EZZ Life Science Holdings reports strong end to financial year

Despite significant market uncertainties bought on by the global lockdowns, EZZ Life Science Holdings (ASX: EZZ) has reported a strong end to the 2022 financial year.

A diversification of distribution channels across Australia, New Zealand, China and other global markets led to a recovery in weak first-half revenues and combined with a strong cash balance in the second half to place the company in an overall robust financial position.

EZZ’s revenue for the year totalled $15.02 million, representing a 33% decline in the previous year’s revenue of $22.28 million largely due to continuing impacts of the pandemic.

However, the second half of the year saw a strong rebound, with a 24% revenue increase compared to the previous corresponding period, as well as a 96% increase, compared to the first half.

Revenue contribution from EZZ’s own-branded products reduced by 28% from $11.36 million in the previous corresponding period to $8.13 million in the reporting period, representing 54% of total revenue for the year.

This was due in part to a 76% drop in first-half revenues from Chinese distribution channel Tmall Global over the previous period to $2.32 million.

Tmall contributed 43% of total revenue in 2021, but this year represented only 15% of total revenue.

The decrease was progressively recovered in the second half of the year.

Douyin revenue growth

Revenue growth from a new cross-border e-commerce store on Douyin (mainland China’s version of TikTok) exceeded EZZ’s expectations in the first month of operation.

Douyin is expected to become an alternate direct-to-customer channel alongside Tmall Global and is hoped to reduce the level of concentration on single e-commerce platforms in China’s market.

During the period, EZZ introduced seven new own-branded products, three of which contributed 16% of total revenue in 2022 with the remaining four products launched at the end of the period.

L-Lysine Growth Capsule was introduced in July 2021 and contributed 27% to the revenue from EZZ products.

Revenue generated from sales of EAORON products reduced by 37% from $10.91 million in 2021 to $6.88 million in 2022, contributing 46% of total revenue.

The drop was largely due to pandemic impacts retail sales, which is the primary distribution channel for EAORON across Australia and New Zealand.

Profitability

The average gross margin for EZZ-branded products was 67% for the reporting period, compared to 82% in 2021, with the decrease resulting from a change in revenue mix towards lower margin products.

The increase in sales of lower margin products was part of a strategy to boost penetration and create brand awareness in the retail grocery market.

The average gross margin on EAORON products increased from 29% to 30% due to promotional pricing on selected items by EZZ distributor Australian United Pharmaceuticals as well as a focus on distributing higher margin EAORON products.

EBITDA margins

Although EZZ’s earnings before interest, taxation, depreciation and amortisation (EBITDA) decreased by 35% from $2.69 million in 2021 to $1.76 million in 2022, the EBITDA margin remained largely in line with the previous year at 11%.

Disciplined cost control and capital allocation remained a focus throughout the year, while advertising and marketing expenses were managed at approximately 20% of revenue.

EZZ recorded a strong cash position of $10.46 million at 30 June, representing an increase of 18% from $8.85 million in 2021.

The company also maintained balance sheet strength with no debt, other than lease liabilities which is said would allow for the “flexibility to act” when opportunities arise.