engine, and we have grown gross revenue 102% in Half One over Half One FY 2023, and we expect our Half Two revenue to be stronger than Half One. As you know, Bubs was 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 brick-and-mortar retailers, and we are stocked in approximately 5,800 outlets across the U.S. from the West Coast to the East Coast. Importantly, we have just gone through the major retailer annual range reviews with Walmart, Target, and Kroger, and we have increased our store count in each major account, and that's based on our category performance and velocity during the review period, which is great news. But beyond the current retailer footprint, we do have additional channels and retailers to pursue that could significantly increase our distribution points, but we remain very focused on executing our current retailer partnerships and driving velocity for the moment. The graph on the top left of this slide is our volume and revenue growth by month in scan sales, or sales achieved in our brick-and-mortar outlets and on the Amazon platform.
Importantly, 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 in Half One if not for the supply chain shortages due to the increased demand in the U.S. in Q2. But despite those stock shortages, our sales have rebounded strongly, and we are now achieving more than $700,000 in weekly scan sales across December and January. That's AUD 1 million a week. And in the last 2 weeks in February, we've seen new record sales achieved each week in Amazon. USA is clearly Bubs' growth engine and represented 46% of revenue in Half One FY24, up from 40% in FY23.
As you can see from the bar chart on the left, we now have a track record of very consistent and strong growth in the U.S. market, and we expect this growth to continue. Despite the growth potential and further opportunities in front of us, we will continue to execute in a very considered and deliberate way in the U.S. As you can see from the pie charts on the right, Bubs enjoys a good geographic spread, and we see further upside in Australia, China, and the rest of the world, not just the U.S.A. Bubs continues to make meaningful progress to gain FDA approval for permanent access to the U.S. market, the second largest infant formula market in the world. Bubs' Growth Monitoring Study, GMS, and clinical trial is progressing, and as I said, we now have 160 infants enrolled in the trial.
Bubs' GMS and clinical trial involves a nationwide growth, tolerance, and safety study of healthy term infants consuming Bubs' infant formulas while monitored by healthcare professionals. The study evaluates all three Stage 1 formulas in the market, including goat milk and 2 cow milk products, as well as a commercially available formula as the control sample. We continue to make meaningful progress against the regulatory milestones and FDA transition plan guidance, and we remain on track for permanent access to the US market in 2025. We continue to 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 the timing or phasing of that expenditure.
As you can see, we have now incurred approximately 63% of the forecast total regulatory costs, still with some significant trial cost in Q3 before it tapers off into FY25. Now, moving to our second strategic pillar and our China reset. The China market is the world's largest infant formula market, and it is strategically important for Bubs. Although our H1 China net revenue of AUD 7.1 million was down 30.3% on the prior corresponding period, we are expecting to deliver full year growth in FY24 versus FY23 with new products forecast to launch in Q4.
I firmly believe the Half One result is encouraging given the setbacks we faced in this market due to the continued overhang of stock held by Bubs' former distributor and that have been heavily discounted in the market, and I have no doubt the second half of the year will deliver a significantly improved performance for Bubs in China. Our third strategic pillar is portfolio optimization, and we have moved really quickly to address some gaps in our portfolio to enhance our formulations and to refresh our packaging. At the bottom of this slide, you can see our new look labels and smaller 20-ounce tin for the U.S. market, which we launch in Q4.
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 callout of the product attributes that we know moms really care about. We are well ahead of our plan to optimize the Bubs' portfolio, and we will continue to invest in resources and marketing to build out our portfolio, increase our category penetration, and bolster our gross margins. Bubs remains the clear market leader in goat formula in the Australian market, where we hold 52% of the market, and where our portfolio share of the total IMF market has been increasing steadily and now sits at 5.3%. Strategic pillar 4 was to sweat our state-of-the-art Deloraine manufacturing facility here in Melbourne.
The exciting news is that with the capital raise completed successfully, we commence the second shift in January of 2024 to meet the accelerating demand in the U.S. and other markets. It was a very fast start-up to the second shift, with daily production doubling to between 25,000 and 28,000 tins per day right from the get-go. The second shift will allow us to service the increasing demand in the U.S. and will lower Bubs' unit cost or cost of goods sold. Strategic pillar 5, and the last of our pillars, is working capital and cost discipline.
We are tracking broadly in line with our objective of reducing our cash burn to AUD 2 million per month from Q2 FY24 onwards, with our average for the first half of the year at AUD 2.1 million per month, which included non-recurring regulatory costs of AUD 2.7 million, the litigation cost of AUD 1.9 million, ERP cost of AUD 600,000, and air freight of AUD 1.3 million. If we exclude these one-off costs, the normalized cash burn was AUD 1 million per month. I should also mention, as per our ASX announcement released earlier today, we have resolved 2 of the 3 litigation matters on foot, and we do expect to resolve the remaining dispute with Willis and Alice in the next few months.
Our assumptions regarding underlying operating cash flow remain unchanged, and we do expect to be cash flow positive with positive trading EBITDA in FY25. Moving to the investment highlights.
These are the 6 key ingredients that I feel make us a strong investment proposition and that also contribute towards our competitive moat. We have a large and growing addressable market worth in excess of $100 billion globally. Bubs is a capital-like business with significant operating leverage. Australian provenance and access to high-quality dairy ingredients remains a strength. Our Bubs portfolio is differentiated and distinctive. We are the only Australian FDA-approved infant formula manufacturing facility with permanent access to the U.S. market expected in 2025. Bubs is growing 102% year-on-year in the USA, where penetration of goat infant milk formula is very low, providing a long runway for sustained growth. Now to the second half and outlook.
We will continue to focus on our strategic priorities and executing our plans in Half Two as we transition to be a cash flow and EBITDA trading positive business in FY25. You should expect to see our sales revenue accelerate in the second half of the year, and our year-on-year growth rate will continue to increase now that we have cycled half one of FY23. Bubs will continue to invest for growth in the USA. We will build on our current momentum in Australia, and we will stay the course on our China reset to provide a platform for sustained growth. In the appendix on slides 34 and 35, you'll find the statutory reconciliation for half one FY24 and also half one FY23. That completes our half one FY24 results briefing, and I look forward to providing further updates in due course. Thank you.